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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 0-20189
EQUITRAC CORPORATION(R)
(Exact name of registrant as specified in its charter.)
FLORIDA 59-1797862
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
836 PONCE DE LEON BOULEVARD, CORAL GABLES, FLORIDA 33134
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (305) 442-2060
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $.01 PAR VALUE, NASDAQ NATIONAL MARKET
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under 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 reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of the registrant's delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the 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. [ ]
At May 1, 1998, the aggregate market value of the registrant's common stock
held by non-affiliates of the registrant was $44,222,720, based on the closing
sales price ($20.00) of the common stock on the Nasdaq National Market System on
such date.
The number of shares of the registrant's Common Stock, par value $.01
outstanding, as of May 1, 1998 was 3,526,200.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed in connection with
the registrant's annual stockholders' meeting are incorporated by reference into
Part III of this report.
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TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS 2
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 13
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 42
ITEM 11. EXECUTIVE COMPENSATION 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K 43
SIGNATURES 45
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PART I
ITEM 1. BUSINESS
Equitrac Corporation ("Equitrac" or the "Company") is a leading provider of
computer system solutions to manage office equipment resources. The Company's
products are designed to allow users to automatically track, record and report
usage of office equipment. Equitrac's cost recovery and expense management
systems allow users to bill or allocate incurred costs, maximize office
equipment efficiency and contain overhead costs.
Equitrac's wireless meter reading products provide an automated system for
copier dealers and manufacturers to collect meter readings for photocopier lease
and maintenance programs based on cost-per-copy contracts. This system reduces
the administrative costs associated with collecting meter counts while improving
customer service.
The Company also provides maintenance service on a wide range of computer
equipment through its Equitrac Computer Services ("ECS") division. ECS supports
many major equipment manufacturers including IBM, Compaq, Cisco Systems,
Hewlett-Packard, and Bay Networks. This multi-vendor support covers a variety of
services including product sales, installation, preventive maintenance and
on-site repair service.
COST RECOVERY MARKET OVERVIEW
Equitrac's primary market focus for its systems is cost recovery
applications for law firms, and to a lesser extent, engineering, architectural
design, accounting, advertising and other professional service firms that bill
their clients for office-related expenses in order to recover incurred costs.
Billable office-related costs generally represent an important source of revenue
to professional service firms. Office equipment expenditures and service costs
represent a significant portion of a professional service firm's overhead
expenses. As a result, professional service firms have required more
sophisticated technology as a means of tracking and recovering office overhead
costs from their clients. Equitrac's systems provide professional service firms
with a highly automated means of tracking and accounting for a wide variety of
office equipment and services at a cost that can be recovered in a relatively
short period of time.
COST RECOVERY PRODUCTS AND TECHNOLOGY
Equitrac's cost recovery systems, which are comprised of server software,
control terminals and application software, are designed to allow customers
flexibility in configuring a system to match their own particular needs.
Continued product development efforts have resulted in advanced terminal designs
and system software, data security features, advanced communication technology
and computer networking capabilities.
The Company has recognized the trend of customers transitioning away from
traditional analog duplicating into new technologies such as digital printing
and multifunctional products. As a result, the Company has focused a significant
portion of its product development efforts on the development of tracking
products to be integrated into this new office technology.
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TRANSACTION SERVER SOFTWARE
Equitrac's server software is designed primarily to support a network of
cost recovery control terminals for applications such as photocopy control,
facsimile control and telephone call accounting. System software is used for
terminal communications, database maintenance, report generation, host system
communications, remote system polling and transaction costing. Equitrac develops
multiple levels of system software that vary by operating system platform such
as DOS, Windows(R)95 and Windows(R)NT. Each software configuration contains
unique feature sets and is designed to match specific customer sizes and
requirements. The levels of system software are as follows:
System 4(TM) - A Windows(R)NT based cost recovery server with an SQL
database engine designed for moderate to large multi-site firms.
System 3(TM) - A DOS based system software that can be easily customized
for specific applications designed for a wide range of firm sizes.
DisburseMate(TM) - Created specifically for small firms with fewer than ten
(10) professionals offering simple reporting and data exporting features.
PartnerOpen - A Windows(R)95 based platform with SQL database support
designed specifically to integrate with the Partner series of copy, fax and
disbursement terminals.
CONTROL TERMINALS
Equitrac's control terminals are data entry devices used to accurately
track the use of photocopy machines, facsimile machines, postage meters, other
office equipment and miscellaneous disbursements. Equitrac develops a number of
terminal variations that contain unique feature sets and are designed to match
specific customer sizes and requirements. The control terminals are as follows:
AlphaCopy(TM) and AlphaFax(TM) - Advanced control terminals with large data
storage capacity, Ethernet connectivity, advanced user interface and multiple
device support.
Distributed Control Terminals ("DCT's") and Fax Control Terminals ("FCT's")
- - Small footprint copy and fax control devices that can be custom configured for
a wide range of professional and commercial applications.
DisburseMate(TM) - Created specifically for small firms, DisburseMate copy
and fax terminals do not require dedicated wiring or include advanced feature
support or large data storage capacities.
Partner - Copy, fax and disbursement terminals designed specifically to
work with PartnerOpen software. Includes an extensive feature set with search
and query capabilities.
DIGITAL PRINT TRACKING SOFTWARE
Equitrac has invested in the development of new digital print tracking
software in response to the proliferation of new digital output devices, such as
networked photocopiers, color laser printers and multifunctional devices. As
professional service firms replace traditional walk-up analog copiers
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with these new digital products, they will require cost recovery applications to
track and recover the costs of such investments.
PrintLog(TM) is a digital output tracking solution designed to track all
printing activity from the workstation. Designed to work in the Windows(R)3.1,
Windows(R)95 and Windows(R)NT environments, PrintLog counts all pages printed to
laser printers and network photocopiers and assigns each transaction to a
client, project or department. PrintLog complements the Company's walk-up copy
control terminals by providing seamless integration into an existing cost
recovery system.
PartnerJET is a print tracking software application designed to manage,
track and control printing activity from the workstation. Designed to work in
the Windows(R)3.1, Windows(R)95 and Windows(R)NT environments, PartnerJET is a
client/server application that allows for the central administration of
validation tables, transaction collection and configuration. PartnerJET offers
the flexibility of tracking any combination of printers and applications,
operates invisibly to the user and pops up only when a tracked application sends
a document to the printer.
TELEMANAGEMENT AND CALL ACCOUNTING SOFTWARE
Equitrac's telemanagement and call accounting software monitors telephone
call usage and automatically records and prices all local, long distance and
international calls based on carrier charges or customer-created pricing tables.
The software generates comprehensive reports identifying calls made by account
number and extension and validates account codes against stored validation
tables to ensure the accuracy of call records before posting to the customer's
accounting system. Equitrac markets DOS, Windows(R)95 and Windows(R)NT based
versions that can be purchased modularly depending on customer size and feature
requirements. Applications range from basic call accounting to advanced
telemanagement including fraud detection, traffic and facilities management
modules. Equitrac markets the following telemanagement packages:
TeleTrac 4 - Windows(R)NT based call accounting and telemangement software
created for integration with System 4 or available as a stand-alone product for
both professional and commercial applications.
TeleTrac 3 - DOS based call accounting for professional firms, designed
specifically to be integrated with System 3 cost recovery software.
TruCall Accountant - Windows(R)95 call accounting and telemanagement for
commercial applications or integrated professional application with PartnerOpen
software.
STRATEGIC PARTNERSHIPS
The Company actively pursues opportunities for strategic partnerships that
capitalize on the its market position, technologies and infrastructure. The
Company resells some product lines developed and manufactured by others, such as
Partner cost recovery control terminals, PartnerJET digital print tracking
software and telemanagement and call accounting software products.
During fiscal 1998, the Company entered into a strategic alliance with
Tumbleweed Software to market Posta, an Internet document delivery solution that
allows business users to control, protect and track the delivery of important
documents over the Internet. Tumbleweed's Posta is designed for
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customers who require a secure means of distributing important documents such as
legal contracts and financial information.
Also during fiscal 1998, the Company entered into an exclusive OEM supply
agreement and strategic alliance with Pitney Bowes. Under this agreement,
Equitrac developed and is currently manufacturing the Pitney Bows AccuTrac SA
Mail Accounting System.
BUSINESS TECHNOLOGY PRODUCTS
The Company has historically focused on cost recovery products to serve the
professional service firm market. The core tracking technology of the Company's
cost recovery systems has led to the development of new tracking products to
serve the needs of diverse markets and applications. Equitrac's Business
Technology Division ("BTD") was established to market these new products to the
copier industry, corporations and government entities. BTD also focuses on
expanding the Company's distribution channels through the development of a
reseller network and OEM relationships.
TELEMETRAC(TM)
BTD's strategy centers on TelemeTrac, a wireless copier meter reading
system that allows copier dealers and manufacturers to automatically collect
meter billing information from their copier fleets. Based on the Company's core
tracking and cellular control channel technologies, TelemeTrac is a low-cost
method for copier dealers and manufacturers to collect meter readings to bill
for cost-per-copy leases and maintenance contracts.
TelemeTrac represents a significant shift in technology and business
process for an industry that has relied for years on customers and service
technicians to collect and report these meter readings in a manual fashion.
TelemeTrac eliminates the need for manual meter readings, reducing
administrative costs and improving cash flow.
EXPENSE MANAGEMENT SYSTEMS
As with professional service firms, corporations and government entities
incur significant capital outlays acquiring and servicing photocopiers,
facsimile machines and other office equipment. The needs of such organizations
focus on the ability to track, report and manage office equipment usage, as
opposed to recovering their costs, as is common in the professional service firm
market. BTD offers a complete commercial product line solution for controlling
and reducing office expenses and allocating departmental costs.
OfficeTrac(TM) - An advanced allocation and resource management software
solution that provides extensive analysis tools to allocate expenses and manage
business technology resources in conjunction with copier and fax control
terminals.
CopyLog(TM) and FaxLog(TM) - Copy and fax control devices that are
configured with OfficeTrac for commercial applications.
OneTrac(TM) - Stand-alone copy and fax control devices targeted at low-end
commercial copy and fax control applications needed for basic expense management
purposes.
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DIGITAL PRINT TRACKING SOFTWARE
As is the case with professional service firms, many commercial and
government entities are investing in new digital output devices, such as
networked photocopiers, color laser printers and multifunctional devices. As the
number of these digital devices increases, organizations will require
sophisticated means of tracking their usage to control expenses, plan equipment
expenditures and allocate resources efficiently. PrintLog has been designed with
the ability to operate as a completely stand-alone product or can be configured
for commercial applications as part of a network print management system to meet
the broad range of needs in diverse markets.
OEM PRODUCTS
During fiscal 1998, the Company entered into an exclusive OEM supply
agreement and strategic alliance with Pitney Bowes. Under this agreement,
Equitrac developed and is currently manufacturing the Pitney Bowes AccuTrac SA
Mail Accounting System. This system, to be marketed exclusively by Pitney Bowes,
interfaces with Pitney Bowes' electronic scales and mailing systems, and
eliminates the time-consuming manual processes used for tracking postage and
carrier expenditures. By automating data capture, the AccuTrac system can
dramatically improve a company's ability to manage and report on mail center
activity. BTD will continue to seek OEM opportunities for Equitrac in fiscal
1999.
SALES AND MARKETING
Equitrac currently markets its cost recovery systems and services
principally through its own sales personnel and to a lesser extent through
independent dealers. As of February 28, 1998, the Company's direct sales force
in the United States totaled 40 sales representatives in 22 locations in or near
major metropolitan areas. The Company's sales offices are staffed with customer
service personnel who provide technical assistance to the Company's sales staff
and customers. The Company's sales representatives are responsible for an
assigned geographical territory. Equitrac also markets its systems domestically
through facilities management organizations, which contract with businesses to
manage specific office equipment such as photocopiers, facsimile machines and
postage meters. These organizations market the Company's products with their own
products and services.
Equitrac's cost recovery systems are marketed and serviced internationally
through independent dealers and through its own sales personnel. In the United
Kingdom, the Company has a direct sales office and employs two sales
representatives and in Canada, the Company has three direct sales offices and
employs three sales representatives. Independent dealers currently represent the
Company in Europe, the Far East, Australia, South America and Central America.
International revenues (including export sales) accounted for approximately
12.1%, 11.5% and 11.8% of the Company's total revenues in fiscal 1998, 1997 and
1996, respectively.
The Company's believes that it has the largest market share of installed
cost recovery systems within the legal industry. Future sales of the Company's
cost recovery products to the legal industry are expected to result primarily
from sales of upgraded products to existing and acquired customers.
The Company markets its BTD products through its existing cost recovery
sales personnel and three sales representatives dedicated to BTD product sales.
The division also plans to expand
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distribution through the addition of sales personnel, the development of
additional sales channels, such as independent dealers, and product licensing
through OEM opportunities.
The Company markets its computer and equipment servicing business
principally through six sales representatives in its ECS division.
The Company's Marketing Department is responsible for new product planning
and specifications and coordination of product development in conjunction with
the Product Development Department. Equitrac continually solicits information
and input with respect to new product ideas and enhancements from its customers
and sales personnel.
LEASE AND SERVICE AGREEMENTS
Equitrac's customers may purchase a system or the Company will lease a
system pursuant to an operating lease (the term of which is typically for 36
months or longer) which includes all service and software support. The Company
enters into separate lease agreements for add-ons and upgrades. The Company's
system leases and service agreements generally contain clauses that
automatically extend the lease term unless the customer chooses to terminate the
lease by providing the Company at least 60 days' notice prior to the expiration
of the lease term. In the Company's experience, a substantial portion of its
customers either renew their leases, enter into new leases with the Company or
purchase a new system from the Company at the end of their initial lease terms.
The Company offers its purchase customers service agreements (the terms of which
are typically for 36 months or longer) which provide for service and software
support during the term of the agreement. Systems that are not purchased in
conjunction with a service or software support agreement are serviced by the
Company on a time-and-materials basis.
ECS customers enter into service agreements (the terms of which are
generally for 12 months) with the Company to provide maintenance service on
specified computer equipment. ECS service contracts provide a wide range of
support services during the term of the agreement. ECS also provides support
services to customers on a time-and-materials basis.
BACKLOG
The Company historically has not had a large backlog of system sales orders
since customer orders are generally shipped and installed within a short period
of time after an order is received. Consequently, order backlog represents only
a limited percentage of the system sales anticipated by the Company in any given
fiscal period and is not indicative of the Company's actual sales for any future
fiscal period. Manufacturing plans and expenditure levels are based primarily on
sales forecasts. This absence of significant scheduled backlog could lead to
fluctuations in quarterly operating results.
Although the Company's backlog of system sales is not significant, at
February 28, 1998, the minimum future payments due to the Company during the
next four fiscal years under its existing non-cancelable lease and maintenance
agreements aggregated approximately $45.5 million, compared to approximately
$43.8 million at February 28, 1997.
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CUSTOMER SERVICE AND TECHNICAL SUPPORT
Equitrac believes that the quality and reliability of its systems and its
on-going support of such systems are important elements in its business
strategy. Equitrac provides most of its product service and support through its
own extensive network of service personnel. The Company maintains service
technicians in every major metropolitan area in which the Company's systems are
installed, providing the Company with the ability to offer service in such areas
generally within two to four hours' response time.
Equitrac generally provides a 90-day warranty on its systems, and maintains
and services its systems on a contractual basis after the initial warranty
period. Equitrac's policy is to replace, rather than repair, malfunctioning
terminals at a customer location to minimize system down-time and customer
inconvenience.
ECS believes that the quality and responsiveness of its service
representatives are primary considerations in its business strategy. ECS field
technicians receive in-house technical training, as well as various industry
certifications.
PRODUCT DEVELOPMENT
Equitrac works closely with its customers and its sales and marketing
personnel to develop new systems and enhancements to existing systems. Constant
changes in technology, including ongoing developments in computer operating
systems, networks and communications protocols, require the Company to engage in
an ongoing program of product development.
Substantially all product development is performed internally. As of
February 28, 1998, 35 employees of the Company were engaged in product
development. From time to time, the Company also employs independent contractors
for specific development products. Equitrac expensed $2,982,000, $2,113,000 and
$1,282,000 in fiscal 1998, 1997 and 1996, respectively, for product development.
MANUFACTURING AND QUALITY ASSURANCE
Equitrac assembles substantially all of the hardware and software for its
systems. Equitrac's assembly and manufacturing operations consist primarily of
procurement, assembly, testing and quality control of components and assembled
products. The Company generally uses standard parts and components which are
available from multiple sources; however, certain components, such as terminal
cases, displays, keypads and power supplies, are purchased from limited sources
due to price, quality, availability and other considerations. To date, the
Company has not experienced any significant problems obtaining timely deliveries
from its suppliers. The Company maintains significant additional quantities of
certain key components and continually evaluates alternative sources of supply.
The Company purchases directly all of the components utilized to assemble
circuit boards for its control terminals and packages such components in
complete kits for insertion by circuit board assembly subcontractors. The
Company's quality control program includes inspecting all incoming parts,
inspecting assembled parts and final testing under simulated operating
conditions of all systems prior to shipping.
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COMPETITION
The market for cost recovery and expense management products is
competitive. Equitrac believes that it has the largest market share of installed
cost recovery systems within the legal industry. Equitrac and its competitors
also compete in the sale of cost recovery systems to other professional service
firms, facilities management organizations and manufacturers of equipment
controlled by cost recovery and expense management systems. Future competitors
in the Company's existing and potential markets might include manufacturers of
equipment controlled by cost recovery and expense management systems, software
development companies and facilities management organizations.
Competition in the Company's markets is based on a number of factors,
including price, service and support, system software capability, product
quality, reliability and compatibility. Equitrac believes that it is competitive
with respect to each of these factors and that its principal competitive
advantages are its emphasis on customer service and support, its product
quality, its system compatibility, which allows the Company's systems to
integrate easily into a customer's existing computer system, and its continued
development efforts on product enhancements and new systems.
The Company anticipates that the markets for its recently developed
products will be very competitive and there is no guarantee that these products
will gain market acceptance. The Company does not anticipate achieving the same
market share with these products as it has achieved in its core cost recovery
business.
The market for computer services is very competitive. Competitors include
other third party service organizations, as well as OEM's. Competition in the
computer services market is based on a number of factors, including price,
quality of service, equipment serviced and responsiveness. ECS believes that it
is competitive with respect to each of these factors.
PROPRIETARY RIGHTS
The Company has historically relied upon a combination of contractual
rights, trademarks, trade secrets, and copyright laws to establish and protect
its proprietary rights in its systems and related technologies. Due to the
Company's strategic move from proprietary systems to industry-standard
applications, the Company is taking actions to further protect its proprietary
rights through patents. The Company has several United States patent
applications pending. In connection with the Company's March 1, 1997 acquisition
of Professional Systems Group, the Company acquired two Canadian patents.
Additionally, the Company has been awarded a patent on TelemeTrac. Furthermore,
the Company's license agreements restrict a customer's use of the Company's
software and prohibits disclosure to third parties.
EMPLOYEES
At February 28, 1998 Equitrac had a total of 440 full-time employees, of
which 45 were engaged in manufacturing, 35 were engaged in product development,
64 were engaged in sales and marketing, 218 were engaged in customer service and
support and 78 were engaged in administrative and finance positions. None of the
Company's employees are represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.
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ITEM 2. PROPERTIES
At February 28, 1998, Equitrac's corporate headquarters and product
development facilities were located in approximately 20,000 square feet of
leased office space in Coral Gables, Florida. The Company leases such space from
related parties and the lease expires on September 30, 2000. See Note 8 to the
Company's Financial Statements, included in Part II, Item 8 hereof. The
Company's manufacturing and distribution operations are located in approximately
10,000 square feet of leased space near its corporate headquarters. The
Company's sales and support staff operate in leased space in 32 locations in the
United States, two locations in the United Kingdom and three locations in
Canada. The Company is currently evaluating its existing facilities in order to
determine whether they are adequate to meet its current and anticipated
requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in legal proceedings incident to
the normal course of its business. Management believes that adverse decisions in
any pending or threatened proceedings would not have a material effect on the
Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position(s)
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<S> <C> <C>
John T. Kane 54 Chairman of the Board of Directors
George P. Wilson 54 President, Chief Executive Officer and Director
Christopher Rickborn 34 Sr. Vice President - Marketing and Technology
Scott J. Modist 37 Vice President - Finance, Treasurer and Chief Financial Officer
Cid Yousefi 41 Vice President - Product Development and Information Systems
Patrick J. Raftery 48 Vice President - Sales, U.S. Sales Division
John P. Jones 56 Vice President - Sales, International
</TABLE>
JOHN T. KANE is the founder of the Company, has served as the Company's
Chairman of the Board since its inception in January 1978 and was President of
the Company from its inception until October 1989.
GEORGE P. WILSON has been the President and Chief Executive Officer and a
Director of the Company since October 1989. Mr. Wilson served as Executive Vice
President of the Company from 1978 through October 1989.
CHRISTOPHER RICKBORN was named Senior Vice President - Marketing and
Technology in January 1998. Mr. Rickborn served as Vice President - Marketing
and Product Planning from April 1996 to January 1998, as Director of Marketing
from January 1995 to April 1996 and as a Product Manager prior to being named as
Director of Marketing.
SCOTT J. MODIST, a certified public accountant, has been Vice President -
Finance, Treasurer and Chief Financial Officer of the Company since April 1992.
From November 1983 through April 1992, Mr. Modist was employed by KPMG Peat
Marwick L.L.P., and was a senior manager from July 1989 to April 1992.
CID YOUSEFI has been Vice President - Product Development and Information
Services since May 1993. Mr. Yousefi has served the Company in various data
processing and management information capacities since 1982. Mr. Yousefi was the
Company's Director of Data Processing from 1987 through April 1992, at which
time he was appointed Vice President - Software Development and Management
Information Services.
PATRICK J. RAFTERY has been Vice President - Sales, U.S. Sales Division
since September 1993. Mr. Raftery joined the Company in July 1989 as the
Company's Vice President - Sales, Eastern Division.
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JOHN P. JONES has served as the Company's Vice President - Sales,
International Division since November 1990. Mr. Jones served as the Company's
Director of Dealer and National Account Sales from June 1987 to November 1990
and as a Regional Sales Manager from July 1982 to June 1987.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market System under the symbol ETRC. The following table sets
forth, for the periods indicated, the range of high and low closing sale prices
for the Common Stock, as reported by Nasdaq.
HIGH LOW
---- ---
Fiscal year ended February 28, 1998
Fourth Quarter 19 5/8 16 5/8
Third Quarter 17 3/4 14 3/8
Second Quarter 16 1/2 12 7/8
First Quarter 14 5/8 11 1/2
Fiscal year ended February 28, 1997
Fourth Quarter 12 5/8 10 1/2
Third Quarter 10 5/16 7 1/8
Second Quarter 10 7 1/2
First Quarter 10 5 3/4
On May 15, 1998, there were approximately 647 holders of record, including
security position listings, of the Company's Common Stock.
The Company has never declared nor paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
its operations and the expansion of its business. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon the Company's earnings, capital requirements, financial
condition and other factors deemed relevant to the Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
historical financial statements of the Company. The selected financial data
should be read in conjunction with "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and related notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
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FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Total revenues $ 49,784 $ 41,901 $ 33,718 $ 31,224 $ 29,122
Operating income 4,487 3,729 2,805 1,754 1,897
Net income 3,158 2,614 1,882 1,287 1,357
Earnings per common share:
Basic $ 0.91 $ 0.77 $ 0.54 $ 0.35 $ 0.37
Diluted $ 0.85 $ 0.73 $ 0.53 $ 0.34 $ 0.36
Number of shares used in per
share computations:
Basic 3,485 3,412 3,481 3,694 3,670
Diluted 3,730 3,583 3,549 3,777 3,785
BALANCE SHEET DATA (END OF YEAR):
Cash, cash equivalents and investments $ 13,524 $ 10,902 $ 10,423 $ 7,383 $ 7,182
Working capital 15,413 13,159 12,366 12,343 11,873
Total assets 35,114 30,682 25,646 25,436 22,848
Total current liabilities 6,935 5,907 3,671 3,535 2,137
Long-term debt, net of current portion - - - - -
Total stockholders' equity $ 28,179 $ 24,775 $ 21,824 $ 21,491 $ 20,273
</TABLE>
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's revenues are derived from three principal sources: (i) sales
of new systems, upgrades and add-ons of equipment or software; (ii) monthly
revenues from service and software support agreements and (iii) monthly revenues
from leases of its systems. The Company offers its customers the option of
purchasing a system or leasing a system pursuant to an operating lease (the term
of which is typically 36 months or longer), which includes all service and
software support. The Company offers its purchase customers service and software
support agreements (the terms of which are typically for 36 months or longer).
Systems that are not purchased in conjunction with a service agreement are
serviced by the Company on a time-and-materials basis. The Company's computer
service division offers its customers service agreements (the terms of which are
typically for 12 months) and also provides service on a time-and-materials
basis.
The Company's total revenues, system rental, service and support revenues
have increased every year since the Company's inception in 1978. Historically,
system rental, service and support revenues have accounted for a majority of the
Company's revenues. At February 28, 1998, the minimum future payments due under
the Company's existing non-cancelable lease and service and support agreements
aggregate $45.5 million over the next four fiscal years.
15
<PAGE> 17
The table below sets forth for the periods indicated: (1) line items from
the Company's statements of operations expressed as a percentage of revenues,
and (2) the percentage changes in these line items from the prior period.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL REVENUES INCREASE (DECREASE)
FOR FISCAL YEARS FROM PRIOR YEAR
---------------------------------------------------------------
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Sales 45.3% 43.3% 40.0% 24.3% 34.4%
Service and support 33.7 32.0 30.0 25.2 32.5
Rental 21.0 24.7 30.0 1.0 2.5
---------- ---------- ---------
Total revenues 100.0% 100.0% 100.0% 18.8 24.3
--------- --------- ---------
Costs and expenses:
Cost of system sales 16.0 13.6 12.8 39.9 31.9
Cost of system rental, service and
support 25.2 25.1 24.1 19.7 29.2
Product development 6.0 5.0 3.8 41.1 64.8
Selling expenses 14.4 15.6 16.4 9.4 18.6
General and administrative 29.4 31.8 34.6 9.7 14.1
---------- ---------- ---------
Total costs and expenses 91.0 91.1 91.7 18.7 23.5
---------- ---------- ----------
Operating income 9.0 8.9 8.3 20.3 32.9
Interest income 1.2 1.2 1.1 25.8 39.3
---------- ---------- ----------
Income before income taxes 10.2 10.1 9.4 21.0 33.7
Income taxes 3.9 3.9 3.8 21.2 25.9
---------- ---------- ----------
Net income 6.3% 6.2% 5.6% 20.8 38.9
========== ========= =========
</TABLE>
16
<PAGE> 18
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS 1998, 1997 AND 1996
SALES REVENUES. Sales revenues increased 24% to $22,528,000 in fiscal 1998
from $18,126,000 in fiscal 1997. This increase resulted primarily from an
increase in sales of cost recovery systems manufactured by the Company and an
increase in computer equipment resale revenues from the ECS division. Sales
revenues of company-manufactured systems by the Company's cost recovery
divisions increased 16% to $19,636,000 in fiscal 1998 from $16,959,000 in fiscal
1997. This increase resulted primarily from sales of new systems to existing
customers as part of a trend for professional service firms to upgrade their
office equipment technology on a firm-wide basis. ECS computer equipment resale
revenues increased to $2,892,000 in fiscal 1998 from $1,167,000 in fiscal 1997,
primarily as a result of expanded geographical sales territory and increased
market presence.
Sales revenues increased 34% in fiscal 1997 from fiscal 1996. This increase
resulted primarily from revenues derived from customers acquired in the
Infortext acquisition, an increase in computer equipment resale revenues from
the ECS division and an increase in sales of systems manufactured by the
Company. Sales revenues in fiscal 1997 included $2,535,000 of revenues derived
from customers acquired in the Infortext acquisition. ECS computer equipment
resale revenues increased to $1,167,000 in fiscal 1997 from $390,000 in fiscal
1996. Sales revenues of company-manufactured systems by the Company's previously
existing cost recovery divisions increased 10% in fiscal 1997 from fiscal 1996.
SERVICE AND SUPPORT REVENUES. Service and support revenues increased 25% to
$16,785,000 in fiscal 1998 from $13,411,000 in fiscal 1997. This increase in
service and support revenues resulted primarily from an increase in service
contracts in the Company's cost recovery divisions and an increase in service
and support revenues generated by the ECS division. Service and support revenues
from the Company's cost recovery divisions increased 14% to $14,270,000 in
fiscal 1998 from $12,491,000 in fiscal 1997. This increase resulted primarily
from an increase in service and support revenues from existing customers and an
increase in service contracts with existing customers who previously leased
systems from the Company but have chosen to purchase new systems when their
leases expired. Service and support revenues in fiscal 1998 included $2,515,000
of revenues generated by the ECS division, compared to $920,000 in fiscal 1997.
Service and support revenues increased 33% in fiscal 1997 from fiscal 1996.
This increase resulted primarily from incremental revenues derived from the
customers acquired in the Infortext acquisition, an increase in service
contracts in the Company's previously existing cost recovery divisions and an
increase in service and support revenues generated by the ECS division.
RENTAL REVENUES. Rental revenues increased to $10,471,000 in fiscal 1998
from $10,364,000 in fiscal 1997 which represented an increase compared to fiscal
1996 rental revenues of $10,109,000. Management anticipates that rental revenues
may decline in future periods as the Company continues to be affected by a trend
of rental customers purchasing new systems and related service contracts as
their rental contracts expire.
COST OF SYSTEM SALES. Cost of system sales relating to the Company's cost
recovery divisions is comprised of the cost of hardware and system components
and payroll and other expenses related to system assembly and testing. Cost of
system sales relating to the ECS division is comprised of the cost of computer
equipment purchased for resale. Cost of system sales as a percentage of sales
17
<PAGE> 19
revenues was 35% in fiscal 1998 compared to 32% in fiscal 1997 and 1996. This
increase in the cost of system sales as a percentage of sales revenues is
primarily attributable to higher cost of sales expenses as a percentage of
related revenues in the Company's ECS division than in the Company's cost
recovery divisions. In addition, cost of system sales increased slightly as a
percentage of sales revenues in fiscal 1998 as a result of the higher
concentration of sales in the Company's newest generation of cost recovery
products which have a higher cost of manufacturing compared to older product
lines. Management anticipates that the cost of system sales as a percentage of
total sales revenues may increase in future periods, to the extent that the ECS
division contributes a higher percentage of the Company's sales revenues.
COST OF SYSTEM RENTAL, SERVICE AND SUPPORT. Cost of system rental, service
and support is comprised primarily of (i) payroll and other expenses related to
customer service and support personnel, (ii) depreciation of rental and service
units and (iii) the cost of hardware and system components used for repairs.
Cost of system rental, service and support as a percentage of total rental,
service and support revenues was 46% in fiscal 1998 compared to 44% in fiscal
1997 and 40% in fiscal 1996. This increase in the cost of system rental, service
and support as a percentage of total rental, service and support revenues in
fiscal 1998 is primarily attributable to higher costs as a percentage of related
revenues in the Company's ECS division than in the Company's cost recovery
divisions.
Cost of system rental, service and support as a percentage of total rental,
service and support revenues increased in fiscal 1997 compared to fiscal 1996
primarily as a result of the higher costs as a percentage of related revenues in
the Company's ECS division and in the acquired Infortext Group division than in
the Company's previously existing cost recovery divisions. Depreciation of
rental and service units increased to $1,876,000 in fiscal 1998 from $1,729,000
and $1,580,000 in fiscal 1997 and 1996, respectively. Management anticipates
that the cost of system rental, service and support as a percentage of total
rental, service and support revenues may increase in future periods, to the
extent that the ECS division contributes a higher percentage of the Company's
revenues.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased 41% to
$2,982,000 in fiscal 1998 from $2,113,000 in fiscal 1997, which represented a
65% increase over fiscal 1996 product development expenses of $1,282,000.
Product development expenses were 6% of total revenues in fiscal 1998 compared
to 5% in fiscal 1997 and 4% in fiscal 1996. Fiscal 1998 development efforts were
focused primarily on enhancing and expanding the cost recovery product lines as
well as developing several new products. Products under development during these
periods include (i) TelemeTrac(TM), a product which collects and consolidates
photocopier meter totals remotely through cellular telephone networks, (ii)
PrintLog(TM), a digital output tracking application designed to track all pages
printed from a workstation to laser printers and network photocopiers and assign
each transaction to a client, project or department, (iii) OneTrac(TM), an
inexpensive copy and fax control product line developed for resale through both
the Equitrac direct sales force and through copier dealers, and (iv) an
exclusive OEM product line for Pitney Bowes. The Company does not capitalize any
of its product development costs since development costs incurred subsequent to
attainment of technological feasibility of a new product line have not been
material. Management anticipates that product development costs may continue to
increase during fiscal 1999 as the projects under development are completed and
the Company invests in the development of additional products.
SELLING EXPENSES. Selling expenses increased 9% to $7,153,000 in fiscal
1998 from $6,541,000 in fiscal 1997, which represented a 19% increase over
fiscal 1996 selling expenses of $5,517,000.
18
<PAGE> 20
Selling expenses as a percentage of total revenues was 14.4% in fiscal 1998
compared to 15.6% and 16.4% in fiscal 1997 and 1996, respectively. During fiscal
1998, the Company's sales infrastructure supported an increase in revenues
without a commensurate increase in selling expenses.
Selling expenses as a percentage of total revenues decreased in fiscal 1997
compared to fiscal 1996, primarily as a result of the addition of revenues from
acquired customers without selling expenses commensurate with those related to
internally generated revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
10% to $14,609,000 in fiscal 1998 from $13,312,000 in fiscal 1997, which
represented a 14% increase over fiscal 1996 general and administrative expenses
of $11,662,000. General and administrative expenses as a percentage of total
revenues were 29% in fiscal 1998 compared to 32% and 35% in fiscal 1997 and
1996, respectively.
General and administrative expenses decreased as a percentage of total
revenues during fiscal 1998 and 1997 as a result of increases in total revenues
without corresponding increases in corporate support expenses. These decreases
in general and administrative expenses as a percentage of revenues resulted
primarily from the Company's ability to increase revenues through internal sales
growth without adding a commensurate level of support and administrative
positions.
General and administrative expenses increased in fiscal 1997 compared to
fiscal 1996 primarily as a result of $1,455,000 of general and administrative
expenses, including $294,000 of amortization expense, incurred by the acquired
Infortext Group division.
INTEREST INCOME. The Company earned interest income of $615,000 in fiscal
1998 compared to $489,000 in fiscal 1997 and $351,000 in fiscal 1996. These
increases in interest income resulted from higher interest-earning asset
balances with the additional investments allocated to high-yielding investment
grade securities.
INCOME TAXES. The Company's effective income tax rate for fiscal 1998 and
fiscal 1997 was 38% compared to 40% in fiscal 1996. The decrease in the
Company's effective tax rate in fiscal 1997 resulted primarily from the increase
in the Company's research and development tax credit due to the increase in
product development expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations over the past several years
principally from cash flows from operations. The Company generated $6,464,000,
$4,698,000, and $6,966,000 in cash flows from operating activities in fiscal
1998, 1997 and 1996, respectively. Cash flows used in investing activities
included the acquisition of property and equipment of $2,782,000, $2,580,000 and
$1,982,000 in fiscal 1998, 1997 and 1996, respectively, primarily representing
system rental units which are leased to customers and system service units which
are used to fulfill service contract commitments to customers with service
contracts. In addition, cash flows used in investing activities in fiscal 1998
included additional purchase price consideration of $625,000 that was paid to
ISI pursuant to the acquisition of The Infortext Group.
The Company anticipates that its cash and cash equivalents, investment
securities and cash flows from operating activities will be adequate to meet the
Company's cash requirements for the foreseeable future. A principal source of
cash flow from operations will be payments received under
19
<PAGE> 21
the Company's lease and service agreements. At February 28, 1998, the future
minimum payments due to the Company under its existing non-cancelable lease and
service agreements aggregate $45.5 million, of which $20.6 million is due in
fiscal 1999. The Company is planning on purchasing a new information system
during fiscal 1999 (see Year 2000 Considerations) and is currently evaluating
its existing facilities in order to determine whether they are adequate to meet
its current and anticipated space requirements.
The Board of Directors has authorized the Company to spend up to $4,500,000
to repurchase shares of the Company's issued and outstanding common stock, based
upon consideration of the Company's current cash position, management's
expectation of future cash flows from operating activities and the level of cash
required to fund future growth opportunities. Through February 28, 1998, the
Company repurchased 370,800 shares of common stock for an aggregate purchase
price of $2,187,000.
SEASONALITY AND INFLATION
Historically, the Company's business has not been seasonal. However,
although the Company's rental, service and support revenues from installed
systems do not fluctuate greatly from quarter to quarter, fluctuations in the
amount of system sales may result in quarterly variations in the Company's total
revenues and net income. Accordingly, interim results of operations may not be
an accurate measure of the annual performance of the Company. The Company
believes that inflation has not had a material impact on the results of
operations.
FOREIGN OPERATIONS
In fiscal 1998, revenues from foreign operations (including export sales)
increased 25% to $6,003,000 from $4,808,000 in fiscal 1997, which represented a
21% increase over revenues from foreign operations in fiscal 1996 (including
export sales) of $3,980,000. The increase in revenues from foreign operations
(including export sales) in fiscal 1998 from fiscal 1997 resulted primarily from
the sales of new systems to existing customers and increased presence in foreign
countries. The increase in revenues from foreign operations (including export
sales) in fiscal 1997 from fiscal 1996 resulted primarily from revenues derived
from rental contracts obtained in the settlement of a litigation matter. As a
percentage of total revenues, revenues from foreign operations (including export
sales) was 12.1% in fiscal 1998 compared to 11.5% and 11.8% in fiscal 1997 and
1996, respectively.
Equitrac's foreign revenue is subject to the normal risks of foreign
operations, such as protective tariffs, export and import controls and
transportation delays and interruptions. The Company's direct international
sales are billed in foreign currencies and are subject to currency exchange
fluctuations.
Since Equitrac's systems are manufactured in the United States, the
Company's foreign operations could be affected by fluctuations in the relative
value of the U.S. dollar to foreign currencies. In fiscal years 1998, 1997 and
1996, the effect of foreign currency exchange fluctuations was not significant
to the Company.
20
<PAGE> 22
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K, including statements contained herein
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations", constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements express or implied by such forward-looking statements. Such factors
include, but are not limited to the following: general economic and business
conditions; charges and costs related to acquisitions; and the ability of the
Company to develop and market products for the markets in which it operates, to
successfully integrate its acquired products and services, to adjust to changes
in technology, customer preferences, enhanced competition and new competitors in
the markets in which it operates.
YEAR 2000 CONSIDERATIONS
The Company is in the process of selecting an information system to
implement company-wide that correctly identifies the year 2000. The Company
plans to begin implementation of the new software beginning in the second half
of calendar year 1998 and to complete the implementation before the fourth
quarter of calendar year 1999. However, there can be no assurance that this
software implementation will be successfully completed, or that the
implementation will not have a material adverse impact on the Company's
financial position or results of operations. Although the Company believes that
the information systems of its major vendors (insofar as they relate to the
Company's business) comply with Year 2000 requirements, there can be no
assurance that the Year 2000 issue will not affect the information systems of
the Company's major vendors as they relate to the Company's business, or that
any such impact of a major vendor's information system would not have a material
adverse effect on the Company. The Company believes that all current versions of
its product lines are Year 2000 compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statements of Financial Accounting Standards
No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"), and No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). The
Company is required to adopt these statements during fiscal year 1999. SFAS 130
establishes standards for reporting comprehensive income and SFAS 131
establishes standards for reporting information about operating segments. The
Company is currently evaluating the impact of these standards on its financial
statement disclosures.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("ACSEC") issued Statement of
Position 97-2 ("SOP 97-2"), SOFTWARE REVENUE RECOGNITION. SOP 97-2 supersedes
SOP 91-1. SOP 97-2 requires companies to defer revenue and profit recognition
unless four required criteria of a sale are met. In addition, SOP 97-2 requires
that revenue recognized from software arrangements be allocated to each element
of the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post-contract customer support,
installation or training. SOP 97-2 is effective for all transactions entered
into in fiscal years beginning after December 15, 1997. The adoption of SOP 97-2
did not have a material effect on the Company's financial position or results of
operations for the fiscal year ended February 28, 1998.
21
<PAGE> 23
In March 1998, the ACSEC issued SOP 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes
criteria for determining which costs of developing or obtaining internal-use
computer software should be charged to expense and which should be capitalized.
SOP 98-1 is effective for all transactions entered into in fiscal years
beginning after December 15, 1998. The Company is currently evaluating the
effects of SOP 98-1 on its operations.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation:
We have audited the accompanying balance sheet of Equitrac Corporation (a
Florida corporation) as of February 28, 1998, and the related statements of
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Equitrac Corporation as of
February 28, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 14, 1998.
23
<PAGE> 25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation:
We have audited the accompanying balance sheet of Equitrac Corporation as
of February 28, 1997, and the related statements of income, stockholders' equity
and cash flows for each of the two years in the period ended February 28, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of Equitrac Corporation as of
February 28, 1997 and the results of its operations and its cash flows for each
of the two years in the period ended February 28, 1997 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida,
April 14, 1997.
24
<PAGE> 26
EQUITRAC CORPORATION
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
February 28, February 28,
ASSETS 1998 1997
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,819 $ 4,755
Short-term investment securities 5,208 4,817
Accounts receivable, net of allowances of $650
and $550 in 1998 and 1997, respectively 8,178 6,117
Inventories 2,465 2,483
Deferred income taxes 234 581
Other current assets 444 313
-------------- --------------
22,348 19,066
Total current assets
Investment securities 2,497 1,330
Property and equipment, net 6,418 6,317
Intangible assets, net 3,111 3,378
Deferred income taxes 556 397
Other assets 184 194
-------------- --------------
Total assets $ 35,114 $ 30,682
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,720 $ 1,095
Accrued expenses and other current liabilities 3,878 3,930
Unearned income 1,337 882
-------------- --------------
Total current liabilities 6,935 5,907
-------------- --------------
Commitments and contingencies (note 8)
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized; 3,877,100 and 3,800,300 shares issued
in 1998 and 1997, respectively 39 38
Additional paid-in capital 11,490 10,741
Retained earnings 18,830 15,672
Cumulative translation adjustment (45) (23)
Unrealized gain on investment securities, net tax 52 --
Treasury stock, at cost (370,800 and 330,800 shares in
1998 and 1997, respectively) (2,187) (1,653)
-------------- --------------
Total stockholders' equity 28,179 24,775
-------------- --------------
Total liabilities and stockholders' equity $ 35,114 $ 30,682
============= ==============
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 27
EQUITRAC CORPORATION
STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
February 28, February 28, February 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales $22,528 $18,126 $13,490
Service and support 16,785 13,411 10,119
Rental 10,471 10,364 10,109
------- ------- -------
Total revenues 49,784 41,901 33,718
------- ------- -------
Costs and expenses:
Cost of system sales 7,986 5,710 4,329
Cost of system rental, service and support 12,567 10,496 8,123
Product development 2,982 2,113 1,282
Selling expenses 7,153 6,541 5,517
General and administrative 14,609 13,312 11,662
------- ------- -------
Total costs and expenses 45,297 38,172 30,913
------- ------- -------
Operating income 4,487 3,729 2,805
------- ------- -------
Interest income 615 489 351
------- ------- -------
Income before income taxes 5,102 4,218 3,156
Income taxes 1,944 1,604 1,274
------- ------- -------
Net income $ 3,158 $ 2,614 $ 1,882
======= ======= =======
Earnings per share:
Basic $ 0.91 $ 0.77 $ 0.54
======= ======= =======
Diluted $ 0.85 $ 0.73 $ 0.53
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 28
EQUITRAC CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Common Unrealized
Stock and Gain (Loss) on
Additional Cumulative Investment Total
Common Paid-in Retained Translation Securities, Treasury Stockholders'
Shares Capital Earnings Adjustment Net of Tax Stock Equity
------ ------- -------- ---------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1995 3,696,750 $ 10,393 $ 11,176 $ (29) $ (49) $ -- $ 21,491
Purchase of treasury stock
330,800 shares -- -- -- -- -- (1,653) (1,653)
Unrealized gain on investment
securities, net of tax -- -- -- -- 66 -- 66
Translation adjustment -- -- -- 4 -- -- 4
Exercise of employee stock
options 21,000 34 -- -- -- -- 34
Net income for the year ended
February 29, 1996 -- -- 1,882 -- -- -- 1,882
---------- ---------- --------- --------- --------- --------- ---------
Balance, February 29, 1996 3,717,750 10,427 13,058 (25) 17 (1,653) 21,824
Unrealized loss on investment
securities, net of tax -- -- -- -- (17) -- (17)
Translation adjustment -- -- -- 2 -- -- 2
Exercise of employee stock
options 82,550 352 -- -- -- -- 352
Net income for the year ended
February 28, 1997 -- -- 2,614 -- -- -- 2,614
---------- ---------- ----------- ---------- --------- --------- ---------
Balance, February 28, 1997 3,800,300 10,779 15,672 (23) -- (1,653) 24,775
Purchase of treasury stock
40,000 shares -- -- -- -- -- (534) (534)
Unrealized gain on investment
securities, net of tax -- -- -- -- 52 -- 52
Translation adjustment -- -- -- (22) -- -- (22)
Exercise of employee stock
options 76,800 750 -- -- -- -- 750
Net income for the year ended
February 28, 1998 -- -- 3,158 -- -- -- 3,158
---------- ---------- ----------- ---------- --------- --------- ---------
Balance, February 28, 1998 3,877,100 $ 11,529 $ 18,830 $ (45) $ 52 $ (2,187) $ 28,179
========== ========== =========== ========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 29
EQUITRAC CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
February 28, February 28, February 29,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,158 $ 2,614 $ 1,882
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,688 2,321 2,064
Amortization 1,160 1,090 1,125
Provision for doubtful accounts 100 200 --
Deferred income taxes 157 (618) (616)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,800) (1,987) 1,541
Inventories 42 (343) 99
Other current assets (103) 53 192
Other assets 10 (47) 8
Increase (decrease) in:
Accounts payable 453 473 (383)
Accrued expenses 262 715 1,395
Unearned income 337 227 (341)
------- ------- -------
Net cash provided by operating activities 6,464 4,698 6,966
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment (2,782) (2,580) (1,982)
Acquisitions of product lines, principally
intangible assets (1,023) (1,934) (225)
Sales and maturities of investment securities 3,739 2,338 5,223
Purchase of investment securities (5,214) (3,122) (5,308)
Decrease (increase) in restricted cash -- 1,450 (1,450)
------- ------- -------
Net cash used in investing activities (5,280) (3,848) (3,742)
------- ------- -------
Cash flows from financing activities:
Repayment of acquisition obligations -- (30) (215)
Proceeds from issuance of common stock 436 352 34
Purchase of treasury stock (534) -- (1,653)
------- ------- -------
Net cash (used in) provided by financing activities (98) 322 (1,834)
------- ------- -------
Exchange rate effect on cash (22) 2 4
------- ------- -------
Net increase in cash and cash equivalents 1,064 1,174 1,394
Cash and cash equivalents, beginning of year 4,755 3,581 2,187
------- ------- -------
Cash and cash equivalents, end of year $ 5,819 $ 4,755 $ 3,581
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 2,144 $ 1,502 $ 948
</TABLE>
Non-cash investing and financing activities consisted of $861,000 and $40,000 of
assets and liabilities recorded in connection with product line acquisitions in
fiscal 1997 and 1996, respectively. In addition, non-cash investing and
financing activities consisted of $10,000 and $360,000 reductions in intangible
assets resulting from the reduction of liabilities in connection with contingent
consideration adjustments related to acquisitions for fiscal 1997 and 1996,
respectively.
See accompanying notes to financial statements.
28
<PAGE> 30
EQUITRAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Equitrac Corporation (the "Company") designs, develops, manufactures,
markets and supports a fully integrated computer hardware and software
communications network designed to automatically track, record and report usage
of various office equipment such as photocopy machines, facsimile machines,
laser printers, word processing terminals, telephones and postage meters. The
Company primarily markets its systems to law firms and other professional
service firms. The Company offers its systems by sale or lease in the United
States, the United Kingdom and Canada through direct sales offices. The
Company's systems are also available through independent dealers.
The Company also provides maintenance services on a wide range of computer
equipment manufactured by others through its Equitrac Computer Services ("ECS")
division. This multi-vendor support includes installation, preventive
maintenance and on-site repair service.
REVENUE RECOGNITION
Revenues from sales of company-manufactured products are recognized upon
installation and customers' acceptance, in accordance with the provisions of SOP
97-2, SOFTWARE REVENUE RECOGNITION. Revenues from resale of product by the ECS
division are recognized upon shipment. Service and support revenues are
recognized ratably over the contractual period in which the service and support
are provided or as the services are provided. Amounts received in advance of
services are deferred. Rental contract revenues, which includes service and
support on the underlying rental equipment and software, is recognized ratably
over the term of the respective lease. Rental contracts are accounted for as
operating leases.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS AND CREDIT RISK
The carrying amounts of cash and cash equivalents, investment securities,
accounts receivable and accounts payable reflected in the financial statements
approximate fair value.
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, investment
securities and accounts receivable. The Company performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral from its customers. The allowance for doubtful accounts receivable is
based upon the expected collectibility of all accounts receivable. The Company
places its cash equivalents and investment securities in investment-grade debt
instruments and preferred stock and limits the amount of credit exposure to any
one commercial issuer.
29
<PAGE> 31
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining
maturity of three months or less at the time of purchase to be cash equivalents.
Cash equivalents are carried at cost, which approximates fair value.
INVESTMENT SECURITIES
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are stated at fair value with
unrealized gains and losses included in stockholders' equity. Interest and
dividends on all securities are recognized when earned.
Both gross unrealized gains and losses as of February 28, 1998 and 1997,
and realized gains and losses on sales of each type of security for the fiscal
years ended February 28, 1998 and 1997, were not material. For the purpose of
determining gross realized gains and losses, the cost of securities sold is
based upon specific identification.
INVENTORIES
Inventories, which consist primarily of system components, parts and
supplies, are stated at the lower of weighted average cost or market. The
weighted average cost of inventories approximates the "first in-first out"
("FIFO") method. Management performs periodic assessments to determine the
existence of obsolete, slow-moving and nonsalable inventories and records
necessary provisions to reduce such inventories to net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided on the straight-line method over the shorter of the estimated
useful lives of the assets or the applicable lease term for leasehold
improvements.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon retirement or sale, the cost and accumulated depreciation
are removed from the accounts and any gain or loss is recognized currently.
INTANGIBLE ASSETS
Intangible assets arise from certain purchase transactions and are
amortized on a straight-line basis over the respective estimated useful lives,
ranging from three to seven years. The carrying value of intangible assets is
subject to periodic review of realizability.
PRODUCT DEVELOPMENT COSTS
The Company examines its product development costs after technological
feasibility has been established to determine the amount of capitalization that
is required. For all periods presented herein, product development costs
incurred subsequent to the establishment of technological feasibility have not
been material.
30
<PAGE> 32
FOREIGN CURRENCY TRANSLATION
Translation of foreign currencies into U.S. dollars is computed for revenue
and expense accounts using average exchange rates during the year. Net assets of
the Company's Canadian operations, whose "functional currency" is the Canadian
dollar are translated at current rates of exchange, with the resulting
translation adjustment recorded directly into a separate component of
stockholders' equity. The functional currency for the Company's other foreign
operations is the U.S. dollar. Net assets of these operations are translated at
current rates of exchange, with the resulting translation gains and losses
included in the statements of income.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statements of Financial Accounting Standards
No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"), and No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). The
Company is required to adopt these statements during fiscal year 1999. SFAS 130
establishes standards for reporting comprehensive income and SFAS 131
establishes standards for reporting information about operating segments. The
Company is currently evaluating the impact of these standards on its financial
statement disclosures.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("ACSEC") issued Statement of
Position 97-2 ("SOP 97-2"), SOFTWARE REVENUE RECOGNITION. SOP 97-2 supersedes
SOP 91-1. SOP 97-2 requires companies to defer revenue and profit recognition
unless four required criteria of a sale are met. In addition, SOP 97-2 requires
that revenue recognized from software arrangements be allocated to each element
of the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post-contract customer support,
installation or training. SOP 97-2 is effective for all transactions entered
into in fiscal years beginning after December 15, 1997. The adoption of SOP 97-2
did not have a material effect on the Company's financial position or results of
operations for the fiscal year ended February 28, 1998.
In March 1998, the ACSEC issued SOP 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes
criteria for determining which costs of developing or obtaining internal-use
computer software should be charged to expense and which should be capitalized.
SOP 98-1 is effective for all transactions entered into in fiscal years
beginning after December 15, 1998. The Company is currently evaluating the
effects of SOP 98-1 on its operations.
2. INVESTMENT SECURITIES:
Available-for-sale investment securities consist of the following (in
thousands):
February 28, February 28,
1998 1997
------------ ------------
Estimated fair value:
Corporate bonds $ 3,413 $ 1,786
Municipal bonds 2,095 2,685
U.S. Government obligations 1,397 1,676
Preferred stock 800 --
----------- -----------
$ 7,705 $ 6,147
=========== ===========
31
<PAGE> 33
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful February 28, February 28,
Lives 1998 1997
--------- --------------- -----------
<S> <C> <C> <C>
System rental and service units 5 years $ 9,614 $ 10,314
Equipment, furniture and fixtures 3-5 years 3,032 2,598
Leasehold improvements Life of lease 1,078 1,033
----------- -----------
13,724 13,945
Accumulated depreciation and amortization (7,306) (7,628)
----------- -----------
$ 6,418 $ 6,317
=========== ===========
</TABLE>
4. INTANGIBLE ASSETS:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
Covenants not to compete $ 1,900 $ 2,300
Service contracts 3,103 2,494
Customer lists 915 2,115
Other 760 579
----------- -----------
6,678 7,488
Accumulated amortization (3,567) (4,110)
----------- -----------
$ 3,111 $ 3,378
=========== ===========
</TABLE>
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
Compensation and benefits $ 2,280 $ 1,749
Federal, state and local taxes 111 961
Other 1,487 1,220
----------- -----------
$ 3,878 $ 3,930
=========== ===========
</TABLE>
32
<PAGE> 34
6. LEASING TRANSACTIONS AND SERVICE AGREEMENTS:
The Company leases systems under operating lease agreements generally for
terms of 36 months or longer. The Company's existing leases generally expire
over the next four years and include all service and system support. The lessee
is responsible for risk of loss, theft or damage to the equipment. The majority
of the lessees pay the lease amount in monthly installments and are liable for
the full contractual obligation upon cancellation. Customers who purchase a
system may obtain a separate service agreement.
Future minimum lease payments to be received under non-cancelable operating
lease and service agreements as of February 28, 1998 are as follows (in
thousands):
Fiscal Year
-----------
1999 $20,629
2000 12,512
2001 7,430
2002 4,972
--------
$ 45,543
========
7. RETIREMENT PLAN:
The Company has a 401(k) plan covering all eligible employees. Subject to
certain dollar limits, eligible employees may contribute up to 15% of their
salaries to the plan. The Company matches 100% of the employee contributions up
to 5% of their gross pay and may make discretionary contributions in amounts
determined by the Board of Directors. Company matching contributions charged to
income were approximately $648,000, $514,000 and $460,000, for fiscal years
1998, 1997 and 1996, respectively.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has a lease obligation with related parties through September
30, 2000, for certain office space. Under this agreement, the related parties
hold a $50,000 security deposit. Additionally, the Company leases other office
space and office equipment under operating leases from unrelated parties. Total
rent expense for fiscal years 1998, 1997 and 1996 was approximately $1,818,000
$1,661,000, and $1,324,000, respectively, including rent expense to related
parties of approximately $418,000 in each year.
33
<PAGE> 35
At February 28, 1998, the future minimum lease payments under
non-cancelable operating leases are as follows (in thousands):
Fiscal Year
-----------
1999 $ 1,792
2000 1,356
2001 933
2002 404
2003 274
Thereafter 86
--------
$ 4,845
========
LITIGATION
The Company is involved from time to time in legal proceedings incident to
the normal course of its business. Management believes that the ultimate outcome
of any pending or threatened litigation would not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
EMPLOYMENT AGREEMENT
During fiscal 1998, the Company entered into employment agreements with its
Chairman of the Board and Chief Executive Officer. Pursuant to the agreements,
each executive will receive annual base salaries of $340,000, subject to cost of
living increases. Each executive is eligible to receive an annual bonus in an
amount equal to the product of his base salary times the greater of (i) the
percentage increase in the Company's earnings per share over the preceding
fiscal year or (ii) the percentage increase in the market price of the Company's
common stock as of the end of the fiscal year compared to the end of the
preceding fiscal year, subject to certain restrictions. Each executive will also
receive post-retirement payments of $100,000 per year for a period of ten years
after he reaches age 58 1/2.
34
<PAGE> 36
9. EARNINGS PER SHARE:
In fiscal 1998, the Company adopted SFAS No. 128, EARNINGS PER SHARE
("EPS"). SFAS No. 128 requires the presentation of basic EPS and diluted EPS.
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding. Diluted EPS includes the
dilutive effect of stock options. All prior year EPS calculations have been
restated in accordance with the provisions of SFAS No. 128. Adoption of SFAS No.
128 did not have a material effect on the Company's historically disclosed EPS.
<TABLE>
<CAPTION>
Per-Share
(in thousands, except per share amounts) Net Income Shares Amount
---------- ------ ------
<S> <C> <C> <C>
Year ended February 28, 1998
Basic Earnings Per Share:
Income available to common stockholders $ 3,158 3,485 $ 0.91
---------
Options issued to employees 245
------------ -------------
Diluted Earnings Per Share:
Income available to common stockholders
plus assumed conversions $ 3,158 3,730 $ 0.85
=========== =========== =========
Year ended February 28, 1997
Basic Earnings Per Share:
Income available to common stockholders $ 2,614 3,412 $ 0.77
---------
Options issued to employees 171
------------ -------------
Diluted Earnings Per Share:
Income available to common stockholders
plus assumed conversions $ 2,614 3,583 $ 0.73
=========== =========== =========
Year ended February 29, 1996
Basic Earnings Per Share:
Income available to common stockholders $ 1,882 3,481 $ 0.54
---------
Options issued to employees 68
------------ -------------
Diluted Earnings Per Share:
Income available to common stockholders
plus assumed conversions $ 1,882 3,549 $ 0.53
=========== =========== =========
</TABLE>
35
<PAGE> 37
10. INCOME TAXES:
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates and laws expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period of enactment. The
total income tax expense included the following components (in thousands):
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
February 28, February 28, February 29,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Current tax expense:
Federal $ 1,328 $ 1,618 $ 1,380
State 459 604 510
----------- ----------- -----------
1,787 2,222 1,890
----------- ----------- -----------
Deferred tax expense:
Federal 117 (449) (450)
State 40 (169) (166)
----------- ------------ ------------
157 (618) (616)
----------- ----------- -----------
Total income tax expense $ 1,944 $ 1,604 $ 1,274
=========== =========== ===========
</TABLE>
The components of the net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
Deferred income taxes, current:
Allowance for doubtful accounts $ -- $ 225
Inventories 96 80
Accrued expenses 138 276
----------- -----------
234 581
----------- -----------
Deferred income taxes, long-term:
Intangible assets 717 519
Property and equipment (130) (122)
Other (31) --
------------ -----------
556 397
----------- -----------
Net deferred tax asset $ 790 $ 978
=========== ===========
</TABLE>
36
<PAGE> 38
A reconciliation of income tax expense computed at the U.S. federal
statutory tax rate of 34% to the Company's income tax provision is as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
February 28, February 28, February 29,
1998 1997 1996
------------- ----------- -----------
<S> <C> <C> <C>
Expected income taxes $ 1,735 $ 1,434 $ 1,073
State income taxes, net of federal benefit 318 274 234
Research and development tax credit (167) (92) (66)
Other 58 (12) 33
---------- ----------- ----------
$ 1,944 $ 1,604 $ 1,274
========== ========== ==========
</TABLE>
11. COMMON STOCK:
The Company has reserved 850,000 shares of its common stock for issuance
under its Amended and Restated 1992 Stock Option Plan (the "Plan"). Under the
Plan, incentive and nonqualified stock options are available to employees of the
Company. The terms of each option agreement are determined by the Company's
Stock Option Committee of the Board of Directors. Under the Company's prior
stock option plan, which terminated in April 1992, options to acquire 58,600
shares of common stock remain exercisable through May 6, 2001.
The Company also has a 1992 Directors Stock Option Plan (the "Directors
Plan") under which 40,000 shares of common stock are reserved for issuance upon
exercise of stock options. The Directors Plan provides for an automatic grant of
an option to purchase 5,000 shares of common stock to each nonemployee director
of the Company upon election as a director of the Company and an automatic grant
of an option to purchase 1,000 shares upon reelection as a director of the
Company, in both instances at an exercise price equal to the fair market value
of the common stock on the date of grant.
37
<PAGE> 39
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Exercise Weighted
Price Average
Number Of -------------------- Exercise
Shares Low High Price
---------- ------- -------- ---------
<S> <C> <C> <C> <C>
Options outstanding, February 28, 1995 289,350 $ 0.73 $ 7.25 $ --
Granted 102,500 4.25 4.75 --
Exercised (21,000) 0.73 1.78 --
Canceled (6,900) 1.78 7.00 --
------- ------- --------
Options outstanding, February 29, 1996 363,950 1.78 7.25 4.68
Granted 118,000 8.00 9.00 8.97
Exercised (82,550) 1.78 7.00 4.26
Canceled -- -- -- --
------- ------- --------
Options outstanding, February 28, 1997 399,400 1.78 9.00 5.99
Granted 225,800 12.00 17.00 12.06
Exercised (51,800) 1.78 9.00 5.65
Canceled (3,000) 12.00 12.00 12.00
------- ------- --------
Options outstanding, February 28, 1998 570,400 $ 1.78 $ 17.00 $ 8.38
======= ======= ========
</TABLE>
Additional information regarding options outstanding at February 28, 1998 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ---------------------------------
Range
of Weighted
Exercisable Average Weighted Weighted
Prices Number Remaining Average Number Average
---------------- Outstanding at Contractual Exercise Exercisable at Exercise
Low High February 28, 1998 Life (Years) Price February 28, 1998 Price
----- ------ ----------------- ------------ ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
$1.78 - $1.78 58,600 3.2 $ 1.78 58,600 $ 1.78
4.25 - 6.25 117,000 6.0 5.08 117,000 5.08
7.00 - 9.00 174,500 7.0 8.16 174,500 8.16
12.00 - 17.00 220,300 9.2 12.06 4,300 15.19
----------------- ------------ ---------- ------------------ -----------
$1.78 - $17.00 570,400 7.3 $ 8.38 354,400 $6.17
================= =========== ========== ================== ===========
</TABLE>
As permitted under SFAS No. 123 ("SFAS 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company has elected to follow Accounting Principles Board
Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO Employees, and related
interpretations, in accounting for stock-based awards to employees. Under APB
25, the Company generally recognizes no compensation expense with respect to
such awards.
The fair value of the Company's stock option grants to employees was
estimated using a Black-Scholes option pricing model with the following
assumptions used for grants in fiscal 1998, 1997 and 1996, respectively:
expected lives of 5.23, 5.21 and 5.83 years; volatility factors of 27.9%, 26.8%
and 25.4%; risk free interest rates of 6.21%, 6.81% and 6.33% and no dividend
payments. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the Black-
38
<PAGE> 40
Scholes model requires the input of highly subjective assumptions including the
expected stock price volatility and the expected holding period of options.
Because the Company's stock options granted to employees have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock option grants to employees.
The weighted average fair value of stock options granted was $4.54, $3.43
and $1.65 in fiscal 1998, 1997 and 1996, respectively. Generally, stock options
issued under the Plan and the Directors Plan are exercisable within three years
from the date of grant and expire ten years after the date of grant.
Had compensation cost for the Company's options plans been determined and
recorded consistent with the Black-Scholes option pricing model in accordance
with SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------
February 28, February 28, February 29,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net income (in thousands)
As reported $ 3,158 $ 2,614 $ 1,882
Pro forma 2,772 2,223 1,713
Diluted Earnings per share
As reported $ 0.85 $ 0.73 $ 0.53
Pro forma 0.74 0.62 0.48
</TABLE>
During fiscal 1998, the Board of Directors authorized the Company to spend
up to $4,500,000 to repurchase shares of the Company's issued and outstanding
common stock. Through February 28, 1998, the Company repurchased 370,800 shares
of its outstanding common stock at an aggregate purchase price of $2,187,000,
including 34,000 shares from a director for an aggregate purchase price of
$189,125.
39
<PAGE> 41
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
Unaudited summarized financial data by quarter for fiscal 1998 and 1997 is
as follows (in thousands, except earnings per share):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
May 31 August 31 November 30 February 28
------ --------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal 1998
Revenues $ 11,730 $ 12,369 $ 12,444 $ 13,241
Operating income 1,005 1,057 1,150 1,275
Net income 706 734 815 903
Earnings per share $ 0.19 $ 0.20 $ 0.22 $ 0.24
May 31 August 31 November 30 February 28
------ --------- ----------- -----------
Fiscal 1997
Revenues $ 9,663 $ 10,294 $ 10,599 $ 11,345
Operating income 812 955 952 1,010
Net income 574 651 661 728
Earnings per share $ 0.16 $ 0.18 $ 0.18 $ 0.20
</TABLE>
40
<PAGE> 42
13. GEOGRAPHIC INFORMATION:
The Company operates exclusively in one business segment. Geographic
information related to revenues, operating income and assets (at year end) is as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
February 28, February 28, February 29,
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
U.S. $ 44,995 $ 37,682 $ 30,340
Foreign, principally United Kingdom and Canada 4,789 4,219 3,378
----------- ----------- ----------
Total $ 49,784 $ 41,901 $ 33,718
=========== =========== ==========
Operating income (loss):
U.S. $ 3,639 $ 3,212 $ 3,105
Foreign, principally United Kingdom and Canada 848 517 (300)
----------- ----------- ----------
Total $ 4,487 $ 3,729 $ 2,805
=========== =========== ==========
Assets (at end of year):
U.S. $ 32,766 $ 29,204 $ 24,503
Foreign, principally United Kingdom and Canada 2,348 1,478 1,143
----------- ----------- ----------
Total $ 35,114 $ 30,682 $ 25,646
=========== =========== ==========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
41
<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to directors of the Company
will be included in the Company's definitive Proxy Statement in connection with
its 1998 Annual Meeting of Stockholders (the "1998 Proxy Statement") which will
be filed with the Securities and Exchange Commission, and is incorporated herein
by reference. Information with respect to executive officers of the Company is
presented in Part I, above, under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the 1998 Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the 1998 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The information required by this item will be contained in the 1998 Proxy
Statement and is incorporated herein by reference.
42
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) 1. INDEX TO FINANCIAL STATEMENTS
The following financial statements of Equitrac Corporation are filed as
part of this report on Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 23
Report of Independent Certified Public Accountants 24
Balance Sheets - February 28, 1998 and February 28, 1997 25
Statements of Income - Years ended February 28, 1998, February 28, 1997
and February 29, 1996 26
Statements of Stockholders' Equity - Years ended February 28, 1998,
February 28, 1997 and February 29, 1996 27
Statements of Cash Flows - Years ended February 28, 1998,
February 28, 1997 and February 29, 1996 28
Notes to Financial Statements 29
2. SUPPLEMENTAL SCHEDULE
Report of Independent Certified Public Accountants S-1
Report of Independent Certified Public Accountants S-1.1
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or required under the related
instructions or is included in the Financial Statements or notes thereto.
(B) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page or
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporated by reference to Exhibit No. 3.1 to the
Incorporation Company's Registration Statement on Form S-1 (No.
33-47367) (the "S-1")
3.2 Bylaws Incorporated by reference to Exhibit 3.2 to the
Company's S-1
4 Form of Common Stock Certificate Incorporated by reference to Exhibit 4 to the Company's
S-1
10.1 Executive Compensation Plan and Arrangements
10.1 (a) 1992 Stock Option Plan, as amended Incorporated by reference to the Company's S-8
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit Page or
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
10.1 (b) Directors Stock Option Plan Incorporated by reference to Exhibit 10.2 to the
Company's S-1
10.1 (c) Employment Agreement, dated as of June
17, 1997, between the Company and John
T. Kane
10.1 (d) Employment Agreement, dated as of
June 17, 1997, between the Company and
George P. Wilson
10.2 Form of Indemnification Agreement Incorporated by reference to Exhibit 10.5 to the
between the Company and each of its Company's S-1
Executive Officers and Directors
10.3 Lease Agreement dated September 17, Incorporated by reference to Exhibit 10.8 to the
1990, between the Company and 3200 Company's S-1
Ponce de Leon Associates
22 Subsidiaries Incorporated by reference to Exhibit 22.1 to the
Company's S-1
24 Consent of Independent Certified Public
Accountants
24.1 Consent of Independent Certified Public
Accountants
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
(C) REPORTS ON FORM 8-K.
No reports were filed on Form 8-K during the three months ended February
28, 1998.
44
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 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, in the City of Coral Gables,
Florida on May 26, 1998.
EQUITRAC CORPORATION
By /s/ George P. Wilson
------------------------------
George P. Wilson
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John T. Kane Chairman of the Board of Directors May 26, 1998
- -------------------------------
John T. Kane
/s/ George P. Wilson President, Chief Executive Officer
- ------------------------------- and Director May 26, 1998
George P. Wilson
/s/ Scott J. Modist Vice President - Finance, Treasurer
- ------------------------------- and Chief Financial Officer (Principal
Scott J. Modist Financial Officer) May 26, 1998
/s/ Ida Davis-Padron Controller (Principal Accounting Officer) May 26, 1998
- -------------------------------
Ida Davis-Padron
/s/ James F. Courbier Director May 26, 1998
- -------------------------------
James F. Courbier
/s/ Marc M. Watson Director May 26, 1998
- -------------------------------
Marc M. Watson
/s/ Peter Marx Director May 26, 1998
- -------------------------------
Peter Marx
</TABLE>
45
<PAGE> 47
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements as of February 28, 1998 and the year then ended
included in this Form 10-K and have issued our report thereon dated April 14,
1998. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The information listed under Schedule II of this
Form 10-K is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 14, 1998.
S-1
<PAGE> 48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Equitrac Corporation:
Our report on the financial statements of Equitrac Corporation is included
on page 24 of this Form 10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule for
each of the two years in the period ended February 28, 1997, listed in the index
on page 43 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Miami, Florida,
April 14, 1997.
S-1.1
<PAGE> 49
SCHEDULE II
EQUITRAC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER DEDUCT- AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS TIONS OF YEAR
- ----------- ------- -------- -------- ----- -------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1998
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 550 $ 100 $ -- $ -- $ 650
Year ended February 28, 1997
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 350 $ 200 $ -- $ -- $ 550
Year ended February 29, 1996
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 350 $ -- $ 100 $ 100 $ 350
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.1 (c)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated as of June 12, 1997,
between EQUITRAC CORPORATION, a Florida corporation (the "Company"), and John T.
Kane (the "Executive").
PRELIMINARY STATEMENTS
A. The Executive is currently Chairman of the Board of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive's contribution to the growth and success of the Company has been
substantial and desires to assure the Company of the Executive's continued
employment in an executive capacity and to compensate him therefor.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
Executive and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth in this Agreement.
2. TERM OF AGREEMENT. Subject to the terms and conditions hereof, the
term of the Executive's employment pursuant to this Agreement (the "Term") shall
commence on the date hereof and shall continue in effect through February 29,
2000; provided, however, that on February 29, 1998 and on the last day of each
February thereafter, the Term automatically shall be extended for an additional
one-year period unless, at least ninety (90) days prior to such date, either
party shall have given written notice to the other stating that the Term shall
not be so extended; provided, further, that notwithstanding the foregoing, if a
Change in Control of the Company (as defined in Section 11 hereof) shall have
occurred prior to the end of the Term as it may be so extended, the Term shall
continue in effect for a period of three years beyond the month in which such
Change of Control of the Company occurred.
<PAGE> 2
3. POSITION AND DUTIES. The Executive shall serve as the Chairman of
the Board of the Company and shall have powers and authority superior to any
other officer or employee of the Company or of any subsidiary of the Company.
The Executive shall also have such other powers and duties as may from time to
time be delegated to him by the Board, provided that such duties are consistent
with his present duties and with the Executive's position. The Executive shall
report to the Board. The Executive shall devote substantially all of his working
time and efforts during normal business hours to the business and affairs of the
Company in substantially the same manner (both as to working time and effort) as
the Executive has devoted to the Company in the past.
4. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices except for required travel on the Company's business to an extent
substantially consistent with his present travel obligations. The Company shall
not, without the written consent of the Executive, relocate or transfer its
principal executive offices outside Coral Gables, Florida.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Executive shall receive a base salary,
payable in substantially equal bi-weekly installments, at the annual rate of at
least $340,000 during each fiscal year during the Term, or such greater amount
as shall be determined by the Compensation Committee ("Compensation Committee")
of the Board or the entire Board, in its sole discretion (the "Base Salary"). On
March 1, 1998 and on each March 1 thereafter (the "Salary Adjustment Date"), the
Executive's then Base Salary shall be adjusted (but not decreased) to reflect
the increase, if any, in the "Consumer Price Index: Dade County, All Items -
Urban Wage Earners and Clerical Workers," published by the Bureau of Labor
Statistics of the United States Department of Labor (the "CPI"), during the most
recent twelve month period prior to the Salary Adjustment Date. In the event
that there is a change in the basis of calculating the CPI, or if a change is
made in the terms or number of items contained in the CPI, or if the CPI is
discontinued, the Company shall, in good faith, designate a substitute index or
formula, and such substitute index or formula shall have the same effect as if
it had been originally designated herein. The Base Salary shall also be
reviewed, at least annually, for merit increases and may, by action and in the
discretion of the Compensation Committee or the Board, be increased at any time
or from time to time. Any increase in the Base Salary or other compensation
granted by the Compensation Committee or the Board shall in no way limit or
reduce any other obligation of the Company under this Agreement and, once
established at an increased specified rate, the Base Salary shall not thereafter
be reduced.
(b) ANNUAL BONUS. In addition to the Base Salary, the
Executive shall be entitled to receive annual incentive compensation (the
"Annual Bonus") for each fiscal year based upon increases in the Company's
Earnings Per Share and/or Market Price during such fiscal year. The Executive's
Annual Bonus for each fiscal year shall equal the product of (x) the Executive's
Base Salary for the applicable fiscal year, MULTIPLIED BY (y) the greater of (1)
the percentage increase in Earnings Per Share for such fiscal year over Earnings
Per Share for the immediately preceding fiscal year and (2) the percentage
increase in the Market Price
<PAGE> 3
as of the end of such fiscal year over the Market Price as of the end of the
immediately preceding fiscal year; provided, however, that in no event shall any
Annual Bonus be payable unless the amount determined in accordance with clause
(y)(1) or (2) is at least fifteen percent (15%), and in no event shall the
Executive's Annual Bonus for any fiscal year exceed one hundred percent (100%)
of his Base Salary for such fiscal year; provided, further, that if (A) the
Earnings Per Share or Market Price for the fiscal year for which the Annual
Bonus is being calculated is higher than the Earnings Per Share or Market Price,
respectively, for the immediately preceding fiscal year, and (B) either the
Earnings Per Share or Market Price for such immediately preceding fiscal year
was lower than the Earnings Per Share or Market Price, respectively, in the
second preceding fiscal year, then for purposes of calculating the Executive's
Annual Bonus for the current fiscal year, the higher Earnings Per Share or
Market Price, if applicable, for the second preceding fiscal year shall be used
in lieu of the Earnings Per Share or Market Price, as the case may be, for the
immediately preceding fiscal year.
Except as otherwise provided herein, the amount of Annual Bonus payable
with respect to any fiscal year (net of any tax or other amount properly
withheld therefrom) shall be paid by the Company to the Executive within one
hundred twenty (120) days after the end of the fiscal year; provided, however,
that any amount paid shall be subject to increase or decrease based upon the
results of any audited financial statements with respect to such year.
For purposes of this Section 5(b):
(i) the term "Earnings Per Share" shall mean the
earnings per share of the Company as determined in accordance with generally
accepted accounting principles, consistently applied with the Company's past
practices, and as reflected in the Company's audited financial statements for
the relevant fiscal year; and
(ii) the term "Market Price" shall mean, for any
fiscal year, the average of the Closing Prices (as hereinafter defined) of a
share of the Company's Common Stock during the twenty trading days immediately
preceding the end of such; the "Closing Price" of the Common Stock on any
trading day shall be (A) if the Common Stock is listed or admitted for trading
on any United States national securities exchange, or if actual transactions are
otherwise reported on a consolidated transaction reporting system, the last
reported sale price of Common Stock on such exchange or reporting system, as
reported in any newspaper of general circulation, (B) if the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System ("Nasdaq"), or any similar system of automated dissemination of
quotations of securities prices in common use, the mean between the closing high
bid and low asked quotations for such day of Common Stock on such system, or (C)
if neither clause (A) or (B) is applicable, the mean between the high bid and
low asked quotations for the Common Stock as reported by the National Quotation
Bureau, Incorporated.
<PAGE> 4
(c) EXPENSES. During the Term, the Company, upon the
submission of supporting documentation by the Executive, shall reimburse the
Executive for all reasonable expenses actually paid or incurred by the Executive
in the course of and pursuant to the business of the Company, including expenses
for travel and entertainment.
(d) OTHER BENEFITS. The Company shall not make any changes in
any employee benefit plans or arrangements in effect on the date of this
Agreement in which the Executive participates, (including without limitation, to
the extent in effect, each pension and retirement plan, supplemental pension and
retirement plan, savings and profit sharing plan, life insurance policies,
officers and directors policies, stock option plan, life insurance plan, medical
and health insurance plan, disability plan, dental plan, health-and-accident
plan or, similar plans or arrangements) which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
an amendment applicable to all senior executives and/or employees of the Company
and does not result in a proportionately greater reduction in the rights of or
benefits to the Executive as compared with any other senior executives and/or
employees of the Company. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made available
by the Company in the future to its executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plan or arrangement. Nothing paid to the Executive under
any plan or arrangement presently in effect or made available in the future
shall be deemed to be in lieu of the Base Salary or any other obligation payable
to the Executive pursuant to this Agreement.
(e) VACATION. The Executive shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers, but not less than one month in any
calendar year (prorated in any calendar year during which the Executive is
employed under this Agreement for less than the entire such year in accordance
with the number of days in such calendar year during which he is so employed).
The Executive shall also be entitled to all paid holidays given by the Company
to its senior executive officers.
(f) PERQUISITES AND FRINGE BENEFITS. The Executive shall be
entitled to continue to receive all perquisites and fringe benefits provided or
available to senior executive officers of the Company in accordance with present
practice and as may be changed from time to time with respect to all senior
executive officers of the Company.
6. WORKING FACILITIES. The Company shall furnish the Executive with an
office, a secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties hereunder.
7. RESTRICTIVE COVENANTS.
(a) NO MATERIAL COMPETITION. The Executive agrees that at no
time during the Term or, for a period of one year immediately following any
termination of this Agreement, other than a termination by the Executive for
Good Reason (as hereinafter defined) or a termination by the Company without
Cause (as hereinafter defined), will he, for
<PAGE> 5
himself or on behalf of any other person, persons, firm, partnership,
corporation or company, engage, directly or indirectly, in any business if,
within 30 days of the Executive advising the Company in writing of his proposed
business activity, the Board determines in good faith that such proposed
business activity is directly competitive with a material part of the business
of the Company and its subsidiaries (in the aggregate) and such competitive
business activity is likely to affect in an adverse manner the business, sales,
profits or financial condition of the Company.
(b) UNAUTHORIZED DISCLOSURE. During the period of his
employment under this Agreement, the Executive shall not, without the written
consent of the Board or a person authorized thereby, disclose to any person,
other than an employee of the Company (or its subsidiaries) or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Company, any
confidential information obtained by him while in the employ of the Company with
respect to any of the Company's customers, suppliers, creditors, lenders,
investment bankers, methods of distribution or methods of marketing, the
disclosure of which he knows will be damaging to the Company; provided, however,
that confidential information shall not include any information known generally
to the public (other than as a result of unauthorized disclosure by the
Executive) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company. For the period ending one year following any termination of this
Agreement, the Executive shall not disclose any confidential information of the
type described above.
(c) NONSOLICITATION OF EMPLOYEES. While employed by the
Company and for a period of one year thereafter, the Executive shall not
directly or indirectly, for himself or for any other person, firm, corporation,
partnership, association or other entity, attempt to employ or enter into any
contractual arrangement with any employee or former employee of the Company,
unless such employee or former employee has not been employed by the Company for
a period in excess of six months.
(d) BOOKS AND RECORDS. All books, records, accounts and
similar repositories of confidential information of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of this Agreement or on the Board's request at any
time.
(e) INJUNCTION. It is recognized and hereby acknowledged by
the Company and the Executive that a breach by the Executive of any of the
agreements contained in this Section 7 may cause irreparable harm or damage to
the Company, or its subsidiaries, the monetary amount of which may be virtually
impossible to ascertain. As a result, the Executive and the Company agree that
the Company and any of its subsidiaries shall be entitled to an injunction
issued by any court of competent jurisdiction enjoining and restraining any and
all violations of such agreements by the Executive or his associates,
affiliates, partners or agents, and that such right to an injunction shall be
cumulative and in addition to whatever other remedies the Company may possess.
<PAGE> 6
(f) CERTAIN PROVISIONS. The limitations of Section 7(a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 9 hereof; however, such
termination shall not affect the rights of the Executive to receive all
payments, undiminished in any way, provided by such Section 9. The provisions of
Section 7 shall apply during the time the Executive is receiving any payments
from the Company as a result of a termination resulting from Disability.
8. TERMINATION. The Executive's employment under this Agreement may be
terminated without any breach of this Agreement only on the following
circumstances:
(a) DEATH. The Executive's employment under this Agreement
shall terminate automatically upon his death.
(b) DISABILITY. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from the
performance of his duties under this Agreement for six consecutive months during
any calendar year, and within 30 days after written notice of termination is
given (which notice may only be given after the end of such six-month period),
the Executive shall not have returned to the performance of his duties under
this Agreement, the Company may terminate the Executive's employment under this
Agreement for "Disability."
(c) CAUSE. The Company may terminate the Executive's
employment under this Agreement for Cause. For purposes of this Agreement, the
term "Cause" shall mean (i) the willful and continued failure by the Executive
to substantially perform his duties under this Agreement (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or from the termination of this Agreement by the Executive for Good
Reason), after a demand for substantial performance is delivered to the
Executive by the Company specifically identifying the manner in which the
Company believes the Executive has not substantially performed his duties, and
the Executive shall have failed to resume substantial performance of such duties
within thirty (30) days of receiving such demand, (ii) the willful engaging by
the Executive in criminal conduct (including embezzlement and criminal fraud)
which is demonstrably and materially injurious to the Company, monetarily or
otherwise, or (iii) the conviction of the Executive of a felony or the
conviction of the Executive of a misdemeanor which impairs the Executive's
ability substantially to perform his duties with the Company. For purposes of
this paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding anything herein to the contrary, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution, duly
adopted by the affirmative vote of not less than a majority of the members of
the Board then in office (other than the Executive) at a meeting of the Board
called and held for such purpose (after reasonable notice to the Executive and
an opportunity for him, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the Executive
<PAGE> 7
was guilty of conduct set forth in clause (i), (ii) or (iii), above, and
specifying the particulars thereon in detail.
(d) TERMINATION BY THE EXECUTIVE; RETIREMENT. The Executive
may terminate his employment under this Agreement (i) for Good Reason or (ii) if
his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that at the Company's request and expense the Executive shall
submit to an examination by a doctor selected by the Company and such doctor
shall have concurred in the conclusion of the Executive's doctor. In addition,
at any time after the Executive reaches age 55, he shall have the right to
terminate his employment under this Agreement due to his decision to retire from
active and continued employment with the Company ("Retirement"). If the
Executive elects to retire prior to reaching age 58 1/2, the Executive, until he
reaches age 58 1/2, agrees to provide the Company on a consulting basis such
advice and assistance concerning the business and operations of the Company as
the Company may request from time to time (the "Consulting Services"). In
connection with any Consulting Services, the Executive shall use his best
efforts to give the Company the benefit of his special knowledge, skill and
business expertise to the extent relevant to the Company's business and
operations. To the extent the Executive provides any Consulting Services
following his Retirement, the Company shall compensate the Executive for such
Consulting Services at the rate of $300 per hour.
For purposes of this Agreement the term "Good Reason"
shall mean, without the Executive's express written consent, the occurrence of
any one or more of the following: (i) the assignment to the Executive of any
duties or reporting obligations other than those contemplated by, or any
limitation of the powers of the Executive in any respect not contemplated by,
Section 3 hereof, or any other action by the Company which results in a
diminution in the nature or status Executive's position, authority, duties or
responsibilities; (ii) a reduction by the Company in the Executive's Base Salary
as the same shall be increased from time to time; (iii) the Company's requiring
the Executive to be based at a location in excess of forty-five miles from the
location where he is currently based; (iv) a failure by the Company to comply
with its material obligations and agreements contained herein, including but not
limited to any failure by the Company to comply with any of the provisions of
Section 5 hereof; (v) a failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to perform this
Agreement, as contemplated in Section 10(c) hereof; or (vi) any purported
termination by the Company of the Executive's employment that is not effected
pursuant to a Notice of Termination satisfying the requirements of subsection
8(e) hereof, and for purposes of this Agreement, no such termination shall be
effective.
The Executive's right to terminate his employment for Good Reason or
Retirement shall not be affected by his incapacity due to physical or mental
illness, nor shall the Executive's continued employment constitute consent to,
or a waiver of rights with respect to, any circumstances constituting Good
Reason hereunder. With respect to the matters set forth in clauses (i), (ii) and
(iii), above, the Executive must give the Company thirty (30) days
<PAGE> 8
prior written notice of his intent to terminate this Agreement as a result of
any breach or alleged breach of the applicable provision and the Company shall
have the right to cure any such breach or alleged breach within such 30-day
period; provided, that no such prior written notice or opportunity to cure shall
be required following a Change in Control of the Company.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to Section 8(a), above) shall be communicated by written Notice of Termination
to the other party hereto given in accordance with Section 13. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. The failure by the Executive to set forth in any Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i)
if the Executive's employment is terminated by his death, the date of his death,
(ii) if the Executive's employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall not
have returned to the performance of his duties during such thirty (30) day
period), (iii) if the Executive's employment is terminated by the Company for
Cause, the date specified in the Notice of Termination after the expiration of
any cure periods, (iv) if the Executive's employment is terminated as a result
of his Retirement, the date set forth in the Executive's Notice of Termination
(but not beyond the then expiration date of the Term), and (v) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given after the expiration of any cure periods;
provided, that if within thirty (30) days after any Notice of Termination one
party notifies the other party that a dispute exists concerning the termination,
the Date of Termination shall be the date finally determined to be the Date of
Termination, either by mutual written agreement of the parties or by a binding
and final arbitration award or an adjudication by a court of competent
jurisdiction.
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) DEATH. If the Executive's employment shall be terminated
by reason of his death, the Company shall pay to such person as the Executive
shall have designated in a notice filed with the Company, or, if no such person
shall have been designated, to his estate, (i) any unpaid amounts of his Base
Salary or Annual Bonus accrued prior to the date of his death and (ii) in
addition to any payments the Executive's spouse, beneficiaries or estate may be
entitled to receive pursuant to any pension or employee benefit plan, life
insurance policy or other plan, program or policy then maintained or provided by
the Company, or any other agreement between the Executive and the Company, a
lump sum death benefit equal to the sum of the Executive's then current Base
Salary and most recent Annual Bonus; and upon making such payments, the Company
shall have no further liability hereunder (other than for
<PAGE> 9
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death pursuant to Section 5(c)).
(b) DISABILITY. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full Base Salary until the
Executive's employment is terminated pursuant to Section 8(b) hereof, or until
the Executive terminates his employment pursuant to Section 8(d)(iii) hereof,
whichever first occurs. The Executive shall be paid in equal monthly
installments an amount equal to his Base Salary at the rate in effect at the
time Notice of Termination is given until the later of one year after
termination of his employment or the expiration of the Term (as in effect on the
date of termination), plus any disability payments otherwise payable by or
pursuant to plans provided by the Company. Thereafter, the Executive shall
receive the payments that would have been made to the Executive pursuant to
Section 9(d) had the Executive terminated his employment due to Retirement.
(c) CAUSE; OTHER THAN FOR GOOD REASON OR RETIREMENT. If the
Executive's employment shall be terminated by the Company for Cause, or by the
Executive for other than Good Reason or Retirement, the Company shall pay the
Executive his full Base Salary and accrued vacation pay through the Date of
Termination at the rate in effect at the time Notice of Termination is given (or
on the Date of Termination if no Notice of Termination is required hereunder)
plus all other amounts to which the Executive is entitled under any plan,
program, policy or practice of the Company or otherwise at the time such
payments are due and such payments shall, assuming the Company is in compliance
with the provisions of this Agreement, fully discharge the Company's obligations
hereunder.
(d) RETIREMENT. If the Executive's employment shall be
terminated by reason of his Retirement, in addition to any payments the
Executive's spouse, beneficiaries or estate may be entitled to receive pursuant
to any pension or employee benefit plan, life insurance policy or other plan,
program or policy then maintained or provided by the Company, or any other
agreement between the Executive and the Company, the Company shall pay to the
Executive or (if the Executive shall thereafter die) to such person as the
Executive shall have designated in a notice filed with the Company (or, if no
such person shall have been designated, to his estate), an amount equal to One
Hundred Thousand Dollars ($100,000) per calendar year, for a period of ten (10)
years commencing on the date that the Executive reaches (or would have reached)
age 58 1/2.
(e) GOOD REASON; OTHER THAN CAUSE OR DISABILITY.
(i) PRIOR TO CHANGE IN CONTROL. If, prior to the
occurrence of a Change in Control of the Company, the Company shall terminate
the Executive's employment other than for Cause or Disability (it being
understood that a purported termination for Cause or Disability which is
disputed and finally determined not to have been proper shall be a termination
by the Company in breach of this Agreement), or the Executive shall terminate
his employment for Good Reason, then the Company shall pay the Executive, not
later than the fifth day following the Date of Termination, the aggregate of the
following amounts:
<PAGE> 10
(A) his full Base Salary and accrued vacation pay through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of
Termination is required hereunder, and any other amounts to which the
Executive is entitled under any plan, policy, practice or program of
the Company or otherwise at the time such payments are due;
(B) the product of (x) the Executive's most recent Annual
Bonus (the "Recent Bonus"), times (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination and the denominator of which is 365;
(C) in lieu of any further salary or bonus payments to the
Executive for periods subsequent to the Date of Termination, and as a
severance benefit to the Executive, a lump sum amount equal to two
times the Executive's annual Base Salary in effect immediately prior to
the occurrence of the circumstances giving rise to such termination;
and
(D) commencing on the date two years after the Date of
Termination, the payments that would have been made to the Executive
pursuant to Section 9(d) had the Executive terminated his employment
due to Retirement on such date.
(ii) FOLLOWING CHANGE IN CONTROL. If, following a
Change in Control of the Company, the Company shall terminate the Executive's
employment other than for Cause or Disability (it being understood that a
purported termination for Cause or Disability which is disputed and finally
determined not to have been proper shall be a termination by the Company in
breach of this Agreement), or the Executive shall terminate his employment for
Good Reason, then the Company shall pay the Executive, not later than the fifth
day following the Date of Termination, the aggregate of the following amounts:
(A) his full Base Salary and accrued vacation pay through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of
Termination is required hereunder, and any other amounts which the
Executive is entitled under any plan, policy, practice or program of
the Company or otherwise at the time such payment is due;
(B) the product of (x) the Recent Bonus, times (y) a fraction,
the numerator of which is the number of days in the current fiscal year
through the Date of Termination and the denominator of which is 365;
(C) in lieu of any further salary or bonus payments to the
Executive for periods subsequent to the Date of Termination, and as a
severance benefit to the Executive, a lump sum amount equal to three
times the Executive's annual Base Salary in effect immediately prior to
the occurrence of the circumstances giving rise to such termination or,
if greater, at the time of the Change in Control, plus three times the
Recent Bonus; and
<PAGE> 11
(D) commencing on the date two years after the Date of
Termination, the payments that would have been made to the Executive
pursuant to Section 9(d) had the Executive terminated his employment
due to Retirement on such date.
(f) MAINTENANCE OF BENEFIT. Unless the Executive is
terminated for Cause, the Company shall maintain in full force and effect, for
the continued benefit of the Executive and/or his family for two (2) years after
termination for any reason, all employee medical, health and hospitalization
plans and programs in which the Executive and/or his family was entitled to
participate in immediately prior to the Date of Termination provided that the
continued participation of the Executive and/or his family is possible under the
general terms and provisions of such plans and programs. In the event that the
participation of the Executive and/or his family in any such plan or program is
barred, the Company shall arrange to provide the Executive and/or his family
with benefits substantially similar to those which the Executive and/or his
family would otherwise have been entitled to receive under such plans and
programs from which his or their continued participation is barred.
(g) FULL SETTLEMENT. The Company's obligation to make the
payments provided for herein and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others, except claims in respect of the Executive's gross negligence, wilful
misconduct or violation of any applicable law. The Executive shall not be
required to mitigate the amount of any payment provided for in Section 9 hereof
by seeking other employment or otherwise, nor shall the amount of any payment
provided for in Section 9 hereof be reduced by any compensation earned by the
Executive as the result of employment by another employer or business, by
profits earned by the Executive from any source at any time before or after the
Date of Termination, or otherwise. Unless the Executive is found by a court of
competent jurisdiction to have committed an act that constitutes wilful
misconduct or a violation of applicable law, the Company agrees to pay, to the
fullest extent permitted by law, all legal fees and expenses incurred by the
Executive as a result of any contest or dispute (regardless of the outcome
thereof) by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement, or by the Executive in seeking
to obtain or enforce any right or benefit provided by this Agreement (including
the amount of any payment pursuant to Section 9 hereof or the validity of any
purported termination by the Company hereunder).
(h) LIMITATION ON CERTAIN PAYMENTS. Notwithstanding anything
herein to the contrary, in the event that the Executive shall become entitled to
payments pursuant to Section 9(d)(ii) hereof ("Change of Control Payments"), if
the value of the Change of Control Payments plus any other amount that is paid
or distributed or distributable to the Executive would constitute an excess
parachute payment under Section 280G of the Code, the amount payable or
distributable to or for the benefit of the Executive hereunder shall be reduced
to the Alternate Payment. The "Alternate Payment" shall be an amount expressed
in present value which maximizes the aggregate present value of the amounts
payable or distributable to the Executive hereunder without causing any such
amounts to be nondeductible by the Company pursuant to Section 280G of the Code.
The value of the Change of Control
<PAGE> 12
Payments shall be determined in accordance with temporary or final regulations,
if any, promulgated under Section 280G of the Code and based upon the advice of
counsel selected by the Company's independent auditors. The value of any noncash
benefit or any deferred payment or benefit shall be determined in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive other than by will or the laws of descent and distribution. This
Agreement and all rights of the Executive hereunder shall inure to the benefit
of and be enforce able by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devises and
legatees. If the Executive should die while any amounts would still be payable
to him hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's personal
or legal representatives or, if there be no such persons, the Executive's
estate.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers an assumption and agreement provided for
in this Section 10(c) or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law, or otherwise.
11. CHANGE IN CONTROL OF THE COMPANY. For purposes of this Agreement, a
"Change in Control of the Company" shall mean and be deemed to have occurred if:
(i) any person, entity or "group", within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than (A) the Company, its subsidiaries or
any employee benefit plan established and maintained by the Company or its
subsidiaries, or (B) John T. Kane or George P. Wilson, or any affiliate of
either of the foregoing individuals, becomes the "beneficial owner" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act), directly or
<PAGE> 13
indirectly, of securities of the Company representing forty percent (40%) or
more of the combined voting power of the Company's then outstanding securities;
or
(ii) individuals who, as of the date hereof constitute the
Board (as of the date hereof, the "Incumbent Board") cease for any reason to
constitute a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than the election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board.
12. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices provided by the
Company or any of its subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
subsidiaries. Except as herein specifically provided, amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of the Company or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program.
13. NOTICE. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
----------------------------
----------------------------
If to the Company: Equitrac Corporation
836 Ponce de Leon Blvd
Coral Gables, Florida 33134
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
14. MISCELLANEOUS.
(a) This Agreement has been approved by the Board. No
provisions of this Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in a writing signed by the
Executive and such officer as may be specifically designed by the Board.
<PAGE> 14
(b) The failure by either party hereto to insist upon
compliance with any condition or provision of this Agreement shall not be deemed
a waiver of such condition or provision or any other provision hereof.
(c) No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement and this
Agreement supersedes any other employment agreement between the Company and the
Executive.
(d) The Company may withhold from any accounts payable
under this Agreement all Federal, State or other taxes as legally shall be
required.
(e) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without reference to principles of conflicts of laws.
(f) The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
(g) This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Employment Agreement as of the date and year first above written.
EQUITRAC CORPORATION
By:
-----------------------------------------
Title:
Executive
-----------------------------------------
John T. Kane
<PAGE> 1
EXHIBIT 10.1 (d)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated as of June 12, 1997,
between EQUITRAC CORPORATION, a Florida corporation (the "Company"), and George
P. Wilson (the "Executive").
PRELIMINARY STATEMENTS
A. The Executive is currently President and Chief Executive Officer of
the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive's contribution to the growth and success of the Company has been
substantial and desires to assure the Company of the Executive's continued
employment in an executive capacity and to compensate him therefor.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
Executive and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth in this Agreement.
2. TERM OF AGREEMENT. Subject to the terms and conditions hereof, the
term of the Executive's employment pursuant to this Agreement (the "Term") shall
commence on the date hereof and shall continue in effect through February 29,
2000; provided, however, that on February 29, 1998 and on the last day of each
February thereafter, the Term automatically shall be extended for an additional
one-year period unless, at least ninety (90) days prior to such date, either
party shall have given written notice to the other stating that the Term shall
not be so extended; provided, further, that notwithstanding the foregoing, if a
Change in Control of the Company (as defined in Section 11 hereof) shall have
occurred prior to the end of the Term as it may be so extended, the Term shall
continue in effect for a period of three years beyond the month in which such
Change of Control of the Company occurred.
<PAGE> 2
3. POSITION AND DUTIES. The Executive shall serve as the President and
Chief Executive Officer of the Company and shall have powers and authority
superior to any other officer or employee of the Company or of any subsidiary of
the Company other than the Chairman of the Board. The Executive shall also have
such other powers and duties as may from time to time be delegated to him by the
Board, provided that such duties are consistent with his present duties and with
the Executive's position. The Executive shall report to the Chairman of the
Board. The Executive shall devote substantially all of his working time and
efforts during normal business hours to the business and affairs of the Company
in substantially the same manner (both as to working time and effort) as the
Executive has devoted to the Company in the past.
4. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices except for required travel on the Company's business to an extent
substantially consistent with his present travel obligations. The Company shall
not, without the written consent of the Executive, relocate or transfer its
principal executive offices outside Coral Gables, Florida.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Executive shall receive a base salary,
payable in substantially equal bi-weekly installments, at the annual rate of at
least $340,000 during each fiscal year during the Term, or such greater amount
as shall be determined by the Compensation Committee ("Compensation Committee")
of the Board or the entire Board, in its sole discretion (the "Base Salary"). On
March 1, 1998 and on each March 1 thereafter (the "Salary Adjustment Date"), the
Executive's then Base Salary shall be adjusted (but not decreased) to reflect
the increase, if any, in the "Consumer Price Index: Dade County, All Items -
Urban Wage Earners and Clerical Workers," published by the Bureau of Labor
Statistics of the United States Department of Labor (the "CPI"), during the most
recent twelve month period prior to the Salary Adjustment Date. In the event
that there is a change in the basis of calculating the CPI, or if a change is
made in the terms or number of items contained in the CPI, or if the CPI is
discontinued, the Company shall, in good faith, designate a substitute index or
formula, and such substitute index or formula shall have the same effect as if
it had been originally designated herein. The Base Salary shall also be
reviewed, at least annually, for merit increases and may, by action and in the
discretion of the Compensation Committee or the Board, be increased at any time
or from time to time. Any increase in the Base Salary or other compensation
granted by the Compensation Committee or the Board shall in no way limit or
reduce any other obligation of the Company under this Agreement and, once
established at an increased specified rate, the Base Salary shall not thereafter
be reduced.
(b) ANNUAL BONUS. In addition to the Base Salary, the
Executive shall be entitled to receive annual incentive compensation (the
"Annual Bonus") for each fiscal year based upon increases in the Company's
Earnings Per Share and/or Market Price during such fiscal year. The Executive's
Annual Bonus for each fiscal year shall equal the product of (x) the Executive's
Base Salary for the applicable fiscal year, MULTIPLIED BY (y) the greater of (1)
the percentage increase in Earnings Per Share for such fiscal year over Earnings
Per Share
<PAGE> 3
for the immediately preceding fiscal year and (2) the percentage increase in the
Market Price as of the end of such fiscal year over the Market Price as of the
end of the immediately preceding fiscal year; provided, however, that in no
event shall any Annual Bonus be payable unless the amount determined in
accordance with clause (y)(1) or (2) is at least fifteen percent (15%), and in
no event shall the Executive's Annual Bonus for any fiscal year exceed one
hundred percent (100%) of his Base Salary for such fiscal year; provided,
further, that if (A) the Earnings Per Share or Market Price for the fiscal year
for which the Annual Bonus is being calculated is higher than the Earnings Per
Share or Market Price, respectively, for the immediately preceding fiscal year,
and (B) either the Earnings Per Share or Market Price for such immediately
preceding fiscal year was lower than the Earnings Per Share or Market Price,
respectively, in the second preceding fiscal year, then for purposes of
calculating the Executive's Annual Bonus for the current fiscal year, the higher
Earnings Per Share or Market Price, if applicable, for the second preceding
fiscal year shall be used in lieu of the Earnings Per Share or Market Price, as
the case may be, for the immediately preceding fiscal year.
Except as otherwise provided herein, the amount of Annual Bonus payable
with respect to any fiscal year (net of any tax or other amount properly
withheld therefrom) shall be paid by the Company to the Executive within one
hundred twenty (120) days after the end of the fiscal year; provided, however,
that any amount paid shall be subject to increase or decrease based upon the
results of any audited financial statements with respect to such year.
For purposes of this Section 5(b):
(i) the term "Earnings Per Share" shall mean the
earnings per share of the Company as determined in accordance with generally
accepted accounting principles, consistently applied with the Company's past
practices, and as reflected in the Company's audited financial statements for
the relevant fiscal year; and
(ii) the term "Market Price" shall mean, for any
fiscal year, the average of the Closing Prices (as hereinafter defined) of a
share of the Company's Common Stock during the twenty trading days immediately
preceding the end of such; the "Closing Price" of the Common Stock on any
trading day shall be (A) if the Common Stock is listed or admitted for trading
on any United States national securities exchange, or if actual transactions are
otherwise reported on a consolidated transaction reporting system, the last
reported sale price of Common Stock on such exchange or reporting system, as
reported in any newspaper of general circulation, (B) if the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System ("Nasdaq"), or any similar system of automated dissemination of
quotations of securities prices in common use, the mean between the closing high
bid and low asked quotations for such day of Common Stock on such system, or (C)
if neither clause (A) or (B) is applicable, the mean between the high bid and
low asked quotations for the Common Stock as reported by the National Quotation
Bureau, Incorporated.
<PAGE> 4
(c) EXPENSES. During the Term, the Company, upon the
submission of supporting documentation by the Executive, shall reimburse the
Executive for all reasonable expenses actually paid or incurred by the Executive
in the course of and pursuant to the business of the Company, including expenses
for travel and entertainment.
(d) OTHER BENEFITS. The Company shall not make any changes in
any employee benefit plans or arrangements in effect on the date of this
Agreement in which the Executive participates, (including without limitation, to
the extent in effect, each pension and retirement plan, supplemental pension and
retirement plan, savings and profit sharing plan, life insurance policies,
officers and directors policies, stock option plan, life insurance plan, medical
and health insurance plan, disability plan, dental plan, health-and-accident
plan or, similar plans or arrangements) which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
an amendment applicable to all senior executives and/or employees of the Company
and does not result in a proportionately greater reduction in the rights of or
benefits to the Executive as compared with any other senior executives and/or
employees of the Company. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made available
by the Company in the future to its executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plan or arrangement. Nothing paid to the Executive under
any plan or arrangement presently in effect or made available in the future
shall be deemed to be in lieu of the Base Salary or any other obligation payable
to the Executive pursuant to this Agreement.
(e) VACATION. The Executive shall be entitled to the number of
paid vacation days in each calendar year determined by the Company from time to
time for its senior executive officers, but not less than one month in any
calendar year (prorated in any calendar year during which the Executive is
employed under this Agreement for less than the entire such year in accordance
with the number of days in such calendar year during which he is so employed).
The Executive shall also be entitled to all paid holidays given by the Company
to its senior executive officers.
(f) PERQUISITES AND FRINGE BENEFITS. The Executive shall be
entitled to continue to receive all perquisites and fringe benefits provided or
available to senior executive officers of the Company in accordance with present
practice and as may be changed from time to time with respect to all senior
executive officers of the Company.
6. WORKING FACILITIES. The Company shall furnish the Executive with an
office, a secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties hereunder.
7. RESTRICTIVE COVENANTS.
(a) NO MATERIAL COMPETITION. The Executive agrees that at no
time during the Term or, for a period of one year immediately following any
termination of this Agreement, other than a termination by the Executive for
Good Reason (as hereinafter defined) or a termination by the Company without
Cause (as hereinafter defined), will he, for
<PAGE> 5
himself or on behalf of any other person, persons, firm, partnership,
corporation or company, engage, directly or indirectly, in any business if,
within 30 days of the Executive advising the Company in writing of his proposed
business activity, the Board determines in good faith that such proposed
business activity is directly competitive with a material part of the business
of the Company and its subsidiaries (in the aggregate) and such competitive
business activity is likely to affect in an adverse manner the business, sales,
profits or financial condition of the Company.
(b) UNAUTHORIZED DISCLOSURE. During the period of his
employment under this Agreement, the Executive shall not, without the written
consent of the Board or a person authorized thereby, disclose to any person,
other than an employee of the Company (or its subsidiaries) or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Company, any
confidential information obtained by him while in the employ of the Company with
respect to any of the Company's customers, suppliers, creditors, lenders,
investment bankers, methods of distribution or methods of marketing, the
disclosure of which he knows will be damaging to the Company; provided, however,
that confidential information shall not include any information known generally
to the public (other than as a result of unauthorized disclosure by the
Executive) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company. For the period ending one year following any termination of this
Agreement, the Executive shall not disclose any confidential information of the
type described above.
(c) NONSOLICITATION OF EMPLOYEES. While employed by the
Company and for a period of one year thereafter, the Executive shall not
directly or indirectly, for himself or for any other person, firm, corporation,
partnership, association or other entity, attempt to employ or enter into any
contractual arrangement with any employee or former employee of the Company,
unless such employee or former employee has not been employed by the Company for
a period in excess of six months.
(d) BOOKS AND RECORDS. All books, records, accounts and
similar repositories of confidential information of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of this Agreement or on the Board's request at any
time.
(e) INJUNCTION. It is recognized and hereby acknowledged by
the Company and the Executive that a breach by the Executive of any of the
agreements contained in this Section 7 may cause irreparable harm or damage to
the Company, or its subsidiaries, the monetary amount of which may be virtually
impossible to ascertain. As a result, the Executive and the Company agree that
the Company and any of its subsidiaries shall be entitled to an injunction
issued by any court of competent jurisdiction enjoining and restraining any and
all violations of such agreements by the Executive or his associates,
affiliates, partners or agents, and that such right to an injunction shall be
cumulative and in addition to whatever other remedies the Company may possess.
<PAGE> 6
(f) CERTAIN PROVISIONS. The limitations of Section 7(a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 9 hereof; however, such
termination shall not affect the rights of the Executive to receive all
payments, undiminished in any way, provided by such Section 9. The provisions of
Section 7 shall apply during the time the Executive is receiving any payments
from the Company as a result of a termination resulting from Disability.
8. TERMINATION. The Executive's employment under this Agreement may be
terminated without any breach of this Agreement only on the following
circumstances:
(a) DEATH. The Executive's employment under this Agreement
shall terminate automatically upon his death.
(b) DISABILITY. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from the
performance of his duties under this Agreement for six consecutive months during
any calendar year, and within 30 days after written notice of termination is
given (which notice may only be given after the end of such six-month period),
the Executive shall not have returned to the performance of his duties under
this Agreement, the Company may terminate the Executive's employment under this
Agreement for "Disability."
(c) CAUSE. The Company may terminate the Executive's
employment under this Agreement for Cause. For purposes of this Agreement, the
term "Cause" shall mean (i) the willful and continued failure by the Executive
to substantially perform his duties under this Agreement (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or from the termination of this Agreement by the Executive for Good
Reason), after a demand for substantial performance is delivered to the
Executive by the Company specifically identifying the manner in which the
Company believes the Executive has not substantially performed his duties, and
the Executive shall have failed to resume substantial performance of such duties
within thirty (30) days of receiving such demand, (ii) the willful engaging by
the Executive in criminal conduct (including embezzlement and criminal fraud)
which is demonstrably and materially injurious to the Company, monetarily or
otherwise, or (iii) the conviction of the Executive of a felony or the
conviction of the Executive of a misdemeanor which impairs the Executive's
ability substantially to perform his duties with the Company. For purposes of
this paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding anything herein to the contrary, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution, duly
adopted by the affirmative vote of not less than a majority of the members of
the Board then in office (other than the Executive) at a meeting of the Board
called and held for such purpose (after reasonable notice to the Executive and
an opportunity for him, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the Executive
<PAGE> 7
was guilty of conduct set forth in clause (i), (ii) or (iii), above, and
specifying the particulars thereon in detail.
(d) TERMINATION BY THE EXECUTIVE; RETIREMENT. The Executive
may terminate his employment under this Agreement (i) for Good Reason or (ii) if
his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that at the Company's request and expense the Executive shall
submit to an examination by a doctor selected by the Company and such doctor
shall have concurred in the conclusion of the Executive's doctor. In addition,
at any time after the Executive reaches age 55, he shall have the right to
terminate his employment under this Agreement due to his decision to retire from
active and continued employment with the Company ("Retirement"). If the
Executive elects to retire prior to reaching age 58 1/2, the Executive, until he
reaches age 58 1/2, agrees to provide the Company on a consulting basis such
advice and assistance concerning the business and operations of the Company as
the Company may request from time to time (the "Consulting Services"). In
connection with any Consulting Services, the Executive shall use his best
efforts to give the Company the benefit of his special knowledge, skill and
business expertise to the extent relevant to the Company's business and
operations. To the extent the Executive provides any Consulting Services
following his Retirement, the Company shall compensate the Executive for such
Consulting Services at the rate of $300 per hour.
For purposes of this Agreement the term "Good Reason"
shall mean, without the Executive's express written consent, the occurrence of
any one or more of the following: (i) the assignment to the Executive of any
duties or reporting obligations other than those contemplated by, or any
limitation of the powers of the Executive in any respect not contemplated by,
Section 3 hereof, or any other action by the Company which results in a
diminution in the nature or status Executive's position, authority, duties or
responsibilities; (ii) a reduction by the Company in the Executive's Base Salary
as the same shall be increased from time to time; (iii) the Company's requiring
the Executive to be based at a location in excess of forty-five miles from the
location where he is currently based; (iv) a failure by the Company to comply
with its material obligations and agreements contained herein, including but not
limited to any failure by the Company to comply with any of the provisions of
Section 5 hereof; (v) a failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to perform this
Agreement, as contemplated in Section 10(c) hereof; or (vi) any purported
termination by the Company of the Executive's employment that is not effected
pursuant to a Notice of Termination satisfying the requirements of subsection
8(e) hereof, and for purposes of this Agreement, no such termination shall be
effective.
The Executive's right to terminate his employment for Good Reason or
Retirement shall not be affected by his incapacity due to physical or mental
illness, nor shall the Executive's continued employment constitute consent to,
or a waiver of rights with respect to, any circumstances constituting Good
Reason hereunder. With respect to the matters set forth in clauses (i), (ii) and
(iii), above, the Executive must give the Company thirty (30) days
<PAGE> 8
prior written notice of his intent to terminate this Agreement as a result of
any breach or alleged breach of the applicable provision and the Company shall
have the right to cure any such breach or alleged breach within such 30-day
period; provided, that no such prior written notice or opportunity to cure shall
be required following a Change in Control of the Company.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to Section 8(a), above) shall be communicated by written Notice of Termination
to the other party hereto given in accordance with Section 13. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. The failure by the Executive to set forth in any Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i)
if the Executive's employment is terminated by his death, the date of his death,
(ii) if the Executive's employment is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall not
have returned to the performance of his duties during such thirty (30) day
period), (iii) if the Executive's employment is terminated by the Company for
Cause, the date specified in the Notice of Termination after the expiration of
any cure periods, (iv) if the Executive's employment is terminated as a result
of his Retirement, the date set forth in the Executive's Notice of Termination
(but not beyond the then expiration date of the Term), and (v) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given after the expiration of any cure periods;
provided, that if within thirty (30) days after any Notice of Termination one
party notifies the other party that a dispute exists concerning the termination,
the Date of Termination shall be the date finally determined to be the Date of
Termination, either by mutual written agreement of the parties or by a binding
and final arbitration award or an adjudication by a court of competent
jurisdiction.
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) DEATH. If the Executive's employment shall be terminated
by reason of his death, the Company shall pay to such person as the Executive
shall have designated in a notice filed with the Company, or, if no such person
shall have been designated, to his estate, (i) any unpaid amounts of his Base
Salary or Annual Bonus accrued prior to the date of his death and (ii) in
addition to any payments the Executive's spouse, beneficiaries or estate may be
entitled to receive pursuant to any pension or employee benefit plan, life
insurance policy or other plan, program or policy then maintained or provided by
the Company, or any other agreement between the Executive and the Company, a
lump sum death benefit equal to the sum of the Executive's then current Base
Salary and most recent Annual Bonus; and upon making such payments, the Company
shall have no further liability hereunder (other than for
<PAGE> 9
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death pursuant to Section 5(c)).
(b) DISABILITY. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full Base Salary until the
Executive's employment is terminated pursuant to Section 8(b) hereof, or until
the Executive terminates his employment pursuant to Section 8(d)(iii) hereof,
whichever first occurs. The Executive shall be paid in equal monthly
installments an amount equal to his Base Salary at the rate in effect at the
time Notice of Termination is given until the later of one year after
termination of his employment or the expiration of the Term (as in effect on the
date of termination), plus any disability payments otherwise payable by or
pursuant to plans provided by the Company. Thereafter, the Executive shall
receive the payments that would have been made to the Executive pursuant to
Section 9(d) had the Executive terminated his employment due to Retirement.
(c) CAUSE; OTHER THAN FOR GOOD REASON OR RETIREMENT. If the
Executive's employment shall be terminated by the Company for Cause, or by the
Executive for other than Good Reason or Retirement, the Company shall pay the
Executive his full Base Salary and accrued vacation pay through the Date of
Termination at the rate in effect at the time Notice of Termination is given (or
on the Date of Termination if no Notice of Termination is required hereunder)
plus all other amounts to which the Executive is entitled under any plan,
program, policy or practice of the Company or otherwise at the time such
payments are due and such payments shall, assuming the Company is in compliance
with the provisions of this Agreement, fully discharge the Company's obligations
hereunder.
(d) RETIREMENT. If the Executive's employment shall be
terminated by reason of his Retirement, in addition to any payments the
Executive's spouse, beneficiaries or estate may be entitled to receive pursuant
to any pension or employee benefit plan, life insurance policy or other plan,
program or policy then maintained or provided by the Company, or any other
agreement between the Executive and the Company, the Company shall pay to the
Executive or (if the Executive shall thereafter die) to such person as the
Executive shall have designated in a notice filed with the Company (or, if no
such person shall have been designated, to his estate), an amount equal to One
Hundred Thousand Dollars ($100,000) per calendar year, for a period of ten (10)
years commencing on the date that the Executive reaches (or would have reached)
age 58 1/2.
(e) GOOD REASON; OTHER THAN CAUSE OR DISABILITY.
(i) PRIOR TO CHANGE IN CONTROL. If, prior to the
occurrence of a Change in Control of the Company, the Company shall terminate
the Executive's employment other than for Cause or Disability (it being
understood that a purported termination for Cause or Disability which is
disputed and finally determined not to have been proper shall be a termination
by the Company in breach of this Agreement), or the Executive shall terminate
his employment for Good Reason, then the Company shall pay the Executive, not
later than the fifth day following the Date of Termination, the aggregate of the
following amounts:
<PAGE> 10
(A) his full Base Salary and accrued vacation pay through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of
Termination is required hereunder, and any other amounts to which the
Executive is entitled under any plan, policy, practice or program of
the Company or otherwise at the time such payments are due;
(B) the product of (x) the Executive's most recent Annual
Bonus (the "Recent Bonus"), times (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date
of Termination and the denominator of which is 365;
(C) in lieu of any further salary or bonus payments to the
Executive for periods subsequent to the Date of Termination, and as a
severance benefit to the Executive, a lump sum amount equal to two
times the Executive's annual Base Salary in effect immediately prior to
the occurrence of the circumstances giving rise to such termination;
and
(D) commencing on the date two years after the Date of
Termination, the payments that would have been made to the Executive
pursuant to Section 9(d) had the Executive terminated his employment
due to Retirement on such date.
(ii) FOLLOWING CHANGE IN CONTROL. If, following a
Change in Control of the Company, the Company shall terminate the Executive's
employment other than for Cause or Disability (it being understood that a
purported termination for Cause or Disability which is disputed and finally
determined not to have been proper shall be a termination by the Company in
breach of this Agreement), or the Executive shall terminate his employment for
Good Reason, then the Company shall pay the Executive, not later than the fifth
day following the Date of Termination, the aggregate of the following amounts:
(A) his full Base Salary and accrued vacation pay through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of
Termination is required hereunder, and any other amounts which the
Executive is entitled under any plan, policy, practice or program of
the Company or otherwise at the time such payment is due;
(B) the product of (x) the Recent Bonus, times (y) a fraction,
the numerator of which is the number of days in the current fiscal year
through the Date of Termination and the denominator of which is 365;
(C) in lieu of any further salary or bonus payments to the
Executive for periods subsequent to the Date of Termination, and as a
severance benefit to the Executive, a lump sum amount equal to three
times the Executive's annual Base Salary in effect immediately prior to
the occurrence of the circumstances giving rise to such termination or,
if greater, at the time of the Change in Control, plus three times the
Recent Bonus; and
<PAGE> 11
(D) commencing on the date two years after the Date of
Termination, the payments that would have been made to the Executive
pursuant to Section 9(d) had the Executive terminated his employment
due to Retirement on such date.
(f) MAINTENANCE OF BENEFIT. Unless the Executive is
terminated for Cause, the Company shall maintain in full force and effect, for
the continued benefit of the Executive and/or his family for two (2) years after
termination for any reason, all employee medical, health and hospitalization
plans and programs in which the Executive and/or his family was entitled to
participate in immediately prior to the Date of Termination provided that the
continued participation of the Executive and/or his family is possible under the
general terms and provisions of such plans and programs. In the event that the
participation of the Executive and/or his family in any such plan or program is
barred, the Company shall arrange to provide the Executive and/or his family
with benefits substantially similar to those which the Executive and/or his
family would otherwise have been entitled to receive under such plans and
programs from which his or their continued participation is barred.
(g) FULL SETTLEMENT. The Company's obligation to make the
payments provided for herein and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others, except claims in respect of the Executive's gross negligence, wilful
misconduct or violation of any applicable law. The Executive shall not be
required to mitigate the amount of any payment provided for in Section 9 hereof
by seeking other employment or otherwise, nor shall the amount of any payment
provided for in Section 9 hereof be reduced by any compensation earned by the
Executive as the result of employment by another employer or business, by
profits earned by the Executive from any source at any time before or after the
Date of Termination, or otherwise. Unless the Executive is found by a court of
competent jurisdiction to have committed an act that constitutes wilful
misconduct or a violation of applicable law, the Company agrees to pay, to the
fullest extent permitted by law, all legal fees and expenses incurred by the
Executive as a result of any contest or dispute (regardless of the outcome
thereof) by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement, or by the Executive in seeking
to obtain or enforce any right or benefit provided by this Agreement (including
the amount of any payment pursuant to Section 9 hereof or the validity of any
purported termination by the Company hereunder).
(h) LIMITATION ON CERTAIN PAYMENTS. Notwithstanding anything
herein to the contrary, in the event that the Executive shall become entitled to
payments pursuant to Section 9(d)(ii) hereof ("Change of Control Payments"), if
the value of the Change of Control Payments plus any other amount that is paid
or distributed or distributable to the Executive would constitute an excess
parachute payment under Section 280G of the Code, the amount payable or
distributable to or for the benefit of the Executive hereunder shall be reduced
to the Alternate Payment. The "Alternate Payment" shall be an amount expressed
in present value which maximizes the aggregate present value of the amounts
payable or distributable to the Executive hereunder without causing any such
amounts to be nondeductible by the Company pursuant to Section 280G of the Code.
The value of the Change of Control
<PAGE> 12
Payments shall be determined in accordance with temporary or final regulations,
if any, promulgated under Section 280G of the Code and based upon the advice of
counsel selected by the Company's independent auditors. The value of any noncash
benefit or any deferred payment or benefit shall be determined in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive other than by will or the laws of descent and distribution. This
Agreement and all rights of the Executive hereunder shall inure to the benefit
of and be enforce able by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devises and
legatees. If the Executive should die while any amounts would still be payable
to him hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's personal
or legal representatives or, if there be no such persons, the Executive's
estate.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers an assumption and agreement provided for
in this Section 10(c) or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law, or otherwise.
11. CHANGE IN CONTROL OF THE COMPANY. For purposes of this Agreement,
a "Change in Control of the Company" shall mean and be deemed to have occurred
if:
(i) any person, entity or "group", within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than (A) the Company, its subsidiaries or
any employee benefit plan established and maintained by the Company or its
subsidiaries, or (B) John T. Kane or George P. Wilson, or any affiliate of
either of the foregoing individuals, becomes the "beneficial owner" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act), directly or
<PAGE> 13
indirectly, of securities of the Company representing forty percent (40%) or
more of the combined voting power of the Company's then outstanding securities;
or
(ii) individuals who, as of the date hereof constitute the
Board (as of the date hereof, the "Incumbent Board") cease for any reason to
constitute a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than the election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board.
12. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices provided by the
Company or any of its subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
subsidiaries. Except as herein specifically provided, amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of the Company or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program.
13. NOTICE. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
----------------------------
----------------------------
If to the Company: Equitrac Corporation
836 Ponce de Leon Blvd
Coral Gables, Florida 33134
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
14. MISCELLANEOUS.
(a) This Agreement has been approved by the Board. No
provisions of this Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in a writing signed by the
Executive and such officer as may be specifically designed by the Board.
<PAGE> 14
(b) The failure by either party hereto to insist upon
compliance with any condition or provision of this Agreement shall not be deemed
a waiver of such condition or provision or any other provision hereof.
(c) No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement and this
Agreement supersedes any other employment agreement between the Company and the
Executive.
(d) The Company may withhold from any accounts payable
under this Agreement all Federal, State or other taxes as legally shall be
required.
(e) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without reference to principles of conflicts of laws.
(f) The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
(g) This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Employment Agreement as of the date and year first above written.
EQUITRAC CORPORATION
By:
---------------------------------
Title:
Executive
------------------------------------
George P. Wilson
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports dated April 14, 1998 included in this Form 10-K,
into Equitrac Corporation's previously filed form S-8 Registration statement
File Nos. 33-49656 and 333-12307.
ARTHUR ANDERSEN LLP
Miami, Florida,
May 22, 1998.
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Equitrac Corporation on Forms S-8 (File Nos. 33-49656 and 333-12307) of our
reports dated April 14, 1997, on our audits of the financial statements and
financial statement schedule of Equitrac Corporation as of February 28, 1997 and
for each of the two years in the period ended February 28, 1997, which report is
included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida,
May 22, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF FEBRUARY 28, 1998 AND INCOME STATEMENT FOR THE YEAR ENDED FEBRUARY
28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10K FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 5,819,000
<SECURITIES> 5,208,000
<RECEIVABLES> 8,828,000
<ALLOWANCES> 650,000
<INVENTORY> 2,465,000
<CURRENT-ASSETS> 22,348,000
<PP&E> 13,724,000
<DEPRECIATION> 7,306,000
<TOTAL-ASSETS> 35,114,000
<CURRENT-LIABILITIES> 6,935,000
<BONDS> 0
0
0
<COMMON> 39,000
<OTHER-SE> 28,140,000
<TOTAL-LIABILITY-AND-EQUITY> 35,114,000
<SALES> 22,528,000
<TOTAL-REVENUES> 49,784,000
<CGS> 20,553,000
<TOTAL-COSTS> 7,153,000
<OTHER-EXPENSES> 17,591,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,102,000
<INCOME-TAX> 1,944,000
<INCOME-CONTINUING> 3,158,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,158,000
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.85
</TABLE>
