UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________ to ____________
Commission File Number 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 No.)
incorporation or organization)
2701 North Kildare Avenue, Chicago, Illinois 60639
(Address of principal executive offices) (Zip Code)
(773) 252-8220
(Registrant's telephone number, including area code)
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
As of October 31, 1997, 4,210,883 shares of the Common Stock, $1.00
par value of the registrant were outstanding.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
FORM 10-Q
For Quarter Ended September 30, 1997
PART I - FINANCIAL INFORMATION
Item 1.
Index to Financial Statements:
Condensed Statements of Earnings
- Three Months Ended September 30, 1997 & 1996 (Unaudited)
- Nine Months Ended September 30, 1997 & 1996 (Unaudited)
Condensed Balance Sheets
- September 30, 1997 (Unaudited) & December 31, 1996 (Audited)
Condensed Statements of Cash Flows
- Nine Months Ended September 30, 1997 & 1996 (Unaudited)
Notes to the Condensed Financial Statements
Item 2.
Management's Discussion & Analysis of Financial Condition & Results
of Operations
PART II - OTHER INFORMATION
Item 6.
Exhibits & Reports on Form 8-K
SIGNATURE
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Earnings
(Unaudited)
Three Months Ended September 30,
1997 1996
<S> <C> <C>
Net sales $ 10,555,000 $ 7,950,000
Cost of sales 9,018,000 6,582,000
Engineering, selling &
administrative expenses 1,317,000 1,188,000
Other expense, net 32,000 16,000
Total costs 10,367,000 7,786,000
Earnings before income taxes 188,000 164,000
Income taxes --- ---
Net earnings $ 188,000 $ 164,000
Earnings per share:
Net earnings per share $ 0.04 $ 0.04
Weighted average common &
common equivalent shares
outstanding 4,370,703 4,065,637
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statement of Earnings
(Unaudited)
Nine Months Ended September 30,
1997 1996
<S> <C>
Net sales $ 32,674,000 $ 27,537,000
Cost of sales 27,671,000 23,204,000
Engineering, selling &
administrative expenses 4,247,000 3,727,000
Other expense, net 11,000 26,000
Total costs 31,929,000 26,957,000
Earnings before income taxes 745,000 580,000
Income taxes --- ---
Net earnings $ 745,000 $ 580,000
Earnings per share:
Net earnings per share $ 0.18 $ 0.14
Weighted average common &
common equivalent shares
outstanding 4,247,463 4,060,129
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Balance Sheets
September 30, December 31,
1997 1996
(Unaudited) (Audited)
<S> <C> <C> <C> <C>
Assets:
Cash & cash equivalents $ 129,000 $ 57,000
Accounts receivable (net) 6,566,000 3,896,000
Note receivable 103,000 ---
Inventory:
Raw materials 4,525,000 4,670,000
Work in progress 2,104,000 598,000
Finished goods 1,371,000 2,076,000
8,000,000 7,344,000
Prepaids & other current assets 255,000 450,000
Total current assets 15,053,000 11,747,000
Property, plant & equipment, net 2,298,000 2,378,000
Total assets $ 17,351,000 $ 14,125,000
Liabilities:
Accounts payable $ 3,640,000 $ 1,763,000
Accrued expenses 811,000 967,000
Total current liabilities 4,451,000 2,730,000
Long-term note payable 1,675,000 1,300,000
Total liabilities 6,126,000 4,030,000
Shareholders' Equity:
Common stock-authorized 25,000,000
shares, $1.00 par value; 4,197,383
shares issued as of September 30,
1997 & 4,068,426 shares issued as
of December 31, 1996 4,197,000 4,068,000
Additional paid in capital 1,378,000 1,159,000
Retained earnings 5,903,000 5,158,000
Unearned compensation (253,000) (290,000)
Total shareholders' equity 11,225,000 10,095,000
Total liabilities &
shareholders' equity $ 17,351,000 $ 14,125,000
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 745,000 $ 580,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 294,000 341,000
Amortization of unearned compensation 166,000 (33,000)
Changes in current assets & liabilities:
Accounts receivable (2,670,000) (1,653,000)
Note receivable (103,000) ---
Income taxes --- 2,000
Inventory (656,000) 559,000
Prepaid expenses & other current assets 195,000 186,000
Accounts payable 1,877,000 (482,000)
Accrued expenses (156,000) (270,000)
Net cash used in operating activities (308,000) (770,000)
Cash used in investing activities:
Additions to property, plant & equipment (214,000) (239,000)
Net cash used in investing activities (214,000) (239,000)
Cash provided by (used in) financing activities:
Borrowings (repayments) - note payable 375,000 (125,000)
Proceeds from stock options exercised 219,000 69,000
Net cash provided by (used in) financing activities 594,000 (56,000)
Net increase (decrease) in cash & cash equivalents 72,000 (1,065,000)
Cash & cash equivalents at beginning of period 57,000 1,117,000
Cash & cash equivalents at end of period $ 129,000 $ 52,000
Supplemental cash flow disclosure:
Interest paid $ 165,000 $ 181,000
Taxes paid $ --- $ ---
See accompanying notes to the unaudited condensed financial statements.
</TABLE>
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
Notes to the Condensed Financial Statements
1. In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of normal
recurring accruals), which are necessary for a fair statement of
results for the periods presented. Certain information and footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These condensed financial statements should be
read in conjunction with the audited financial statements and notes
thereto included in the Company's 1996 Annual Report to shareholders.
The results of operations for the quarter and nine months ended
September 30, 1997 are not necessarily indicative of the operating
results for the full year.
2. Earnings per common and common equivalent shares were calculated by
dividing net earnings by the weighted average number of shares of
common stock and common stock equivalents outstanding.
Item 2. Management's Discussion & Analysis of Financial Condition &
Results of Operations
Third Quarter & Nine Month Earnings Ended September 30, 1997 & 1996
For the third quarter ended September 30, 1997, net sales increased
32.8 percent to $10,555,000 from $7,950,000 in the prior year's
period. This increase was due to higher shipments to the gaming,
amusement and service applications. Gross operating profit (net sales
less cost of sales), as a percentage of sales, decreased to 14.6
percent, or $1,537,000, compared to 17.2 percent, or $1,368,000, for
the same period last year. This decrease was caused by two events
which occurred during the quarter. First, the Company's largest CRT
supplier unexpectedly stopped production of its highest volume CRT and
the emergency substitute products cost the Company $78,000. Second,
the Company incurred additional expenses procuring materials to meet
the demands of the unforeseen increased sales volume. Engineering,
selling and administrative expenses increased 10.9 percent to
$1,317,000 from $1,188,000 due to increased research and development
of new products and higher sales commissions paid on increased sales
volume. The Company did not recognize any income tax expense in the
1997 period due to the utilization of its net operating loss
carryforward. Net earnings were $188,000, or four cents per share,
compared to net earnings of $164,000, or four cents per share, for the
comparable 1996 quarter.
For the nine months ended September 30, 1997, net sales increased 18.7
percent to $32,674,000 from $27,537,000 in the prior year's period.
This increase was due to higher shipments to the amusement,
leisure/fitness, bartop, gaming and service applications. Gross
operating profit (net sales less cost of sales), as a percentage of
sales, decreased slightly to 15.3 percent, or $5,003,000, compared to
15.7 percent, or $4,333,000, for the same period last year.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
Engineering, selling and administrative expenses increased 13.9
percent to $4,247,000 from $3,727,000 due to increased research and
development of new products and higher sales commissions paid on
increased sales volume. The Company did not recognize any income tax
expense in the 1997 period due to the utilization of its net operating
loss carryforward. Net earnings were $745,000, or 18 cents per share,
compared to net earnings of $580,000, or 14 cents per share, for the
comparable 1996 period.
Liquidity & Capital Resources
As of September 30, 1997, cash and cash equivalents increased $72,000
from year end 1996. The Company uses a sweep account on a daily basis
to minimize its cash on hand which reduces its outstanding balance on
its line of credit and minimizes interest expense. Accounts
receivable increased $2,670,000 to $6,566,000 from $3,896,000 due to
the 32.8 percent increase in sales volume during the third quarter of
1997. Receivable days averaged 44 which remain unchanged from the end
of 1996.
During the third quarter of 1997, the Company entered into an
agreement with James Industries whereby the Company agreed to sell
products on extended terms in exchange for a promissory note.
Shipments under this agreement began in September, 1997 and should be
fully completed in the fourth quarter of 1997. The note carries
interest at a rate of prime plus 200 basis points and is personally
guaranteed by John Blouin, President of James Industries.
Inventory increased $656,000 to $8,000,000 from $7,344,000 at year end
1996. The management of inventory improved as inventory turns
increased to 4.56 from 4.28 at year end 1996. The Company's backlog
was approximately 27,000 monitors representing approximately three
months sales. It is the Company's experience that over 90 percent of
backlog results in revenue recognition.
As of September 30, 1997, accounts payable increased $1,877,000 to
$3,640,000 from $1,763,000 at year end 1996 due to the Company's
increased purchases based on its higher sales volume during the third
quarter of 1997. Accrued expenses decreased $156,000 to $811,000 from
$967,000 at year end 1996. Notes payable increased $375,000 to
$1,675,000 compared to $1,300,000 at December 31, 1996. This increase
was attributed to funding a higher sales volume and inventory level.
The Company has an unsecured revolving line of credit of $7,000,000,
with an interest rate at prime, from Harris Trust and Savings Bank
which has been extended to the year 2000. Working capital increased
by $1,585,000 since year-end 1996, to $10,602,000, shareholders'
equity improved to $2.67 per share and corporate liquidity continues
to be strong as evidenced by a current ratio of 3.38 to 1.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
Forward Looking Statements
Because the Company wants to provide shareholders and potential
investors with more meaningful and useful information, this report may
contain certain forward-looking statements (as such term is defined in
the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended) that reflect the Company's current
expectations regarding the future results of operations, performance
and achievements of the Company. Such forward-looking statements are
subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. The Company has tried, wherever
possible, to identify these forward-looking statements by using words
such as "anticipate", "believe", "estimate", "expect" and similar
expressions. These statements reflect the Company's current beliefs
and are based on information currently available to it. Accordingly,
these statements are subject to certain risks, uncertainties and
assumptions which could cause the Company's future results,
performance or achievements to differ materially from those
expressed in, or implied by, any of these statements which are more
fully described in our Securities and Exchange Commission filings.
The Company undertakes no obligation to release publicly the results
of any revisions to any such forward-looking statements that may be
made to reflect events or circumstances after the date of this Report
or to reflect the occurrence of unanticipated events.
PART II - OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits:
Exhibit 10.1 Promissory Note dated August 15, 1997, between
James Industries, Jim Roberts and the Company.
Exhibit 10.2 Guaranty Agreement dated August 15, 1997,
between John Blouin and the Company.
Exhibit 10.3 Amended and Restated Sales Representative
Agreement dated August 15, 1997.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
<PAGE>
WELLS-GARDNER ELECTRONICS CORPORATION
SIGNATURES
Pursuant to the requirements 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
Date: November 7, 1997 By: George B. Toma CPA, CMA
Its:Vice President of Finance,
Chief Financial Officer and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the balance sheet at September 30, 1997 (Unaudited) and the
Statement of Operations for the Nine Months Ended September 30,
1997 (Unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 6,669
<ALLOWANCES> 269
<INVENTORY> 8,000
<CURRENT-ASSETS> 15,053
<PP&E> 9,870
<DEPRECIATION> 7,572
<TOTAL-ASSETS> 17,351
<CURRENT-LIABILITIES> 4,451
<BONDS> 0
0
0
<COMMON> 4,197
<OTHER-SE> 7,028
<TOTAL-LIABILITY-AND-EQUITY> 17,351
<SALES> 32,674
<TOTAL-REVENUES> 32,674
<CGS> 27,671
<TOTAL-COSTS> 4,247
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> 745
<INCOME-TAX> 0
<INCOME-CONTINUING> 745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 745
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
PROMISSORY NOTE
$696,109.00 August 15, 1997
This PROMISSORY NOTE (the "Note") is made as of the date stated
hereinabove by JAMES INDUSTRIES, INC., an Illinois corporation
("Industries"), with a mailing address at 1619 Colonial Parkway,
Inverness, Illinois 60067, and JAMES J. ROBERTS, JR., an individual
("Roberts"), with a mailing address at 1670 Pheasant Trail, Inverness,
Illinois 60067, (Industries and Roberts hereinafter are referred to
individually as a "Borrower" and collectively as the "Borrowers"), to
order of WELLS-GARDNER ELECTRONICS CORPORATION, an Illinois corporation
("Lender"), with an office at 2701 North Kildare Avenue, Chicago,
Illinois 60639.
I
PAYMENT
For Value Received, Borrowers hereby jointly and severally promise
to pay to the order of Lender, at Lender's office at the address stated
hereinabove or such other place as Lender may from time to time
designate in writing to Borrowers, the principal amount of SIX HUNDRED
NINETY SIX THOUSAND ONE HUNDRED NINE DOLLARS AND NO/100THS ($696,109.00)
(the "Loan") or so much thereof as may now or hereafter be disbursed by
Lender to or for the benefit of Borrowers, together with interest as
provided hereinbelow, all in lawful money of the United States of
America, as follows:
1.1 Interest in Installments. Interest only on the unpaid
principal balance of the Loan from time to time, at an annual interest
rate (the "Interest Rate") equal to two percent (2.0%) in excess of the
"Prime Rate" (as that term is hereinafter defined) in effect from time
to time, shall be due and payable in installments commencing on the
month immediately succeeding the first disbursement of the Loan on the
day on which the "Monthly Commission" (as defined in that certain Sales
Representative Agreement effective as of January 1, 1996 between
Borrowers and Lender (the "Sales Representative Agreement")) is paid to
Industries (a "Monthly Commission Payment Date"), and continuing on the
next succeeding Monthly Commission Payment Date of
each and every succeeding month thereafter until the "Maturity Date" (as
that term is hereinafter defined), at which time all accrued and unpaid
interest shall be due and payable. The term "Prime Rate", as used in
this Note, means the rate per annum then most recently announced by
Harris Trust and Savings Bank as its prime lending rate at Chicago,
Illinois, from time to time (or if such rate is not being quoted, the
rate which is the successor to such rate, and if no successor is being
quoted, the rate conceptually equivalent to such rate which the domestic
commercial bank having the highest combined capital and surplus of any
bank having its principal office in Chicago, Illinois). The prime
<PAGE>
lending rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer. Interest
hereunder shall be calculated on the basis of the actual number of days
elapsed during the period for which interest is being charged hereunder,
predicated on a year consisting of three hundred and sixty (360) days.
1.2 Principal Payments. In addition to the payments of interest
described above, Borrowers jointly and severally promise to pay to
Lender additional principal payments, each in reduction of the
outstanding principal balance of the Loan, commencing on the month
immediately succeeding the first disbursement of the Loan on the Monthly
Commission Payment Date, and continuing on the next succeeding Monthly
Commission Payment Date of each and every succeeding month thereafter
until the "Maturity Date" (as that term is hereinafter defined), in an
amount equal to the greater of (a) $22,625.24 and (b) thirty percent
(30%) of the amount of the commission payable to Industries by Lender
during such month.
1.3 Method of Payment. On the date a principal and interest
payment is due under Paragraphs 1.1 and 1.2 above, Borrowers shall pay
the amount of such payments to Lender, in immediately available funds at
the address of the Lenders specified above, provided, however, to the
extent available, Lender shall reduce the amount of the Monthly
Commission paid to Industries in the amount of such sums owed to Lender
under this Note and apply such sums to the Loan as set forth in
Paragraph 1.5.
1.4 Principal at Maturity. The entire unpaid principal balance of
the Loan shall be due and payable on October 15, 2000 (the "Maturity
Date").
1.5 Application of Payments Prior to Default. Prior to the
Lender's invocation of the terms and provisions of Paragraph 2.4 hereof,
all monies paid by Borrowers to Lender shall be applied in the following
order of priority: (a) first, toward payment of other fees and sums due
to Lender pursuant to Paragraph 2.5 or other provisions hereof or
pursuant to the provisions of any other documents securing repayment of
the Loan; (b) next, toward payment of interest which has accrued on the
outstanding principal balance of the Loan and which is due and payable;
and (c) last, toward payment of the outstanding principal balance of the
Loan.
1.6 Prepayments. This Note may be prepaid, in whole or in part,
at any time. Any payment made under this paragraph shall be applied as
set forth in Paragraph 1.5.
<PAGE>
II
SECURITY, DEFAULTS AND REMEDIES
2.1 Security for Payment. Payment of this Note is secured by the
Guaranty Agreement of even date herewith between John Blouin and Lender
(the "Guaranty") (the Guaranty and all other documents or instruments
executed in connection with the Note or the Guaranty hereinafter
referred to as the "Loan Documents").
2.2 Events of Default. The occurrence of any of the following
shall constitute an "Event of Default": (a) the failure of Borrowers to
pay any sum on the date such sum becomes due and payable under this
Note, including, without limitation, interest or principal or both and
either as an installment or on the Maturity Date, (b) either Borrower
has committed a material breach of the Sales Representative Agreement,
(c) either Borrower or Guarantor (as defined in the Guaranty) shall
(i) generally not be paying its debts as they become due, (ii) file, or
consent, by answer or otherwise, to the filing against it of a petition
for relief or reorganization or arrangement or any other petition in
bankruptcy or insolvency under the laws of any jurisdiction, (iii) make
an assignment for the benefit of creditors, (iv) consent to the
appointment of a custodian, receiver, trustee or other officer with
similar powers for it, or for any substantial part of its property, or
(v) be adjudicated insolvent, or (d) if any governmental body of
competent jurisdiction shall enter an order appointing, without consent
of the applicable Borrower or Guarantor, a custodian, receiver, trustee
or other officer with similar powers with respect to such Borrower or
Guarantor, or with respect to any substantial part of the property
belonging to any such person, or if an order for relief shall be entered
in any case or proceeding for liquidation or reorganization or otherwise
to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation of
such Borrower or Guarantor or if any petition for any such relief shall
be filed against either Borrower or Guarantor and such petition shall
not be dismissed or stayed within 60 days.
2.3 Acceleration of Maturity. At any time during the existence of
any Event of Default under Paragraphs 2.2(a) or 2.2(b), and at the
option of the Lender, the entire unpaid principal balance under this
Note, together with interest accrued thereon and all other sums due from
Borrowers hereunder or under any of the other Loan Documents, shall
become immediately due and payable without notice. At any time during
the existence of an Event of Default under Paragraphs 2.2(c) or 2.2(d),
the entire unpaid principal balance under this Note, together with
interest accrued thereon and all other sums due from Borrowers hereunder
or under any of the other Loan Documents, shall become immediately due
and payable without notice.
<PAGE>
2.4 Default Interest Rate. While any Event of Default exists,
Borrowers jointly and severally promise to pay interest on the unpaid
principal balance of the Loan from time to time, at a rate (the "Default
Interest Rate") equal to the Interest Rate plus four percent (4.00%) per
annum, and all unpaid interest that has accrued under this Note, whether
before or after the occurrence of the Event of Default, shall be paid at
the time of, and as a condition precedent to, the curing of the Event of
Default. While any Event of Default exists, Lender is expressly
authorized to apply payments made under this Note as it may elect
against (a) any or all amounts, or portions thereof, then due and
payable hereunder or under any of the other Loan Documents, (b) the
unpaid principal balance of the Loan, or (c) any combination thereof.
2.5 Attorneys' Fees. If any attorney is engaged (a) to collect
the indebtedness evidenced hereby or due under the other Loan Documents,
whether or not legal proceedings are thereafter instituted by Lender;
(b) to represent Lender in any bankruptcy, reorganization, receivership,
or other proceedings affecting creditor's rights and involving a claim
under this Note; (c) to protect the lien of any of the Loan Documents;
or (d) to represent Lender in any other proceedings whatsoever in
connection with any of the Loan Documents, then Borrowers shall pay to
Lender all reasonable attorneys' fees and expenses in connection
therewith, in addition to all other amounts due hereunder.
2.6 Nature of Remedies. Lender's remedies under this Note and all
of the other Loan Documents shall be cumulative and concurrent and may
be pursued singly, successively, or together against any or all of
Borrowers and any other "Obligors" (as that term is hereinafter defined)
and any other security described in the Loan Documents or any portion or
combination of such security, and Lender may resort to every other right
or remedy available at law or in equity without first exhausting the
rights and remedies contained herein, all in Lender's sole discretion.
Failure of Lender, for any period of time or on more than one occasion,
to exercise its option to accelerate the Maturity Date shall not
constitute a waiver of the right to exercise the same at any time during
the continued existence of the Event of Default or in the event of any
subsequent Event of Default. Lender shall not by any other omission or
act be deemed to waive any of its rights or remedies hereunder unless
such waiver is in writing and signed by Lender, and then only to the
extent specifically set forth therein. A waiver in connection with one
event shall not be construed as continuing or as a bar to or as a waiver
of any right or remedy in connection with a subsequent event.
<PAGE>
III
CONDITIONS
The obligation of Lender to make the Loan hereunder is subject to
the following conditions precedent or concurrent:
3.1 Financial Statements. Lender shall have received, in form and
substance satisfactory to Lender, balance sheets, statements of
operations, statements of shareholders' equity, statements of changes in
financial position and any other financial data (including projections)
for each Borrower which have been requested by Lender. Each of the
foregoing shall have been prepared in accordance with GAAP consistently
applied throughout the periods involved and do and will present fairly
the financial condition of the entities involved as of the dates thereof
and the results of their operations for the periods covered thereby.
3.2 Guaranty Agreement. Lender shall have received, in form and
substance satisfactory to Lender, a duly executed Guaranty Agreement of
even date herewith made by John Blouin in favor of Lender.
3.3 Purchase Order. Industries shall have provided to Lender a
Purchase Order evidencing the purchase by Industries of 2,171 open-frame
monitors, Wells-Gardner model number WGM2752-U0GS37F, at a price of $334
per unit.
3.4 Secretary's Certificate for Industries. Lender shall have
received, in form and substance satisfactory to Lender, a certificate of
the Secretary of Industries certifying as true, correct and complete,
(a) resolutions of Industries authorizing the execution, delivery and
performance by Industries of this Note; (b) the articles of
incorporation of Industries; (c) the by-laws of Industries; and (d) the
names of the individuals authorized to sign this Note, together with a
sample of the true signature of each such individual.
3.5 Good Standing Certificates. Lender shall have received, in
form and substance satisfactory to Lender, a certificate of good
standing for Industries from the State of Illinois.
<PAGE>
III
OTHER MATTERS
4.1 Notices. Any notices and other communications provided for
hereunder shall be made by telegram, telex, electronic transmitter,
overnight air courier, or certified or registered mail, return receipt
requested, and shall be deemed to be received by the party to whom sent
one (1) Business Day after sending, if sent by telegram, telex,
electronic transmitter, or overnight air courier, and three (3) Business
Days after mailing, if sent by certified or registered mail. All such
notices and other communications to a party shall be addressed to such
party at the address set forth on the initial page hereof or to such
other address as such party may designate for itself in a notice to the
other party given in accordance with this section.
4.2 Governing Law. THIS NOTE AND THE TRANSACTIONS EVIDENCED
HEREBY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE
STATE WHERE THE OFFICE OF THE SECURED PARTY IS LOCATED, AS REFLECTED ON
THE INITIAL PAGE HEREOF, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS, AS THE SAME MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT
LIMITATION, THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN SUCH STATE.
4.3 Waivers, Consents, Etc. Borrower, each guarantor hereof, if
any, and any and all others who are now or may become liable for all or
part of the obligations of Borrowers under this Note (all of the
foregoing being referred to herein collectively as "Obligors") agree to
be jointly and severally bound hereby and jointly and severally (a)
waive and renounce any and all redemption and exemption rights and the
benefit of all valuation and appraisement privileges against the
indebtedness evidenced hereby or by any extension or renewal hereof;
(b) waive presentment and demand for payment, notices of nonpayment and
of dishonor, protest of dishonor, and notice of protest; (c) waive all
notices in connection with the delivery and acceptance hereof and,
except as expressly provided to the contrary herein or in the Loan
Documents, all other notices in connection with the performance,
default, or enforcement of the payment hereof or hereunder; (d) waive
any and all lack of diligence and delays in the enforcement of the
payment hereof; (e) agree that the liability of each of Obligors shall
be unconditional and without regard to the liability of any other person
or entity for the payment hereof, and shall not in any manner be
affected by any indulgence or forbearance granted or consented to by
Lender with respect hereto; (f) consent to any and all extensions of
time, renewals, waivers, or modifications that may be granted by Lender
with respect to the payment or other provisions hereof, and to the
release of any security at any time given for the payment hereof, or any
part thereof, with or without substitution, and to the release of any
person or entity liable for the payment hereof; (g) waive any and all
right to have any issues, claims, causes of action or other matters
arising out of or related to this Note adjudicated at a trial by jury
and hereby agree to have all such matters adjudicated at a bench trial
<PAGE>
before a court of competent jurisdiction; and (g) consent to the
addition of any and all other makers, endorsers, guarantors, and other
obligors for the payment hereof, and to the acceptance of any and all
other security for the payment hereof, and agree that the addition of
any such obligors or security shall not affect the liability of any of
Obligors for the payment hereof.
4.4 Interpretation. The headings of sections and paragraphs in
this Note are for convenience only and shall not be construed to limit
or define the content, scope, or intent of the provisions hereof. As
used in this Note, the singular shall include the plural, and masculine,
feminine, and neuter pronouns shall be fully interchangeable, where the
context so requires. If any provision of this Note, or any paragraph,
sentence, clause, phrase, or word, or the application thereof, in any
circumstances, is adjudicated to be invalid, the validity of the
remainder of this Note shall be construed as if such invalid part were
never included herein. Time is of the essence of this Note.
4.5 Business Loan. Borrowers hereby represent that (i) the
proceeds of the Loan will be used for the purposes specified in Chapter
815 ILCS Article 205, Section 4(1)(c), as amended, (ii) the indebtedness
evidenced hereby constitutes a "business loan" within the purview of
that Section, and (iii) the Loan will be used exclusively for "business
purposes" within the meaning ascribed to such term under Section 226.3
of Regulation Z of Chapter 12 of the Code of Federal Regulations, and
not for any "personal, family or household purposes" within the meaning
of such Regulation.
4.6 Interest Laws. It being the intention of Lender and Borrowers
to comply with the laws of the State of Illinois, it is agreed that
notwithstanding any provision to the contrary in this Note or any of the
other Loan Documents, no such provision shall require the payment or
permit the collection of any amount ("Excess Interest") in excess of the
maximum amount of interest permitted by law to be charged for the use or
detention, or the forbearance in the collection, of all or any portion
of the indebtedness evidenced by this Note. If any Excess Interest is
provided for, or is adjudicated to be provided for, in this Note or any
of the other Loan Documents, then in such event (a) the provisions of
this paragraph shall govern and control; (b) neither Borrower nor any of
the other Obligors shall be obligated to pay any Excess Interest; (c)
any Excess Interest that Lender may have received hereunder shall, at
the option of Lender, be (i) applied as a credit against the then
outstanding principal balance of the Loan, accrued and unpaid interest
thereon not to exceed the maximum amount permitted by law, or both, (ii)
refunded to the payor thereof, or (iii) any combination of the
foregoing; (d) the applicable interest rate or rates hereunder shall be
automatically subject to reduction to the maximum lawful contract rate
allowed under the applicable usury laws of the aforesaid State, and this
Note and the other Loan Documents shall be deemed to have been, and
shall be, reformed and modified to reflect such reduction in such
applicable interest rate or rates; and (e) neither Borrower nor any of
the other Obligors shall have any action against Lender for any damages
whatsoever arising out of the payment or collection of any Excess
Interest.
<PAGE>
4.7 Subsequent Holders. Upon any endorsement, assignment, or
other transfer of this Note by Lender or by operation of law, the term
"Lender," as used herein, shall mean the endorsee, assignee, or other
transferee or successor to Lender then becoming the holder of this Note.
4.8 Subsequent Obligors. This Note and all provisions hereof
shall be binding on all persons claiming under or through Borrower. The
terms "Borrower" and "Obligors," as used herein, shall include the
respective successors, assigns, legal and personal representatives,
executors, administrators, devisees, legatees, and heirs of Borrowers
and any other Obligors.
4.9 Setoff. Lender shall have all rights of set-off provided by
applicable law, and in addition thereto, at any time any Event of
Default exists, Lender may apply to the payment of such payment or other
amount due any and all balances, credits, deposits, accounts or moneys
of Borrowers (including any commissions owed to either Borrower) then or
thereafter held by Lender.
In Witness Whereof, each of the undersigned has caused this Note to
be executed as of the date first written hereinabove.
JAMES INDUSTRIES, INC.
By: James Roberts Jr.
Name: James Roberts
Title: CEO
James J. Roberts Jr.
JAMES J. ROBERTS, JR. an individual
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (the "Guaranty") is made as of August 15,
1997 by JOHN BLOUIN, an individual ("Guarantor"), with a residence at 56
Carriage House Lane, Orland Park, Illinois 60462, in favor of WELLS-
GARDNER ELECTRONICS CORPORATION, an Illinois corporation, with an office
at 2701 North Kildare Avenue, Chicago, Illinois 60639 ("Secured Party").
Preliminary Statements:
A. As of the date of this Guaranty, James Industries, Inc., an
Illinois corporation, ("Industries"), James J. Roberts, Jr., an
individual ("Roberts") (Industries and Roberts hereinafter are referred
to collectively as the "Debtors"), and the Secured Party have entered
into a Promissory Note of even date herewith (the "Note").
B. Pursuant to the Note and Loan Documents (as defined in the
Note), the Secured Party has agreed to extend credit to the Debtors
conditioned upon the Guarantor's agreement to execute and deliver this
Guaranty to the Secured Party.
C. The Guarantor has independently determined that execution,
delivery, and performance of this Guaranty will directly benefit it and
is in the best interests of the Guarantor.
NOW, THEREFORE, in consideration of these background recitals, and
for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound
hereby, the Guarantor and the Secured Party agree as follows:
1. Reference to the Note and the Loan Documents.
(A) Reference is hereby made to the Note and the Loan Documents
for a statement of the terms and conditions thereof.
(B) All capitalized terms utilized in this Guaranty which are
defined in the Note or the Loan Documents and not otherwise defined
herein shall have the meanings assigned to them in the Note or the Loan
Documents.
2. Guaranty of Payment and Performance; Indemnification.
(A) The Guarantor hereby irrevocably, absolutely, and
unconditionally guarantees and becomes surety for the full and prompt
payment to the Secured Party when due, whether by acceleration or
otherwise, of any and all indebtedness of the Debtors to the Secured
Party arising out of the Note, including, without limitation, all
extensions, renewals, and replacements of such indebtedness:
<PAGE>
(i) whether such indebtedness is for principal, interest,
fees, costs, expenses, or otherwise;
(ii) whether such indebtedness exists now or is hereafter
incurred; and
(iii) whether such indebtedness is direct, indirect, related,
unrelated, similar, dissimilar, primary, absolute, secondary,
contingent, secured, unsecured, matured, or unmatured.
(B) The Guarantor hereby irrevocably, absolutely and
unconditionally guarantees and becomes surety for the due, full, prompt,
and unconditional performance of all present and future obligations and
agreements of every kind of the Debtors to or with the Secured Party
arising out of the Note or the other Loan Documents. The indebtedness,
obligations and agreements enumerated in Sections 2(A) and (B) of this
Guaranty shall be collectively referred to herein as the "Obligations".
(C) The Guarantor hereby acknowledges and agrees that:
(i) although applicable bankruptcy or insolvency laws may
relieve all or part of the Debtor's obligations for interest, default
interest, fees, costs, or expenses under the Note or the Loan Documents
or otherwise, the Guarantor shall continue to be liable for such
obligations as if bankruptcy or insolvency of the Debtors had not
occurred;
(ii) the Obligations of the Guarantor under this Guaranty may
exceed allowable obligations of the Debtors to the Secured Party under
such bankruptcy and insolvency laws; and
(iii) to this extent, the Guarantor's liability to the Secured
Party hereunder may not be co-extensive with the Debtor's liability to
the Secured Party under the Note, the Loan Documents or otherwise.
3. Nature of Guaranty; Termination.
(A) This Guaranty is a continuing guaranty of the Obligations
(irrespective of the aggregate amount thereof), independent of and in
addition to any other guaranty, endorsement, surety agreement,
collateral, or other agreement held by the Secured Party for the
Obligations or any part thereof, whether executed or granted by the
Guarantor or otherwise. The liability of the Guarantor hereunder shall
be absolute and unconditional irrespective of, and the Guarantor waives
any defense which may otherwise act as a result of, any of the
following:
(i) any lack of validity or enforceability of the Note or
any Loan Documents or any other document, agreement, or writing creating
or evidencing any of the Obligations, including, without limitation, the
lack of validity or enforceability of all or any portion of any liens or
security interests securing all or any part of the Obligations; or
<PAGE>
(ii) any event or circumstance which might operate under
applicable law to discharge the liability of the Guarantor hereunder or
might otherwise constitute or give rise to a defense available to the
Debtors, the Guarantor, or any other guarantor of any of the
Obligations.
(B) This Guaranty is a guaranty of payment, not of collection.
(C) This Guaranty shall remain in full force and effect until all
of the Obligations and other fees, costs, and expenses payable by the
Guarantor pursuant to Section 4 hereof have been paid or performed in
full and the Secured Party has no further obligation or commitment to
the Debtors to advance funds under the Note or the Loan Documents or
otherwise. This Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment of any of the
Obligations is rescinded, voided, or rendered void or voidable as a
preferential transfer, impermissible set-off, or fraudulent conveyance
or must otherwise be returned or disgorged by the Secured Party, as if
such rescinded, avoided, voided, or voidable payment had not been made.
4. Costs and Expenses.
The Guarantor agrees to pay on demand all fees, costs, and expenses
of every kind incurred by the Secured Party for any purpose arising
from, relating to, or in connection with the Obligations, the Debtor, or
this Guaranty, including, without limitation, fees, costs, and expenses
incurred by the Secured Party in enforcing this Guaranty, including
without limitation attorney's fees and costs, in collecting any
Obligations from the Debtors or the Guarantor, or in realizing upon or
protecting the Collateral or any collateral securing all or any part of
the Obligations or this Guaranty.
5. Waivers of the Guarantor.
(A) The Guarantor hereby agrees that the Guarantor shall not have,
and hereby expressly waives forever:
(i) any right to require promptness and diligence on the
part of the Secured Party;
(ii) any right to receive notices, including, without
limitation, notice of the acceptance of this Guaranty or of the
incurrence of any Obligation by the Debtor, notice of any action taken
by the Secured Party or the Debtors pursuant to any document, agreement,
or writing relating to the Obligations, or notice of the intended
disposition of the Collateral or any collateral securing all or any part
of the Obligations or this Guaranty; and
<PAGE>
(iii) any right to require the Secured Party to advise the
Guarantor of any information known to the Secured Party regarding the
financial or other condition of the Debtor, the Guarantor acknowledging
that the Guarantor is responsible for being and keeping informed
regarding such condition.
(B) The Guarantor hereby agrees that the Guarantor shall not have,
and hereby expressly waives until after all of the Obligations and any
other Obligations of the Guarantor under Section 4 hereof have been
irrevocably satisfied, any right to subrogation, indemnification, or
contribution and any other right to payment from or reimbursement by the
Debtor, in connection with or as a consequence of any payment made by
the Guarantor hereunder, any right to enforce any right or remedy which
the Secured Party has or may hereafter have against the Debtors and any
benefit of, and any right to participate in, the Collateral or any
collateral securing all or any part of the Obligations or any payment
made to the Secured Party or collection by the Secured Party from the
Debtor.
6. Payment of the Obligations.
If any Obligation is not paid punctually when due, subject to any
applicable grace period, including, without limitation, any Obligation
due by acceleration of the maturity thereof, the Guarantor shall
immediately pay such Obligation or cause such Obligation to be paid in
full:
(A) without deduction for any set-off, recoupment, defense, or
counterclaim;
(B) without requiring and notwithstanding the lack of protest or
notice of nonpayment or default to the Guarantor, either Debtor, or any
other person;
(C) without demand for payment or proof of such demand; and
(D) without requiring and without any obligation on the part of
the Secured Party to resort first to the Debtors, to the Collateral, or
to any collateral securing all or any part of the Obligations or this
Guaranty, or to any other guaranty or endorsement which the Secured
Party may hold as security for payment of the Obligations.
7. Rights and Remedies of the Secured Party.
(A) The Guarantor acknowledges and agrees that the Secured Party
may, without the consent of, notice or demand to, or reservation of
rights against the Guarantor, and without affecting the Guarantor's
obligations hereunder, from time to time:
(i) renew, extend, increase, accelerate, or otherwise change
the time for payment of, the terms of, or the rate of interest
applicable to the Obligations or any part thereof;
<PAGE>
(ii) accept and hold collateral securing payment of the
Obligations, or any part thereof, and exchange, enforce, or release the
Collateral, such collateral, or any part thereof;
(iii) accept and hold any endorsement or guaranty of payment
of the Obligations or any part thereof, and partially or fully
discharge, release, or substitute the obligations of any such endorser
or guarantor, or any person or entity who has pledged any collateral as
security for payment of the Obligations, or waive any rights or remedies
with respect to any thereof;
(iv) partially or fully discharge or release, or waive any
rights or remedies with respect to, either Debtor;
(v) dispose of the Collateral or any collateral securing all
or any part of the Obligations or this Guaranty in any manner or order
as the Secured Party, in its sole discretion, deems appropriate; and
(vi) determine the manner, amount, and time of application of
payments and credits to be made on all or any part of the Obligations
(whether for principal, interest, fees, costs, expenses, or otherwise),
and apply such payments and credits first to reduce Obligations
exceeding the amount of this Guaranty.
(B) Upon the occurrence of any Event of Default, the Secured Party
may, at any time and from time to time without prior notice to the
Guarantor, set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held and other indebtedness owing
by the Secured Party to or for the credit of the Guarantor against the
Obligations, irrespective of whether the Secured Party shall have made
any demand under this Guaranty. The Secured Party agrees to notify the
Guarantor after any such set-off and application, provided that failure
to give such notice to the Guarantor shall not affect the validity of
such set-off and application.
8. Representations and Warranties of the Guarantor.
The Guarantor hereby represents and warrants as follows:
(A) The execution, delivery, and performance of this Guaranty are
not in contravention of any law or of any indenture, agreement,
undertaking, or other document to which the Guarantor is a party or by
which the Guarantor or any of the Guarantor's property is bound or
affected.
(B) This Guaranty constitutes the legal, valid, and binding
obligation of the Guarantor, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy or
insolvency laws and laws affecting creditors' rights generally.
<PAGE>
9. Notices.
Any notices and other communications provided for hereunder shall
be made by telegram, telex, electronic transmitter, overnight air
courier, or certified or registered mail, return receipt requested, and
shall be deemed to be received by the party to whom sent one (1)
Business Day after sending, if sent by telegram, telex, electronic
transmitter, or overnight air courier, and three (3) Business Days after
mailing, if sent by certified or registered mail. All such notices and
other communications to a party shall be addressed to such party at the
address set forth on the cover page hereof or to such other address as
such party may designate for itself in a notice to the other party given
in accordance with this section.
10. Miscellaneous.
(A) "Debtor" and "Guarantor" as used in this Guaranty shall
include, respectively:
(i) any successor, individual, association, partnership, or
corporation to which all or a substantial part of the business or assets
of either Debtor or the Guarantor shall have been transferred; and
(ii) any other corporation into which the Guarantor or either
Debtor (if the Debtor is a corporation) shall have been merged,
consolidated, reorganized, or absorbed, except that the Guarantor shall
not have the right to assign its obligations hereunder or any interest
herein.
(B) "Secured Party" shall include the successors and assigns of
the Secured Party.
(C) The rights and benefits of the Secured Party hereunder shall,
if the Secured Party so agrees, inure to any party acquiring any
interest in the indebtedness or the Obligations, or any part thereof.
(D) No course of dealing between the Debtors or the Guarantor and
the Secured Party, and no delay or omission by the Secured Party in
exercising any right or remedy hereunder or with respect to the
Obligations shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or
remedy. All rights and remedies of the Secured Party are cumulative.
(E) From time to time, the Guarantor shall take such action and
execute and deliver to the Secured Party such additional documents,
instruments, certificates, and agreements as the Secured Party may
reasonably request to effectuate the purposes of this Guaranty.
<PAGE>
(F) The provisions of this Guaranty are independent of and
separable from each other, and no such provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any
reason any other such provision may be invalid or unenforceable in whole
or in part. If any provision of this Guaranty is prohibited or
unenforceable in any jurisdiction, such provision shall be ineffective
in such jurisdiction only to the extent of such prohibition or
unenforceability, and such prohibition or unenforceability shall not
invalidate the balance of such provision to the extent it is not
prohibited or unenforceable nor render prohibited or unenforceable such
provision in any other jurisdiction.
(G) THIS GUARANTY AND THE TRANSACTIONS EVIDENCED HEREBY SHALL BE
GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE STATE WHERE THE
OFFICE OF THE SECURED PARTY IS LOCATED, AS REFLECTED ON THE INITIAL PAGE
HEREOF, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, AS THE SAME
MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE
UNIFORM COMMERCIAL CODE AS IN EFFECT IN SUCH STATE.
(H) THE GUARANTOR AND THE SECURED PARTY AGREE THAT ANY ACTION OR
PROCEEDING TO ENFORCE OR ARISING OUT OF THIS GUARANTY MAY BE COMMENCED
IN ANY COURT OF ANY STATE IN ANY COUNTY, OR IN THE DISTRICT COURT OF THE
UNITED STATES IN ANY DISTRICT, IN WHICH THE SECURED PARTY HAS AN OFFICE,
AND THE GUARANTOR WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT A
SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH
COURT SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF
SERVED BY REGISTERED OR CERTIFIED MAIL TO THE GUARANTOR, OR AS OTHERWISE
PROVIDED BY THE LAWS OF SUCH STATE OR THE UNITED STATES.
(I) This Guaranty may be executed in any number of counterparts
and by the Secured Party and the Guarantor on separate counterparts,
each of which when so executed and delivered shall be an original, but
all of which shall together constitute one and the same Guaranty.
11. Waiver of Jury Trial.
THE GUARANTOR AND THE SECURED PARTY (BY ACCEPTANCE HEREOF) HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY
JURY THE GUARANTOR OR THE SECURED PARTY MAY HAVE IN ANY ACTION OR
PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS GUARANTY OR THE
TRANSACTIONS RELATED THERETO. THE GUARANTOR REPRESENTS AND WARRANTS
THAT NO REPRESENTATIVE OR AGENT OF THE SECURED PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE SECURED PARTY WILL NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THIS RIGHT TO JURY TRIAL WAIVER. THE
GUARANTOR ACKNOWLEDGES THAT THE SECURED PARTY HAS BEEN INDUCED TO ENTER
INTO THIS GUARANTY BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS
SECTION.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by a duly authorized officer, as of the date first above
written.
John Blouin
JOHN BLOUIN, an individual
ACKNOWLEDGED AND ACCEPTED:
WELLS-GARDNER ELECTRONICS CORPORATION
By: Anthony Spier
Name: Anthony Spier
Title: CEO
AMENDED AND RESTATED
SALES REPRESENTATIVE AGREEMENT
This Amended and Restated Sales Representative Agreement (this
"Agreement") is made and entered into this 15th day of August, 1997,
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 electronics
video products consisting primarily of video monitors;
WHEREAS, the Company and the Representative entered into a Sales
Representative Agreement dated January 1, 1996, whereby the Company
appointed the Representative as its sales representative for certain
products of the Company and the Representative accepted such position
as sales representative of such products (the "Old Sales Representative
Agreement");
WHEREAS, the Representative has executed a Promissory Note in favor
of the Company of even date herewith (the "Note"); and
WHEREAS, the Company and the Representative desire to amend and
restate the Old Sales Representative Agreement in connection with the
Note, 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.
"Markets" shall mean the Traditional Markets and the Video Wall
Markets.
"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.
"Traditional Markets" shall mean the following markets and uses in
which and for which the Products may be sold: amusement, leisure,
gaming, automotive, and shall also include the data display market but
only for the customers listed on Exhibit A attached hereto and shall
exclude the Video Wall Markets.
"Video Wall Markets" shall mean the following markets and uses in
which and for which the Products may be sold: video walls, presentation
monitors, transportation monitors and kiosk monitors shall exclude the
Traditional Markets and shall exclude all sales to the customers listed
on Exhibit B.
<PAGE>
2. Appointments. 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.
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 as listed on Exhibit C of the Company's Net Sales
in the Territory of Products in the Video Wall Markets for such month;
plus
(ii) a commission of such percentage of the Company's Net Sales in
the Territory of Products in the Traditional 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 as listed on Exhibit C of the Company's Net Sales
in the Territory of Products in the Video Wall 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 Traditional Markets for the preceding
calendar year equal to the Commission Percentage; plus
<PAGE>
(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 on 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.
(c) Definitions
(i) "Net Sales" shall mean the aggregate amount of the Company's
net sales of Products in the Traditional Markets or Video Wall Markets,
as the case may be. 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
Traditional Markets or Video Wall Markets, as the case may be, for the
preceding calendar year.
(ii) "Profits" 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 D 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 the Applicable Rate set forth in Column C of
Exhibit D 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 commission 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 customers, 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.
<PAGE>
(f) In the event that the Representative fails to notify the
Company of any disagreement within one hundred eighty (180) days after
receiving a statement of commissions due in accordance with the Section
5, such statements shall be conclusively deemed to be correct and
binding upon the Representative.
(g) In the event that the Company fails to notify the
Representative of any disagreement within one hundred eighty (180) days
after receiving a statement of commissions due in accordance with the
Section 5, such statements shall be conclusively deemed to be correct
and binding upon the Company.
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 priced of Products form time to time
and to discontinue at any time or times the production, assembly, design
and/or sales of Products.
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 connections for or on behalf
or 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
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 party of the Company;
and
<PAGE>
(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 only behalf of the Representative shall be
binding in any 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 not cost to the Representative, and any costs incurred by
the Company of the Representative in connection with the
Representative's use of such facilities shall be borne by the
Representative.
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 that 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 owner,
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; provide, 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) As long as any amounts remain outstanding under the Note, in
the event of a material breach or default of any of the terms or
conditions of either this Agreement or the Note by the Representative,
the Company may immediately withhold any and all commissions due and
owing to the Representative under this Agreement. If such breach or
default continues uncured for fifteen (15) days, the Company may (i)
terminate this Agreement and/or (ii) apply any withheld commissions to
the amounts outstanding under the Note. Neither the exercise nor the
failure to exercise the right subsection (ii) shall constitute an
election of remedies or limit the Company in any manner in the
enforcement of other remedies that might be available to it.
<PAGE>
(c) Subject to Section 14(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.
(d) 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.
(e) 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
Representatives shall negotiate the terms on which this Agreement shall
continue, and if the parties fail to reach an agreement, this Agreement
shall forthwith terminate.
(f) 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 (c)), 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.
(g) 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.
(h) Subject to Section 14(b), the Representative shall be entitled
to receive commissions hereunder on Net Sales made after termination of
this Agreement if any 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 stated 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").
<PAGE>
Such Confidential Information may include, but is not limited to, price
guidelines, future products 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 terms 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 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.
17. Noncompetition.
(a) The Representative and Roberts agrees 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(a), 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 affiliate thereof of (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 of
violation for the recovery of damages, including punitive damages by
reason thereof.
<PAGE>
(c) The necessity of protection against the competition of the
Representative and the Representative's principal 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 any reason of
this termination of this Agreement, for sale or use of Products, for
negligence, or otherwise, be liable to the Representative for any
special, incidental of consequential damages or similar relief,
including but not limited to, property damage, personal injury,
compensation or damages for loss of present or prospect profits or
revenues, loss of goodwill or expenditures, investments or commitments
made in entering to this Agreement or in connection with the performance
of obligations hereunder.
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, an not 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
nay delay or omission of a party to exercise any rights arising form
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 60629
If to the Representative or Roberts:
James Industries, Inc.
1619 Colonial Parkway
Inverness, Illinois 60067
<PAGE>
or such other address as any party may designate in a notice to the
others.
21. Assignments. 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 grant by law.
23. Severability. If any covenant or other provisions 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.
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 Old Sales Representative Agreement and 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.
<PAGE>
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 of first written above.
WELLS-GARDNER JAMES INDUSTRIES, INC.:
ELECTRONICS CORPORATION:
By: Anthony Spier By: James Roberts Jr.
Title: CEO Title: CEO
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. Mentus
8. Future new accounts must be mutually agreed
<PAGE>
EXHIBIT B
CURRENT HOUSE ACCOUNTS FOR THE COMPANY
FOR SALES TO THE VIDEO WALL MARKETS - EXCLUDED CUSTOMERS
1. Business Television Video Systems
2. Dynatouch Corporation
3. Elo Touchsystems, Inc.
4. Image Holding
5. Innovative Design Technology
6. Music Vending
7. Neighborhood Box Office
8. Quick Tag
9. Touch Controls, Inc.
10. Micrin Software
11. Local Infoservices, Inc.
12. Sam Carl & Associates
13. SCA Unlimited
14. Acrobatic Muffin Works
15. Adwall Advertising Systems
16. AEI Music
17. Bayside Controls
18. Contact Media Corporation
19. Diversified Video
<PAGE>
20. Electrosonic Systems, Inc.
21. Hibino USA, Inc.
22. I.S.T.S./Telav
23. Intech Corporation
24. Kramer International
25. Lanetco Company
26. Milanese Associates
27. MPO Videotronics, Inc.
28. Multivision Electrosonic Ltd.
29. MVP Communications
30. Rent Com, Inc.
31. Telav
32. Video Vision
33. Vision Control Association of Nevada Inc.
34. Customers developed internally by the Company
<PAGE>
EXHIBIT C
COMMISSION SCHEDULE
VIDEO WALL MARKETS
SALES DATE COMMISSION RATE
July 1, 1997-June 30, 1998 4.00%
July 1, 1998-June 30, 1999 2.00%
After July 1, 1999 0.00%
<PAGE>
EXHIBIT D
COMMISSION SCHEDULE
TRADITIONAL MARKETS
COLUMN A COLUMN B COLUMN C
NET SALES LOSS PROFIT
Under $27.5 million 3.00% 3.25%
$27.5 million to $29.99 million 3.25% 3.50%
$30.0 million to $37.49 million 3.50% 3.75%
$37.5 million to $42.49 million 4.00% 4.00%
$42.5 million to $47.49 million 4.50% 4.50%
$47.5 million and over 5.00% 5.00%
