-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WTSuQXqIOeVuaVYYxou7bh5ZDqWE22Gmpsg+nBh8CdUUL50LA2KwjKNxWzHmHp0J cW4lLvyCIhMAnf335HQngQ== 0000950148-98-000738.txt : 19980401 0000950148-98-000738.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950148-98-000738 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELTRON INTERNATIONAL INC CENTRAL INDEX KEY: 0000915910 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE MACHINES, NEC [3579] IRS NUMBER: 954302537 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23342 FILM NUMBER: 98582696 BUSINESS ADDRESS: STREET 1: 41 MORELAND RD CITY: SIMI VALLEY STATE: CA ZIP: 93065 BUSINESS PHONE: 8055791800 10-K 1 FORM 10-K (12/31/1997) 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ ----------- COMMISSION FILE NUMBER: 0-23342 ELTRON INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 95-4302537 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 41 MORELAND ROAD, SIMI VALLEY, CA 93065-1692 (Address of principal executive office) (Zip Code) (805) 579-1800 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR VALUE Indicate by check mark whether the Registrant (1) has filed all reports 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 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. [ ] The aggregate market value of the common stock held by non-affiliates of the Registrant as of March 18, 1998 was $159,939,000. The number of shares outstanding of the Registrant's common stock as of March 18, 1998 was 7,468,670. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement to be filed no later than 120 days after December 31, 1997 are incorporated by reference into Part III. ================================================================================ 2 ELTRON INTERNATIONAL, INC. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 INDEX
Page ---- PART I Item 1. Business ........................................................... 3 Item 2. Properties ......................................................... 11 Item 3. Legal Proceedings .................................................. 11 Item 4. Submission of Matters to a Vote of Security Holders ................ 12 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 12 Item 6. Selected Consolidated Financial Data ............................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................. 14 Item 8. Financial Statements and Supplemental Data.......................... 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures .............................................. 21 PART III Item 10. Directors and Executive Officers of the Registrant ................. 21 Item 11. Executive Compensation ............................................. 21 Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 21 Item 13. Certain Relationships and Related Transactions ..................... 21 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .... 21 SIGNATURES Signatures .................................................................. 22 CONSOLIDATED FINANCIAL STATEMENTS Index to Consolidated Financial Statements .................................. 23 EXHIBITS Index to Exhibits ........................................................... 45
3 PART I Except as otherwise noted, all share and per share data in this Form 10-K have been adjusted to reflect a 2-for-1 forward stock split effected on May 1, 1995. Unless the context otherwise requires, the term "Company" or "Eltron" refers to Eltron International, Inc. and its subsidiaries. Unless the context otherwise requires, the terms "Russet," "Donner," "Privilege" and "RJS" refer to the Company's subsidiaries Russet Limited, Donner Media, Inc., Privilege, S.A. and RJS, Inc., respectively. This report may contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Factors associated with the forward looking statements which could cause actual results to differ materially from those stated include, among others, dependence on a significant customer, ability to sustain growth rate, management of rapidly changing business and acquisitions, management of inventory, competition, risks associated with international operations, development of markets and acceptance of products, growth in automatic identification data collection markets, and reliance on certain suppliers. For a fuller discussion of these risk factors, see pages 18 to 21. ITEM 1. BUSINESS COMPANY OVERVIEW Eltron International, Inc. designs, manufactures and distributes a full range of direct thermal and thermal transfer bar code label printers, integrated verified printing systems, receipt printers, plastic card printers, secure identification printing systems, related accessories, and support software. Eltron also manufactures and distributes a full range of pressure sensitive labels, tags, plastic cards, and printer ribbons for use with Eltron and other printers. The Company believes that its success to date has resulted from Eltron's ability to offer high quality printers and related products with features comparable to or exceeding those of available competing products at a lower cost and, additionally, because the Company offers the broadest range of thermal label and plastic card printers currently on the market. Eltron has developed an expertise in the design and manufacture of low cost thermal printers. The Company believes that the design simplicity, reliability, low cost and low maintenance requirements of thermal print technology make it particularly well suited for applications which require the on-demand printing of labels, tags, tickets, receipts, variable length forms and plastic cards, as well as for distributed printing applications where one high volume centralized printer is replaced with multiple lower volume printers placed where the labels, receipts or cards are requested. From its inception in 1991, Eltron has focused on bringing to market printers that satisfy unique customer demand which is not well served by cut-sheet laser printers or other mass market printer products. The Company initially focused its efforts on developing high quality, low cost desktop bar code label and tag printers and has since expanded its range of products to include high speed industrial bar code printers; integrated verified printing systems; portable label, tag and receipt printers; airline boarding pass printers; plastic card printers; secure identification printing systems; related accessories; pressure sensitive labels; tags; thermal printer ribbons; and plastic cards. Eltron is currently working to further expand its broad line of quality printers and accessories to meet the needs of additional markets, and to maintain and enhance its position as a price and quality leader. Eltron printers can be used for a wide variety of applications including identification and tracking of products, cartons, packages, baggage, medical specimens, patients, serial numbers and assets; warehouse management and logistics; airline ticketing; point of sale receipt printing; clothing tags; financial transaction receipt printing; national and regional ID cards; driver's licenses; insurance ID cards; medical records; employee ID cards and badges; time and attendance; school ID; security access control; corrections; recreation passes; and loyalty cards. The Company's products are sold through multiple distribution channels that include value added resellers, systems integrators, original equipment manufacturers, and national and regional distributors located in more than 80 countries. Industries for which the Company believes its printers are particularly well-suited include shipping and package delivery, retail distribution and point of sale, healthcare, manufacturing, financial services, security and governmental identification. The Company currently focuses its sales efforts in these markets, although it continues to explore the potential for new markets in which it can apply its expertise in the design and manufacture of thermal printers. 3 4 INDUSTRY OVERVIEW Eltron's products are designed to meet a wide range of customer needs, with the majority of its printers and related products sold into the bar code label printer and custom plastic card segments of the automatic identification data collection industry. Automatic identification data collection ("AIDC") refers to the automatic recognition and processing of data without the need for manual input. Currently, AIDC is accomplished through the computerized reading and writing of information encrypted in bar codes, magnetic stripes, biometrics and smart chips, with bar coding the predominant technology. A bar code consists of a series of bars and spaces of specified widths, the grouping of which represents specific numeric or alphanumeric characters. A unique bar code can be affixed to permit rapid and accurate identification of any number of variables relating to any item to be tracked or managed. Using AIDC systems, workers are able, with limited training, to collect data by scanning bar codes, magnetic stripes, or smart chips and transfer this information into computer databases in real time. AIDC is highly reliable compared to conventional manual methods and eliminates human error that occurs during manual input of information and results in lower labor and process costs. Bar code label printers use a number of printing technologies commonly used in the conventional computer printer industry. These technologies are direct thermal, thermal transfer, inkjet, impact and laser. Thermal transfer and thermal dye sublimation technologies are used for plastic card printers. Initially, AIDC technology used bar code labels to track or identify objects. Now, AIDC technology is increasingly being used to track or identify people using personalized plastic cards. Early stage AIDC technology was adopted by the transportation and retail industries, and it is now regularly used in industries ranging from manufacturing to medical research. As the cost of AIDC technology has decreased and customer acceptance increased, applications have diversified and created a number of new markets. Moreover, as information technology has increasingly come into use, retailers, manufacturers, and distributors in a large number of industries have issued compliance standards requiring that suppliers provide bar coded information on their products. While a number of AIDC applications allow for preprinted bar coded information to be included in package design, a significant number of applications require the on-demand encoding of variable data in unique bar code labels, thus making preprinted bar codes impractical. Generally, bar coded labels or tickets may be either preprinted off-site by a third party or on-site by the user where the bar code label will be used. On-demand printing is required when variable data that is not known until shortly before a label must be printed and used. Situations requiring on-demand printing include labels that have addresses, dates of manufacture, unique serial or purchase order numbers, product ingredients or nutritional information, accurate weights, expiration dates, and other similar information. Thermal dye sublimation, a relatively new thermal print process has recently become commercially viable for applications that call for color printing on PVC and polyester cards. This capability has given rise to an industry focused on the on-site creation of full color, photographic quality plastic cards. These cards can typically be created in less than 30 seconds for under one dollar, while the user waits. Traditional photographic processes are both more expensive and take more time. The Company believes that personalized card applications such as driver's licenses, loyalty cards, school and work identification cards, security access cards, and financial transaction cards are well suited to benefit from this technology. Bar codes, smart chip and magnetic stripe encoding can be used to record such personal data as health records, financial transactions, security access codes, and vital statistics. Eltron's sales of card printers increased more than 200% to $9.6 million in 1996, and 50% to $14.4 million in 1997. BUSINESS STRATEGY As a result of its combination of low price, high quality and service, the Company believes that it is a leading supplier of thermal printers and related accessories. Utilizing management's experience in the AIDC and computer peripheral industries, the Company is expanding its line of high quality printers and related accessories to meet the needs of additional markets and to position itself as a price and quality leader. The Company's objectives are to enhance its position as a leading supplier in the AIDC industry; to expand its product line of on-demand printers for use in additional applications, in label printing, plastic card printing, and secure identification printing; and to manufacture and market related supplies. The Company seeks to: 4 5 o Capitalize on Market Understanding To Establish Value Leadership in Profitable Niches. The Company believes that the success of its current products is the result of its understanding of customer needs and competitive market forces. Eltron continuously assesses its position relative to market needs and intends to sustain its competitiveness through intelligent product positioning and market understanding. The Company also intends to take Eltron's products to new markets and industries which provide opportunities for on-demand and distributed printing, allowing it to take advantage of its engineering and technology competencies. Eltron concentrates on providing high quality at the lowest price, rather than competing solely on product features or price alone. o Maintain Aggressive Product Design Cycles. Eltron has demonstrated its commitment to aggressive product design cycles by bringing to market more than 40 products since January 1991. The Company believes that a key factor in developing and maintaining a competitive advantage is its ability to rapidly transform a product concept into a manufactured product. The Company believes that reduced design cycles allow it to better react to ever changing market needs. o Pursue Simplified Product Design. Eltron's products are designed to be easily assembled and contain few parts and require little or no manufacturing adjustment. This design philosophy has guided the Company from its inception. For example, several models of Eltron desktop printers can be assembled in approximately 10 minutes. As a result, the Company is able to produce reliable, high-quality printers at low cost. This design philosophy will continue to be a priority for new product development. o Ensure Quality and Product Reliability. The Company believes that it must provide reliable, high-quality products and excellent service to develop and sustain a competitive advantage. Because of the cost savings it has achieved through its product designs, Eltron has been able to incorporate high-quality components into its products at comparatively low cost. Eltron's commitment to quality and reliability is also evidenced by the Company's ISO 9002 certification in November 1995. The majority of Eltron's products are warranted for a full year. The Company believes that it has not experienced significant warranty claims to date because of its product design strategy, the relatively small number of moving parts in its printers and the high-quality components it uses. The Company believes that the strategy summarized above will enable it to compete in its existing and new markets and plans to implement the strategy in the following areas: o Expand Presence and Products in Label and Receipt Printer Markets. The Company's strategy is to increase its penetration in its current markets by continuing to reduce the price of its products through design and manufacturing efficiencies, thereby increasing the affordability of automatic identification data collection equipment for new customers who may not have used it previously due to cost. Additionally, the Company intends to continue to identify new markets and design products and deliver them to these markets before significant competition has developed. The Company also believes that its wide range of product offerings provides an advantage in emerging markets in Latin America and Asia where bar code labeling has been more recently introduced. o Expand Presence and Products in Plastic Card Markets. The Company has applied the same design philosophy, manufacturing techniques and marketing strategy to it plastic card printers as it did for its bar code label and receipt printers. The Company believes that providing highly reliable, user friendly plastic card printers at a low price point may increase demand. Additionally, the Company believes that it can increase penetration by identifying new markets and designing products and delivering them to these markets before significant competition has developed. o Expand Manufacturing and Worldwide Distribution of Supplies. The Company will increasingly seek the benefit of the continuing revenue streams associated with the ongoing use of consumable printer supplies. The potential revenue from supplies sold over the life of a printer can greatly exceed the initial revenue from the printer itself. The Company believes it has the opportunity to expand its sales of labels, cards, printer ribbons and other supplies for use with its own growing base of installed printers, as well as for use with printers manufactured by others. The Company distributes its supplies through multiple sales channels which include value added resellers, systems integrators, original equipment manufacturers, regional and local distributors, and the 5 6 Company's own sales force. The Company believes it can capitalize on strong relationships in its channels to offer more products at lower incremental selling and administrative costs. o Identify and Enter New Markets. The Company believes that there is a growing number of printing applications being developed in various industries which require on-demand or distributed printing. The Company believes that, by virtue of its ability to manufacture relatively compact printers at low cost, it is well positioned to benefit from this trend. The Company also believes that it can build on its design competencies to address these new markets for on-demand or distributed printing. o Expand International Sales. From its inception Eltron has emphasized a global sales strategy. In the years ended December 31, 1994, 1995, 1996 and 1997, the Company's sales outside of the United States totaled approximately $8 million, $12 million, $30 million and $37 million, respectively. The Company distributes its products in more than 80 countries. The Company's objective is to be a worldwide supplier of a wide range of competitively priced on-demand printers and supplies. Eltron is the only company in the industry that offers a broad line of both label and card printers, and the Company believes that this is an advantage in the markets it serves, and especially in emerging markets in Latin America and Asia. THE COMPANY'S KEY MARKETS The Company's key markets include the package delivery, retail, healthcare, manufacturing, financial services, school/university and governmental identification, and security industries worldwide. Eltron is the only company that offers bar code label and receipt printers and plastic card printers. Because of this unique range of products, Eltron has the opportunity to increase sales of its label printers to customers initially buying card printers and also increase sales of its card printers to customers who initially bought label printers. Package Delivery. Package delivery companies are increasingly using automatic identification data collection technology to track packages from pickup to delivery. Bar code labels are printed at the shipping location and encoded with tracking information. The label is scanned by the package pickup driver and the data is stored in a portable data collection terminal. The data is either transmitted or later downloaded to the main computer system. The package is then delivered to the local distribution center for sorting by destination. The information encoded on the package label facilitates the continued tracking of the package. This encoded information is used again to sort and track the package when it arrives at its destination. Portable penpad computer terminals are used to record the recipient's name and time of delivery, and this information is then available to the sender for delivery verification. Examples of companies that have implemented this technology in their operations include United Parcel Service, Federal Express, Roadway Express and the U.S. Postal Service, some of which provide their customers with shipping systems consisting of computers, weighing scales and bar code label printers. Retail. The retail industry was one of the first to utilize automatic identification data collection technology. An individual stock-keeping unit ("SKU") is encoded with product identification information. This information is printed on the product container or onto a label or tag. The encoded product information is then scanned at the check-out terminal, expediting the check-out process and reducing the errors incurred in entering the information manually. An added benefit is that data contained on the SKU is transmitted to the main computer system for automatic inventory analysis. Desktop and portable label printers can be used to create substitute labels or tags with incomplete or missing SKU information, and for creating shelf tags. Personalized plastic card printing is increasingly being adopted for retail applications for customer loyalty cards, as well as for employee badges and identification, time and attendance cards. Loyalty cards are being used worldwide in a variety of settings from large discount centers to recreation activities. Healthcare. Initially healthcare applications utilized bar code labels to identify and track products, dosage, specimens, and information. Now plastic card printers are being used to identify and serve patients and healthcare providers. The use of both of these technologies in the healthcare industry is growing rapidly because they allow hospitals and healthcare systems to streamline accounting functions, reduce billing delays and errors and improve bottom line results; as well as to accurately track patient information and reduce the possibility of costly and potentially fatal errors. Examples of healthcare applications include patient admission, laboratory specimen identification and tracking, pharmacy labels and dispensing, patient identification, patient records, and insurance eligibility coverage. 6 7 The Company believes that, because of the large number of applications per patient and the significant liability associated with errors in certain healthcare applications, an incentive exists for the increased use of automatic identification data collection technology and personalized plastic cards which include vital statistics, medical history and coverage eligibility details. The Company believes that its products provide a means of reducing keystroke, handwriting or other human error in the healthcare sector. Manufacturing. The increased efficiencies associated with bar coded information are especially apparent in the industrial sector. Information encoded on components can be tracked for a variety of purposes, including assembly of components, tracking of product, work in progress, inventory control and warranty information. The Company believes that the industrial market has not been fully penetrated and many small and mid-sized firms have not yet employed automatic identification data collection technology. Financial Services. The Company believes that new technologies exist which can potentially increase the utility of plastic cards. These technologies include memory chip or "smart cards," high density magnetic strip encoding and high density bar codes; all of which enable plastic cards to provide more than an account number. This increased storage capacity is creating new applications for plastic cards such as electronic purse or debit cards. The Company believes that this increased transaction capability will create an increased need for security. Eltron's plastic card printers provide the ability to print bar codes, color photographs and graphics; encode magnetic stripes; insert smart chips, all in the same process at a relatively low cost. Schools/University and Governmental Identification. Plastic cards are being used by an increasing number of schools, universities, and governmental agencies and offices for a variety of applications combined onto one personalized card. At a university, for example, one card can be used for identification and access to classes, dormitory, library, laboratories and extracurricular events. When a smart chip option is included the user also can transact cafeteria charges and bookstore purchases. Security and Access Control. A growing number of firms are implementing access control systems that feature encoded identification badges. These badges may be used to unlock a door in a card access control system or as a form of identification with corporate name, logo, and individual name and photograph. The plastic card printer and software application are the two main components that allow for complete personalization of cards on demand. Access control is often required in educational environments, primarily universities, for access to dormitories, cafeterias, libraries and other facilities. Healthcare institutions control access to certain areas where, for example, prescription drugs are stored. PRODUCTS Since its inception, the Company has sought to develop and introduce a full line of affordable printers and related accessories. At December 31, 1997, the Company's main printer product offerings were as follows: Desktop Printers o The Companion Plus. Compact 2" wide direct thermal receipt printer for receipt printing in retail stores, financial transaction receipts, mailing, small parcel shipping, and specimen labeling. o Orion. Announced in October 1997. The Company's third generation direct thermal 4" wide label printer. The unique openACCESS(TM) design enables easy label loading and minimizes label jams. o Eclipse. New thermal transfer and direct thermal low cost 4" wide label printers in a rugged metal enclosure. Industrial class product at desktop pricing levels. o LP/TLP 2622. On-demand desktop direct thermal and thermal transfer 2" wide label printers for a wide variety of low duty cycle business applications. o LP/TLP 2642. On-demand desktop direct thermal and thermal transfer 4" wide label printers for a wide variety of low duty cycle business applications. 7 8 o LP/TLP 3642. On-demand desktop direct thermal and thermal transfer 4" wide label printers with 300 dpi print resolution for a wide variety of high image quality business applications. Industrial Printers o Strata. These rugged direct thermal and thermal transfer 8.5" wide label printers are used for wide web label printing applications such as chemical drum and pallet labeling. o LP/TLP 2046. Industrial class direct thermal and thermal transfer 4" wide label printers for heavy duty cycle applications. o The QualaBar Series. Family of industrial direct thermal and thermal transfer label printers with print widths from 4" to 8.4", speeds from 2 inches per second to 10 inches per second, 203 and 300 dot per inch configurations, integrated verification models, and a variety of memory and label stock handling options. o The ThermaBar Series. Rugged direct thermal and thermal transfer industrial 6" and 8.5" wide label printers with integrated verification systems. Portable Label Printers o Transport. Direct thermal portable 4" wide label printer. Durable, light weight, with optional IR interface. Designed for remote and mobile label printing applications. Plastic Card Printers o The P300. Monochrome (1000 cards/hour) and full color (100 cards/hour) low cost desktop plastic card printers for on-demand access control, identification, and loyalty card printing applications. Options include magnetic strip encoding and smart card encoding support. o The P400. Full color (80 cards/hour with dual sided printing) desktop plastic card printers for on-demand access control, identification, and loyalty card applications. Options include magnetic stripe encoding and smart card encoding support. o The P500. Full color (100 cards/hour with overlamination) plastic card printers for durable access control, identification, and loyalty card applications. Options include magnetic stripe encoding and smart card encoding support. o The P600. Full color (180 cards/hour) high performance plastic card printers for access control, identification, and loyalty card applications. Options include magnetic stripe encoding and smart card encoding support. Secure Identification Printing Systems. The Max3000 is a single process secure ID card printing system for maximum security, durability and tamper resistant card requirements such as driver's licenses. Integrates printing, lamination, rotary die-cutting and optional magnetic encoding of 3M Secure Card media. RESEARCH AND PRODUCT DEVELOPMENT The Company devotes significant resources to new product development and has established an aggressive product development schedule. Since its inception, Eltron has sought to shorten the time required to take a product concept and turn it into a manufactured product. Eltron refers to this period as the product design cycle. By focusing on reducing the product design cycle, Eltron has been able to introduce more than 40 products since its inception in 1991. At December 31, 1997, the Company employed 64 individuals in new product design, engineering and development. Eltron provides its engineering department with computer-aided design tools and processes to improve design efficiency and allow the department to compress product development cycles. Eltron engineers design all firmware, hardware, software, mechanisms, mechanical parts and enclosures used in its printers and other products. 8 9 SALES AND MARKETING Because the Company's products are frequently combined with products from other manufacturers to form an integrated system, the Company sells its products through a worldwide network of authorized distributors, value added resellers, systems integrators, and original equipment manufacturers. These sales channels provide the software, configuration, installation, integration, and support services required by end users within various market segments. In the United States, the Company sells primarily through over 350 national and regional distributors, value added resellers and systems integrators. Value added resellers and systems integrators are selected to specialize in specific industries and sell in relatively small geographic areas. The Company does not grant specific territories to its domestic resellers. The Company works to ensure the expertise of its resellers and has made an effort to ensure that they are knowledgeable regarding the Company's products. Sales to original equipment manufacturers are managed by the Eltron sales force. At December 31, 1997, the Company employed 65 individuals in sales, marketing and customer service in the United States. United States field sales personnel are located in Connecticut, Florida, Georgia, Illinois, Minnesota, Montana and New Jersey. Eltron's internal sales force is responsible for expanding and improving the sales volume generated by its sales channels. The sales force is also responsible for communicating the Company's capabilities to existing and potential customers, coordinating orders, and solving application and implementation challenges for resellers and end users. The inside sales group coordinates and processes orders and seeks to ensure customer satisfaction through the timely communication of product information. Outside the United States, the Company sells through more than 150 resellers located in 80 countries who purchase, warehouse and sell printers, accessories, supplies and other integrated system components. Eltron's international distributors cover specific countries throughout the world. These distributors have been qualified by the Company and are encouraged to attend annual training seminars at the Company's headquarters. The Company enters into written distribution agreements with most of its distributors on a non-exclusive basis. The Company currently employs 34 individuals outside of the United States in sales and marketing functions. These individuals work from regional offices in Wokingham, England; Varades, France; Boulogne Billancourt, France; Hong Kong, China; and Singapore. The Company extends credit based on an ongoing evaluation of each customer's financial condition and generally does not require collateral. The Company maintains reserves for potential credit losses which to date have been within management's expectations. The Company extends credit to its domestic customers for a term of 30 days and, in accordance with local business practices, may extend credit to its international customers for a term of up to 60 to 90 days. For the years ended December 31, 1995, 1996 and 1997, the Company's sales to UPS accounted for approximately 38%, 31% and 24%, respectively. If UPS reduces its level of its historical purchases, such reduction would have a material adverse affect on the Company's financial position, results of operations and cash flows. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Dependence On Significant Customer." The Company's marketing operations include product management, marketing services and technical support. The product management group initiates the development of new products and product enhancements to meet customer needs, and manages product introductions and positioning. The product management group also focuses on strategic planning and market definition and analyzes the Company's competitive strengths and weaknesses. This group identifies and evaluates market opportunities for current, planned and potential products, and gathers and analyzes competitive and market intelligence. The marketing services group is responsible for advertising and public relations activity. This group creates advertising, brochures and product documentation, maintains the Eltron web site, manages trade show exhibits, and places articles highlighting applications of Eltron's products in trade and industry publications. The technical support group provides, among other things, a hotline staffed by technical personnel. BACKLOG The Company generally ships customer orders within 14 days of receipt of an order, 9 10 except in cases where a customer requests that orders be sent at a particular time to meet the customer's needs. Aside from long term orders received from UPS which totaled approximately $9 million at December 31, 1997, the amount of the non-UPS backlog is generally at an insignificant level. For information concerning orders from UPS, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Dependence on Significant Customer." COMPETITION Many companies are engaged in the design, manufacture and marketing of automatic identification data collection equipment and plastic card printing. The Company considers its direct competition in label printer markets to be the providers of direct thermal and thermal transfer printing systems and supplies designed for the on-demand label printing environment. To a lesser extent the Company also competes with companies engaged in the design, manufacture and marketing of standard computer and label printers which employ alternative printing technologies. In card printer markets the Company considers its direct competition to be the providers of thermal plastic card printing systems and supplies designed for the on-demand printing environment. There are a number of factors involved in the manufacture, marketing and sale of on-demand thermal label and plastic card printers, such as price, ease of use, product quality, product reliability, market position, sales channels, product innovation, time to market, service and technical support. The Company believes that it presently competes favorably with respect to these factors. The Company competes against several companies across its product line, as no one competitor offers the breadth of products that the Company offers. For low cost desktop label printer products, Eltron's principal competitors are Cognitive Solutions, a subsidiary of Axiohm Transaction Solutions, Inc.; Tokyo Electric Company; Seiko; and Microcom. Datamax Corporation and Zebra Technologies, Inc. have also recently announced products to compete in the low cost desktop label printer markets. In the higher performance printer markets, Eltron's principal competitors are Datamax Corporation; Intermec Corporation, a subsidiary of Unova, Inc.; Monarch Marking Systems, a subsidiary of Paxar, Inc.; Sato; Tokyo Electric Company; and Zebra Technologies. Each of these companies manufactures a series of printers that competes with one or more of the Company's products in the higher performance printer category. Several of these companies, and others against which the Company competes, have substantially greater financial, technical, market position and other resources than the Company. The Company's principal competitors in the plastic card market include Datacard, Inc., a privately-held manufacturer of card personalization systems and transaction terminals, and Fargo, Inc., a privately-held manufacturer of wax thermal transfer and dye sublimation color page printers and ID card printers. Various other competitive methods of bar code printing exist and the Company continually assesses these technologies to determine if they are suitable for low-cost bar code printing. Currently, the Company believes that direct thermal and thermal transfer print technology provide the best low-cost, high quality printing solution for its target markets. If other technologies were to evolve or become available to the Company, it is possible that those technologies would be incorporated into its products if management believed they were suitable for low-cost bar code printing. Alternatively, if such technologies were to evolve or become available to the Company's competitors, the Company's products may become obsolete, which would have a material adverse affect on the Company's financial position, results of operations and cash flows. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company regards portions of the hardware designs and operating software incorporated into its products as proprietary and attempts to protect them with a combination of patents, trademarks and trade secret laws, employee and third-party nondisclosure agreements and similar means. The Company has 2 patents and 3 pending patents pertaining to its products. Despite the Company's efforts to protect its intellectual property rights, it may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or otherwise obtain and use, to the Company's detriment, technology and information that the Company regards as proprietary. Moreover, the laws of certain countries do not afford the same protection to the Company's proprietary rights as do United States laws. There can be no assurance that legal protections relied upon by the Company to protect its proprietary position will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. 10 11 The Company currently holds United States trademarks on the Company's "Eii," "Eltron," "Eltron BarCode Professional," "Eltron Companion," "TigerWriter," "Privilege" and "Russet" logos and the name "Eltron". The Company actively protects these trademarks, which it believes have significant goodwill value. Eltron relies on a combination of trade secrets, copyright laws and contractual rights to establish and protect its proprietary rights in its products. The Company from time to time receives notices from third parties claiming infringement by the Company's products of third party patent and other intellectual property rights. Regardless of its merit, responding to future claims or lawsuits could be time-consuming and, to avoid litigation, require the Company to enter into royalty and licensing agreements which may not be on terms acceptable to the Company. If a successful claim is made against the Company, the Company may have to pay a settlement or judgment and if the Company fails to develop or license a substitute technology, the Company's business, financial position, results of operations and cash flows could be adversely affected. EMPLOYEES The Company believes that the continued dedication of the Company's employees is important to its long-term growth and success, and since its inception has sought to obtain the trust and respect of its employees by providing open communications, a clean and safe workplace and competitive benefits. As of December 31, 1997, the Company employed approximately 486 persons, 10 were part-time. Of these employees, 99 were employed in sales and marketing functions, 325 were employed in engineering and manufacturing functions, while the remaining 62 employees performed general and administrative functions. None of the Company's employees is covered by collective bargaining agreements. The Company considers its relationship with its employees to be excellent. ITEM 2. PROPERTIES The Company's corporate headquarters are located in Simi Valley, California. The Company's facilities are listed as follows:
Square Footage --------------------------------------------------------------------- Manufacturing, Production & Administrative, Location Warehouse Research & Sales Total Lease Expires - -------- --------------------------------------------------------------------- Simi Valley, California USA 37,500 30,000 67,500 January 1999 Simi Valley, California USA 35,000 -- 35,000 July 1998 Greenville, Wisconsin USA 27,000 3,000 30,000 March 2007 Wokingham, Berkshire, UK 16,000 11,000 27,000 October 2010 Varades, France 13,535 6,465 20,000 August 2000 Boulogne Billancourt, France -- 3,120 3,120 Monthly renewal Floersheim, Germany* -- 1,500 1,500 Monthly renewal Singapore -- 1,800 1,800 Monthly renewal Hong Kong and Mainland China** -- 6,700 6,700 December 1999 ------ ------- ------- Total 129,035 63,585 192,620
*Operations handled out of European headquarters effective first quarter of 1998. **Eltron-Chinetek Joint Venture headquarters in Hong Kong and 5 additional sales offices in China. See Footnote 11 to the Company's Consolidated Financial Statements for further discussion of lease commitments. See Footnote 15 to the Company's Consolidated Financial Statements for a discussion of the purchase of new facilities in Camarillo, California. ITEM 3. LEGAL PROCEEDINGS None. 11 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Common Stock began trading on The Nasdaq National Market on February 9, 1994 under the symbol "ELTN." The following table sets forth the high and low last sale prices of the Common Stock on The Nasdaq National Market for the periods indicated:
HIGH LOW ---- --- 1996 First Quarter................................................... 37 3/4 29 1/4 Second Quarter.................................................. 33 3/4 23 3/4 Third Quarter................................................... 33 3/8 21 3/4 Fourth Quarter.................................................. 38 1/2 18 1/4 1997 First Quarter................................................... 26 19 1/4 Second Quarter.................................................. 31 18 1/2 Third Quarter................................................... 36 1/8 26 1/4 Fourth Quarter.................................................. 35 25 3/4
The last sale price of the Common Stock on March 18, 1998 on The Nasdaq National Market was $23.25 per share. The Company had 62 shareholders of record and approximately 3,000 beneficial shareholders as of March 18, 1998. The Company has never paid cash dividends on its Common Stock and does not currently anticipate that it will do so in the foreseeable future. The Company plans to retain earnings to finance the Company's operations. 12 13 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth certain selected consolidated financial information, which should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included elsewhere herein. The selected consolidated financial data for each of the five years in the period ended December 31, 1997 have been derived from the Company's audited consolidated financial statements.
Year Ended December 31, --------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 ----------- ----------- ------------ ------------ ------------- CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Sales .......................... $17,989,005 $29,276,490 $ 54,971,064 $ 88,509,582 $ 105,028,976 Cost of sales .................. 10,961,012 16,253,100 30,123,477 50,171,082 59,521,222 ----------- ----------- ------------ ------------ ------------- Gross profit ................... 7,027,993 13,023,390 24,847,587 38,338,500 45,507,754 Selling, general and administrative expense ........ 3,983,624 5,803,352 11,270,292 16,398,967 19,893,724 Research and product development expense ........... 1,592,022 1,885,320 2,932,003 5,308,736 7,126,739 Write off of acquired in process technology and other costs associated with acquisition .. -- -- -- 3,528,555 -- ----------- ----------- ------------ ------------ ------------- Income from operations ......... 1,452,347 5,334,718 10,645,292 13,102,242 18,487,291 Other (income) expense, net .... 379,490 115,800 (115,171) (211,486) (132,164) ----------- ----------- ------------ ------------ ------------- Income before provision for income taxes .................. 1,072,857 5,218,918 10,760,463 13,313,729 18,619,456 Provision for income taxes ..... 72,473 1,595,714 3,640,762 6,215,173 6,982,295 ----------- ----------- ------------ ------------ ------------- Net income ..................... $ 1,000,384 $ 3,623,204 $ 7,119,701 $ 7,098,556 $ 11,637,161 =========== =========== ============ ============ ============= Net income per common share Basic ......................... $ 0.33 $ 0.64 $ 1.07 $ 0.98 $ 1.57 =========== =========== ============ ============ ============= Diluted ....................... $ 0.28 $ 0.58 $ 0.97 $ 0.91 $ 1.49 =========== =========== ============ ============ ============= Weighted average number of shares outstanding Basic ......................... 3,000,000 5,627,406 6,682,779 7,226,352 7,394,641 =========== =========== ============ ============ ============= Diluted ....................... 3,542,344 6,211,796 7,348,966 7,821,379 7,801,982 =========== =========== ============ ============ =============
December 31, ----------------------------------------------------------------------------- 1993 1994 1995 1996 1997 ----------- ----------- ------------ ------------ ------------- CONSOLIDATED BALANCE SHEET DATA: Working capital.............. $2,553,277 $10,462,799 $31,535,828 $34,624,655 $44,955,509 Total assets................. 7,655,197 19,494,002 45,624,225 54,245,059 66,861,748 Shareholders' equity ........ 1,969,269 11,779,835 36,185,179 43,551,234 56,669,372
13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Eltron International, Inc. and subsidiaries (the "Company" or "Eltron") design, manufacture and market a full range of direct thermal and thermal transfer bar code printers, plastic card printers, related accessories and support software. Eltron also manufactures and distributes a full range of supplies designed for use with its printers. The Company believes that its success to date has resulted from its ability to offer high-quality printers and related products with features comparable to or exceeding those of available competing products at a lower cost. The Company's products are sold through multiple distribution channels that include value added resellers, systems integrators, original equipment manufacturers and national and regional distributors located in more than 80 countries. Industries for which the Company believes its printers are particularly well-suited include shipping and package delivery, retail distribution and point of sale, healthcare, manufacturing, financial services, security and governmental identification. The Company currently focuses its sales efforts in these markets, although it continues to explore the potential for new markets in which it can apply its expertise in the design and manufacture of thermal printers. Eltron's objective is to expand its position as a leading supplier of thermal printers, supplies and related accessories designed for use in on-demand and distributed printing applications. The Company believes that it is able to maintain a competitive advantage through both internal development efforts and strategic acquisitions and alliances. The acquisition of RJS in early 1996 has been accounted for as a pooling of interests for financial reporting purposes. The accompanying financial statements are based on the assumption that the two companies were combined at the beginning of the year, and all financial statements for prior periods presented have been restated to give effect to the combination. In connection with the acquisition, RJS changed its fiscal year end from September 30 to December 31, which conforms to Eltron's year end. The consolidated financial statements for all years prior to 1996 have not been restated to reflect RJS' change in fiscal year. The 1995 financial statements include RJS' results of operations on a September 30 fiscal year end basis and Eltron's results of operations on a December 31 calendar year basis. In January, 1998, Printronix Inc., a leading manufacturer of computer printers, acquired the assets and rights to the bar code verification business and the RJS name from Eltron for approximately $2.8 million. Eltron retained the rights to the in-line verification technology for use in its line of integrated verified printing systems, as well as the QualaBar and ThermaBar industrial thermal printer lines. RESULTS OF OPERATIONS The following table sets forth for the periods indicated, certain information derived from the Company's Consolidated Statements of Income expressed as percentages of sales. The table also presents information on the Company's consolidated results of operations expressed as a percentage increase or decrease relative to the results of the previous period.
PERCENTAGE INCREASE OVER RESULTS PERCENTAGE OF SALES FOR PRIOR PERIOD ------------------------ ------------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------- ------------------ 1995 1996 1997 1996 1997 ---- ---- ---- ---- ---- Sales 100% 100% 100% 61% 19% Cost of Sales 55 57 57 67 19 --- --- --- Gross profit 45 43 43 54 19 Operating Expenses: Selling, general and administrative 21 19 19 46 21 Research and product development 5 6 7 81 34 Write off of acquired in process technology and other costs associated with acquisitions -- 4 -- NM -- --- --- --- Other (income) expense, net NM NM NM NM NM --- --- --- Income before provision for income taxes 20 15 18 24 40 Provision for income taxes 7 7 7 71 12 --- --- --- Net income 13% 8% 11% --% 64% === === ===
NM = not meaningful 14 15 COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996 Sales for 1997 totaled $105 million, an increase of $16.5 million, or 19%, over sales of $88.5 million for 1996. This was primarily due to increased sales of thermal label printers, plastic card printers and media to new and existing Eltron customers worldwide. 1997 was a record year for sales, exceeding $100 million for the first time. Sales of card printers increased 50% from $9.6 million in 1996 to $14.4 million in 1997. Sales of label printers to customers other than United Parcel Service (UPS) increased 34% from $28.9 million in 1996 to $38.9 million in 1997. International sales in 1997 were 34% of total sales, up from 27% in 1996. In 1997 sales to UPS were $25.7 million, or 24% of total sales, compared to $27.3 million, or 31% of total sales in 1996. Although the Company received a $10 million follow on order from UPS in October of 1997, and had a backlog of orders from UPS of approximately $9 million as of December 31, 1997, there is no obligation on the part of UPS to place any further orders with Eltron. The Company has derived a significant portion of its revenues from UPS and may continue to be dependent on UPS, or other significant customers, in the future, the loss of which could materially and adversely affect the Company's financial position, results of operations and cash flows. No customer other than UPS contributed greater than 10% of the Company's net sales in 1996 or 1997. Gross profit for 1997 totaled $45.5 million, compared to $38.3 million in 1996, an increase of $7.2 million or 19%. Gross margin for 1997 was 43%, the same as was reported for 1996. However, higher margins resulting from a favorable product mix during the earlier part of 1997 were offset, primarily by lower margin products shipped to UPS in late 1997. Gross margin in the later part of 1997 was also affected by start-up costs related to the Company's latest UPS program and by a provision of approximately $544,000 taken for certain excess inventory components associated with the phase out of a prior UPS program. Sales to high volume customers and OEMs, and sales of supplies are typically transacted at a price which yields a lower than average gross margin. Management currently believes that sales to high volume and OEM customers, as well as sales of supplies, may increase in the future and that, as a result, the 43% gross margin exhibited in 1997 may not necessarily be maintained in the future. Selling, general and administrative expenses in 1997 were $19.9 million or 19% of sales compared to $16.4 million or 19% in 1996. These increases are primarily attributable to costs associated with the company's overseas expansion, including its office in Singapore, a new distribution center in the United Kingdom, a new sales office in France and an extension to the card printer facility, also in France. In 1997 the Company created business groups for label printers, card printers, supplies and service. Costs associated with the forming of these new groups also contributed to the increase in expenses from 1996 to 1997. The Company currently anticipates that selling, general and administrative expenses will increase in future quarters but may decrease as a percentage of sales. The actual amount spent will depend on a variety of factors, including the Company's level of operations, and the number of new markets the Company attempts to enter. Research and development increased 34% in 1997 to $7.1 million, up from $5.3 million in 1996. This increase related primarily to increased efforts to develop new products. As a percentage of sales, these expenses increased to 7% in 1997, from 6% in 1996. The Company currently anticipates that research and product development expense will increase in future quarters and may increase as a percentage of sales. The actual amount spent will depend on a variety of factors, including the Company's level of operations and the number of product development projects that it embarks upon. In 1996, operating results were impacted by legal and other costs associated with business combinations, either attempted or completed, which totaled approximately $1 million and the write-off of acquired in-process technology valued at $2.5 million in connection with the purchase of Privilege, S.A. These costs were related to specific transactions and therefore are non-recurring. There were no such costs in 1997. Net interest income totaled $233,000 in 1997, an increase of $33,000 over net interest income of $200,000 in 1996. The increase in interest income was primarily due to an increase in invested capital. See "Liquidity and Capital Resources." 15 16 The provision for income taxes for 1997 was $7 million or 37.5% of pretax income. The effective tax rate for 1997 was adversely affected, in part, by a retroactive increase in French corporate income taxes imposed by the French government. The provision for income taxes for 1996 was $6.2 million, or approximately 46% of pretax income, which includes the tax effect of $3.5 million of expenses related to the write-off of acquired in-process technology and acquisition costs which are not deductible for income tax purposes, the utilization of certain tax credits and the reduction of deferred tax asset reserves. Excluding the effects of non-recurring charges, the Company's effective tax rate for 1996 would have been 37%. COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995 Sales for 1996 totaled $88.5 million, an increase of $33.5 million or 61% over sales for 1995, which totaled $55.0 million. This increase in sales can be attributed to an increase in the number of printers sold resulting from wider market acceptance of the Company's established lines of bar code printers, increased acceptance of its recently introduced plastic card printers, as well as higher than anticipated demand from the Company's largest customer, United Parcel Service and its designated marketing partners ("UPS"). 1996 sales were also bolstered by the inclusion of a full year's operations for Donner, as compared to four months in 1995, which accounted for $3 million of the 1996 sales increase. Sales were also aided by the acquisition of Privilege, effective January 1, 1996, which accounted for $9.6 million of the 1996 sales increase. Throughout 1996, sales were enhanced by increased sales to either UPS or its designated sub-contractors, which contributed approximately $27 million and $20.8 million to sales in 1996 and 1995, respectively. The Company has derived a significant portion of its revenues from UPS and may in the future be dependent on UPS, or other significant customers, the loss of any one of which could materially adversely affect the Company's financial position, results of operations and cash flows. No customer other than UPS contributed greater than 10% of the Company's net sales during 1996. Gross profit for 1996 totaled $38.3 million, an increase of $13.5 million or 54% over gross profit for 1995. As a percentage of revenues, gross profit decreased 2% to 43% in 1996 from 45% in 1995. This decrease can be attributed primarily to an increase in sales to high volume customers and OEMs which are typically transacted at a price which yields a lower gross margin, although the incremental selling costs associated with these transactions are generally less than those associated with a non-OEM sale. Selling, general and administrative expenses as a percentage of sales were 19% and 21% for 1996 and 1995, respectively. In 1996, selling, general and administrative expenses increased 46% in absolute dollars to $16.4 million up from $11.3 million in 1995. These increases primarily reflect sales and marketing efforts focused on the Company's domestic and European sales channels. Research and development expenses increased 81% in 1996 to $5.3 million, up from $2.9 million in 1995. This increase related primarily to additional efforts to develop new products. As a percentage of sales, these expenses increased to 6% in 1996, from 5% in the previous year. Operating results were also impacted by legal and other costs associated with business combinations, either attempted or completed, in 1996 which totaled approximately $1 million and the expensing of acquired in-process technology valued at $2.5 million in connection with the purchase of Privilege, S.A. These costs were related to specific transactions and therefore are non-recurring. Net interest income totaled $211,000 in 1996, a decrease of $167,000 over net interest income of $378,000 for the previous year. This decrease in interest income was primarily due to a decrease in invested capital. The provision for income taxes for 1996 was $6.2 million, or approximately 46% of pretax income, which includes the tax effect of $3.5 million of expenses related to the write-off of acquired in-process technology and acquisition costs which are not deductible for income tax purposes, the utilization of certain tax credits and the reduction of deferred tax asset reserves. The Company's provision for income taxes for 1995 was $3.6 million or 34% of pretax income. The Company's provision for income taxes was higher as a percentage of pretax income in 1996 as a result of non-recurring costs associated with the acquisitions of Privilege and RJS which were not deductible for tax purposes. If these costs had not been incurred in 1996, the Company's effective tax rate would have been 37%. 16 17 YEAR 2000 COMPLIANCE During 1997, the Company began the implementation of a year 2000 compliant enterprise-wide information system. The Company has also initiated an assessment project, both within the Company and with is business partners, which addresses those other significant systems that may have year 2000 compliance issues. The Company presently believes that with the implementation of the new system and modification to existing software, year 2000 compliance will not pose a significant operational challenge for the Company. However, if these modifications are not completed on a timely basis, including implementation by its business partners, the Company's financial position, results of operations, and cash flows will be materially and adversely affected. LIQUIDITY AND CAPITAL RESOURCES In 1997, operating activities provided cash totaling $5.5 million as compared to $2.5 million generated in 1996 and $2.4 million of cash used during 1995. Overall increases in operating cash flow in 1997 were partially offset by increases in accounts receivable and inventories of $4.1 million and $5 million, respectively. In 1997, investing activities used cash totaling $3.8 million, as compared to $869,760 and $14.4 million used in 1996 and 1995, respectively. During 1997, cash was used primarily to purchase $5 million in equipment for business expansion and the ongoing implementation of a new information system. In addition, net sales of short term investments generated approximately $1.3 million of cash during 1997. In 1997, financing activities generated cash totaling $1 million. Cash from financing activities was generated primarily from the sale of the Company's Common Stock through the exercise of stock options. In 1997, Eltron entered into an agreement for a revolving line of credit with a bank. The revolving credit facility allows Eltron to borrow up to $8 million on an unsecured basis. Borrowings under the revolving credit facility bear interest at the Bank's prime rate. Under the terms of the revolving credit facility, Eltron is not able to enter into certain transactions or declare dividends without receiving prior written consent from the Bank and is required to comply with certain covenants as well as maintain certain debt to net worth ratios, current ratio and minimum net worth requirements. The revolving credit agreement expires in May 1998 and the Company believes that it will be successful in entering into a new credit agreement with a bank, with terms similar to those in the current agreement. There was no utilization of the credit line during 1997. The Company did not have any significant capital commitments as of December 31, 1997. In February 1998, the Company completed the purchase of a building in Camarillo, California for approximately $7.8 million in cash. This building will serve as the Company's new world headquarters and provide expanded manufacturing capacity. The Company believes that it can refinance the building during 1998 through Industrial Development Bonds or through a conventional commercial real estate loan. Upon completion of various modifications to the building, the Company anticipates moving into the building near the end of 1998 or in early 1999. The Company believes that cash provided by operating activities, existing cash and short-term investments will be sufficient to fund the Company's capital needs for the foreseeable future. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130, which requires companies to adopt its provisions for fiscal years beginning after December 15, 1997, establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Management does not believe the adoption of SFAS No. 130 will have a material effect on its consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement requires companies to adopt its provisions for fiscal years beginning after December 15, 1997, requires publicly-held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and is utilized by the chief operating decision maker. Specific 17 18 information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. Management is currently evaluating the requirements of adopting SFAS No. 131 and the effects, if any, on the Company's current reporting and disclosures. CAUTIONARY STATEMENTS AND RISK FACTORS In addition to historical information, this Annual Report contains forward looking statements that involve risks and uncertainties. Factors associated with the forward looking statements which could cause actual results to differ materially from those stated appear elsewhere in this Annual Report and as stated below. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. The Company undertakes no obligation to publicly release any revision to these forward-looking statements. Readers should also carefully review any risk factors described in other documents the Company may file from time to time with the Securities and Exchange Commission. In addition to the other information contained in this document, readers should carefully consider the following cautionary statements and risk factors. DEPENDENCE ON SIGNIFICANT CUSTOMER For the years ended December 31, 1995, 1996 and 1997, UPS or its designated marketing partners, accounted for approximately $20.8 million, $27.3 million and $25.7 million, respectively, of the Company's total sales. UPS has no contractual obligation to place any further orders with the Company. The Company's financial position, results of operations and cash flows are substantially dependent on future sales to UPS. If UPS reduces the level of its historical purchase orders, this reduction would have a material adverse affect on the Company's financial position, results of operations and cash flows and adversely affect the market price of the Company's Common Stock. POTENTIAL FLUCTUATION IN QUARTERLY PERFORMANCE The Company's quarterly operating results can fluctuate significantly depending upon a variety of factors, including the mix of products shipped, the changes in product prices by the Company and its competitors, the seasonality of certain segments of the Company's markets, the lack of a meaningful backlog of orders, the availability and costs of components, the historical disproportionate level of orders received and sales made by the Company during the last few weeks of each fiscal quarter, the market acceptance of new products, and changes in general economic conditions. Because of these and other factors, any inaccuracies in forecasting could adversely affect the Company's financial position, results of operations and cash flows. Quarterly results are not necessarily indicative of future performance for any particular period, and there can be no assurance that the Company can maintain the levels of revenue and profitability experienced over the past three years on a quarterly or annual basis. ABILITY TO SUSTAIN GROWTH RATE In 1995, 1996 and 1997, the Company achieved annual sales growth of 88%, 61% and 19% respectively. In the opinion of management, these growth percentages can primarily be attributed to initial market penetration by the Company and the acquisitions of Donner and Privilege during 1995 and 1996 respectively. Management believes that as the Company's markets mature that, in the absence of future acquisitions, the Company will not be able to sustain its historic high growth rate. Shareholders and investors should not rely on the continuation of the Company's historic high growth rate in making their investment decisions. MANAGEMENT OF RAPIDLY CHANGING BUSINESS, ACQUISITIONS The Company experienced rapid growth during 1995 and 1996, partly as a result of various acquisitions. Future acquisitions, if any, may strain the operational, administrative and financial resources of the Company. To manage its growth effectively, the Company will be required to continue to implement and improve its operating and financial systems and to expand, train and manage its employee base. There can be no assurance that the management skills and systems currently in place will be adequate if Eltron continues to grow at an accelerated rate. MANAGEMENT OF INVENTORY The Company's market requires that its products be shipped very quickly after an order is received. Since purchased 18 19 component and manufacturing lead times are typically much longer than the shorter time demanded for completing orders placed for the Company's products, the Company is required to stock adequate inventories of both components and finished goods, and must accurately forecast demand for its many products. Inaccurate forecasts of customer demand, restricted availability of purchased components, supplier quality control problems, production equipment problems, cargo-carrier strikes or damage to products during manufacture could result in a buildup of excess components or finished goods and an inability to deliver product on a timely basis, either of which could have a material adverse affect on the Company's financial position, results of operations and cash flows. HIGHLY COMPETITIVE INDUSTRY The Company's markets are highly competitive and the Company expects that competition will continue to increase as additional foreign and domestic companies expand into the Company's markets. The Company competes with a number of companies, many of which have greater financial, technical and marketing resources than the Company. The Company believes its ability to successfully compete depends on a number of factors, both within and outside its control, including product pricing, quality and performance; success in developing new products; adequate manufacturing capacity and supply of components and materials; efficiency of manufacturing operations; effectiveness of sales and marketing resources and strategies; strategic relationships with suppliers; timing of new product introductions by the Company and its competitors; general market and economic conditions; and government actions worldwide. An important part of the Company's marketing strategy is to provide competitively priced, quality products. This strategy is dependent, in part, upon the Company's ability to engineer and design into its products high quality, low cost components. While the Company has reduced prices on certain of its products in the past and will likely continue to do so in the future, such price reductions are highly dependent upon such future engineering designs being timely completed and the pricing of components by its vendors. Price reductions, if not offset by similar reductions in the cost of goods sold, will negatively affect gross margin and may adversely affect the Company's financial position, results of operation and cash flows. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS The Company's sales outside of the United States totaled approximately $12 million, $30 million and $37 million in 1995, 1996 and 1997, respectively. The Company expects that international sales will continue to represent a significant portion of its revenues. International sales are subject to inherent risks, including fluctuations in local economies, difficulties in staffing and managing foreign operations, fluctuating exchange rates, difficulty of inventory management, difficulty in accounts receivable collection, costs and risks associated with localizing products for foreign markets, unexpected changes in regulatory requirements, tariffs and other trade barriers, and burdens of complying with a variety of foreign laws. There can be no assurance that these factors will not have a material adverse impact on the Company's ability to increase or maintain its international sales, or on its financial position, results of operations, and cash flows. A substantial portion of the components used in the manufacture of the Company's products are purchased from entities based in Japan. Fluctuations in the exchange rate between the U.S. dollar and Japanese yen could result in an increase in the cost of these components. During 1997 this exchange rate was generally favorable to the Company. However, if this favorable exchange rate turns adversely the Company must achieve other cost savings to avoid product price increases. The Company has not entered into any currency hedging transactions to date, however, in the future, the Company may seek to hedge certain transactions. On January 1, 1999, the member countries of the European Economic Community will adopt the use of the EURO currency as well as their own currency for trading purposes. It is uncertain what impact these changes may have on the Company and its financial position, results of operations and cash flows. DEVELOPMENT OF MARKETS AND ACCEPTANCE OF PRODUCTS The Company's continued growth will depend on the Company's ability to market its existing products and to develop and successfully market new products. However, the Company's near-term financial results will depend in part upon increasing market acceptance of, and the Company's ability to expand the market share for, its current 19 20 products. There can be no assurance that any new products the Company may introduce will gain market acceptance. The markets for the Company's products are characterized by a high degree of competition, rapidly changing technology, frequent new product introductions and price erosion. Accordingly, the Company believes its future prospects depend on its ability not only to enhance and successfully market its existing products, but also to develop and introduce new products in a timely fashion that achieve market acceptance. There can be no assurance that the Company will be able to identify, design, develop, market or support such products successfully or that the Company will be able to respond effectively to technological changes or product announcements by competitors. Delays in new product introductions or product enhancements, or the introduction of unsuccessful products, could have a material adverse effect on the Company's financial position, results of operations and cash flows. The Company's current products are primarily used in the bar code market, which began in the 1960s and has since experienced substantial growth, particularly since 1989. To the extent the bar code market does not continue to grow or experiences a significant economic downturn, the Company's ability to generate revenues could be materially adversely affected. Moreover, even if the size of the bar code market does increase, there can be no assurance that the demand for the Company's products will also increase. RELIANCE ON CERTAIN SUPPLIERS The Company purchases numerous parts, supplies and other components from various suppliers, which the Company assembles into its products. Although there are at least two sources for many of such parts, supplies and components, the Company currently relies on a single source of supply, Mitsubishi Electronics, for the main microprocessor used to control its printers. Additionally, the Company is heavily dependent on Rohm Co., Ltd. and Kyocera Industrial Ceramics CP, its primary supply sources for print heads, and NMB Technologies, Inc., its primary supply source for motors. As such, the Company is vulnerable to limits in supply and pricing and product changes by these suppliers. Although management believes that such changes could be accommodated by the Company, they may necessitate changes in the Company's product design or manufacturing methods, and the Company could experience temporary delays or interruptions in supply while such changes are incorporated. Further, because the order time for microprocessors, print heads and motors averages four months, the Company could also experience delays or interruptions in supply in the event the Company is required to find a new supplier for any of these components. Any future disruptions in supply of suitable parts and components from the Company's principal suppliers could have a material adverse effect on the Company's financial position, results of operations and cash flows. The Company does not maintain back-up tooling for many of the Company's molded plastic components. Should a mold break or become unusable, repair or replacement could take several months. The Company does not always maintain sufficient inventory to allow it to fill customer orders without interruption during the time that would be required to obtain an adequate supply of molded plastic products. Accordingly, an extended interruption in the supply of any such components could adversely affect the Company's financial position, results of operations and cash flows. SHAREHOLDER RIGHTS PLAN In March 1998, the Company's Board of Directors approved the adoption of a Shareholder Rights Plan pursuant to which the Company will declare a distribution of one Preferred Share Purchase Right ("Right") on each outstanding share of Common Stock as of April 3, 1998. The Rights will be attached to the Company's Common Stock and will trade separately and be exercisable only in the event that a person or group acquires or announces the intent to acquire 15% or more of the Company's Common Stock. Each Right will entitle the shareholder to buy one one-hundredth of a share of new series of junior participating preferred stock at an exercise price of $120 per Right. The Rights expire on April 3, 2008. The Shareholder Rights Plan is intended to protect the Company's shareholders against abusive takeover tactics and to ensure that each shareholder is treated fairly in any transaction involving an acquisition of control of the Company, such as partial two-tiered tender offers that do not treat all shareholders fairly and equally. The Rights do not affect any takeover proposal which the Board believes is in the best interests of the Company's shareholders. Pursuant to the Rights Plan, if the Company is acquired in a merger or other business combination transaction after a person or group has acquired 15% or more of the Company's outstanding Common Stock, each Right will entitle its holder (other than such person or group) to purchase, at the Right's then-current exercise price, a number of the acquiring 20 21 company's common shares having a market value of twice such price. Following an acquisition by a person or group of beneficial ownership of 15% or more of the Company's Common Stock and before an acquisition of 50% or more of the Common Stock, the Company's Board of Directors may exchange the Rights (other than the Rights owned by such person or group), in whole or in part, at an exchange ratio of one share of Common Stock (or one one-hundredth of a share of the new series of junior participating preferred stock) per Right. Before a person or group acquires beneficial ownership of 15% or more of the Company's Common Stock, the Rights are redeemable for $.0001 per Right at the option of the Board of Directors. While the Company is not aware of any current intent to acquire a sufficient number of shares of the Company's Common Stock to trigger exercisability of the Rights, existence of the Rights could discourage offers for the Company's Common Stock that exceed the current market price of the Common Stock , but that the Board of Director deems inadequate. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The financial statements and financial statement schedule of the Company are annexed to this Report as pages 26 through 43. An index to such material appears on page 23. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item with respect to the directors and executive officers of the Company is incorporated by reference from the Company's definitive proxy statement, expected to be filed with the Commission on or about April 10, 1998. ITEM 11. EXECUTIVE COMPENSATION The information required by this item with respect to executive compensation is incorporated by reference from the Company's definitive proxy statement, expected to be filed with the Commission on or about April 10, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item with respect to security ownership is incorporated by reference from the Company's definitive proxy statement, expected to be filed with the Commission on or about April 10, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item with respect to certain relationships and transactions is incorporated by reference from the Company's definitive proxy statement, expected to be filed with the Commission on or about April 10, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Financial Statements and Financial Statements Schedules. See Index to Consolidated Financial Statements at Page 23 of this Report. (b) Financial Statement Schedules 1. Schedule II - Valuation and Qualifying Accounts. (c) Exhibits are annexed to this Report - see "Index to Exhibits". 21 22 SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ELTRON INTERNATIONAL, INC. By: /s/ Donald K. Skinner -------------------------------- Donald K. Skinner Chairman of the Board Chief Executive Officer In accordance with the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates stated.
Signature Title Date --------- ----- ---- /s/ Donald K. Skinner Chairman of the Board and Chief Executive March 31, 1998 - -------------------------------- Officer (Principal Executive Officer) Donald K. Skinner /s/ Hugh K. Gagnier President, Chief Operating Officer and March 31, 1998 - -------------------------------- Director Hugh K. Gagnier /s/ Roger Hay Vice President Finance and Chief March 31, 1998 - --------------------------------- Financial Officer (Principal Financial Roger Hay and Accounting Officer) /s/ Robert G. Bartizal Director March 31, 1998 - --------------------------------- Robert G. Bartizal /s/ George L. Bragg Director March 31, 1998 - ---------------------------------- George L. Bragg /s/ William R. Hoover Director March 31, 1998 - ----------------------------------- William R. Hoover
22 23 ELTRON INTERNATIONAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS Reports of Independent Public Accountants ............................................ 24 Consolidated Balance Sheets as of December 31, 1996 and 1997 ......................... 26 Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997 27 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1996 and 1997 .............................................................. 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 .................................................................... 29 Notes to Consolidated Financial Statements ........................................... 30 FINANCIAL STATEMENT SCHEDULE Schedule II Valuation and Qualifying Accounts ........................................ 43
23 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Eltron International, Inc.: We have audited the consolidated balance sheets of Eltron International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1997, and the related financial statement schedule as listed in the index on page 23 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We previously audited and reported on the consolidated statements of income, shareholders' equity and cash flows of Eltron International, Inc. for the year ended December 31, 1995 prior to their restatement for the 1996 pooling of interests with RJS, Inc. and subsidiary ("RJS"). The contribution of RJS to the combined revenues and net income represented approximately 23% and 11% of the respective restated totals for the year ended December 31, 1995. Separate financial statements of RJS included in the related restated consolidated statements of income, shareholders' equity and cash flows were audited and reported on separately by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for RJS, is based solely on the report of the other auditors. We also audited the combination of the accompanying consolidated statements of income, shareholders' equity and cash flows for the year ended December 31, 1995 after restatement for the pooling of interests in 1996; in our opinion, such consolidated statements have been properly combined on the basis described in Note 1 of the notes to consolidated financial statements. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eltron International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. In addition, 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. Woodland Hills, California February 24, 1998 24 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of RJS, Incorporated: We have audited the consolidated statements of income and retained earnings, and cash flows of RJS, Incorporated and subsidiary (the "Company") for the year ended September 30, 1995 (not presented separately herein). 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, such consolidated financial statements present fairly, in all material respects, the results of the operations of the Company and its subsidiary and their cash flows for the year ended September 30, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE L.L.P. Los Angeles, California November 22, 1995 25 26 ELTRON INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS ASSETS
December 31, --------------------------- 1996 1997 ---------- ---------- CURRENT ASSETS: Cash ......................................................... $ 1,291,396 $ 3,770,139 Short term investments ....................................... 7,945,254 6,696,105 Accounts receivable, net of allowance for doubtful accounts of $452,234 and $341,343, respectively ........................ 16,331,124 20,575,443 Inventories .................................................. 16,947,780 21,417,152 Prepaid expenses and other current assets .................... 700,145 835,410 Deferred tax asset ........................................... 1,291,468 1,803,553 ----------- ------------ Total current assets ..................................... 44,507,167 55,097,802 PROPERTY AND EQUIPMENT, net ...................................... 7,724,700 10,384,651 DIFFERENCE BETWEEN COST AND FAIR VALUE OF NET ASSETS ACQUIRED .... 1,125,164 735,482 OTHER ASSETS ..................................................... 888,028 643,813 ----------- ------------ $54,245,059 $ 66,861,748 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................................. 6,881,637 5,928,560 Accounts payable to shareholder .............................. 160,082 -- Accrued liabilities .......................................... 1,179,415 1,594,072 Income tax payable ........................................... -- 361,659 Accrued compensation ......................................... 1,311,862 959,120 Earn-out obligation .......................................... -- 954,313 Deferred service contract revenue ............................ 349,516 344,569 Total current liabilities ................................ 9,882,512 10,142,293 LONG TERM OBLIGATIONS............................................. 811,313 50,083 COMMITMENTS SHAREHOLDERS' EQUITY: Preferred stock, 10,000,000 shares authorized of which none are outstanding Common stock, no par value: Authorized -- 30,000,000 shares Issued and outstanding - 7,302,294 and 7,455,920 shares, respectively ............................................. 24,238,345 26,000,480 Cumulative translation adjustment ............................ 25,400 (255,758) Retained earnings ............................................ 19,287,489 30,924,650 ----------- ------------ Total shareholders' equity ............................... 43,551,234 56,669,372 ----------- ------------ $54,245,059 $ 66,861,748 =========== ============
The accompanying notes are an integral part of these consolidated financial statements 26 27 ELTRON INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, ------------------------------------------------- 1995 1996 1997 ------------ ------------ ------------- SALES .......................................... $ 54,971,064 $ 88,509,582 $ 105,028,976 COST OF SALES .................................. 30,123,477 50,171,082 59,521,222 ------------ ------------ ------------- Gross profit .................................. 24,847,587 38,338,500 45,507,754 OPERATING EXPENSES: Selling, general and administrative ........... 11,270,292 16,398,967 19,893,724 Research and product development .............. 2,932,003 5,308,736 7,126,739 Write-off of acquired in-process technology and other costs associated with acquisitions..... -- 3,528,555 -- ------------ ------------ ------------- INCOME FROM OPERATIONS ......................... 10,645,292 13,102,242 18,487,291 OTHER (INCOME) EXPENSE: Interest, net ................................. (378,458) (199,505) (232,753) Other, net .................................... 263,287 (11,982) 100,589 ------------ ------------ ------------- INCOME BEFORE PROVISION FOR INCOME TAXES ....... 10,760,463 13,313,729 18,619,456 PROVISION FOR INCOME TAXES ..................... 3,640,762 6,215,173 6,982,295 ------------ ------------ ------------- NET INCOME ..................................... $ 7,119,701 $ 7,098,556 $ 11,637,161 ============ ============ ============= NET INCOME PER COMMON SHARE Basic ....................................... $ 1.07 $ 0.98 $ 1.57 ============ ============ ============= Diluted ..................................... $ 0.97 $ 0.91 $ 1.49 ============ ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic ....................................... 6,682,779 7,226,352 7,394,641 ============ ============ ============= Diluted ..................................... 7,348,966 7,821,379 7,801,982 ============ ============ =============
The accompanying notes are an integral part of these consolidated financial statements 27 28 ELTRON INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Cumulative ---------------------------- Translation Retained Shares Amount Adjustment Earnings Total ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1994 6,061,324 $ 6,702,308 $ (11,050) $ 5,088,577 $ 11,779,835 Issuance of common stock, net of offering costs of $1,198,575 ........... 850,000 16,651,425 -- -- 16,651,425 Retirement of warrants -- (274,527) -- -- (274,527) Exercise of stock options .............. 244,494 266,428 -- -- 266,428 Tax benefit resulting from exercise of options .......... -- 645,000 -- -- 645,000 Translation adjustment . -- -- (2,683) -- (2,683) Net income ............. -- -- -- 7,119,701 7,119,701 --------- ------------ ------------ ------------ ------------ BALANCE, December 31, 1995 7,155,818 23,990,634 (13,733) 12,208,278 36,185,179 Adjustment to retained earnings as a result of business combination .......... -- -- -- (19,345) (19,345) Exercise of stock options .............. 169,337 447,215 -- -- 447,215 Cancellation of shares in connection with RJS merger....... (22,861) (775,581) -- -- (775,581) Tax benefit resulting from exercise of options .............. -- 576,077 -- -- 576,077 Translation adjustment.. -- -- 39,133 -- 39,133 Net income ............. -- -- -- 7,098,556 7,098,556 --------- ------------ ------------ ------------ ------------ BALANCE, December 31, 1996 7,302,294 24,238,345 25,400 19,287,489 43,551,234 Exercise of stock options .............. 161,087 1,012,309 -- -- 1,012,309 Cancellation of shares issued in connection with RJS merger ...... (7,461) (253,016) -- -- (253,016) Tax benefit resulting from exercise of options............... -- 1,002,842 -- -- 1,002,842 Translation adjustment.. -- -- (281,158) -- (281,158) Net income ............. -- -- -- 11,637,161 11,637,161 --------- ------------ ------------ ------------ ------------ BALANCE, December 31, 1997 7,455,920 $ 26,000,480 $ (255,758) $ 30,924,650 $ 56,669,372 ========= ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements 28 29 ELTRON INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------------------ 1995 1996 1997 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income ......................................... $ 7,119,701 $ 7,098,556 $ 11,637,161 Adjustments to reconcile net income to cash provided by (used in) operating activities: Write off of purchased in process technology ..... -- 2,500,000 -- Depreciation and amortization .................... 580,306 1,441,350 2,336,840 Provision for losses on inventory ................ 113,228 343,885 543,975 Amortization of the difference between cost and fair value of net assets acquired .............. 56,000 235,041 389,682 Provision for doubtful accounts .................. 31,163 124,775 86,100 Deferred income taxes ............................ (517,398) 586,852 (512,085) Changes in assets and liabilities, net of businesses acquired: Accounts receivable ............................ (3,150,979) (6,094,240) (4,330,419) Inventories .................................... (6,517,763) (5,413,779) (5,013,347) Prepaid expenses and other assets .............. (797,490) 922,117 (144,066) Accounts payable ............................... 958,786 1,735,829 (953,077) Accounts payable to shareholder ................ 898,562 (1,656,827) (160,082) Accrued liabilities and compensation ........... 618,966 551,296 254,998 Accrued taxes payable .......................... (1,775,239) -- 1,364,501 Deferred service contract revenue .............. 16,000 134,516 (4,947) ------------ ------------ ------------ Net cash provided by (used in) operating activities (2,366,157) 2,509,371 5,495,234 CASH FROM INVESTING ACTIVITIES: Purchases of property and equipment ................ (2,955,760) (5,280,209) (4,996,791) Cash paid in connection with acquisition of Privilege, SA .................................... -- (3,196,373) -- Purchase of short term investments ................. (20,852,247) (14,930,428) (14,548,701) Sale of short term investments ..................... 9,409,582 22,537,250 15,797,850 ------------ ------------ ------------ Net cash used in investing activities .............. (14,398,425) (869,760) (3,747,642) CASH FROM FINANCING ACTIVITIES: Net repayments under line of credit ................ (887,911) (768,000) -- Cash proceeds from stock sales, net ................ 16,651,425 -- -- Common stock purchased in connection with RJS merger -- (775,581) -- Payments to retire warrants ........................ (274,527) -- -- Proceeds from exercise of stock options ............ 266,428 447,215 1,012,309 Repayments of long term debt ....................... -- (20,037) -- ------------ ------------ ------------ Net cash provided by (used in) financing activities. 15,755,415 (1,116,403) 1,012,309 EFFECT OF EXCHANGE RATE CHANGES ON CASH .............. (2,683) 39,133 (281,158) ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH ...................... (1,011,850) 562,341 2,478,743 CASH BALANCE, beginning of year ...................... 1,740,905 729,055 1,291,396 ------------ ------------ ------------ CASH BALANCE, end of year ............................ $ 729,055 $ 1,291,396 $ 3,770,139 ============ ============ ============ SUPPLEMENTAL DISCLOSURES: Interest and taxes paid: Interest paid ..................................... $ 119,767 $ 29,311 $ 50,226 Taxes paid ........................................ 6,374,000 5,089,531 6,201,884 Non-cash transactions: Tax benefit resulting from exercise of options .... 645,000 576,077 1,002,842 Assumption of liabilities and obligations in connection with acquisition of Donner Media, Inc. 1,009,606 -- -- Assumption of liabilities and obligations in connection with acquisition of Privilege, SA ... -- 1,323,000 -- Cancellation of shares issued in connection with RJS merger ..................................... -- -- (253,016)
The accompanying notes are an integral part of these consolidated financial statements 29 30 ELTRON INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Eltron International, Inc. and subsidiaries (the "Company" or "Eltron") design, manufacture and market a full range of direct thermal and thermal transfer bar code printers, plastic card printers, related accessories and support software. Eltron also manufactures and distributes a full range of supplies designed for use with its printers. These products are sold by the Company through multiple distribution channels that include value added resellers, systems integrators, original equipment manufacturers and independent distributors located throughout the world. Industries for which the Company believes its printers are particularly well-suited include shipping and package delivery, retail distribution and point of sale, healthcare, manufacturing, financial services and local, state and Federal identification cards including driver's licenses. The Company currently focuses its sales efforts in these markets, although it continues to explore the potential for new markets. Effective March 1, 1996, the Company acquired RJS, Incorporated ("RJS") in a business combination accounted for as a pooling of interests. The accompanying financial statements are based on the assumption that the two companies were combined at the beginning of the year, and all financial statements for prior periods presented have been restated to give effect to the combination. The consolidated financial statements for all years prior to 1996 have not been restated to reflect RJS' change in fiscal year. The 1995 financial statements include RJS' results of operations on a September 30 fiscal year end basis and Eltron's results of operations on a December 31 calendar year basis. Earnings per share data reflect the shares issued in the merger for all periods presented. Prior to February 1996, Eltron and RJS in the normal course of business entered into certain transactions for the purchase and sale of merchandise. These intercompany transactions have been eliminated in the accompanying financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation The consolidated financial statements include the accounts of Eltron International, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. b. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. c. Short Term Investments The Company considers all highly liquid investments purchased with original maturity of three months or less to be cash equivalents. The Company has classified its short term investments, including those with an original maturity of 90 days or less, as "available for sale" and accordingly, carries such securities at aggregate fair value. At December 31, 1997, the Company's short term investments consisted primarily of municipal bonds and selected bond funds. The aggregate fair value of the Company's short term investments approximated their amortized cost basis. At December 31, 1997, all of the Company's short term investments had maturities of less than one year. d. Revenue Recognition Revenue is recognized upon shipment. Currently, the Company generally does not provide its customers with the right of return. The Company sells extended service contracts for its products. Revenue for such contracts is recognized on a straight line basis over the life of the contract. e. Warranty The Company provides a warranty of up to one year on certain components of its printers. A provision for warranty 30 31 expense is recorded at the time of shipment. To date, the Company has not experienced any significant warranty claims. f. Research and Product Development Research and product development costs are expensed as incurred. g. Difference Between Cost and Fair Value of Net Assets Acquired Difference between cost and fair value of net assets acquired represents the difference between the purchase price and the fair value of assets acquired in business combinations accounted for as a purchase. The Company amortizes the difference between cost and fair value of net assets acquired on a straight-line basis over the period for which such additional value is expected to be realized, typically three to five years. The Company continually evaluates whether changes have occurred that would suggest that such additional value may not be realized over the remaining amortization period. If this review indicates that the remaining estimated useful life of the difference between cost and fair value of net assets acquired requires revision or is not recoverable, the carrying amount is reduced by the estimated shortfall. To date, the Company has not revised the carrying amount of the difference between cost and fair value of net assets acquired. Accumulated amortization of the difference between cost and fair value of net assets acquired is as follows:
DECEMBER 31, ---------------------------- 1996 1997 ----------- ----------- Excess cost over fair value of net assets acquired $ 1,823,989 $ 1,771,450 Accumulated amortization of excess cost over fair value of net assets acquired (698,825) (1,035,968) ----------- ----------- $ 1,125,164 $ 735,482 =========== ===========
h. Translation of Foreign Currencies The functional currency of each of the Company's foreign subsidiaries is its local currency. All assets and liabilities of the Company's foreign subsidiaries are translated at current exchange rates while revenues and expenses are translated at average rates in effect for the period; the resulting gains and losses are included in a separate component of shareholders' equity. Transaction gains (losses) are included in the accompanying income statements and were not significant in 1995, 1996 and 1997. Until the acquisitions of Russet, Ltd. and Privilege, S.A. in November of 1994 and January of 1996, respectively, the Company conducted its international business transactions exclusively in U.S. dollars. The Company has not entered into any currency hedging transactions to date, however, in the future, the Company may seek to hedge certain transactions. i. Sales and Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, short term investments and trade accounts receivable. The Company places its cash and short term investments in a variety of financial instruments such as market rate accounts, municipal bonds, selected bond funds and U.S Government agency debt securities. The Company, by policy, limits the amount of credit exposure to any one financial institution or commercial issuer. The Company's largest customer, United Parcel Service, either directly or through certain of its marketing partners ("UPS") accounted for approximately $20.8 million, $27.3 million and $25.7 million of the Company's sales for the years ended December 31, 1995, 1996 and 1997, respectively. At December 31, 1996 and 1997, accounts receivable from United Parcel Service totaled approximately $2.4 million and $4.4 million, respectively. The Company extends credit based on an ongoing evaluation of each customer's financial condition and generally does not require collateral. The Company maintains reserves for potential credit losses which to date have been within management's expectations. j. Advertising Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 1995, 1996 and 31 32 1997 totaled $797,000, $1,624,000 and $1,955,000, respectively. k. Income Taxes The Company utilizes the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. l. Net Income Per Common Share During the year end December 31, 1997, the company adopted SFAS No. 128, "Earnings per Share." In accordance with SFAS No. 128, basic net income per common share is computed using the weighted average number of shares of common stock and diluted net income per common share is computed using the weighted average number of shares of common stock and common equivalent shares outstanding. Common equivalent shares related to stock options and warrants are excluded from the computation when their effect is antidilutive. m. Accounting for Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." n. Reclassifications Certain amounts in the prior period financial statements have been reclassified to conform to the current period's presentation. o. Long Term Assets The carrying value of long-term assets is periodically reviewed by management, and impairment losses, if any are recognized when the expected non-discounted future operating cash flows derived from such assets are less than their carrying value. p. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130, which requires companies to adopt its provisions for fiscal years beginning after December 15, 1997, establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Management does not believe the adoption of SFAS No. 130 will have a material effect on its consolidated financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement requires companies to adopt its provisions for fiscal years beginning after December 15, 1997, requires publicly-held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and is utilized by the chief operating decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. Management is currently evaluating the requirements of adopting SFAS No. 131 and the effects, if any, on the Company's current reporting and disclosures. 32 33 3. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist of the following:
December 31, --------------------------- 1996 1997 ----------- ----------- Subassemblies and raw materials $10,958,660 $13,698,636 Work in process ............... 1,924,981 2,411,237 Finished goods ................ 4,064,139 5,307,279 ----------- ----------- $16,947,780 $21,417,152 =========== ===========
4. PROPERTY AND EQUIPMENT Property and equipment stated at cost consists of the following:
December 31, ------------------------------ 1996 1997 ------------ ------------ Tooling and machinery ......................... $ 6,386,954 $ 8,566,595 Office equipment .............................. 3,720,350 5,988,410 Leasehold improvements ........................ 80,261 598,876 ------------ ------------ 10,187,565 15,153,881 Less, accumulated depreciation and amortization (2,462,865) (4,769,230) ------------ ------------ Net property and equipment .................... $ 7,724,700 $ 10,384,651 ============ ============
Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives: Machinery and manufacturing equipment............................ 3 to 10 years Furniture and office equipment................................... 3 to 7 years
The Company capitalizes tooling costs once a product design has been finalized. Tooling costs are amortized to cost of sales on a straight-line basis over the greater of estimated product life, generally three years, or the ratio of current revenues to the total of current and anticipated future revenues. Leasehold improvements are amortized on a straight-line basis over the shorter of the asset life or lease term. Major replacements or betterments of property and equipment are capitalized. Costs of normal repairs and maintenance are charged to expense as incurred. 5. PUBLIC OFFERINGS, CHANGES IN CAPITALIZATION AND WARRANTS In connection with the Company's February 1994 initial public offering, the Company sold, for $110, to Cruttenden Roth Incorporated ("Cruttenden") , the underwriter, warrants to purchase up to 220,000 shares of the Company's Common Stock, at an exercise price of $3.60 per share. The Cruttenden warrants are exercisable for a period of up to four years beginning February 9, 1995 and are not transferable, except to officers of Cruttenden. In addition, the Company has granted certain rights to the holders of the Cruttenden warrants to register the Common Stock underlying Cruttenden warrants under the Securities Act of 1933, as amended. None of the Cruttenden warrant had been exercised as of December 31, 1997. On February 26, 1998, the Cruttenden warrants were exercised. On May 31, 1995, the Company completed a follow on public offering (the "Offering") of 850,000 shares of its Common Stock at $21.00 per share, raising approximately $16.7 million. Approximately, $274,000 of the proceeds from the Offering were used to retire warrants to purchase up to 15,832 shares of the Company's common stock issued to Silicon Valley Bank in connection with its 1993 line of credit agreement. On April 18, 1995, the Company's Board of Directors declared a 2-for-1 forward stock split of the Company's Common Stock, which was effective on May 1, 1995. All common share data and per share data included in the accompanying financial statements and notes thereto have been adjusted to reflect this stock split. 33 34 6. BUSINESS COMBINATIONS Donner Media, Inc. Effective September 1, 1995, the Company purchased 80% of the outstanding capital stock of Donner Media, Inc. ("Donner"), a manufacturer of pressure sensitive labels located in Appleton, Wisconsin for $250,000 in cash. The Company also entered into an agreement (the "Agreement") to acquire the remaining 20% of Donner's outstanding capital stock. Under the terms of the Agreement the Company has committed to purchase Donner's remaining capital stock on September 1, 1998 for the greater of (i) the incremental value of such shares as determined in accordance with the valuation methodology set forth in the Agreement or (ii) $1 million in cash. The amount recorded in the accompanying financial statements related to this payment is based upon management's judgments regarding such factors as future competitive conditions and product costs, which can be difficult to predict. Actual results could differ from those estimates. The net present value of this estimated payment, calculated at an effective interest rate of 9% per annum, has been included in "Long Term Obligation" and "Earn-out Obligation" on the accompanying Consolidated Balance Sheets as of December 31, 1996 and 1997, respectively. The acquisition has been accounted for as a purchase for financial reporting purposes and, accordingly, the results of operations for Donner are included with those of the Company from September 1, 1995. Revenues for the period from September 1, 1995 to December 31, 1995, totaled $1.1 million. A portion of the purchase price has been allocated to the assets and liabilities of Donner based on their estimated respective fair values. The purchase price and expenses associated with the acquisition exceeded the fair value of Donner's net assets by approximately $1 million which has been included in "Difference Between Cost and Fair Value of Net Assets" on the accompanying Consolidated Balance Sheets. Acquisition of Privilege, S.A. At January 1, 1996, the Company purchased all of the outstanding capital stock of Privilege, S.A. ("Privilege"), a French company primarily engaged in the design, manufacture and distribution of custom plastic card printers. This transaction has been accounted for as a purchase for financial reporting purposes. Acquired in-process technology valued at $2.5 million was expensed immediately. The purchase price paid by Eltron was approximately $3.2 million in cash and the assumption of approximately $1.3 million in trade liabilities and debt. The assets acquired by Eltron consisted of trade receivables, inventories, equipment and technology. The estimated fair values of the assets of Privilege acquired are summarized as follows: Trade receivables.................................................... $ 964,000 Inventories.......................................................... 370,000 Equipment and other tangible assets.................................. 328,000 In process research and development projects......................... 2,500,000 Cost in excess of net assets acquired................................ 397,000 ---------- Total................................................. $4,559,000 ==========
The results of operations relating to Privilege are included with those of the Company from January 1, 1996. Net revenues generated from Privilege operations totaled approximately $7.8 million for the period from January 1 to December 31, 1996. Merger with RJS, Incorporated Effective March 1, 1996, the Company acquired RJS, Incorporated ("RJS") in a business combination accounted for as a pooling of interests. RJS is a manufacturer of bar code label printers, bar code verifiers and verified printing systems located in Monrovia, California. In accordance with the terms of the merger, Eltron paid $776,000 in cash (in lieu of 22,861 shares of Eltron Common Stock) and issued 322,991 shares of its Common Stock to the shareholders of RJS as consideration for all of the outstanding capital stock of RJS. 34 35 The accompanying financial statements are based on the assumption that the two companies were combined at the beginning of the year, and all financial statements for prior periods presented have been restated to give effect to the combination. Earnings per share data reflects the shares issued in the merger for all periods presented. Prior to February 1996, Eltron and RJS, in the normal course of business, entered into certain transactions for the purchase and sale of merchandise. These intercompany transactions have been eliminated in the accompanying financial statements. In connection with the merger, RJS changed its fiscal year end from September 30 to December 31, which conforms to Eltron's year end. During the three months ended December 31, 1995, RJS reported sales of $3 million and a net loss of $19,000. In order to reflect this change in fiscal year-end, retained earnings has been decreased by RJS' net loss for the three months ended December 31, 1995. The consolidated financial statements for all periods prior to 1996 have not been restated to reflect RJS' change in fiscal year and include RJS' results of operations on a September 30 fiscal year end basis and Eltron on a December 31 calendar year basis. Prior to the merger, RJS had a $2,000,000 line-of-credit facility with a bank. The credit facility was collateralized by accounts receivable, inventories and property and equipment. Immediately upon the merger of Eltron and RJS, the RJS line of credit was paid in full, and the line terminated. The weighted average borrowing rate for 1995 and 1996, on the above credit facility, was 9.3%. A reconciliation of net sales and net income previously reported to net sales and net income as adjusted to reflect the merger is as follows:
Year Ended December 31, ----------------------- 1995 ----------------------- Sales: As previously reported: By Eltron $42,361,064 By RJS 12,610,000 ----------- As restated $54,971,064 Net Income: As previously reported: By Eltron $ 6,369,701 By RJS 750,000 ----------- As restated $ 7,119,701
Joint Venture with Chinetek In June 1997, Eltron entered into an agreement with Beijing based Chinetek Group to form a joint venture, Eltron-Chinetek, Co. Ltd., to expand Eltron's market in China. The joint venture will initally establish five offices located in the major Chinese industrial centers of Beijing, Shenyang, Shenzhen, Shanghai and Hong Kong. Headquarters are in Hong Kong. Each company owns a 50% share in the joint venture. Revenues are recognized by the Company as products are shipped from the joint venture and collectability is deemed probable; revenues were not significant in 1997. Profit is eliminated on Eltron shipments to the joint venture. Eltron's investment was initially $100,000, with an additional $150,000 of capital to be invested during 1998. The investment in Eltron-Chinetek Co. Ltd. is being treated as a marketing expense to be written off over a 2 year period. 7. RELATED PARTY TRANSACTIONS The Company was party to a manufacturing and marketing agreement with a shareholder, Taiwan Semiconductor Co. Ltd. ("TSC"), from January of 1991 until June of 1996. The agreement provided TSC with the non-exclusive right to manufacture printers and printer components for the Company as well as the exclusive right to market and distribute certain Eltron products in the continent of Asia. Under the terms of the agreement, TSC was required to pay the Company a royalty equal to 3.5% of gross revenues derived from sales of Eltron products and could either: (i) manufacture the Eltron products which are sold in Asia or (ii) purchase the products from Eltron. For the years ended December 31, 1995 and 1996, the Company purchased subassemblies and components totaling $7,899,775 and $3,717,825, respectively from TSC (of which $5,153,426 and $2,899,148 are recorded in cost of goods sold) and received royalties of $4,624 and $0 respectively. 8. EMPLOYEE BENEFIT PLAN 35 36 The Company has a 401(k) savings and profit sharing plan that is available to substantially all of its employees. Under the plan, employees can make voluntary contributions not to exceed the lesser of an amount equal to 15% of their compensation or limits established by the Internal Revenue Code. The Company, at its discretion, matches a portion of the employees' annual contributions, which vests over time. Contributions made by employees are vested immediately. Company contributions during each of 1995, 1996 and 1997 were $18,000, $0 and $26,000, respectively. 9. INCOME TAXES The sources of income before provision for income taxes were as follows:
December 31, ------------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Domestic ................................... $10,682,567 $12,437,699 $16,306,913 Foreign .................................... 77,896 876,030 2,312,543 ----------- ----------- ----------- Income before provision for income taxes.. $10,760,463 $13,313,729 $18,619,456 =========== =========== ===========
The provision (benefit) for income taxes is comprised of the following:
December 31, ------------------------------------------- 1995 1996 1997 ----------- ---------- ----------- Current: Federal ............. $ 3,151,148 $4,442,295 $ 5,336,718 State ............... 884,204 817,077 1,152,698 Foreign ............. 72,808 355,871 1,004,964 Deferred: Federal ............. (395,000) 428,430 (276,309) State ............... (72,398) 171,500 (235,776) ----------- ---------- ----------- Provision for income taxes $ 3,640,762 $6,215,173 $ 6,982,295 =========== ========== ===========
36 37 A reconciliation of the provision for income taxes to the amount computed at the Federal statutory rate is as follows:
December 31, ----------------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Federal income tax provision at statutory rate of 34% .................................... $ 3,658,557 $ 4,526,667 $ 6,330,615 Effect of graduated tax rates ................. -- 133,138 186,195 Foreign tax rate differential ................. -- -- 212,686 Effect of tax rate difference for Foreign Sales Corporation ................................. (69,372) (49,372) -- State taxes, net of Federal benefit ........... 535,876 798,000 947,567 Write off of acquired in process technology and other non-deductible expenses resulting from acquisitions ............................... -- 1,088,000 -- Utilization of net operating loss carryforwards (130,701) -- -- Tax credits ................................... (287,413) (345,060) (429,206) Interest income exempt from Federal tax ....... (161,131) (71,000) (142,421) Change in valuation allowance for deferred tax assets ...................................... (78,820) -- (424,452) Other, net .................................... 173,766 134,800 301,311 ----------- ----------- ----------- Provision for income taxes ............ $ 3,640,762 $ 6,215,173 $ 6,982,295 =========== =========== =========== Effective tax rate ............................ 33.8% 46.7% 37.5% =========== =========== ===========
The components of the Company's deferred tax assets and liabilities are as follows:
December 31, --------------------------- 1996 1997 ------------ ------------ Deferred tax assets: Expenses deductible in future years ... $ 694,423 $ 994,799 Federal benefit of state tax liability 318,900 370,450 Net operating loss carryforwards ...... 1,325,000 1,221,524 ----------- ----------- Gross deferred tax asset ............ 2,338,323 2,586,773 Valuation allowance for deferred assets (851,000) (426,548) ----------- ----------- Net deferred tax asset .............. 1,487,323 2,160,225 ----------- ----------- Deferred tax liabilities: Depreciation and amortization ......... (195,855) (356,672) ----------- ----------- Net deferred tax liability .......... (195,855) (356,672) ----------- ----------- Net deferred tax ........................ $ 1,291,468 $ 1,803,553 =========== ===========
As of December 31, 1997 the Company had net operating loss carryforwards available to offset future Federal taxable income which totaled approximately $1,385,000. These loss carryforwards expire through 2002. At December 31, 1997, the Company also had tax loss carryforwards totaling approximately $820,000 available to offset future taxable income in Germany. A valuation allowance has been recorded against the German tax loss carryforwards as a result of uncertainties related to their future realization. The valuation allowance for deferred taxes decreased approximately $424,000 during the year ended December 31, 1997, primarily as a result of the recognition of a deferred tax asset related to the write-off of trade receivables from one of the Company's former subsidiaries. A valuation allowance for deferred tax assets, other than from German tax loss carryforwards, has not been recorded as a result of the Company's increased earnings capacity which, in the opinion of management, is sufficient to ensure utilization of recorded deferred tax assets in future periods. 37 38 10. NET INCOME PER COMMON SHARE In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." This statement requires dual presentation of newly defined basic and diluted earnings per share ("EPS") on the face of the income statement for all entities with complex capital structures. The following table provides a reconciliation of the numerator and denominators of the basic and diluted per-share computations for the years ended December 31, 1995, 1996 and 1997:
Income Shares Per Share (Numerator) (Denominator) Amount - ---------------------------------------------------------------------------------------------------- Year Ended December 31, 1995: Basic EPS...................................... $7,119,701 6,682,779 $ 1.07 Effect of dilutive securities - stock options and warrants................................ -- 666,187 ----------- --------- Diluted EPS.................................... $7,119,701 7,348,966 $ 0.97 Year Ended December 31, 1996: Basic EPS...................................... $7,098,556 7,224,686 $ 0.98 Effect of dilutive securities - stock options and warrants................................. -- 596,693 ----------- --------- Diluted EPS.................................... $7,098,556 7,821,379 $ 0.91 Year Ended December 31, 1997: Basic EPS...................................... $11,637,161 7,394,641 $ 1.57 Effect of dilutive securities - stock options and warrants................................. -- 407,381 ----------- --------- Diluted EPS.................................... $11,637,161 7,801,982 $ 1.49
The computation for diluted number of shares excludes unexercised stock options and warrants which are antidilutive. The number of such shares was 12,000, 10,000 and 129,950 for the years ended December 31, 1995, 1996 and 1997, respectively. 11. LINE OF CREDIT In 1997, Eltron entered into an agreement for a revolving line of credit with a bank. The revolving credit facility allows Eltron to borrow up to $8 million on an unsecured basis. Borrowings under the revolving credit facility bear interest at the Bank's prime rate. Under the terms of the revolving credit facility, Eltron is not able to enter into certain transactions or declare dividends without receiving prior written consent from the Bank and is required to comply with certain covenants as well as maintain certain debt to net worth ratios, current ratio and minimum net worth requirements. The revolving credit agreement expires in May 1998 and the Company believes that it will be successful in entering into a new credit agreement with a bank, with terms similar to those in the current agreement. There was no utilization of the credit line during 1997. 12. COMMITMENTS AND CONTINGENCIES The Company has entered into non-cancelable operating leases for its warehouse and office space as well as certain equipment. Lease terms generally range from three to ten years; certain building leases contain options for renewal and are subject to escalation clauses tied to the Consumer Price Index. During 1997, the Company entered into new lease agreements for facilities in France, Wisconsin and England. Rental expense under the Company's operating lease agreements was $580,311, $645,347 and $939,253 respectively for the years ended December 31, 1995, 1996 and 1997. The Company's leases for its main warehouse and office facilities in Simi Valley, California expire in January of 1999. In February 1998, the Company completed the purchase of a building in Camarillo, California. The Company plans to move to the new building in late 1998. The Company's future minimum non-cancelable rental commitments on these leases at December 31, 1997 are as follows:
Year ending December 31, - ------------------------ 1998 ...................... $ 946,964 1999 ...................... 606,802 2000 ...................... 588,130 2001 ...................... 421,098 2002 ...................... 375,756 Thereafter ................ 590,780 ---------- $3,529,530 ==========
From time to time certain legal actions may arise in the ordinary course of the Company's business. To date, such legal actions have not had a material adverse affect on the Company's financial position, results of operations and cash flows. 13. STOCK OPTION PLANS The Company adopted stock option plans in 1992, 1993 and 1996 (the 1992 Stock Option Plan, 1993 Stock Option Plan and the 1996 Stock Option Plan). Incentive and nonqualified options under these plans may be granted to employees, officers and consultants of the Company. There are 1,601,000 shares of common stock reserved for issuance 38 39 under these plans of which 790,390 shares have been exercised. The exercise price of the options are determined by a committee of the board administering the plans. Generally the Company issues stock options at an exercise price equal to or greater than fair market value. Outstanding options generally become exercisable over four years. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plans under the provisions of SFAS No. 123. Had compensation costs for the Company's stock option and purchase plans been determined based upon the methodology prescribed under SFAS 123, the Company's net income and earnings per share would approximate the proforma amounts below (in thousands except per share data):
As Reported Pro Forma ----------- ----------- Year Ended December 31, 1995: Net income ............................. $ 7,119,701 $ 6,849,290 Net income per common share - basic .... 1.07 1.02 Net income per common share - diluted... 0.97 0.93 Year Ended December 31, 1996: Net income ............................. $ 7,098,556 $ 6,147,644 Net income per common share - basic..... 0.98 0.85 Net income per common share - diluted... 0.91 0.79 Year Ended December 31, 1997: Net income ............................. $11,637,161 $10,266,067 Net income per common share - basic..... 1.57 1.39 Net income per common share - diluted... 1.49 1.32
The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to awards prior to 1995, and additional awards in future years are anticipated. 39 40 A summary of the status of the Company's stock options as of December 31, 1995, 1996 and 1997 and the changes during the year ended on those dates is presented below:
1995 1996 1997 ---------------------- ---------------------- ----------------------- Weighted Weighted Weighted Number Average Number Average Number Average of Price Per of Price Per of Price Per Shares Share Shares Share Shares Share -------- --------- -------- --------- -------- ---------- Balance, beginning ............ 592,960 $ 1.68 584,602 $ 6.92 785,185 $ 15.01 Options granted ............... 245,896 $ 13.51 373,420 $ 22.21 264,900 $ 24.90 Options canceled .............. (9,760) $ 1.09 (3,500) $ 2.78 (104,025) $ 21.93 Options exercised ............. (244,494) $ 0.61 (169,337) $ 23.71 (161,087) $ 6.28 -------- ------- -------- ------- ------- ------- Balance, end .................. 584,602 $ 6.92 785,185 $ 15.01 784,973 $ 20.58 ======== ======== ======== Options exercisable at year end 22,063 118,290 204,664 ======== ======== ======== Options available for grant........ 103,012 225,012 25,637 Weighted average fair value of options granted during the year.... $ 6.53 $ 10.65 $ 10.36 ======= ======= =======
The following table summarizes information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable ----------------------------------- --------------------- Weighted Number Average Weighted Number Weighted of Shares Remaining Average of Shares Average Range of Exercise Outstanding Contractual Exercise Outstanding Exercise Price at 12/31/97 Life Price at 12/31/97 Price ----------- ----------- -------- ----------- --------- $0.61 to $0.61..... 9,038 5.2 $ 0.61 9,038 $ 0.61 $3.00 to $3.88..... 54,500 6.4 $ 3.59 15,000 $ 3.29 $4.75 to $4.75..... 13,000 6.6 $ 4.75 6,500 $ 4.75 $9.38 to $10.88.... 64,660 6.6 $ 9.72 35,501 $ 9.77 $18.00 to $26.38... 513,825 8.5 $22.05 126,125 $22.46 $29.94 to $34.75... 129,950 9.8 $30.28 12,500 $33.53 ------- --- ------ ------- ------ $0.61 to $34.75.... 784,973 8.3 $20.58 204,664 $18.00
The fair value of options was calculated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (i) dividend yield of 0%, (ii) expected volatility of 55% for 1995 and 1996 and 49% for 1997 (iii) weighted average risk-free interest rates of 6.3% for 1995 and 1996 and 6.1% for 1997, (iv) weighted average expected life of 3.5 years for 1995, 1996 and 1997, and (v) assumed forfeiture rate of 6%. 40 41 14. INTERNATIONAL SALES AND FOREIGN OPERATIONS The Company operates in one business segment. Transfers between geographic areas are made at prices reflecting market conditions. Geographic information including sales and transfers between geographic areas is presented below:
December 31, -------------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Revenues from unaffiliated customers: --------------------------------------------------- United States..................................... 42,971,064 58,199,248 68,370,757 Europe............................................ 10,617,073 25,765,766 33,243,792 Other............................................. 1,382,927 4,544,568 3,414,427 ----------- ----------- ------------ Total........................................... $54,971,064 $88,509,582 $105,028,976 =========== =========== ============ Transfers between geographic regions: --------------------------------------------------- United States..................................... -- 1,696,682 10,134,871 Europe............................................ 1,168,854 3,651,203 4,113,913 Other............................................. -- -- 643,302 ----------- ----------- ------------ Total........................................... $ 1,168,854 $ 5,347,885 $ 14,892,086 =========== =========== ============ Total revenues: --------------------------------------------------- United States..................................... 42,971,064 59,895,930 78,505,628 Europe............................................ 11,785,927 29,416,969 37,357,705 Other............................................. 1,382,927 4,544,568 4,057,729 Intersegment eliminations......................... (1,168,854) (5,347,885) (14,892,086) ----------- ----------- ------------ Total........................................... $54,971,064 $88,509,582 $105,028,976 =========== =========== ============ Net income (loss) : --------------------------------------------------- United States..................................... 7,125,534 6,157,583 10,291,412 Europe............................................ (5,833) 940,973 1,345,749 Other............................................. -- -- -- ----------- ----------- ------------ Total........................................... $ 7,119,701 $ 7,098,556 $ 11,637,161 =========== =========== ============ Identifiable assets: --------------------------------------------------- United States..................................... 43,818,089 49,097,711 60,943,913 Europe............................................ 1,806,136 5,133,348 5,891,790 Other............................................. -- 14,000 26,045 ----------- ----------- ------------ Total........................................... $45,624,225 $54,245,059 $ 66,861,748 =========== =========== ============ U.S. export sales to unaffiliated customers by destination of sale: --------------------------------------------------- Europe............................................ 7,181,631 13,299,596 15,220,000 Other............................................. 1,382,927 4,544,568 1,880,627 ----------- ----------- ------------ Total........................................... $ 8,564,558 $17,844,164 $ 17,100,627 =========== =========== ============
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Summarized quarterly financial information for fiscal years 1997 and 1996 are as follows:
Quarter Ended ---------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------ ----------- ------------ ----------- Fiscal year 1996 Net revenues $ 19,019,000 $22,730,000 $24,013,000 $22,748,000 Gross profit 8,768,000 9,940,000 9,958,000 9,672,000 Net income (loss) (743,000) 2,824,000 2,676,000 2,341,000 Net income (loss) per share - Basic (0.10) 0.39 0.37 0.32 Net income (loss) per (0.10) 0.36 0.34 0.30 share - Diluted Fiscal year 1997 Net revenues $ 23,170,000 $27,513,000 $25,609,000 $28,737,000 Gross profit 10,310,000 12,077,000 11,612,000 11,508,000 Net income 2,608,000 3,354,000 3,506,000 2,169,000 Net income per share - Basic 0.36 0.46 0.47 0.29 Net income per share - Diluted 0.34 0.43 0.44 0.28
41 42 The Company's quarterly operating results can fluctuate significantly depending upon a variety of factors, including the mix of products shipped, the changes in product prices by the Company and its competitors, the seasonality of certain segments of the Company's markets, the lack of a meaningful backlog of orders, the availability and costs of components, the historical disproportionate level of orders received and sales made by the Company during the last few weeks of each fiscal quarter, the market acceptance of new products, and changes in general economic conditions. Because of these and other factors, any inaccuracies in forecastings could adversely affect the Company's financial position, results of operations and cash flows. Quarterly results are not necessarily indicative of future performance for any particular period, and there can be no assurance that the Company can maintain the levels of revenue and profitability experienced over the past three years on a quarterly or annual basis. 16. SUBSEQUENT EVENTS (UNAUDITED) Sale of Verification Business to Printronix In January , 1998, Printronix Inc, a leading manufacturer of computer printers, acquired the assets and rights to the bar code verification business and the RJS name from Eltron for approximately $2.8 million. Eltron retained the rights to the in-line verification technology for use in its line of integrated verified printing systems, as well as the QualaBar and ThermaBar industrial thermal printer lines. Purchase of New World Headquarters Building In February 1998, the Company completed the purchase of a building in Camarillo, California for approximately $7.8 million in cash. This 145,000 square foot building will serve as the Company's new world headquarters and provide expanded manufacturing capacity. Shareholder Rights Plan In March 1998, the Company's Board of Directors approved the adoption of a Shareholder Rights Plan pursuant to which the Company will declare a distribution of one Preferred Share Purchase Right ("Right") on each outstanding share of Common Stock as of April 3, 1998. The Rights will be attached to the Company's Common Stock and will trade separately and be exercisable only in the event that a person or group acquires or announces the intent to acquire 15% or more of the Company's Common Stock. Each Right will entitle the shareholder to buy one one-hundredth of a share of new series of junior participating preferred stock at an exercise price of $120 per Right. The Rights expire on April 3, 2008. The Shareholder Rights Plan is intended to protect the Company's shareholders against abusive takeover tactics and to ensure that each shareholder is treated fairly in any transaction involving an acquisition of control of the Company, such as partial two-tiered tender offers that do not treat all shareholders fairly and equally. The Rights do not affect any takeover proposal which the Board believes is in the best interests of the Company's shareholders. Pursuant to the Rights Plan, if the Company is acquired in a merger or other business combination transaction after a person or group has acquired 15% or more of the Company's outstanding Common Stock, each Right will entitle its holder (other than such person or group) to purchase, at the Right's then-current exercise price, a number of the acquiring company's common shares having a market value of twice such price. Following an acquisition by a person or group of beneficial ownership of 15% or more of the Company's Common Stock and before an acquisition of 50% or more of the Common Stock, the Company's Board of Directors may exchange the Rights (other than the Rights owned by such person or group), in whole or in part, at an exchange ratio of one share of Common Stock (or one one-hundredth of a share of the new series of junior participating preferred stock) per Right. Before a person or group acquires beneficial ownership of 15% or more of the Company's Common Stock, the Rights are redeemable for $.0001 per Right at the option of the Board of Directors. While the Company is not aware of any current intent to acquire a sufficient number of shares of the Company's Common Stock to trigger exercisability of the Rights, existence of the Rights could discourage offers for the Company's Common Stock that exceed the current market price of the Common Stock , but that the Board of Director deems inadequate. 42 43 ELTRON INTERNATIONAL, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDING DECEMBER 31, 1995, 1996 AND 1997
BALANCE AT BALANCE AT BEGINNING CHARGED TO COST AND END OF DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS PERIOD - ----------- ------------ ----------- ---------- ------------ ALLOWANCE FOR DOUBTFUL ACCOUNTS AND RETURNS: Year Ended December 31, 1995 $ 237,305 $ 10,163 $ 32,000 $ 215,468 Year Ended December 31, 1996 215,468 236,766 -- 452,234 Year Ended December 31, 1997 452,234 86,100 196,991 341,343 ALLOWANCE FOR INVENTORY OBSOLESCENCE: Year Ended December 31, 1995 $ 19,622 $113,228 -- $ 132,850 Year Ended December 31, 1996 132,850 343,885 -- 476,735 Year Ended December 31, 1997 476,735 543,975 -- 1,020,710 VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS: Year Ended December 31, 1995 $1,065,388 -- $214,388 $ 851,000 Year Ended December 31, 1996 851,000 -- -- 851,000 Year Ended December 31, 1997 851,000 -- 424,452 426,548
43 44 INDEX TO EXHIBITS 2.1 Stock Purchase Agreement Among Eltron International, Inc. and Donner Media, Incorporated and All of the Shareholders of Donner Media, Incorporated dated September 29, 1995 (without exhibits and schedules).(6) 2.2 Contrat de Vente d'Actions Privilege S.A., registered January 30, 1996.(8) 2.3 Agreement of Merger and Plan of Reorganization dated February 29, 1996 by and among Eltron International, Inc., Eltron Acquisition Corp., RJS Incorporated and the shareholders of RJS, Incorporated (without exhibits and schedules).(1) 2.4 Amendment dated March 1, 1996 to Agreement of Merger and Plan of Reorganization dated February 29, 1996 by and among Eltron International, Inc., Eltron Acquisition Corp., RJS, Incorporated and the shareholders of RJS, Incorporated.(7) 3.1 Amended and Restated Articles of Incorporation of the Company(2) 3.2 Bylaws of the Company as amended to date.(2) 3.3 Amendment to Amended and Restated Articles of Incorporation filed January 18, 1994.(4) 3.4 Amendment to Amended and Restated Articles of Incorporation filed May 9, 1995 relating to a 2-for-1 stock split.(3) 4.1 Form of Common Stock Certificate(5) 10.1 Agreement and Plan of Merger dated as of April 10, 1995, among the Company, Eltron, Incorporated by Donald K. Skinner.(3) 10.2 Employment Agreement dated as of January 1, 1997 between Donald K. Skinner and the Company.(8) 10.3 Employment Agreement dated as of January 1, 1997 between Hugh K. Gagnier and the Company.(8) 10.4 Employment Agreement dated as of January 1, 1997 between Patrice Foliard and the Company.(8)
44 45 10.5 Standard Offer Agreement and Escrow Instructions for Purchase of Real Estate dated as of December 30, 1997 between Eltron International, Inc. and Benchmark Holding Group. (filed herewith) 10.6 Asset Purchase and Sale Agreement, dated January 16, 1998, by and among RJS, Inc., Eltron International, Inc. and Verification Systems International, Inc. (concerning sale of RJS' assets) (without exhibits and schedules) (filed herewith). 21.1 List of Subsidiaries. (filed herewith) 23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith) 27.1 Financial Data Schedule. (filed herewith)
(1) Previously filed as an exhibit to the Company's Form 8-K filed March 12, 1996 (2) Previously filed with the Securities and Exchange Commission on November 26, 1993 as exhibits to the Company's Registration Statement on Form SB-2 (33-72200-LA) (3) Previously filed with the Securities and Exchange Commission on May 9, 1995 as exhibits to the Company's Registration Statement on Form SB-2 (33-91480). (4) Previously filed with the Securities and Exchange Commission on January 21, 1994 as exhibits to Amendment No. 1 to the Company's Registration Statement on Form SB-2 (33-72200-LA). (5) Previously filed with the Securities and Exchange Commission on February 8, 1994 as exhibits to Amendment No. 2 to the Company's Registration Statement on Form SB-2 (33-72200-LA). (6) Previously filed with the Securities and Exchange Commission on March 20, 1996 as exhibits to Amendment No. 1 to the Company's Registration Statement on Form S-3 (333-2530). (7) Previously filed with the Securities and Exchange Commission on May 14, 1996 as exhibits to Company's Form 8-K-A. (8) Previously filed with the Securities and Exchange Commission on March 31, 1997 as exhibits to Company's Form 10-K. 45 EX-10.5 2 EXHIBIT 10.5 1 EXHIBIT 10.5 STANDARD OFFER, AGREEMENT AND ESCROW INSTRUCTIONS FOR PURCHASE OF REAL ESTATE (Non-Residential) American Industrial Real Estate Association December 30, 1997 1. BUYER. 1.1 Eltron International, Inc., a California corporation, (the "Buyer") hereby offers to purchase the real property, hereinafter described, from the owner thereof (the "Seller") (collectively, the "Parties" or individually, a "Party"), through an escrow (the "Escrow") to close on see Addendum ("Addendum") (the "Expected Closing Date") to be held by First American Title Company (Pam Dolin) (the "Escrow Holder") whose address is 101 S. California Street, Ventura, California 93001 , Phone No. (805) 648-9960 , Facsimile No. (805) 648-9969 upon the terms and conditions set forth in this agreement (the "Agreement"). Buyer shall have the right to assign Buyer's rights hereunder, but any such assignment shall not relieve Buyer of Buyer's obligations herein unless the Seller expressly releases Buyer. 1.2 The term "Date of Agreement" as used herein shall be the date when by execution and delivery (as defined in paragraph 20.2) of this document or a subsequent counter-offer thereto, Buyer and Seller have reached agreement in writing whereby Seller agrees to sell, and Buyer agrees to purchase, the Property upon terms accepted by both Parties. 2. PROPERTY 2.1 The real property (the "Property") that is the subject of this offer consists of (insert a brief physical description) an industrial building of approximately 142,500 square feet on approximately nine (9) acres of land is located in the City of Camarillo , County of Ventura, State of California, is commonly known by the street address of 1001 Flynn Road and is legally described as: (legal description to be provided by Title Company in Escrow and subject to Buyer's approval) See Addendum. 2.2 If the legal description of the Property is not complete or is inaccurate, this Agreement shall not be invalid and the legal description shall be completed or corrected to meet the requirements of First American Title Company (the "Title Company"), which Title company shall issue the title policy hereinafter described. 2.3 The Property includes, at no additional cost to Buyer, the permanent improvements thereon, including those items which the law of the state in which the Property is located provides is part of the Property, as well as the following items, if any, owned by Seller and presently located in the Property: electrical distribution systems (power panels, buss ducting, conduits, disconnects, lighting fixtures), telephone distribution systems (lines, jacks and connections), space heaters, air conditioning equipment, air lines, fire sprinklers systems, security systems, carpets, window coverings, and See addendum (collectively, the "Improvements"). 2.4 If the Property is located in the State of California, the Broker(s) is/are required under the Alquist-Priolo Special Studies Zone Act, to disclose to a prospective purchaser of real property whether the property being purchased is located within the delineated special studies zone (a zone that encompasses a potentially or recently active trace of an earthquake fault this is deemed by the State Geologist to be sufficiently active and well defined enough to constitute a potential hazard to structures from surface faulting or fault (creep). If the Property is located within such a special studies zone, its development may require a geologic report from a state registered geologist. In accordance with such law, the Broker(s) hereby inform(s) Buyer that the Property: __ (a) is not within such a special studies zone. __ (b) is within such a special studies zone. 2.5 If (1) the Property is located in the State of California, (2) the Improvements were constructed prior to 1975, and (3) the Improvements include structures with (i) pre-cast (e.g., tilt-up) concrete or reinforced masonry walls together with wood frame floors or roofs or (ii) reinforced masonry walls, California law requires that Seller or Seller's Broker provide Buyer with a copy of The Commercial Property Owner's Guide to Earthquake Safety (the "Booklet") published by the California Seismic Safety Commission, Seller and Seller's Broker hereby inform Buyer that the Property: __ (a) meets the foregoing requirements, and Seller and Seller's Broker are required to provide Buyer with a copy of the Booklet. Seller of Seller's Broker shall, within five (5) business days of the Date of Agreement, deliver to Buyer a copy of the Booklet and a completed "Commercial Property Earthquake Report, Buyer shall deliver a duly 2 countersigned copy of the same to Escrow Holder, with a copy to Seller and Seller's Broker. Escrow Holder is hereby instructed that the Escrow shall not close unless and until Escrow Holder has received the Disclosure Report duly signed by both Seller and Buyer. __ (b) does not meet the foregoing requirements requiring the delivery of the Booklet.
3. PURCHASE PRICE 3.1 The purchase price (the "Purchase Price") to be paid by Buyer to Seller for the Property shall be $ See Addendum, payable as follows: (a) Cash down payment, including the Deposit as defined in paragraph 4.3 (or if an all cash transaction, the Purchase Price): $ ______________ (b) Amount of "New Loan" as defined in paragraph 5.1, if any: $ ______________ (c) Buyer shall take title to the Property subject to the following existing deed(s) of trust ("Existing Deed(s) of Trust") securing the existing promissory note(s) ("Existing Note(s)"): (i) An Existing Note (the "First Note") with an unpaid principal balance of the Closing of approximately: $ ______________ Said existing note is payable at $___________ per month, including interest at the rate of ____% per annum until paid (and/or the entire unpaid balance is due on _________________________). (ii) An Existing Note (the "Second Note") with an unpaid principal balance as of the Closing of approximately: $ ______________ Said existing note is payable at $___________ per month, including interest at the rate of ____% per annum until paid (and/or the entire unpaid balance is due on _________________________). (d) Buyer shall give Seller a deed of trust (the "Purchase Money Deed of Trust") on the Property, to secure the promissory note of Buyer to Seller described in Paragraph 6 (the "Purchase Money Note") in the amount of: $ ______________ Total Purchase Price: $ See Addendum
3.2 If an Existing Deed of Trust permits the beneficiary thereof to require payment of a transfer fee as a condition to the transfer fee as a condition to the transfer of the Property subject to such Existing Deed of Trust, Buyer agrees to pay transfer fees and costs of up to one and on-half percent (1-1/2%) of the unpaid principal balance of the applicable Existing Note. 4. DEPOSITS 4.1 Buyer hereby delivers a check in the sum of $100,000.00, payable to Escrow Holder, to be (check applicable box), __forthwith deposited in the payee's trust account, [X] held uncashed until the Date of Agreement. When cashed, the check shall be deposited into the payee's trust account to be applied toward the Purchase Price of the Property at the Closing, as defined in paragraph 8.3. Should Buyer and Seller not enter into an agreement for purchase and sale, Buyer's check or funds shall, upon request by Buyer, be promptly returned to Buyer. 4.2 Within five (5) business days after the Day of Agreement, Buyer shall deposit with Escrow holder the additional sum of $____________, to be applied to the Purchase Price at the Closing. 4.3 The funds deposited with Escrow Holder by or on behalf of Buyer under paragraphs 4.1 and 4.2, above (collectively the "Deposit"), shall be deposited by Escrow Holder in such State or Federally chartered bank as Buyer may select and in such interest-bearing account or accounts as Escrow Holder or Broker(s) deem appropriate and consistent with the timing requirements of this transaction. The interest therefrom shall accrue to the benefit of Buyer, who hereby acknowledges that there may be penalties or 3 interest forfeitures if the applicable instrument is redeemed prior to its specified maturity. Buyer's Federal Tax Identification Number is to be provided in escrow. 5. FINANCING CONTINGENCY (Strike if not applicable) Not applicable. -------------- 5.1 This offer is contingent upon Buyer obtaining from an insurance company, bank, savings and loan association or other financial institution or from any correspondent or agent thereof, a commitment to lend to Buyer a sum not less than $_______________, at a fixed interest rate not to exceed ____% per annum, payable in equal monthly installments, including interest, amortized over a period of not less than ___ years and all due in not less than ___ years, and in either case, with loan fees to not exceed ___% of the amount of the new loan (the "New Loan"). The New Loan shall be secured by a first deed of trust upon the Property and shall be upon the following additional terms and conditions: _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ and upon such terms and conditions as are usually required by such lender. 5.2 Buyer hereby agrees to diligently pursue obtaining the New Loan. If Buyer shall fail to notify its Broker, Escrow Holder and Seller, in writing within ______ days following the Date of Agreement, that the New Loan has not been obtained, it shall be conclusively presumed that Buyer has either obtained said new Loan or has waived this New Loan contingency. 5.3 If, after due diligence, Buyer shall notify its Broker, Escrow Holder and Seller, in writing, within the time specified in paragraph 5.2 hereof, that Buyer has not obtained said New Loan, this Agreement shall be terminated, and Buyer shall be entitled to the prompt return of Buyer's Deposit and any other funds deposited by or for Buyer with Escrow Holder or Seller, plus any interest earned thereon, less only Escrow Holder and Title Company cancellation fees and costs, which Buyer shall pay. 6. PURCHASE MONEY NOTE. (Strike if applicable) Not applicable. -------------- 6.1 The Purchase Money Note shall provide for interest on unpaid principal at the rate of ____% per annum, with principal and interest to be paid as follows: ___________________________________________________________________ _______________________________________________________________________________ The Purchase Money Note and Purchase Money Deed of Trust shall be on the current forms commonly used by Escrow Holder, and be junior and subordinate only to the Existing Note(s) and/or New Loan expressly called for by this Agreement. 6.2 The Purchase Money Note and the Purchase Money Deed of Trust shall contain provisions regarding the following: (a) Prepayment. Principal may be prepaid in whole or in part at any time without penalty, at the option of the Buyer. (b) Late Charge. A late charge of 6% shall be payable with respect to any payment of principal, interest, or other charges, not made within ten (10) days after it is due. (c) Due On Sale. In the event the Buyer sells or transfers title to the Property or any portion thereof, then the Seller may, at Sellers option, require the entire unpaid balance of the Purchase Money Note to be then paid in full. 7. REAL ESTATE BROKERS. 7.1 The following real estate broker(s) (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the parties (check applicable boxes): _X_ DAUM Comm'l R.E. Svcs. represents Seller exclusively ("SELLER'S BROKER") _X_ Delphi Business Properties represents Buyer exclusively ("BUYER'S BROKER"); or 11 represents both Seller and Buyer ("DUAL AGENCY"). (Also see paragraph 26.) -- (the "Broker(s)"), all such named Broker(s) being the procuring cause(s) of this Agreement. See paragraph 26 for Disclosures Regarding the Nature of a Real Estate Agency Relationship. Buyer shall use the services of Buyers Broker exclusively in connection with any and all negotiations and offers with respect to the property described in paragraph 2.1 for a period of one year from the date above. 7.2 Buyer and Seller each represent and warrant to the other that he/she/it has had no dealings with any person, firm, broker or finder in connection with the negotiation of this Agreement and/or the consummation of the purchase and sale contemplated herein, other than the Broker(s) named in paragraph 7.1, and no broker or other person, firm or entity, other than said Broker(s) is/are entitled to any commission or finder's fee in connection with this transaction as the result of any dealings or acts of such Party. Buyer and Seller do each hereby agree to indemnify, defend, protect and hold the other harmless from and against any costs, expenses or liability for compensation, commission or charges which may be claimed by any broker, finder or other similar party, other than said named Broker(s) by reason of any dealings or act of the indemnifying Party. 4 8. ESCROW AND CLOSING. See Addendum 8.1 Upon acceptance hereof by Seller, this Agreement, including any counter-offers incorporated herein by the Parties, shall constitute not only the agreement of purchase and sale between Buyer and Seller, but also instructions to Escrow Holder for the consummation of the Agreement through the Escrow. Escrow Holder shall not prepare and further escrow instructions restating or amending the Agreement unless specifically so instructed by the Parties of a Broker herein. 8.2 Escrow Holder is hereby authorized and instructed to conduct the Escrow in accordance with this Agreement, applicable law, custom and practice of the community in which Escrow Holder is located, including and reporting requirements of the Internal Revenue Code. In the event of a conflict between the law of the state where the Property is located and the law of the state where the Escrow Holder is located, the law of the state where the Property is located shall prevail. 8.3 Subject to satisfaction of the contingencies herein described, Escrow Holder shall close this escrow (the "Closing") by recording the grant deed and other documents required to be recorded and by disbursing the funds and documents in accordance with this Agreement. 8.4 If this transaction is terminated for non-satisfaction and non-waiver of a Buyer's Contingency, as defined in paragraph 9.4, then neither of the Parties shall thereafter have any liability to the other under this Agreement, except to the extent of the breach of any affirmative covenant or warranty in this Agreement that may have been involved. In the event of such termination, Buyer shall be promptly refunded all funds deposited by or on behalf of Buyer with a Broker, Escrow Holder or Seller, less only Title Company and Escrow Holder cancellation fees and costs, all of which shall be buyers obligation. 8.5 The Closing shall occur on the Expected Closing Date, or as soon thereafter as the Escrow is in condition for Closing; provided, however, that if the Closing does not occur by the Expected Closing Date and the Expected Closing Date is not extended by mutual instructions of the Parties, a Party hereto not then in default under this Agreement may notify the other Party, Escrow Holder, and Broker(s), in writing that, unless the Closing occurs within five (5) business days following said notice, the Escrow and this Agreement shall be deemed terminated without further notice or instructions. 8.6 Should the Closing not occur during said five (5) day period, this Agreement and Escrow shall be deemed terminated and Escrow Holder shall forthwith return all monies and documents, less only Escrow Holders reasonable fees and expenses, to the Party who deposited them. Such Party shall indemnify and hold Escrow Holder harmless in connection with such return. However, no refunds or documents shall be returned to a party claimed by written notice to Escrow Holder to be in default under this Agreement. 8.7 Except as otherwise provided herein, the termination of Escrow and this Agreement and/or the return of deposited funds or documents shall not relieve or release either Buyer or Seller from any obligation to pay Escrow Holders fees and costs or constitute a waiver, release or discharge of any breach or default that has occurred in the performance of the obligations, agreements, covenants or warranties contained herein. 8.8 If this Agreement terminates for any reason other than Seller's breach or default, then at Sellers request, and as a condition to the return of Buyers deposit, Buyer shall within five (5) days after written request deliver to Seller, at no charge, copies of all surveys, engineering studies, soil reports, maps, master plans, feasibility studies and other similar items prepared by or for Buyer that pertain to the Property. 9. CONTINGENCIES TO CLOSING. See Addendum 9.1 The Closing of this transaction is contingent upon the satisfaction or waiver of the following contingencies: (a) Disclosure. Buyers receipt and written approval, within ten (10) days after delivery to Buyer, of a completed Property Information Sheet (the "Property Information Sheet"), concerning the Property, duly executed by or on behalf of Seller in the current form or equivalent to that published by the American Industrial Real Estate Association (the "A.I.R."). Seller shall provide Buyer with the Property Information Sheet within ten (10) days following the Date of Agreement. See also paragraph 2.5 for possible additional disclosure and contingency regarding a "Commercial Property Earthquake Weakness Disclosure Report." (b) Physical Inspection. Buyers written approval, within ten (10) days following the later of the Date of Agreement or receipt by Buyer of the Property Information Sheet, of an inspection by Buyer at Buyers expense, of the physical aspects of the Property. (c) Hazardous Substance Conditions Report. Buyers written approval, within thirty (30) days following the later of the Date of Agreement or receipt by Buyer of the Property Information Sheet, of a Hazardous Substance Conditions Report concerning the Property and relevant adjoining properties. Such report will be obtained at Buyers direction and expense. A "Hazardous Substance" for purposes of this Agreement is defined as any substance whose nature and/or quantity of existence, use, manufacture, disposal or effect, render it subject to Federal, state or local regulation, investigation, remediation or removal as potentially injurious to public health or welfare. A "Hazardous Substance Condition" for purposes of this Agreement is defined as the existence on, under or relevantly adjacent to the 5 Property of a Hazardous Substance that would require remediation and/or removal under applicable Federal, state or local law. (d) Soil Inspection. Buyer's written approval, within thirty (30) days after the later of the Date of Agreement or receipt by Buyer of the Property Information Sheet, of a soil test report concerning the Property. Said report shall be obtained at Buyer's direction and expense. Seller shall promptly provide to Buyer copies of any existing soils reports that Seller may have. (e) Governmental Approvals. Buyers receipt, within fifteen (15) days of the Date of Agreement, of all approvals and permits from governmental agencies or departments which have or may have jurisdiction over the Property which Buyer deems necessary or desirable in connection with its intended use of the Property, including, but not limited to, permits and approvals required with respect to zoning, planning, building and safety, fire, police, handicapped access, transportation and environmental matters. Buyers failure to deliver to Escrow Holder and Seller written notice terminating this Agreement prior to the expiration of said fifteen (15) day period as a result of Buyers failure to obtain such approvals and permits shall be conclusively deemed to be Buyers waiver of this condition to Buyers obligations under this Agreement. (f) Condition of Title. Buyers written approval of a current preliminary title report concerning the Property (the "PTR") issued by the Title Company, as well as all documents (the "Underlying Documents") referred to in the PTR, and the issuance by the Title Company of the title policy described in 10.1. Seller shall cause the PTR and all Underlying Documents to be delivered to Buyer promptly after the Date of Agreement. Buyers approval is to be given within ten (10) days after receipt of said PTR and legible copies of all Underlying Documents. The disapproval of Buyer of any monetary encumbrance, which by the terms of this Agreement is not to remain against the Property after the Closing, shall not be considered a failure of this condition, as Seller shall have the obligation, at Sellers expense, to satisfy and remove such disapproved monetary encumbrance at or before the Closing. (g) Survey. Buyers written approval, within thirty (30) days after receipt of the PTR and Underlying Documents, of an ALTA title supplement based upon a survey prepared to American Land Title Association (the "ALTA") standards for an owners policy by a licensed surveyor, showing the legal description and boundary lines of the Property, any easements of record, and any improvements, poles, structures and things located within ten (10) feet either side of the Property boundary lines. The survey shall be prepared at Buyers direction and expense. If Buyer has obtained a survey and approved the ALTA title supplement, Buyer may elect within the period allowed for Buyers approval of a survey to have an ALTA extended coverage owners form of title policy, in which event Buyer shall pay any additional premium attributable thereto. (h) Existing Leases and Tenancy Statements. Buyers written approval, within ten (10) days after receipt of legible copies of all leases, subleases or rental arrangements (collectively the "Existing Leases") affecting the Property, and a statement (the "Tenancy Statement") in the latest form or equivalent to that published by the A.I.R., executed by Seller and each tenant and subtenant of the Property. Seller shall use its best efforts to provide Buyer with said Existing Leases and Tenancy Statements promptly after the Date of Agreement. (i) Other Agreements. Buyer's written approval, within ten (10) days after receipt, of a copy of any other agreements ("Other Agreements") known to Seller that will affect the Property beyond the Closing. Seller shall cause said copies to be delivered to Buyer promptly after the Date of Agreement. (j) Financing. If paragraph 5 hereof dealing with a financing contingency has not been stricken, the satisfaction or waiver of such New Loan contingency. (k) Existing Notes. [If paragraph 3.1 (c) has not been stricken, Buyers written approval, within ten (10) days after receipt, of conformed and legible copies of the Existing Notes, Existing Deeds of Trust and related agreements (collectively the "Loan Documents") to which the Property will remain subject after the Closing, including a beneficiary statement (the "Beneficiary Statement") executed by the holders of the Existing Notes confirming: (1) the amount of the unpaid principal balance, the current interest rate, and the date to which interest is paid, and (2) the nature and amount of any impounds held by the beneficiary in connection with said loan. Seller shall use its best efforts to provide Buyer with said Loan Documents and Beneficiary Statement promptly after the Date of Agreement. Buyers obligation to close is further conditioned upon Buyers being able to purchase the Property without acceleration or change in the terms of any Existing Notes or charges to Buyer except as otherwise provided in this Agreement or approved by Buyer, provided, however, Buyer shall pay the transfer fee referred to in paragraph 3.2 hereof.] (l) Destruction, Damage or Loss. There shall not have occurred prior to the Closing, a destruction of, or damage or loss to, the Property or any portion thereof, from any cause whatsoever, which would cost more than $10,000.00 to repair or cure. If the cost of repair or cure is $10,000.00 or less, Seller shall repair or cure the loss prior to the Closing. Buyer shall have the option, within ten (10) days after receipt of written notice of a loss costing more than $10,000.00 to repair or cure, to either terminate this transaction or to purchase the Property notwithstanding such loss, but without deduction or offset against the LANGUAGE INDICATED AS BEING SHOWN BY STRIKE OUT IN THE TYPESET DOCUMENT IS ENCLOSED IN BRACKETS "[" AND "]" IN THE ELECTRONIC FORMAT. 6 Purchase Price. If the cost to repair or cure is more than $10,000.00, and Buyer does not elect to terminate this transaction, Buyer shall be entitled to any insurance proceeds applicable to such loss. Unless otherwise notified in writing by either Party or Broker, Escrow Holder shall assume no destruction, damage or loss costing more than $10,000.00 to repair or cure has occurred prior to Closing. (m) Material Change. No Material Change, as hereinafter defined, shall have occurred with respect to the Property that has not been approved in writing by Buyer. For purposes of this Agreement, a "Material Change" shall be a change in the status of the use, occupancy, tenants, or condition of the Property as reasonably expected by the Buyer, that occurs after the date of this offer and prior to the Closing. Buyer shall have ten (10) days following receipt of written notice from any source of any such Material Change within which to approve or disapprove same. Unless otherwise notified in writing by either Party or Broker, Escrow Holder shall assume that no Material Change has occurred prior to the Closing. (n) Seller Performance. The delivery of all documents and the due performance by Seller of each and every undertaking and agreement to be performed by Seller under this Agreement. (o) Breach of Warranty. That each representation and warranty of Seller herein be true and correct as of the Closing. Escrow Holder shall assume that this condition has been satisfied unless notified to the contrary in writing by Buyer or Broker(s) prior to the Closing. (p) Broker's Fee. [Payment at the Closing of such Brokers Fee as is specified in this Agreement or later written instructions to Escrow Holder executed by Seller and Broker(s). It is agreed by Buyer, Seller and Escrow Holder that Broker(s) is/are a third party beneficiary of this Agreement insofar as the Broker's fee is concerned, and that no change shall be made by Buyer, Seller or Escrow Holder with respect to the time of payment, amount of payment, or the conditions to payment of the Brokers Fee specified in this Agreement, without the written consent of Broker(s).] 9.2 All of the contingencies specified in sub-paragraphs (a) through (o) of paragraph 9.1 are for the benefit of, and may be waived by, Buyer, and may be elsewhere herein referred to as "Buyer Contingencies." See addendum 9.3 If Buyer shall fail, within the applicable time specified, to approve or disapprove in writing to Escrow Holder, Seller and the other Party's Broker, any item, matter or document subject to Buyer's approval under the terms of this Agreement, it shall be conclusively presumed that Buyer has approved such item, matter or document. Buyers conditional approval shall constitute a disapproval, unless provision is made by the Seller within the time specified therefor by the Buyer in the conditional approval or by this Agreement, whichever is later, for the satisfaction of the condition imposed by the Buyer. Item"), Seller shall have the right within ten (10) days following the expiration of the time period applicable to such Buyer Contingency or receipt of notice of Buyers disapproval, as the case may be, to elect to cure such Disapproved Item prior to the Expected Closing Date ("Sellers Election"). Sellers failure to give to Buyer within said ten (10) day period, written notice of Sellers commitment to cure such Disapproved Item on or before the Expected Closing Date shall be conclusively presumed to be Sellers Election not to cure such Disapproved Item. If Seller elects, either by written notice or failure to give written notice, not to cure a Disapproved Item, Buyer shall have the election, within ten (10) days after Sellers Election to either accept title to the Property subject to that Disapproved Item, or to terminate this transaction. Buyers failure to elect termination by written notice to Seller within said ten (10) day period shall constitute Buyers election to accept title to the Property subject to that Disapproved Item without deduction or offset. Unless expressly provided otherwise herein, Sellers right to cure shall not apply to [Hazardous Substance Conditions referenced in paragraph 9.1 (c) or] to the Financing Contingency set forth in paragraph 5. Unless the parties mutually instruct otherwise, if the time periods for the satisfaction of contingencies or for Sellers and Buyers said Elections would expire on a date after the Expected Closing Date, the Expected Closing Date shall be deemed extended to coincide with the expiration of three (3) business days following the expiration of: (a) the applicable contingency period(s), (b) the period within which the Seller may elect to cure the Disapproved Item, or (c) if Seller elects not to cure, the period within which Buyer may elect to terminate his transaction, whichever is later. 9.5. Buyer understands and agrees that until such time as all Buyers Contingencies have been satisfied or waived, Seller and/or its agents may solicit, entertain and/or accept back-up offers to purchase the subject Property in the event the transaction covered by this Agreement is not consummated. 9.6. [As defined in subparagraph 9.1 (c),] Buyer and Seller acknowledge that extensive local, state and Federal legislation establish broad liability upon owners and/or users of real property for the investigation and remediation of a Hazardous Substance Condition. The determination of the existence of a Hazardous Substance Condition and the evaluation of the impact of such a condition are highly technical and beyond the expertise of Broker(s). Buyer and Seller acknowledge that they have been advised by Broker(s) to consult their own technical and legal experts with respect to the possible Hazardous Substance Condition aspects of this Property or adjoining properties, and Buyer and Seller are not relying upon any investigation by or statement of Broker(s) with respect thereto. [Buyer and Seller hereby assume] LANGUAGE INDICATED AS BEING SHOWN BY STRIKE OUT IN THE TYPESET DOCUMENT IS ENCLOSED IN BRACKETS "[" AND "]" IN THE ELECTRONIC FORMAT. 7 [all responsibility for the impact of such Hazardous Substance Conditions upon their respective interests herein.] 10. DOCUMENTS REQUIRED AT CLOSING. 10.1 Escrow Holder shall cause to be issued to Buyer a standard coverage (or ALTA extended, if so elected under paragraph 9.1 (0) owners form policy of title insurance effective as of the Closing, issued by the Title Company in the full amount of the Purchase Price, insuring title to the Property vested in Buyer, subject only to the exceptions approved by Buyer. [In the event there is a Purchase Money Deed of Trust in this transaction, the policy of title insurance shall be a joint protection policy insuring both Buyer and Seller.] "IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE PRIOR RECORDED LIENS AND ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY BEING ACQUIRED. A NEW POLICY OF TITLE INSURANCE SHOULD BE OBTAINED IN ORDER TO ENSURE YOUR INTEREST IN THE PROPERTY THAT YOU ARE ACQUIRING." 10.2 Seller shall deliver or cause to be delivered to Escrow Holder in time for delivery to Buyer at the Closing, an original ink signed: (a) Grant deed (or equivalent), duly executed and in recordable form, conveying fee title to the Property to Buyer. (b) If paragraph 3.1 (c) has not been stricken, the Beneficiary Statements concerning Existing Note(s). (c) If applicable, the Existing Leases and Other Agreements together with duly executed assignments thereof by Seller and Buyer. The assignment of Existing Leases shall be on the most recent Assignment and Assumption of Lessors Interest in Lease form published by the A.I.R. or its equivalent. (d) If applicable, the Tenancy Statements executed by Seller and the Tenant(s) of the Property. (e) An affidavit executed by Seller to the effect that Seller is not a "foreign person" within the meaning of Internal Revenue Code Section 1445 or successor statutes. If Seller does not provide such affidavit in form reasonably satisfactory to Buyer at least three (3) business days prior to the Closing, Escrow Holder shall at the Closing deduct from Seller's proceeds and remit to Internal Revenue Service such sum as is required by applicable Federal law with respect to purchases from foreign sellers. See Addendum 10.3 Buyer shall deliver or cause to be delivered to Seller through escrow: (a) The cash portion of the Purchase Price and such additional sums as are required of Buyer under this Agreement for prorations, expenses and adjustments. The balance of the cash portion of the Purchase Price, including Buyers escrow charges and other cash charges, if any, shall be deposited by Buyer with Escrow Holder, by cashiers check drawn upon a local major banking institution, federal funds wire transfer, or any other method acceptable to Escrow Holder as immediately collectable funds, no later than I 1:00 o'clock A.M. on the business day prior to the Expected Closing Date. [(b) If a Purchase Money Note and Purchase Money Deed of Trust are called for by this Agreement, the duly executed originals of those documents, the Purchase Money Deed of Trust being in recordable form, together with evidence of fire insurance on the improvements in the amount of the full replacement cost naming Seller as a mortgage loss payee, and a real estate tax service contract (at Buyers expense), assuring Seller of notice of the status of payment of real property taxes during the life of the Purchase Money Note.] (c) The assumption portion of the Assignment and Assumption of Lessors Interest in Lease form specified in paragraph 10.2(c) above, duly executed by Buyer with respect to the obligations of the Lessor accruing after the Closing as to each Existing Lease. (d) Assumptions duly executed by Buyer of the obligations of Seller that accrue after Closing under any other Agreements. (e) [If applicable, a written assumption duly executed by Buyer of the loan documents with respect to Existing Notes.] 11. PRORATIONS, EXPENSES AND ADJUSTMENTS. See Addendum 11.1 Taxes. Real property taxes payable by the owner of the Property shall be prorated through Escrow as of the date of the Closing, based upon the latest tax bill available. The Parties agree to prorate as of the Closing any taxes assessed against the Property by supplemental bill levied by reason of events occurring prior to the Closing. Payment shall be made promptly in cash upon receipt of a copy of any such supplemental bill of the amount necessary to accomplish such proration. [Seller shall pay and discharge in full at or before the Closing the unpaid balance of any special assessment bonds.] 11.2 Insurance. If Buyer elects to take an assignment of the existing casualty and/or liability insurance that is maintained by Seller, the current premium therefor shall be prorated through Escrow as of the date of Closing. LANGUAGE INDICATED AS BEING SHOWN BY STRIKE OUT IN THE TYPESET DOCUMENT IS ENCLOSED IN BRACKETS "[" AND "]" IN THE ELECTRONIC FORMAT. 8 11.3 Rentals, Interest and Expenses. Collected rentals, interest on Existing Notes, utilities, and operating expenses shall be prorated as of the date of Closing. The Parties agree to promptly adjust between themselves outside of Escrow any rents received after the Closing. 11.4 Security Deposit. Security Deposits held by Seller shall be given to Buyer by a credit to the cash required of Buyer at the Closing. 11.5 Post Closing Matters. Any item to be prorated that is not determined or determinable at the Closing shall be promptly adjusted by the Parties by appropriate cash payment outside of the Escrow when the amount due is determined. [11.6 Variations in Existing Note Balances, In the event that Buyer is taking title to the Property subject to an Existing Deed of Trust(s), and in the event that a Beneficiary Statement as to the applicable Existing Note(s) discloses that the unpaid principal balance of such Existing Note(s) at the Closing will be more or less than the amount set forth in paragraph 3.1 (c) hereof (the "Existing Note Variation"), then the Purchase Money Note(s) shall be reduced or increased by an amount equal to such Existing Note Variation. If there is to be no Purchase Money Note, the cash required at the Closing per Paragraph 3.1 (a) shall be reduced or increased by the amount of such Existing Note Variation. 11.7 Variations in New Loan Balance. In the event Buyer is obtaining a New Loan and in the event that the amount of the New Loan actually obtained is greater than the amount set forth in Paragraph 5.1 hereof, the Purchase Money Note, if one is called for in this transaction, shall be reduced by the excess of the actual face amount of the New Loan over such amount as designated in Paragraph 5.1 hereof.] 11.8 Escrow Costs and Fees. Buyer and Seller shall each pay one-half of the Escrow Holders charges and Sellers shall pay the usual recording fees and any required documentary transfer taxes. Seller shall pay the premium for a standard coverage owners or joint protection policy of title insurance. 12. REPRESENTATION AND WARRANTIES OF SELLER AND DISCLAIMER. 12.1 Sellers warranties and representations shall survive the Closing and delivery of the deed, and, unless otherwise noted herein, are true, material and relied upon by Buyer and Broker(s) in all respects, both as of the Date of Agreement, and as of the date of Closing. Seller hereby makes the following warranties and representations to Buyer and Broker(s): (a) Authority of Seller. Seller is the owner of the Property and/or has the full right, power and authority to sell, convey and transfer the Property to Buyer as provided herein, and to perform Sellers obligations hereunder. (b) Maintenance During Escrow and Equipment Condition At Closing. EXCEPT as otherwise provided in paragraph 9.1 (1) hereof dealing with destruction, damage or loss, Seller shall maintain the Property until the Closing in its present condition, ordinary wear and tear excepted. The heating, ventilating, air conditioning, plumbing, elevators, loading doors and electrical systems shall be in good operating order and condition at the time of Closing. (c) Hazardous SubstancesIStorage Tanks. Seller has no knowledge, except as otherwise disclosed to Buyer in writing, of the existence or prior existence on the Property of any Hazardous Substance [(as defined in paragraph 9.1 (c)),] nor of the existence or prior existence of any above or below ground storage tank or tanks. (d) Compliance. Seller has no knowledge of any aspect or condition of the Property which violates applicable laws, rules, regulations, codes or covenants, conditions or restrictions, or of improvements or alterations made to the Property without a permit where one was required, or of any unfulfilled order or directive of any applicable governmental agency or casualty insurance company that any work of investigation, remediation, repair, maintenance or improvement is to be performed on the Property. (e) Changes in Agreements. Prior to the Closing, Seller will not violate or modify, orally or in writing, any Existing Lease or Other Agreement, or create any new leases or other agreements affecting the Property, without Buyers written approval, which approval will not be unreasonably withheld. (f) Possessory Rights. Seller has no knowledge that anyone will, at the Closing, have any right to possession of the Property, except as disclosed by this Agreement or otherwise in writing to Buyer. (g) Mechanics' Liens. There are no unsatisfied mechanic's or material man's lien rights concerning the Property. (h) Actions, Suits or Proceedings. Seller has no knowledge of any actions, suits or proceedings pending or threatened before any commission, board, bureau, agency, instrumentality, arbitrator(s) court or tribunal that would affect the Property or the right to occupy or utilize same. (i) Notice of Changes. Seller will promptly notify Buyer and Broker(s) in writing of any Material Change (as defined in paragraph 9.1 (m)) affecting the Property that becomes known to Seller prior to the Closing. (j) No Tenant Bankruptcy Proceedings. Seller has no notice or knowledge that any tenant of the Property is the subject of a bankruptcy or insolvency proceeding. LANGUAGE INDICATED AS BEING SHOWN BY STRIKE OUT IN THE TYPESET DOCUMENT IS ENCLOSED IN BRACKETS "[" AND "]" IN THE ELECTRONIC FORMAT. 9 (k) No Seller Bankruptcy Proceedings. Seller is not the subject of a bankruptcy, insolvency or probate proceeding. 12.2 Buyer hereby acknowledges that, except as otherwise stated in this Agreement, Buyer is purchasing the Property in its existing condition and will, by the time called for herein, make or have waived all inspections of the Property Buyer believes are necessary to protect its own interest in, and its contemplated use of, the Property. The Parties acknowledge that, except as otherwise stated in this Agreement, no representations, inducements, promises, agreements, assurances, oral or written, concerning the Property, or any aspect of the Occupational Safety and Health Act, hazardous substance laws, or any other act, ordinance or law, have been made by either Party or Broker, or relied upon by either Party hereto. 13. POSSESSION. 13.1 Possession of the Property shall be given to Buyer at the Closing subject to the rights of tenants under Existing Leases. 14. BUYER'S ENTRY. 14.1 At any time during the Escrow period, Buyer, and its agents and representatives, shall have the right at reasonable times and subject to rights of tenants under Existing Leases, to enter upon the Property for the purpose of making inspections and tests specified in this Agreement. Following any such entry or work, unless otherwise directed in writing by Seller, Buyer shall return the Property to the condition it was in prior to such entry or work, including the recompaction or removal of any disrupted soil or material as Seller may reasonably direct. All such inspections and tests and any other work conducted or materials furnished with respect to the Property by or for Buyer shall be paid for by Buyer as and when due and Buyer shall indemnify, defend, protect and hold harmless Seller and the Property of and from any and all claims, liabilities, demands, losses, costs, expenses (including reasonable attorney's fees), damages or recoveries, including those for injury to person or property, arising out of or relating to any such work or materials or the acts or omissions of Buyer, its agents or employees in connection therewith. See Addendum. 16. FURTHER DOCUMENTS AND ASSURANCES. 16.1 Buyer and Seller shall each, diligently and in good faith, undertake all actions and procedures reasonably required to place the Escrow in condition for Closing as and when required by this Agreement. Buyer and Seller agree to provide all further information, and to execute and deliver all further documents and instruments, reasonably required by Escrow Holder or the Title Company. 16. ATTORNEYS' FEES. 16.1 In the event of any litigation or arbitration between the Buyer, Seller, and Broker(s), or any of them, concerning this transaction, the prevailing party shall be entitled to reasonable attorney's fees and costs. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred in good faith. 17. PRIOR AGREEMENTS/AMENDMENTS. 17.1 The contract in effect as of the Date of Agreement supersedes any and all prior agreements between Seller and Buyer regarding the Property. 17.2 Amendments to this Agreement are effective only if made in writing and executed by Buyer and Seller. 18. BROKER'S RIGHTS. 18.1 If this sale shall not be consummated due to the default of either the Buyer or Seller, the defaulting party shall be liable to and shall pay to Broker(s) the commission that Broker(s) would have received had the sale been consummated. This obligation of Buyer, if Buyer is the defaulting party, is in addition to any obligation with respect to liquidated damages. 18.2 Upon the Closing, Broker(s) is/are authorized to publicize the facts of this transaction. 19. NOTICES. 19.1 Whenever any Party hereto, Escrow Holder or Broker(s) herein shall desire to give or serve any notice, demand, request, approval or other communication, each such communication shall be in writing and shall be delivered personally, by messenger or by mail, postage prepaid, addressed as set forth adjacent to that party's or Broker's signature on this Agreement or by telecopy with receipt confirmed by telephone. Service of any such communication shall be deemed made on the date of actual receipt at such address. 19.2 Any Party or Broker hereto may from time to time, by notice in writing served upon the other Party as aforesaid, designate a different address to which, or a different person or additional persons to whom, all communications are thereafter to be made. 10 20. DURATION OF OFFER. 20.1 If this offer shall not be accepted by Buyer on or before 5:00 P.M. according to the time standard applicable to the city of Los Angeles California on the date of January 12, 1998, Monday , it shall be deemed automatically revoked. 20.2 The acceptance of this offer, or of any subsequent counter-offer hereto, that creates an agreement between the Parties as described in paragraph 1.2, shall be deemed made upon delivery to the other Party or either Broker herein of a duly executed writing unconditionally accepting the last outstanding offer or counter-offer. 21. LIQUIDATED DAMAGES. (This Liquidated Damages paragraph is applicable only if initialed by both parties). 21.1 THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO FIX, PRIOR TO SIGNING THIS AGREEMENT, THE ACTUAL DAMAGES WHICH WOULD BE SUFFERED BY SELLER IF BUYER FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT. THEREFORE, IF, AFTER THE SATISFACTION OR WAIVER OF ALL CONTINGENCIES PROVIDED FOR THE BUYER'S BENEFIT,BUYER BREACHES THIS AGREEMENT, SELLER SHALL BE ENTITLED TO LIQUIDATED DAMAGES IN THE AMOUNT OF $100,000 PLUS INTEREST, IF ANY, ACCRUED THEREON. UPON PAYMENT OF SAID SUM TO SELLER, BUYER SHALL BE RELEASED FROM ANY FURTHER LIABILITY TO SELLER, AND ANY ESCROW CANCELLATION FEES AND TITLE COMPANY CHARGES SHALL BE PAID BY SELLER. 22. ARBITRATION OF DISPUTES. (This Arbitration of Disputes paragraph is applicable only if initialed by both parties and is subject to paragraph 23, below.) 22.1 ANY CONTROVERSY AS TO WHETHER SELLER IS ENTITLED TO THE LIQUIDATED DAMAGES AND/OR BUYER IS ENTITLED TO THE RETURN OF DEPOSIT MONEY, SHALL BE DETERMINED BY BINDING ARBITRATION BY, AND UNDER THE COMMERCIAL RULES (the "COMMERCIAL RULES") OF, THE AMERICAN ARBITRATION ASSOCIATION. HEARINGS ON SUCH ARBITRATION SHALL BE HELD IN THE COUNTY WHERE THE PROPERTY IS LOCATED. ANY SUCH CONTROVERSY SHALL BE ARBITRATED BY THREE (3) ARBITRATORS WHO SHALL BE IMPARTIAL REAL ESTATE BROKERS WITH AT LEAST FIVE (5) FULL TIME YEARS OF EXPERIENCE IN THE AREA WHERE THE PROPERTY IS LOCATED, IN THE TYPE OF REAL ESTATE THAT IS THE SUBJECT OF THIS AGREEMENT AND SHALL BE APPOINTED UNDER THE COMMERCIAL RULES. THE ARBITRATORS SHALL HEAR AND DETERMINE SAID CONTROVERSY IN ACCORDANCE WITH APPLICABLE LAW AND THE INTENTION OF THE PARTIES AS EXPRESSED IN THIS AGREEMENT, AS THE SAME MAY HAVE BEEN DULY MODIFIED IN WRITING BY THE PARTIES PRIOR TO THE ARBITRATION, UPON THE EVIDENCE PRODUCED AT AN ARBITRATION HEARING SCHEDULED AT THE REQUEST OF EITHER PARTY. SUCH PRE-ARBITRATION DISCOVERY SHALL BE PERMITTED AS IS AUTHORIZED UNDER THE COMMERCIAL RULES OR STATE LAW APPLICABLE TO ARBITRATION PROCEEDINGS, THE AWARD SHALL BE EXECUTED BY AT LEAST TWO (2) OF THE THREE (3) ARBITRATORS, BE RENDERED WITHIN THIRTY (30) DAYS AFTER THE CONCLUSION OF THE HEARING, AND MAY INCLUDE ATTORNEYS' FEES AND COSTS TO THE PREVAILING PARTY PER PARAGRAPH 16 HEREOF. JUDGMENT MAY BE ENTERED ON THE AWARD IN ANY COURT OF COMPETENT JURISDICTION NOTWITHSTANDING THE FAILURE OF A PARTY DULY NOTIFIED OF THE ARBITRATION HEARING TO APPEAR THEREAT. 22.2 BUYER'S RESORT TO OR PARTICIPATION IN SUCH ARBITRATION PROCEEDINGS SHALL NOT BAR SUIT IN A COURT OF COMPETENT JURISDICTION BY THE BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE UNLESS AND UNTIL THE ARBITRATION RESULTS IN AN AWARD TO THE SELLER OF LIQUIDATION DAMAGES, IN WHICH EVENT SUCH AWARD SHALL ACT AS A BAR AGAINST ANY ACTION BY BUYER FOR DAMAGES AND/OR SPECIFIC PERFORMANCE. 22.3 NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION. 11 23. APPLICABLE LAW. 23.1 This Agreement shall be governed by, and paragraph 22.3 amended to refer to, the laws of the state in which the Property is located. 24. TIME OF ESSENCE. 24.1 Time is of the essence of this Agreement. 25. COUNTERPARTS. 25.1 This Agreement may be executed by Buyer and Seller in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Escrow Holder, after verifying that the counterparts are identical except for the signatures, is authorized and instructed to combine the signed signature pages on one of the counterparts, which shall then constitute the Agreement. 26. DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP. 26.1 The Parties and Broker(s) agree that their relationship(s) shall be governed by the principles set forth in California Civil Code, Section 2375, as summarized in the following paragraph 26.2. 26.2 When entering into a discussion with a real estate agent regarding a real estate transaction, a Buyer or Seller should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Buyer and Seller acknowledge being advised by the Broker(s) in this transaction as follows: (a) Seller's Agent A Sellers agent under a listing agreement with the Seller acts as the agent for the Seller only. A Sellers agent or subagent has the following affirmative obligations: (1) To the Seller. A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Seller. (2) To the Buyer and the Seller., a. Diligent exercise of reasonable skill and care in performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (b) Buyer's Agent A selling agent can, with a Buyers consent, agree to act as agent for the Buyer only. In these situations, the agent is not the Sellers agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Seller. An agent acting only for a Buyer has the following affirmative obligations. (1) To the Buyer.- A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Buyer. (2) To the Buyer and the Seller., a. Diligent exercise of reasonable skill and care in performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (c) Agent Representing Both Seller and Buyer. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Seller and the Buyer in a transaction, but only with the knowledge and consent of both the Seller and the Buyer. (1) In a dual agency situation, the agent has the following affirmative obligations to both the Seller and the Buyer: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Seller or the Buyer. b. Other duties to the Seller and the Buyer as stated above in their respective sections (a) or (b) of this paragraph 26.2. (2) In representing both Seller and Buyer, the agent may not without the express permission of the respective Party, disclose to the other Party that the Seller will accept a price less than the listing price or that the Buyer will pay a price greater than the price offered. (3) The above duties of the agent in a real estate transaction do not relieve a Seller or Buyer from the responsibility to protect their own interests. Buyer and Seller should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advise is desired, consult a competent professional. (d) Further Disclosures. Throughout this transaction Buyer and Seller may receive more than one disclosure, depending upon the number of agents assisting in the transaction. Buyer and Seller should each read its contents each time it is presented, considering the relationship between them and the real estate agent in this transaction and that disclosure. 26.3 Confidential Information: Buyer and Seller agree to identify to Broker(s) as "Confidential" any communication or information given Broker(s) that is considered by such Party to be confidential. 27. ADDITIONAL PROVISIONS: Additional provisions of this offer, if any, are as follows or are attached hereto by an addendum consisting of paragraphs 28 through 33. (It will be presumed no other provisions are included unless specified here.) - -------------------------------------------------------------------------------- 12 - -------------------------------------------------------------------------------- BUYER AND SELLER HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN AND ARE NOW ADVISED BY THE BROKER(S) TO CONSULT AND RETAIN THEIR OWN EXPERTS TO ADVISE AND REPRESENT THEM CONCERNING THE LEGAL AND INCOME TAX EFFECTS OF THIS AGREEMENT, AS WELL AS THE CONDITION AND/OR LEGALITY OF THE PROPERTY, THE IMPROVEMENTS AND EQUIPMENT THEREIN, THE SOIL THEREOF, THE CONDITION OF TITLE THERETO, THE SURVEY THEREOF, THE ENVIRONMENTAL ASPECTS THEREOF, THE INTENDED AND/OR PERMITTED USAGE THEREOF, THE EXISTENCE AND NATURE OF TENANCIES THEREIN, THE OUTSTANDING OTHER AGREEMENTS, IF ANY, WITH RESPECT THERETO, AND THE EXISTING OR CONTEMPLATED FINANCING THEREOF, AND THAT THE BROKER(S) IS/ARE NOT TO BE RESPONSIBLE FOR PURSUING THE INVESTIGATION OF ANY SUCH MATTERS UNLESS EXPRESSLY OTHERWISE AGREED TO IN WRITING BY BROKER(S) AND BUYER OR SELLER. 13 If this Agreement has been filled in, it has been prepared for submission to your attorney for his approval. No representation or recommendation is made by the real estate Broker(s) or their agents or employees as to the legal sufficiency, legal effect, or tax consequences of this Agreement or the transaction involved herein. The undersigned Buyer offer and agrees to buy the property on the terms and conditions stated and acknowledges receipt of a copy hereof.
BROKER: BUYER: Delphi Business Properties Eltron International, Inc. _____________________________________________ ___________________________________________ By Date By [SIG] Date ------------------ ------------- ---------------------- ------------- Name Printed: Kevin Tamura Name Printed: Donald Skinner Title: _____________________________________ Title Chief Executive Officer Address: 7100 Hayvenhurst Ave., #211, Van Address: 41 Moreland Road, Simi Valley, Nuys, California 91406 California 93065 Telephone: (818) 780-7878 Telephone: (805) 579-1800 Facsimile No.: (818) 780-8152 Facsimile: (805) 579-1808
28. ACCEPTANCE 28.1 Seller accepts the foregoing offer to purchase the Property and hereby agrees to sell the Property to Buyer on the terms and conditions therein specified. 28.2 Seller acknowledges that Broker(s) has/have been retained to locate a Buyer and is/are the procuring cause of the purchase and sale of the Property set forth in this Agreement. In consideration of real estate brokerage service rendered by Broker(s), Seller agrees to pay Broker(s) a real estate brokerage fee in a sum equal to 5% of the Purchase Price (the "Broker(s) Fee") divided equally in such shares as said Broker(s) shall direct in writing. As is provided in paragraph 9.1(p), this Agreement shall serve as an irrevocable instruction to Escrow Holder to pay such brokerage fee to Broker(s) out of the proceeds accruing to the account of Seller at the Closing 28.3 Seller acknowledges receipt of a copy hereof and authorizes the Broker(s) to deliver a signed copy to Buyer. NOTE: A PROPERTY INFORMATION SHEET IS REQUIRED TO BE DELIVERED TO BUYER BY SELLER UNDER THIS AGREEMENT.
BROKER: SELLER: DAUM COMMERCIAL REAL ESTATE Benchmark Holding Group, a California general partnership _____________________________________________ ___________________________________________ By Date By /s/ A. Carl Kotchin Date ------------------ ------------- --------------------- ------------ Name Printed: Bram White Name Printed: A. Carl Kotchin Title: Executive Vice President Title General Partner Address: 711 Daily Drive, Suite 100, Address: Camarillo California 91406 Telephone: (805) 987-8866 Telephone: Facsimile No.: (805) 987-7465 Facsimile:
14 ADDENDUM TO STANDARD OFFER, AGREEMENT AND ESCROW INSTRUCTIONS FOR PURCHASE OF REAL ESTATE This Addendum to Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (this "Addendum") is entered into by and between BENCHMARK HOLDING GROUP, a California general partnership ("Seller"), and ELTRON INTERNATIONAL, INC., a California corporation ("Buyer"), and modifies and supplements that certain Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated December 30, 1997 (together with this Addendum, the "Agreement") covering certain improved real property located at 1001 Flynn Road, Camarillo, California, as more particularly described in the Agreement (the "Property"). Capitalized terms not defined herein shall have the same meanings as set forth for such terms in the Agreement. In the event of any conflict or inconsistency between the terms and provisions hereof and the terms and provisions of the agreement, the terms and provisions of this Addendum shall control. As modified hereby, the terms and provisions of the Agreement shall remain in full force and effect and binding upon the parties. The Agreement is hereby modified and/or supplemented as follows (Section numbers below refer to the indicated Sections of the Agreement): 1.1 Expected Closing Date The Expected Closing Date shall be February 27, 1998. However, Buyer shall have the right to require the Closing to occur within three (3) days after Buyer's written notification to Seller that Buyer is prepared to close the escrow, which notice may be given by Buyer at any time from and after January 23, 1998. Seller shall take all actions necessary to accomplish the closing within such three (3) day period after receipt of Buyer's notice. Failure to close on or before the date specified in the notice from Buyer, other than due to the fault of Buyer, shall entitle Buyer to the purchase price which would otherwise be applicable on the noticed closing date. 2.3 Property. The term "property" shall include, without limitation, the real property described in Section 2.3, all improvements thereon, all rights, privileges, permits, entitlements, easements and appurtenances running with or otherwise benefiting said real property in any manner, all minerals, oil, gas and other hydrocarbon substances on and under said real property, all development rights, air rights, water, water rights, riparian rights, and water stock relating to said real property, all rights-of-way and other appurtenances used in connection with the beneficial use and enjoyment of said real property, all of Seller's right, title and interest in and to all roads and alleys adjoining or servicing said real property, and all personal property (herein the "Personal Property") owned by 15 Seller and used at or in connection with said real property, improvements, or the use or operation thereof. Seller shall cause the legal description of the Property to be provided to Buyer concurrently with the current title report required by this Agreement, which shall be subject to Buyer's approval concurrently with the title matters referenced herein. 3. Purchase Price. The purchase price (the "Purchase Price") to be paid by Buyer to Seller for the Property shall be $8,200,000.00 all payable in cash at Closing. Notwithstanding the foregoing, should Buyer waive the applicable contingency period to allow an early closing, the purchase price for a closing on or prior to February 5, 1998, shall be Eight Million Dollars ($8,000,000,00) and the purchase price for a closing subsequent to February 5, 1998 but on or before February 16, 1998 shall be Eight Million One Hundred Thousand Dollars ($8,100,000.00). 5. Financing Contingency. From and after execution of this Agreement, Seller agrees to take all reasonable steps to cooperate at all times with Buyer and Buyer's proposed lenders in applying for and obtaining Buyer's financing for the purchase of the Property, including, without limitation, by providing all documents, leases, subleases, affidavits, and information in Seller's possession which Buyer or the proposed lender(s) may reasonably request for such purposes, in addition to all other documents, items and information required from Seller by this Agreement. The availability of financing on terms acceptable to Buyer on or before February 23, 1998, shall be a contingency of Buyer's obligation to purchase. 8.1 Escrow and Closing (Escrow Instructions): In the event of any conflict or inconsistency between the terms and provisions of the Agreement and the terms and provisions of any escrow instructions related to this transaction, as between Seller and Buyer the terms and provisions of the Agreement shall control, and as between the escrow holder and the parties the terms and provisions of such escrow instructions shall control. 8.8 Escrow and Closing (work product): Notwithstanding the foregoing, in the event there is any cost for reproduction, Seller shall reimburse Buyer for such cost upon receipt of the copies requested. Any release to Seller shall be contingent on such release not being in violation of the rights of any third party producing such material. Any material released by Buyer to Seller shall be without any representation or warranty as to its accuracy or completeness. 9. Contingencies to Closing. Notwithstanding the dates contained in the body of this Standard Offer, Buyer shall have through and including February 23, 1998 to satisfy itself regarding all contingencies, including but not limited to the condition of the property, the title, financing and the suitability for Buyer's purpose together with the contingencies 16 referenced herein. Failure to notify Seller in writing of Buyer's disapproval by such date shall constitute confirmation of waiver of all contingencies. 9.1(a) Condition of Title. In no event shall any monetary liens or encumbrances remain upon the Property upon or after the Closing other than the lien of non-delinquent real property taxes and assessments, general and special, not yet due. Seller hereby covenants to deliver title to Buyer upon the Closing free and clear of all such monetary liens and encumbrances (including, without limitation, by the satisfaction and reconveyance of all deeds of trust and mechanics' liens and Seller's payment of all principal, interest, prepayment charges, and other costs necessary to accomplish the same). Seller's compliance with the foregoing shall also be a condition precedent to Buyer's obligation to close the Escrow. 9.1(b) Existing Leases and Tenancy Statements. At all times after the Closing, Seller shall reasonably cooperate with Buyer in assuring the proper and timely surrender of the entire Property by all lessees, sublessees and occupants thereof (including, without limitation, the Sublessees referenced below) in good condition and in accordance with their respective leases and subleases. 9.1(c) Buyer's Feasibility Studies. It shall also be a Buyer Contingency under this Agreement that Buyer shall have the right to approve or disapprove, in Buyer's sole business judgment and discretion, all matters relating to the feasibility of Buyer's proposed purchase, financing, development, construction, alteration, use, occupancy and/or operation of the Property. 9.3 Buyer's Contingencies. Buyer shall be required to notify only Seller in writing of any disapproval of a Contingency in order for such disapproval to be timely and effective. Buyer may, but shall not be required to, notify Escrow Holder and Brokers of such disapproval concurrently or at any time subsequently. Any notice by Buyer may be transmitted by facsimile or telecopier to the number provided below the Seller's signature on page 6 of the Agreement, in lieu of or in addition to the other manners of notice permitted by Section 19 of the Agreement. Buyer's approval or disapproval of any Contingency or other matter specified in this Agreement as being subject to Buyer's approval may be given in Buyer's sole business judgment and discretion. 9.6 (Continued). A "Hazardous Substance Condition" for purposes of this Agreement is defined as the existence on, under or relevantly adjacent to the property of a Hazardous Substance (as defined in this Agreement) that would require remediation and/or removal under applicable Federal, state or local laws. 10.2(f) Seller's Deliveries (continued). Upon the Closing, Seller shall also deliver the originals of all warranties, guarantees, policies, and similar documents relating to the 17 Property and/or any building systems, equipment, facilities, or improvements in or on the Property, in the possession of Seller, along with an assignment of all Seller's rights thereunder in form reasonable acceptable to Buyer. Seller shall at all times cooperate with Buyer in requesting and obtaining the consent of the makers or issuers of such items to the assignment of such rights to Buyer. 11.1 Taxes (continued). General and special assessments shall be prorated through Escrow as of the date of Closing, based upon the latest statements available. 12. Additional Representations, Warranties and Covenants by Seller. For the purpose of inducing Buyer to enter into this Agreement, and in addition to the representations, warranties and covenants contained in the Agreement and this Addendum, Seller represents, warrants and covenants to Buyer the following, each of which shall be true and correct as of the date hereof and as of the Closing (which shall be a condition precedent to Buyer's obligation to close the Escrow) and each of which shall survive the Closing and the delivery of possession of the Property to Buyer: (a) To the best of Seller's knowledge: (1) the Property is in full compliance with all existing laws, rules, regulations, codes, ordinances, orders, covenants, conditions, restrictions, and similar requirements; (2) all permits, licenses, certificates, entitlements, approvals and other authorizations required for the ownership, development, construction, use occupancy, and operation of the property have been obtained from all appropriate authorities, are in good standing, and the property and Seller are in compliance with all terms and conditions thereof. Seller has not received any notice that Seller, the Property, or any portion of the Property is in violation of any of the foregoing. (b) To the best of Seller's knowledge: (1) each and every aspect of the Property, including, without limitation, the structure, roof, foundation, slabs, exterior and interior walls, heating, ventilating, air conditioning, utilities, electrical, plumbing, sanitary, sewer, drainage, safety, security, mechanical systems, communications systems, entrances and loading areas are in good condition and repair and in working order; (2) no material repairs or capital improvements are needed with respect to the property or any portion thereof; (3) there are no structural defects of any improvements on the property, nor are there any defects or conditions of the soil or ground areas which would impair or negatively affect the use or operation of the property; (4) the soil conditions of the Property will adequately support all of the improvements located on the Property for their foreseeable life, without the need for unusual or further subsurface excavations, fills, footings, caissons or other 18 installations; (5) the Property is not in an area identified by any agency or department of the federal or sate government as having special hazards, including, without limitation, flood or fire hazards. There is no fact, circumstance, or condition known to Seller which has had or is likely to have a material adverse effect on the Property or the use occupancy, or operation thereof. (c) To the best of Seller's knowledge: (1) there are no "Hazardous Substances" (defined as any substance whose nature and/or quantity of existence, use, manufacture, disposal or effect, renders it subject to Federal, state or local regulation, investigation, remediation or removal as potentially injurious to public health or welfare) on, under or about the Property, including, but not limited to, in the soil or the groundwater. Neither Seller, nor any third party during the time of Seller's ownership of the property, has used, generated, manufactured, stored, released or disposed of any Hazardous Substances in, on, under or about the property or transported any Hazardous Substances to or from the Property; (2) none of the Property, the structures or improvements thereon, or the materials used to construct them contains any Hazardous Substances, including, without limitation, asbestos, PCB's, halon, petroleum or petroleum products, or underground or above-ground storage tanks. (d) Other than as disclosed by the more recent tax bills which seller shall deliver to Buyer as required by this Agreement, no real property taxes or assessments have been assessed, or to the best of Seller's knowledge will be assessed, against the Property or any portion thereof. There are no special assessments, charges or liens which have been made or levied against the Property or which will result from work, activities or improvements done to the Property by or for Seller. To the best of Seller's knowledge, there are no intended public or private improvements or development which may result in any assessment, charge or lien being made or levied against or upon the Property or any portion thereof. (e) To the best of Seller's knowledge: (1) there is no pending or threatened claim, action, litigation, arbitration, condemnation, annexation, or other proceeding or investigation which affects or relates to the Property or any portion thereof; (2) no moratorium, statute, order, regulation, ordinance, legislation, judgment, ruling or decree of any court or governmental agency has been enacted, adopted, issued, entered, or is pending or in effect, that could materially and adversely affect the Property, Buyer's ability to purchase, develop, occupy, operate or use the Property or any portion thereof; (3) there are no pending bankruptcy or insolvency proceedings of Seller or any lessee, sublessee or occupant of the Property or any portion thereof, nor shall there be at any time following the execution hereof through the date of Closing. (f) Except for the tenants disclosed to Buyer by Seller, from and after the date of Closing, no person or entity other 19 than Buyer shall have any right of tenancy, use, or occupancy of the Property or any portion thereof and Buyer shall have sole and exclusive possession, use and enjoyment of the Property as of the date of Closing, other than the Sublessees" defined below in this Addendum. There are no leases, licenses, contracts, or other agreements or understandings permitting, and Seller has not engaged in any course of conduct which would permit, any person or entity to occupy or use any portion of the Property except for the Sublessees. No person or entity whatsoever (including without limitation, any Sublessee) has a right of first offer, right of first refusal, or option to purchase or lease all or any portion of the Property, other than the Sublessee's rights to sublease their respective portions of the property through the end of their respective sublease terms. (g) All leases and subleases of the property or any portion thereof expire on June 30, 1998. There are no breaches or defaults by Seller under any such leases, nor are there any facts or circumstances which with the giving of notice or the passage of time, or both, would constitute such a breach or default. To the best of Seller's knowledge, there are no breaches of defaults by any lessees or sublessees under any such leases or subleases, nor are there any facts or circumstances which with the giving of notice or the passage of time, or both, would constitute such a breach or default. (h) Except for the agreements (the "Service Contracts") set forth on Exhibit "A" attached to this Agreement and incorporated herein by reference, there are no contracts, agreements, warranties, guarantees, bonds or other agreements which affect or will affect, or which will be obligations of, Buyer or the Property, including, without limitation, any agreements or contracts relating to maintenance, construction, parking, easements, reciprocal easements, common driveways, party walls, rubbish removal, landscaping, deliveries, brokerage, sales, leasing, or cost contribution. Except as otherwise expressly stated in the attached schedule of Service Contracts, each of the Service Contracts may be terminated by any party thereto without liability, expense or penalty of the terminating party, upon not more than thirty (30) days' notice. Not more than thirty (30) days subsequent to Buyer's written notice to Seller, Seller shall cause any or all Service Contracts and other agreements designated by Buyer to be terminated prior to the Closing, should such notice to Seller be received not less than thirty (30) days prior to Closing, and Seller shall pay all termination charges and other costs and shall perform all obligations in connection therewith. In such event, Seller shall also deliver to the appropriate parties written notices of termination of the Service Contracts so designated in writing by Buyer, which notices may be conditioned upon the Closing hereunder. With respect to those Service Contracts and other agreements which Buyer elects not to have terminated, Seller shall deliver written notice to all parties to such Service Contracts and agreements when requested by Buyer and in form reasonably acceptable to Buyer, notifying 20 such other parties of the transfer of the Property and the assignment of Seller's entire interest under said Service Contract and agreements. There is no breach or default under any of the Service Contracts or other agreements, nor do there exist any facts or circumstances which, with the giving of notice or the passage of time or both, would constitute such a breach or default. From and after the execution hereof, Seller shall not modify, amend, extend or terminate any Service Contract or any other obligations or agreements affecting the Property, nor shall Seller enter into any contracts, agreements or understandings (or modifications thereof) affecting the Property, without the prior written consent of Buyer in Buyer's discretion. (i) The Property currently has in effect adequate utility, water supply, storm and sanitary sewage facilities, telephone, gas electricity, fire protection, and similar services which are necessary or desirable for the current use, occupancy and operation of the Property, and adequate means of ingress and egress to and from public streets. Seller has no reason to believe that any such utilities, other services, or access will not continue to be available in their present forms and amounts after the Closing, without expense to Buyer other than normal and usual security deposits. (j) No work or labor has been performed or is in progress, and no materials or supplies have been furnished, to or for the Property or Seller, which have not been paid for in full by Seller, nor shall any such matters occur prior to the Closing which shall not be paid for in full by Seller promptly and in no event later than February 13, 1998. (k) Seller is a general partnership duly organized and validly existing under the laws of the State of California. Seller has the legal power, right and authority to enter into this Agreement. The individuals executing this Agreement on behalf of Seller hereby represent and warrant that they have the power, right and authority to bind Seller without further consents or approvals of any kind. All requisite partnership action has been taken by Seller and all requisite consents have been obtained by Seller in connection with this Agreement. (l) This Agreement is duly executed by Seller and is valid and legally binding and enforceable upon Seller. Neither the execution nor performance of this Agreement shall result in a breach or default under any agreement, document, instrument, or other obligation to which Seller is a party or by which Seller may be bound, or under any law, statute, ordinance, rule, governmental regulation or any writ, injunction, order or decree of any court or governmental body, applicable to Seller or the Property. (m) All documents, contracts, agreements, materials, similar items, and information of any kind submitted or to be submitted by Seller to Buyer in connection with this Agreement 21 and the Property are true, correct and complete in all material respects. The representations and warrants by Seller contained herein are true, correct and complete on the date hereof and do not misstate or omit any fact necessary to make such statement complete and not misleading. At all times prior to and including the Closing, Seller shall immediately notify Buyer of any fact, development or information which might make any representation, warranty or covenant contained herein, or any items provided by Seller, false, misleading, inaccurate or incomplete in any respect. Upon the occurrence of the foregoing, or upon any material change in any of the matters described herein which are subject to Buyer's approval. Buyer shall have the right to approve or disapprove any such information and changes within ten (10) business days after Buyer's receipt of written notification thereof, and Buyer may at Buyer's option (i) waive the breach that would be caused by such information or change, (ii) agree with Seller to adjust the terms of this Agreement to compensate Buyer for such information or change, or (iii) terminate this Agreement without prejudice to any further legal or equitable rights or remedies Buyer may have against Seller or the Property. Buyer's failure to notify Seller in writing, within such ten business day period of Buyer's disapproval of such matters shall be deemed Buyer's approval thereof, subject to the survival and continuing effectiveness of Seller's representations, warranties and covenants contained in this Agreement. 14.1 Buyer's Entry. In no event, however, shall Buyer be liable or responsible for any preexisting conditions or matters of which Buyer may learn by reason of any such entries, inspections or tests, regardless of any effect which such matters may have upon Seller's obligations to report and/or respond to such conditions or matters thereafter. 28. Seller's Additional Deliveries to Buyer. Within ten (10) business days after the execution and delivery of this Agreement, Seller shall deliver to Buyer the following in addition to any other deliveries required by this Agreement: (a) Preliminary Title Report dated July 30, 1996 issued by Continental Lawyers Title Company, including, without limitation, maps, potted easements, and underlying documents referenced in such title report. However, the foregoing shall not limit or otherwise affect Seller's obligation to cause the Title Company identified in Section 2.2 of the Agreement to issue a current preliminary title report with maps, plotted easements and all underlying documents referenced therein. Seller shall also immediately deliver the July 30, 1996 title report and related materials to the Title Company specified in this Agreement for purposes of its preparation of a current title report. (b) A true and correct copy of a rent roll for the Property detailing, with respect to each lease and 22 sublease, the name of the lessee or sublessee, the term of the lease or sublease (including the commencement and expiration dates), the rentable square footage leased, the rent (base rent and percentage rent), operating expense "pass-throughs," and security deposit. (c) A true, correct and complete copy of each lease and sublease affecting the Property or any portion thereof, and any and all amendments and modifications thereto and any correspondence affecting the same. (d) To the extent the same are in the possession of Seller or its agents, true, correct and complete copies of all reports, studies, plans, specifications, designs, drawings, "as-built" drawings, blueprints, surveys, maps, site plans, photographs, contracts, Service Contracts, warranties, permits, certificates, entitlements, inspection results, architectural reports, engineering reports, soils tests, geological reports, seismic studies, environmental reports, and similar matters relating to the Property, without representation or warranty by seller regarding the accuracy thereof. (e) A schedule of all the Personal Property at or used in connection with the Property owned by Seller and to be purchased by Buyer. (f) A true, correct and complete copy of each Service Contract. (g) A true, correct and complete copy of all income and expense statements for the Property for the three (3) preceding fiscal years, certified as true and correct by Seller or Seller's accountants. (h) A list of the names, addresses and telephone numbers of all architects, engineers, general contractors and subcontractors who, for the account of Seller, performed work or supplied materials with respect to the improvements on the Property or any portion thereof, identifying the work performed and/or materials supplied by each of them. (i) A true, correct and complete copy of each fire, hazards, rental loss, liability, workers' compensation and other insurance policies currently in effect with respect to the Property or any portion thereof, along with true and correct copies of all documents relating to any claims or settlements made within the three (3) most recent years. (j) A true, correct and complete copy of each bill issued for the three (3) most recent years for all real 23 property taxes and assessments, each bill for personal property taxes, and each notice or document relating to any assessment or bond with respect to the Property. The foregoing documents are hereinafter referred to as the "Documents." Buyer shall have the right to approve or disapprove each of the Documents in the same manner and time period as provided in this Agreement for Buyer's approval of all other Contingencies (with the exception of Buyer's financing contingency). No later than fifteen (15) days prior to the Expected Closing Date, Seller shall deliver to Buyer for Buyer's approval: (i) such fully executed assignments, bills of sale, and other instruments of transfer as Buyer may request conveying to Buyer all of Seller's right, title and interest under the leases and subleases referenced, the Service Contracts, all entitlements, permits, certificates, warranties, and other agreements and rights affecting the Property, the Personal Property, and any and all other matters contemplated by this Agreement; and (ii) an executed notice to all lessees and sublessees of the Property of the transfer of the Property to Buyer as the new lessor or sublessor under their respective leases and/or subleases, as the case may be, and instructing such lessees and sublessees to make all payments and tender all performances under their respective leases and subleases directly to Buyer after their receipt of such notice. 29. Hazardous Substances/Storage Tanks. Seller shall defend (with counsel reasonably acceptable to Buyer), hold harmless and indemnify Buyer, Buyer's officers, directors, shareholders, principals, partners, affiliates, parent companies, subsidiaries, related companies, employees, representatives, agents, invitees, successors and assigns (collectively "Buyer Affiliates") from and against all claims, demands, causes of action, losses, costs, damages, liabilities, fines and expenses (including, without limitation, attorney's fees and costs of suit and collection) which any Buyer Affiliate may realize, incur or suffer arising from, by reason of, or in connection with any Hazardous Substances which exist or existed at, on, under or about the Property prior to the Closing. This provision shall survive the Closing and the execution and delivery of the Grant Deed. 30. Buyer's Right to Specific Performance. Notwithstanding anything contained in this Agreement to the contrary, Seller hereby agrees that in the event of a default or breach by Seller of its obligations under this Agreement, and in addition to any and all other remedies, relief and damages to which Buyer may be entitled under this Agreement, at law, or in equity, Buyer shall have the right to bring an action against Seller for specific performance of Seller's obligations under this Agreement and for the conveyance of the Property hereunder. Seller hereby agrees that Seller will not raise any objections or defenses to the availability or propriety of the remedy of specific performance. 24 31. Further Assurances. Seller and Buyer agree that at any time or from time to time after the execution of this Agreement and whether before or after the Closing, each party upon the request of the other party shall execute and deliver such further documents and instruments and shall perform such further acts and assurances as any party may reasonably request in order to fully consummate, effectuate, and implement the purposes and provisions of this Agreement. 32. Buyer's Representations and Warranties. This Agreement is duly executed by Buyer and is valid and legally binding and enforceable upon Buyer. Neither the execution nor performance of this Agreement shall result in a breach or default under any agreement, document, instrument, or other obligation to which Buyer is a party or by which Buyer may be bound, or under any law, statute, ordinance, rule, governmental regulation or any writ, injunction, order or decree of any court or governmental body, applicable to Buyer. 33. Lease of Property to Buyer. The parties hereby agree that, in the event the Escrow fails to close for any reason, Buyer shall lease the Property from Seller and Seller shall lease the Property to buyer pursuant to a lease which will be substantially in the form attached hereto as Exhibit "B", subject to Buyer's contingencies specified therein. Promptly following the mutual execution hereof but no later than January 23, 1998, the parties hereby agree to negotiate in good faith any final modifications and revisions to the lease form as may be requested by either party. In the event the Escrow closes, the parties hereby agree that the "Standard Industrial/Commercial Single Tenant Lease - Net" attached hereto as Exhibit "B" and incorporated herein by reference or such variation executed by the parties is null and void and of no force or effect. 25 IN WITNESS WHEREOF, the undersigned have executed this Addendum concurrently with their execution of the Agreement. "SELLER" BENCHMARK HOLDING GROUP, a California general partnership By_____________________________________ General Partner By_____________________________________ General Partner By_____________________________________ General Partner "BUYER" ELTRON INTERNATIONAL, INC., a California corporation By_____________________________________ Its____________________________________ By_____________________________________ Its____________________________________ EX-10.6 3 EXHIBIT 10.6 1 EXHIBIT 10.6 ASSET PURCHASE AND SALE AGREEMENT THIS AGREEMENT (the "AGREEMENT"), dated effective as of January 16, 1998, is made between RJS, INC., a California corporation ("RJS"), a subsidiary of Eltron International, Inc., a California corporation ("ELTRON"), and (RJS and Eltron are collectively and individually referred to as "Seller") and VERIFICATION SYSTEMS INTERNATIONAL, INC. a California Corporation ("Buyer"), with reference to the following objectives: P R E A M B L E WHEREAS, RJS is engaged in the business of manufacturing high speed thermal bar code printers, bar code verifiers and internal on-line verifiers for printing systems; WHEREAS, Buyer is engaged in the business of selling verifier and related bar code products and systems; and WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, certain of RJS' assets relating to RJS' bar code verifier business (the "BUSINESS"), excluding bar code printers, bar code printer supplies and spare parts, and all service and maintenance business for verified and non-verified printers, all subject to the terms and conditions set forth in this Agreement. ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: ARTICLE 1 SALE AND PURCHASE OF ASSETS SECTION 1.1 AGREEMENT TO SELL ASSETS. Subject to the terms and conditions of this Agreement, on the Closing Date (as hereinafter defined), Seller shall sell, transfer and deliver to Buyer, and Buyer agrees to purchase and acquire from Seller, the following listed assets of Seller (collectively, the "PURCHASED ASSETS"): (a) PERSONAL PROPERTY. The manufacturing equipment, computers, tools, furniture, office equipment, spare parts, and other personal property listed on Schedule 1.1(a) (the "PERSONAL PROPERTY"); (b) INVENTORY. The inventories of raw materials, work-in-process, finished goods and materials and supplies listed on Schedule 1.1(b) (the "INVENTORY"); (c) CONTRACTS AND LEASES. All of Seller's right, title and interest, if any, in and to the contracts, agreements, leases, licenses and commitments specifically identified on Schedule 1.1(c) (the "ASSUMED CONTRACTS"); (d) INTELLECTUAL PROPERTY. The patents, trade names and trademarks listed on Schedule 1.1(d) and the goodwill associated therewith, and all software and technology related to the Business (the "INTELLECTUAL PROPERTY"); (e) RECORDS. The customer lists, warranty information, engineering documentation, and other information specifically listed on Schedule 1.1(e) (the "RECORDS"; (f) CORPORATE NAME. The name "RJS, Inc.," and all rights to use or allow others to use such name; provided, however, for a period of three (3) months, Seller may use such name on its printer products; and (g) ACCOUNTS RECEIVABLE. The accounts receivable of Seller concerning the verifier business outstanding as of the Closing Date, as listed by customer on Schedule 1.1(g) ("ACCOUNTS RECEIVABLE"). 2 The Purchased Assets shall be transferred to Buyer at the Closing (as defined in Section 4.1 hereof) free and clear of any and all claims, liens, mortgages, security interests, encumbrances, charges or other restrictions, except the "ASSUMED LIABILITIES" as defined in Section 1.3(b) hereof. Except as specifically listed above, no other assets of Seller are being sold to Buyer. SECTION 1.2 PURCHASE PRICE AND PAYMENT. (a) PURCHASE PRICE. In consideration for the transfer of the Purchased Assets to Buyer and the other agreements of Seller set forth in this Agreement, Buyer agrees to pay to Seller Two Million Eight Hundred Ninety Nine Thousand Dollars ($2,899,000), plus or minus the amount of the Adjustments determined pursuant to Section 1.2 (c) below to reflect the changes in the Book Value of each of the accounts for the Personal Property, Inventory, Accounts Receivable and Assumed Liabilities (collectively, the "ADJUSTED ASSETS/ LIABILITIES") reflected on the attached balance sheet ("OPENING BALANCE SHEET") to the Book Value of each such account reflected on the Balance Sheet prepared as of the Closing Date ("CLOSING BALANCE SHEET") (the "PURCHASE PRICE"). The Purchase Price shall be paid, at the option of Seller, by cash in the form of either (i) a wire transfer or (ii) a cashier's check. (b) PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid as follows: (i) ESCROW DEPOSIT. At Closing, $150,000 (the "ESCROW DEPOSIT") shall be deposited with the Escrow Agent pursuant to the Escrow Agreement for thirteen (13) months following the Closing to secure Seller's indemnification obligations to Buyer under ARTICLE 8 hereof, and shall be distributed pursuant to the terms of the Escrow Agreement. (ii) PAYMENT TO SELLER. At Closing, Buyer shall deliver to Seller cash in the amount of $2,749,000, which is the Purchase Price less the sum of the Escrow Deposit above. (iii) ADJUSTMENT AMOUNT. Within 30 days following Closing either Buyer shall pay to Seller or Seller shall pay to Buyer the Adjustment Amount determined pursuant to Section 1.2 (c). (c) DETERMINATION OF ADJUSTMENT. (i) DEFINITION OF "BOOK VALUE". The term "Book Value" means the fair value as determined under purchase and accounting methods under generally accepted accounting principles of the specified asset or liability account, as the case may be, as recorded on Seller's Opening Balance Sheet and Closing Balance Sheet consistently prepared. (ii) CLOSING BALANCE SHEET. Within 10 days after the Closing Date, Seller shall prepare and deliver to Buyer a Closing Balance Sheet of the Adjusted Assets/Liabilities of Seller as of the Closing Date. The Closing Balance shall be prepared in a manner consistent with the preparation of the Opening Balance Sheet. For purposes of the Closing Balance Sheet, all account determinations shall be made as of the close of business on the Closing Date. For up to 10 days after the receipt of the Closing Balance Sheet, Buyer may review and provide its comments or objections to the Closing Balance Sheet. Within 5 days after the end of such 10 day period, Seller shall issue the final Closing Balance Sheet. Attached to and made a part of the Closing Balance Sheet shall be a report (1) containing sufficient detail for the determination of and setting forth the amount of the Book Value of the Adjusted Assets/Liabilities Assets as of the Closing Date (the "Closing Book Value") and (2) setting forth the "ADJUSTMENTS", for the accounts of the Inventory, Accounts Receivable and Assumed Liabilities which shall be equal to the difference of (i) the Closing Book Value of the Inventory account, Accounts Receivable account and the Assumed Liability account, minus (ii) $749,000 for the Inventory account $540,000 for the Accounts Receivable account; and $288,000 for the Assumed Liabilities account, which the parties agree are the Opening Book Values for each such account of these Adjusted Assets/Liabilities. If the Adjustment Amount is positive, it shall be paid by Buyer to Seller. If the Adjustment Amount is negative, it shall be paid by Seller to Buyer. (iii) RESOLVING DISPUTES. In the event of a disagreement relating to the Closing Balance Sheet, either party may elect to have such disagreement resolved by an accounting firm of nationally recognized 3 standing (the "ACCOUNTING FIRM") to be mutually selected by Seller and Buyer. The Accounting Firm shall make a resolution of the Closing Balance Sheet, which shall be final and binding for purposes of this Agreement. The Accounting Firm shall apply the same accounting principles used to prepare the Opening Balance Sheet. The fees and expenses for the services of the Accounting Firm shall be shared equally by Buyer and Seller. (d) PRORATIONS. The following prorations relating to the Purchased Assets will be made as of the Closing Date, with Seller liable to the extent such items relate to any time period up to and including the Closing Date and Buyer liable to the extent such items relate to periods subsequent to the Closing Date. The net amount of all such prorations will be settled and paid on the Closing Date to the extent feasible, but in no event later than ten (10) days after the Closing Date: (i) Personal property taxes, real estate taxes and assessments, and other taxes, if any, on or with respect to the Purchased Assets. (ii) Rents, additional rents, taxes and other items payable by Seller under any lease, license, permit, contract or other agreement or arrangement to be assigned to or assumed by Buyer. (iii) The amount of rents, taxes and charges for sewer, water, fuel, telephone, electricity and other utilities; provided that if practicable, meter readings shall be taken at the Closing Date and the respective obligations of the parties determined in accordance with such readings. (iv) All other items normally adjusted in connection with similar transactions. If the actual expense of any of the above items for the billing period within which the Closing Date falls is not known on the Closing Date, the proration shall be made based on the expense incurred in the previous billing period, for expenses billed less often than quarterly, and on the average expense incurred in the preceding three billing periods, for expenses billed quarterly or more often. Seller agrees to furnish Buyer with such documents and other records as shall be reasonably requested in order to confirm all proration calculations. (e) OTHER PAYMENTS. The amount of wages and other remuneration due in respect of periods to and including the Closing Date to employees of Seller and the amount of bonuses, if any, due to such employees for all such periods will be paid by Seller directly to such employees. SECTION 1.3 ASSUMPTION OF CERTAIN LIABILITIES; OTHER LIABILITIES NOT ASSUMED. (a) ASSUMED CONTRACTS. At the Closing Buyer shall assume and agree to pay, perform and discharge, when due, Seller's obligations arising following the Closing Date, under and pursuant to the Assumed Contracts listed on Schedule 1.1(c). (b) ASSUMED LIABILITIES. At the Closing, Buyer shall also assume and agree to perform and pay when due all of the liabilities and obligations of Seller specifically identified on Schedule 1.3(b) to this Agreement, regardless of whether such liabilities are accrued, absolute, contingent or otherwise, including but not limited to all obligations under the Seller's standard written product service warranty on the listed products serviced by Seller (the "ASSUMED LIABILITIES"). (c) OTHER LIABILITIES. Except for the Assumed Liabilities and Assumed Contracts, Buyer shall not assume or be obligated to pay, perform or discharge any liability, obligation, debt, charge or expense of Seller of any kind, description or character, whether accrued, absolute, contingent or otherwise. SECTION 1.4 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated as set forth on a Certificate of Allocation to be mutually prepared and signed by Buyer and Seller and attached as Exhibit A; which allocation shall be conclusive and binding on Buyer and Seller for all purposes, including, but not limited to, the reporting and disclosure requirements of the Internal Revenue Service. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER 4 Seller represents and warrants to Buyer, each of which is true and correct on the date hereof and shall remain true and correct to and including the Closing Date, as follows: SECTION 2.1 DISCLOSURE SCHEDULE. Attached to this Agreement as Schedule 2.1 is a disclosure schedule (the "DISCLOSURE SCHEDULE") which includes exceptions to the representations and warranties set forth below. The Disclosure Schedule shall be updated through the Closing Date. SECTION 2.2 ORGANIZATION AND STANDING OF SELLER. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California. SECTION 2.3 AUTHORIZATION. Seller has full corporate authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly authorized by the Seller's Board of Directors and sole shareholder. This Agreement constitutes the valid and binding agreement of Seller, enforceable in accordance with its terms, except as such enforcement may be affected or limited by bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equitable principles. SECTION 2.4 INSURANCE. Seller has property, fire and casualty insurance policies (subject to reasonable deductibles), sufficient to allow it to replace any of the Purchased Assets that may be damaged or destroyed prior to the Closing Date. SECTION 2.5 LEASED REAL PROPERTY. Seller leases real property at 140 East Chestnut, Monrovia, California 91016. Seller is not in default under the material terms of such lease. SECTION 2.6 TITLE TO PERSONAL PROPERTY. Seller has good, valid and marketable title to all of the Purchased Assets set forth on Schedules 1.1(a) and 1.1(b), free and clear of all claims, liens, mortgages, security interests, encumbrances, charges or other restrictions. All Purchased Assets owned or leased by Seller will be in the possession of Seller on the Closing Date, except as otherwise disposed of in the ordinary and usual course of Seller's business SECTION 2.7 LITIGATION OR CLAIMS. There is no suit, action, proceeding (legal, administrative or otherwise), arbitration, claim, investigation or inquiry (by an administrative agency, governmental body or otherwise) pending or threatened against Seller concerning the Purchased Assets. Seller does not know, or have grounds to know, of any basis for any such claim or litigation. There is no outstanding judgment, order, writ, injunction or decree of any court, administrative agency, governmental body or arbitration tribunal against Seller which affect the Purchased Assets. SECTION 2.8 NO CONFLICT. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not (i) result in the breach of any of the terms or conditions of, or constitute a default under, the Articles of Incorporation or the Bylaws of Seller or any material contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license or other instrument or obligation to which Seller is a party or by which Seller or any of Seller's properties or assets may be bound or affected; or (ii) violate any law or violate any rule or regulation of any administrative agency or governmental body or any order, writ, injunction or decree of any court, administrative agency or governmental body. All consents, approvals or authorizations of or declarations, filings or registrations with any third parties or governmental or regulatory declarations, filings or registrations with any third parties or governmental or regulatory authorities required in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby will be obtained or made, as applicable, by Seller prior to the Closing Date. SECTION 2.9 ASSUMED CONTRACTS. Seller is not in default, and no event has occurred which would with notice or the passage of time constitute a default by Seller, under any of the Assumed Contracts described in Section 1.1(c) of this Agreement. No other party to any such agreements, contracts or leases is in default, and no event has occurred which would with notice or the passage of time constitute a default, under any such agreement, contract or lease. SECTION 2.10 PRODUCT WARRANTY. Schedule 2.10 contains a true, correct and complete copy of Seller's standard warranty or warranties for sales or servicing of Products (as defined below) and, except as stated therein, there are no other oral or written (expressed or implied) warranties, commitments or obligations with respect to the return, repair or replacement of Products. As used in this Section, the term "PRODUCTS" means those products set forth on Schedule 2.10 which are sold or serviced by Seller. The Opening and Closing Balance Sheet sets forth a reasonable reserve for 5 anticipated future warranty and repair work by Buyer on Products sold by Seller prior to the Closing Date based upon Seller's historical costs and expenses and its prior historical practices. SECTION 2.11 ACCOUNTS RECEIVABLE. All accounts receivable reflected on the Opening Balance Sheet, and as incurred in the normal course of RJS' business since the date thereof, represent arms length sales actually made in the ordinary course of business; are collectible (net of the reserves shown on the Opening Balance Sheet for doubtful accounts) in the ordinary course of business without the necessity of commencing legal proceedings; are subject to no counterclaim or setoff; and are not in dispute. Schedule 1.1(g) contains an aged schedule of accounts receivable included in the Opening Balance Sheet; provided, however, such Schedule 1.1(g) shall change through the closing date based upon collection of Accounts Receivable and the creation of new Accounts Receivable. SECTION 2.12 FINANCIAL STATEMENTS; OTHER INFORMATION. Seller has delivered to Buyer the Opening Balance Sheet, as at October 31, 1997. The Opening Balance Sheet is complete and correct in all material respects and has been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated (except as disclosed therein). SECTION 2.13 PATENTS, TRADEMARKS, ETC. Seller owns or possesses all of the patents, trademarks, service marks, trade names, copyrights and licenses listed on Schedule 1.1(d) and rights with respect to the foregoing. Seller has no actual knowledge (as defined below) of any persons using any inventions, processes, models, designs or formulas so as to infringe on or violate any patent or other rights of Seller. The term "Knowledge" for purpose of this Agreement, shall mean the actual knowledge of Seller's executive officers. SECTION 2.14 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of, or designation, declaration or filing with, any government authority on the part of Seller is required in connection with the valid execution and delivery of this Agreement or the sale or delivery of the Purchased Assets, or the consummation of any other transaction contemplated hereby. SECTION 2.15 LABOR MATTERS. No employees of RJS are represented by any labor organization, and no labor organization, or group of employees of RJS has made a demand for recognition, has filed a petition seeking a representation proceeding or has given RJS a written notice of any intention to hold an election for collective bargaining representative. No strike, picketing, organized work stoppage or similar action is pending or threatened against RJS by its employees or any labor union representing its employees, and there have been no strikes, picketing or organized work stoppage as a result of labor disputes in the last five years. SECTION 2.16 STATUS OF MAJOR CUSTOMERS. To Seller's knowledge (as defined in Section 2.13), none of the RJS' major customers who constituted five percent (5%) or more of its total sales during the twelve (12) months prior to the Closing have informed RJS' management of their intention to cease being a customer of RJS during the twelve (12) months following the Closing, although RJS has not sought any assurance from any such customers of their continued patronage. SECTION 2.17 INVENTORY. Except to the extent of a reserve in the Opening Balance Sheet, all Inventory of Seller reflected on the Opening Balance Sheet consists of a quality and quantity usable and saleable in the ordinary course of business within twelve (12) months after the Closing Date, has a commercial value at least equal to the value shown on such balance sheet and is valued in accordance with generally accepted accounting principles at the lower of cost or market. All Inventory purchased since the date of such balance sheet consists of a quality and quantity usable and saleable in the ordinary course of business. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: SECTION 3.1 CORPORATE STATUS. Buyer is a corporation duly organized and validly existing under the laws of the State of California and in good standing thereunder. SECTION 3.2 AUTHORIZATION. Buyer has full corporate authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly 6 and validly authorized by the Buyer's Board of Directors and no other consent or approval is required. This Agreement and each document, instrument and certificate executed and delivered in connection with the transactions described herein has been duly and validly executed and delivered Buyer. This Agreement constitutes the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as such enforcement may be affected or limited by bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equitable principles. SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATION. No filing with, and no permit, authorization, consent or approval of, any public body or authority is necessary for the consummation by Seller and Buyer of the transactions contemplated hereby. ARTICLE 4 CLOSING SECTION 4.1 CLOSING. The transactions contemplated by this Agreement shall be consummated at a closing (the "Closing") to be held in the offices of Seller at 41 Moreland Rd., Simi Valley California, or at such other place as the parties may mutually agree in writing, upon the satisfaction or waiver of all of the conditions set forth in Article 6 and Article 7 (the "Closing Date"). SECTION 4.2 OBLIGATIONS OF SELLER. At the Closing, unless otherwise waived by Buyer, Seller shall deliver to Buyer: (a) BILLS OF SALES. Bills of sale, endorsements, assignments and such other instruments of transfer as are sufficient, in the reasonable judgment of Buyer and its counsel, to vest in Buyer good and marketable title to the Purchased Assets, free and clear of any and all claims, liens, mortgages, security interests, encumbrances, charges or other restrictions, except for Assumed Liabilities. (b) COMPLIANCE CERTIFICATE. A certificate signed by the Chief Executive Officer or Vice President of Seller that each of the representations and warranties made by it in this Agreement is true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Buyer), and that Seller has performed and complied with all of Seller's obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date. (c) OPINION OF COUNSEL. A written opinion of Graven, Perry, Block, Brody & Qualls, counsel to Seller, dated as of the Closing Date, addressed to Buyer, substantially in the form of Exhibit B hereto. (d) CERTIFIED RESOLUTIONS. A certified copy of the resolutions of the Board of Directors and the shareholder of Seller authorizing and approving this Agreement and the consummation of this transaction contemplated by this Agreement. (e) LICENSE AGREEMENT. The License Agreement duly executed by Eltron and Buyer, in the form of Exhibit D. (f) ESCROW AGREEMENT. The Escrow Agreement duly executed by Seller in the form of Exhibit E. (g) OTHER RECORDS. All records and other documents to be acquired by Buyer pursuant to Section 1.1 of this Agreement. SECTION 4.3 OBLIGATIONS OF BUYER. At the Closing, unless otherwise waived by Seller, Buyer shall deliver to Seller: (a) PURCHASE PRICE. The Purchase Payment provided for in Section 1.2 of this Agreement. (b) ASSUMPTION OF LIABILITIES. Such undertakings and instruments of assumption as will be reasonably sufficient in the opinion of Seller and its counsel to evidence the assumption of the Assumed Liabilities. 7 (c) COMPLIANCE CERTIFICATE. A certificate signed by the Chief Executive Officer or Vice President of Buyer that each of the representations and warranties made by Buyer in this Agreement are true and are correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Seller), and that Buyer has performed and complied with all of Buyer's obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date. (d) OPINION OF COUNSEL. A written opinion of Kirshman & Harris, counsel to Buyer, dated as of the Closing Date, addressed to Seller, in substantially the form of Exhibit C hereto. (e) CERTIFIED RESOLUTIONS. A certified copy of the resolutions of the Board of Directors of Buyer authorizing and approving this Agreement and the consummation of the transactions contemplated by this Agreement. (f) LICENSE AGREEMENT. The License Agreement duly executed by Eltron and Buyer in the form of Exhibit D. (h) ESCROW AGREEMENT. The Escrow Agreement duly executed by Buyer in the form of Exhibit E. SECTION 4.4 FURTHER DOCUMENTS OR NECESSARY ACTION. Buyer and Seller agree to take all such further actions on or after the Closing Date as Buyer or Seller may deem to be reasonably necessary, desirable or appropriate in order to effectuate the transactions contemplated in this Agreement. ARTICLE 5 COVENANTS SECTION 5.1 EMPLOYEES. (a) "Affected Employees" shall mean employees of RJS who may be employed by Buyer immediately after the Closing. (b) Buyer may offer employment to, and Seller shall cooperate and assist Buyer in its efforts to hire, the employees listed on Schedule 2.4, whether on a permanent or on an interim basis, on terms and conditions comparable to the employment terms currently provided by Seller. (c) Seller agrees to satisfy, or cause Seller's insurance carriers to satisfy, all claims for benefits under Seller's employee benefit programs brought by Affected Employees which claims arise out of events occurring on or prior to the Closing Date, in accordance with the terms and conditions of such programs or applicable workers' compensation statutes without interruption as a result of the employment by Buyer of any such employees after the Closing Date. (d) Seller agrees to make a clean cut-off of payroll and payroll tax reporting with respect to the Affected Employees hired by Buyer paying over to the federal, state and city governments those amounts respectively withheld or required to be withheld for periods ending on or prior to the Closing Date. Seller also agrees to issue Forms W-2 for wages paid through the Closing Date. Except as set forth in this Agreement, Buyer shall be responsible for all payroll and payroll tax obligations arising after the Closing Date for employees hired by Buyer. (e) To the extent permitted by law, Seller shall use its best efforts to assign to VSI all of their rights, if any, under all confidentiality agreements and noncompetition agreements that either of them may have with any person or entity including, but not limited to, any consultants, current RJS employees, former RJS employees, and current or former Eltron employees, to the extent that they performed services related to the Purchased Assets. Seller shall execute any other documents reasonably required to perfect the foregoing assignments. SECTION 5.2 PERFORMANCE OF WARRANTY WORK. Following the Closing, Buyer shall assume, as part of the Assumed Liabilities, all responsibility for and shall perform, or cause to be performed, all of the warranty work listed on Schedule 1.3(b). 8 SECTION 5.3 BROKER'S FEES. Buyer and Seller represent to each other that neither has incurred any liability for any broker or finder's fees, agents, commissions, financial adviser's fees or other similar fees (collectively, "BROKER'S FEES") with respect to this Agreement or the consummation of the transactions contemplated hereby SECTION 5.4 CONDUCT OF BUSINESS PENDING THE CLOSING. During the period from the date of this Agreement to the Closing Date, Seller shall conduct its operation of the business, and the Purchased Assets in the ordinary and usual course. Seller shall pay and discharge all obligations and indebtedness as they come due in a manner consistent with past practice. SECTION 5.5 NOTICE OF BREACH OR FAILURE OF CONDITION. Prior to the consummation of the transactions contemplated by this Agreement, Seller, on the one hand, and Buyer on the other hand, agree to give prompt notice to the other of the occurrence of any event or the failure of any event to occur that might preclude or interfere with the satisfaction of any condition precedent to the obligations of Seller or Buyer under this Agreement. SECTION 5.6 EXPENSES. Whether or not the transactions under the Agreement are consummated, all costs and expenses in connection with this Agreement and the related transactions shall be paid and be the sole responsibility of the party which incurred the expense or cost. SECTION 5.7 BEST EFFORTS. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby. In case at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, the parties hereto, by action of their proper officers and directors or otherwise, shall take all such necessary action. SECTION 5.8 CONSENTS. Each of the parties hereto will use its best efforts to obtain consents of all third parties and governmental authorities necessary to the consummation of the transactions contemplated hereby. SECTION 5.9 ACCESS TO INFORMATION. Buyer may upon reasonable notice be provided reasonable access during normal business hours, to view RJS' facilities and the Purchased Assets and to meet with RJS' employees, and Seller shall use its best efforts to cause its representatives to furnish promptly to Buyer and its representatives such additional financial and operating data and other information as to the business as Buyer may from time to time reasonably request. After Buyer has completed and is satisfied with its due diligence review of the facilities, Purchased Assets and employees, then Buyer may request to contact certain of RJS' customers and Seller will arrange with the Buyer for contact with RJS' customers with the mutual participation of a Seller employee. SECTION 5.10 CONFIDENTIAL INFORMATION (a) PRESERVATION OF CONFIDENTIALITY. In connection with the negotiation of this Agreement, the preparation for the consummation of the transactions contemplated hereby, and the performance of obligations hereunder, both parties acknowledge that they will have access to confidential information of the other party. The party receiving such confidential information (the "RECEIVING PARTY") shall treat such information as confidential, preserve the confidentiality thereof and not disclose the information received from the other party (the "DISCLOSING PARTY"), except to its respective representatives in connection with the transactions contemplated hereby. The Receiving Party agrees to maintain in confidence, and not to disclose to any third party, any ideas, methods, developments, inventions, improvements and business plans and information which are the confidential information of the Disclosing Party. If, however, confidential information is disclosed, the party shall immediately notify the other party in writing and take all steps required to prevent further disclosure. (b) PROPERTY RIGHT IN CONFIDENTIAL INFORMATION. Until the Closing, all of Seller's information shall remain its sole property. In the event of the termination of this Agreement for any reason whatsoever, each party shall return to the other party, all documents, work papers and other material (including all copies thereof) obtained from the Disclosing Party or its employees in connection with the transactions contemplated hereby and will use all reasonable efforts, including, without limitation, instructing in writing its employees and others who have had access to such information, to keep confidential and not to use any such information, unless such information is now, or is hereafter disclosed, through no act or omission of such party, in any manner making it available to the general public. If the Receiving Party is compelled by legal process to disclose any confidential information of the Disclosing Party, the Receiving Party shall provide the Disclosing Party with prompt written notice of such request. 9 SECTION 5.11 CHANGE OF CORPORATE NAME. Within ten (10) days of the closing, Seller shall change its corporate name to a new name bearing no resemblance to its present name so as to permit the use of its present name by Buyer. Seller shall authorize and consent to Buyer's reservation with the Secretary of State's office any corporate name using the "RJS" name. SECTION 5.12 SOLICITATION OF EMPLOYEES. For a period of one (1) year after the closing of this Agreement, neither party nor its directors, officers and employees and affiliated companies (including its parent corporation) will, directly or indirectly, either for itself or for any other person, firm, company or corporation, attempt to solicit, divert or take away any of the employees of the other party. SECTION 5.13 CONSULTING SERVICES. After the Closing Date, the parties shall allow each other to use the consulting services of the employees of the other party on the terms and conditions set forth on Schedule 5.13. SECTION 5.14 INDEMNIFICATION FOR FAILURE TO COMPLY WITH BULK SALE NOTICE. To the extent Seller may be required to give a "bulk sale" notice to its creditors and others of the sale of the Purchased Assets to Buyer, Seller shall indemnify and hold Buyer harmless from any and all costs, liabilities, damages or obligations which arise or result from Seller's failure to provide such notice. SECTION 5.15 MUTUAL ACCESS TO RECORDS, POST CLOSING. Following the Closing, Buyer and Seller shall allow each other reasonable access during normal business hours to view and copy records or documents relating to or concerning the Purchased Assets for a reasonable business purpose (e.g. tax filings, accounting and financial reporting, responding to creditors or customer claims, etc.). SECTION 5.16 MONROVIA FACILITY. As soon as practicable after the Closing Date, Buyer intends to remove from Seller's facility, located at 140 East Chestnut, Monrovia, California 91016, the physical assets being purchased pursuant to this Agreement. Seller shall allow Buyer to use such facility for up to 90 days after the Closing Date for a daily license fee of $335. Buyer shall give Seller 35 day's written notice prior to moving from such facility. Buyer shall indemnify Seller under the terms of Section 8.3 for any claim, action, suit or proceeding which arise from or relate to Buyer's use of the facility from and after the Closing Date. Buyer shall remove the Purchased Assets from the facility without causing any damage to the premises (other than such damage which is necessary and reasonable). SECTION 5.17 FURTHER ASSURANCES. Following the Closing, at either party's request and without further consideration, the other party will execute and deliver such documents and take such other action as the requesting party may reasonably request in order to consummate the transactions contemplated hereby, including the vesting in Buyer of good title to the Purchased Assets. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER All obligations of Buyer under this Agreement are, except to the extent expressly waived in writing by Buyer, subject to the satisfaction by Seller prior to or at the Closing of all of the following conditions: SECTION 6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and warranties of Seller in this Agreement shall in all material respects be true and correct when made and shall be true and correct on the Closing Date as though such representations and warranties were made again on the Closing Date. SECTION 6.2 PERFORMANCE. Seller shall have performed and complied with all conditions required by this Agreement to be performed or complied with by Seller prior to or at the Closing. SECTION 6.3 SELLER'S CERTIFICATE. Buyer shall have received a certificate signed by Seller and dated as of the Closing Date to the effect that all representations and warranties made in this Agreement by Seller were on the date of this Agreement and on the Closing Date true and correct in all material respects and that Seller has performed in all material respects the obligations, agreements and covenants undertaken by Seller in this Agreement to be performed on or prior to the Closing Date. SECTION 6.4 NO ADVERSE CHANGES. Except as contemplated by this Agreement or in the Disclosure Schedule, there shall have been no material adverse change in the condition of the Purchased Assets from the Date of this Agreement to the Closing Date. 10 SECTION 6.5 LITIGATION. Without limiting the warranty in Section 2.8, on the Closing Date none of the parties shall be subject to any order, decree or injunction of a court or any governmental commission, board, agency or other instrumentality restraining or prohibiting the consummation of the transactions contemplated by this Agreement, and no investigation by any governmental or other agency shall be pending or threatened which might result in any such litigation or other proceeding. SECTION 6.6 NO CASUALTY. Except as provided in the Disclosure Schedule, the Purchased Assets, except for use or consumption by Seller during the ordinary and usual course of business, shall not have been adversely affected in any material way as a result of any accident or other casualty or act of God. SECTION 6.7 CONSENTS AND APPROVALS. All approvals, consents and waivers that are required to effect the transactions contemplated under this Agreement shall have been received and shall be in full force and effect. Such consents include, but are not limited to, consent to all required filings, declarations or notices with or to third parties shall also have been made or given. ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER All obligations of Seller under this Agreement are, except to the extent expressly waived in writing by Seller, subject to the satisfaction by Buyer prior to or at the Closing of all of the following conditions: SECTION 7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and warranties of Buyer in this Agreement shall be true and correct when made and shall be true and correct on the Closing Date as though such representations and warranties were made again on the Closing Date. SECTION 7.2 PERFORMANCE. Buyer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by Buyer prior to or at the Closing. SECTION 7.3 BUYER'S CERTIFICATE. Seller shall have received a certificate signed by Buyer and dated as of the Closing Date to the effect that all representations and warranties made in this Agreement by Buyer were on the date of this Agreement and on the Closing Date true and correct in all material respects and that Buyer has performed in all material respects the obligations, agreements and covenants undertaken by Buyer in this Agreement to be performed on or prior to the Closing Date. SECTION 7.4 LITIGATION. On the Closing Date none of the par-ties shall be subject to any order, decree or injunction of a court or any governmental commission, board, agency or other instrumentality restraining or prohibiting the consummation of the transactions contemplated by this Agreement, and no investigation by any governmental or other agency shall be pending or threatened which might result in any such litigation or other proceeding. SECTION 7.5 CONSENTS AND APPROVALS. All approvals, consents and waivers that are required to effect the transactions contemplated under this Agreement shall have been received and shall be in full force and effect. All required filings, declarations or notices with or to third parties shall also have been made or given. ARTICLE 8 INDEMNIFICATION SECTION 8.1 INDEMNITY BY SELLER OF BUYER. Seller shall defend, indemnify and hold harmless Buyer and its affiliates, employees, representatives, officers, directors and agents, against and in respect of any and all loss, cost, damage, liability, obligation, expense or deficiency suffered as a result of: (a) LIABILITIES. Any and all liabilities, obligations or debts of Seller of any nature, whether accrued, absolute, contingent or otherwise, other than the Assumed Liabilities (as such term is defined in Section 1.3(b) of this Agreement); (b) BREACH OF COVENANTS, REPRESENTATIONS OR WARRANTIES. Any and all inaccuracies or breaches of any representations, warranties, covenants or obligations given by Seller to Buyer in this Agreement; and 11 (c) EXPENSES. Any and all loss, cost, damage or expense incurred with respect to any claims, actions, suits, proceedings or assessments arising out of matters described in subsections (a) or (b) above, or the settlement thereof, including, without limitation, accounting and legal fees. Seller shall reimburse Buyer from time to time after the Closing Date in respect of any liability or claim to which the foregoing indemnification relates within ten (10) days of receipt of a written itemized accounting of the same from Buyer. (d) SECURITY FOR INDEMNITY OBLIGATIONS. To secure Seller's indemnity obligations under this Section 8.1, a portion of the Purchase Price equal to $150,000 shall be deposited with the Escrow Agent pursuant to the terms of the Escrow Agreement in accordance with Section 1.2. SECTION 8.2 INDEMNITY BY BUYER OF SELLER. Buyer shall defend, indemnify and hold harmless Seller and its affiliates, employees, representatives, shareholders, officers, directors and agents, against and in respect of any and all loss, cost, damage, liability, obligation, expense or deficiency suffered as a result of: (a) LIABILITIES. Any and all Assumed Liabilities of any nature, whether accrued, absolute, contingent or otherwise, as such term is defined in Section 1.3(b) of this Agreement; (b) BREACH OF REPRESENTATIONS OR WARRANTIES. Any and all inaccuracies or breaches of any representations, warranties, covenants or obligations given by Buyer to Seller in this Agreement; and (c) EXPENSES. Any and all loss, cost, damage or expense incurred with respect to any claims, actions, suits, proceedings or assessments arising out of matters described in subsections (a) or (b) above, or the settlement thereof, including, without limitation, accounting and legal fees. Buyer shall reimburse Seller from time to time after the Closing Date in respect of any liability or claim to which the foregoing indemnification relates within ten (10) days of receipt of a written itemized accounting of the same from Seller. SECTION 8.3 THIRD-PARTY CLAIMS. If any action, suit, investigation or proceeding shall be threatened or commenced in respect of which the party to be indemnified under either Section 8.1 or 8.2 ("Indemnitee") may demand indemnification under Section 8.1 or 8.2 herein, Indemnitee shall notify the party who is obligated to indemnify ("Indemnitor") to that effect with reasonable promptness after the commencement of that action, suit, proceeding or investigation, and Indemnitor shall have the opportunity to defend against such action, suit, proceeding or investigation, subject to the limitations set forth below. If Indemnitor elects to defend against any action, suit, proceeding or investigation, Indemnitor shall notify Indemnitee to that effect with reasonable promptness. Indemnitee shall have the right to employ its own counsel and participate in the defense of any such case, but the fees and expenses of counsel shall be at the expense of Indemnitee unless (i) the employment of such counsel at the expense of Indemnitor shall have been authorized in writing by Indemnitor in connection with the defense of the action, suit, proceeding or investigation or (ii) Indemnitor shall have decided not to defend against the action, suit, proceeding or investigation, in either of these cases Indemnitor shall not have the right to direct the defense of the action, suit, proceeding or investigation on behalf of Indemnitee and the fees and expenses relating to such action, suit, proceeding or investigation shall be borne by Indemnitor. Any party granted the right to direct the defense of a claim pursuant to this Article 8 shall (i) keep the other fully informed of the action, suit, proceeding or investigation at all stages thereof whether or not represented and (ii) promptly submit to the other copies of all pleadings, responsive pleadings, motions and other similar legal documents and papers received in connection with the action, suit, proceeding or investigation. SECTION 8.4 AMOUNT LIMITATION. Buyer shall not be entitled to indemnification under this Article 8 for breach of a representation, warranty, covenant or agreement unless the aggregate of the Seller's indemnification obligations exceeds $50,000; but in such event, Buyer shall be entitled to indemnification in full for all breaches of representations, warranties, covenants or agreements up to an aggregate of the Purchase Price for such claims. SECTION 8.5 SURVIVAL OF INDEMNITY RIGHTS. The right of Buyer or Seller to seek indemnity for claims arising under this Article 8 shall survive the Closing for a period of thirteen (13) months and thereafter no claims may be brought, except for indemnification by Seller of Buyer for third party claims under Section 8.3 (which are subject to statutory statute of limitations). ARTICLE 9 TERMINATION 12 SECTION 9.1 TERMINATION. At any time on or prior to the Closing Date, this Agreement may be terminated (a) by the mutual written consent of the Boards of Directors of Seller and Buyer, (b) by Seller if Buyer fails to show, within 10 days of the execution of this Agreement, proof of its ability to fund and pay the Purchase Price, (c) by Seller or Buyer upon the default by the other party in the observance or in the due and timely performance of any of the covenants contained in this Agreement if such breach shall not be cured within ten (10) days of written notice, (d) by Seller or Buyer if there shall have been a material breach by the other party of any of the representations or warranties set forth in this Agreement if such breach shall not be cured within ten (10) days of written notice, (e) if any of the conditions of this Agreement to be complied with or performed by Seller or Buyer on or before the Closing Date shall not have been complied with or performed by such date and such noncompliance or nonperformance shall not have been waived in writing by the other party, then the party to whom the benefit of such condition runs may terminate this Agreement, (f) by Buyer upon written notice to Seller that based upon its due diligence review of Seller and its employees that it has reasonably determined in good faith that previously unknown products and technology of Seller's competitors are reasonably anticipated to cause a reduction during the twenty four (24) months following the Closing of twenty five percent (25%) or more of future sales based upon Seller's historical sales during the twenty four (24) months prior to the anticipated Closing Date, or (g) by Buyer if, after its due diligence review of the business of RJS and the Purchased Assets, including contact with RJS' customers, Buyer not has received satisfactory assurances from major customers, as defined in Section 2.16, of their continued patronage. SECTION 9.2 FINAL EXPIRATION. This Agreement shall auto-matically expire if the Closing does not occur on or before February 15, 1998. SECTION 9.3 EFFECT OF TERMINATION. Termination of this Agree-ment pursuant to this Article 9 shall not in any way restrict the rights and remedies of any party hereto against any other party which has violated, breached or failed to satisfy any of the representations, warranties, covenants, agreements, conditions or other provisions of this Agreement prior to termination hereof. ARTICLE 10 GENERAL SECTION 10.1 ARBITRATION. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be exclusively settled by a three-person panel of arbitrators in an arbitration conducted in Los Angeles County, California, in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") as such rules shall be in effect on the date of delivery of demand for arbitration. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators' decision shall be in writing and shall be final and nonappealable. The arbitrators' authority shall include ordering discovery proceedings and the ability to render equitable types of relief and, in such event, any aforesaid court may enter an order enjoining or compelling such actions as found by the arbitrators. The arbitrators shall also make a determination regarding whether one party's legal position in any such controversy or claim is the more substantially correct (the "PREVAILING PARTY") and the arbitrators shall require the other party or parties to pay the reasonable legal and other professional fees and costs incurred by the Prevailing Party in connection with such arbitration proceeding and any necessary court action. The parties recognize and agree that the remedy of specific performance may be appropriate in order to enforce certain provisions of this Agreement. The parties agree that a party would be entitled to pursue such remedies for emergency or preliminary injunctive or other equitable relief in any court of competent jurisdiction, provided that there would be a stay of such judicial proceedings on the merits of the dispute arising out of or relating to this Agreement pending arbitration of all underlying claims between the parties immediately following the issuance of any such emergency or preliminary injunctive or other equitable relief. The arbitrators shall be chosen from a list provided by the AAA as follows: one arbitrator shall be chosen directly by Buyer, one arbitrator shall be chosen directly by the Seller, and the third arbitrator shall be selected by the two arbitrators so chosen. SECTION 10.2 BINDING EFFECT; BENEFITS; ASSIGNMENT. All of the terms of this Agreement shall be binding upon, inure to the benefit of and be enforceable by and against the successors and authorized assigns of Seller and Buyer. Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies under or by reason of this Agreement except as expressly indicated herein. Neither Seller nor Buyer shall assign any of their respective rights or obligations under this Agreement to any other person, firm or corporation without the prior written consent of the other party. 13 SECTION 10.3 DEFINITION OF "ORDINARY AND USUAL COURSE". As used in this Agreement, an activity will be deemed to be in the "ordinary and usual course of business" or "ordinary and usual course" if such activity is performed in accordance with Seller's historical and customary practices with respect to the activity in question. SECTION 10.4 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. SECTION 10.5 PUBLIC DISCLOSURE. Except as required by law, neither Seller nor Buyer shall make any public disclosure of the existence or terms of this Agreement or the transactions contemplated by this Agreement without the prior written consent of the other party or parties, which consent shall not be unreasonably withheld. SECTION 10.6 NOTICES. All notices, requests, demands and other communications to be given pursuant to the terms of this when and if delivered or mailed first class, postage prepaid or reputable courier service, delivery charges prepaid: (a) If to Buyer: Verification System International, Inc. c/o Printronix, Inc. 17500 Cartwright Road, P.O. Box 19559 Irvine, California 92623-9559 Attn: Lisle Pottorff, President with a copy to: Michael S. Harris, Esq. Kirshman and Harris 11500 W. Olympic Boulevard, Suite 605 Los Angeles, California 90064 (b) If to Seller: RJS, Inc. 41 Moreland Road Simi Valley, California 93065 Attn: Donald Skinner, Chief Executive Officer With a copy to: Graven, Perry, Block, Brody & Qualls 523 West Sixth St., Ste. 1130 Los Angeles, California 90014 Any party may change its address by prior written notice to the other parties. SECTION 10.7 COUNTERPARTS. This Agreement may be executed in identical counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute one and the same instrument. SECTION 10.8 EXPENSES. Buyer and Seller shall pay their own respective expenses, costs and fees including, without limitation, attorneys' and accountants' fees incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement. SECTION 10.9 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules to this Agreement (including the Disclosure Schedule), and the agreements specifically referred to in this Agreement set forth the entire agreement and understanding of Seller and Buyer in respect of the transactions contemplated by this Agreement and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof. Any documents or 14 information delivered by Seller to Buyer prior to the execution of this Agreement, including but not limited to any financial information, projected income statements or balance sheets, which are not expressly incorporated into this Agreement as exhibits or as schedules are expressly excluded from this Agreement. No representation, promise, inducement or statement of intention has been made by Seller or Buyer that is not embodied in this Agreement or in the documents referred to in this Agreement, and neither Seller nor Buyer shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. SECTION 10.10 AMENDMENT AND WAIVER. This Agreement may be amended only by a written instrument executed by Seller and Buyer or, in the case of a waiver, by and behalf of the party waiving compliance. The failure of any party at any time to require performance of any provision of this Agreement shall in no manner affect the right of such party at a later time to enforce the same. No waiver by any party of any condition or of any breach of any term contained in this Agreement shall be deemed to be or construed as a further or continuing waiver of any such term set forth herein. SECTION 10.11 SEVERABILITY. Any provision of this Agreement which shall be found to be contrary to California law or otherwise unenforceable shall not affect the remaining terms of this Agreement, which shall be construed in such event as if the unenforceable provision, or clause thereof, were absent from this Agreement. SECTION 10.12 HEADINGS. The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise modify any of the terms or provisions of this Agreement. SECTION 10.13 JOINT OBLIGATIONS. The obligations of RJS and Eltron are joint and several, notwithstanding that such parties are referred to collectively as "Seller" in this Agreement. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. "BUYER" "SELLER" Verification Systems RJS, Inc. International, Inc. By: ________________________ By:_____________________________ Lisle Pottorff, President Donald Skinner, Chief Executive Officer By: ________________________ By:_____________________________ J. Edward Belt, Secretary Kriston D. Qualls, Secretary Eltron International, Inc. By:__________________________ Donald Skinner, Chief Executive Officer By:_____________________________ Kriston D. Qualls, Secretary EX-21.1 4 EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF ELTRON INTERNATIONAL, INC. 1. Donner Media, Incorporated, a Wisconsin corporation (80% owned subsidiary) 2. Privilege S.A., a French corporation 3. RJS, Inc., a California corporation 4. Eltron International, FSC, a Barbados corporation 5. Eltron Holdings Limited, a United Kingdom corporation 6. Russet Limited, a United Kingdom corporation 7. Eltron International Limited, a United Kingdom corporation 8. Eltron Singapore, a Singapore corporation EX-23.1 5 EXHIBIT 23.1 1 Exhibit 23.1 C0NSENT OF INDEPENDENT AUDITORS We consent to the Incorporation by reference in the Registration Statements of Eltron International, Inc. on Form S-8 (File Numbers 33-80233 and 333-32319) and Form S-3 (File Numbers 333-2530 and 333-06157) of our report dated February 24, 1998, on our audits of the consolidated financial statements and financial statement schedule of Eltron International, Inc. as of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND Sherman Oaks, California March 26, 1998 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,770,139 6,696,105 20,916,786 (341,343) 21,417,152 55,097,802 15,153,881 (4,769,230) 66,861,748 10,142,293 50,083 0 0 26,000,480 30,668,892 66,861,748 105,028,976 105,028,976 59,521,220 18,401,191 100,581 86,100 (232,753) 18,619,456 6,982,295 11,637,161 0 0 0 11,637,161 1.57 1.49
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