UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
____________ to ____________
Commission File No. 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: 773/252-8220
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1.00 par value American Stock Exchange
Title of each class Name of each exchange on
which registered
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 12, 1999, 4,293,547 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, the registrant estimates that the aggregate
market value of the registrant's Common Stock held by non affiliates
on March 12, 1999 was approximately $8,949,000. This determination is
based upon an estimate that 72.5% 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.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part
Portions of Annual Report to Shareholders for fiscal year
ended December 31, 1998: I & II
Portions of Proxy Statement for Annual Meeting of
Shareholders to be held on April 27, 1999: III
PART I
Item 1. BUSINESS
(a) General Development of Business
Wells-Gardner Electronics Corporation (the "Company") is an ISO
9001 certified video products company which designs, manufactures,
assembles and markets color video monitors, video liquid crystal and
plasma displays, coin doors and coin mechanisms for a wide variety of
markets including, but not limited to, coin-operated video games,
lottery and gaming machines, leisure and fitness, automotive, display,
intranet, service and video walls. The Company continues to focus on
improving the quality of its products to achieve its goal of being the
"best-in-class" quality supplier in all its served markets. During
1998, the Company passed its annual quality audit conducted by the ISO
9001 accreditation agency giving the Company certification through
January 12, 2001. The Company was incorporated in Illinois in 1925.
(b) Narrative Description of Business
(c) (i), (ii) and (iii)
PRODUCTS
The Company's primary business is the design, manufacture, assembly
and marketing of electronic components which consist of video color
monitors and displays, coin doors and mechanisms and the bonding of
touch sensors to video monitors. The image on a CRT display is
produced by magnetically guiding an interruptible stream of electrons
against the back of a phosphorescent screen. This stream of electrons
scans a series of horizontal lines from the top to the bottom of the
screen. When the stream of electrons strikes the back of the screen a
bright area is produced and when it is interrupted, a dark area
appears. In a medium-resolution unit, the stream of electrons scans
the screen in a series of 525 horizontal lines 30 times per second,
whereas the series of light and dark areas produced appears as a
steady coherent image to the viewer. High-resolution displays scan a
greater number of lines at a greater speed, thus producing a clearer
image on the screen. CRT video products accounted for approximately
99 percent of revenues in 1998, 1997 and 1996.
<PAGE>
The Company offers a full line of video monitors, with CRT sizes
ranging from 13" to 39" with horizontal scan frequencies from 15kHz to
35kHz. In addition to providing standardized products, the Company
also customizes electrical and mechanical applications to meet
specific customer requirements. The Company's line of color display
monitors have been redesigned over the past years for higher
performance and lower per unit cost. In 1998, the Company released 10
new voltage free products which allow the products to be plugged in
anywhere in the world. As a compliment to its core product line, the
Company also offers a wide variety of mechanical coin doors and coin
mechanisms. The Company also optically bonds touch screen sensors to
the face of the monitors to allow the user of a CRT video monitor to
interact with a computer program by touching a video screen.
The Company's sales are comprised of five main applications:
1998 1997 1996
Amusement 38% 44% 49%
Gaming 22% 20% 17%
Service & Coin 20% 15% 11%
Leisure / Fitness 9% 12% 13%
Display / Other 11% 9% 10%
Totals 100% 100% 100%
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, testing and optically bonding touch
sensors. The Company manufactures a limited range of electronic
components and coin doors and mechanisms and therefore relies on
outside sources for the majority of the other required components. A
limited number of sources are available for such electronic components
and the other raw materials. Two sources supply the Company with
almost all of the chassis subassemblies for its two-dimensional color
game monitors. Chassis subassemblies are contracted off-shore based
on custom designs developed by the Company. As the Company believes
is characteristic of other manufacturers in its industry, it has been
confronted with long lead times and cost pressures.
MARKETING AND SALES
The Company sells products throughout the world. The Company's
products are sold primarily through James Industries, Inc., a sales
representative organization. This representation is currently
furnished under a 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 maintains its own
internal sales staff primarily for sales of products not covered under
the Sales Representation Agreement, repair and service of its products
and to support its external sales representative organization.
<PAGE>
(c) (iv) The Company is licensed on a non-exclusive basis under
certain patents 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 0.2% of total 1998 revenue. Although certain of
these licenses may expire in the future, it has been the practice 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 the Company's
business, financial condition and results of operations.
(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 largest customer accounted for total
revenues of 33%, 34% and 18% in 1998, 1997 and 1996, respectively.
(c) (viii) The Company's 1998 year-end backlog was approximately
34,000 monitors representing approximately three months sales. It is
the Company's experience that well over 90 percent of backlog results
in revenue recognition.
(c) (ix) No material portion of the Company's business is subject
to re-negotiation of profits or termination of contracts or subcon-
tracts 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 1998, the Company spent approximately $1,536,000
for product engineering, research and development costs, compared to
$1,786,000 in 1997 and $1,701,000 in 1996.
(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, 1998, the Company employed approxi mately
199 persons. The Company believes its relationship with its employees
is satisfactory.
(d) Export sales were 21 percent of s ales in 1998, 22 percent in
1997 and 24 percent in 1996.
<PAGE>
Item 2. PROPERTIES
The Company's plant, which is owned by the Company, is located at
2701 North 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 engineering, sales and administration are
also located at that facility. The plant is in good condition, is
well maintained, and currently has excess production capacity. In
1998, the plant operated at an average 59 percent capacity. The plant
is not subject to any material encumbrance.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 1998.
<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 55 1994
Randall S. Wells Executive Vice President and
General Manager 47 1980
George B. Toma Vice President of Finance,
Chief Financial Officer and
Treasurer 31 1996
John S. Pircon Vice President of Marketing 40 1994
Mark E. Komorowski Vice President of Service and Coin 33 1994
Kathleen E. Hoppe Director of Information Technology 53 1994
Gene Ahner Director of Human Resources
and Corporate Secretary 62 1994
Larry Mahl Director of Materials 51 1989
Eric Slagh Director of Quality 33 1997
Jeff Sterling Vice President of Engineering 40 1998
</TABLE>
Unless otherwise indicated, each executive officer has served in
various executive capacities with the Company for the past five years.
<PAGE>
George B. Toma joined the Company in 1990 and was elected Vice
President of Finance, Chief Financial Officer and Treasurer in
February, 1997. Mr. Toma was previously elected Chief Financial
Officer and Treasurer in April, 1996 and prior thereto held various
accounting positions within the Company. Prior to joining the
Company, Mr. Toma was an auditor with Laventhol & Horwath. Mr. Toma
is a certified public accountant as well as a certified management
accountant.
Mark E. Komorowski joined the Company in 1990 and was elected as Vice
President in April, 1996. Prior to this election, Mr. Komorowski held
the position of Controller. Prior to joining the Company, Mr.
Komorowski was an auditor with Laventhol & Horwath.
Eric Slagh joined the Company as Director of Quality in May, 1997.
Prior to joining the Company, Mr. Slagh was Quality Assurance Manager
at Danfoss Electronic Drives.
Jeff Sterling joined the Company as Vice President of Engineering in
November, 1998. Prior to joining the Company, Mr. Sterling was
Development Director of Commercial Products at Zenith Electronics.
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," which information is
contained in the Company's Annual Report to Shareholders for the year
ended December 31, 1998, 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 Data," which information is
contained in the Company's Annual Report to Shareholders for the year
ended December 31, 1998, 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, 1998, and which information is hereby incorporated herein
by reference.
<PAGE>
Because the Company wants to provide shareholders and potential
investors with more meaningful and useful information, this Report
contains 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. 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.
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, 1998 and which information hereby incorporated herein by
reference.
Balance Sheets as of December 31, 1998 and 1997
Statements of Earnings for years ended December 31, 1998, 1997 and
1996
Statements of Shareholders' Equity for years ended December 31, 1998,
1997 and 1996 Statements of Cash Flows for years ended December 31,
1998, 1997 and 1996
Notes to Financial Statements
Independent Auditors' Report
Quarterly financial data for the years ended December 31, 1998 and
1997 are set forth in Exhibit 13 in Note 13 of "Notes to Financial
Statements" and are contained in the Company's Annual Report to
Shareholders for the year ended December 31, 1998, 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 27, 1999, 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 27, 1999, under the captions "Summary Compensation Table,"
"Option Grants in 1998," "Aggregated Option Exercises in 1998 and
Option Values at December 31, 1998," "Report of Board of Directors on
Compensation," and "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 27, 1999, 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 27, 1999, under the caption "Compensation Committee Interlocks
and Insider Participation," which information is hereby incorporated
herein by reference.
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
Auditors Report is set forth following the Financial Statement
Schedule 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.
<PAGE>
(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*. Amended Employment Agreement dated February 29, 1996,
between the Company and Anthony Spier and incorporated herein by
reference.
10.2. License Agreement dated January 1, 1995, between the Company
and RCA Corporation and incorporated herein by reference.
10.3. Agreement dated July 1, 1997, between t he Company and Local
1031, I.B.E.W., AFL-CIO, and incorporated herein by reference.
10.4*. 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.
10.5*. 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.
10.6*. Wells-Gardner Electronics Corporation Amended and Restated
Incentive Stock Plan, as amended and filed as Exhibit 4.1 of the
Company's Form S-8, dated August 21, 1998.
10.7. Credit Agreements dated June 5, 1998, between American
National Bank and Trust Company and the Company, filed as Exhibits
2.2, 2.3, 2.4 and 2.5 of the Company's Form 8K/A dated August 5, 1998
and incorporated herein by reference.
10.8. Amended and Restated Sales Representative Agreement dated
December 9, 1998 and incorporated by reference in this Annual Report
on Form 10-K.
10.9. Guaranty Agreement dated December 9, 1998, between James J.
Roberts Jr., John R. Blouin and the Company and incorporated by
reference in this Annual Report on Form 10-K.
10.10. Promissory Note dated December 9, 1998, between James
Industries, James J. Roberts Jr., John R. Blouin and the Company and
incorporated by reference in this Annual Report on Form 10-K.
<PAGE>
10.11. Voting Rights Agreement dated December 9, 1998, among the
Company, Anthony Spier, Randall S. Wells, John R. Blouin, James J.
Roberts, Jr. and James Industries, Inc. and incorporated by reference
in this Annual Report on Form 10-K.
13. Certain portions of the Company's Annual Report to Shareholders
for the year ended December 31, 1998 as specified in Part I and II
hereof to be incorporated by reference in this Annual Report on Form
10-K.
23. Consent of KPMG LLP.
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, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Secu-
rities 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
Anthony Spier Chairman of the Board,
President and Chief
Executive Officer February 10, 1999
/S/ GEORGE B. TOMA
George B. Toma CPA, CMA Vice President of
Finance, Chief
Financial Officer and
Treasurer February 10, 1999
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.
<PAGE>
Signature Title Date
/S/ ANTHONY SPIER
Anthony Spier Chairman of the Board,
President and Chief
Executive Officer February 10, 1999
/S/ JOHN R. BLOUIN
John R. Blouin Director February 10, 1999
/S/ MARSHALL L. BURMAN
Marshall L. Burman Director February 10, 1999
/S/ IRA J. KAUFMAN
Ira J. Kaufman Director February 10, 1999
/S/ FRANK R. MARTIN
Frank R. Martin Director February 10, 1999
/S/ JAMES J. ROBERTS, JR.
James J. Roberts, Jr. Director February 10, 1999
/S/ RANDALL S. WELLS
Randall S. Wells Director February 10, 1999
/S/ ERNEST R. WISH
Ernest R. Wish Director February 10, 1999
FINANCIAL SCHEDULE
Schedules not included with this addi tional financial data have
been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereof.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at
Beginning (1) (2) Balance at
Year of Period Additions Deductions End of Period
1996 297,866 10,000 200,933 106,933
1997 106,933 175,000 17,633 264,300
1998 264,300 36,133 215,433 85,000
(1) Provision for bad debt.
(2) Accounts receivable written off against the allowance.
WELLS-GARDNER ELECTRONICS CORPORATION
1998 ANNUAL REPORT
CORPORATE PROFILE
Founded in 1925, Wells-Gardner Electronics Corporation is an ISO
9001certified video products company which designs, manufactures,
assembles and markets color video monitors, video liquid crystal &
plasma displays, coin doors and coin mechanisms for a wide variety of
markets including, but not limited to, coin-operated video games,
lottery and gaming machines, leisure and fitness, automotive, display,
intranet, service and video walls.
TABLE OF CONTENTS
Selected Financial Data & Common
Share Market Price 1
President's Report 2
Management's Discussion & Analysis 4
Financial Information 7
Notes to Financial Statements 10
Independent Auditors' Report 16
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
(In thousands except per-share data)
Years Ended December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings Data:
Net sales $42,590 $42,989 $36,668 $28,301 $33,435
Earnings (loss) from
operations excluding
special charges & gain
on sale of fixed assets $1,505 $1,124 $563 ($375) ($407)
Special charges --- --- --- ($886) ($1,201)
Gain on sale of fixed assets --- --- --- $358 ---
Net earnings (loss) $974 $775 $403 ($1,059) ($1,735)
-------------------------------------------------------------------------
Basic net earnings (loss)
per share $0.23 $0.19 $0.10 ($0.26) ($0.45)
Diluted net earnings
(loss) per share $0.22 $0.18 $0.10 ($0.26) ($0.45)
-------------------------------------------------------------------------
Balance Sheet Data:
Inventory $8,579 $9,257 $7,344 $8,930 $5,831
Working capital $10,199 $10,915 $9,017 $10,213 $7,561
Total assets $19,671 $17,520 $14,125 $16,570 $15,619
General debt --- $1,800 $1,300 $3,125 $1,925
Acquisition debt $3,350 --- --- --- ---
Shareholders' equity $12,720 $11,385 $10,095 $9,633 $10,367
-------------------------------------------------------------------------
</TABLE>
COMMON SHARE MARKET PRICE
The Company's common shares are traded on the American Stock Exchange
under the symbol WGA. On December 31, 1998, there were approximately
700 holders of record of the common shares. No dividends were paid in
1998 or 1997. High and low sales prices for the last two years were:
<TABLE>
1998 Prices 1997 Prices
High Low High Low
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quarter ended:
March 31, 6 3/4 5 5/16 4 1/2 3 3/8
June 30, 5 1/2 3 7/8 4 3/8 3 3/8
September 30, 5 2 5/8 6 7/8 4
December 31, 3 5/8 2 3/8 7 3/16 5
-------------------------------------------------------------------------
</TABLE>
<PAGE>
PRESIDENT'S REPORT
TO OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS AND EMPLOYEES:
The management of Wells-Gardner had mixed feelings on the results of
1998. We are pleased to report to you that Wells-Gardner announced
improved earnings for the fifth consecutive year and we acquired the
Coin business and successfully integrated it into the Wells-Gardner
environment. However we are disappointed at the erosion in our
shareholder value even though we recognize that public micro-cap
companies have experienced severe reductions in their market value in
1998.
Strategic Plan To Increase Shareholder Value
Your management and Board of Directors are continuing to spend
considerable effort in identifying strategies to increase the
shareholder value of the Company. We recognize that the way to increase
value is to increase profitability and that we have to renew our efforts
and make significant changes to continue the current trend of increasing
profits.
* Key to this strategy is a commitment to be the "best-in-class"
quality supplier in our served markets. The Company continued
to maintain its ISO 9001 accreditation. As has been previously
mentioned, we were the first open-frame monitor manufacturer to
obtain this quality certification and it has been a valuable
marketing advantage in selling to several highly prestigious
accounts. The Company's quality coefficient, which measures five
different aspects of product quality, increased by 30% in 1998.
* Even though our plans provide for significant internal growth
within our existing businesses particularly in the international
arena, we recognize the need to enter other growth markets,
probably through the acquisition of all or part of another
Company. Our acquisition strategy is to target companies in
growing and profitable markets and we have retained an
investment banking firm to aid us in our acquisition and growth
activities. We are also examining other revenue and profit
growth opportunities by utilizing our current skills to develop
opportunities in tangential markets.
* We have also announced our schedule to begin accepting orders
for products in our on-line catalog via e-commerce using major
credit cards at www.wgec.com. This will allow our 1,400
customers instant access to our products 24 hours a day 7 days a
week.
<PAGE>
Operations Improve In 1998
Net earnings in 1998 increased by 26 percent to 23 cents per share from
19 cents in 1997 on slightly decreased revenue. The increased earnings
came primarily from an increase in margins and a reduction in expenses.
The newly acquired Coin business was also a significant contributor to
both sales and earnings in 1998. Sales were essentially flat with gaming
becoming the largest market segment for Wells-Gardner. The Company
released 9 new products in 1998 and new products continued to play an
important role in the revenue performance with 96 percent of 1998 sales
derived from products introduced in the last 3 years.
$1.9 Million Of Cash Was Generated From Operations In 1998
Wells-Gardner generated over $1.9 million of cash in 1998 primarily from
earnings and inventory reductions. Our balance sheet remains strong,
with a current ratio of 3:42 to 1 and a debt/equity of 21.5% after
acquiring the new Coin business for cash. Inventory turns increased to
4.17 from 3.93 in 1997 and overall inventory for the monitor business
declined by over $1.1 million. Receivable days outstanding also declined
to 44 days from 52 days in 1997. Your shareholder equity improved to
$2.97 per share.
We thank all of you for your continued support as we focus on
profitability and the increase in shareholder value for the year 2000
and beyond.
Anthony Spier
Chairman of the Board, President
and Chief Executive Officer
March 19, 1999
<PAGE>
<TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the percentage of net sales represented
by each line item presented in the Company's Statements of Earnings as
of December 31.
Percent of Net Sales
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales................... 100.0% 100.0% 100.0%
Cost of sales............... 83.9% 84.2% 84.4%
Gross margin................ 16.1% 15.8% 15.6%
Engineering, selling &
administrative............ 12.6% 13.2% 14.1%
Operating income............ 3.5% 2.6% 1.5%
Other expense (net).......... 1.2% .8% .4%
Net earnings................. 2.3% 1.8% 1.1%
</TABLE>
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales decreased 0.9% to $42,590,000 in 1998 compared to $42,989,000
in 1997, while gross margin for 1998 increased to $6,858,000 or 16.1% of
sales compared to $6,801,000 or 15.8% of sales in 1997. Gross margin
improved for the fifth consecutive year as the Company introduced 10 new
products and realized a benefit of producing standard-product in Asia.
Engineering, selling and administrative expenses decreased to 12.6% of
sales or $5,353,000 in 1998 compared to $5,677,000 in 1997. The
percentage decrease is reflective of the Company's continued focus on
maintaining net sales without adding additional overhead expenses.
Operating income for 1998 was $1,505,000 compared to $1,124,000 in 1997,
an increase of 33.9%. Other expense (net) increased to $505,000 in 1998
compared to $339,000 in 1997 as the Company incurred additional debt
financing and interest expense for the acquisition it closed in 1998.
The Company recorded an income tax provision of $25,000 in 1998 compared
to $10,000 in 1997. The Company continues to utilize its net operating
loss carryforward. As of December 31, 1998, the Company has available a
net operating loss carryforward of approximately $1.5 million.
Net income for 1998 was $974,000 compared to $775,000 in 1997, an
increase of 25.7%. For 1998, basic earnings per share were 23 cents and
diluted earnings per share were 22 cents, compared to basic earnings per
share of 19 cents and diluted earnings per share of 18 cents for 1997.
On June 5, 1998, the Company acquired the mechanical coin door and
mechanical coin mechanism business of Coin Controls, Inc. This
consisted of the manufacturing, service, sales and marketing of
mechanical coin door and coin mechanisms. These products are sold to
the coin-operated video gaming, pinball, redemption and other markets.
Under the terms of the agreement, Wells-Gardner acquired certain
inventory, machinery, equipment, tooling and certain contract rights.
Results of operations had the acquisition occurred at the beginning of
each year was immaterial.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales increased 17.2% to $42,989,000 in 1997 compared to $36,668,000
in 1996. The 1997 increase was attributed to sales growth primarily in
the gaming and service segments and the release of 12 new products
during the year.
Gross margin for 1997 was $6,801,000 or 15.8% of sales compared to
$5,721,000 or 15.6% of sales in 1996. Gross margin improved for the
fourth consecutive year as the Company introduced the WG2 line of high
value monitors manufactured in Asia and the release of new products.
Engineering, selling and administrative expenses decreased .9% of sales
to $5,677,000 in 1997 compared to $5,158,000 in 1996. The 1997 results
include an increase in the Company's provision for doubtful accounts by
$157,000 to fully reserve for a customer in financial difficulties and
additional sales commissions paid on the increased sales volume.
<PAGE>
Operating income for 1997 was $1,124,000 compared to $563,000 in 1996,
an increase of 99.6%. Other expense (net) increased to $339,000 in 1997
compared to $160,000 in 1996. The Company recorded an income tax
provision of $10,000 in 1997, but did not record an income tax expense
for 1996 due to the Company's utilization of its net operating loss
carryforward.
Net income for 1997 was $775,000 compared to $403,000 in 1996, an
increase of 92.3%. For 1997, basic earnings per share were 19 cents and
diluted earnings per share were 18 cents, whereas 1996 reported basic
and diluted earnings per share of 10 cents.
Market and Credit Risks
The Company is subject to certain market risks, mainly interest rates.
Interest rate risk is managed through a combination of fixed rate debt
and variable rate short-term borrowings. At December 31, 1998, the
Company had a five year, $3,350,000 installment note payable with a
variable rate of the London Interbank Offered Rate (LIBOR) plus 225
basis points. This note has a term of five years with sixty equal
monthly principal payments of $55,833 plus interest, commencing
February, 1999.
The Company is exposed to credit risk on certain assets, primarily
accounts receivable. The Company provides credit to customers in the
ordinary course of business and performs ongoing credit evaluations.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base. The Company currently believes its allowance for
doubtful accounts is sufficient to cover customer credit risks.
Liquidity & Capital Resources
The Company's financial condition and liquidity continues to be strong.
The Company generated over $1.9 million in cash from operations in 1998.
Accounts receivable decreased to $5,149,000 in 1998 compared to
$5,232,000 in 1997, while days outstanding were 44 days in 1998 compared
to 52 in 1997; both which are far below the industry average. Inventory
decreased to $8,579,000 in 1998 compared to $9,257,000 in 1997. The
decrease is attributed to lower finished goods on hand at year-end and
improved inventory turns to 4.17 in 1998 compared to 3.93 in 1997.
Accounts payable decreased to $2,548,000 in 1998 compared to $3,453,000
in 1997. The decrease is attributed to lower inventory purchases made
during December, 1998. Long-term note payable decreased to $0 in 1998
compared to $1,800,000 in 1997. In 1998, the Company entered into a
long-term installment note payable for $3,350,000 to fund the
acquisition consummated during the year. Shareholders' equity increased
to $12,720,000 in 1998 from $11,385,000 in 1997 and book value improved
to $2.97 per share in 1998 compared to $2.70 per share in 1997.
Overall, the Company believes that its future financial requirements can
be met with funds generated from operating activities and from its
credit facility.
<PAGE>
Inflation
During the past three years, management believes that the effect of
inflation on past operations has not been significant and anticipates
that inflation will not have a significant impact on future operations.
Year 2000
The term Y2K is used to refer to a worldwide computer-related problem
where software programs and embedded programs in microprocessors will
not work properly when processing a date greater than December 31, 1999.
This problem results from using two digits to denote the third and
fourth digit of a four-digit year whereas a program assumes 19 to be the
first two digits. Many existing programs will continue to assume the 19
as the first and second digit while a 20 or greater is required. A
method of fixing the problem is for all years to be denoted in a four-
digit field and the programs to recognize all four digits as the year.
This Y2K problem has resulted in significant worldwide concern about the
future operations of businesses and other institutions.
The majority of the systems utilized by the Company have already been
made Y2K compliant in an undertaking which began in 1997, at no
significant additional cost to the Company. The balance of the
Company's systems will be made compliant by the second quarter of 1999.
Management believes that there are no Y2K issues with respect to the
functionality of any products sold in the past or expected to be sold in
the future. The unknown area of Y2K related exposure is with the
Company's suppliers. Although management has began a program of
supplier inquiry and evaluation to assess the potential problem,
management cannot make a determination as to the suppliers' level of Y2K
compliance at this time. Management expects to make contingency plans
as necessary.
<PAGE>
<TABLE>
BALANCE SHEETS
Years ended December 31,
1998 1997
-------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents $26,052 $149,787
Accounts receivable, net of allowances
of $85,000 in 1998, & $264,300 in 1997 5,148,712 5,231,835
Note receivable 232,369 374,507
Inventory 8,579,344 9,256,552
Prepaid expenses & other current assets 428,209 237,455
-------------------------------------------------------------------------
Total current assets $14,414,686 $15,250,136
-------------------------------------------------------------------------
Property, Plant & Equipment (at cost):
Land 206,144 206,144
Land improvements 71,970 71,243
Buildings & improvements 3,529,124 3,521,753
Machinery & equipment 6,839,416 6,049,931
-------------------------------------------------------------------------
Total property, plant & equipment 10,646,654 9,849,071
Less accumulated depreciation (7,997,720) (7,578,823)
-------------------------------------------------------------------------
Property, plant & equipment, net $2,648,934 $2,270,248
-------------------------------------------------------------------------
Other Assets:
Note receivable 255,152 ---
Intangibles, net 2,352,379 ---
-------------------------------------------------------------------------
Total other assets $2,607,531 ---
-------------------------------------------------------------------------
Total Assets $19,671,151 $17,520,384
========== ==========
<PAGE>
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $2,547,993 $3,453,251
Income taxes payable --- 10,000
Accrued expenses 1,053,159 872,211
Installment note payable 614,163 ---
-------------------------------------------------------------------------
Total current liabilities $4,215,315 $4,335,462
-------------------------------------------------------------------------
Long-Term Liabilities:
Note payable --- 1,800,000
Installment note payable 2,735,837 ---
-------------------------------------------------------------------------
Total long-term liabilities $2,735,837 $1,800,000
-------------------------------------------------------------------------
Total Liabilities $6,951,152 $6,135,462
-------------------------------------------------------------------------
Shareholders' Equity:
Common shares, $1 par value; 25,000,000
shares authorized; 4,285,912 shares
issued at December 31, 1998 4,215,083
shares issued at December 31, 1997 4,285,912 4,215,083
Capital in excess of par value 1,526,760 1,424,496
Retained earnings 6,907,327 5,933,193
Unearned compensation --- (187,850)
-------------------------------------------------------------------------
Total Shareholders' Equity $12,719,999 $11,384,922
-------------------------------------------------------------------------
Total Liabilities & Shareholders' Equity $19,671,151 $17,520,384
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF EARNINGS
Years ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $42,590,394 $42,988,526 $36,667,774
- -----------------------------------------------------------------------------
Cost & expenses:
Cost of sales 35,732,440 36,187,438 30,946,600
Engineering, selling & administrative 5,353,387 5,677,183 5,157,948
Other expense (net) 505,433 338,665 160,124
- -----------------------------------------------------------------------------
Earnings before income taxes 999,134 785,240 403,102
Income tax 25,000 10,000 ---
- -----------------------------------------------------------------------------
Net earnings $974,134 $775,240 $403,102
======= ======= =======
Basic net earnings per share $0.23 $0.19 $0.10
- -----------------------------------------------------------------------------
Diluted net earnings per share $0.22 $0.18 $0.10
- -----------------------------------------------------------------------------
Basic average common shares outstanding 4,255,190 4,128,524 4,061,860
- -----------------------------------------------------------------------------
Diluted average common shares outstanding 4,381,519 4,316,368 4,153,762
- -----------------------------------------------------------------------------
</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>
December 31, 1995 $4,052,676 $1,096,892 $4,754,851 ($271,000) $9,633,419
- ------------------------------------------------------------------------------------
Net earnings --- --- 403,102 --- 403,102
Issuance of stock awards 12,000 54,854 --- (57,304) 9,550
Stock options exercised 3,750 6,562 --- --- 10,312
Amortization of unearned
compensation --- --- --- 38,203 38,203
- ------------------------------------------------------------------------------------
December 31, 1996 $4,068,426 $1,158,308 $5,157,953 ($290,101) $10,094,586
Net earnings --- --- 775,240 --- 775,240
Issuance of stock awards 30,400 86,750 --- (115,050) 2,100
Stock options exercised 116,257 179,438 --- --- 295,695
Amortization of unearned
compensation --- --- --- 217,301 217,301
- ------------------------------------------------------------------------------------
December 31, 1997 $4,215,083 $1,424,496 $5,933,193 ($187,850) $11,384,922
Net earnings --- --- 974,134 --- 974,134
Issuance of stock awards 14,050 51,700 --- (65,750) ---
Stock options exercised 56,779 50,564 --- --- 107,343
Amortization of unearned
compensation --- --- --- 253,600 253,600
- ------------------------------------------------------------------------------------
December 31, 1998 $4,285,912 $1,526,760 $6,907,327 --- $12,719,999
========= ========= ========= ======= ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
Years ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $974,134 $775,240 $403,102
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation & amortization 507,816 403,989 463,859
Amortization of unearned compensation 253,600 217,301 38,203
Changes in current assets & liabilities
(net of effect of acquisition):
Accounts receivable 83,123 (1,336,030) (355,459)
Income tax receivable --- --- 62,182
Note receivable (113,013) (374,508) ---
Inventory 1,123,958 (1,912,709) 1,586,096
Prepaid expenses & other current assets (190,754) 212,141 (74,748)
Accounts payable (905,259) 1,690,515 (1,314,041)
Income taxes payable --- 10,000 ---
Accrued expenses 170,948 (95,071) 232,847
- ------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities $1,904,553 ($409,132) $1,042,041
- ------------------------------------------------------------------------------
Cash used in investing activities:
Payment for acquisition (3,350,000) --- ---
Additions to property, plant &
equipment, net (335,631) (296,357) (296,052)
- ------------------------------------------------------------------------------
Net cash used in investing activities ($3,685,631) ($296,357) ($296,052)
- ------------------------------------------------------------------------------
Cash provided by (used in) financing
activities:
Borrowings (repayments) from note
payable (1,800,000) 500,000 (1,825,000)
Proceeds from note payable 3,350,000 --- ---
Proceeds from stock options exercised 107,343 297,795 19,862
- ------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities $1,657,343 $797,795 ($1,805,138) )
- ------------------------------------------------------------------------------
Net increase (decrease) in cash & cash
equivalents (123,735) 92,306 (1,059,149)
Cash & cash equivalents at beginning of
year 149,787 57,481 1,116,630
- ------------------------------------------------------------------------------
Cash & cash equivalents at end of year $26,052 $149,787 $57,481
======== ======== =======
Supplemental cash flows disclosure:
Income taxes paid $35,000 --- ---
Interest paid $400,719 $222,375 $241,844
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. DESCRIPTION OF THE BUSINESS
Wells-Gardner Electronics Corporation is an ISO 9001 certified video
products company which designs, manufactures, assembles and markets
color video monitors, video displays, coin doors and coin mechanisms for
diverse markets. The Company currently sells its products into the
coin-operated video, lottery and gaming, leisure and fitness,
automotive, display, intranet, service and video wall markets.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash & 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 valued at the lower of first-in, first-out (FIFO) cost or
market.
Property, Plant & Equipment
Property, plant and equipment are stated at cost and are depreciated for
financial reporting purposes over the estimated useful lives on a
straight-line basis as follows:
Buildings..... 15 - 31 1/2 years Machinery & Equipment.. 5 - 15 years
Revenue Recognition
Revenue from sales of products is recorded at time of shipment.
Earnings Per Share
Basic earnings per share ("EPS") is based on the weighted average number
of shares outstanding whereas diluted EPS includes the dilutive effect
of unexercised common stock options.
Financial Instruments
The fair value of the Company's financial instruments does not
materially vary from the carrying value of such instruments.
Reclassifications
Certain amounts in previously issued financial statements have been
reclassified to conform to the current year's presentation.
Research & Development
Research and development costs for the years ended December 31, 1998,
1997 and 1996 were approximately $1,536,000, $1,786,000 and $1,701,000,
respectively, which were 3.6%, 4.2% and 4.6% of annual sales,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amounts should be evaluated. Impairment is measured by comparing the
carrying value to the estimated undiscounted future cash flows expected
to result from the use of the assets and their eventual disposition.
The Company has determined that as of December 31, 1998 there has been
no impairment in the carrying values of long-lived assets.
Intangibles
Intangible assets consist primarily of the cost of purchased business in
excess of the fair value of net assets acquired and are amortized on a
straight-line basis over periods of five and twenty years. The Company
regularly reviews the performance of acquired business to evaluate the
realizability of the underlying goodwill. Amortization expense in 1998,
1997 and 1996 was approximately $89,000, $0 and $0 respectively.
Significant Customers
Approximately 33%, 34% and 18% of net sales in 1998, 1997 and 1996,
respectively, were from the Company's largest customer.
Note 3. RELATED-PARTY TRANSACTIONS
During the period 1996 to 1998, a majority of the Company's sales were
made through a sales representative firm, James Industries Inc., whose
Chairman 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, 1998, 1997 and 1996
were approximately $1,386,000, $1,541,000 and $1,225,000, respectively.
Commissions owed to James Industries Inc. as of December 31, 1998, 1997
and 1996 were approximately $148,000, $246,000 and $169,000
respectively. Total commissions as a percentage of sales for the years
ended December 31, 1998, 1997 and 1996 were 3.2%, 3.6% and 3.3%,
respectively. Sales to James Industries Inc. for the years ended
December 31, 1998, 1997 and 1996 were approximately $258,000, $406,000
and $543,000, respectively. Outstanding accounts receivable due from
James Industries Inc. at December 31, 1998, 1997 and 1996 were
approximately $156,000, $100,000 and $40,000, respectively.
During 1997, the Company entered into an agreement with James Industries
whereby it agreed to sell certain specific products on extended terms in
exchange for a promissory note. Shipments under this agreement began in
September, 1997 and were fully completed in the first quarter of 1998.
The note carries interest at a rate of prime plus 200 basis points and
is personally guaranteed by Jim Roberts, Chairman and John Blouin,
President of James Industries, respectively. At December 31, 1998 the
balance on the note was approximately $488,000.
<PAGE>
Note 4. INVENTORY
Inventory consisted of the following components:
December 31,
1998 1997
--------- ---------
Raw materials $6,225,344 $6,253,877
Work in progress $440,049 $451,080
Finished goods $1,913,951 $2,551,595
--------- ---------
Total $8,579,344 $9,256,552
========= =========
Note 5. DEBT
The long-term note payable consisted of a revolving line of credit
balance of $0 and $1,800,000 at December 31, 1998 and 1997,
respectively, bearing interest at 8.50% at December 31, 1997. During
1998, the Company entered into a new, long-term banking agreement with
American National Bank and Trust Company of Chicago. The new agreement
provides for an $8,000,000 revolving line of credit at a rate of either
prime or the London Interbank Offered Rate (LIBOR) plus 175 basis
points. This agreement runs through May 31, 2001. At December 31, 1998
the Company had an unused balance of $8,000,000 on its line of credit.
The long-term note is uncollateralized with certain covenant
restrictions. The Company had an outstanding letter of credit balance of
$0 and $947,000 at December 31, 1998 and 1997 respectively.
During 1998, the Company entered into an uncollateriazlized installment
note payable for $3,350,000 at a rate of LIBOR plus 225 basis points.
The proceeds of this note were used for the acquisition discussed in
Note 11. This note has a term of five years with sixty equal monthly
principal payments of $55,833 plus interest, commencing February, 1999.
Note 6. 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 and a Nonemployee Director Stock Plan under
which directors may acquire up to 250,000 common shares. Options may be
granted thru December 31, 2008 at an option price 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. Options
vest over two and three year periods. As of December 31, 1998, 52
persons held outstanding options and were eligible to participate in the
plans. Such options expire on dates ranging from April 24, 2000 to June
16, 2008.
<PAGE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for
the Company's stock option plans been determined consistent with FASB
Statement of Financial Accounting Standards No. 123 ("FAS 123"), the
Company's net earnings available to common shareholders and net earnings
per common share would have been reduced to the pro forma amounts
indicated below:
1998 1997
------- -------
Net earnings available to common
shareholders:
As reported $974,134 $775,240
Pro forma $846,988 $701,175
Net earnings per common and common
equivalent share:
Basic as reported $0.23 $0.19
Diluted as reported $0.22 $0.18
Pro forma - Basic $0.20 $0.17
Pro forma - Diluted $0.19 $0.16
Under the stock option plans, the exercise price of each option equals
the market price of the Company's stock on the date of grant. For
purposes of calculating the compensation cost consistent with FAS 123,
the fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1998, 1997 and 1996, respectively:
expected volatility of 20 percent; risk free interest rates ranging from
5.7 percent to 7.2 percent; and expected lives of 5 years. Additional
information on shares subject to options is as follows:
<PAGE>
<TABLE>
1998
Weighted average
Options exercise price
------- -----
<S> <C> <C>
Outstanding at beginning of year 663,774 $3.56
Granted 312,342 $4.73
Forfeited (41,583) $4.30
Exercised (81,669) $3.49
------- -----
Outstanding at end of year 852,864 $3.98
======= =====
Weighted average fair value
of options granted $1.38
=====
Options exercisable at year end 449,927
=======
1997
Weighted average
Options exercise price
------- -----
Outstanding at beginning of year 523,215 $3.35
Granted 285,789 $3.73
Forfeited (8,000) $3.50
Exercised (137,230) $3.02
------- -----
Outstanding at end of year 663,774 $3.56
======= =====
Weighted average fair value
of options granted $1.18
=====
Options exercisable at year end 286,405
=======
1996
Weighted average
Options exercise price
------- -----
Outstanding at beginning of year 277,411 $3.38
Granted 263,054 $3.30
Forfeited (13,500) $3.13
Exercised (3,750) $2.75
------- -----
Outstanding at end of year 523,215 $3.35
======= =====
Weighted average fair value
of options granted $1.01
=====
Options exercisable at year end 215,900
=======
</TABLE>
<PAGE>
<TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
Weighted Options
Options average Weighted exercisable
Range of outstanding at remaining average at
exercise prices December 31, contractual exercise price December
1998 life 31, 1998
------------ ------- ---- ----- -------
<S> <C> <C> <C> <C>
$3.00 4,900 1 $3.00 4,900
$2.88 15,536 2 $2.88 15,536
$5.38 43,750 3 $5.38 43,750
$3.50 - $3.75 17,500 5 $3.64 17,500
$2.75 72,595 6 $2.75 72,595
$3.13 - $4.25 155,615 7 $3.29 103,921
$3.63 - $3.75 240,183 8 $3.74 116,029
$4.63 - $5.38 302,785 9 $4.71 75,696
------- -------
852,864 8 $3.98 449,927
======= ==== ===== =======
</TABLE>
<PAGE>
<TABLE>
Note 7. ACCRUED EXPENSES
Accrued expenses consisted of the following components:
December 31,
1998 1997
--------- --------
<S> <C> <C>
Payroll & salary $410,184 $316,954
Taxes other than on income $115,435 $110,521
Sales commissions $148,456 $246,109
Insurance $149,861 $35,812
Warranty $191,115 $113,616
Other accrued expenses $38,108 $49,199
--------- --------
Total $1,053,159 $872,211
========= ========
Note 8. OTHER EXPENSE (NET)
Other expense (net) consisted of the following components:
December 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest expense $400,719 $222,375 $241,844
Other expense, net $183,590 $151,019 $44,599
Other income, net ($78,876) ($34,729) ($126,319)
------- ------- -------
Other expense (net) $505,433 $338,665 $160,124
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
Note 9. INCOME TAXES
The effective income tax rates for 1998, 1997 and 1996 differed from
the expected Federal income tax rate (34%) for
the following reasons:
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Computed expected tax expense $340,000 $281,000 $137,000
State income taxes expense net of $37,000 $40,000 $20,000
Federal tax effect
Other, net ($59,000) $12,000 $8,000
Utilization of net operating loss
carryforward ($293,000) ($323,000) ($165,000)
------- ------- -------
$25,000 $10,000 ----
======= ======= ======
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities for financial reporting
purposes and as measured by income tax regulations. Temporary
differences which gave rise to deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1997 consisted of:
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $33,000 $102,000
Warranty reserve $74,000 $44,000
Inventory reserve $175,000 $110,000
Deferred compensation $1,000 $55,000
Net operating loss carryforwards $586,000 $940,000
Alternative minimum tax credit carryforwards $74,000 $60,000
General business credit carryforwards $129,000 $129,000
Other $6,000 $6,000
--------- ---------
Total gross deferred tax assets $1,078,000 $1,446,000
Less valuation allowance ($1,007,000) ($1,300,000)
--------- ---------
Net deferred tax assets $71,000 $146,000
Deferred tax liabilities:
Property, plant & equipment, principally
depreciation $71,000 $146,000
--------- ---------
Net deferred taxes ---- ----
========= =========
</TABLE>
<PAGE>
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, 1998 was a decrease of $401,000 primarily due to the utilization of
net operating loss carryforwards. At December 31, 1998, the Company has
net operating loss carryforwards for Federal income tax purposes of
approximately $1,500,000 which are available to offset future Federal
taxable income, if any, through 2009. The Company also has alternative
minimum tax credit carryforwards of approximately $74,000 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>
<TABLE>
Note 10. EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128
"Earnings Per Share," the following table presents a reconciliation of
the numerators and denominators of basic and diluted earnings per common
share for the years ended December 31, 1998, 1997 and 1996:
December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Basic earnings per common share
Net income $974,134 $775,240 $403,102
Weighted average common shares
outstanding 4,255,190 4,128,524 4,061,860
Per share amount $0.23 $0.19 $0.10
===== ===== =====
Diluted earnings per common share
Net income $974,134 $775,240 $403,102
Weighted average common shares
outstanding 4,255,190 4,128,524 4,061,860
Add: Effect of dilutive stock
options 126,329 187,844 91,902
--------- --------- ---------
Adjusted weighted average common
shares outstanding 4,381,519 4,316,368 4,153,762
Per share amount $0.22 $0.18 $0.10
===== ===== =====
Options which had an anti-dilutive effect at December 31, 1998, 1997 and
1996 were 374,092, 58,000 and 99,554, respectively and were excluded
from the diluted earnings per share calculation.
</TABLE>
<PAGE>
Note 11. ACQUISITION
In 1998, the Company acquired the mechanical coin door and mechanical
coin mechanism business of Coin Controls, Inc. This acquisition was
accounted for under the purchase method of accounting. The effect of
the pro forma results of operations had the acquisition occurred at the
beginning of each year was immaterial.
Note 12. LEASE COMMITMENTS
The Company leases certain data processing and other equipment under
lease agreements expiring through the year 2002. The following is a
schedule of future minimum lease payments required under operating
leases as of December 31, 1998:
Years ending Amount
December 31,
---- -------
1999 $24,163
2000 $22,712
2001 $22,712
2002 $435
2003 ---
Thereafter ---
------
$70,022
======
Rent expense related to operating leases was approximately $50,000,
$38,000 and $6,000 during the years ended December 31, 1998, 1997 and
1996, respectively.
<TABLE>
Note 13. UNAUDITED QUARTERLY FINANCIAL DATA
Selected quarterly data for 1998 and 1997 are as follows:
(In thousands except per-share data)
1998
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales $8,983 $12,983 $9,965 $10,659
Net earnings $154 $547 $131 $142
Basic net earnings per share $0.04 $0.13 $0.03 $0.03
Diluted net earnings per share $0.04 $0.12 $0.03 $0.03
1997
First Second Third Fourth
----- ------ ----- ------
Net sales $10,105 $12,016 $10,554 $10,314
Net earnings $109 $448 $188 $30
Basic net earnings per share $0.03 $0.11 $0.04 $0.01
Diluted net earnings per share $0.03 $0.10 $0.04 $0.01
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Wells-Gardner Electronics Corporation:
We have audited the accompanying balance sheets of Wells-Gardner
Electronics Corporation as of December 31, 1998 and 1997 and the related
statements of earnings, shareholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1998. 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, 1998 and 1997, and the
results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
January 29, 1999
<PAGE>
BOARD OF DIRECTORS
Anthony Spier Ira J. Kaufman Randall S. Wells
Chairman of the Board, Senior Managing Director of Executive Vice President
President & Mesirow Financial, Inc. & General Manager
Chief Executive Officer
John R. Blouin Frank R. Martin Ernest R. Wish
President of Senior Partner of Righeimer, Chairman of the
James Industries, Inc. Martin & Cinquino, P.C. Board of WRM, Inc.
Marshall L. Burman James J. Roberts, Jr.
Counsel with Wildman, Chairman of the Board
Harrold, Allen & Dixon & Chief Executive Officer
of James Industries, Inc.
OFFICERS
Anthony Spier Larry S. Mahl George B. Toma CPA, CMA
Chairman of the Board, Director of Materials Vice President of Finance,
President & Chief Financial Officer &
Chief Executive Officer Treasurer
Gene Ahner John S. Pircon Randall S. Wells
Director of Human Resources Vice President of Executive Vice President
& Corporate Secretary Marketing & General Manager
Kathleen E. Hoppe Eric Slagh
Director of Information Director of Quality
Technology
Mark E. Komorowski Jeffrey A. Sterling
Vice President of Vice President of
Service and Coin Engineering
_____________________________________________________________________________
<PAGE>
CORPORATE OFFICES TRANSFER AGENT
Wells-Gardner Electronics Corporation LaSalle National Bank
2701 North Kildare Avenue 135 South LaSalle Street
Chicago, Illinois 60639 Chicago, Illinois 60603
Telephone: 773/252-8220 Telephone: 800/246-5761
Fax: 773/252-8072
Internet: www.wgec.com CORPORATE BANKERS
American National Bank & Trust
ANNUAL MEETING Chicago, Illinois
The annual meeting of shareholders will
take place on April 27, 1999 at 2:00 p.m. INDEPENDENT AUDITORS
at the corporate offices of the Company. KPMG LLP
Chicago, Illinois
FORM 10-K
A copy of the Company's annual report on GENERAL COUNSEL
Form 10-K, without exhibits, as filed Katten Muchin & Zavis
with the Securities and Exchange Chicago, Illinois
Commission is available without charge
upon written request to Mr. George INVESTMENT BANKERS
B. Toma at the corporate offices of Mesirow Financial
the Company. Chicago, Illinois
SALES REPRESENTATIVE AGREEMENT
This SALES REPRESENTATIVE AGREEMENT (this "Agreement") is made
and entered into this 9th day of December, 1998, effective January 1,
1999, between WELLS-GARDNER ELECTRONICS CORPORATION, an Illinois
corporation (the "Company"), JAMES INDUSTRIES, INC., an Illinois
corporation (the "Representative"), JAMES J. ROBERTS, JR. ("Roberts"),
and JOHN R. BLOUIN ("Blouin").
WHEREAS, the Company designs, manufactures and markets electronics
video products consisting primarily of video monitors;
WHEREAS, the Company, the Representative and Roberts entered into a
Sales Representative Agreement dated January 1, 1996, as amended August
15, 1997, 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 (collectively, the "Former Sales Representative Agreement");
WHEREAS, the Representative, Roberts and Blouin have executed a
Promissory Note in favor of the Company of even date herewith (the
"Note"); and
WHEREAS, the Company, the Representative, Roberts and Blouin desire
to cancel the Former Sales Representative Agreement and enter into this
Agreement, 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 and other valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Definitions.
"Annual Sales Goal" shall be the original equipment manufacturer
("OEM") sales goal for each fiscal year agreed upon between the Company
and the Representative and provided for in the annual budget approved by
the Board of Directors of the Company.
"Markets" shall mean the following markets and uses in which and
for which the Products may be sold: amusement, leisure/fitness, gaming,
automotive, and shall include only OEM customers.
"Net Sales" shall mean the aggregate amount of the Company's net
sales of Products in the Markets. For purposes of determining
commissions, Net Sales shall be calculated at the end of each month by
annualizing year-to-date Net Sales.
"New Accounts" shall mean companies agreed upon by the
Representative and the Company to which the Company has sold less than
$10,000 of Products in the twenty-four months prior to the date of this
Agreement.
<PAGE>
"Products" shall mean all new and refurbished video monitors,
mechanical coin mechanisms and coin doors, liquid crystal displays and
plasma unit products currently produced or assembled and/or sold by the
Company and all future versions of such items. The Products shall not
include any newly developed, acquired or licensed products without the
prior written consent of the Company, which may be withheld in its sole
discretion.
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 geographic areas other than the
Territory.
4. Sales Invoicing. The Company shall prepare 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 45th 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 4.15% of Net Sales of Products in the
Markets to the international accounts listed on Exhibit A attached
hereto for such month; plus
(ii) a commission of 4.15% of Net Sales of Products in the
Markets for finished goods and refurbished monitors to the service
accounts listed on Exhibit B attached hereto for such month; plus
(iii) a commission of 1.00% of Net Sales of Products in the
Markets for finished goods and refurbished monitors to Mazzco and Happ
Controls for such month; plus
(iv) a commission of 2.28% of Net Sales of all t-models,
excluding consigned panels and controllers for such month; plus
(v) a commission of 4.15% of Net Sales of Products in the
Markets for such month for which commissions have not been paid
pursuant to Sections 5(a)(i)-(iv) above.
<PAGE>
(b) New Customer Commission. In addition to the commissions
payable pursuant to Sections 5(a) and 5(c), the Company shall pay to the
Representative a commission of 0.5% of Net Sales of Products to New
Accounts during the first twelve months of sales to such New Accounts.
(c) Sales Goal Commissions. In addition to the commissions payable
pursuant to Sections 5(a) and 5(b), the Company shall pay to the
Representative a commission of 0.5% of the Company's Net Sales of
Products in excess of the Annual Sales Goal.
(d) Excluded Transactions. Notwithstanding Section 5(a) above, the
Company shall pay no commission on the following transactions:
(i) service sales, including parts, labor, finished goods and
refurbished monitors to any operators and distributors except as
explicitly provided for in Section 5(a)(ii) and (iii) above;
(ii) sales to OEM accounts listed on Exhibit C, attached
hereto; and
(iii) sales to Representative and its affiliates; provided
that the Company gives such companies the best available export pricing
and terms.
(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.
(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 the Section 5, such
statements shall be conclusively deemed to be correct and binding upon
the Representative.
(g) The parties agree not to amend the provisions of this Section
5 during the term of this Agreement, except as provided in Section
14(e).
<PAGE>
(h) The Company shall have the right of set-off against amounts
due to it under the Note and any amendment thereto or other extension of
credit to Representative or any Representative Affiliate (as
hereinafter defined).
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 or modify 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
(b) that the Representative at no time shall represent itself as
the "owner of Wells-Gardner";
<PAGE>
(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 no 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 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 and the Representative or
Representative Affiliate is not disputing such Representative Debt in
good faith and provides written notice of such dispute to the Company
(explaining in detail the dispute and reasons for its position), 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 sole discretion, to either (i)
apply to the Representative Debt any and all 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 33 1/3% of the voting power or the
equity of which is beneficially owner, directly or indirectly by the
Representative, Roberts or Blouin.
14. Term and Termination.
(a) Unless otherwise terminated in accordance with its terms, the
term of this Agreement shall be from the date hereof, to December 31,
2003; provided, however, that this Agreement shall be automatically
renewed for successive periods of one year, provided further that
neither party shall have given the other party twelve months prior
advance written notice of its intent to not renew this Agreement for a
successive one year term. Notwithstanding the above, this Agreement may
be terminated by the Representative or the Company with approval of the
Company's Board of Directors upon twelve (12) months prior written
notice to the other party (such termination, the expiration of this
Agreement in accordance with its terms or a termination pursuant to
Section 14(e) are collectively referred to herein as a "Board
Termination").
<PAGE>
(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, the Note or the Guaranty dated of
even date herewith by and between the Company, Roberts and Blouin (the
"Guaranty") 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.
(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, Roberts, Blouin or any Representative Affiliate, or the
institution of proceedings by or against the Representative, Roberts,
Blouin or any Representative Affiliate 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
Representative shall negotiate the terms on which this Agreement shall
continue, and if the parties fail to reach an agreement after a period
of twelve (12) months, this Agreement shall forthwith terminate.
(f) The parties agree that in the event of the termination of this
Agreement for any reason other than pursuant to a Board Termination, the
Company will not employ any person employed by the Representative,
Roberts or Blouin 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 hereunder or otherwise, 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 of payment hereof.
<PAGE>
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").
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, Roberts and Blouin 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, Roberts and Blouin agree that during the
term hereof and, if, but only if, this Agreement is terminated other
than pursuant to a Board Termination, then for a period of one (1) year
after 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, Robert's and Blouin'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, Roberts and Blouin 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.
(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 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.
<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, 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
any 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
North Kildare Avenue
Chicago, Illinois 60629
If to the Representative, Roberts or Blouin:
James Industries, Inc.
Colonial Parkway
Inverness, Illinois 60067
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 solely 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.
<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,
the Guaranty and Note 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 Former Sales
Representative Agreement. 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 Roberts or Blouin on behalf of the
Representative, Roberts, Blouin 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 of first written above.
WELLS-GARDNER
ELECTRONICS CORPORATION JAMES INDUSTRIES, INC.
By: /S/ ANTHONY SPIER By: /S/ JAMES J. ROBERTS JR.
Title: CEO Title: CEO
/S/ JAMES J. ROBERTS JR.
JAMES J. ROBERTS, JR.
/S/ JOHN R. BLOUIN
JOHN R. BLOUIN
<PAGE>
EXHIBIT A
INTERNATIONAL ACCOUNTS
1. Lomonoco
2. Arigato
3. Deith Leisure
4. Trident Gaming
5. Namco Ireland
6. Diveberas
EXHIBIT B
SERVICE ACCOUNTS
1. RBA
2. Laniel
3. Churchill
4. Hanaho
5. Fun Company
6. Miscellaneous OEMs
EXHIBIT C
OEM HOUSE ACCOUNTS
1. Mentus
2. Telesensory*
3. Optelec
4. Polaroid
5. Mendes
* will be reviewed by Wells-Gardner management on June 30, 1999. If
Wells-Gardner management is satisfied with James Industries performance,
commission will be restated at 2.075%.
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (the "Guaranty") is made as of December 9,
1998, by JOHN R. BLOUIN, an individual ("Blouin"), with a residence at
56 Carriage House Lane, Orland Park, Illinois 60467, and JAMES J.
ROBERTS, JR., an individual with a residence at 1670 Pheasant Trail,
Inverness, Illinois 60067 ("Roberts") (Blouin and Roberts hereinafter
are referred to as the "Guarantor"), 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"), Roberts and Blouin (Industries,
Blouin and Roberts hereinafter are referred to collectively as the
"Debtors"), and the Secured Party have entered into a 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
unconditional 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:
(i) Whether such indebtedness is for principal, interest,
fees, costs, expenses, or otherwise;
<PAGE>
(ii) whether such indebtedness exists now or is hereafter
incurred; and
(iii) whether such indebtedness is direct, 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 hereof), 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 party 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
(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.
<PAGE>
(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, and 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
(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.
<PAGE>
(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 party 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 Obligations 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 of 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;
(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;
<PAGE>
(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 creditor's rights generally.
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:
<PAGE>
(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 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
therein.
(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.
(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.
<PAGE>
(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.
12. Entire Agreement
This Guaranty, together with the Note and the other Loan Documents,
sets forth the entire understanding of the parties with respect to the
subject matter of this Guaranty and supersedes any other agreement,
whether oral or written, between the parties with respect to the subject
matter of this Guaranty, including, without limitation, that certain
Guaranty between the parties dated August 15, 1997.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by a duly authorized officer, as of the date first above
written.
/S/ JOHN R. BLOUIN
JOHN R. BLOUIN, an individual
/S/ JAMES J. ROBERTS, JR.
JAMES J. ROBERTS, JR,, an individual
ACKNOWLEDGED AND ACCEPTED:
WELLS-GARDNER ELECTRONICS CORPORATION
By: /S/ ANTHONY SPIER
Name: Anthony Spier
Title: CEO
PROMISSORY NOTE
$524,101.97 December 9, 1998
This PROMISSORY NOTE (the "Note") is made as of the date
hereinabove by JAMES INDUSTRIES, INC., an Illinois corporation
("Industries"), with a mailing address at 1619 Colonial Parkway,
Inverness, Illinois 60067, JAMES J. ROBERTS, JR., an individual
("Roberts"), with a mailing address at 1670 Pheasant Trail, Inverness,
Illinois 60067 and JOHN R. BLOUIN, an individual ("Blouin") with a
mailing address at 56 Carriage House Lane, Orland Park, Illinois 60467
(Industries, Roberts and Blouin 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 FIVE HUNDRED
TWENTY FOUR THOUSAND ONE HUNDRED ONE DOLLARS AND 97/100THS ($524,101.97)
(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. The Loan shall be payable in monthly installments of TWENTY
TWO THOUSAND FOUR HUNDRED SEVENTY FIVE DOLLARS AND 00/100THS
($22,475.00) (each a "Monthly Installment") commencing on the day on
which the commissions (as provided in Section 5(a) of that certain Sales
Representative Agreement dated December 9, 1998 between Borrowers and
Lender (the "Sales Representative Agreement")) is paid to Industries (a
"Commission Payment Date"), and continuing on the next succeeding
Commission Payment Date of each and every succeeding month thereafter
until the "Maturity Date" (as that term is hereinafter defined),
allocated between interest and principal as follows:
<PAGE>
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 allocated to each Monthly Installment until the
Maturity Date, 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 American National Bank
and Trust Company of Chicago 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
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 sixty (360) days.
Interest on this Note shall be determined on the close of business on
the business day immediately prior to the 15th day of each month and
shall be adjusted in accordance with the Prime Rate on such date.
1.2 Principal Payments. The portion of each Monthly Installment
not allocated to interest pursuant to Section 1.1 above shall be
allocated to principal of the Loan, each reducing of the outstanding
principal balance of the Loan. Attached as Schedule A is an allocation
of the principal and interest on each installment as if the Prime Rate
does not adjust during the term of the Loan.
1.3 Method of Payment. On the date a Monthly Installment 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 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 the earlier to occur of (i) January
15, 2001 or (ii) the date which is six (6) months after the date notice
of termination of the Sales Representative Agreement is given (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.
<PAGE>
1.6 Prepayment. 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.
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 Roberts, 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) and 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.
III
CONDITIONS
The obligation of Lender to make the Loan hereunder is subject to the
following conditions precedent or concurrent:
<PAGE>
3.1 Financial Statements. From time to time during the term of
this Note, Lender shall receive, upon written request, 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 copy of the Guaranty
Agreement.
3.3 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) 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.
3.4 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.
IV
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.
<PAGE>
4.3 Waivers, Consents, Etc. Borrower, each guarantor hereof, if
any, and any and all other 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 provision 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
before a court of competent jurisdiction; and (h) 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.
<PAGE>
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 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.
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.
4.10 Entire Agreement. This Note, together with the Loan
Documents, sets forth the entire understanding of the parties with
respect to the subject matter of this Note and supersedes any other
agreement, whether oral or written, between the parties with respect to
the subject matter of this Note, including, without limitation, that
certain Note between the parties dated August 15, 1997 which is hereby
canceled.
<PAGE>
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: /S/ JAMES J. ROBERTS, JR.
Name: James J. Roberts, Jr.
Title: CEO
/S/ JAMES J. ROBERTS, JR.
JAMES J. ROBERTS, JR,, an individual
/S/ JOHN R. BLOUIN
JOHN R. BLOUIN, an individual
VOTING RIGHTS AGREEMENT
This AGREEMENT dated as of the 9th day of December, 1998, by and
among Randall S. Wells ("Wells"), Anthony Spier ("Spier"), 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 01-23-91 (collectively
"Roberts");
WHEREAS, Roberts and Blouin own beneficially all of the outstanding
Capital Stock of JI and Roberts owns beneficially 558,436 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:
Shareholder Shares Owned
James J. Roberts, Jr. 4,800
James J. Roberts, Jr. 553,636
as trustee
WHEREAS, all of such Roberts' Common Shares are pledged to various
pledgees as collateral for loans; and
WHEREAS, the parties deem it to be in their mutual best interest
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 new Sales Representative
Agreement (the "Representative Agreement") with JI, Roberts and Blouin
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, 2003, 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, Wells 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 resignation, 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 not approved by a
majority of the Board of Directors, another person shall be designated
as set forth below until so approved:
(i) Upon the resignation, death or incapacity of Blouin or
his successor Nominee, then Roberts or his successor Nominee and
the estate or guardian of Blouin or his successor Nominee shall
have the right to designate another person as Nominee to replace
Blouin or his successor Nominee for purposes of paragraph 1(a)
above;
(ii) Upon the resignation, death or incapacity of Roberts or
his successor Nominee, then Blouin or his successor Nominee and the
estate or guardian of Roberts or his successor Nominee shall have
the right to designate another person as Nominee to replace Roberts
or his successor Nominee for purposes of paragraph 1(a) above;
(iii) Upon the resignation, death or incapacity of Wells
or his successor Nominee, then Spier or his successor Nominee shall
have the right to designate another person as Nominee to replace
Wells or his successor Nominee for purposes of paragraph 1(a)
above; and
(iv) Upon the resignation, death or incapacity of Spier or his
successor Nominee, then Wells or his successor Nominee shall have
the right to designate another person as Nominee to replace Spier
or his successor Nominee 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, Wells, 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 each of the parties under this Agreement
shall also be binding upon any of their transferees, except as otherwise
provided herein.
<PAGE>
2. Death. Within ninety (90) days after the death of each party,
the executor or administrator of any party's estate and the successor
trustee of any party shall notify the Company of the provisions of his
will and the provisions of a trust, if any, governing the distribution
of that party's Common Shares. Such executor or administrator and
successor trustee and all beneficiaries and heirs, devisees and legatees
of such party, 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 14 thereof, except that in the event of a termination of the
Representative Agreement by the Company under paragraph 14(c) thereof,
for purposes of this Agreement, Termination shall be deemed to occur on
December 31, 2003, or at the end of any additional period for which the
Representative Agreement had then been automatically renewed under
paragraph 14(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 2contained in an agreement
dated as of December 9, 1998 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, 2003. 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 and the Voting Rights Agreement dated February 29, 1996, each
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.
/S/ ANTHONY SPIER /S/ JAMES J. ROBERTS JR.
ANTHONY SPIER JAMES J. ROBERTS, JR.
/S/ RANDALL S. WELLS /S/ JAMES J. ROBERTS JR.
RANDALL S. WELLS JAMES J. ROBERTS, JR., AS
TRUSTEE OF THE JAMES J.
ROBERTS, JR. TRUST UTA
DATED 01-23-91
/S/ JOHN R. BLOUIN
JOHN R. BLOUIN
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Wells-Gardner Electronics Corporation:
Under date of January 29, 1999, we reported on the balance sheets of
Wells-Gardner Electronics Corporation (Company) as of December 31, 1998
and 1997, and the related statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period
ended December 31, 1998, which are included in the 1998 annual report to
shareholders. These financial statements and our report thereon are
incorporated by reference in the December 31, 1998 annual report on Form
10-K. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedule.
The 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 schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Chicago, Illinois
January 29, 1999
CONSENT OF KPMG LLP
The Board of Directors and Shareholders
Wells-Gardner Electronics Corporation:
We consent to incorporation by reference in the Registration Statements
on Form S-8 (#2-72090, #2-09137, #33-63920, #33-61535, #33-02981 and
#333-72629) of Wells-Gardner Electronics Corporation of our reports
dated January 29, 1999, relating to the balance sheet of Wells-Gardner
Electronics Corporation as of December 31, 1998 and 1997, and the
related statements of operations, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1998,
and the related schedule, which reports are included in or incorporated
by reference in the December 31, 1998 annual report on Form 10-K of
Wells-Gardner Electronics Corporation.
KPMG LLP
Chicago, Illinois
March 18, 1999
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 26
<SECURITIES> 0
<RECEIVABLES> 5,381
<ALLOWANCES> 85
<INVENTORY> 8,579
<CURRENT-ASSETS> 14,415
<PP&E> 10,647
<DEPRECIATION> 7,998
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0
0
<COMMON> 4,286
<OTHER-SE> 8,434
<TOTAL-LIABILITY-AND-EQUITY> 19,671
<SALES> 42,590
<TOTAL-REVENUES> 42,590
<CGS> 35,732
<TOTAL-COSTS> 41,086
<OTHER-EXPENSES> 505
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<INTEREST-EXPENSE> 401
<INCOME-PRETAX> 999
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