UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[FEE REQUIRED] for the fiscal year ended December 31, 1995 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[NO FEE REQUIRED] for the transition period from ________ to ________
Commission File No. 1-8250
WELLS-GARDNER ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1944630
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2701 North Kildare Avenue, Chicago, Illinois 60639
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/252-8220
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 15, 1996, 4,052,676 shares of the Common Stock of the registrant
were outstanding.
While it is difficult to determine the number of shares of stock owned by non
affiliates (within the meaning of such term under the applicable regulations of
the Securities and Exchange Commission), the registrant estimates that the
aggregate market value of the registrant's Common Stock held by non affiliates
on March 15, 1996 (based upon an estimate that 71.8% of the shares are so owned
by non affiliates and upon the closing price for the Common Stock on the
American Stock Exchange on such date) was $11,275,558.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Annual Report to Shareholders for fiscal year ended
December 31, 1995: Parts I & II
Portions of Proxy Statement for Annual Meeting of Shareholders
to be held on April 23, 1996: Part III
PART I
Item 1. BUSINESS
(a) General Development of Business
Wells-Gardner Electronics Corporation (the "Company") designs, manufactures
and markets electronic video products consisting primarily of video monitors.
The Company was incorporated in Illinois in 1925. The Company sells video
monitors to leading manufacturers of coin-operated electronic video games,
state video lottery terminals, video walls, automotive diagnostic equipment,
health club exercise equipment, point of purchase and interactive video
terminals, kiosks, video gaming machines and word processing equipment for
use in video display terminals.
In 1995, the Company continued to make significant progress towards a return
to profitability and continued to reduce its break-even point. The Company's
manufacturing productivity increased in 1995 by 32 percent over 1994. This was
in direct correlation with a much lower process reject rate and the introduction
of 8 new product releases in 1995. Also in 1995, the Company entered the high
margin, high growth video wall, presentation and transportation monitor markets.
The Company's quality continued to improve which resulted in passing the 1995
annual quality audit conducted by the ISO 9001 accreditation agency. Also, the
Company successfully sold approximately 63,000 square feet of excess building
capacity and negotiated its longterm banking agreement with Harris Trust and
Savings Bank.
(b) Financial Information About Industry Segments
The information required by this item on industry segments for
the three fiscal years ended December 31, 1995 is set forth in Exhibit 13 under
the caption "Selected Financial Highlights" and in Note 2 of "Notes to Financial
Statements," which information, is contained in the Company's Annual Report to
Shareholders for the year ended December 31, 1995 and hereby incorporated herein
by reference.
(c) Narrative Description of Business
(c) (i), (ii) and (iii)
PRODUCTS
The Company's primary business is the design, manufacture and
assembly of electronic components which consist of video color monitors and
monochrome monitors and the bonding of touch sensors to open frame monitors.
This business accounted for approximately 98 percent of revenues in 1995, 96
percent of revenues in 1994 and 97 percent of revenues in 1993.
The video monitor product line includes CRT sizes ranging from 3" to 33"
with horizontal scan frequencies from 15kHz to 35kHz. This represents the full
complement of products available in the industry. The Company also customizes
electrical and mechanical capabilities to meet specific customer requirements.
The Company's line of color display monitors have been redesigned over the past
years for higher performance and in an ongoing effort to lower its cost. In
1995, the Company released 8 new products, all which are voltage free. This
allows the products to be plugged in anywhere in the world.
<PAGE>
Sales to manufacturers of video lottery terminals accounted for almost 17
percent of total sales in 1995, 23 percent in 1994 and 10 percent in 1993.
Sales to manufacturers of coin-operated arcade game equipment accounted for 37
percent of sales in 1995, 53 percent in 1994 and 83 percent in 1993. Automotive
test and diagnostic equipment sales accounted for just over 6 percent of total
sales in 1995, 6 percent in 1994 and 7 percent in 1993. Also in 1995, newly
created segments, casino gaming, kiosk, bartop and video walls accounted for
approximately 4 percent, 1 percent, 3 percent and 1 percent of sales
respectively, and service sales accounted for 6 percent of total sales.
MANUFACTURING AND ASSEMBLY
The Company's production activities consist primarily of wiring printed
circuit boards, assembling finished units (and to a limited extent
subassemblies), aligning and testing. The Company manufactures a limited
range of electronic components and purchases the majority of such items from
outside sources. A limited number of sources are used for the electronic
components which it purchases, and for its subassemblies and other raw
materials. Chassis subassemblies for use in two-dimensional color monitors
are contracted off shore based on a design developed by the Company. The
Company also optically bonds touch panels to open frame monitors. As the
Company believes is characteristic of other manufacturers in its business,
the Company has been confronted with long lead times and cost increases from
certain suppliers. Three sources supply the Company with almost all of the
chassis subassemblies for its twodimensional color game monitors. A limited
number of sources are utilized for other components for the Company's products.
MARKETING AND SALES
The Company sells products throughout the United States and
internationally. The Company's products are sold primarily through James
Industries, Inc., a sales representative organization. This representation is
currently furnished under a non-exclusive Sales Representation Agreement (See
Item 13. Certain Relationships and Related Transactions). James Industries,
Inc. is headquartered in Inverness, Illinois and also utilizes the services of
regional sub-representative firms.
The Company also has its own sales staff primarily for sales of non-monitor
video products and limited data display products not covered in the non-
exclusive Sales Representation Agreement.
(c) (iv) The Company is licensed on a non-exclusive basis under certain
patents (which patents expire thru 1999) owned by RCA Corporation, covering the
technical and electrical design of color display and video monitor chassis.
Fees under these licenses are based on the number of units shipped and amounted
to less than 0.3% of total 1995 revenue. Although certain of these licenses may
expire in the future, it has been the experience of the Company to renew such
licenses on substantially the same terms. However, failure of the Company to
obtain renewal of any of these licenses could have a materially adverse effect
on its business.
(c) (v) The Company's business is generally not seasonal.
(c) (vi) The Company has no unique or unusual practices relating to
working capital items.
(c) (vii) The Company's video game monitors are currently sold to a large
number of customers. The Company derived 15 percent, 19 percent and 15 percent
of total revenue from WMS Industries, respectively, during 1995, 1994 and 1993.
In 1993, the Company derived 11 percent of total revenue from Dynamo
Corporation.
(c) (viii) Year-end backlog in 1995 grew to over 50,000 monitors representing
nearly 6 months sales and was 150 percent larger than the backlog at the end
of 1994. It is the Company's experience that well over 90 percent of backlog
results in revenue recognition.
<PAGE>
(c) (ix) No material portion of the Company's business is subject to re-
negotiation of profits or termination of contracts or subcontracts at the
election of the Government.
(c) (x) The Company encounters intense competition from many domestic and
foreign manufacturers. Due to the nature of its business and the absence of
reliable industry statistics, the Company cannot estimate its position in
relation to its competitors. However, the Company recognizes that some
competitors have greater financial and personnel resources, handle more
extensive lines of products, operate larger facilities and price some products
more competitively than the Company. Although the Company believes that the
prices of its products are competitive, it endeavors to meet competition
primarily through the quality of its product line, service and delivery
reliability and new product innovations.
(c) (xi) During 1995, the Company spent approximately $1,506,000 for product
engineering and design research, compared to $1,393,000 in 1994 and $1,611,000
in 1993.
(c) (xii) Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, has no material
effect upon the capital expenditures, earnings and competitive position of the
Company.
(c) (xiii) At December 31, 1995, the Company employed approximately 143
persons.
(d) Export sales were 20 percent of sales in 1995, 20 percent in 1994 and
14 percent in 1993.
Item 2. PROPERTIES
The Company's plant, which is owned by the Company, is located
at 2701 N. Kildare Avenue in Chicago, Illinois. It has approximately 207,000
square feet of floor space. Not less than 100,000 of the 207,000 square feet of
the plant are at any time dedicated to production. Offices for administration,
sales and engineering are also located in the plant. The plant is in good
condition, is well maintained, and currently has excess production capacity. In
1995, the plant operated at an average 50% capacity. The plant is not subject
to any material encumbrance. In 1995, the Company sold approximately 63,000
square feet of excess building capacity.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter of 1995.
<PAGE>
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Year First
Elected As An
Name Office Age Executive Officer
<S> <C> <C> <C>
Anthony Spier Chairman of the Board, President
and Chief Executive Officer 52 1994
Randall S. Wells Executive Vice President and
General Manager 44 1980
Richard L. Conquest Vice President of Finance, Chief
Financial Officer, and Secretary 46 1987
Larry Mahl Director of Materials 48 1989
John S. Pircon Vice President of Marketing
and Engineering 37 1994
Kathleen E. Hoppe Director of Management
Information Systems 50 1994
Mark E. Komorowski Director of Service 30 1994
Eugene C. Ahner Director of Human Resources 59 1994
</TABLE>
Unless otherwise indicated, each executive officer has served in various
executive capacities with the Company for the past five years.
Anthony Spier joined the Company in April 1994 as Chairman of the Board,
President and Chief Executive Officer. Before joining the Company, Mr. Spier
was President of OCE Bruning, a manufacturer of drafting equipment and supplies
from 1990 to 1994. Prior thereto, Mr. Spier was Vice President of AM
International and President of Bruning Corporation, a division of AM
International from 1982 to 1990.
John S. Pircon joined the Company in 1987 and was elected Vice President of
Marketing and Engineering in August 1995. Mr. Pircon was previously elected
Director of Engineering in April 1994. Prior to joining the Company, Mr. Pircon
was Vice President of Sales and Marketing with Energetec Systems, Inc., a power
supply design and manufacturing company.
Kathleen E. Hoppe joined the Company in 1970 as Manager of Electronic Data
Processing and was elected Director of Management Information Systems in August
1994. Prior to joining the Company, Mrs. Hoppe worked as a control clerk for
Sears Roebuck and Company, a retail department chain.
Mark E. Komorowski joined the Company in 1990 as Controller and was elected
Director of Service in August 1994. Prior to joining the Company, Mr.
Komorowski was a senior auditor with Laventhol & Horwath from 1987 to 1990.
Eugene C. Ahner joined the Company in April 1992 as Personnel Manager and was
elected Director of Human Resources in August 1994. Prior to joining the
Company, Mr. Ahner was Director of Human Resources and Secretary of Pheoll
Manufacturing Company from 1985 to 1992. Prior thereto, Mr. Ahner held various
personnel position with Allied Products Corporation from 1979 to 1985.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS.
The information required by this Item is set forth in Exhibit 13 under the
caption "Common Share Market Price and Dividends," which information is
contained in the Company's Annual Report to Shareholders for the year ended
December 31, 1995, and which information is hereby incorporated herein by
reference.
Item 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in Exhibit 13 under the
caption "Selected Financial Highlights," which information is contained in the
Company's Annual Report to Shareholders for the year ended December 31, 1995,
and which information is hereby incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is set forth in Exhibit 13 under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which information is contained in the Company's
Annual Report to Shareholders for the year ended December 31, 1995, and which
information is hereby incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements together with the notes thereto are set
forth in Exhibit 13, which information is contained in the Company's Annual
Report to Shareholders for the year ended December 31, 1995, and which
information is hereby incorporated herein by reference.
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for years ended December 31, 1995, 1994 and 1993
Statements of Shareholders' Equity for years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows for years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Independent Auditors' Report
Albert S. Wells, Jr. Tribute, Board of Directors and Officers
Quarterly financial data for the years ended December 31, 1995 and 1994 are
set forth in Exhibit 13 in Note 11 of Notes to Financial Statements and are
contained in the Company's Annual Report to Shareholders for the year ended
December 31, 1995, and which information is hereby incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a. Directors
The information required by this Item is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 23, 1996,
under the captions "Election of Directors" and "Compliance with Section 16(a)
of the Exchange Act," which information is hereby incorporated herein by
reference.
b. Executive Officers
Reference is made to "Executive Officers of the Registrant" in Part I hereof.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 23, 1996,
under the captions "Summary Compensation Table," "Option Grants in 1995,"
"Aggregated Option Exercises in 1995 And Option Values at December 31, 1995,"
"Election of Directors - Board Compensation," "Compensation Committee
Interlocks and Insider Participation," which information is hereby incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 23, 1996,
under the caption "Securities Beneficially Owned by Principal Shareholders and
Management," which information is hereby incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Information required by this Item is set forth in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 23, 1996,
under the caption "Compensation Committee Interlocks and Insider Participation,"
which information is hereby incorporated herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. (1) Financial Statements The information required by this Item is set
forth in Part II, Item 8 of this Report. The Independent Auditor's Report is
set forth following the Financial Statement Schedules referred to under (2)
below.
(2) Financial Statement Schedules The information required by this Item
is set forth following the signature page of this Report.
(3) Exhibits
The following exhibits are filed herewith:
3.1. Articles of Incorporation of the Company, as amended, filed as Exhibit
3.1 of the Company's Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.
3.2. By-Laws of the Company, as amended, filed as Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference.
*10.1. Wells-Gardner Electronics Corporation Amended and Restated Incentive
Stock Plan, as amended, filed as Appendix A to the Company's Proxy Statement for
Annual Meeting of Shareholders held on April 23, 1995 and incorporated herein by
reference.
10.2. Sales Representative Agreement among the Company, James Industries, Inc.
and James J. Roberts Jr. dated February 29, 1996.
*10.3. Amended Employment Agreement dated February 29, 1996, between the
Company and Anthony Spier.
10.4. License Agreement dated January 1, 1995, between the Company and RCA
Corporation.
*10.5. Employment contract dated June 12, 1989, between the Company and Larry
Mahl, filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference.
*10.6. Employment contract dated April 26, 1994, between the Company and
Randall S. Wells, filed as Exhibit 10.2 of the Company's Form 10-Q dated
June 30, 1994 and incorporated herein by reference.
10.7. Agreement dated July 1, 1995, between the Company and Local 1031,
I.B.E.W., AFL-CIO.
*10.8. Employment contract dated April 26, 1994, between the Company and
Richard L. Conquest, filed as Exhibit 10.3 of the Company's Form 10-Q dated
June 30, 1994 and incorporated herein by reference.
*10.9. Wells-Gardner Electronics Corporation Employee 401K Plan dated January
1, 1990 and Amendment 1 dated February 11, 1992, and Amendment 2 dated January
20, 1994, filed as Exhibit 10.10 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by reference.
<PAGE>
10.11. Voting Rights Agreement dated February 29, 1996, among the Company,
Albert S. Wells, Jr., Randall S. Wells, Anthony Spier, Allan Gardner, John R.
Blouin, James Industries, Inc., and James J. Roberts, Jr., individually and
as Trustee of James J. Roberts, Trust, UTA dated December 23, 1991.
*10.12. Wells-Gardner Electronics Corporation 1996 Nonemployee Director Plan,
filed as Annex A to the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 23, 1996, and incorporated herein by reference.
13. Certain portions of the Company's Annual Report to Shareholders for the
year ended December 31, 1995 as specified in Part I and II hereof to be
incorporated by reference in this Annual Report on Form 10-K.
23. Accountants' consent.
27. Financial Data Schedule
*Management contract or compensatory plan or arrangement.
b. Reports on Form 8-K No reports on Form 8-K were filed during the last
quarter ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WELLS-GARDNER ELECTRONICS CORPORATION
By: /s/ ANTHONY SPIER February 29, 1996
Anthony Spier Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
Signature Title Date
/s/ ANTHONY SPIER Chairman of the Board, President
Anthony Spier and Chief Executive Officer February 29, 1996
/s/ ALBERT S. WELLS, JR.
Albert S. Wells, Jr. Director February 29, 1996
/s/ ALLAN GARDNER
Allan Gardner Director February 29, 1996
/s/ JOHN R. BLOUIN
John R. Blouin Director February 29, 1996
/s/ JAMES J. ROBERTS, JR.
James J. Roberts, Jr. Director February 29, 1996
/s/ WILLIAM DE NICOLO
William L. DeNicolo Director February 29, 1996
/s/ WAYNE HARRIS
Wayne Harris Director February 29, 1996
/s/ ERNEST R. WISH
Ernest R. Wish Director February 29, 1996
<PAGE>
FINANCIAL SCHEDULES
Schedules not included with this additional financial data have been omitted
because they are not applicable or the required information is shown in the
financial statements or notes thereof.
<TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at Balance at
Beginning (1) (2) (3) End of
Year of Period Additions Deductions Other Period
<S> <C> <C> <C> <C> <C>
1993 312,830 0 1,424 (84,000) 227,406
1994 227,406 0 9,759 0 217,647
1995 217,647 210,0000 129,781 0 297,866
(1) Provision for bad debt
(2) Accounts receivable written off against the allowance.
(3) In 1993, $84,000 of this provision was reallocated to other accruals.
</TABLE>
<PAGE>
EXHIBIT INDEX
3.1. Articles of Incorporation of the Company, as amended, filed as Exhibit
3.1 of the Company's Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.
3.2. By-Laws of the Company, as amended, filed as Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference.
*10.1. Wells-Gardner Electronics Corporation Amended and Restated Incentive
Stock Plan, as amended, filed as Appendix A to the Company's Proxy Statement for
Annual Meeting of Shareholders held on April 23, 1995, and incorporated herein
by reference.
10.2. Sales Representative Agreement among the Company, James Industries, Inc.
and James J. Roberts Jr. dated February 29, 1996
*10.3. Amended Employment Agreement dated February 29, 1996 between the
Company and Anthony Spier.
10.4. License Agreement dated January 1, 1995, between the Company and
RCA Corporation.
*10.5. Employment contract dated June 12, 1989, between the Company and Larry
Mahl, filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference.
*10.6. Employment contract dated April 26, 1994, between the
Company and Randall S. Wells, filed as Exhibit 10.2 of the Company's Form 10-Q
dated June 30, 1994, and incorporated herein by reference.
10.7. Agreement dated July 1, 1995, between the Company and Local 1031,
I.B.E.W., AFL-CIO.
*10.8. Employment contract dated April 26, 1994, between the Company and
Richard L. Conquest, filed as Exhibit 10.3 of the Company's Form 10-Q dated June
30, 1994 and incorporated herein by reference.
*10.9. Wells-Gardner Electronics Corporation Employee 401K Plan dated January
1, 1990, and Amendment 1 dated February 11, 1992, and Amendment 2 dated January
20, 1994, filed as Exhibit 10.10 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, and incorporated herein by reference.
10.11. Voting Rights Agreement dated February 29, 1996, among the Company,
Albert S. Wells, Jr., Randall S. Wells, Anthony Spier, Allan Gardner, John R.
Blouin, James Industries, Inc., and James J. Roberts, Jr., individually and as
Trustee of James J. Roberts, Trust, UTA dated December 23, 1991.
*10.12. Wells-Gardner Electronics Corporation 1996 Nonemployee Director Plan,
filed as Annex A to the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 23, 1996, and incorporated herein by reference.
13. Certain portions of the Company's Annual Report to Shareholders for the
year ended December 31, 1995, as specified in Part I and II hereof to be
incorporated by reference in this Annual Report on Form 10-K.
<PAGE>
23. Accountants' consent.
27. Financial Data Schedule
*Management contract or compensatory plan or arrangement.
<PAGE>
SALES REPRESENTATIVE AGREEMENT
THIS AGREEMENT is made and entered into this 29th day of February,
1996, effective as of January 1, 1996, between WELLS-GARDNER ELECTRONICS
CORPORATION, an Illinois corporation (the "Company"), JAMES INDUSTRIES, INC.,
an Illinois corporation (the "Representative"), and JAMES J. ROBERTS, JR.
("Roberts").
WHEREAS, the Company designs, manufactures and markets electronic
video products consisting primarily of video monitors; and
WHEREAS, the Company wishes to appoint the Representative as its
sales representative for certain products of the Company and the Representative
desires to be a sales representative of such products, all in accordance with
the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements contained herein, the parties agree as follows:
1. Definitions.
"Products" shall mean all products produced or
assembled and/or sold by the Company, including, but not limited
to, spare and replacement parts and the service of such products.
"Markets" shall mean the following markets and uses in
which and for which the Products may be sold: amusement, leisure,
gaming, automotive, video walls, presentation monitors,
transportation monitors and kiosk monitors, and shall also
include the data display market but only for the customers listed
on Exhibit A attached hereto.
2. Appointment. The Company hereby appoints the
Representative, and the Representative hereby accepts appointment
by the Company, as sales representative for the Products in the
Markets, under the terms and conditions contained herein. The
Representative hereby agrees to engage actively and diligently in
the promotion and sale of the Products, to use its best efforts
to fully develop the Markets for the Products, and to render
prompt and complete sales and servicing to its customers at its
sole cost and expense.
3. Exclusivity. The Representative shall be the
Company's exclusive sales representative for the Products in the
Markets in the United States of America, Canada and Mexico (the
"Territory") and shall be the Company's sales representative for
the Products in the Markets on a non-exclusive basis in all other
areas.
4. Sales Invoicing. The Company shall do all
invoicing on sales of Products to customers, except as mutually
agreed upon in writing. The Company shall furnish the
Representative with a summary of the following invoices on a
monthly basis: (i) invoices of Products sold in the Territory
for use in the Markets; and (ii) invoices of other Products, if
any, sold by the Company and for which the Representative is
entitled to a commission pursuant to this Agreement.
<PAGE>
5. Commissions.
(a) Monthly Commission. On the 40th day after the
end of each month, the Company shall pay to the Representative a
commission (the "Monthly Commission") consisting of:
(i) a commission of Five Percent (5%) of the Company's
net sales in the Territory of Products in the video wall,
presentation monitor, transportation monitor and kiosk
monitor Markets for such month; plus
(ii) a commission of such percentage of the Company's
net sales in the Territory of Products in Markets other than
the video wall, presentation monitor, transportation monitor
and kiosk monitor Markets for such month equal to the
Commission Percentage (as hereinafter defined); plus
(iii) commissions, at the rates set forth in (i) and
(ii) above, for sales of Products in the Markets outside the
Territory for such month, which sales are generated by the
Representative.
(b) Annual Commission. As soon as practicable, but
in no event later than April 1 each year, the Company shall
calculate the Representative's annual commission for the
preceding calendar year (the "Annual Commission") in the
following manner:
(i) a commission of Five Percent (5%) of the Company's
net sales in the Territory of Products in the video wall,
presentation monitor, transportation monitor and kiosk
monitor Markets for the preceding calendar year; plus
(ii) a commission of such percentage of the Company's
net sales in the Territory of Products in Markets other than
the video wall, presentation monitor, transportation monitor
and kiosk monitor Markets for the preceding calendar year
equal to the Commission Percentage; plus
(iii) commissions, at the rates set forth in (i) and
(ii) above, for sales of Products in the Markets outside the
Territory for the preceding calendar year, which sales are
generated by the Representative.
If the Annual Commission is greater than the sum of
Monthly Commissions paid for the preceding calendar year (the
"Aggregate Monthly Commission"), the Company shall, no later than
ten (10) business days after such calculation, pay to the
Representative the difference between the Annual Commission and
the Aggregate Monthly Commission.
If the Aggregate Monthly Commission is greater than the
Annual Commission, the Representative shall, no later than ten
(10) business days after such calculation, pay to the Company the
difference between the Aggregate Monthly Commission and the
Annual Commission.
(c) Definitions
<PAGE>
(i) "Net Sales" shall mean the aggregate amount of
the Company's net sales of Products in the Markets. For
purposes of determining Monthly Commissions, Net Sales shall
be calculated at the end of each month by annualizing year-
to-date Net Sales. For purposes of determining Annual
Commissions, Net Sales shall equal the Company's net sales
of Products in the Markets for the preceding calendar year.
(ii) "Profit" shall mean year-to-date net income
after taxes.
(iii) "Loss" shall mean year-to-date net loss after taxes.
(iv) The "Commission Percentage" for any month or
year shall be (1) the Applicable Rate set forth in Column B
of Exhibit B if the Company has operated at a Loss, year-to-
date, through the end of such month or year as the case may
be, or (2) the Applicable Rate set forth in Column C of
Exhibit B if the Company has operated at a Profit, year-to-
date, through the end of such month or year as the case may
be. The "Applicable Rate" for any month or year shall be
based upon the Net Sales calculated as provided herein.
(d) All commissions to be paid to the Representative
hereunder shall be based upon the Company's invoice price to
customers for its Products, excluding amounts invoiced for taxes,
freight, C.O.D. charges or insurance.
(e) Notwithstanding anything herein to the contrary,
the Representative shall not be entitled to any commission on
Products sold for use in markets other than the Markets, on
orders canceled or refused for any reason whatsoever by the
Company or by any customer, or on Products returned for credit
upon the Company's authorization. In the event that the Company
accepts Products for return or is not paid by a customer within
ninety (90) days of invoicing, the Company may charge back
against the Representative commissions which have been paid or
which are due to the Representative as a result of the underlying
sale of such Products; provided, however, that once the Company
has been paid in full by such customer, the Representative shall
be entitled to receive commissions thereon at the rate set forth
herein. The Representative assumes responsibility for the
accuracy of all matters on all orders taken by the
Representative.
(f) In the event that the Representative fails to
notify the Company of any disagreement within ninety (90) days
after receiving a statement of commissions due in accordance with
this Section 5, such statements shall be conclusively deemed to
be correct and binding upon the Representative.
6. Sales Terms. All orders submitted by the
Representative to the Company shall be on the Company's regular
terms and conditions then in effect and shall be made expressly
subject to the approval of the Company at the home office of the
Company at 2701 North Kildare Avenue, Chicago, Illinois 60639.
The Company reserves the right to reject, for any reason
whatsoever, any order submitted by the Representative to the
Company under this Agreement, all without any liability
whatsoever to the Company. The Company also reserves the right,
for any reason whatsoever, to change its quoted prices of
Products from time to time and to discontinue at any time or
times the production, assembly, design and/or sale of Products.
<PAGE>
7. Sample and Product Information. The Company
shall furnish the Representative with such samples, sales
bulletins, product brochures, instruction manuals, and technical
guidance as may from time to time be available; provided,
however, that this Section 7 shall not obligate the Company to
furnish any other such material or any financial assistance to
the Representative.
8. Adjustments, Compromises and Collections. The
Representative has no authority, without prior written agreement
by the Company, to represent the Company in making any
adjustments or compromises and the Representative has no
authority to make any collections for or on behalf of the
Company.
9. Intellectual Property Rights and Use. Ownership
and all right, title and interest in and to any trademarks, trade
names, service marks or copyrights, whether or not registered,
relating to any Product are and shall remain vested solely in the
Company. The Representative may not utilize any of the Company's
trademarks, trade names, service marks or copyrights, whether or
not registered, without the Company's prior written consent and
shall immediately modify or discontinue such use if, when and as
requested by the Company.
10. Product Warranty. It is understood and agreed
that the Company's product warranty with respect to the Products
shall be limited to the provisions set forth in the standard
warranty of the Company in effect at the time of delivery
thereof. The Representative shall have no authority to alter or
enlarge upon such warranties.
11. Independent Contractor. It is expressly
understood and agreed by the parties:
(a) that the Representative is an independent
contractor and shall not in any way obligate or create
liability on the part of the Company; and
(b) that the Representative at no time shall
represent itself as the "owner of Wells-Gardner;"
(c) and that no contracts, commitments, statements
or representations made by or on behalf of the
Representative shall be binding in any respect on the
Company. The Company shall not be liable at any time for
any payments to the Representative or on behalf of the
Representative not specifically set forth in this Agreement.
12. Facilities Provided. The Company agrees to
provide to the Representative office space, at its sole option,
within the Company's premises at no cost to the Representative,
and any costs incurred by the Company or the Representative in
connection with the Representative's use of such facilities shall
be borne by the Representative.
<PAGE>
13. Representative Debt. If the Company receives
written notice from any customer of the Company that the
Representative or any Representative Affiliate (as hereinafter
defined) is indebted to such customer for goods purchased from
such customer and the amount (the "Representative Debt") is more
than sixty (60) days past due, then:
(a) the Company may notify the Representative of such
written notice from such customer; and
(b) if the Representative does not pay, or otherwise
negotiate an acceptable payment plan for, the Representative
Debt within thirty (30) days after receiving the notice from
the Company set forth in (a) above, the Company shall have
the right, in its discretion, to either (i) apply to the
Representative Debt any and all Monthly or Annual
Commissions then or thereafter due to the Representative
hereunder or (ii) terminate this Agreement.
For purposes of this Section 13, "Representative Affiliate" shall
mean any entity, at least 50% of the voting power or the equity
of which is beneficially owned, directly or indirectly by the
Representative, Roberts, and John R. Blouin.
14. Term and Termination.
(a) The term of this Agreement shall be from January
1, 1996, to December 31, 2000; provided, however, that this
Agreement will be automatically renewed for successive periods of
one (1) year. Notwithstanding the above, this Agreement may be
terminated by any party upon twelve (12) months prior written
notice to the other party.
(b) In the event of a material breach or default of
any of the terms or conditions of this Agreement by one party,
the other party may terminate this Agreement; provided, however,
that if the breach or default is capable of being cured, the
nonbreaching party must provide the breaching party with written
notice thereof and if cured within sixty (60) days of such
notice, such breach or default may not be grounds for termination
hereunder.
(c) This Agreement shall terminate upon an
assignment for the benefit of creditors by the Representative or
by or against the Representative or Roberts, or the institution
of proceedings by or against the Representative or Roberts in
bankruptcy or under any insolvency laws or for reorganization,
receivership or liquidation, provided such proceeding is not
dismissed within sixty (60) days of the institution thereof.
(d) In the event of the death, legal incapacity or
permanent disability of Roberts, or the termination of his full
time employment by the Representative, then, in any such event,
the Company and the Representative shall negotiate the terms on
which this Agreement shall continue, and if the parties fail to
reach an agreement, this Agreement shall forthwith terminate.
(e) The Company agrees that in the event of the
termination of this Agreement for any reason (other than a
termination by the Representative under Sections 14(a) or (b)),
it will not employ any person employed by the Representative or
Roberts at any time during the twelve (12) months preceding the
date of such termination for a period of one (1) year following
such termination except as mutually agreed upon by the parties.
<PAGE>
(f) In addition to its other rights, the Company
shall, on or before the effective termination date of this
Agreement, have the right to inspect and make copies of all or
any portion of the books and records of the Representative which
pertain to the Company's business and to the fulfillment of the
Representative's obligations under this Agreement.
(g) The Representative shall be entitled to receive
commissions hereunder on Net Sales made after termination of this
Agreement if and to the extent orders therefor were received by
the Company prior to the effective date of termination of this
Agreement, subject to all other conditions hereof.
15. Remedies. It is agreed that each party shall be
entitled to an injunction or injunctions to prevent breaches of
this Agreement and to specifically enforce the terms and
provisions thereof in any action instituted in any court of the
United States or any state thereof having subject matter
jurisdiction, in addition to and not in lieu of, any other remedy
to which such party may be entitled, at law or in equity.
16. Confidential Information.
(a) The Representative acknowledges that, in the
course of promoting and selling the Products and performing its
duties under this Agreement, it may obtain information relating
to the Company and its products which the Representative knows or
has reason to know is of a confidential and/or proprietary nature
("Confidential Information"). Such Confidential Information may
include, but is not limited to, price guidelines, future product
releases, trade secrets, know-how, inventions, methods of
manufacture, techniques, processes, programs, data, pricing and
discount lists and schedules, customer lists, financial
information and sales and marketing plans. The Representative
shall at all times, both during the term of this Agreement and at
all times thereafter, keep and hold such Confidential Information
in the strictest confidence, and shall not use or disclose such
Confidential Information for any purpose, other than as may be
reasonably necessary for the performance of its duties as a
representative pursuant to and during the term of this Agreement.
The Representative shall not use or disclose any Confidential
Information to any person or entity, other than to the
Representative's employees with a need to know such Confidential
Information. The Representative warrants that the
Representative's principals, employees, agents and
representatives, included, but not limited to, James J. Roberts,
Jr., shall be advised of the provisions of this Agreement
relating to Confidential Information as set forth in this Section
16 and shall abide by the terms of this Section 16 to the same
extent as the Representative is required to do so.
(b) Promptly upon the termination of this Agreement,
the Representative shall on its own initiative turn over to the
Company all Confidential Information and all other information
and material, including, without limitation, all and any Product
samples, pamphlets, catalogs, booklets and other advertising data
and literature concerning the Company and/or the Products, and
all copies thereof, in the possession, custody or control of the
Representative.
<PAGE>
17. Noncompetition.
(a) The Representative and Roberts agree that during
the term hereof and, if, but only if, the Representative or
Roberts voluntarily terminates this Agreement under Section
14(a), or the Company terminates this Agreement under Section
14(b) or 14(c), then for a period of one (1) year after notice of
such termination, they will not, directly or indirectly, be in
any manner engaged in, connected with (as a shareholder,
employee, independent contractor or otherwise) or employed by (or
act as an independent contractor or other representative for) any
person, firm or corporation which is engaged in a business which,
anywhere inside or outside the Territory, (i) is competitive with
the Company, or a successor or affiliate thereof or (ii)
promotes, sells, markets, licenses, distributes, or advertises
products whether existing or under development, which are similar
to or competitive with the Products anywhere; provided, however,
that this subsection shall not be deemed to limit the
Representative's and Robert's right to own less than 10% of the
common stock of a publicly-held corporation whose shares are
traded on a recognized stock exchange or over-the-counter), and
provided, further, that the Representative and Roberts may so
compete in Johnson County, Illinois.
(b) In the event of a breach, violation or attempted
breach or violation of any of the provisions of this Section 17,
the Company shall be entitled to an injunction or restraining
order immediately upon the commencement of any suit therefor by
the Company and without notice. Nothing herein shall be
construed as prohibiting the Company from pursuing any other
remedy available to it for any such breach or violation for the
recovery of damages, including punitive damages by reason
thereof.
(c) The necessity of protection against the
competition of the Representative and the Representative's
principals and the nature and scope of such protection has been
carefully considered by the parties hereto. The parties hereby
agree and acknowledge that the duration, scope and geographic
area applicable to the restrictions set forth in this Section 17
are fair, reasonable and necessary. The consideration provided
for herein is sufficient and adequate to compensate for agreeing
to the restrictions contained in this Section 17. If, however,
any court determines that the foregoing restrictions are not
reasonable, such restrictions shall be modified, rewritten or
interpreted to include as much of their nature and scope as will
render them enforceable.
18. Limitation of Remedy. The Representative shall
have no claim against the Company for compensation or otherwise
with regard to this Agreement or the representation created
hereby, whether in contract, in tort, under any warranty or
otherwise, either during the term of this Agreement or after its
termination, for any termination or nonrenewal in accordance with
this Agreement. The Company shall not, by reason of the
termination of this Agreement, for sale or use of Products, for
negligence, or otherwise, be liable to the Representative for any
special, incidental or consequential damages or similar relief,
including but not limited to, property damage, personal injury,
compensation or damages for loss of present or prospective
profits or revenues, loss of goodwill or expenditures,
investments or commitments made in entering into this Agreement
or in connection with the performance of obligations hereunder.
<PAGE>
19. Waiver. No change in, addition to, or waiver of
any of the provisions of this Agreement shall be binding upon any
party hereto unless in writing signed by each party except as
otherwise provided herein. No failure of a party to exercise any
right given to it hereunder, or to insist upon strict compliance
with any obligation hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a
waiver of the party's rights to demand exact compliance with the
terms hereof. Waiver by a party of any particular default shall
not affect or impair its rights in respect to any subsequent
default of the same or of a different nature, nor shall any delay
or omission of a party to exercise any rights arising from such
default affect or impair the party's rights as to such default or
any subsequent default.
20. Notices. All notices required or permitted by
the terms of this Agreement shall be in writing and shall be sent
by certified or registered mail, postage prepaid, addressed as
follows:
If to the Company:
Wells-Gardner Electronics Corporation
2701 North Kildare Avenue
Chicago, Illinois 60639
If to the Representative or Roberts:
James Industries, Inc.
1619 Colonial Parkway
Inverness, Illinois 60067
or such other address as any party may designate in a notice to
the others.
21. Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties, their successors
and assigns. This Agreement shall not be assignable by the
Representative without the prior written consent of the Company.
Upon any assignment by the Representative that is not consented
to in writing by the Company, the Company may terminate this
Agreement at its option.
22. Survival. Notwithstanding any termination of
this Agreement, any duty or obligation which has been incurred by
the terms hereof or which has not been fully observed, performed
or discharged, shall survive termination until such duty or
obligation has been fully observed, performed or discharged. The
rights or remedies hereunder are cumulative to any other rights
or remedies which may be granted by law.
23. Severability. If any covenant or other
provision of this Agreement is invalid, illegal, or incapable of
being enforced, by reason of any rule of law, administrative
order, provisions of this Agreement shall, nevertheless, remain
in full force and effect, and no covenant or provision shall be
deemed dependent upon any other covenant or provision unless so
expressed herein.
<PAGE>
24. Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Illinois.
25. No Third Party Beneficiaries. No persons other
than the Company and the Representative shall have any rights, to
commissions or otherwise, by virtue of or under this Agreement,
and the Representative shall not acquire, by virtue of this
Agreement, any rights to commissions or otherwise under any other
agreement that the Company may execute with any other sales
representative.
26. Integration/Modification/Entire Agreement. This
Agreement constitutes the entire agreement and final
understanding of the parties with respect to the subject matter
hereof and supersedes and terminates any and all prior
distributorship agreements, prior and/or contemporaneous
communications and/or agreements between the parties, whether
written or verbal, express or implied, direct or indirect,
relating in any way to the subject matter hereof including, but
not limited to the Agreement dated March 1, 1991, as subsequently
amended, by and between the parties hereto. This Agreement is
intended by the parties to be a complete and wholly integrated
expression of their understanding and agreement, and it may not
be altered, amended, revised, modified or otherwise changed in
any way except by a written instrument, which specifically
identifies the intended alteration, amendment, revision,
modification or other change and clearly expresses the intention
to so change this Agreement, signed by an officer of the
Representative and by an officer of the Company.
27. Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
28. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original
but both of which constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
WELLS-GARDNER JAMES INDUSTRIES, INC.
ELECTRONICS CORPORATION:
By: /s/ ANTHONY SPIER By: /s/ JAMES J. ROBERTS, JR.
Anthony Spier James J. Roberts, Jr.
Title: CEO Title: CEO
/s/ JAMES J. ROBERTS, JR.
James J. Roberts, Jr.
<PAGE>
EXHIBIT A
CUSTOMERS IN DATA DISPLAY MARKET
1. Polaroid
2. North American Drager
3. Coulter Electronics
4. Optelec
5. Telesensory
6. Simrad
7. Future new accounts must be mutually agreed
<PAGE>
<TABLE>
EXHIBIT B
COMMISSION SCHEDULE
<S> <C> <C>
NET SALES LOSS PROFIT
Under $27.5 million 3.00 percent 3.25 percent
$27.5 million to $29.99 million 3.25 percent 3.50 percent
$30.0 million to $37.49 million 3.50 percent 3.75 percent
$37.5 million to $42.49 million 4.00 percent 4.00 percent
$42.5 million to $47.49 million 4.50 percent 4.50 percent
$47.5 million and over 5.00 percent 5.00 percent
</TABLE>
<PAGE>
AMENDED EMPLOYMENT AGREEMENT
Amended Agreement made effective as of February 29, 1996 between
ANTHONY SPIER ("Employee") and WELLS-GARDNER ELECTRONICS CORPORATION, an
Illinois corporation ("Company");
WHEREAS, the parties desire to amend and restate the Employment
Agreement entered into on April 26, 1994 ("Employment Agreement");
NOW, THEREFORE, in consideration of the premises, the parties hereby
agree that the Employment Agreement is hereby amended to read as set forth
herein:
1. Employment and Duties. The Company hereby employs Employee as its
Chairman, President, Chief Executive Officer ("CEO") and Chief Operating Officer
("COO"). Notwithstanding, the Board of Directors shall have the option to
designate Employee as Chairman and CEO only, and to elect another person as
President and COO.
2. Performance. Employee agrees to actively devote all of his time
and effort during normal business hours to the performance of his duties
hereunder and to use his best efforts and endeavors to promote the interests and
welfare of the Company at all times.
3. Term. The term of Employee's employment hereunder shall be until
December 31, 2000 but shall be extended from year to year for additional one
year terms, unless either the Company or the Employee elects, by giving written
notice to the other party at least one year prior to the end of any term, not to
extend the term hereof. Following the expiration of this Agreement pursuant to
such notice, Employee shall be an employee-at will.
4. Compensation. For all services rendered by Employee, Company
agrees to pay Employee a salary from and after the effective date hereof at a
minimum annual rate of $200,000 through December 31, 1996 and $225,000
thereafter, payable in such installments as the parties shall mutually agree,
plus such additional compensation as the Board of Directors shall from time to
time determine.
5. Expenses. The Company shall reimburse Employee for reasonable
business expenses incurred by Employee in the performance of his duties under
this Agreement, including expenses for entertainment, travel and similar items
consistent with its present practices.
6. Vacation and Benefits. During the period of his employment under
this Agreement, Employee shall be entitled to four weeks' annual vacation,
insurance, and other employment benefits customarily provided by the Company,
including increased or changed benefits as are from time to time provided
Company's employees generally, or for any group or class of employees of which
Employee shall be a member.
<PAGE>
7. Termination.
a) The Company may terminate Employee's employment and this
Agreement at any time without penalty for "cause." As used herein, "cause"
means (i) any intentional breach by Employee of any provision of this Agreement
or, upon 30 days' notice and failure thereafter by Employee to cure, any
violation of any statutory or common law fiduciary duty to the Company, (ii)
gross neglect by Employee of his duties hereunder, (iii) any act of Employee
constituting a felony under the laws of the State of Illinois or resulting or
intending to result in improper personal gain or enrichment at the expense of
the Company, (iv) fraud, dishonesty or misconduct in the performance of
Employee's duties, (v) conduct by the Employee which is detrimental to the
Company and which continues after the Company has specifically requested that
such conduct be discontinued, or (vi) failure of Employee to make cumulative
"net investments", as hereinafter defined, in common shares of the Company of at
least $109,100, $163,650 and $200,000 by May 1, 1996, May 1, 1997 and
December 31, 1997, respectively.
For purposes hereof, "net investment" in common shares of the
Company means the purchase price paid in cash by the Employee for all common
shares of the Company purchased by the Employee on or after April 26, 1994 and
before the relevant date set forth above, less the cash proceeds received by the
Employee from all sales of common shares of the Company by the Employee on or
after April 26, 1994 and before the relevant date set forth above. Anything to
the contrary notwithstanding (i) cash paid upon exercise of options granted to
the Employee on April 26, 1994 under the Company's Amended and Restated
Incentive Stock Plan, shall be included in computing Employee's net investment
in common shares of the Company, and (b) cash or other consideration paid upon
exercise of any other option granted to the Employee under said Plan or
otherwise shall not be included in computing Employee's net investment in common
shares of the Company.
b) Employee may terminate his employment hereunder, in the event
of a change in control of the Company. For purposes of this Agreement, a
"change in control of the Company" shall mean a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934
("Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) other than Employee or any
other person currently the beneficial owner of 10% or more of the outstanding
common shares of the Company, becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company cease for any
reason to constitute at least a majority thereof (unless the election of each
director, who was not a director at the beginning of the period, was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period). If the Employee shall terminate his
employment under this Paragraph 7(b):
<PAGE>
1) The Company shall pay the Employee his full base salary
through the date of termination at the rate in effect at the
time written notice of termination is given the Company by the
Employee; and
2) If the Employee does not, within five days of such
termination, enter into a new employment agreement with the
Company or its successor, as the case may be, with a term of two
years or more, then, in lieu of any further compensation payments
to the Employee for periods subsequent to the date of
termination, the Company shall pay, as liquidated damages to the
Employee on the fifth-day following the date of termination, a
lump sum amount equal to the greater of (A) the amount of
compensation which, but for such termination, would have been
payable to Employee under Paragraph 4 hereof for the remaining
term of this Agreement, or (B) two times the Employee's total
compensation from the Company for the twelve calendar months
preceding the date of termination. The Employee shall not be
required to mitigate the amount of any payment provided for in
this Paragraph 7(b) by seeking other employment or otherwise; and
3) The Company shall pay Employee, on the fifth day following the
date of termination, the value of any unvested stock options held
by Employee and will release all restrictions on, and waive all
conditions for vesting of, all unvested stock awards held by
Employee. The value of unvested stock options shall equal the
number of unvested shares times the dollar spread between option
price and the closing price of common shares of the Company on
the day of termination.
<PAGE>
4) If any of the payments or benefits received or to be received
by Employee in connection with a change in control of the
Company or the termination of his employment, whether pursuant
to the terms of the Agreement (the "Contract Payments") or any
other plan, arrangement, or agreement with the Company or any
person whose actions result in a change of control or any person
affiliated with the Company or such person (collectively with
the Contract Payments, "Total Payments"), will be subject to the
tax (the "Excise Tax") imposed by section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company shall
pay to Employee at the time specified in paragraph (5), below,
an additional amount (the "Gross-Up Payment") such that the net
amount retained by Employee, after deduction of any Excise Tax
on the Total Payments and any federal, state and local income
tax and Excise Tax upon the payment provided for by this
paragraph, shall be equal to the Total Payments. For purposes
of determining whether any of the Total Payments will be subject
to the Excise Tax and the amount of such Excise Tax, (i) all
payments and benefits constituting the Total Payments shall be
treated as "parachute payments" within the meaning of section
280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of section 280G(b)(1) shall be treated as
subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and acceptable
to Employee such payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation
for services actually rendered within the meaning of section
280G(b)(4) of the Code in excess of the base amount within the
meaning of section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (ii) the amount of the Total Payments
that shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total
Payments, or (B) the amount of excess parachute payments within
the meaning of section 280G(b)(1) of the Code (after applying
clause (i), above), and (iii) the value of any noncash benefits
or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles
of sections 280G(b)3 and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Employee shall
be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and
locality of his residence on the date of his termination of
employment with the Company, net of the maximum reduction in
federal income taxes that could be obtained from deduction of
such state and local taxes. In the event that the Excise Tax
is subsequently determined to be less than the amount taken into
account hereunder at the initial time of determination, Employee
shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax
and federal, state and local income tax imposed on the Gross-Up
Payment being repaid by Employee if such repayment results in a
reduction in Excise Tax or a federal, state and local income tax
deduction) plus interest on the amount of such repayment at the
rate provided in section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the initial
determination (including by reason of any payment the existence
or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest payable
with respect to such excess at the time that the amount of
such excess is finally determined).
<PAGE>
5) The payments provided for in paragraph (1) hereof shall be
made on the day on which are due the payments or benefits to
which they relate; provided, however, that if the amount of such
payments cannot be finally determined on or before such day, the
Company shall pay to Employee on such day an estimate, as
determined in good faith by the Company, of the minimum amount
of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)
(2)(B) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after
such day. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company to
Employee payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274(b)
(2)(B) of the Code.)
6) The Company shall also pay to Employee all legal fees and
expenses incurred by Employee as a result of termination of his
employment with the Company, provided such termination occurs
after a change in control of the Company and while this
Agreement is in effect, including all such fees and expenses,
if any, incurred in contesting or disputing any such termination
or in seeking to obtain or enforce any right or benefit provided
by this Agreement, or in connection with any tax audit or
proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided
hereunder.
8. Restrictions.
a) Employee agrees that he will not, during the term of this
contract or after the termination of his employment, directly or indirectly,
divulge, publish, disclose or otherwise reveal any trade secrets, or other
information acquired by or disclosed to him about the Company or its customers
during his employment by the Company, to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever without the
prior written consent of the Company and will not engage in any activity which
is or will be detrimental or contrary to the best interests of the Company.
<PAGE>
b) Employee also agrees that, upon termination of his employment
for any reason whatsoever, he will forthwith return to the Company
all books, lists, and other documents and data belonging to the Company or
relating to its business.
c) Employee acknowledges that he has learned and will, during his
continued employment by the Company, learn certain technical information and
other trade secrets of the Company and that disclosure of such information to
competitors of the Company would be detrimental to the Company. Employee agrees
that during the term hereof and for a period of one year after the termination
of his employment, he will not, directly or indirectly, be in any manner engaged
in, connected with (as a shareholder, Employee or otherwise) or employed by any
person, firm or corporation which is engaged in a business competitive with the
Company or a successor or affiliate thereof, anywhere in the United States,
provided, however, that this subparagraph shall not be deemed to limit
Employee's right to own less than 10% of the common stock of a publicly-held
corporation whose shares are traded on a recognized stock exchange or over-the
counter, except that he may so work and compete in Johnson County, Illinois.
d) In the event of a breach, violation or attempted breach or
violation by the Employee of any of the provisions of this Paragraph 8, the
Company shall be entitled to an injunction or restraining order immediately upon
the commencement of any suit therefore by the Company and without notice.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other remedy available to it for any such breach or violation for the recovery
of damages, including punitive damages by reason thereof.
9. Waiver of Breach. Failure of the Company to take action with
respect to any breach or violation of any provision of this Agreement by
Employee, whether or not the Company had knowledge thereof, shall not operate as
a waiver of any subsequent breach or violation by the Employee.
10. Disability. In the event Employee shall become unable to perform
his duties hereunder by reason of illness or incapacity for a period of six (6)
consecutive months, and such period commences before the Company has given any
notice of termination under paragraph 7 hereof, Employee shall be paid, in lieu
of all other compensation payable hereunder, 100% of his salary during such six
(6) months and 60% of his salary during the ensuing one (1) year.
Notwithstanding the foregoing, Employee will be included under any long-term
disability plan maintained by the Company for its employees generally.
11. Assignment. This Agreement is based upon the personal services of
Employee, and the rights and obligations of Employee hereunder shall not be
assignable except as herein expressly provided. The rights and obligations of
the Company under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company.
<PAGE>
12. Other Benefits.
a) During Employee's employment by the Company, the Company shall
provide Employee with the use of a leased Cadillac or equivalent automobile and
will pay all of the expenses relating to the operation thereof,
other than traffic or parking tickets. At the conclusion of the initial term of
this contract and said lease, the Company, will purchase the vehicle from the
lessor for the Employee on a tax grossed up basis.
b) During Employee's employment by the Company and without
limiting the provisions of Paragraph 6 hereof, the Company will provide an
aggregate of $500,000 of term life insurance to Employee.
c) During Employee's employment by the Company, the Company will
pay 100% of the Employee's dues to the Standard Club or comparable club.
d) The Company will pay the annual fees of Employees' personal
financial advisor, up to a maximum of $7,000, and the annual fees for the
preparation of Employee's personal Federal and State tax returns.
13. Entire Agreement. This instrument supersedes all prior
understandings and agreements with respect to the Employee's employment by the
Company and contains the entire agreement of the parties and may be amended only
in writing, signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
14. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
* * * * *
IN WITNESS WHEREOF, the parties have executed this Amended Agreement
on the day and year first above written.
WELLS-GARDNER ELECTRONICS CORPORATION
By: /s/ RANDALL S. WELLS
Randall S. Wells
Employee:
/s/ ANTHONY SPIER
Anthony Spier
<PAGE>
By and Between
RCA THOMSON LICENSING CORPORATION
and
WELLS-GARDNER ELECTRONICS CORPORATION
dated as of
January 1, 1995
<PAGE>
AGREEMENT, dated as of January 1, 1995, between RCA THOMSON LICENSING
CORPORATION (hereinafter called "RCA"), a Delaware, U.S.A., corporation having
an office at Two Independence Way, Princeton, New Jersey 08540, U.S.A., and
WELLS-GARDNER ELECTRONICS CORPORATION (hereinafter called "Licensee"), having
an office at 2701 North Kildare Avenue, Chicago, Illinois 60639.
WITNESSETH:
In consideration of the premises and of the covenants herein contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms are defined:
SECTION 1.
"Contract Apparatus" means "Color Display Monitors" and shall include both
complete Color Display Monitors as well as such monitors which are complete
except for cabinets or other permanent housings.
SECTION 2.
(a) "Chromatic Colors" means colors such as reds, oranges, yellows, greens,
and blues, as distinguished from the achromatic colors of black, white and
grays.
(b) "Color Cathode Ray Tube" means an Electron Tube in which electrical
impulses are converted into a visible representation thereof and in which such
visible representation may be produced in two or more Chromatic Colors.
(c) "Color Display Monitor" means color display apparatus designed or
adapted to provide color display of alphanumeric and/or graphic information
from computers, character generators, word processors or other similar types of
equipment. However, the term "Color Display Monitor" shall not include any
apparatus capable of receiving and processing standard broadcast television
signals.
(d) "Electron Tube" means a device comprising two or more electrodes and
an envelope which is to any extent evacuated or contains gas, vapor or liquid
under any degree of pressure, and which operates by the passage of an electric
current through such vacuum, gas or vapor to change the form of, control or
modify energy supplied thereto.
SECTION 3.
(a) (i) "Patents" means letters patent, certificates of utility and
utility models, rights (by license or otherwise) with respect to or under
letters patent, certificates of utility and utility models, applications for
letters patent, certificates of utility and utility models which have been
opened for public inspection, and all reissues, divisions, continuations and
extensions thereof. The term "Patents" does not include copyrights or
trademarks.
(ii) "RCA's Patents" means Patents (as hereinabove defined) owned,
controlled and/or acquired by RCA at any time duringthe term of this Agreement,
with respect to which and to the extent to which, and subject to the conditions
under which, RCA shall have the right to grant or cause to be granted licenses
to Licensee during the term of this Agreement.
(b) "Subsidiary of either party is any corporation (which term includes
any legal entity similar to a corporation), or other kind of business
organization, in which such party now or hereafter has a "controlling interest".
"Controlling interest" means, in the case of a corporation, direct or indirect
ownership or control by such party, at any time during the term of this
Agreement, of that number of the shares thereof representing the right to elect
a majority of the directors of the corporation or persons performing similar
functions; and, in the case of any other kind of business organization, it means
that direct or indirect ownership or control, at any time during the term of
this Agreement, of the capital thereof, or other interest therein, by or through
which such party exercises, or has the power to exercise, in any manner,
directly or indirectly, control or direction thereof. Any such corporation or
other kind of business organization shall constitute a Subsidiary only for a
period during the term of this Agreement that such controlling interest exists.
<PAGE>
ARTICLE II
LICENSES
SECTION 1.
RCA hereby grants to Licensee a non-exclusive, non-transferable, non-
assignable, indivisible license, right and privilege under all of RCA's Patents
of Canada, Mexico and the United States to make Contract Apparatus, and a non-
exclusive, nontransferable, non-assignable, and indivisible license, right and
privilege under all of RCA's Patents of all countries of the world to use, sell,
lease or otherwise dispose of such Contract Apparatus.
SECTION 2.
Anything in this Agreement to the contrary notwithstanding, no license is
herein granted, and no act or acts hereunder shall be construed as or result in
conveying any license, to Licenses or to any third party, expressly or by
implication, estoppel or otherwise:
(a) with respect to Color Cathode Ray Tube; and
(b) other than the licenses herein expressly granted
to Licensee pursuant to Section 1 of this Article II.
SECTION 3.
At any time during the term of this Agreement, upon written request of
Licensee, RCA agrees to grant or cause to be granted to Licensee, in a standard
form or forms in which RCA then grants or causes to be granted such license or
licenses, a non-exclusive license or licenses for the manufacture of Contract
Apparatus under RCA's Patents of other countries of the world.
ARTICLE III
COMPENSATION
SECTION 1.
Licensee shall pay as compensation to RCA the sum of U.S. $1.25 with
respect to each unit of Contract Apparatus licensed under Article II, Section 1
of this Agreement.
SECTION 2.
(a) Within thirty (30) days after March 31, June 30, September 30 and
December 31 of each year during the term of this Agreement, Licensee shall
furnish RCA with a written statement specifying the number of units of Contract
Apparatus licensed hereunder and used, sold, leased or otherwise disposed of by
Licensee during the preceding calendar quarter, and the total net compensation
payable with respect thereto. The first such statement furnished by Licensee to
RCA shall include such information for all Contract Apparatus licensed hereunder
and used, sold, leased or otherwise disposed of by Licensee from the effective
date of this Agreement to the last day of the calendar quarter covered by such
statement. At the time of furnishing such statements, Licensee shall also make
the payments prescribed therefor in Section 1 of this Article III in the manner
set forth in Section 5 of this Article III.
(b) A similar statement shall be rendered and payment made to RCA within
thirty (30) days after, and as of, the date of any termination of this Agreement
covering the period from the end of that covered by the last preceding statement
to the date of such termination and including all Contract Apparatus
manufactured during the term of this Agreement, or actually in manufacture upon
the date of termination of this Agreement, and not used, sold, leased or
otherwise disposed of prior to such termination, which Contract Apparatus, for
the purpose of computing the payments to be made under Section 1 of this Article
III, shall be considered as having been used, sold, leased or otherwise disposed
of by Licensee prior to termination of this Agreement.
<PAGE>
(c) Contract Apparatus shall be considered as used, sold, leased or
otherwise disposed of, as the case may be, when billed out, delivered, shipped
or mailed to a customer, or when used or set aside for future use by Licensee,
whichever shall first occur.
SECTION 3.
Licensee shall keep true and accurate records, files and books of account
containing all the data reasonably required for the full computation and
verification of the amounts to be paid and the information to be given in the
statements provided for herein. Licensee shall, during usual business hours,
permit RCA or its duly authorized representatives adequately to inspect the same
for the sole purpose of determining the amounts payable by Licensee pursuant to
Section 1 of this Article III. In lieu of such inspections by RCA or its duly
authorized representatives, Licensee shall have the option to have such
inspections made at Licensee's expense by independent chartered or certified
public accountants mutually acceptable to RCA and Licensee (which acceptance
shall not be unreasonably withheld). Such inspections shall be made under RCA's
instructions and the results thereof shall be made available to RCA and Licensee
when completed. Such option may be exercised at any time during the term of
this Agreement in respect of any period for which an inspection has not been
made to verify the amounts so payable. Exercise of such option by Licensee
shall be in writing.
SECTION 4.
Licensee shall pay interest to RCA from the date due to the date of payment
upon any and all amounts overdue and payable hereunder at a rate equal to four
percent (4.0%) over the published prime rate of the Chase Manhattan Bank, New
York, New York, as in effect from time to time during the period that any such
amount is overdue.
SECTION 5.
All payments hereunder by Licensee to RCA shall be made at such places as
RCA may direct in writing from time to time without any deductions for taxes or
charges of any kind, which taxes and charges, if any, are assumed by Licensee.
Notwithstanding the foregoing, in the event such payment is made from, and with
respect to Contract Apparatus manufactured in, a country other than the United
States, any tax which may be imposed on RCA by the Government of the country
from which payment is made (or any political subdivision thereof), and required
by such Government or political subdivision to be withheld by Licensee, with
respect to the compensation payable to RCA pursuant to Section 1 of this Article
III, may be deducted by Licensee before payment of such compensation; provided,
however, that if any such tax shall be imposed at a rate in excess of the United
States corporation income tax applicable to RCA on such compensation for the
taxable period for which such compensation is payable, then Licensee shall
assume the excess of such tax over and above such United States corporation
income tax on such compensation, and shall pay such excess to or for the account
of RCA; and provided, further, that Licensee shall furnish RCA with certified
statements and receipts and with such other supporting data as may be required
by the United States Tax Authorities to establish that any such tax has been
withheld.
<PAGE>
ARTICLE IV
TERM AND TERMINATION
SECTION 1.
This Agreement shall be effective from the date first above written and
shall continue in effect, unless sooner terminated as elsewhere provided in this
Agreement, until December 31, 1999.
SECTION 2.
(a) If Licensee shall at any time default in rendering any of the
statements which may be required hereunder, or in the payment of any moneys
which may be due hereunder, or in fulfilling any of the other obligations or
conditions hereof, and such default shall not be cured within thirty (30) days
after written notice from RCA to Licensee specifying the nature of the default,
RCA shall have the right to terminate this Agreement by giving written notice of
termination to Licensee, and this Agreement shall terminate upon the giving of
such notice.
(b) RCA shall also have the right, to the full extent permitted by law,
to terminate this Agreement by giving written notice of termination to Licensee
at any time upon or after the filing by Licensee of a petition in bankruptcy or
insolvency, or upon or after any adjudication that Licensee is bankrupt or
insolvent, or upon or after the filing by Licensee of any petition or answer
seeking reorganization, readjustment or arrangement of the business of Licensee
under any law relating to bankruptcy or insolvency, or upon or after the
appointment of a receiver for all or substantially all of the property of
Licensee, or upon or after the making by Licensee of any assignment or attempted
assignment for the benefit of creditors, or upon or after the institution of any
proceedings for the liquidation or winding up of Licensee's business or for the
termination of its corporate charter, and this Agreement shall terminate upon
the giving of such notice.
(c) In the event of the direct or indirect taking over, or assumption of
control, of Licensee by any superior authority, RCA shall have the right to
terminate this Agreement at any time thereafter upon giving written notice
thereof to Licensee, and upon the giving of such notice of termination this
Agreement shall terminate forthwith.
SECTION 3.
Upon termination of this Agreement, by expiration or otherwise, all
licenses, rights and obligations hereunder shall cease and determine except that
the licenses granted under Section 1 of Article II hereof shall continue as to
all specific units of Contract Apparatus manufactured by Licensee during the
term of this Agreement, or actually in manufacture on the date of termination of
this Agreement, for the full terms of the Patents under which such Contract
Apparatus is licensed hereunder to be made and used, sold, leased or otherwise
disposed of, and except that no termination of this Agreement, by expiration or
otherwise, shall release Licensee from any of its obligations accrued hereunder
(including its obligations to furnish statements, to pay compensation, and
permit inspection of its records, files, and books of account, with respect to
Contract Apparatus manufactured during the term of this Agreement of Licensee),
or rescind anything done or any payment made or other consideration given to
either party hereunder, prior to the time such termination becomes effective.
SECTION 4.
No failure or delay on the part of RCA in exercising its right of
termination hereunder for any one or more defaults shall be construed to
prejudice its right of termination for such or for any other or subsequent
default.
<PAGE>
ARTICLE V
FORCE MAJEURE
Anything contained in this Agreement to the contrary notwithstanding if a
party is prevented from performing any of its obligations hereunder by laws,
orders, regulations and directions of any Government having jurisdiction over
the parties hereto, or any department, agency, corporation or court thereof, or
by war, acts of public enemies, strikes or other labor disturbances, fires,
floods, acts of God, or any causes of like or different kind beyond the control
of either party, then, except as hereinafter provided in this Article V, such
party shall be excused from any failure to perform any such obligation to the
extent such failure is caused by any such law, order, regulation, direction or
contingency. If Licensee is prevented by any such law, order, regulation
direction or contingency (each of which is hereinafter referred to as a
"mandatory restriction") from furnishing the statements or making the payments
provided for in Article III of this Agreement at the times and in the manner
prescribed by such Article III, all such statements not furnished and payments
not made during the continuance of any such mandatory restriction shall be
furnished and made immediately upon the discontinuance of such mandatory
restriction.
ARTICLE VI
FURTHER ASSURANCES, NOTICES
AND MISCELLANEOUS PROVISIONS
SECTION 1.
(a) This Agreement shall be binding upon and inure to the benefit of the
Subsidiaries and successors of Licensee and RCA and the assigns of RCA. It
shall not be assignable by Licensee, in whole or in part, to any other party
whatsoever, nor shall the rights herein of Licensee otherwise be or become in
any way, directly or indirectly, transferable or available to, or divisible or
capable of being shared with, or inure to the benefit of, any other party
without the prior written consent of RCA, which consent shall not be
unreasonably withheld.
(b) Licensee shall be responsible for, and hereby assumes full liability
in respect of, all royalty reports and payments for all Contract Apparatus made
and used, sold, leased or otherwise disposed of by its Subsidiaries, and
Licensee shall take all actions necessary to cause its Subsidiaries to comply
with their obligations under this Agreement. Within thirty (30) days after
written request therefor by RCA, Licensee shall supply RCA with a complete list
in writing of its Subsidiaries engaged, as of the date of the request from RCA,
in the manufacture and sale of Contract Apparatus and shall thereafter notify
RCA in writing of any changes therein within thirty (30) days after each such
change.
SECTION 2.
RCA shall not be held responsible by Licensee for the validity of any of
RCA's Patents or for the termination of any such Patents should such Patents be
terminated for any cause whatsoever, and RCA shall not be required to secure any
Patent or Patent rights.
SECTION 3.
Nothing contained in this Agreement shall be construed as imposing on
either party any obligation, or as conferring on Licensee any right, to
institute any suit or action for infringement of any of RCA's Patents, or to
defend any suit or action brought by a third party which challenges or concerns
the validity of any of RCA's Patents.
SECTION 4.
It is expressly agreed by the parties that all matters relating to the
construction and interpretation of this Agreement shall be construed, and that
the legal relations hereunder between the parties shall be determined, according
to the laws of the State of New York, U.S.A., exclusive of the choice of law
provisions.
<PAGE>
SECTION 5.
Any notice or request required or permitted to be given under or in
connection with this Agreement or the subject matter hereof shall be deemed to
have been sufficiently given when, if given to RCA, it shall be addressed to RCA
Thomson Licensing Corporation, at its postal address: P. O. Box 2023,
Princeton, New Jersey 08543-2023, U.S.A., or its courier address: Two
Independence Way, Princeton, New Jersey 08540, U.S.A., and when, if given to
Licensee, it shall be addressed to Licensee at its address set forth on the
first page hereof, and in each case either delivered at such address to an
officer of the party to which given, or sent by registered airmail. If mailed,
the date of mailing shall be deemed to be the date on which such notice or
request has been given. Either party may be given written notice of a change of
address and, after notice of such change has been received, any notice or
request shall thereafter be given to such party as above provided at such
changed address.
SECTION 6.
This Agreement sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and merges all prior discussions
and negotiations between them, and neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein or as
duly set forth on or subsequent to the date hereof in writing and signed by a
proper and duly authorized officer or representative of the party to be bound
thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers or representatives as of the day and year
first above written.
WELLS-GARDNER ELECTRONICS RCA THOMSON LICENSING
CORPORATION CORPORATION
By: /s/ RICHARD L. CONQUEST By: /s/ HERBERT L. JACOBSON
Richard L. Conquest Herbert L. Jacobson
Date: March 23, 1995 Date: April 5, 1995
<PAGE>
AGREEMENT BETWEEN
WELLS-GARDNER ELECTRONICS CORPORATION &
LOCAL 1031 OF THE INTERNATIONAL BROTHERHOOD
OF ELECTRICAL WORKERS, AFL-CIO
July 4, 1994 to June 29, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I UNION AND MANAGEMENT
Section 1.Parties and Effective Date
Section 2.Expiration Date and Renewal
Section 3.Recognition
Section 4.Management
Section 5.Union Shop
Section 6.Check-off
Section 7.Non-Discrimination
Section 8.Trial Period Employees
ARTICLE II REPRESENTATIVE, GRIEVANCES AND ARBITRATION
Section 1.Stewards
Section 2.Grievance Procedure
Section 3.Arbitration
Section 4.No Strike or Lockouts
ARTICLE III HOURS OF WORK AND OVERTIME
Section 1.Regular Work Week
Section 2.No Staggering
Section 3.Changing Workweek
Section 4.Overtime
Section 5.Shift Premium
Section 6.Preference of Shift and Overtime
Section 7.Lunch Periods
Section 8.Rest Periods
Section 9.Reporting Pay
Section 10.Call-Back Pay
Section 11.No Pyramiding
ARTICLE IV SENIORITY
Section 1. Basis of Seniority
Section 2. Effect of Seniority
Section 3. Seniority List
Section 4. Temporary Layoffs
Section 5. Temporary Transfers
Section 6. Options
Section 7. Demotion
Section 8. Rights on Recall
Section 9. Skill & Ability
Section 10. Vacancies
Section 11. On-the-Job-Training
Section 12. Leave of Absence
Section 13. Loss of Seniority
Section 14. Promotion to Exempt Positions
<PAGE>
ARTICLE V VACATION AND HOLIDAYS
Section 1. Eligibility and Amount of Vacation
Section 2. Minimum Hours
Section 3. Computation of Vacation Pay
Section 4. Scheduling of Vacations
Section 5. Date Due
Section 6. Consecutive Days, etc.
Section 7. Retiree Pro-Rata Vacation Pay
Section 8. Holidays and Holiday pay
Section 9. Floating Holiday
ARTICLE VI WAGES
Section 1. Rates
Section 2. Cost Of Living
Section 3. New Classifications
Section 4. Upgrading
Section 5. New Experienced Employees
Section 6. Payday
Section 7. Piece Work
Section 8. Pension Plan
TABLE OF CONTENT'S CONT'D
ARTICLE VII INSURANCE
ARTICLE VIII GENERAL PROVISIONS
Section 1. Saving Clause
Section 2. Bulletin Board
Section 3. Election Day
Section 4. Supervisors
Section 5. Right of Access
Section 6. Conflict with State and Federal Laws
Section 7. Female Employees
Section 8. Paid Leave of Absence
Section 9. Jury Service
Section 10. Safety and Health Provisions
Section 11. Union Employee Educational Assistance Program
Section 12. Call-In Sick / Personal Day
Section 13. Inventory Shutdown Scheduling
APPENDIX "A" Wage Scale-Effective 7-4-94
APPENDIX "B" Insurance Coverage for Employees and Dependents
APPENDIX "C" Piece Work/Incentive System
<PAGE>
ARTICLE I
UNION AND MANAGEMENT
Section 1. Parties and Effective Date: The parties to this Agreement
are: Wells-Gardner Electronics Corporation, its successors or assigns,
hereinafter called the "Company" and Local 1031, International
Brotherhood of Electrical Workers, AFL-CIO, hereinafter called the
"Union". This Agreement shall become effective July 4, 1994.
Section 2. Expiration Date and Renewal: This Agreement shall remain
in full force and effect until June 29, 1997 and then shall automatically
renew itself from year to year thereafter, unless the Company or the
Union gives written notice to the other party to amend, modify or
terminate within not less than sixty (60) days prior to any expiration
date. The parties may by mutual agreement modify or amend this Agreement
at any time hereafter.
Section 3. Recognition: The Company recognizes the Union as the sole
and exclusive collective bargaining agent for all of the Company's
production and maintenance employees located at 2701 North Kildare
Avenue, Chicago, Illinois 60639 excluding Wells-Gardner Electronics
Corporation executives and non-working supervisors, office, clerical and
sales employees, engineering and laboratory employees, supervisors,
guards, outside truck drivers, journey & craft persons who are
represented for purposes of collective bargaining by unions affiliated
with the AFL-CIO.
Section 4. Management: The management of the Company and its
operations, the direction of the work force, including the right to hire,
assign, suspend, transfer, promote, discharge or discipline for just
cause and to maintain discipline and efficiency of its employees and the
right to relieve employees from duty because of lack of work or for other
legitimate reasons not in conflict with the provisions of this Agreement;
the right to determine the extent to which the plant shall be operated;
the right to introduce new or improved production methods, processes or
equipment; the right to decide the number and locations of plants, the
nature of equipment or machinery, the products to be manufactured, the
methods and processes of manufacturing, the scheduling of production, the
method of training employees, the designing and engineering of products
and the control of raw materials; the right to continue in accordance
with past practice to assign work to outside contractors; and the right
to enact Company policies, plant rules and regulations which are not in
conflict with this Agreement, are vested exclusively in the Company.
The Union recognizes that there are functions, powers, authorities
and responsibilities belonging solely to the Company, prominent among
which, but by no means inclusive, are those enumerated in the preceding
paragraph. The management rights enumerated in said paragraph are not
inclusive and shall not be deemed to exclude other functions not herein
listed. The term "just cause" as used in this Agreement includes but is not
limited to any violations of a published plant rule established pursuant
to the provisions of Article I.
Section 5. Union Shop: All employees covered by the terms of this
Agreement shall be required to become and remain members of the Union as
a condition of employment from and after the sixty-first (61st) day
following the date of their employment or the effective date of this
Agreement, whichever is later.
Section 6. Check-Off: The Company agrees that it will make weekly
deductions from each weekly pay check covering any and all amount of dues
and initiation fees that may hereafter become due to the Union for any of
its employees covered hereunder, provided that the Union requests such
deductions and accompanies such requests with properly and legally
executed assignments, in accordance with law, authorizing such
deductions. The employer further agrees that once each week, it will
remit promptly to the Union such collected amounts. At the end of each
calendar month, the Company shall forward to the Union an alphabetical
list of the names and the total amounts deducted during said month from
each employee covered. In lieu of this monthly alphabetical list, the
Company may, at its option, forward to the Union such an alphabetical
list each week along with the weekly remittance of collected amounts.
If through inadvertence or error, the Company fails or neglects to
make a deduction which is properly due and owing from an employee's
weekly pay check, such deduction shall be made from the next weekly pay
check of the employee and promptly remitted to the Union. It is
expressly agreed and understood that the Union assumes full
responsibility for the validity and the legality of such employee's
deductions as are made by the Company and hereby agrees to indemnify and
save the Company harmless, by virtue of such collections and payments to
the Union.
No deduction shall be made from any employee for union dues in any
week in which such employee receives a check representing a total of less
than eight (8) hours at the employees regular rate of pay nor shall any
deduction be made from any employee's pay check prior to the date on
which, by the terms of this Agreement, he/she is required to become a
member of the Union as a condition of employment.
Section 7. Non-Discrimination: It is agreed between the parties that
in the policies and practices of the Company and in the membership
policies and practices of the Union there shall continue to be no
discrimination against any employee on account of race, creed, color,
national origin or sex.
<PAGE>
Section 8. Trial Period Employees: Trial Period: New employees shall
be on trial until they have been employed for a period of sixty (60) calendar
days and during such period the Company shall have the right to dismiss or
retain the employee at its own discretion. Upon completion of such sixty (60)
calendar days of employment, the employee shall be deemed to be a regular
employee. In all instances where a trial period employee is laid off for
lack of work or granted a leave of absence for illness or other good cause,
such reduction from active employment shall be deemed to be a layoff, unless
at the date it occurs, the employee is given a written notice stating
that he/she is terminated.
Return from Leave or Recall of Laid Off Trial Period Employee: Trial
period employees who are laid off and by election of the Company
subsequently recalled or who are granted a leave of absence and
subsequently return to work, must complete sixty (60) calendar days of
trial period active employment within six (6) months of the date of their
original hire date in order to become a regular employee. Periods of
trial period active employment, as referred to above, shall include any
week in which the employee works at least one full day. At such time as
the employee completes sixty (60) calendar day trial period active
employment, his/her "original hiring date", for the purpose of
determining his/her length of service (in accordance with Article IV,
Section 3(b)) shall be established as that date sixty (60) calendar days
prior to the date of completion of the trial period employment requirement.
Trial Period Employee Recalled Before Expiration of Six-Month Period:
Trial period employees who have not completed sixty (60) calendar days of
trial period employment within six (6) months from their original date of
hire, but who are recalled or return from a leave of absence prior to the
expiration of such sixmonth period will be permitted to complete the
trial period requirement, although the six-month period elapses before
such trial period is completed, provided the employee is not laid off
before he/she completes his/her trial period employment. If such a
layoff occurs before the employee bas completed his/her trial period and
the six-month period has expired, said employee will be considered to
have been terminated rather than laid off.
Extension of Trial Period: The Company shall have the right to extend the
trial period to ninety (90) calendar days upon written notice to the
Union and the employee prior to completion of the normal sixty (60) day
trial period and shall retain the right to dismiss such employee during
this extension period without being subject to review. In all instances
where the trial period of a new employee is so extended, such employee's
responsibility to become and remain a member of the Union in good
standing as a condition of employment after sixty (60) days shall not be
affected; and any benefits of the contract such as holiday pay and
insurance coverage shall accrue to such- employee at the end of the
initial sixty day period.
ARTICLE II
REPRESENTATION, GRIEVANCES AND ARBITRATION
Section 1. Stewards: The Company agrees to recognize the Chief
Steward and Shop Stewards selected by the Union in accordance with the
Union rules and regulations. Such Chief Steward and Stewards may act as
a grievance committee at the request of, and with, the Business Manager
of the Union, or his/her representative. The Union will notify the
Company as to the identity of such Chief Steward or Stewards and the
Company shall not be required to recognize any other employees in the
adjustment of complaints than those whose names are furnished to the
Company as aforesaid. Such Chief Steward and Stewards shall be granted a
reasonable amount of time during working hours for the purpose of
investigating and adjusting complaints, provided however, that such Chief
Steward and Stewards shall not leave their work without the permission
of the immediate supervisor. Such permission, however, shall not be
arbitrarily withheld. The Chief Steward and Stewards shall be granted
top seniority in their respective departments for the purpose of layoffs
and recalls.
<PAGE>
Section 2. Grievance Procedure: Any grievance arising during the
life of this contract pertaining to wages, hours of work and working
conditions of employees in the bargaining unit shall be subject to the
procedures outlined below:
Either the Company or the Union or any employee (or Steward, Chief
Steward or Business Representative in his/her behalf) may file
grievances. Grievances of the Company or Union shall be presented
directly to the other in writing. Grievances of the employees shall be
reduced to writing on grievance forms provided by the Union. All answers
by the Company shall likewise be in writing. Grievances will be handled
as follows:
The employee, his/her Steward or both, shall present the matter in
dispute for settlement to his/her Supervisor. If the Supervisor's
decision is not satisfactory or is not given within three (3) working
days, Step 2 will be followed.
Such grievance shall then be presented by the Chief Steward within three
(3) working days after the Supervisor's unsatisfactory decision or
failure to give a decision, whichever is applicable, to the Department
Head. If the Department Head's decision is not satisfactory or is not
given within three (3) working days, Step 3 will be followed.
Such grievance shall then be presented by the Business Representative of
the Union within five (5) working days from receipt of the Department
Head's unsatisfactory decision or failure to give a decision, whichever
is applicable, to the Human Resources Director who shall give his/her
answer not later than five (5) working days after the presentation of the
grievance to him/her.
If the decision of the Human Resources Director is not satisfactory,
such grievance will be discussed by the Business Manager of the Union and
the Human Resources Director within five (5) working days after receipt by
the Business Manager of the unsatisfactory answer by the Human Resources
Director. In the event the Company and the Union are unable to settle any
grievance under the procedures outlined above, the grievance shall be further
processed.
A grievance must be filed no later than five (5) working days after the
occurrence of the event in which it is predicated, except in instances
where the employee, or his/her Steward or Chief Steward, could not
reasonably have been expected to be aware of the occurrence of the
grievance. A failure to file a grievance within the period specified
shall be deemed a waiver of such matter. In all cases of grievances
relating to time not worked, the Company shall be responsible only for
the actual loss sustained by an employee. Any settlement of any
grievance between the Company and a Steward, Chief Steward, or Business
Representative in Steps 1, 2, and 3 above will not be final until
reviewed and approved by the Business Manager of the Union or his/her
designated representative. The Company may consider the matter closed
unless it has been otherwise notified by the Business Manager of the
Union or his/her delegated representative within ten (10) days after
notice bas been given him/her of the terms and conditions of the proposed
grievance settlement.
An employee may be discharged or disciplined for cause. However,
in case any employee, or the Union in his/her behalf, claims that he/she
has been unjustifiably discharged or disciplined, a written complaint
shall be filed within five (5) working days from the date of his/her
discharge or discipline. Such complaint or grievance shall start under
Step 2 above. Prior to the discharge or disciplining of an employee
(except in cases of an employee under the influence of alcohol, drugs,
etc., or theft or sabotage), the Chief Steward shall be notified and
given the opportunity to discuss the discharge or discipline. In case of
discharge or discipline for being under the influence of alcohol, drugs,
etc., or for theft or sabotage, the Chief Steward shall be notified
immediately after the discharge.
<PAGE>
Section 3. Arbitration: In the event that the grievance or complaint
cannot be adjusted in any of the foregoing steps, the matter may, at the
request of either party, be submitted for final and binding arbitration
by an impartial arbitrator who shall be chosen by mutual agreement of the
Company and the Union. In the event that the Company and the Union are
unable to agree upon an arbitrator, the parties will request the Federal-
Mediation and Conciliation Service to submit a panel of nine (9)
qualified arbitrators. Both the Company and the Union shall have the
right to strike four (4) names from the panel submitted to the parties.
The remaining name on the panel shall then become the impartial arbitrator.
In the consideration of discipline or discharge cases, the arbitrator shall
have authority and jurisdiction to direct the payment of back pay for lost
time resulting from discharge. The arbitrator's decision shall be final and
binding upon all parties. However, an arbitrator shall have no power or
authority to add to, alter, or modify the terms of this Agreement or any
supplementary agreement made between the parties hereto. The expenses of
arbitration (except those of the respective parties) shall be borne equally
between the Company and the Union.
Section 4. No Strikes or Lockouts: There shall be no strikes,
refusal to work or slowdown by the Union during the life of this
Agreement, and there shall be no lockout on the part of the Company,
unless either the Company or the Union should refuse to participate in
arbitration proceedings or abide by the decision of an arbitrator, in
accordance with Section 3 of this Article. Should there be such refusal
by either the Company or the Union, this Section, at the option of the
other party, shall be deemed inapplicable. There shall be no liability
on the part of the Union for unauthorized strikes, stoppages or
slowdowns, by any of the employees, but the Company shall have the right
to discipline or discharge any employee who initiates, instigates, or
participates in such unauthorized strikes, stoppages, or slowdowns. In
consideration of this Agreement, the Union agrees not to sue the Company,
its officers or representatives, and the Company agrees not to sue the
Union, its officers, agents, or members in connection with any labor
relations matters in any court of law or equity. The parties agree that
the sole procedure for settlement of any disputes concerning labor
relations matters between the Company and the Union shall be the
grievance and arbitration procedure hereof.
ARTICLE III
HOURS OF WORK AND OVERTIME
Section 1. Regular Workweek: The regular workweek shall consist of forty
(40) hours on a schedule of eight (8) hours per day Monday through Friday.
Section 2. No Staggering: The working day shall be continuous and
employees shall not be compelled to lay off work for any period of time
during the day and to resume work thereafter during the same day except
in the case of lunch period or rest period.
Section 3. Changing Workweek: Any changes in the regular workweek
shall be by mutual agreement between the Company and the Union. The
Company reserves the right to change regularly scheduled starting and
quitting hours under emergency conditions, in which event the time
worked before normal starting time or after the normal quitting time will
not be considered overtime work payable at one and one-half (1/) time the
employee's straight-time rate unless more than eight (8) hours of work
are performed in a day or unless an employee is prevented from performing
eight (8) hours of work for reasons of the Company's convenience rather
than for circumstances beyond the control of the Company.
Section 4. Overtime: All work performed in excess of eight (8) hours
in any one day, and all work performed on Saturday, and all work
performed prior to the employee's regular hour for starting or after the
employee's regular hour for quitting shall be considered overtime and
shall be compensated for on the basis of one and one-half (11/2) times
the employees straight time rate. All work performed on Sunday shall be
compensated for at two (2) times the employees straight time rate.
<PAGE>
Section 5. Shift Premiums: Work performed on the second (or
afternoon) shift shall be paid for at the rate of ten (10%) percent more
than the rate paid for similar work on the first (or day) shift. Work
performed on the third (or night) shift shall be paid for at the rate of
fifteen (15%) percent more than the rate paid for similar work on the first
(or day) shift. In ascertaining the vacation or holiday benefits to which
an employee may be entitled, the shift premium shall be included in the
computations.
Section 6. Preference of Shifts and Overtime: When a preference of
shifts is available on account of the occurrence of a vacancy, preference
will be given on the basis of seniority and preference in the assignment
of overtime should be based on the following formula:
Overtime on a job shall be assigned to those regularly doing that job in
their respective departments pursuant to the principle of "line intact".
If additional help is required, employees with the greatest seniority in
their classification in the department concerned and capable of doing the
job in that department will be selected.
In the event no qualified employees wish the overtime assignment, it
shall be assigned to and worked by the junior employee.
If necessary to go outside of that particular department, plant wide
seniority will prevail if capable of doing the job.
In the event an employee is requested by the Company to work overtime,
daily or Saturday, and he/she agrees to perform the overtime work but:
(1) fails to notify the Company of his/her inability to report to work;
or (ii) fails to give good cause explaining his/her inability to report
for work; or (iii) fails to report for work, the employee shall not be
permitted to work any overtime in any department for a period not to
exceed thirty (30) days following the time the employee was requested to
perform the overtime work.
Section 7. Lunch Period: There shall be an allowance of a lunch
period near the middle of a work shift of thirty (30) consecutive
minutes.
Section 8. Rest Periods: On each shift of the day there shall be a
ten (10) minute rest period for each four (4) hours worked without
deduction in pay.
Section 9. Reporting Pay: Employees who report for work in person
and have not been previously notified not to report shall receive four
(4) hours' work or the equivalent in pay, based upon their regular
straight time hourly rate of pay, except in case of an emergency beyond
the control of the Company.
Section 10. Call-Back Pay: An employee who has left the plant and is
called back to work shall work and receive no less than four (4) hours of
overtime pay at his/her regular straight time rate of pay, or the
applicable straight time rate of pay for the job performed, whichever is
greater.
Section 11. No Pyramiding: In no event shall overtime or premium pay
provided for in this Article be pyramided or duplicated. Only the
applicable provision yielding the largest amount of pay shall be applied
and such payment shall satisfy the requirements of all other applicable
provisions. This limitation, however, does not apply to shift premiums.
<PAGE>
ARTICLE IV
SENIORITY
Section 1. Basis of Seniority: Each employee will have seniority
standing in the plant equal to the employee's total length of service
with the Company in the bargaining unit, dated from his/her first day of
last continuous employment therein except as provided in Sections 3, 11,
and 12 of this Article.
Section 2. Effect of Seniority: Except as provided in Section 6 of
Article III and Section 7 of this Article, in all cases of increase or
decrease of forces, transfer, promotion, or demotion of employees and
preference in the selection of shifts, plant-wide seniority shall
prevail, provided the employees possess sufficient skill and ability to
satisfactorily perform the work to be done.
Where new equipment or added responsibilities are added to existing
job classifications, the Company, in the event of a reduction in force,
shall go strictly by seniority, regardless of the lack of experience of
the senior employee. The Company shall train as needed to retain the
senior employees.
Section 3. Seniority Lists: The Company will furnish to the Union
immediately after the signing of this Agreement, a Seniority List and
will post copies of such list on the bulletin boards in the plant. The
list is to be revised at six (6) month intervals.
The Company will also furnish to the Union monthly a list of additions to
and deletions from the Seniority List.
Except as otherwise provided in this Agreement, the Seniority List is to
be used to determine an employee's seniority as to layoffs, recalls,
promotions and demotions. An employee shall have his/her seniority date
computed from his/her original date of employment in the bargaining unit,
in determining the employee's seniority in cases of layoffs, recalls,
promotions and demotions.
The Seniority List is to be used to determine which bracket in the
vacation schedule is applicable. Since an employee's vacation is based
on his/her length of service with the Company, his/her original hiring
date or date of rehire will determine the length of his/her vacation.
The amount of vacation pay for any one (1) year may be adjusted to comply
with the minimum hours provision in this Agreement, but such adjustment
shall not affect a succeeding year or years.
Employees having the same seniority (hired on the same date) will, if
necessary, be rated by the Company based on their attendance and
tardiness record. The employee with the least number of day absences in
the contract year would be rated as having the most seniority. If no
seniority can be determined by attendance, then the employee with the
least amount of tardiness in the contract year will be rated as having
the most seniority.
Section 4. Temporary Layoffs: The parties recognize the necessity of
temporary layoffs caused by shortage of materials or other reasons. It
is, therefore, mutually agreed that such temporary layoffs may be made
from time to time without regard to plant-wide seniority programs
embodied in the contract. It is further agreed, however, that the number
of hours each such employee may be laid off on such temporary layoff
shall be recorded and no individual employee may be laid off on such
temporary layoff without regard to seniority in excess of eighty (80)
hours in each contract year. When the individual employee has been laid
off eighty (80) hours, then the Company is obligated to place him/her on
another job in accordance with plant-wide seniority, provided such
employee possesses sufficient ability, skill and experience to
satisfactorily perform the work available.
<PAGE>
Section 5. Temporary Transfers: For periods of work not exceeding eighty
(80) hours the Company may transfer or assign employees temporarily, on a
voluntary basis, but subject to plant seniority in the class from which
they are being transferred, to work in job classifications in which they
do not hold a regular job assignment, but have sufficient skill and
ability to satisfactorily perform the work. Such employees shall be paid
as follows:
If temporarily assigned to a job in a higher labor grade, the employee
shall be paid, for the time involved, the next higher rate above his/her
regular job rate in the progression scale for the higher grade.
If temporarily assigned to a job in a lower labor grade, the employee
shall be paid his/her regular job rate.
Section 6. Option: Any employee who is subject to demotion or
transfer because of material shortage, curtailment of work or similar
reasons, may have the option of accepting such demotion or taking a
layoff until there is sufficient work in his/her regular classification.
An employee who accepts such demotion or transfer may exercise such
option up to four (4) weeks after the transfer or demotion, but he/she
must give four (4) days' notice to the Company before he/she may exercise
the option to take a voluntary layoff under this provision.
Section 7. Demotion: In the event of a reduction in force, or reduction
in the work force of a job classification, all probationary employees in the
classification shall first be removed from the classification or laid off.
If further reduction is required:
Employees below the maximum rate in their respective classification shall
be removed beginning with the lowest wage group in such classification
based upon their plant seniority.
Employees effected by a reduction in force of job classifications five
(5) or above first shall be offered a position which they bad previously
held provided that they have sufficient seniority to displace an existing
employee in the particular job classification and they have not
previously "signed off" during the life of this agreement on that job
classification. If an employee does not have the seniority to be
transferred to a previously held job classification in a higher
classification, the employee shall be offered a previously held job
classification in a lower classification. If the employee does not have
sufficient seniority for any previously held job classification, the
employee shall be given an option to be transferred to a position in
classification four (4) or below, provided that the employee has
sufficient seniority to displace an individual currently working in the
particular job classification. Employees not having sufficient seniority
for a previously held job classification or any position in job
classification four (4) or below shall be laid off in accordance with
contractual requirements.
Employees working in job classification four (4) or below during a
reduction in force in those classifications shall first be offered a
previously held position if they have sufficient seniority to displace an
individual from the particular job classification. Otherwise, the
employee shall be transferred to another job classification within
classifications four (4) or below for which the employee has sufficient
seniority to displace an employee of lesser plant seniority. If the
employee does not have seniority to displace any individual in job
classification four (4) or below, the employee shall be laid off in
accordance with contractual requirements.
<PAGE>
All employees transferred during a reduction in force to another job
classification which they have not previously performed shall be subject
to a three (3) day qualifying period. During this time, the employee may
elect to relinquish the position for any reason and/or "sign-off" the job
classification. An employee who voluntarily elects to relinquish a
position by signing off the job classification shall be laid off. During
this three (3) day qualifying period the Company reserves the right to
determine in its sole discretion whether an employee can adequately
perform a particular job within the three (3) day qualifying period and
the Company may then decide to lay off the employee. An employee who signed
off voluntarily shall not be permitted to transfer to that job classification
in the event of a future reduction in force for the life of this Agreement.
An employee laid-off by the Company for being unable to adequately perform
the job classification shall not be permitted to transfer to that job
classification in the event of a future reduction in force until the employee
provides that he/she possesses sufficient skill and ability to satisfactorily
perform the work to be done. All recalls during an increase in the work force
shall be made in reverse order of seniority and pursuant to the applicable
subsections of Article IV, Section 7 and 8. If there are vacancies in job
classifications which they have previously performed, unless they have
sufficient seniority to return to the classification from which they were
originally removed as the need for additional employees in such job
classifications presents itself, they will be given an opportunity to fill
such vacancies. An employee with seniority may be recalled to Code 4 or lower
even though he/she has not previously performed the work in such classification.
Section 8. Rights on Recall: Any employee being recalled after a
layoff shall be assured at least two (2) straight weeks of employment at
the regular workweek schedule. In the event the Company has recalled an
employee with such assurance, and then because of conditions over which
the Company has no control (such as, but not limited to, power failure
inability to acquire machinery and equipment to replace worn out
machinery and equipment, bona fide material shortages over which the
Company has no control), the Company is unable to furnish such two (2)
weeks of employment, the Company shall not be bound by this provision.
In the event the Company does not assure such two (2) weeks of employment
at the normal scheduled number of hours per week, the employee may elect
to not return until such time as the Company does assure two (2) such
consecutive weeks of employment at the normal scheduled number of hours
per week without loss of seniority status. In the event the employee
does elect not to return, that employee shall notify the Company by
telegraphic message or registered mail or in person to that effect so
that the Company may keep an accurate record of the employees who still
wish to retain seniority status. In the event the employee fails to
notify the Company of his/her election not to return as herein provided,
and fails to report as specified under Section 13(h) of this Article IV,
the employee shall be regarded as having resigned.
Section 9. Skill and Ability: Every employee who has completed his/her
trial period shall, for the purpose of this Article, be deemed to have
sufficient skill and ability to perform any common labor or common
assembly job - Code 4 and below.
<PAGE>
Section 10. Vacancies: In the event that a permanent job vacancy
develops in a classification covered by this Agreement, other than common
labor or assembly, a notice of such vacancy shall be bulletined for a
period of two (2) working days. The bulletin shall contain the job
title, the maximum rate to be paid for the job, and a brief description
of the job to be performed. Should additional personnel be required for
a job within thirty (30) days of the time the job was last posted, the
Company shall not be required to bulletin again such job until expiration
of the thirty (30) day period. It is understood that within such thirty
(30) day period the Company may take such steps as are necessary to fill
such open jobs, provided no qualified employees have bid or are
available. However, if an employee is not currently working on the days
the open job is posted, but returns to work within the thirty (30) day
period referred to above, he/she may apply for such posted job and will
be considered for such posted job vacancies still remaining open.
Employees with seniority who desire promotions to posted higher rated
classifications shall, during the period that such vacancy is bulletined,
file a form provided by their Supervisor for this purpose. If applicants
with qualifications sufficient to perform the work satisfactorily have made
application for the bulletined job, the qualified applicant with the greatest
plant seniority shall be selected. It is intended that whenever possible
promotions shall be made within the ranks and according to seniority.
The Company may fill a posted vacancy until it has been determined by the
Company that there are applicants who possess the qualifications required.
The Company may offer a posted vacancy to a new employee who did not apply,
or may hire a new employee for such vacancy in the event the applicants for
the posted vacancy do not possess sufficient qualifications to satisfactorily
perform the job.
It is understood that employees who have bid upon, have been
accepted, and are working on the posted job will not be eligible to bid
on an additional posted job for a period of three (3) months following
the time the job for which they were accepted was posted.
The successful bidder for a posted job opening shall have the option to
return to his/her former job within a period of two (2) weeks following
the first day worked in the posted job opening. The Company shall have
the option, within the same two (2) week period to return such successful
employee to his/her former job in the event such employee cannot
satisfactorily perform the work required to be done. The successful
bidder for a posted job opening shall receive retroactive pay from the
first day worked in the posted job opening who successfully completes the
two (2) week trial period.
Section 11. On-the-Job Training: Employees who bid on posted jobs,
but do not possess sufficient qualifications to be selected, may be
considered for training under the following procedures:
The number to be considered for training will be in relation to the
number needed to fill the posting at the time of posting.
Selection for training will be on the basis of related education, prior
employment experience, current employment experience as related to the
training to be given. Qualifications being comparable, seniority will
govern.
Evaluation of qualifications for training, as well as the progress of the
trainee, will be determined by the Company.
A trainee who is unable to progress satisfactorily will be returned to
his/her prior classification without loss of seniority.
<PAGE>
Section 12. Leaves of Absence: The Company may grant leaves of absence
without pay to all regular employees of the Company for good cause, taking
into consideration not only the personal problems of the employee but also
the Company's operational needs for production. Such leaves for good cause
other than for medical reasons shall not exceed ninety (90) days except for
Union activity, which may be indefinite. Leaves of absence for illness will
be granted for such periods as have been recommended by competent medical
authority but not to exceed one (1) year. In the event an employee is
hospitalized in excess of seven (7) days, an automatic leave of absence
shall be granted up to thirty (30)days, provided that the Human Resources
Director of the Company is notified of the hospitalization within three
(3) working days from the last day worked. Any other request for leave
of absence for illness must be made by an employee on forms provided by
the Company and must be accompanied by a report from the employee's
doctor recommending the time required for leave of absence.
Because pregnancy by itself is not a disabling condition for any fixed
period of time, the Company agrees to grant maternity leaves of absence
based upon the medical opinion of the employee's physician. The leave of
absence shall begin when it is determined by the employee's physician that
the employee is no longer able to perform those duties characteristic of
her position. The leave shall continue until, and only until, the employee,
on the basis of her physician's opinion, is able to return to work, not to
exceed one (1) year.
Employees on a bona fide leave of absence, when returning to work, shall
return to their former classification if such work is being performed.
Application forms of all leaves of absence must be completed and be
submitted to the Company within five (5) working days from their last day
worked or their date of recall, and such application for leaves shall be
required for any period of seven (7) or more consecutive calendar days in
which the employee is out of the service of the Company.
Employees granted a leave of absence will not be asked or required to use
their remaining vacation days left before granting said leave.
<PAGE>
Section 13. Loss of Seniority: An employee shall lose his/her seniority
when any of the following occur:
Discharge for cause.
Quitting.
Absence from work for three (3) working days without notifying the Human
Resources Department of the Company.
Failure to apply for a leave of absence as required.
Exceeding leave of absence without notification to the Human Resources
Department presenting good cause.
Working for another employer for wages while on leave of absence (this
does not apply to leaves of absence for Union activity or layoffs).
Layoff or sick leave for a continuous period in excess of one (1) year
for purposes of seniority only.
Failure to report for work on recall or to notify the Human Resources
Department of intention to report within three (3) regularly scheduled
working days following the date notification is sent by mailgram or
certified letter to the employee's last known address registered with the
Human Resources Department.
Section 14. Promotion to Exempt Positions: Any employee covered by
this Agreement who is transferred to a supervisory position outside of
the bargaining unit, shall retain his/her seniority as of the date of
transfer. Any employee who is, or has been, employed in a supervisory
position outside of the bargaining unit, shall not accumulate seniority
in the bargaining unit while so employed.
ARTICLE V
VACATIONS AND HOLIDAYS
Section 1. Eligibility and Amount of Vacation: The Company will
grant vacation with pay to each employee in accordance with the following
schedule:
All employees who on June 1st have been employed by the Company (in or
out of the bargaining unit) six (6) months or more but less than twelve
(12) months, shall be granted one-half (1/2) week's vacation with pay;
All employees who on June 1st have been employed by the Company (in or out
of the bargaining unit) for a period of twelve (12) or more months, but
less than two (2) years, shall be granted one (1) week's vacation with pay;
All employees who on June 1st have been employed by the Company (in or out
of the bargaining unit) for two (2) years or more, but less than ten (10)
years, shall be granted two (2) weeks' vacation with pay;
All employees who on June 1st have been employed by the Company (in or out
of the bargaining unit) ten (10) years or more, but less than fifteen (15)
years, shall be granted three (3) weeks' vacation with pay;
Effective July 1, 1995 all employees who on June 1st have been employed by
the Company, (in or out of the bargaining unit), fifteen (15) years, but
less than twenty-five (25) years, shall be granted four (4) weeks vacation
with pay;
<PAGE>
All employees who on June 1st have been employed by the Company (in or out
of the bargaining unit) twenty-five (25) years or more, shall be granted
five (5) week's vacation with pay;
Additional vacation with pay shall be granted to those employees who as of
December 31, have accrued seniority which would entitle them to additional
vacation benefits over those to which they were entitled on the preceding
June 1. The same limitations and requirements as prescribed for in Article
V shallalso apply and the date, June 1, shall be replaced by the date
December 31, where appropriate.
Section 2. Minimum Hours: Employees with seniority (in or out of the
bargaining unit). One (1) year or more. To qualify for full vacation benefits,
the employee, as of June 1st with seniority, must have worked, or have been
available for work eighty (80%) percent of the work year prior to June 1st.
Time off due to occupational injury, jury duty or layoff shall be considered as
time available for work. No vacation benefits shall be paid to an employee who
has worked less than thirty (30%) percent of the work year prior to June
1st. An employee who has worked more than thirty (30%) percent of the work
year, but has worked or been available for work less than eighty (80%)
percent of the work year prior to June 1st, will be granted a vacation
which will be equal to his/her vacation bracket multiplied by the
percentage of time worked and time available for work. If an employee is
on layoff, in military service, or bona fide leave of absence as of June
1st, he/she shall be paid at vacation time, the same portion of his/her
vacation as the time actually worked bears to the work year, When he/she is
recalled he/she must return within three (3) working days and work at least
two (2) weeks. If he/she does so, he/she shall then receive the unpaid
balance of his/her vacation benefit to which he/she is entitled.
Employees with seniority (in or out of the bargaining unit) of at least six
(6) months, but less than one (1) year. To qualify for full vacation
benefits the employee, as of June 1st with seniority, must have worked
(availability for work does not apply) eighty (80%) percent of the time
from date of employment to June 1st. An employee who has worked more than
thirty (30%) percent but less than eighty (80%) percent of the time from
date of employment to June 1st, will be granted a vacation equal to twenty
(20) hours multiplied by the percentage of time actually worked. No
vacation benefits will be paid to an employee who has worked less than
thirty (30%) percent of the time from date of employment to June 1st.
Section 3. Computation of Vacation Pay: In computing vacation benefits,
one (1) week's vacation with pay shall be equivalent to five (5) working
days, and eight (8) hours' pay shall be equivalent to one (1) working day.
If the employee is paid at a flat hourly rate, the vacation pay shall be at
the highest rate earned for at least thirty (30) consecutive days during the
year prior to June 1st, including shift premiums, if any.
Section 4. Scheduling of Vacations: Prior to May 1st of each
calendar year, departmental heads will consult with all employees
entitled to vacations and from such consultations the Company shall
establish a working schedule agreeable to the Union for the vacation
period. In determining vacation schedules, the Company will respect the
seniority and wishes of the employee to the extent that its needs will
permit. (a) The vacation season for those employees eligible for more
than two (2) weeks vacation with pay, shall be during the twelve (12)
month period beginning on January 1st. (b) The vacation season, for those
employees hired between June 2 and prior to December 31, eligible for
additional vacation with pay, shall be taken between their hire date and
December 31. The Company may elect to close the plant for a specified
vacation period.
<PAGE>
Section 5. Date Due: Vacation pay which bas been earned, in
accordance with this Article, shall be paid to the employee on the payday
immediately preceding the start of each employee's vacation.
Section 6. Consecutive Days, Etc.: All vacations of two (2) weeks or
less shall be taken on consecutive days unless the Company and the
employee agree on a different division of the vacation time. If an
employee is eligible for a vacation in excess of two (2) weeks, or
additional vacation, his/her vacation schedule for such an additional
vacation, if any, shall be determined pursuant to Section 4 of this
Article. Vacations shall not be changed without thirty (30) days notice,
or the consent of the employee involved. If any employee voluntarily
responds to a Company request to return from his/her vacation prior to
its expiration date, he/she shall be reimbursed for all out-of-pocket
expense in connection with such recall and allotted an additional
vacation period for the untaken vacation time.
Section 7. Retiree Pro-rata Vacation Pay: Any employee who retires
prior to June 1st of any calendar year at the retirement age prescribed
by the Social Security laws of the United States and who has given to the
Company a two (2) month notice in writing in advance of his/her intention
to do so shall be paid the pro-rata vacation pay earned by such employee,
the amount of which is to be determined by provisions of Section 1, 2,
and 3 of Article V.
Section 8. Holidays and Holiday Pay: Employees who qualify hereunder
shall be paid for eight (8) hours straight-time pay for each of the
following holidays or the dates on which they are observed, though no
work shall be performed on such days:
New Years' Day Dr. Martin Luther King's Birthday
Washington's Birthday Good Friday
Memorial Day Fourth of July
Labor Day Thanksgiving Day
Friday after Thanksgiving Day One Floating Holiday
Christmas Eve Day Christmas Day
Employees who work on said holidays shall be paid, in addition to eight
(8) hours holiday pay, double time for all time worked. An employee shall
be eligible for holiday pay who shall have been employed for a period of
sixty (60) calendar days before such holiday and has met one of the
following additional conditions:
Worked the regularly scheduled workday preceding and the regularly
scheduled workday succeeding the holiday, unless an absence for one of
such days shall be excused for good cause, substantiated by the employee,
or been at work in the two (2) weeks preceding said holiday and laid off
during such preceding two (2) weeks, or is on a bona fide leave of absence
starting within the two (2) weeks immediately preceding such holiday, or on
the workday immediately following such holiday, or if no work is scheduled
between two (2) holidays, to be eligible for pay for both holidays, an employee
must work his/her preceding scheduled workday and his/her scheduled workday
succeeding such holidays. To be eligible for pay for one (1) of the holidays,
an employee must work either his/her scheduled workday preceding the first
holiday or his/her scheduled workday succeeding the second holiday.
An employee who fails to work any portion of the last hour on the
regularly scheduled workday preceding and the regularly scheduled workday
succeeding a holiday or holidays, shall not lose holiday pay for such
holidays if excused by the Company for good cause.
Section 9. Floating Holiday: Subject to the eligibility requirements
for holiday pay, the recognized holidays hereunder shall include one (1)
additional holiday, designated as a "floating holiday". The Company
shall select the day on which such holiday will be observed and shall
give not less than two (2) weeks notice prior to the date on which such
floating holiday will be celebrated.
<PAGE>
ARTICLE VI
WAGES
Section 1. Rates: Effective 7-4-94, there shall not be an increase in
wages for all employees until 7-1-95.
The Company agrees to pay five (5%) percent of the 1994 gross profits,
before taxes, to all employees actively on the payroll as of 7-4-94. The
measuring period shall be from 7-4-94 through 12-31-94. The formula is
based on hours worked and the employees rate of pay, which will be
awarded on March 15, 1995. In addition to the five percent (5%) gross
earnings before taxes, the Company will deduct $500,000 from all gross
earnings for 1994.
Prior to 7-4-95, the Company and the Union shall meet for contract
years 1995 & 1996 to negotiate wages. The wage rate, to be paid under
the terms of this Agreement to employees in each occupational
classification, are those appearing in Appendix "A" which reflect said
wage increase and is attached hereto and made a part hereof. Such rates
are minimum rates of pay only. The Company may not pay less than those
rates, but nothing in this Agreement shall prevent the payment of rates
higher than those listed in said schedule.
Section 2. Cost of Living: If for the month of May 1995, the Revised
Consumer Price Index for Urban Wage Earners and Clerical Workers, all
items for Chicago published by the Bureau of Labor Statistics of the US
Department of Labor (or any successor agency thereto) (1967 = 100) has
increased by more than four (4) points above said Index for the month of
May 1994, then one (1c) cent shall be added to the hourly wage rates as
set forth in Appendix "A" hereof and which are in effect from July 3,
1995 until July 1, 1996 for each full fourtenths (.4) of a point which
said Index has risen above said four (4) points up to a maximum of
fifteen (15c) cents.
If for the month of May 1996 said Index has increased by more than four
(4) points above said Index for the month of May 1995, then one (1c) cent
shall be added to the hourly wage rates as set forth in Appendix "A"
hereof and which are in effect from July 1, 1996 until June 30, 1997 for
each full four-tenths (.4) of a point which said Index has risen above said
four (4) points up to a maximum of fifteen (15c) cents.
Section 3. New Classifications: Prior to establishing a new
classification, the Union shall be advised of the Company's intention and
the rate which the Company wishes to apply. After thirty (30) days of
operation but before sixty (60) days, either party may request
negotiations on the rate for the new classification. The rate resulting
from these negotiations shall become the permanent rate. In the event no
request is made to negotiate a change in the rate as to the new
classification, it is understood that the established rate shall be the
effective rate.
Section 4. Upgrading: An employee being upgraded, who has not
previously worked in the classification to which he/she is upgraded,
shall be placed in the next higher rate in the progression plan of the
new classification above the rate being paid to such employee prior to
the upgrading. If the employee has previously worked in the
classification to which he/she is upgraded, he/she shall receive the rate
to which the amount of his/her previous experience entitles him/her.
Such changes in the rate shall be paid retroactive from the first day
worked following such transfer who successfully completes the two (2)
week trial period. To be eligible for a rate change, an employee must
have worked at least four hundred (400) hours and a period of at least
thirteen (13) weeks shall have elapsed since his/her first employment or
his/her last classification change.
<PAGE>
Section 5. New Experienced Employees: New employees who have worked
during the last eighteen (18) months in the type of work available and
whose previous experience can be verified shall be placed on two (2)
weeks trial period at the starting rate of pay in their respective
classifications and at the expiration of such trial period, if retained
in the employ of the Company, shall be given credit in the automatic
progression plan, as outlined in Appendix "A" hereof for their proved
experience in similar work.
Section 6. Payday: Wages shall be paid on Friday of each week and shall
include all work performed up until 12 midnight of the previous Sunday.
Section 7. Piece Work: If the Company utilizes a piece work
incentive or bonus plan, the operations of such a plan shall be covered
by the provisions of Appendix "C" hereof.
Section 8. Pension Plan: During the term of this Agreement, the
Company shall maintain for each of the employees covered by this
Agreement a Pension Benefits Plan. The Company and the Union have agreed
to a pension benefits plan named the National Industrial Group Pension
Plan. The employee pension plan is funded solely by the Company and the
contribution rate is based on cents per hour paid as follows:
Effective July 5, 1993 - ten cents (10c) per hour will be contributed for
each employee based upon hours paid of this Agreement.
Effective July 3, 1995 - an additional five cents (5c) per hour will
be contributed for a new total of fifteen cents (15c) based upon all
hours paid during the second year of this Agreement.
Effective July 1, 1996 - an additional five cents (5c) per hour will
be contributed for a new total of twenty cents (20c) based upon all hours
paid during the third year of this Agreement.
ARTICLE VII
INSURANCE
During the term of this Agreement, the Company will maintain for
the employees covered by this Agreement, an insurance policy with a
responsible insurance company with coverage's and provisions set forth in
Appendix "B" of this Agreement. The premium per month per employee for
this insurance coverage shall be paid for entirely by the Company,
through June 30, 1995.
The premium cost per month to employees covered by this Agreement,
as of July 1, 1991, for dependent coverage (one (1) dependent - HMO $3.46
per week P.P.O. $6.92 per week, two (2) or more dependents HMO $4.62 per
week - P.P.O. $9.23 per week) shall not be increased through June 30,
1995.
Prior to July 4, 1995, the Company and the Union shall meet for contract
years 1995 & 1996 to negotiate medical health insurance.
This article applies only to employees with sixty (60) days or more of
seniority but does not apply to part-time employees.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Saving Clause: All benefits affecting the employees
covered by this Agreement presently in effect and which are not definitely
referred to or changed herein, shall remain in effect during the life of
this contract.
Section 2. Bulletin Board: A bulletin board will be provided by the
Company for the Union's use. The Union shall have the privilege of posting
notices concerning its official business and social activities upon such
bulletin board. Where the size of the plant requires it, more than one
(1) bulletin board will be furnished by the Company.
<PAGE>
Section 3. Election Day: In conformity with the laws of the State of
Illinois, employees who are legitimate registered voters will be given
time off not to exceed two (2) hours for voting at general elections. At
the time of an election in which a President of the United States will be
selected, employees will be given paid time off not to exceed two (2)
hours.
Section 4. Supervisors: Departmental production supervisors shall
not engage in production work, except such production work may be undertaken
when instructing new employees, breaking in a new job, correcting faults
of production procedures and dealing with emergencies.
Section 5. Right of Access: Authorized Union officers or
representatives shall have access to the factory during business hours upon
reasonable notification to the Company for investigation and adjustment of
matters covered by or arising under this Agreement.
Section 6. Conflict with State and Federal Law: Should any provision
of this Agreement be declared illegal by any court of competent jurisdiction
such provision shall immediately become null and void leaving the
remainder of the Agreement in full force and effect and the parties shall
thereupon seek to negotiate substitute provisions which are in conformity
with the applicable law.
Section 7. Female Employees: There shall be equal pay for equal work
performed regardless of the sex of the employee. There shall be no
discrimination in wages, hours, or other terms or conditions of
employment, or in training or upgrading, on account of the sex or marital
status of the employee.
Section 8. Paid Leave of Absence: In instances of the death of a
member of the immediate family of a regular employee, the Company will,
where required, grant a paid leave of up to three (3) regular working
days to enable such employee to attend the funeral and otherwise assist
in arrangements pertaining to the burial of such member of the family.
An employee who travels a long distance to attend a funeral or services
shall be authorized one (1) additional day following the funeral or
services, but not to exceed three (3) days pay. Each day's pay shall
consist of the employee's regular rate of eight (8) hours. The term
"immediate family", as used herein, is defined as consisting of the
following members only: Mother, Father, Husband, Wife, Children, Brother,
Sister, Mother-in-law, Father-in-law, Grandparents, Grandparents-in-law
and Grandchildren. Where a death occurs to any such member of the
employee's family, he/she shall make application to the Human Resources
Director for such paid leave. Such paid leave will not be granted in
instances when the employee, otherwise eligible, does not attend the
funeral. The employee absent on a paid leave shall not be eligible for,
or notified of, any overtime which is scheduled during the period of such
employee's leave. This provision is not applicable if you are on a formal
leave of absence, on a company designated holiday or during periods of vacation.
Section 9. Jury Service: An employee who shall have been employed
sixty (60) calendar days immediately prior to reporting for jury duty and
who performs jury service shall be paid an amount for each day of the
regular workweek that such employee performs jury service as shall equal
eight (8) hours of straighttime pay at the employee's regular hourly rate
less the jury fee legally payable to such employee for that day of jury
service. An employee shall have performed jury service on any day that
such employee reports to Court for jury service pursuant to an Order of
Court. The payments as provided herein shall be for the entire period of
service on a jury pursuant to an Order of Court. To be entitled to
receive such jury service pay differential, such employee shall furnish
the Human Resources Director of the Company a voucher from the Court
wherein such jury service is performed setting forth the number of days
of jury service and the jury fees paid to such employee for jury service.
<PAGE>
In the event an employee performs jury service on a day for which such
employee receives a vacation and/or holiday pay, such employee shall
not be paid jury service pay differential for that day. An employee who
is on leave of absence, layoff, paid death leave, or who is accruing
Workers' Compensation benefits shall not be paid jury service pay
differential while on such status. An employee performing jury service
shall return to work on his/her first regular workday after being excused
from such jury service.
Section 10. Safety and Health Provisions: The Company shall make
reasonable provisions for the safety and health of employees during
working hours and shall provide all reasonable protective devices and
other equipment to protect them from injury.
Section 11. Union Employee Educational Assistance Program:
(A) Education Eligibility Requirements:
Educational courses must be related to the classification of work being
or to be performed by the employee.
Such courses and institutions must be approved by the Company prior to
enrollment.
Courses are to be taken during non-scheduled working hours.
(B) Amount of Reimbursement:
For employees who complete specialized courses, the Company will pay up
to 100% of the tuition charges per semester at the satisfactory (grade
"C" or better) completion of the course material in an approved school.
When education expenses are partially paid by assistant-ships,
scholarships, fellowships, or G.I. Bill Benefits, tuition reimbursements
is based on the net amount actually paid by the employee, excluding
amounts paid through assistantship, scholarships, fellowships, or G.I.
Bill Benefits.
(C) Method of Reimbursement:
To be eligible for tuition refund, the employee must, prior to the time
of enrollment, fill out an application form per semester, for course(s)
contemplated.
Obtain the approval of the employee's supervisor who in turn will get the
Company approval through Human Resources.
Upon completion of course(s), submit to the employees supervisor a
written statement from the school stating that the course(s) have been
satisfactorily completed. This is usually a copy of the grade statement.
The supervisor will forward this information to the Human Resources
Director and within two (2) weeks the employee will receive a check
containing the proper tuition refund as well as his/her tuition receipt
and grade statement.
If for any reason employment is terminated before completion of the
program, then the Company's obligation ceases.
Section 12. Call-in Sick / Personal Day: Each regular employee of the
Company shall be eligible for a call-in sick/personal day of one (1) each
contract year. Such day is not cumulative from year to year but the
Company will pay the employee by July 1 of each contract year for the day
not taken. One (1) such day shall equal eight (8) hours pay at the
employee's regular hourly rate of pay.
Section 13. Inventory Shutdown Scheduling: The Company will
schedule inventory by departmental seniority, and shall, in the event
that additional employees are required in the stock room area, first ask
former stock room area employees to work.
Signed this 19th day of February, 1995.
Local 1031,
International Brotherhood
Wells-Gardner Of Electrical Workers,
Electronics Corporation AFL-CIO
/s/ ANTHONY SPIER /s/ SOLOMON R. MARTIN
Anthony Spier Solomon R. Martin
President Business Manager
<PAGE>
ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS
CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS,
AFL-CIO, FOR PERIOD JULY 4, 1994 UNTIL JUNE 29, 1997.
APPENDIX "A"
WAGE SCALE EFFECTIVE 7/4/94 THROUGH 6/29/97
<TABLE>
JOB CLASSIFICATION START 2MO 3MO
<S> <C> <C> <C> <C>
2-8 Sweeper 6.15 8.95 9.05
3-2 Assy., Wirer-Solderer 6.15 9.05 9.14
3-5 Riveter 6.15 9.05 9.14
G.L. Group Leader 9.55
4-1 Wire Cutting Machine Operator 6.17 9.06 9.23
4-3 Bailer-Sweeper 6.17 9.06 9.23
4-5 Packer-Final Assembly 6.17 9.06 9.23
G.L. Group Leader 9.55
</TABLE>
<TABLE>
JOB CLASSIFICATION START 3MO 6MO
<S> <C> <S> <S> <S>
5-1 Heavy Packer 6.23 9.13 9.29
5-2 Stockkeeper, Stock Delivery 6.23 9.13 9.29
5-5 Rivet/Pems Set-Up Oper. 6.23 9.13 9.29
5-6 Prepare & Operate Insertion Machine 6.23 9.13 9.29
5-7 Automatic Checking Machine Operator 6.23 9.13 9.29
G.L. Group Leader 9.61
6-1 Solder Pot Operator 6.31 9.06 9.43
7-2 Wire Cutting Mac, Set-Up & Oper. 6.37 9.29 9.54
7-5 Riding Power Vehicle Operator 6.37 9.29 9.54
7-7 Assy. Inspector 6.37 9.29 9.54
7-8 Relief & Repair Operator 6.37 9.29 9.54
7-11 Building Fireperson 6.45 9.41 9.63
G.L. Group Leader 9.87
</TABLE>
<TABLE>
JOB CLASSIFICATION START 3MO 6MO 9MO 12MO
<S> <C> <C> <C> <C> <C> <C>
8-2 Tester-Phaser"B"(Printed Boards) 6.55 9.46 9.55 9.77
8-4 Fine Patcher 6.55 9.46 9.55 9.77
10-2 Tool Crib Worker 6.71 9.61 9.72 9.82 9.94
11-2 Tester 6.77 9.67 9.79 9.87 10.04
11-6 Cabinet Finisher 6.77 9.67 9.79 9.87 10.04
G.L. Group Leader 10.41
12-4 Precision Mechanical Assembler 6.81 9.82 9.89 10.05 10.18
12-9 Final Line Inspector(Comp.Prod.) 6.81 9.82 9.89 10.05 10.18
12-10 Master Cabinet Finisher 6.89 9.87 9.98 10.10 10.23
G.L. Group Leader 10.61
*12-12 Maintenance "B" 7.18 10.09 10.22 10.41 10.59
13-1 Analyzer 7.49 10.44 10.54 10.67 10.78
14-1 Master Analyzer 7.96 11.04 11.30
14-2 Maintenance "A" 7.96 11.04 11.30
G.L. Group Leader 11.79
15-1 Senior Master Analyzer 11.89
</TABLE>
*Education Bonus - 1 Course = 10c per hour
(after maximum rate) 2 or more Courses 10c per hour (additional)
<PAGE>
ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS
CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS,
AFL-CIO, FOR PERIOD JULY 4, 1994 UNTIL JUNE 29, 1997.
APPENDIX "B"
THE INSURANCE COVERAGE FOR EMPLOYEES AND DEPENDENTS COVERED BY THIS AGREEMENT
NON-OCCUPATIONAL - WEEKLY DISABILITY BENEFITS:
(EMPLOYEES ONLY)
Benefits are payable for accident from the first (1st) day and for sickness
from the eighth (8th) day for a period up to thirteen (13) weeks for any one (1)
disability.
The weekly benefits are:
Effective 7/1/94 - $155.00
Effective 7/1/95 - $170.00
Effective 7/1/96 - $185.00
LIFE INSURANCE: (Employees Only)
Effective 7/1/94 - $14,500 (AD&D - $14,500)
DENTAL INSURANCE PLAN:
Effective the first year of this Agreement, Plan AHS-100/DentaCap. The premium
cost of this plan shall be $5.95 per month for the employee coverage to be paid
entirely by the Company for the three (3) year term of this Agreement. The
premium cost of this plan for family coverage shall be $14.86 per month. An
employee may elect to secure this coverage for his/her dependents at a premium
cost of $1.79 per week to be paid for by the employee for the three (3) year
term of this Agreement.
OPTICAL PLAN OFFERED BY UNITED OPTICAL INC.:
Covers employee and dependents. Entire premium cost to be paid for by the
Company for the three (3) year term of this Agreement.
CONTINUATION OF INSURANCE COVERAGE:
Temporary Lay-off:
An insured, temporarily laid-off employee will be covered by insurance
benefits at no cost until the end of the month in which the layoff occurs.
If a temporarily laid-off employee desires to continue the insurance, all
coverage's, except weekly disability benefits, may be continued for a period
not to exceed six (6) months, providing the laid-off employee makes the first
premium payment in full for the following month within seven (7) days from the
date of the layoff, or the first of the following month, whichever occurs first.
Sick Leave:
The insurance for an employee on sick leave will be paid by Wells-Gardner
Electronics Corporation for three (3) months. If the employee wishes to
continue his/her insurance after this period, he/she may do so for an additional
three (3) months, provided the required monthly premium is paid by the employee
to Wells-Gardner Electronics Corporation before the end of the third month of
sick leave and monthly thereafter.
All employees shall be provided together with their dependents all rights
under COBRA.
Total Disability of Employee:
In the event an employee becomes totally disabled, as determined by the
provisions and regulations of the Social Security laws, the Company will pay the
entire premium cost for the continuation of such employee's medical insurance
coverage for a period of up to two (2) years or until such employee reaches age
65, whichever occurs first.
Death of Employee:
In the event an employee dies while in the active employ of the Company, the
Company will pay the entire premium cost for the continuation of the medical
insurance coverage for the spouse and dependent children for a period up to one
(1) year; provided however that:
Such medical insurance coverage shall cease upon the remarriage of the spouse
and provided also that,
The spouse or dependent children shall not be eligible for coverage under any
other employer paid insurance plan.
<PAGE>
ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS
CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS,
AFL-CIO, FOR PERIOD JULY 4, 1994 UNTIL JUNE 29, 1997.
APPENDIX "C"
It is understood and agreed by the parties hereto that the Company may
continue and/or install a piece work or incentive system in its plant. Such
incentive plan must be mutually agreed to between the parties. In the event it
does so, piece work or incentive rates shall be established by the time studies
made by the Company and same may be revised. Employees shall have the right to
question the time study on any job which they believe to be improperly timed.
In such event the Company shall cause an investigation to be made and if it
believes that an error may have been committed, it shall cause such job to be
re-timed. In the event such re-timing is still questioned or in the event the
Company fails to re-time such job, the matter may be handled according to the
grievance procedure provided for in this Agreement. It is understood and agreed
that incentive rates will be so adjusted as to compensate employees working on
the incentive basis for the rest periods without additional pay thereafter.
Signed this 20th day of December, 1994.
Local 1031,
International Brotherhood
Wells-Gardner Of Electrical Workers,
Electronics Corporation AFL-CIO
/s/ ANTHONY SPIER /s/ SOLOMON R. MARTIN
Anthony Spier Solomon R. Martin
President Business Manager
<PAGE>
VOTING RIGHTS AGREEMENT
This AGREEMENT dated as of the 29th day of February, 1996, by and among
Albert S. Wells, Jr. ("ASW"), Randall S. Wells ("RSW"), Anthony Spier ("Spier"),
Allan Gardner ("Gardner"), John R. Blouin ("Blouin"), Wells-Gardner Electronics
Corporation, an Illinois corporation (the "Company"), James Industries, Inc., an
Illinois corporation ("JI"), and James J. Roberts, Jr., individually and as
trustee of the James J. Roberts, Trust, UTA Dated 12-23-91 (collectively
"Roberts");
WHEREAS, Roberts and Blouin own beneficially all of the outstanding
Capital Stock of JI and Roberts owns beneficially 551,836 of the issued and
outstanding Common Shares of the Company (which Common Shares, together with
any Common Shares of the Company hereafter acquired by Roberts or JI are
hereinafter referred to as "Roberts' Common Shares") as follows:
<TABLE>
Shareholder Shares Owned
<S> <C>
James J. Roberts, Jr. 1,760
James J. Roberts, Jr., 550,076
as trustee
</TABLE>
WHEREAS, all of such Roberts' Common Shares are pledged to various
pledges as collateral for loans; and
WHEREAS, the parties deem it to be in their mutual best interests and
in the best interests of all of the Company's shareholders that an agreement be
entered into concerning the voting of the parties' Common Shares for directors
of the Company; and
WHEREAS, the Company is entering into a Sales Representative Agreement
(the "Representative Agreement") with JI and Roberts concurrently with the
execution hereof;
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, it is hereby agreed as follows:
1. Voting For Directors.
(a) Until Termination of the Representative Agreement (as
hereinafter defined) or December 31, 2000, whichever shall first occur, the
parties shall vote (and, if applicable, shall direct all pledgees to vote)
their Common Shares of the Company at every election of directors of the
Company, for the election of such slate of nominees as the nominating committee
of the Board of Directors (or if there is no nominating committee, then such
other committee, or the Board of Directors, as the case may be, performing
such function) shall designate, provided that such slate shall always include
Roberts, Blouin, RSW, Gardner and Spier (collectively, the "Nominees"), or any
of the Nominees as are willing and able to serve as directors of the Company.
<PAGE>
(b) Upon the death or incapacity of any of the Nominees, another
person shall be designated as set forth below; provided, however, that, if the
designated person is disapproved by at least three of the remaining Nominees,
another person shall be designated as set forth below until not so disapproved:
(i) Upon the death or incapacity of Blouin, Roberts or Roberts'
estate or guardian shall have the right to designate another person as Nominee
to replace John R. Blouin for purposes of paragraph 1(a) above;
(ii) Upon the death or incapacity of Roberts, his estate or guardian
shall have the right to designate another person as Nominee to replace Roberts
for purposes of paragraph 1(a) above;
(iii) Upon the death or incapacity of Gardner, his estate or guardian
shall have the right to designate another person as Nominee to replace Gardner
for purposes of paragraph 1(a) above; and
(iv) Upon the death or incapacity of RSW, his estate or guardian
shall have the right to designate another person as Nominee to replace RSW for
purposes of paragraph 1(a) above.
(c) In any election of directors in which the number of nominees
exceeds the number of directors to be elected, the parties shall vote (and, if
applicable, shall direct all pledgees to vote) their Common Shares hereunder
in such a manner as to assure the election of the largest number of Nominees.
If, under the circumstances, less than all of the Nominees can be elected, the
parties shall vote (and, if applicable, shall direct all pledgees to vote) their
Common Shares so that the greatest number of Nominees (or their replacements as
set forth in paragraph 1(b) above) can be elected in the following order of
priority: Roberts, Spier, RSW, Gardner, and Blouin.
(d) The obligations of the parties under this paragraph 1 shall
terminate with respect to any Common Shares of the Company which they may
transfer in a bona fide sale or exchange for value.
(e) The obligations of the parties under this paragraph 1 shall be
suspended during any period when the Common Shares of the Company subject to
the terms of this Agreement amount to less than 5% of the then issued and
outstanding Common Shares of the Company.
(f) The obligations of Roberts under this Agreement shall also be
binding upon any of his transferees, except as otherwise provided herein.
<PAGE>
2. Death. Within thirty (30) days after the death of Roberts, the
executor or administrator of his estate and the successor trustee of the James
J. Roberts, Jr. Trust, UTA Dated 12-23-91 (the "Trust") shall notify the Company
of the provisions of his will and the provisions of the Trust, if any, governing
the distribution of Roberts' Common Shares. Such executor or administrator and
successor trustee and all beneficiaries and heirs, devisees and legatees of
Roberts, shall be bound by the provisions of paragraph 1 hereof.
3. Additional Definition. "Termination" of the Representative
Agreement shall be deemed to occur if such agreement terminates under paragraph
17 thereof, except that in the event of a termination of the Representative
Agreement by the Company under paragraph 17(b) thereof, for purposes of this
Agreement, Termination shall be deemed to occur on December 31, 2000, or at the
end of any additional period for which the Representative Agreement had then
been automatically renewed under paragraph 17(a) thereof.
4. Endorsement on Stock Certificates. All certificates
representing Roberts' Common Shares shall be endorsed as follows:
"The voting of the shares represented hereby are subject to
restrictions and agreements contained in an agreement dated as of
February 29, 1996 by and among Wells-Gardner Electronics Corporation
and certain of its shareholders, a copy of which is on file with the
Secretary of Wells-Gardner Electronics Corporation."
5. Termination and Amendment. Anything to the contrary
notwithstanding, this Agreement shall terminate and have no further effect on
the earlier of (a) any act or event which provides for termination elsewhere
in this Agreement, or (b) the Termination of the Representative Agreement, or
(c) December 31, 2000. This Agreement may be altered, amended or terminated
(except as otherwise provided herein) at any time only pursuant to an agreement
in writing, executed by or on behalf of the Company, JI and such of the other
parties hereto (or their successors under paragraph 1(b)) who are then serving
as directors of the Company.
6. Entire Agreement. This Agreement constitutes the entire
agreement and final understanding of the parties with respect to the subject
matter hereof and supersedes and terminates any and all prior voting agreements,
prior and/or contemporaneous communications and/or agreements between the
parties, whether written or verbal, express or implied, direct or indirect,
relating in any way to the subject matter hereof including, but not limited
to the Voting Agreement dated April 26, 1994, by and between the parties hereto.
7. Notices. All notices, offers and acceptances hereunder shall
be in writing and shall be deemed to be communicated (except as otherwise
provided herein) when delivered in person or deposited in the U.S. mail, postage
prepaid, by registered mail, addressed to the party concerned at the address
appearing on the Company's records or at such other or additional place as such
party may designate by notice given in accordance with the provisions hereof to
the other parties.
<PAGE>
8. Benefit. This Agreement shall be binding as provided herein
upon the parties, their heirs, devisees, legatees, beneficiaries, legal
representatives, successors and assigns.
* * * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
WELLS-GARDNER
ELECTRONICS CORPORATION JAMES INDUSTRIES, INC.
By: /s/ ANTHONY SPIER By: /s/ JAMES J. ROBERTS, JR.
Anthony Spier James J. Roberts, Jr.
Its: CEO Its: CEO
/s/ ALBERT S. WELLS, JR. /s/ JAMES J. ROBERTS, JR.
Albert S. Wells, Jr. James J. Roberts, Jr.
/s/ ANTHONY SPIER /s/ JAMES J. ROBERTS, JR.
Anthony Spier James J. Roberts, Jr.
AS TRUSTEE OF THE JAMES J.
/s/ ALLAN GARDNER ROBERTS, JR. TRUST UTA
Allan Gardner DATED 12-23-91
/s/ RANDALL S. WELLS
Randall S. Wells
/s/ JOHN R. BLOUIN
John R. Blouin
<PAGE>
WELLS-GARDNER
ELECTRONICS CORPORATION
1995
ANNUAL REPORT
<PAGE>
COMPANY PROFILE
Wells-Gardner Electronics Corporation is an ISO 9001 video products company
that designs and manufactures color and monochrome video monitors for sale to
the gaming, industrial and commercial markets. It has a customer base that is
growing both domestically and internationally. Included are makers of coin-
operated video games, lottery terminals, video slot machines, video walls and
presentation monitors, automotive diagnostic and test equipment, kiosk, medical
instruments, industrial process control equipment and computer and word
processing terminals. From time to time, the company also engages in contract
manufacturing of electronic products designed and marketed by others.
The company's game plan is to focus on market segments where its willingness
and ability to semi-customize products, quick response time and quality of
service differentiate it from its competition. In turn, these strategies
enable the company to establish defensible market niches.
Founded in 1925, Wells-Gardner is a publicly traded company and maintains
its headquarters in Chicago, Illinois.
<TABLE>
COMMON SHARE MARKET PRICE AND DIVIDENDS
The company's common shares are traded on the American Stock Exchange (AMEX)
under the symbol of WGA. On December 31, 1995, there were 862 holders of
record of the company's common shares.
No dividends were paid in 1995 or 1994. High and low sales prices by quarter
on the AMEX for the last two years were:
1995 1994
Prices Prices
High Low High Low
<S> <C> <C> <C> <C>
Quarter ended:
March 31, 5.7500 2.5625 4.6250 3.5000
June 30, 5.2500 3.3750 4.1250 3.1250
September 30, 6.5000 4.2500 3.8750 2.6250
December 31, 4.7500 2.8750 3.8125 2.5000
</TABLE>
On the cover: Wells-Gardner introduces Videostax(registered trademark), a
stackable 25 inch CRT color monitor that delivers the ultimate image for retail
mall displays, trade show applications, airports and information displays (also
available in 27 inch).
<PAGE>
<TABLE>
SELECTED FINANCIAL HIGHLIGHTS
Years ended December 31,
(In thousands except per-share data)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Earnings Data:
Net sales $28,301 $33,435 $36,011 $48,949 $38,814
Operating earnings (loss)
excluding special charges &
sale of fixed assets (416) (498) (2,126) 1,606 (644)
Special charges (886) (1,201) - - -
Gain on sale of fixed assets 358 - - - -
Earnings (loss) from
continuing operations (1,059) (1,735) (1,881) 1,017 (1,464)
Earnings from extraordinary item...
tax effect of loss carryforward - - - 528 -
Cumulative effect of change
in accounting principle - - 102 - -
Net earnings (loss) $(1,059) $(1,735) $(1,779) $1,545 $(1,464)
Per-Share Data:
Earnings (loss) from $(0.26) $(0.45) $(0.49) $0.26 $(0.39)
continuing operations
Earnings from extraordinary item...
tax effect of loss carryforward - - - 0.14 -
Cumulative effect of change
in accounting principle - - 0.03 - -
Net earnings (loss) $(0.26) $(0.45) $(0.46) $0.40 $(0.39)
Balance Sheet Data:
Inventory 8,930 5,831 6,989 11,570 7,839
Working capital 10,213 7,561 9,510 11,465 10,363
Total assets 16,570 15,619 16,085 20,189 16,546
Long-term debt 3,125 - - - -
Shareholders' equity 9,633 10,367 12,108 13,785 12,142
</TABLE>
Transfer Agent and Registrar: Harris Trust and Savings Bank, 111 West Monroe
Street, Chicago, Illinois 60690
Corporate Attorney: McDermott, Will & Emery, 227 West Monroe Street, Chicago,
Illinois 60606
Corporate Auditor: KPMG Peat Marwick LLP, 303 East Wacker Drive, Chicago,
Illinois 60601
Investment Bankers: Mesirow Financial, 350 North Clark Street, Chicago,
Illinois 60610
The company will make available to shareholders, without charge, a copy of
its 1995 Annual Report on Form 10-K, without exhibits, upon written request
directed to Richard L. Conquest, Chief Financial Officer, Wells-Gardner
Electronics Corporation, 2701 North Kildare Avenue, Chicago, Illinois 60639.
Annual Shareholders Meeting: April 23, 1996, 2:00 P.M. at 2701 North Kildare
Avenue, Chicago, Illinois 60639.
<PAGE>
TO OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS AND EMPLOYEES
Although we are disappointed in Wells-Gardner's 1995 results, we remain
encouraged by several positive accomplishments, including improvements in
quality, cost control and productivity, significant increases in our backlog
and an expanding market share in nearly all of the segments we serve. Our
optimism for 1996 is undiminished.
Wells-Gardner's 1995 top and bottom lines suffered from two major factors:
* WE TOOK A THIRD-QUARTER CHARGE OF $886,000 AGAINST REVENUE TO SETTLE
A WARRANTY ISSUE ON MONITORS SOLD TO A MAJOR CUSTOMER FROM 1991 TO 1993.
The good news is that we have retained this customer, which has grown to
become one of our top three.
* TWO OF OUR MAJOR MARKET SEGMENTS - AMUSEMENT AND VIDEO LOTTERY - HAD
VERY POOR YEARS. Experts estimate industry-wide sales to the coin-operated
amusement market was down around 50%, largely because few "exciting" games
were introduced during the year. Wells-Gardner's sales, however, were only
about 19% lower than the previous year's. Video lottery sales also declined
substantially compared with the previous year, largely because of a weak
second phase in the Loto-Quebec rollout.
WE GAINED MARKET SHARE ANN ENTERED NEW MARKETS
On a positive note, Wells-Gardner gained market share virtually across the
board due to successful launches of new products and aggressive marketing.
The company made substantial inroads in four market segments:
* CASINO GAMING, sales surged 237% with expansion into new markets
* BARTOP MARKET, sales swelled 210% on the strength of new products
* LEISURE AND FITNESS, sales climbed 42% due to the release of our new 27-inch
VGA monitor
* WELLS-GARDNER'S SERVICE GROUP increased sales by 113% with entry into the
market for refurbished monitors
In 1995's fourth quarter, we also entered the high-growth video-wall,
presentation and transportation monitor markets with a full product line and
a vigorous advertising campaign. Wells-Gardner scored a slam-dunk at London's
international ATE show in January 1996 when an Irish customer bought our 16-
monitor video-wall display only one hour after the show opened. We also
delivered our first significant order of transportation monitors to a major
U.S. international airport during the first quarter 1996.
WE OPERATED THE COMPANY MORE PROFITABLY AND EFFICIENTLY
Wells-Gardner operated more profitably in 1995 by reducing our operating loss
by $82,000 to a loss of $416,000 in 1995 from a loss of $498,000 in 1994. This
was in spite of a reduction in sales of $5.1 million to $28.3 million in 1995
from $33.4 million in 1994. This means that the company operated more
efficiently and profitably by approximately $1.2 million.
Manufacturing productivity this past year climbed 32% over 1994, saving the
company $819,000 in improved manufacturing costs, which was the main contributor
to the $1.2 million improvement in efficiency.
<PAGE>
QUALITY CONTINUES TO IMPROVE
Quality continued its marked improvement with Wells-Gardner passing the 1995
annual quality audit conducted by the ISO accreditation agency. We reduced
minor violations to a mere three, compared to seven when the accreditation
was obtained in 1994 (up to 15 minors are permitted).
Our process reject rate was also cut below 9% in December 1995. This compares
to 20% when the statistics were first recorded in April 1994 and we ended the
year at a quality coefficient at over 90, compared to an average 74.9 in 1994
and 85.2 in 1995.
THE OUTLOOK FOR 1996
After a poor performance in 1995, we do have reason to be optimistic for 1996.
1995's year-end backlog surged to more than 50,000 monitors, equivalent to
nearly six months of sales, and 150% larger than year-end 1994's level. This
was partly caused by 10 of our largest 20 customers delaying shipments in the
fourth quarter 1995 and scheduling them for the first and second quarters 1996.
Our experience is that significantly more than 90% of backlog results in
revenue.
Spending on R&D rose to 5.3% of sales in 1995 from 4.2% in 1994. We regard this
as an investment in our future and it allowed us to release eight new products
last year. It's important to note that all of these new products are voltage-
free, which means that they can be plugged in anywhere in the world from Topeka
to Tokyo to Timbuktu.
The company also negotiated its first long-term banking agreement in 17 years
with Harris Trust and Savings Bank, which, we feel is another third-party
endorsement of our prospects.
We thank everyone for their faith in Wells-Gardner and its products. We think
the year 1996 will find that faith well-placed.
/s/ ANTHONY SPIER
Anthony Spier
Chairman of the Board, President
and Chief Executive Officer
March 15, 1996
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1995 COMPARED TO 1994
The company's sales in 1995 were $28,301,000 compared to $33,435,000 in
1994, a decrease of $5,134,000, or 15 percent. The decrease was attributed to
lower demand in our two largest segments, video lottery terminals and coin-
operated amusement machines. Sales of video lottery terminal monitors decreased
52 percent, or $5,164,000, due mainly to the lower demand from the Quebec video
lottery. There was a decrease of 19 percent, or $2,534,000, in the coin-
operated amusement machines. Although there was significant gain in the bartop
segment of the coin-operated amusement machine markets, this did not make up the
short-fall in the coin-operated arcade and amusement poker segments. The
decline in 1995 sales would have been much greater if there had not been a 76
percent increase in the casino, leisure/fitness and service areas. Sales to
these segments in 1995 were $6,709,000 compared to $3,803,000 in 1994. Sales to
the automotive test and diagnostic equipment and data display segments were
down 14 percent due to industry consolidation, economic cyclical trends and
some movement to PC-based equipment. Those segments accounted for 12 percent
of total sales in 1995.
The company's 1995 operating loss, excluding special charges, was $416,000,
or 10 cents per share, down from a loss of $498,000, or 13 cents per share, in
1994. The net loss in 1995 declined to $1,059,000, or 26 cents per share, from
1994's net loss of $1,735,000, or 45 cents per share. The net loss in 1995
included a gain on the sale of assets of $358,000, or 9 cents per share and a
special charge for warranty of $886,000, or 22 cents per share. The 1994 net
loss included a special charge of $1.2 million, or 31 cents per share, for
management reorganization and the cost associated for phasing out certain
products that have been replaced by our new U-series monitor lines.
Gross profit in 1995 decreased to $2,342,000, or 8.3 percent of sales,
compared to $2,582,000 or 7.7 percent of sales in 1994. This decrease of
$240,000, or 9 percent was attributable to the lower sales volume.
Selling and administrative expenses for 1995 were down 10 percent compared
to 1994. This decrease was due mainly by eliminating certain selling costs and
the commissions paid on the lower sales volumes.
In 1995, other expense, net, increased to $115,000, compared to $36,000 in
1994, due mainly to the increase of $45,000 in interest expense on our banking
obligation and a decrease of $23,000 from investment income. The company also
had a gain of $358,000 on the sale of a 63,000 square foot building.
Accounts receivable at the end of 1995 decreased $2,565,000, or 42 percent,
to $3,540,000, compared to $6,105,000 at the end of 1994. This decrease is due
to lower sales volume in the fourth quarter of 1995.
The company's 1995 year-end inventory increased 53 percent to $8,930,000
compared to $5,831,000 in 1994. This increase is a result of 10 of our 20
largest customers delaying their shipments from the fourth quarter of 1995 to
the first and second quarters in 1996. The number of inventory turns in 1995
was 3.78 compared to 4.81 in 1994.
In 1995, the company signed a three year, $7,000,000, credit agreement with
Harris Trust and Savings Bank. This agreement provides the company with funds
to support the necessary working capital for operations and capital for
developing products to expand in other marketing segments. At the end of 1995,
the company's long-term borrowing was at $3,125,000, as compared to $1,925,000
in short-term borrowing at the end of 1994. The borrowing was primarily for
funding working capital, particularly for financing increased inventory at year-
end to support customer orders scheduled for shipment in the first quarter of
1996.
The company's debt-to-equity ratio increased to 32 percent at December 31,
1995, from 19 percent at December 31, 1994, as a result of a 62 percent increase
in borrowing. Capital expenditures in 1995 totaled $346,000 compared to
$683,000 in 1994.
Corporate working capital increased $2,652,000, or 35 percent, to
$10,213,000 compared to $7,561,000 in 1994. The current ratio remains a strong
3.7 to 1.0 compared to 2.4 to 1.0 in 1994.
<PAGE>
1994 COMPARED TO 1993
The company's sales in 1994 decreased 7 percent, or $2,576,000, to
$33,435,000, compared to $36,011,000 in 1993. This decrease was attributed to
lower demand in most of our traditional market segments, particularly coin-
operated arcade games, offset by a 128 percent increase in one of our newer
segments, video lottery terminals. The video lottery segment contributed an
additional $4,252,000 to sales, while coin-operated arcade games, our largest
market segment, decreased 26 percent or $6,323,000. The increase in video
lottery sales resulted from the Quebec video lottery, in which we received 100
percent share of that order from three of our major customers. On the other
hand, coin-operated arcade games sales declined due to a lack of popular games
being introduced in 1994 and start-up problems with one of our monitors from our
new U-series monitor line. This problem was corrected during the first quarter
of 1995, and we do not anticipate future problems with this new series of
monitors. In our other traditional market segments, automotive test and
diagnostic equipment and leisure fitness equipment, sales declined 9 percent or
$486,000, to $4,753,000, compared to $5,239,000 in 1993. Most of this decline
was in the automotive test and diagnostic equipment, due to industry
consolidation and the movement to PC-based equipment.
The company's 1994 loss was $1,735,000, or 45 cents per share, and included
a special charge of $1,201,000, or equivalent to 31 cents per share, for
management reorganization and the cost associated for phasing out certain
products that have been replaced by our new U-series monitor lines. Last
year's loss of $1,779,000, or 46 cents per share, includes a tax benefit of
$235,000 or 6 cents per share, and a positive effect of an accounting change of
$102,000, or 3 cents per share. In 1993, the company also took a $540,000, or
14 cents per share, warranty charge to settle a picture tube reliability issue
with a major customer.
Despite a 7 percent decline in 1994 sales, gross operating profit
increased to $2,582,000, or 7.7 percent of sales, compared to $1,536,000, or
4.3 percent of sales in 1993. This improved operating profit reflects stringent
cost-cutting efforts achieved in 1994.
Selling and administrative expenses for 1994 continued to decline, down
16 percent compared to 1993. This decrease also reflects the stringent cost-
cutting efforts achieved in 1994, and the lower sales commissions paid on the
lower sales volumes.
In 1994, other expense, net, increased to $36,000, compared to 1993,
whereas other income, net, was $10,000 of income. This difference was due
mainly to lower investment income, and included the recovery of bad debt in 1993
which did not occur in 1994.
Accounts receivable at the end of 1994 increased $425,000, or 7 percent,
to $6,105,000, compared to $5,680,000 in 1993. This increase is due to longer
terms being extended in the market place, to match competition, higher export
sales volume, and the increase in the number of days outstanding. Accounts
receivable turnover in 1994 declined to 5.67, compared to 6.83, in 1993.
The company's 1994 year-end inventory was down significantly, decreasing 17
percent or $1,158,000, to $5,831,000, compared to year-end 1993 of $6,989,000.
This was a result of the continuing inventory management improvement and the
on-going efforts to standardize products offered to our various market segments.
The number of inventory turns in 1994 improved 27 percent to 4.81, compared to
3.72 in 1993.
Short-term borrowing increased to $1,925,000 at December 31, 1994, compared
to $1,200,000 at December 31, 1993. This increase in borrowing was primarily
for funding working capital, an economical buy of picture tubes with favorable
pricing and the financing of approximately $650,000 of completed monitors
purchased offshore. This purchase of monitors was in anticipation of a new
release of orders from the Quebec lottery, which did not materialize until the
first quarter of 1995.
The company's debt-to-equity ratio increased to 19 percent at December 31,
1994, from 10 percent at December 31, 1993, as a result of a 60 percent increase
in short-term borrowing, a 20 percent increase in accounts payable and a 14
percent decrease in equity. Capital expenditures in 1994 totaled $683,000
compared to $617,000 in 1993.
Corporate working capital decreased $1,949,000, or 20 percent, to
$7,561,000, compared to $9,510,000 in 1993. The current ratio was a strong
2.4 to 1, compared to 3.4 to 1 in 1993.
<PAGE>
<TABLE>
BALANCE SHEETS
ASSETS
December 31,
1995 1994
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,116,630 $ 57,376
Accounts receivable, net of allowances
of $297,866 in 1995, and $217,647 in 1994 3,540,346 6,105,323
Income tax receivable 62,182 328,427
Inventory (Note 3) 8,929,939 5,831,497
Prepaid expenses and other current assets 374,847 490,920
Total current assets 14,023,944 12,813,543
Property, Plant and Equipment:
Buildings and improvements 3,373,101 3,845,815
Machinery and equipment 5,723,530 5,538,696
9,096,631 9,384,511
Accumulated depreciation (6,825,212) (6,924,813)
2,271,419 2,459,698
Land 274,267 346,164
Property, plant and equipment, net 2,545,686 2,805,862
Total assets $16,569,630 $15,619,405
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1995 1994
Current Liabilities:
Note payable (Note 8) $ --- $ 1,925,000
Accounts payable 3,076,777 1,922,624
Accrued expenses (Note 7) 634,528 1,234,307
Accrued warranty 99,906 170,535
Total current liabilities 3,811,211 5,252,466
Long-Term Liabilities:
Note payable (Note 8) 3,125,000 ---
Total liabilities 6,936,211 5,252,466
Shareholders' Equity:
Common shares
$1 par value, 25,000,000 shares authorized;
4,052,676 shares issued and outstanding
at December 31, 1995
3,957,736 shares issued and outstanding
at December 31, 1994 4,052,676 3,957,736
Capital in excess of par value 1,096,892 959,545
Retained earnings 4,754,851 5,814,158
Unearned compensation (271,000) (364,500)
Total shareholders' equity 9,633,419 10,366,939
Total liabilities and
shareholders' equity $16,569,630 $15,619,405
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net sales $28,300,514 $33,435,447 $36,010,807
Cost and expenses:
Cost of sales 25,958,265 30,853,367 34,474,558
Selling and administrative
expenses 2,758,444 3,080,301 3,662,234
Other (income) expense,
net (Note 6) 114,886 35,671 (9,682)
Gain on sale of fixed assets (357,774) --- ---
Special charge (Note 9) 886,000 1,200,738 ---
29,359,821 35,170,077 38,127,110
Loss before income taxes (1,059,307) (1,734,630) (2,116,303)
Income tax benefit (Note 4) --- --- (235,000)
Loss before cumulative effect
of change in accounting principle (1,059,307) (1,734,630) (1,881,303)
Cumulative effect of change in
accounting principle --- --- 101,984
Net loss $(1,059,307) $(1,734,630) $(1,779,319)
Per-Share Data:
Loss before cumulative effect
of change in accounting principle $ (0.26) $ (0.45) $ (0.49)
Cumulative effect of change in
accounting principle --- --- 0.03
Net loss $ (0.26) $ (0.45) $ (0.46)
Weighted average common and
common equivalent shares
outstanding 4,015,717 3,882,964 3,840,211
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY
Capital in Total
Common excess of Retained Unearned shareholders
shares par value earnings compensation equity
<S> <C> <C> <C> <C> <C>
Balance,
December 31,1992 $3,833,784 $ 739,397 $9,328,107 $(116,670) $13,784,618
Net loss --- --- (1,779,319) --- (1,779,319)
Stock options exercised 42,325 82,760 --- --- 125,085
Stock repurchased and
retired (16,167) (64,211) --- --- (80,378)
Amortization of unearned
compensation --- --- --- 58,335 58,335
Balance,
December 31,1993 $3,859,942 $ 757,946 $7,548,788 $(58,335) $12,108,341
Net loss --- --- (1,734,630) --- (1,734,630)
Issuance of stock awards 102,000 262,500 --- (364,500) ---
Stock options exercised 17,500 34,063 --- --- 51,563
Cancellation of stock
awards (21,706) (94,964) --- 58,335 (58,335)
Balance,
December 31,1994 $3,957,736 $ 959,545 $ 5,814,158 $(364,500) $10,366,939
Net loss --- --- (1,059,307) --- (1,059,307)
Stock options exercised 116,210 243,154 --- --- 359,364
Stock repurchased and
retired (21,270) (105,807) --- --- (127,077)
Amortization of unearned
compensation --- --- --- 93,500 93,500
Balance,
December 31,1995 $4,052,676 $1,096,892 $ 4,754,851 $(271,000) $9,633,419
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,059,307) $(1,734,630) $(1,779,319)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 489,432 463,884 430,078
Net (gain) loss on sale of fixed assets (357,774) (13,115) 1,005
Amortization (reversal) of unearned
compensation 93,500 (58,335) 58,335
Cumulative effect of change in
accounting principle --- --- (101,984)
Changes in current assets and liabilities:
Income tax receivable 266,245 (87,419) (213,157)
Accounts receivable 2,564,977 (424,843) (817,175)
Inventory (3,098,442) 1,157,360 4,580,699
Prepaid expenses and other current assets 85,322 (8,483) 40,548
Accounts payable 1,154,153 322,806 (2,742,781)
Accrued expenses (765,309) 228,101 405,015
Income taxes payable --- --- (13,135)
Net cash used in operating activities (627,203) (154,674) (151,871)
Cash provided by (used in) investing
activities:
Additions to property, plant and equipment (346,467) (683,077) (616,634)
Proceeds from the disposition of long-term
bond --- 25,000 ---
Proceeds from the disposition of fixed
assets 600,637 --- 58,995
Net cash provided by (used in)
investing activities 254,170 (658,077) (557,639)
Cash provided by financing activities:
Notes payable 1,200,000 725,000 25,000
Proceeds from stock options exercised 359,364 51,563 125,085
Stock repurchased and retired (127,077) --- (80,378)
Net cash provided by financing activities 1,432,287 776,563 69,707
Net increase (decrease) in cash and
cash equivalents 1,059,254 (36,188) (639,803)
Cash and cash equivalents at beginning
of year 57,376 93,564 733,367
Cash and cash equivalents at end of year $ 1,116,630 $ 57,376 $ 93,564
Supplemental cash flows disclosure:
Income taxes paid $ --- $ 108,226 $ 25,000
Interest paid $ 164,566 $ 119,131 $ 132,492
See accompanying notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, commercial paper, certificates of deposit and money market funds,
which have an original maturity of three months or less.
Inventory
Inventory is stated at the lower of cost, determined by the first-in, first-
out (FIFO) method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets.
The approximate range of useful lives is as follows:
Buildings.....15-31 1/2 years Machinery & Equipment.....5-15 years
Revenue Recognition
Revenue from sales of products which the company manufactures are recorded at
time of shipment.
Research and Development
Research and development costs for the years ended December 31, 1995, 1994 and
1993 were $1,506,448, $1,392,620, and $1,610,830, respectively, which were 5.3%,
4.2% and 4.5% of annual sales, respectively.
Net Earnings Per Share
Per-share earnings are computed using the weighted average number of common
shares outstanding and give effect to the dilutive effect of stock options,
where appropriate. The weighted average number of common and common-equivalent
shares for the years 1995, 1994 and 1993 were 4,015,717, 3,882,964, and
3,840,211, respectively.
Income Taxes
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and has reported
the cumulative effect of that change in the method of accounting for income
taxes in the 1993 statement of operations.
Financial Instruments
The fair value of the company's financial instruments does not materially
vary from the carrying value of such instruments.
Use of Estimates
Management of the company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Reclassifications
Where appropriate, certain items relating to the prior years have been
reclassified to conform to the presentation in the current year.
<PAGE>
(2) NATURE OF BUSINESS
The company's primary business is the assembly of electronic components
which consist of video color monitors, data display monitors and bonding of
touch panels. Monitor and data display sales during the period 1995 to 1993
were made through a sales representative firm (James Industries Inc.) whose
Chairman of the Board and principal shareholder is a substantial beneficial
shareholder and director of the company. Commissions earned by James Industries
Inc. for the years ended December 31, 1995, 1994 and 1993 were approximately
$868,000, $1,047,000 and $1,292,000, respectively. Commissions owed to James
Industries Inc. as of December 31, 1995, 1994 and 1993 were approximately
$103,000, $170,000 and $214,000 respectively. Total commissions as a percentage
of sales for the years ended December 31, 1995, 1994 and 1993 were 3.07%, 3.13%
and 3.59%, respectively. Sales to James Industries Inc. for the years ended
December 31, 1995, 1994 and 1993 were approximately $425,000, $2,216,000 and
$2,104,000, respectively. Outstanding accounts receivable due from James
Industries Inc. at December 31, 1995, 1994 and 1993 were $33,000, $535,195 and
$286,869, respectively.
The company had derived 15%, 19% and 15% of total revenue from WMS
Industries, respectively, during 1995, 1994 and 1993. In 1993, the company had
derived 11% of total revenue from Dynamo Corporation. Sales to customers in
foreign countries were 20.1%, 20.0%, and 14.2% in 1995, 1994 and 1993
respectively.
(3) INVENTORY
At December 31, 1995 and 1994, inventory consisted of the following components:
<TABLE>
1995 1994
<S> <C> <C>
Raw materials $ 5,561,981 $ 3,464,327
Work in progress 435,324 434,901
Finished goods 2,932,634 1,932,269
Totals $ 8,929,939 $ 5,831,497
</TABLE>
(4) INCOME TAXES
The income tax provision (benefit) consisted of the following components for
1995, 1994 and 1993:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Current Federal $ --- $ --- $(188,000)
Deferred Federal --- --- ---
Current State --- --- (47,000)
Deferred State --- --- ---
$ --- $ --- $(235,000)
</TABLE>
The provision (benefit) is classified in the statements of operations as
follows:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Operations $ --- $ --- $(235,000)
Extraordinary item -
utilization of loss carryforward --- --- ---
$ --- $ --- $(235,000)
</TABLE>
<PAGE>
The effective income tax rates for 1995, 1994 and 1993 differed from the
expected Federal income tax rate (34%) for the following reasons:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Computed expected tax (benefit) $(360,000) $(590,000) $(720,000)
State income taxes (benefit)
net of Federal tax effect (52,000) (86,000) (47,000)
Other, net 6,000 36,000 1,000
Limitations on the utilization
of tax benefits 406,000 640,000 531,000
$ --- $ --- $(235,000)
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by income tax regulations. Temporary differences which gave
rise to deferred tax assets and liabilities at December 31, 1995 and 1994
consisted of:
<TABLE>
1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful
accounts $ 115,000 $ 84,000
Warranty reserve 39,000 66,000
Inventory reserve 273,000 308,000
Restructure reserve --- 154,000
Deferred compensation 36,000 ---
Contributions carryovers 9,000 ---
Net operating loss 1,332,000 763,000
carryforwards
Alternative minimum tax credit 50,000 43,000
carryforwards
General business credit 129,000 59,000
carryforwards
Other 10,000 7,000
Total gross deferred tax assets 1,993,000 1,484,000
Less valuation allowance (1,798,000) (1,248,000)
Net deferred tax assets 195,000 236,000
Deferred tax liabilities:
Property, plant & equipment,
principally depreciation 195,000 236,000
Net deferred taxes $ --- $ ---
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The net
change in the valuation allowance for the year ended December 31, 1995 was
an increase of $550,000 primarily due to additional net operating loss
carryforwards. At December 31, 1995, the company has net operating loss
carryforwards for Federal income tax purposes of approximately $3,450,000
which are available to offset future Federal taxable income, if any, through
2010. The company also has alternative minimum tax credit carryforwards of
approximately $50,000 which are available to reduce future Federal regular
income taxes, if any, over an indefinite period. In addition, the company
has general business credit carryforwards of approximately $129,000 which are
available to reduce future Federal regular income taxes, if any. These general
business credits are scheduled to expire during 2004 through 2007.
<PAGE>
(5) STOCK PLANS
The company maintains a Non-qualified Option and Stock Award Plan under which
officers and key employees may acquire up to a maximum of 1,400,000 common
shares. This plan currently expires December 31, 2005. Options may be granted
at not less than fair market value on the date of grant and are exercisable not
earlier than six months nor later than ten years from the date of grant. As of
December 31, 1995, 60 persons were eligible to participate in the plan and 33
persons held outstanding options for an aggregate of 277,411 shares with an
average per share option price of $3.38. Such options expire on dates ranging
from September 17, 1996 to January 6, 2005. A summary of the information and
activity of the stock option plan is shown below:
<TABLE>
Outstanding options
Number of Price range Aggregate
shares per share price
<S> <C> <C> <C>
Balance at December 31, 1992 $ 250,128 $ 2.875 - 16.500 $ 1,001,831
Options granted --- --- ---
Options forfeited (10,000) 3.000 - 16.500 (61,698)
Options exercised (42,325) 2.875 - 5.375 (125,085)
Balance at December 31, 1993 197,803 2.875 - 16.500 815,048
Options granted 27,500 3.500 - 3.750 101,250
Options forfeited (11,482) 2.875 - 16.500 (54,087)
Options exercised (17,500) 2.875 - 3.000 (51,563)
Balance at December 31, 1994 196,321 2.875 - 5.375 810,648
Options granted 221,300 2.750 608,575
Options forfeited (24,000) 2.750 - 5.375 (122,434)
Options exercised (116,210) 2.750 - 3.750 (359,364)
Balance at December 31, 1995 $ 277,411 $ 2.750 - 5.375 $ 937,425
</TABLE>
(6) OTHER (INCOME) EXPENSE, NET
Other (income) expense, net consisted of the following:
<TABLE>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Interest expense, net $ 164,566 $ 119,131 $ 132,492
Other income, net (49,680) (83,460) (142,174)
Net other (income) expense, net $ 114,886 $ 35,671 $ (9,682)
</TABLE>
(7) ACCRUED EXPENSES
Accrued expenses are composed of the following:
<TABLE>
December 31,
1995 1994
<S> <C> <C>
Payroll $ 66,376 $ 64,264
Taxes other than on income 124,791 142,481
Sales commissions 102,809 169,513
Insurance 176,922 135,573
Other accrued expenses 163,630 20,155
Special charge --- 702,321
Total $ 634,528 $1,234,307
</TABLE>
(8) NOTE PAYABLE
The note payable consisted of a revolving line of credit balance of $3,125,000
and $1,925,000 at December 31, 1995 and 1994, respectively, bearing interest
at prime (8.50% at December 31, 1995 and 1994). During 1995, the company
entered into a new long-term banking agreement with Harris Trust and Savings
Bank for a $7,000,000 revolving line of credit. This agreement runs through
September 30, 1998. At December 31, 1995 the company had an unused balance of
$3,875,000 on its line of credit. During 1995, the average rate for the
borrowings was 8.77%. The long-term note is uncollateralized with certain
covenant restrictions.
<PAGE>
(9) SPECIAL CHARGE
During 1995, the company incurred a one time charge of $886,000, or 22 cents
per share. This charge related to a warranty issue on monitors shipped to a
major customer from 1991 to 1993. This charge covered all contingent
liabilities which expired December 31, 1995. During 1994, the company incurred
a one time charge of $1,201,000, or 31 cents per share. This charge consisted
of $762,000, or 20 cents per share for management reorganization and $439,000,
or 11 cents per share for phasing out certain products and severance payments
for employee reorganization which consisted of terminating 19 employees. This
reorganization was substantially completed at December 31, 1994.
(10) IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standard No. 121 ("Statement 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", requires that long-lived assets and certain identifiable
intangibles of an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The company is required to comply with Statement 121 in fiscal
year 1996 and estimates that its adoption will not have a material effect on
the financial statements.
Statement of Financial Accounting Standard No. 123 ("Statement 123")
"Accounting for Stock-Based Compensation", will be implemented for the
company's 1996 fiscal year. As allowed by the new Statement, the company
plans to continue to use Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its stock options.
Certain pro forma and other information will be disclosed as if the company had
measured compensation costs in a manner consistent with the new Statement.
Management has reviewed the Statement and expects that its provisions will
not have a material adverse effect on the financial condition or results of
operations of the company.
(11) UNAUDITED QUARTERLY FIANCIAL DATA
Selected quarterly data for 1995 and 1994 are as follows:
(In thousands except per-share data)
<TABLE>
1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Second Third Fourth First Second Third Fourth
Net sales $6,157 $7,784 $7,842 $6,518 $7,622 $8,597 $8,943 $8,273
Net earnings (loss) $ 148 $ 149 $(742) $(614) $(1,265) $(651) $ 112 $ 69
Net earnings (loss)
per share $ 0.04 $ 0.03 $(0.18) $(0.15) $(0.33) $(0.17) $ 0.03 $ 0.02
</TABLE>
INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick LLP
The Board of Directors
Wells-Gardner Electronics Corporation:
We have audited the accompanying balance sheets of Wells-Gardner Electronics
Corporation as of December 31, 1995 and 1994 and the related statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are
the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wells-Gardner Electronics
Corporation at December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in note 1 to the financial statements, effective January 1,
1993, the company changed its method of accounting for income taxes.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
February 16, 1996
<PAGE>
ALBERT S. WELLS, JR.
TO RETIRE FROM THE BOARD OF DIRECTORS
Albert S. Wells, Jr., 75, who has served the company that bears his family's
name for more than half a century, will retire from Wells-Gardner's Board of
Directors following the election of directors at this year's annual meeting,
April 23, 1996. Al has been a Board member for more than 47 years and, before
retiring from active employment in 1990, had served as Chairman of the Board,
Chief Executive Officer, President and Chief Operating Officer.
Al joined the company in 1941, as a buyer and expediter in the purchasing
department. In 1942, he enlisted in the United States Air Force and began as
an instructor in the troop carrier command. He ended his military career as a
pilot and spent over a year and a half in the South Pacific.
During his total of more than 55 years with Wells-Gardner, Al has always set
the highest standards of conduct and performance, both for himself and those
with whom he worked. He has gained the unqualified respect of peers, customers
and suppliers alike. In 1990, the Board of Governors of the Electronics
Industry Association (EIA) voted Al an honorary membership in the EIA for his
distinguish service and outstanding leadership.
It is with mixed emotions that we bid Al farewell. On one hand, he has earned
his retirement, and we wish him the best of luck in his well-deserved break from
the work-a-day world. On the other hand, fellow Board members and all who have
had contact with Al know that his contributions will be missed dearly.
All we can say is....
Thanks, Al. May you meet with as much success in your future endeavors as
you have in the past!
BOARD OF DIRECTORS
Anthony Spier Albert S. Wells, Jr. Allan Gardner
Chairman of the Board, Retired from the Retired from the
President company (1990) company (1988)
and Chief Executive Officer
James J. Roberts, Jr. John R. Blouin Wayne L. Harris
Chairman of the Board President, James Industries, President, Wayne
and Chief Executive Officer, Inc. (Sales representative Harris Company
James Industries, Inc. organization serving the (Appliance
(Sales representative electronics and computer distributor and
organization serving the industries) sales
electronics and computer representative
industries) agency)
William DeNicolo Ernest R. Wish
Founder and Chairman of Director of Revenue
the Board of Telular City of Chicago
Corporation and Chairman
of the Board and President
of DNIC Brokerage Company
OFFICERS
Anthony Spier Richard L. Conquest Randall S. Wells
Chairman of the Board, Vice President of Finance Executive Vice
President and Chief Financial Officer President and General
Chief Executive Officer and Secretary Manager
Larry S. Mahl John S. Pircon Kathleen E. Hoppe
Director of Material Vice President of Marketing Director of
and Engineering Management
Information Systems
Mark E. Komorowski Eugene C. Ahner
Director of Service Director of Human Resources
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Wells-Gardner Electronics Corporation:
We consent to incorporation by reference in the Registration
Statements on Form S-8 (#2-72090, #2-09137, #33-63920 and
#33-61535) of Wells-Gardner Electronics Corporation of our
reports dated February 16, 1996, relating to the balance
sheets of Wells-Gardner Electronics Corporation as of
December 31, 1995 and 1994, and the related statements of
operations, shareholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1995,
and the related schedules, which reports are included in or
incorporated by reference in the December 31, 1995 annual
report on Form 10-K of Wells-Gardner Electronics Corporation
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
March 19, 1996
<PAGE>
Independent Auditors' Report
The Board of Directors
Wells-Gardner Electronics Corporation:
Under date of February 16, 1996, we reported on the balance
sheets of Wells-Gardner Electronics Corporation (Company)
as of December 31, 1995 and 1994, and the related
statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended
December 31, 1995, which are included in the 1995 annual
report to shareholders. These financial statements and our
report thereon are incorporated by reference in the annual
report on Form 10-K of Wells-Gardner Electronics
Corporation. In connection with our audits of the
aforementioned financial statements, we also audited the
related financial statement schedule in the annual report
on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedules, when considered
in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
February 16, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1117
<SECURITIES> 0
<RECEIVABLES> 3540
<ALLOWANCES> 298
<INVENTORY> 8930
<CURRENT-ASSETS> 14024
<PP&E> 9371
<DEPRECIATION> 6825
<TOTAL-ASSETS> 16570
<CURRENT-LIABILITIES> 3811
<BONDS> 0
0
0
<COMMON> 4053
<OTHER-SE> 5580
<TOTAL-LIABILITY-AND-EQUITY> 16570
<SALES> 28301
<TOTAL-REVENUES> 28301
<CGS> 25958
<TOTAL-COSTS> 29080
<OTHER-EXPENSES> 115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> (1059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1059)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
