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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
(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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NO. 0-20189
EQUITRAC CORPORATION(R)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-1797862
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
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 by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such 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 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 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, 1999, the aggregate market value of the registrant's common
stock held by non-affiliates of the registrant was $43,009,143, based on the
closing sales price 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, 1999 was 3,539,600.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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EXPLANATORY NOTE
Items 3, 10, 11, 12 and 13 of the Annual Report on Form 10-K/A No. 1 of
Equitrac Corporation ("Equitrac" or the "Company") for the year fiscal ended
February 28, 1999 are amended and restated in their entirety.
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.
In November 1997, the Company filed a lawsuit in Canada against
Promatek Industries, Ltd., a Canadian company ("Promatek") for infringement of
two Canadian patents owned by the Company. In June 1998, Promatek filed a
lawsuit in the United States District Court for the Northern District of
Illinois alleging, among other things, violations by the Company of various U.S.
antitrust and trade practice laws and seeking injunctive relief and compensatory
and punitive damages against the Company. The Company believes that the U.S.
lawsuit has been brought by Promatek solely as a defensive measure to encourage
the Company to dismiss or settle its Canadian lawsuit. The Company believes that
the claims made by Promatek in the U.S. lawsuit are without merit and intends to
vigorously defend that action. The Company also intends to continue to pursue
enforcement of its patents against Promatek in the Canadian lawsuit.
In June 1999, a shareholder of the Company filed a class action lawsuit
against the Company and its directors and senior officers in a Florida state
court. The plaintiff alleges that the proposed management buy-out whereby
Cornerstone Equity Investors, LLC ("Cornerstone") will acquire all of the
outstanding shares of common stock of the Company, other than certain shares
held by John Kane, George Wilson and certain other members of the Company's
senior management, for $21.00 per share in cash, is unfair to the Company's
unaffiliated shareholders, and constitutes, among other things, a breach by the
defendants of their fiduciary duties to such unaffiliated shareholders. The
plaintiff seeks, among other things, (i) class action status, (ii) permanent
injunctive relief against consummation of the transaction and (iii) compensatory
damages should the transaction be consummated. The Company believes the suit is
without merit, and intends to defend against it vigorously.
The Company, Cornerstone and certain members of the Company's senior
management entered into an amended and restated recapitalization agreement and
plan of merger on June 4, 1999. The agreement is on substantially the same terms
as the February 17, 1999 recapitalization agreement and plan of merger among the
parties, with the exception of the reduction of the merger consideration to
$21.00 per share from $25.25 per share.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table, together with the accompanying text, present
certain information, as of June 25, 1999, with respect to each person who is a
director of Equitrac. Each director is a citizen of the United States of
America. Each director is elected annually and serves until the next annual
meeting of shareholders or until his successor is duly elected and qualified.
For information concerning the executive officers of Equitrac, see Item 4.
"Submission of Matters to a Vote of Security Holders - Executive Officers of the
Registrant."
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD WITH EQUITRAC
- ---- --- ------------------------------
<S> <C> <C>
John T. Kane(2) 55 Chairman of the Board
George P. Wilson(2) 55 President, Chief Executive Officer and Director
James F. Courbier(1)(3) 56 Director
Marc M. Watson(1)(2)(3)(4) 53 Director
Peter Marx(1)(4) 57 Director
</TABLE>
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(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Stock Option Committee
(4) Member of the Special Committee
JAMES F. COURBIER has served as a director of the Company since 1979.
Mr. Courbier has been a private investor for more than five years.
MARC M. WATSON was elected as a director in April 1992. Mr. Watson has
been the Chairman of the Board of Sano Corporation, a pharmaceutical company,
since August 1994. Mr. Watson has been Of Counsel to the law firm of Greenberg
Traurig, P.A. since March 1990.
PETER MARX was elected as a director in July 1992. Mr. Marx has been
Chairman of The Marx Group, a technology consulting firm, for more than five
years.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the "SEC"). Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the best of the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and representations that no
other reports were required, all Section 16(a) filing requirements applicable of
its officers, directors and greater than 10% beneficial owners were complied
with during the fiscal year ended February 28, 1999 ("Fiscal 1999").
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company for the fiscal years ended February
28, 1999, 1998 and 1997 to or on behalf of (i) the Company's Chief Executive
Officer and (ii) the four other most highly compensated officers of the Company
whose cash compensation exceeded $100,000 in Fiscal 1999 (collectively the
"Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
FISCAL OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
--------------------------- ---- ------ ----- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
George P. Wilson 1999 $347,102 $90,000 $ -- 20,000 $71,180
President and Chief Executive 1998 $341,357 $75,000 $ -- 30,000 $67,517
Officer 1997 $331,330 $32,950 $ -- 15,000 $65,970
John T. Kane 1999 $347,102 $90,000 $ -- 20,000 $67,626
Chairman of the Board of Directors 1998 $341,357 $75,000 $ -- 30,000 $64,253
1997 $331,330 $32,950 $ -- 15,000 $62,706
Scott J. Modist 1999 $158,588 $30,000 $ -- 12,000 $ 7,929
Vice President - Finance, Treasurer 1998 $141,917 $26,000 $ -- 15,000 $ 7,096
and Chief Financial Officer 1997 $128,795 $17,325 $ -- 10,000 $ 5,739
Patrick J. Raftery 1999 $243,236 $ -- $ -- 7,500 $ 6,750
Vice President - Sales, 1998 $236,549 $ -- $ -- 7,500 $ 9,250
U.S. Professional Division 1997 $223,874 $ -- $ -- 7,500 $ 5,556
Steve Smith 1999 $198,484 $ -- $ -- -- $ 7,197
Vice President - Business 1998 $234,037 $ -- $ -- 2,500 $ 7,218
Technology Division 1997 $171,767 $ -- $ -- -- $ 6,168
</TABLE>
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(1)Consists of (a) Company contributions to the 401(k) Plan for Messrs. Modist,
Raftery and Smith in Fiscal 1999, 1998 and 1997, (b) Company contributions to
the 401(k) Plan for Messrs. Wilson and Kane in the amounts of $8,046, $8,048
and $6,501 in Fiscal 1999, 1998 and 1997, respectively, and (c) the payment
of life insurance policy premiums for Mr. Wilson in the amount of $63,134 in
Fiscal 1999 and $59,469 in Fiscal 1998 and 1997, and life insurance policy
premiums for Mr. Kane in the amount of $59,580 in Fiscal 1999 and $56,205 in
Fiscal 1998 and 1997.
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STOCK OPTION GRANTS
The following table provides information regarding the grants of stock
options to the Named Executive Officers in Fiscal 1999. In addition, in
accordance with SEC regulations, hypothetical gains of 5% and 10% required by
the SEC are shown for these stock options. These hypothetical gains are based on
assumed rates of annual compound stock appreciation of 5% and 10% from the date
the stock options were granted over the full option term of ten years.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
OPTIONS STOCK PRICE APPRECIATION
NUMBER OF GRANTED TO ------------------------
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION FOR OPTION TERM ($)(2)
NAME GRANTED FISCAL YEAR PRICE($)(1) DATE 5% 10%
- ----------------------------- ------------ ------------ ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
George P. Wilson 20,000 11.4 19.63 April 8, 2008 246,841 625,544
John T. Kane 20,000 11.4 19.63 April 8, 2008 246,841 625,544
Scott J. Modist 12,000 6.9 19.63 April 8, 2008 148,105 375,326
Patrick J. Raftery 7,500 4.3 19.63 April 8, 2008 92,565 234,579
Steve Smith 0 N/A N/A N/A N/A N/A
</TABLE>
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(1) Exercise price represents fair market value at date of grant.
(2) If the 5% or 10% annual compound stock price appreciation shown in the table
were to occur, the price of the stock would be $31.97 or $50.90,
respectively, on April 8, 2008 and the appreciation in the market value of
the Company's outstanding Common Stock would be $43,688,414 and
$110,715,018, respectively. The appreciation during this period realized by
the Named Executive Officers from these stock options would be 1.7% of the
gain to all shareholders under these two cases. The use of 5% and 10% rates
set by the SEC is not intended by the Company to forecast possible future
appreciation of the Company's stock price.
STOCK OPTION EXERCISES AND FISCAL YEAR-END 1999 OPTION VALUES
The following table provides information, with respect to the Named
Executive Officers, regarding options exercised in Fiscal 1999 and the number
and value of unexercised options held as of the end of Fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED ON REALIZED FISCAL YEAR-END 1999 (#) FISCAL YEAR-END 1999 ($)(2)(3)
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George P. Wilson 0 0 75,000 40,000 1,210,000 307,500
John T. Kane 0 0 75,000 40,000 1,210,000 307,500
Scott J. Modist 0 0 15,000 22,000 202,500 161,500
Patrick J. Raftery 0 0 30,700 7,500 496,599 29,063
Steve Smith 0 0 16,400 0 280,290 N/A
</TABLE>
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(1) The "value-realized" represents the difference between the exercise price of
the option shares and the market price of the option shares on the date the
option was exercised. The value realized was determined without considering
any taxes which may have been owed.
(2) "In-the-money" options are options whose exercise price was less than the
market price of Common Stock at February 26, 1999.
(3) Amounts reflect unrealized gains on outstanding stock options based on a
fair market value of $23.50 for the Common Stock, as determined by the
closing price on February 26, 1999, as reported by Nasdaq.
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COMPENSATION OF DIRECTORS
The Company pays each non-employee director a fee of $750 ($1,500 for
such directors who reside outside of the South Florida area) for attendance at
each meeting of the Board of Directors or any committee thereof. In addition,
non-employee directors are eligible for stock option grants under the Company's
Directors Stock Option Plan, under which options to purchase 1,000 shares of
common stock will be granted to each such director upon his reelection,
exercisable at the fair market value of the common stock on the date of grant.
During Fiscal 1999, Peter Marx received additional fees of approximately $13,337
for serving as chairman of the special committee of the Board of Directors.
Non-employee directors are reimbursed by the Company for their travel expenses
incurred in connection with their attendance at meetings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In June 1997, the Company entered into employment agreements with John
T. Kane and George P. Wilson. The term of each employment agreement currently
expires February 28, 2001, but will automatically be extended for additional
one-year periods from February 28, 1999 to the last day of each February
thereafter unless the Company or the executive gives the other at least 90 days
notice prior to such date that the term shall not be renewed. Each agreement
also provide for the executive's continued employment for a period of three
years following a Change in Control (as defined). Pursuant to the agreements,
Messrs. Kane and Wilson will receive annual base salaries of $340,000 each,
subject to increase at the beginning of each fiscal year to reflect increases,
if any, in the Consumer Price Index. Each executive also will receive annual
bonuses for each fiscal year 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 and (ii) the percentage
increase in the market price of the Common Stock as of the end of the fiscal
year compared to the end of the preceding fiscal year; provided, that if the
earnings per share or market price for the preceding fiscal year was lower than
in the second preceding fiscal year, for purposes of calculating the bonus the
higher earnings per share or market price, if applicable, for the second
preceding fiscal year shall be used. The executives will not receive annual
bonuses unless the percentage increase in earnings per share or market price is
at least 15%, and the amount of the annual bonuses payable to each executive
will not exceed 100% of his base salary. Each executive will receive
post-retirement payments of $100,000 per year for a period of 10 years after he
reaches age 58 1/2. If the executive retires prior to reaching age 58 1/2, he
will be obligated to consult with the Company as needed and will receive
compensation of $300 per hour for his consulting services. Each agreement
prohibits the executive from competing with the Company during the term of the
agreement and for a period of one year after termination of his employment,
other than a termination by the executive for Good Reason or a termination by
the Company without Cause.
Each agreement provides that upon termination of the executive's
employment, in addition to accrued salary and bonuses and post-retirement
benefits, the executive (or his estate or beneficiaries) will receive (i) if his
employment is terminated by the Company other than by reason of death,
Disability (as defined) or Cause (as defined), or by the executive for Good
Reason (generally defined as the diminution of the executive's duties or other
breach by the Company of the agreement), a lump sum cash payment equal to two
times the executive's then-existing base salary plus an amount equal to his most
recent annual bonus times a fraction, the numerator of which is the number of
days elapsed during the current fiscal year and the denominator of which is 365,
(ii) if his employment is terminated as a result of Disability, his base salary
in effect on the date of termination, in monthly installments, until the later
of one year after termination or the expiration of the term and (iii) if his
employment is terminated as a result of death, a lump sum death benefit equal to
the sum of his then-existing base salary and most recent annual bonus. Following
a Change in Control, if the executive's employment is terminated by the Company
for any reason other than Disability or Cause, or by the executive for Good
Reason, the executive will receive, in addition to any accrued salary, bonus and
other compensation and post-retirement compensation, a lump sum cash payment
equal to three times the executive's then-existing base salary and most recent
annual bonus (which payment will be reduced to the extent necessary to avoid the
payments being nondeductible pursuant to Section 280G of the Internal Revenue
Code).
In May 1998, the Company entered into a letter agreement with Scott J.
Modist, Vice President-Finance and Chief Financial Officer of the Company, which
provides that if the executive's employment is terminated by the Company
following a Change in Control for any reason other than Cause or as a result of
the executive's death or disability, or by the executive for Good Reason, the
executive will be entitled to receive: (i) any unpaid base salary
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accrued prior to the date of termination, (ii) a pro rata portion of the
executive's most recent annual bonus, (iii) any amounts payable under any
pension or employee benefit plan of the Company, and (iv) payment for any
accrued and unused vacation. In addition, the executive will be entitled to
receive a lump sum cash payment equal to his then-existing base salary and most
recent annual bonus. All unvested stock options held by the executive will
immediately vest and become exercisable until the earlier of one year following
termination of his employment or expiration of such options in accordance with
their terms.
For purposes of the agreements, a "Change in Control" will be deemed to
have occurred if (i) any person, entity or "group," other than (a) the Company,
its subsidiaries, any employee benefit plan established and maintained by the
Company or its subsidiaries, or (b) Messrs. Kane or Wilson or their affiliates,
becomes the beneficial owner of securities representing more than 40% of the
combined voting power of the Company's outstanding voting securities, or (ii)
the individuals who currently constitute the Board of Directors (the "Incumbent
Board") cease to constitute a majority of the Board (any individual whose
election or nomination was approved by a majority vote of the directors then
comprising the Incumbent Board will be considered a member of the Incumbent
Board unless such election or nomination is in connection with an actual or
threatened election contest). For purposes of Mr. Modist's agreement, a Change
in Control will also be deemed to have occurred if the shareholders of the
Company approve (a) a reorganization merger or consolidation of the Company, (b)
a liquidation or dissolution of the Company, or (c) the sale of all or
substantially all of the assets of the Company, unless any such approved
transaction is subsequently abandoned.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In Fiscal 1999, the Compensation Committee of the Company's Board of
Directors consisted of Marc. M. Watson, John T. Kane and George P. Wilson.
Messrs. Kane and Wilson serve as executive officers of the Company. The
Company's corporate headquarters are located in a building owned by a
partnership in which Messrs. Kane and Wilson each own a one-third interest. The
Company has occupied these premises since 1986. In September 1990, the Company
entered into a lease agreement that expires September 30, 2000 which provides
for monthly rent of approximately $33,000, annual rent increases based on
increases in the Consumer Price Index and the payment by the Company of all
insurance and utilities. The Company believes that the terms of the lease are no
less favorable to the Company than those that could have been obtained in an
arm's length transaction with an unrelated third party.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Equitrac's common stock as of June 25, 1999 for (1) each person who
is known by Equitrac to own beneficially more than 5% of the outstanding shares
of common stock, (2) the Named Executive Officers (as such term is defined in
the Summary Compensation Table), (3) each director of Equitrac, and (4) all of
the directors and executive officers of Equitrac as a group. Except pursuant to
applicable community property laws and except as otherwise indicated, each
shareholder identified in the table possesses sole voting and investment power
with respect to its or his shares.
<TABLE>
<CAPTION>
SHARES PERCENT
NAME AND ADDRESS (1) BENEFICIALLY OWNED(2) OWNED(2)
- -------------------- --------------------- --------
<S> <C> <C>
John T. Kane................................................... 744,416(3)(5) 20.5
George P. Wilson............................................... 615,780(4)(5) 16.9
Fidelity Low-Priced Stock Fund................................. 353,000(6) 9.9
82 Devonshire Street
Boston, Massachusetts 02109
Safeco Corporation............................................. 390,500(6) 11.0
4333 Brooklyn Avenue NE
Seattle, Washington 98185
Peak Investment Limited Partnership............................ 214,900(6) 6.1
One Financial Center, Suite 1600
Boston Massachusetts 02111
Marc M. Watson................................................. 36,000(5) 1.0
James F. Courbier.............................................. 13,000(5) *
Peter Marx..................................................... 16,000(5) *
</TABLE>
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<TABLE>
<S> <C> <C>
Scott J. Modist................................................ 24,000(5) *
Patrick J. Raftery............................................. 40,000(5) 1.1
John P. Jones.................................................. 10,400(5) *
All directors and executive officers as a group (11 persons)... 1,561,596(5) 40.1
</TABLE>
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* Less than 1% of the outstanding shares.
(1) Unless otherwise indicated, the address of each person is c/o Equitrac
Corporation, 836 Ponce de Leon Boulevard, Coral Gables, Florida 33134.
(2) Except pursuant to applicable community property laws and except as
otherwise indicated, each person has sole voting and investment power with
respect to all such shares. For purposes of this table, a person is deemed
to have "beneficial ownership" of any shares as of a given date which the
person has the right to acquire within 60 days after such date. For purposes
of computing the outstanding shares held by each person named above on a
given date, any shares which such person has the right to acquire within 60
days after such date are deemed to be outstanding, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(3) Includes (i) 646,750 shares of Common Stock directly owned and (ii) 6,000
shares of Common Stock owned by Mr. Kane's spouse.
(4) Includes (i) 372,500 shares of Common Stock directly owned, (ii) 116,414
shares owned by a general partnership, the sole managing partner of which is
a corporation all the outstanding stock of which is owned by Mr. Wilson and
(iii) 35,200 shares of Common Stock held in trust, of which the trustee is
Mr. Wilson, for the Kane family.
(5) Includes shares of Common Stock subject to stock options exercisable as of
June 25, 1999 or within 60 days thereof in the following amounts: John T.
Kane (91,666), George P. Wilson (91,666), James F. Courbier (5,000), Marc M.
Watson (33,000), Peter Marx (15,000), Scott J. Modist (24,000), Patrick J.
Raftery (38,200), John P. Jones (5,000), and all directors and executive
officers as a group (353,432).
(6) Based solely upon reports of beneficial ownership filed by the named person
with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's corporate headquarters are located in a building owned by
a partnership in which John T. Kane and George P. Wilson, directors and
principal shareholders of the Company, and James F. Courbier, a director of the
Company, each own a one-third interest. The Company has occupied these premises
since 1986. In September 1990, the Company entered into a lease agreement that
expires September 30, 2000 which provides for monthly rent of approximately
$33,000, annual rent increases based on increases in the Consumer Price Index
and the payment by the Company of all insurance and utilities. The Company
believes that the terms of the lease are no less favorable to the Company than
those that could have been obtained in an arm's length transaction with an
unrelated third party.
James F. Courbier, a director of the Company, received approximately
$72,000 in Fiscal 1999 for consulting services.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
their behalf of the undersigned thereunto duly authorized.
Date: June 25, 1999 EQUITRAC CORPORATION
By: /s/ Scott J. Modist
-----------------------------------------
Scott J. Modist
Vice President and Chief Finanacial
Officer
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