<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-27376
---------------
ELCOM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3175156
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 OCEANA WAY
NORWOOD, MASSACHUSETTS 02062
(617) 440-3333
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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
--- ---
The registrant had 26,544,285 shares of common stock, $.01 par value,
outstanding as of October 31, 1996.
<PAGE> 2
INDEX
Part I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1995
and September 30, 1996 (unaudited)........................................ 2
Consolidated Statements of Operations - Three and Nine Months Ended
September 30, 1995 and 1996 (unaudited).................................. 3
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1995 and 1996 (unaudited).................................. 4
Notes to Consolidated Financial Statements (unaudited)...................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................................ 7
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................... 12
ITEM 2. NONE.
ITEM 3. NONE.
ITEM 4. NONE.
ITEM 5. NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 13
SIGNATURE .................................................................................... 13
EXHIBITS
EXHIBIT 10.23 THE 1996 STOCK OPTION PLAN OF ELCOM INTERNATIONAL, INC.
EXHIBIT 10.24 EMPLOYMENT AGREEMENT BY AND BETWEEN THE COMPANY AND LAURENCE F. MULHERN
DATED JULY 1, 1996
EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 27 FINANCIAL DATA SCHEDULE
</TABLE>
1
<PAGE> 3
ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
ASSETS (Note 2)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash ..................................................... $ 44,977 $ 20,106
equivalents
Accounts receivable, net of allowance for doubtful
accounts of $1,709 and $2,072 .................................. 72,632 127,637
Inventory ........................................................... 17,270 24,469
Prepaids and other current assets ................................. 1,902 1,186
--------- ---------
Total current assets ....................................... 136,781 173,398
--------- ---------
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
Computer hardware and software .................................... 11,629 15,404
Leasehold improvements ............................................ 1,935 2,260
Furniture, fixtures and equipment ................................. 4,130 5,094
--------- ---------
17,694 22,758
Less -- Accumulated depreciation and amortization ................. 8,740 11,735
--------- ---------
8,954 11,023
--------- ---------
GOODWILL, NET OF ACCUMULATED AMORTIZATION ........................... 28,137 26,756
OTHER ASSETS AND DEFERRED COSTS, NET OF ACCUMULATED
AMORTIZATION ........................................................ 359 809
--------- ---------
$ 174,231 $ 211,986
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit ................................................... $ 45,611 $ 63,999
Accounts payable .................................................. 33,417 41,932
Accrued expenses and other current liabilities .................... 10,077 10,349
Current portion of capital lease obligations ...................... 185 102
--------- ---------
Total current liabilities .................................. 89,290 116,382
--------- ---------
OTHER DEFERRED LIABILITIES .......................................... 43 41
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION ................... 48 141
--------- ---------
91 182
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; Authorized -- 10,000,000 shares --
Issued and outstanding -- None ................................ -- --
Common stock, $.01 par value
Authorized -- 50,000,000 shares --
Issued and outstanding -- 25,510,297 and 26,568,017 shares .... 255 266
Additional paid-in capital ........................................ 91,113 98,341
Accumulated deficit ............................................... (6,494) (2,908)
Cumulative translation adjustment ................................. (24) 89
Treasury stock at cost -- 0 and 37,546 shares ..................... -- (366)
--------- ---------
Total stockholders' equity ................................. 84,850 95,422
--------- ---------
$ 174,231 $ 211,986
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE> 4
ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
(Note 2) (Note 2)
<S> <C> <C> <C> <C>
Net sales .................................... $ 97,898 $ 156,851 $ 203,263 $ 444,572
Cost of sales ................................ 85,545 139,519 177,152 393,855
-------- --------- --------- ---------
Gross profit ................................. 12,353 17,332 26,111 50,717
Expenses:
Selling, general and administrative ........ 11,050 14,346 24,615 42,392
Research and development ................... 260 250 866 835
-------- --------- --------- ---------
Total expenses ............................... 11,310 14,596 25,481 43,227
-------- --------- --------- ---------
Operating profit ............................. 1,043 2,736 630 7,490
Interest expense ............................. (690) (936) (1,275) (2,705)
Interest income and other, net ............... 77 282 127 1,265
-------- --------- --------- ---------
Income (loss) before income taxes ............ 430 2,082 (518) 6,050
Provision for income taxes ................... 513 772 736 2,464
-------- --------- --------- ---------
Net income (loss) ............................ $ (83) $ 1,310 $ (1,254) $ 3,586
======== ========= ========= =========
Net income (loss) per share .................. $ (--) $ .04 $ (.07) $ .12
======== ========= ========= =========
Weighted average common shares outstanding ... 23,201 29,435 18,817 29,604
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 5
ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1995 1996
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: ............................... (Note 2)
Net income (loss) ................................................. $ (1,254) $ 3,586
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization ................................... 2,218 4,745
Provision for doubtful accounts ................................. 558 525
Other deferred liabilities ...................................... -- (2)
Changes in current assets and liabilities, net of acquisitions --
Accounts receivable ........................................... (28,331) (55,227)
Inventory...................................................... 5,155 (7,028)
Prepaids and other current assets ............................. (61) 707
Accounts payable .............................................. (9,785) 8,276
Accrued expenses, other current liabilities and other ......... (2,927) 223
-------- --------
Net cash used in operating activities ...................... (34,427) (44,195)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and software ...................... (3,134) (4,944)
Increase in other assets and deferred costs ....................... (1,150) (764)
Purchase of LANTEC Holdings Limited ............................... (6,452) --
Other investing activities ........................................ 153 216
-------- --------
Net cash used in investing activities ....................... (10,583) (5,492)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of preferred stock ........................................... 19,063 --
Net borrowings under lines of credit .............................. 32,429 18,349
Sale of common stock .............................................. -- 6,240
Repayment of capital lease obligations ............................ (143) (166)
Proceeds from stock option exercises .............................. 8 787
Repayment of Computerware shareholder loans ....................... (5,000) --
Purchase of Treasury stock ........................................ -- (366)
-------- --------
Net cash provided by financing activities ................... 46,357 24,844
-------- --------
FOREIGN EXCHANGE EFFECT ON CASH ..................................... (26) (28)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................................. 1,321 (24,871)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ............................................... 5,320 44,977
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ $ 6,641 $ 20,106
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid .................................................... $ 1,348 $ 2,650
======== ========
Income taxes paid ................................................. $ 136 $ 73
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Retirement of fully depreciated assets ............................ $ 1,304 $ --
======== ========
Increase in capital lease obligations ............................. $ -- $ 176
======== ========
(See Note 2 for noncash acquisition information)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 6
ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Elcom
International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany accounts and transactions have been
eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
of the Company as of September 30, 1996, and the results of operations and cash
flows for the periods ended September 30, 1995 and 1996. The results of
operations for these periods are not necessarily comparable to, or indicative
of, results of any other interim period or for the year as a whole. Certain
financial information that is normally included in financial statements prepared
in accordance with generally accepted accounting principles, but which is not
required for interim reporting purposes, has been omitted. For further
information, reference should be made to the consolidated financial statements
and accompanying notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and the Company's reports concerning the AMA
(U.K.) Limited acquisition on Form 8-K, which was filed on March 12, 1996 and
amended on May 3, 1996, as well as the Company's Quarterly ReportS on Form 10-Q
for the quarters ended March 31 and June 30, 1996.
2. ACQUISITION
AMA (U.K.) Limited
On February 29, 1996, the Company completed the acquisition of AMA
(U.K.) Limited ("AMA"), a remarketer of personal computer products in the United
Kingdom. As consideration for this acquisition, the Company issued 3,247,371
shares of common stock. The acquisition was a share-for-share exchange
transaction and has been accounted for as a pooling-of-interests. Accordingly,
the financial position and results of operations of the Company have been
combined with those of AMA in fiscal 1996 and retroactively restated for all
prior periods presented to give effect to the AMA acquisition.
The Company's unaudited pro forma condensed consolidated quarterly
statement of operations information for 1995 giving effect to the AMA
acquisition is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net sales ..................... $ 42,929 $ 62,436 $ 97,898 $ 108,160 $ 311,423
Gross profit .................. 5,731 8,027 12,353 13,271 39,382
Operating profit (loss) ....... (305) (108) 1,043 1,614 2,244
Net income (loss) ............. (580) (591) (83) 350 (904)
Pro forma net income (loss) per
share ...................... $ (.04) $ (.03) $(.--) $ .01 $ (.05)
Pro forma weighted average
common shares outstanding .. 15,781 17,423 23,201 25,386 20,001
</TABLE>
5
<PAGE> 7
3. UNDERWRITER OVER-ALLOTMENT OPTION
On January 19, 1996, the underwriters of the Company's initial public
offering exercised their over-allotment option and purchased 800,000 shares of
common stock at $11 per share. Of the 800,000 shares sold, 629,489 were sold by
the Company and 170,511 were sold by certain stockholders of the Company. Net
proceeds to the Company as a result of this transaction amounted to $6.2
million.
4. NET INCOME (LOSS) PER SHARE
Net income (loss) per share during 1995 and 1996 are based on the
weighted average number of common and common equivalent shares outstanding
during each year, restated to reflect the 3,247,371 shares issued in connection
with the AMA transaction as outstanding during all periods presented. For 1995,
all shares, options and warrants issued during the twelve months immediately
preceding the Company's initial public offering in December 1995, were treated
as if they had been outstanding for all periods, calculated in accordance with
the treasury stock method. In addition, 1995 share information assumes the
conversion of preferred stock into common stock (which occurred in connection
with consummation of the Company's initial public offering) as if the conversion
occurred on the earlier of January 1, 1995 or when such stock was issued.
5. COMMITMENTS AND CONTINGENCIES
On May 30, 1996, the Company filed a complaint in the Civil Division of
the Court of Common Pleas of Bucks County Pennsylvania (Civil Action No.
96004108-22-05) against John R. Kovalcik, Sr., John R. Kovalcik, Jr., James R.
Kovalcik, Thomas M. Kovalcik and David E. Kovalcik (collectively the "Kovalciks"
or the "Defendants"), the principal former owners of Computerware Business Trust
("Computerware"), which the Company acquired by a merger in February 1995. As of
May 29, 1996, none of the Kovalciks, certain of whom had been terminated by the
Company, were employed by the Company, including John R. Kovalcik, Jr., a former
Corporate Executive Vice President and President of Catalink Direct, Inc., who
resigned from the Company's Board of Directors effective April 24, 1996. The
Company's complaint, which was subsequently amended, seeks to: (1) enforce
confidentiality agreements/obligations and prevent the misappropriation of
proprietary Company information and Company property, (2) obtain a declaration
from the Court that certain of the Kovalciks' rights under stock option
agreements are limited; (3) enforce the covenants of the merger agreement to
determine the final amount of the purchase price of Computerware, and (4)
recover damages arising from various causes including the Defendant's fraudulent
misrepresentations, and certain breaches of the merger agreement.
The Defendants have counterclaimed against the Company seeking to: (1)
rescind the merger agreement on the purported grounds that it was not legal, or
in the alternative to receive unspecified additional purchase price
consideration; (2) receive unspecified damages for: fraud, breaches of the
merger agreement and of employment and stock option agreements, wrongful
termination, conversion, misappropriation of trade secrets, unfair competition,
and defamation; and (3) have the Court declare the status of the rights of
certain Kovalciks under their stock option agreements as being more favorable
than the Company contends.
The Company believes that the Defendants' Counterclaims are without
merit and intends to vigorously defend against them. The Company, based on its
investigations and inquiries, in conjunction with consultations with its legal
counsel, has found no controlling precedent which supports the contention that
the merger was not legal and therefore, believes that the possibility of the
Computerware merger being rescinded by the Court is remote. However, if
Defendants were to prevail on this claim, it would have a material adverse
effect on the Company. The outcome of the other Counterclaims is not
predictable, however the Company does not believe the final resolution of these
Counterclaims will have a material adverse effect on its financial position.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
To date, the Company's net sales have been derived substantially from
the sale of PC products by the Company's wholly-owned subsidiary, Catalink
Direct, Inc. ("Catalink"), and its subsidiaries to corporate customers through
the Company's proprietary Personal Electronic Catalog and Ordering System
("PECOS") technology and through telephone and facsimile orders. In addition,
the Company, through its wholly-owned subsidiary, Elcom Systems, Inc. ("Elcom"),
generates revenues from licensing its PECOS technology and providing related
services to other companies.
The Company was founded in 1992, commenced operations in December 1993
and has experienced rapid growth. The Company achieved its growth by offering
its PECOS technology to its Catalink customers and via their subsequent use of
PECOS, and by various marketing efforts, including the expansion of its direct
sales force nationwide; and by the acquisition of four PC products remarketers.
In October 1994, the Company completed the acquisition of a Connecticut-based PC
products remarketer, which was accounted for on a pooling-of-interests basis.
Accordingly, the results of this entity (which was merged into Catalink in
December 1995) have been included with the Company's results since the date of
the Company's organization. In February 1995, the Company acquired Catalink
Direct (Pennsylvania), Inc., formerly known as Computerware Business Trust
("Computerware"), a Bristol, Pennsylvania-based PC products remarketer. In June
1995, the Company acquired all of the equity of a PC products remarketer in the
United Kingdom operating as LANTEC Information Services Limited ("LANTEC"). The
Computerware and LANTEC acquisitions have been accounted for as purchase
transactions. In February 1996, the Company completed the acquisition of AMA
(U.K.) Limited ("AMA"), a remarketer of PC products in the United Kingdom, which
has been accounted for on a pooling-of-interests basis. Accordingly, AMA's
results have been included with the Company's results since the date of the
Company's organization. The Company's acquisition strategy includes utilizing an
acquired company's sales force to offer PECOS to prospective customers in those
new markets and, over a period of time, to transition the acquired company's
customers to the PECOS system. The Company intends to acquire additional
companies either to expand its customer base and the use of PECOS or to
complement its technology, although there can be no assurance as to the success
or timing of any such acquisitions.
RESULTS OF OPERATIONS
Quarter ended September 30, 1996 compared to the quarter ended September 30,
1995.
Net Sales. Net sales for the quarter ended September 30, 1996 increased
to $156.9 million from $97.9 million in the same period of 1995, an increase of
$59 million or 60%. Net sales for Catalink alone, excluding the results of
Computerware, LANTEC, Elcom Systems and AMA, grew from $34.9 million in the 1995
quarter to $75.6 million in the 1996 quarter, a 117% increase. This increase is
generally attributable to increased sales staffing, the use of the Company's
PECOS technology to market to potential customers and the consequent generation
of incremental customers and related sales, and to a certain extent, from
increased sales to existing customers. Net sales of the Company's United
Kingdom-based operations (LANTEC and AMA) increased from $36.7 million in the
1995 quarter to $43.4 million in the third quarter of 1996.
Gross Profit. Gross profit for the quarter ended September 30, 1996
increased to $17.3 million from $12.4 million in the 1995 quarter, an increase
of $4.9 million or 40%. The increase in gross profit dollars generated resulted
from the substantial growth in net sales. Gross profit, including the
contribution from acquisitions, as a percent of net sales, decreased from 12.6%
in the 1995 quarter to 11.0% in the 1996 quarter. This decrease in gross profit
percentage is due primarily to the increasing contribution of net sales
generated from large volume corporate customers which typically generate lower
gross profit percentages on such larger volume sales. The Company anticipates
that its gross profit percentage will continue to decline as a percentage of
sales because Catalink's business strategy includes generating substantial
incremental revenue from both new and existing large volume corporate customers
which typically generate lower gross profit margin percentages than other
customers while minimizing variable operating costs incurred in generating such
gross profit dollars.
7
<PAGE> 9
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the quarter ended September 30, 1996
increased to $14.3 million from $11 million in the 1995 quarter, an increase of
$3.3 million or 30%. This increase is attributable primarily to the increase in
the Company's work force and associated overhead. Other SG&A expenses also
increased as the Company continued to invest in administrative infrastructure to
support its growth, including the ongoing development, augmentation, and
implementation of its new management information system which was purchased and
is being implemented to allow the Company to operate more efficiently by
providing an information systems backbone for the Company and to effectuate the
consolidation of the information and other internal systems of certain
acquisitions. As a result, the Company's level of SG&A expenses in absolute
dollars and as a percentage of sales may be higher than anticipated, primarily
because the new management information system must be fully operational in order
to fully consolidate certain SG&A functions of certain acquired entities. The
Company is also maintaining various manual processes and associated personnel to
facilitate its actual and anticipated growth and will continue to do so until
its new management information system is fully functioning in 1997. Given a
phased implementation, certain redundant overheads may be eliminated prior to
such time. Nonetheless, SG&A expenses decreased as a percentage of net sales for
the quarter ended September 30, 1996 to 9.1%, from 11.3% in the comparable 1995
quarter, reflecting the impact of the increase in net sales, as the Company
transitioned out from its development stage.
Research and Development Expense. Research and development expense has
remained relatively constant between 1995 and 1996. The Company's research and
development expense is focused on developing incremental functionality and
features for its PECOS technology, including modifications to allow
communication using the Internet, the continued development of a browser
compliant version of its PECOS technology, and the development of Java enabled
applets for license to other companies. The Company expects to continue
investing significant amounts in research and development.
Interest Expense. Interest expense for the quarter ended September 30,
1996 increased to $936,000 from $690,000 in the comparable period of 1995.
Interest expense in both years results from floor plan line of credit borrowings
in support of the Company's accounts receivable and inventory and the increase
for 1996 is reflective of the substantial increase in the Company's net sales
referred to above and consequent borrowings required to support the increased
balances of accounts receivable and inventory.
Interest Income and Other, Net. Interest income and other, net,
increased from $77,000 in the 1995 quarter to $282,000 in the quarter ended
September 30, 1996. This increase is a direct result of investment income
generated by investment of available net proceeds remaining from both the sale
of the Company's common stock in its initial public offering in December 1995
and from the sale of 629,489 additional shares of common stock upon exercise of
the underwriters' over-allotment option in January 1996.
Income Tax Provision. The income tax provisions in 1995 and 1996
primarily relate to income taxes of AMA and LANTEC and certain current U.S.
state income tax provisions.
Net Income (Loss). The Company reported net income for the quarter
ended September 30, 1996 as a consequence of the factors described herein.
Nine months ended September 30, 1996 compared to the nine months ended September
30, 1995.
Net Sales. Net sales for the nine months ended September 30, 1996
increased to $444.6 million from $203.3 million in the same period of 1995, an
increase of $241.3 million or 119%. Net sales for the nine month period ended
September 30, 1996 included sales of Computerware and LANTEC which were acquired
in February and June 1995, respectively. Net sales for Catalink alone, excluding
Computerware, LANTEC, Elcom Systems, and AMA grew from $76.6 million to $208.0
million or 172% for the nine months ended September 30, 1996. This increase is
generally attributable to increased sales staffing, the use of the Company's
PECOS technology to market to potential customers and the consequent generation
of incremental customers and related sales, and to a certain extent, from
increased sales to existing customers. Net sales of the Company's United Kingdom
based operations
8
<PAGE> 10
for the nine month period ended September 30, 1996 increased to $127.4 million
from $59.6 in the comparable period one year ago, reflecting the inclusion of
LANTEC's financial results from its date of acquisition.
Gross Profit. Gross profit for the nine months ended September 30, 1996
increased from $26.1 million to $50.7 million, an increase of $24.6 million or
94% versus the comparable 1995 period. The increase in gross profit dollars
generated resulted from the substantial growth in net sales. Gross profit,
including the contribution from acquisitions, as a percent of net sales
decreased from 12.8% in 1995 to 11.4% in 1996. The Company anticipates that its
gross profit percentage will continue to decline because Catalink's business
strategy includes generating substantial incremental revenue from both new and
existing large volume corporate accounts which typically generate lower gross
profit margin percentages than other customers, while minimizing variable
operating costs incurred in generating such gross profit dollars.
Selling, General and Administrative Expenses. SG&A expenses for the
nine months ended September 30, 1996 increased to $42.4 million from $24.6
million in the comparable 1995 nine month period, an increase of $17.8 million
or 72%. This increase is attributable primarily to the increase in the Company's
work force and the expenses of the acquired companies, and also reflects
approximately $650,000 of non-recurring expenses relative to the AMA transaction
which has been accounted for on a pooling-of-interests basis. Other SG&A
expenses also increased as the Company continued to invest in administrative
infrastructure to support its growth, including the ongoing development,
augmentation, and implementation of its new management information system. Until
such new system is fully operational, which is expected to occur in 1997, the
Company will be required to maintain redundant overhead of certain acquired
entities, as well as additional personnel and manual support processes to
facilitate its actual and anticipated growth in volume. Nonetheless, SG&A
expenses decreased as a percentage of net sales for the nine months ended
September 30, 1996 to 9.5%, from 12.1% in the comparable 1995 period, reflecting
the impact of the increase in net sales and the slower growth in expenses
relative to such increase in net sales.
Research and Development Expense. Research and development expense has
remained relatively constant between 1995 and 1996. The Company's research and
development expense is focused on developing incremental functionality and
features of the proprietary PECOS technology, including modifications to allow
communication using the Internet, the continued development of a browser
compliant version of its PECOS technology, and the development of Java enabled
applets for license to other companies. The Company expects to continue
investing significant amounts in research and development.
Interest Expense. Interest expense for the nine month period ended
September 30, 1996 increased to $2.7 million from $1.3 million in the comparable
period of 1995. Interest expense in both years results from floor plan
borrowings in support of the Company's accounts receivable and inventory and the
substantial increase in 1996 over 1995 is reflective of the substantial increase
in the Company's net sales activity referred to above, and consequent borrowings
required to support the increased balances of accounts receivable and inventory.
Interest Income and Other, net. Interest income and other, net for the
nine months ended September 30, 1996 increased to $1.3 million from $127,000 in
the same period of 1995. This increase is a direct result of the investment
income generated from the available net proceeds remaining from both the sale of
the Company's common stock in its initial public offering in December 1995 and
from the sale of 629,489 additional shares of common stock upon exercise of the
underwriters' over-allotment option in January 1996.
Income Tax Provision. The income tax provision in 1995 primarily
relates to the income taxes of AMA and LANTEC (after its acquisition) while the
1996 provision relates to income taxes of AMA and LANTEC, as well as certain
current state income taxes payable by the Company.
Net Income (Loss). The Company reported net income for the nine month
period ended September 30, 1996 as a consequence of the factors described
herein.
9
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine month period ended
September 30, 1996 was $44.2 million, including $55.2 million relating to
increases in accounts receivable, resulting from the Company's increase in net
sales during the 1996 period. Net cash used for investing activities was $5.5
million, consisting of $4.9 million in additions to property, equipment and
software and an increase of $.7 million in other assets and deferred costs. Net
cash provided by financing activities was $24.9 million, including $6.2 million
in net proceeds from the Company's sale of common stock to the underwriters of
its Initial Public Offering upon exercise of their over-allotment option,
$787,000 in proceeds from the exercise of stock options and a $18.3 million net
increase in borrowings under floor plan lines of credit.
Net cash used in operating activities for the nine month period ended
September 30, 1995 was $34.4 million and included the net operating cash impact
of Computerware and LANTEC after they were acquired, which occurred in February
and June 1995, respectively. Net cash used in operating activities also included
$28.3 million relating to increases in accounts receivable. Net cash used in
1995 investing activities was $10.6 million and included $6.5 million related to
the purchase of LANTEC and $3.1 million of additions to property, equipment and
software. The Company received a net total of $46.4 million from financing
activities in the first nine months of 1995, including $19.1 million from the
sale of Series B Convertible Preferred Stock and $32.4 million from a net
increase in borrowings under the Company's floor plan lines of credit. Financing
activities in 1995 also reflect a $5 million repayment of Computerware loans to
the former shareholders of Computerware.
At September 30, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of $20.1 million and floor plan lines of
credit from Deutsche Financial Services Corporation ("DFSC"). The DFSC facility
remains available, and has been provisionally increased to $100 million, and
effective July 1, 1996, the interest rate was reduced to the prime rate, all
subject to negotiation of final covenants and agreements. Availability of
borrowings is based on DFSC's determination as to eligible accounts receivable
and inventory. At September 30, 1996, the Company's borrowings from DFSC on its
floor plan line of credit were $58.4 million, which approximated the Company's
availability based on eligible accounts receivable and inventory at that date.
During the first half of 1996, interest was payable monthly at the prime rate
(8.25% at September 30, 1996) plus 1%, and thereafter at the prime rate although
approximately one-half of the Company's initial borrowings do not bear interest
until after 30 days have lapsed. The DFSC line of credit is secured primarily by
the Company's inventory and accounts receivable, although substantially all of
the Company's other assets are also pledged in support of the facility. The
Company is dependent upon the DFSC line of credit to finance increases in its
eligible accounts receivable arising from sales of PC products as well as its
inventory purchases and hence, the Company expects that its borrowings under
such facility will need to continue to increase substantially in order to
support the Company's anticipated growth. There can be no assurance, however,
that the DFSC line of credit will continue to be available, or be increased to
support the Company's requirements. The DFSC line of credit limits borrowings to
defined percentages of eligible inventory and accounts receivable and contains
customary covenants, including financial covenants with respect to the Company's
net worth and debt-to-equity ratios, and customary default provisions related to
non-payment of principal and interest, default under other debt agreements and
bankruptcy. The Company also has a $2 million floor plan financing agreement
with IBM Credit Corporation ("IBMCC") to support purchases of IBM products. The
DFSC and IBMCC borrowing facilities relate to domestic operations only. At
September 30, 1996, the Company's borrowings from IBMCC on its floor plan line
of credit were $295,000.
LANTEC maintains a financing facility with Kellock Limited, an
affiliate of the NatWest Bank, PLC, which provides for borrowings of up to
approximately $7 million. Borrowings bear interest at the Bank of Scotland base
rate (5.75% at September 30, 1996) plus 1.375% and are primarily secured by
accounts receivable.
As of September 30, 1996, the Company had borrowings aggregating
approximately $64 million outstanding under the aforementioned facilities.
Based upon ongoing analyses, and the requirement that it establish a
direct purchasing relationship with a manufacturer to support the recently
awarded Smith Barney contract, the Company has decided to begin dealing in
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<PAGE> 12
certain purchasing relationships directly with selected manufacturers. The
Company believes that it can mitigate substantially the risks associated with
additional inventory positions by limiting the range of models it stocks to
those in high demand and by carefully monitoring items on hand relative to
demand. The Company believes that this change should improve its delivery time
to customers of configured products and, over time, possibly will increase the
profitability of the Company. The Company also will continue to maintain
electronic links and logistical relationships with selected distributors and/or
aggregators.
In order to augment its capital position, the Company is conducting
discussions with selected investment banks to evaluate a possible public
offering of common stock of Elcom Systems, Inc., its wholly-owned technology
subsidiary which developed and licenses its PECOS electronic commerce enabling
software technology. The offering would only be made pursuant to a prospectus
included in a registration statement which would be filed with the Securities
and Exchange Commission. There can be no assurances as to the likelihood, the
success, the valuation, the timing or the size of any such possible capital
offering. In order to support such a possible capital offering, the Company
would likely be required to continue to invest greater than anticipated amounts
in additional sales and support staffing of Elcom Systems.
The Company has filed a complaint against the principal former owners
of Computerware, who in turn have filed counterclaims against the Company. The
Company does not anticipate that the final resolution of this matter will have a
material adverse effect on its financial position, although there can be no
assurance thereof. See Part II, Item 1. Legal Proceedings, and Note 5 to the
Consolidated Financial Statements contained in Part I, Item 1., herein.
The Company's principal commitments consist of leases on its office
facilities, obligations under lines of credit, which are demand facilities and
are treated as current liabilities, and capital leases. Future growth of the
Company will require ongoing investment in property, equipment and software.
The Company believes that its cash and cash equivalents, together with
its existing sources of liquidity and cash generated from operations, will be
sufficient to meet its working capital and capital expenditure requirements for
the next year, so long as its financing sources continue to make lines of credit
available. However, as the Company's business strategy includes growth through
acquisitions, additional sources of financing may be required to accomplish the
Company's growth plans.
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q are forward looking statements
that involve a number of risks and uncertainties which could cause the Company's
future results of operations to differ materially from those anticipated,
including: the continued acceptance of the Company's PECOS technology, the
impact of competitive products and pricing, the success and timing of
implementing the Company's new management information system, business
conditions and growth in the PC industry, the results of pending litigation and
the other risks detailed from time to time in this Quarterly Report on Form 10-Q
and in the Company's SEC reports, including the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and the prospectus included as part of
the S-1 Registration Statement declared effective on December 19, 1995 under the
Securities Act of 1933.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 30, 1996, the Company filed a complaint (Civil Action No.
96004108-22-05) in the Civil Division of the Court of Common Pleas of Bucks
County Pennsylvania (the "Court") against John R. Kovalcik, Sr., John R.
Kovalcik, Jr., James R. Kovalcik, Thomas M. Kovalcik and David E. Kovalcik
(collectively the "Kovalciks" or the "Defendants"), the principal former owners
of Computerware Business Trust ("Computerware"), which the Company acquired by a
merger in February 1995. As of May 29, 1996, none of the Kovalciks, certain of
whom had been terminated by the Company, were employed by the Company, including
John R. Kovalcik, Jr., a former Corporate Executive Vice President and President
of Catalink Direct, Inc., who resigned from the Company's Board of Directors
effective April 24, 1996. The Company's complaint, which was subsequently
amended, seeks to: (1) enforce confidentiality agreements/obligations and
prevent the misappropriation of proprietary Company information and Company
property, (2) obtain a declaration from the Court that certain of the Kovalciks'
rights under stock option agreements are limited; (3) enforce the covenants of
the merger agreement to determine the final amount of the purchase price of
Computerware, and (4) recover damages arising from various causes including the
Defendants' fraudulent misrepresentations, and certain breaches of the merger
agreement.
The Defendants have counterclaimed against the Company seeking to: (1)
rescind the merger agreement on the purported grounds that it was not legal, or
in the alternative to receive unspecified additional purchase price
consideration; (2) receive unspecified damages for: fraud, breaches of the
merger agreement and of employment and stock option agreements, wrongful
termination, conversion, misappropriation of trade secrets, unfair competition,
and defamation; and (3) have the Court declare the status of the rights of
certain Kovalciks under their stock option agreements as being more favorable
than the Company contends.
Pursuant to a stipulation filed with the Court on June 5, 1996, the
Defendants agreed to: (1) maintain the confidentiality of proprietary Company
information; (2) return all Company property in their possession; (3) not
solicit Company employees or customers; and (4) reprogram a sales software
application to permanently eliminate a "functionality interruption" which had
been programmed into this sales software application by a Defendant to disable
the functionality of that software application at a specific time after this
Defendant had left the employ of the Company.
On September 13, 1996, Defendants filed a petition with the Court,
based primarily on their rescission claim, seeking preliminary injunctive relief
with regard to the Company's ongoing reorganization and consolidation of certain
departments and functions of the former Computerware. Defendants' petition was
denied by the Court on September 30, 1996.
The Company believes that the Defendants' Counterclaims are without
merit and intends to vigorously defend against them. The Company, based on its
investigations and inquiries, in conjunction with consultations with its legal
counsel, has found no controlling precedent which supports the contention that
the merger was not legal and therefore, believes that the possibility of the
Computerware merger being rescinded by the Court is remote. However, if
Defendants were to prevail on this claim, it would have a material adverse
effect on the Company. The outcome of the other Counterclaims is not
predictable, however the Company does not believe the final resolution of these
Counterclaims will have a material adverse effect on its financial position.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS:
(10.23) The 1996 Stock Option Plan of Elcom International, Inc.
(10.24) Employment Agreement by and between the Company and Laurence
F. Mulhern dated July 1, 1996
(11) Statement re: computation of per share earnings.
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K.
None
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Elcom International, Inc.
(Registrant)
Date: November 13, 1996 By: /s/ Laurence F. Mulhern
------------------------------
Laurence F. Mulhern
Chief Financial Officer and Treasurer
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<PAGE> 1
EXHIBIT 10.23
THE 1996 STOCK OPTION PLAN
OF ELCOM INTERNATIONAL, INC.
August 19, 1996
Elcom International, Inc. hereby adopts a stock option plan
for the benefit of certain persons and subject to the terms and provisions set
forth below.
1. Definitions. The following terms shall have the meanings
set forth below whenever used in this instrument:
(a) The word "Affiliate" shall mean any
corporation which, on the effective date of
the Plan, is, within the meaning of Section
1563(a) of the Code, a member of a
controlled group of corporations which
includes the Company.
(b) The word "Board" shall mean the Board of
Directors of the Company.
(c) The word "Code" shall mean the United States
Internal Revenue Code (Title 26 of the
United States Code) as the same may be
amended from time to time.
(d) The word "Committee" shall mean the
Compensation Committee appointed by the
Board.
(e) The words "Common Stock" shall mean the
common stock, par value $.01 per share, of
the Company.
(f) The word "Company" shall mean Elcom
International, Inc., a Delaware corporation,
and its Subsidiaries, if any, and any
successor thereto which shall maintain this
Plan.
(g) The words "Incentive Stock Option" shall
mean any option which qualifies as an
incentive stock option under the terms of
Section 422A of the Code.
(h) The words "Key Personnel" shall mean any
person whose performance as an employee
(whether or not as Director) or as an
independent contractor or outside Director
of the Company or an Affiliate of the
Company is, in the judgment of the
Committee, important to the successful
operation of the Company or a Subsidiary.
(i) The word "Optionee" shall mean any Key
Personnel, or the nominee designated by such
Key Personnel and acceptable to the
Committee, to whom a stock option has been
granted pursuant to this Plan, or the
transferee thereof, as allowed by the
Committee and/or the Board.
(j) The word "Plan" shall mean The 1996 Stock
Option Plan of Elcom International, Inc., as
it was originally adopted, and as it may be
amended.
<PAGE> 2
(k) The word "Subsidiary" shall mean any
corporation at least 50% of the common stock
of which is owned directly or indirectly by
the Company.
(l) The words "Substantial Stockholder" shall
mean any Key Personnel who owns more than
10% of the total combined voting power of
all classes of stock of the Company.
Ownership shall be determined in accordance
with Section 424(d) of the Code and lawful
applicable regulations.
2. Purpose of the Plan. The purpose of the Plan is to provide
Key Personnel with greater incentive to serve and promote the interests of the
Company and its stockholders. The premise of the Plan is that, if such Key
Personnel acquire a proprietary interest in the business of the Company or
increase such proprietary interest as they may already hold, then the incentive
of such Key Personnel to work toward the Company's continued success will be
commensurately increased. Accordingly, the Company will, from time to time
during the effective period of the Plan, grant to such Key Personnel as may be
selected to participate in the Plan, options to purchase Common Stock on the
terms and subject to the conditions set forth in the Plan.
3. Effective Date of the Plan. The Plan shall become effective
as of August 19, 1996. In the event the Plan is not approved by the requisite
vote of the holders of the outstanding shares of voting capital stock of the
Company by August 19, 1997, any purported incentive stock options granted
hereunder shall be thereafter treated as non-qualified stock options for all
purposes hereunder.
4. Administration of the Plan. The Plan shall be administered
by the Committee. Each member of the Committee shall be a "Non-Employee
Director" within the meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 or any amendment of or successor to such Rule as may be in
effect from time to time and an "outside director" within the meaning of Section
162(m) of the Code or any amendment of or successor to such provision as may be
in effect from time to time. A majority of the Committee shall constitute a
quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by all of the members,
shall be acts of the Committee. Subject to the terms and conditions of the Plan,
and in addition to the other authorizations granted to the Committee under the
Plan, the Committee shall have full and final authority in its absolute
discretion:
(a) to select the Key Personnel to whom options
will be granted;
(b) to determine the number of shares of Common
Stock subject to any option;
(c) to determine the time when options will be
granted;
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<PAGE> 3
(d) to determine the option price of Common
Stock subject to an option;
(e) to determine the time or times when each
option may be exercised, and the duration of
the exercise period;
(f) to determine whether and to what extent an
option is an Incentive Stock Option;
provided, however, that Incentive Stock
Options may only be granted to employees of
the Company;
(g) to prescribe the form of the option
agreements governing the options which are
granted under the Plan and to set the
provisions of such option agreements as the
Committee may deem necessary or desirable
provided such provisions are not contrary to
the terms and conditions of either the Plan
or, where the option is an Incentive Stock
Option, Section 422A of the Code;
(h) to adopt, amend and rescind such rules and
regulations as, in the Committee's opinion,
may be advisable in the administration of
the Plan; and
(i) to construe and interpret the Plan, the
rules and regulations and the instruments
evidencing options granted under the Plan
and to make all other determinations deemed
necessary or advisable for the
administration of the Plan.
Any decision made or action taken by the Committee in connection with the
administration, interpretation, and implementation of the Plan and of its rules
and regulations, shall, to the extent permitted by law, be conclusive and
binding upon all Optionees under the Plan and upon any person claiming under or
through such an Optionee. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member.
5. Persons Eligible for Options. Subject to the restrictions
herein contained, options may be granted from time to time in the discretion of
the Committee only to such Key Personnel as designated by the Committee (or
their designees acceptable to the Committee, in its sole discretion), whose
initiative and efforts contribute or may be expected to contribute to the
continued growth and future success of the Company and/or its Subsidiaries.
Notwithstanding the preceding sentence, any Key Personnel who renounces in
writing any right he or she may have to receive stock options under the Plan
shall not be eligible to receive any stock options under the Plan. The Committee
may grant more than one option to the same Key Personnel.
6. Shares Subject to the Plan. Subject to the provisions of
the next succeeding provisions of this Section 6, the aggregate number of shares
of Common Stock for which options may be granted under the Plan shall be
2,400,000 shares of Common Stock. The maximum number of shares of Common Stock
for which options may be granted under the Plan to any one Key Personnel in any
one fiscal year of the Company is 300,000, subject to
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<PAGE> 4
the other provisions of this Section 6. Either treasury or authorized and
unissued shares of Common Stock, or both, in such amounts, within the maximum
limit of the Plan, as the Committee shall from time to time determine, may be so
issued. All shares of Common Stock which are the subject of any lapsed, expired
or terminated options may be made available for reoffering under the Plan to any
Key Personnel. In addition, any shares of Common Stock which are retained to
satisfy an Optionee's withholding tax obligations or which are transferred to
the Company by an Optionee to satisfy such obligations or to pay all or any
portion of the option price in accordance with the terms of the Plan, may be
made available for reoffering under the Plan to any Key Personnel. If an option
granted under this Plan is exercised, any shares of Common Stock which are the
subject thereof shall not thereafter be available for reoffering under the Plan,
except in accordance with the preceding sentence.
In the event that subsequent to the date of adoption of the
Plan by the Board, the outstanding shares of Common Stock are, as a result of a
stock split, stock dividend, combination or exchange of shares, exchange for
other securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or other such change, including without
limitation any transaction described in Section 424(a) of the Code, increased or
decreased or changed into or exchanged for a different number or kind of shares
of stock or other securities of the Company, then (i) there shall automatically
be substituted for each share of Common Stock subject to an unexercised option
granted under the Plan and each share of Common Stock available for additional
grants of options under the Plan the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be exchanged,
(ii) the option price per share of Common Stock or unit of securities shall be
increased or decreased proportionately so that the aggregate purchase price for
the securities subject to the option shall remain the same as immediately prior
to such event, and (iii) the Committee shall make such other adjustments to the
securities subject to options, the provisions of the Plan, and option agreements
as may be appropriate, equitable and in compliance with the provisions of
Section 424(a) of the Code to the extent applicable and any such adjustment
shall be final, binding and conclusive as to each Optionee. Any such adjustment
shall provide for the elimination of fractional shares.
7. Option Provisions.
(a) Option Price. The option price per share of
Common Stock which is the subject of an Incentive Stock Option shall be
determined by the Committee at the time of grant but shall not be less than one
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<PAGE> 5
hundred percent (100%) of the fair market value of a share of Common Stock on
the date the option is granted; provided, however, that if any Key Personnel to
whom an Incentive Stock Option is granted is, at the time of the grant, a
Substantial Stockholder, the option price per share of Common Stock shall be
determined by the Committee but shall not be less than one hundred ten percent
(110%) of the fair market value of a share of Common Stock on the date the
option is granted. The option price per share of Common Stock under each option
granted pursuant to the Plan which is not an Incentive Stock Option shall be
determined by the Committee at the time of grant. Such fair market value shall
be determined in accordance with procedures to be established by the Committee.
The day on which the Committee approves the granting of an option shall be
deemed for all purposes hereunder the date on which the option is granted,
unless another effective date for such grant is specified by the Committee.
(b) Period of Option. The Committee shall
determine when each option is to expire but no option shall be exercisable after
ten (10) years have elapsed from the date upon which the option is granted;
provided, however, that no Incentive Stock Option granted to a person who is a
Substantial Stockholder at the time of the grant of such option shall be
exercisable after five (5) years have elapsed from the date upon which the
option is granted.
(c) Limitation on Exercise and Transfer of
Option. Except as otherwise provided in the event of an Optionee's death, or as
otherwise determined by the Committee in any particular instance, whether before
or after the date of grant of an option and subject to any and all terms and
conditions as determined by the Committee in its absolute discretion, only the
Optionee may exercise an option; provided, that a guardian or other legal
representative who has been duly appointed for such Optionee may exercise an
option on behalf of the Optionee. Except as it may otherwise be determined by
the Committee in any particular instance, whether before or after the date of
grant of an option and subject to any and all terms and conditions as determined
by the Committee in its absolute discretion, (a) no option granted hereunder
shall be transferable except as otherwise provided in the event of an Optionee's
death or, to the extent approved by the Committee, pursuant to a qualified
domestic relations order as defined by the Code, or the rules thereunder, and
(b) no option granted hereunder may be pledged or hypothecated, nor shall any
such option be subject to execution, attachment or similar process.
(d) Conditions Governing Exercise of Option. The
Committee may, in its absolute discretion, either require that, prior to the
exercise of any option granted hereunder, the Optionee shall have been an
5
<PAGE> 6
employee or independent contractor for a specified period of time after the date
such option was granted, or make any option granted hereunder immediately
exercisable. Each option shall be subject to such additional or different
restrictions or conditions with respect to the time and method of exercise as
shall be prescribed by the Committee. Upon satisfaction of any such conditions,
the option may be exercised in whole or in part at any time during the option
period. Options shall be exercised by the Optionee (i) giving written notice to
the Company of the Optionee's exercise of the option accompanied by full payment
of the purchase price either in cash or, with the consent of the Committee, in
whole or in part in shares of Common Stock (either by delivery to the Company of
already-owned shares or having the Company withhold shares to be issued) having
a fair market value on the date the option is exercised equal to that portion of
the purchase price for which payment in cash is not made, and (ii) making
appropriate arrangements acceptable to the Company with respect to income tax
withholding, as required, which arrangements may include, at the absolute
discretion of the Committee, in lieu of other withholding arrangements, (a) the
Company withholding from issuance to the Optionee such number of shares of
Common Stock otherwise issuable upon exercise of the option as the Company and
the Optionee may agree, or (b) the Optionee's delivery to the Company of shares
of Common Stock having a fair market value on the date the option is exercised
equal to that portion of the withholding obligation for which payment in cash is
not made. Certain dissolutions or liquidations of the Company or, unless the
surviving corporation assumes said options, mergers or consolidations in which
the Company is not the surviving corporation, may cause each outstanding option
to terminate, provided that during the option period each Optionee shall have
the right during the period, if any, prescribed in the option agreement prior to
such dissolution or liquidation, or merger or consolidation in which the Company
is not the surviving corporation, to exercise the then exercisable portion of
his or her option in whole or in part without regard to any limitations
contained in the Plan or the option agreement. Additional provision with respect
to acquisitions, mergers, liquidations or dissolutions may be made in the option
agreement.
(e) Termination of Employment, Etc. If an
Optionee ceases to be either an employee, outside Director or independent
contractor, of the Company and all Subsidiaries, as applicable (the "Cessation
Date"), then the Committee shall have absolute discretion to establish, in the
option agreement or otherwise, the restrictions on the exercisability of options
granted hereunder. An Optionee's employment shall not be deemed to have
terminated while he is on a military, sick or other bona fide approved leave of
absence from the
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<PAGE> 7
Company or a Subsidiary as such a leave of absence is described in Section
1.421-7(h) of the Federal Income Tax Regulations or any lawful successor
regulations thereto. If the stock option is an Incentive Stock Option, no option
agreement shall:
(i) permit any Optionee to exercise any
Incentive Stock Option more than three (3)
months after the date the Optionee ceased to
be employed by the Company or any Subsidiary
if the reason for the Optionee's cessation
of employment was other than his death or
his disability (as such term is defined by
Section 105(d)(4) of the Code); or
(ii) permit any Optionee to exercise any
Incentive Stock Option more than one (1)
year after the date the Optionee ceased to
be employed by the Company or any Subsidiary
if the reason for the Optionee's cessation
of employment was the Optionee's disability
(as such term is defined by Section
105(d)(4) of the Code); or
(iii) permit any person to exercise any Incentive
Stock Option more than one (1) year after
the date the Optionee ceased to be employed
by the Company or any Subsidiary if either
(A) the reason for the Optionee's cessation
of employment was his death or (B) the
Optionee died within three (3) months after
ceasing to be employed by the Company or any
Subsidiary.
If any option is by terms of the option agreement exercisable following the
Optionee's death, then such option shall be exercisable by the Optionee's
estate, or the person designated in the Optionee's Last Will and Testament, or
the person to whom the option was transferred by the applicable laws of descent
and distribution or by approval of the Committee.
(f) Limitations on Grant of Incentive Stock
Options. In no event may Incentive Stock Options be granted hereunder to any
person other than an employee of the Company. During the calendar year in which
any Incentive Stock Option first becomes exercisable, the aggregate fair market
value of the shares of Common Stock which are subject to Incentive Stock Options
(determined as of the date the Incentive Stock Options were granted) shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). Options which are not
designated as Incentive Stock Options shall not be subject to the limitations
described in the preceding sentence and shall not be counted when applying such
limitation.
(g) Prohibition of Alternative Options. It is
intended that Key Personnel who are employees may be granted, simultaneously or
from time to time, Incentive Stock Options or other stock options, but no
eligible Key Personnel shall be granted alternative rights in Incentive Stock
Options and other stock options so as
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<PAGE> 8
to prevent options granted as Incentive Stock Options from qualifying as such
within the meaning of Section 422A of the Code.
(h) Waiver by Committee of Conditions Governing
Exercise of Option. The Committee may, in its sole discretion, waive, alter or
amend any restrictions or conditions set forth in an option agreement concerning
an Optionee's right to exercise any option and/or the time and method of
exercise.
8. Amendments to the Plan. The Committee is authorized
to interpret the Plan and from time to time adopt any rules and regulations for
carrying out the Plan that it may deem advisable. Subject to the approval of the
Board, the Committee may at any time amend, modify, suspend or terminate the
Plan. In no event, however, without the approval of the Company's stockholders,
shall any action of the Committee or the Board result in:
(a) amending, modifying or altering the
eligibility requirements provided in Section
5 hereof; or
(b) increasing or decreasing, except as provided
in Section 6 hereof, the maximum number of
shares for which options may be granted; or
(c) decreasing the minimum option price per
share at which options may be granted under
the Plan, as provided in Section 7(a)
hereof;
(d) extending either the maximum period during
which an option is exercisable as provided
in Section 7(b) hereof or the date on which
the Plan shall terminate as provided in
Section 12 hereof; or
(e) changing the requirements relating to the
Committee;
except as necessary to conform the Plan and/or the option agreements to changes
in the Code or other governing law. No option may be granted during any
suspension of this Plan or after this Plan has terminated and no amendment,
suspension or termination shall, without the Optionee's consent, alter or impair
any of the rights or obligations under an option theretofore granted to such
Optionee under this Plan.
9. Investment Representation, Approvals and Listing. The
Committee may condition its grant of any option hereunder (or any transfer
allowed in its discretion) upon receipt of an investment representation from the
Optionee which shall be substantially similar to the following:
"Optionee agrees that any shares of Common Stock of Elcom
International, Inc. which may be acquired by virtue of the
exercise of this option shall be acquired for investment
purposes only and not with a view to distribution or resale;
provided, however, that this restriction shall become
inoperative in the event the shares of Common Stock of Elcom
International, Inc. which are subject to this option shall be
registered under the Securities Act of 1933, as amended, for
issuance to the Optionee or in the event there is presented to
Elcom International,
8
<PAGE> 9
Inc. an opinion of counsel or other evidence satisfactory to
Elcom International, Inc. to the effect that the offer and
sale of the shares of Common Stock of Elcom International,
Inc. which are subject to this option may lawfully be made
without registration under the Securities Act of 1933, as
amended".
The Company shall not be required to issue any certificates for shares of Common
Stock upon the exercise of an option granted under the Plan prior to (i)
obtaining any approval from any governmental agency which the Committee shall,
in its sole discretion, determine to be necessary or advisable, (ii) the
admission of such shares to listing on any national securities exchange or the
NASDAQ National Market on which the shares of Common Stock may be listed, (iii)
completion of any registration or other qualification of the shares of Common
Stock under any state or federal law or ruling or regulations of any
governmental body which the Committee shall, in its sole discretion, determine
to be necessary or advisable, or the determination by the Committee, in its sole
discretion, that any registration or other qualification of the shares of Common
Stock is not necessary or advisable, and (iv) obtaining an investment
representation from the Optionee in the form set forth above or in such other
form as the Committee, in its sole discretion, shall determine to be adequate.
10. General Provisions.
(a) Option Agreements Need Not Be Identical. The
form and substance of option agreements, whether granted at the same or
different times, need not be identical.
(b) No Right To Be Employed, Etc. Nothing in the
Plan or in any option agreement shall confer upon any Optionee any right to
continue in the employ of the Company or a Subsidiary, or to serve as a member
of the Board or as an independent contractor, or to be entitled to receive any
remuneration or benefits not set forth in the Plan or such option agreement, or
to interfere with or limit either the right of the Company or a Subsidiary to
terminate the employment of, or independent contractor relationship with, such
Optionee at any time or the right of the stockholders of the Company to remove
him as a member of the Board with or without cause.
(c) Optionee Does Not Have Rights Of
Stockholder. Nothing contained in the Plan or in any option agreement shall be
construed as entitling any Optionee to any rights of a stockholder as a result
of the grant of an option until such time as shares of Common Stock are actually
issued to such Optionee pursuant to the exercise of an option.
9
<PAGE> 10
(d) Successors In Interest. The Plan shall be
binding upon the successors and assigns of the Company.
(e) No Liability Upon Distribution of Shares.
The liability of the Company under the Plan and any distribution of shares of
Common Stock made hereunder is limited to the obligations set forth herein with
respect to such distribution and no term or provision of the Plan shall be
construed to impose any liability on the Company or the Committee in favor of
any person with respect to any loss, cost or expense which the person may incur
in connection with or arising out of any transaction in connection with the
Plan, including, but not limited to, any liability to any Federal, state or
local tax authority and/or any securities regulatory authority.
(f) Taxes. Appropriate provisions shall be made
for all taxes required to be withheld and/or paid in connection with the options
or the exercise thereof, and the transfer of Common Stock pursuant thereto,
under the applicable laws or other regulations of any governmental authority,
whether Federal, state or local and whether domestic or foreign.
(g) Use of Proceeds. The cash proceeds received
by the Company from the issuance of shares of Common Stock pursuant to the Plan
will be used for general corporate purposes, or in such other manner as the
Board deems appropriate.
(h) Expenses. The expenses of administering the
Plan shall be borne by the Company.
(i) Captions. The captions and section numbers
appearing in the Plan are inserted only as a matter of convenience. They do not
define, limit, construe or describe the scope or intent of the provisions of the
Plan.
(j) Number. The use of the singular or plural
herein shall not be restrictive as to number and shall be interpreted in all
cases as the context may require.
(k) Gender. The use of the feminine, masculine
or neuter pronoun shall not be restrictive as to gender and shall be interpreted
in all cases as the context may require.
11. Termination of the Plan. The Plan shall terminate on
August 19, 2006, and thereafter no options shall be granted under the Plan. All
options outstanding at the time of termination of the Plan shall continue
10
<PAGE> 11
in full force and effect according to the terms of the option agreements
governing such options and the terms and conditions of the Plan.
12. Governing Law. The Plan shall be governed by and
construed in accordance with the laws of the State of Delaware and any
applicable federal law.
13. Venue. The venue of any claim brought hereunder by an
Optionee shall be Boston, Massachusetts.
14. Changes in Governing Rules and Regulations. All
references herein to the Code or sections thereof, or to rules and regulations
of the Department of Treasury or of the Securities and Exchange Commission,
shall mean and include the Code sections thereof and such rules and regulations
as are now in effect or as they may be subsequently amended, modified,
substituted or superseded.
IN WITNESS WHEREOF, Elcom International, Inc., by its
appropriate officer duly authorized, has executed this document as of the 19th
day of August, 1996.
ELCOM INTERNATIONAL, INC.
By: /s/ Robert J. Crowell
----------------------------
Robert J. Crowell,
Chairman of the Board and
Chief Executive Officer
11
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective as of the 1st day of
July, 1996, by and between Elcom International, Inc., a Delaware corporation
with its principal place of business at Ten Oceana Way, Norwood, Massachusetts
02062 ("Elcom" or the "Company"), and Laurence F. Mulhern currently residing at
16 Warren Street, Upton, Massachusetts (the "Executive").
WITNESSETH:
WHEREAS, the Executive wishes to be employed by the Company as
its Chief Financial Officer and a Corporate Executive Vice President; and
WHEREAS, the Company desires to employ Executive consistent
with the terms of this Agreement, and to ensure, to the extent possible, that
certain knowledge gained by the Executive in association with his employment
with the Company is not used to the detriment of the Company; and
WHEREAS, the Executive and the Company (the "Parties") desire
to enter into an agreement expressly indicating the terms and conditions of
their relationship.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the Company and the Executive agree as follows:
1. Duties. The Company hereby employs Executive to be Chief
Financial Officer and a Corporate Executive Vice President of the Company.
Executive shall report directly to Robert J. Crowell, the Chairman and Chief
Executive Officer (the "Chairman") of the Company or other executive as
designated by the Board of Directors. During the course of his employment,
Executive shall have the responsibility to perform such duties, consistent with
such position, as generally described below and as may be assigned to him by the
Chairman of Elcom and/or the Board of Directors of the Company. During the
Employment Period, Executive agrees to devote full business time and best
efforts to the business activities and welfare of the Company.
The Chairman reserves the right to reassign the Executive's
duties or reporting structure as
<PAGE> 2
appropriate or necessary and it is anticipated that Executive may be assigned
additional responsibilities by the Chairman and/or by the Board of Directors.
2. Term. This Agreement's term (the "Term") shall begin on the
date hereof and continue for twenty-four months and terminate on June 30, 1998
but will automatically renew at the end of each term for a one-year period
unless the Executive or the Company notifies the other party six months prior to
the end of each employment year (ending June 30th).
3. Salary. During the course of employment for the Term
specified in Section 2, unless sooner terminated hereunder (the "Employment
Period"), the Company will pay Executive for his performance of the duties
specified herein an annual base salary of at least $142,000 per year payable in
the manner that the Company normally pays its employees.
4. Benefits.
A. Vacations/Time Off. During the course of
employment, Executive shall be entitled to accrue five (5) weeks of time off for
vacations per year, to be taken at a time or times acceptable to the Chairman
and otherwise consistent with the terms and conditions of this Agreement.
B. Additional Compensation. Once made available to
Executive, the Executive shall be eligible to participate in a bonus program,
designed by the Chairman after consultations with Executive, whereby Executive
shall have the opportunity to earn a bonus of up to 30% of his then-current
annual base salary based on goals and objectives assigned by the Chairman, with
a (preliminary) bi-annual advance of such bonus to be paid to Executive based on
progress towards achievement of such goals as determined by the Chairman and/or
the Compensation Committee. This future bonus program shall then be superseded
when the Company implements its Executive Profit Performance Bonus Plan in which
Executive shall be eligible to participate and in which Executive shall have the
opportunity to achieve bonus levels no less than those in effect at such time;
provided that no guarantee of the achievement of such bonus opportunities shall
be inferred. The Executive shall also be eligible to participate in incentive,
profit-sharing, annual cash bonus, deferred compensation, incentive stock
options, supplemental retirement and any other similar plans, if any, maintained
by the Company for the benefit of its executives generally, in accordance with
the eligibility and other terms thereof and at the discretion of the Board of
Directors and/or the Compensation Committee thereof.
2
<PAGE> 3
C. Other Executive Fringe Benefits. The Executive
shall be included to the extent eligible thereunder in Company benefit plans
providing group life insurance, hospitalization, medical, pension, financial
services and any and all other similar or comparable benefits at least to the
extent they may be in effect for other executives of the Company generally from
time to time during the Employment Period.
D. Fringe Benefits. Nothing in this Agreement shall
adversely affect the rights of the Executive or his beneficiaries under the
present or any future retirement, profit-sharing, insurance, or other fringe
benefit or compensation plans or arrangements which the Company now has or may
adopt for its employees in which Executive is a participant, and no rights of
the Executive thereunder shall be forfeited by any action set forth in this
Agreement unless so provided in such plans or arrangements.
5. Termination of Employment.
A. Death.
If the Executive shall die during the term
of this Agreement, the duties of the Company and the Executive, one to the
other, under this Agreement shall terminate as of the date of the Executive's
death.
B. Disability.
If the Executive shall become "disabled" (as
herein defined) during the term of this Agreement, the duties of the Company and
the Executive, one to the other, under this Agreement shall terminate as of the
date the Executive is determined to be disabled, except that the provisions of
Sections 8 through 12 hereof shall survive any such termination. The term
"disabled" as used in this Agreement shall mean Executive's inability, due to a
mental or physical condition, to continue to provide services to the Company
substantially consistent with past practice for a period of at least ninety (90)
consecutive days, as evidenced by a written certification as to such condition
from a physician (which shall not be Executive's physician) mutually acceptable
to the Executive and the Company's Board of Directors, using reasonable good
faith judgment.
C. Continuation of Executive Benefits.
The death, disability or other termination of
employment of the Executive, whether or not voluntary shall not adversely affect
the Executive or his beneficiaries' rights to any then-vested benefits under any
life insurance, death benefit, pension, profit sharing, stock option, medical,
deferred compensation, supplemental executive
3
<PAGE> 4
retirement plan or other employee benefit plan or arrangement except as may be
provided in such plan or arrangement, and if termination of employment occurs by
reason of Executive's death, such continued benefits shall be paid to his estate
or designated beneficiaries.
D. Resignation.
If the Executive voluntarily leaves the
employ of the Company during the term of this Agreement, the duties of the
Company and the Executive, one to the other, under this Agreement shall
terminate as of the date of the Executive's termination of employment, except as
provided in Section 5.F and except that the provisions of Sections 8 through 12
hereof shall survive any such termination.
E. Termination by Company.
The Company may terminate the Executive's
employment at any time "For Cause" (as hereinafter defined), in which case the
duties of the Company and the Executive, one to the other, under this Agreement
shall terminate as of the date of the Executive's termination of employment,
except that the provisions of Sections 8 through 12 hereof shall survive any
such termination.
As used herein, the words "For Cause" shall
be deemed to mean the following: (i) the Executive's alleged involvement in any
felony, or crime, via indictment or written complaint, or any alleged crime in
connection with his employment by the Company (including theft of Company
assets) which may cause the Company or any affiliated company a detriment as
determined by the Chairman or the Board of Directors; or (ii) the Executive's
refusal to submit to a medical examination within forty-five (45) days of being
directed to do so in writing by the Board of Directors to determine whether the
Executive is disabled under Section 5.B hereof; or (iii) gross insubordination
or the Executive's failure to take actions permitted by law and necessary to
preserve the welfare of the Company, implement strategies or policies of the
Company which the Chairman has communicated to him and which are consistent with
his position and duties, following 24 hours written warning of such failure; or
(iv) any condition which either resulted from the Executive's drunkenness or use
of any drug or narcotic, or resulted from any injury which drunkenness or drug
or narcotic use or self inflicted injury caused, and which has adversely
affected the Executive's performance; or (v) acting in breach or contravention
of the confidentiality, non-competition, non-disclosure or non-solicitation
covenants set forth in Sections 9, 10, and 11 hereof.
4
<PAGE> 5
F. Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive under Sections 5.D or
E above shall be communicated by written Notice of Termination to the other
party hereto, which shall set forth the effective date and time of such
termination (not earlier than the date of mailing, or delivery by other means,
of the Notice of Termination).
6. Compensation Upon Involuntary Termination Other Than For
Cause. If the Executive's employment with the Company shall be terminated during
the Employment Period by the Company other than For Cause or Death or Disability
(as defined in Section 5.B); except in a Company downsizing which involves over
10% of the Company's U.S.-based employees within a 60 day period (if such
downsizing is associated with a transaction contemplated under Section 13, then
the terms of Section 13 shall control), then the Executive shall be entitled to
the severance payments provided below:
i. the Company shall pay the Executive the
amount described herein, determined as of
the date of his termination of employment,
on otherwise normal payment dates through
the date that is twelve months after the
date of termination; and
ii. twelve months base salary in a lump sum; and
iii. any accrued performance bonus (which had, at
that time, already been granted) through the
date of termination of Executive's
employment.
Not withstanding the foregoing, if the Executive's employment
with the Company is terminated other than for cause by Robert J. Crowell, the
current Chairman of the Company, then the executive's severance pay shall be
limited to the payments under the subparagraphs (i) and (iii) above.
Except as expressly provided in this Agreement, nothing in
this Agreement shall be construed as amending any compensation or fringe benefit
plan or arrangement of the Company. Except as expressly provided in this
Agreement, all rights of the Executive under any such plans or arrangements upon
his termination of employment must be determined under the terms of such plans
or arrangements at the time of the Executive's termination of employment.
Executive expressly agrees not to discuss, except with his official advisors,
any information or aspects of his employment regarding the Company or his
termination circumstances unless under compulsion from a court of competent
jurisdiction and further, upon Executive's violation of this provision, in
addition to the Company immediately canceling any and all remaining severance
payments or other obligation to Executive, Executive agrees that injunctive
relief may be granted.
5
<PAGE> 6
7. Expenses. The Company shall reimburse Executive for
reasonable business expenses incurred by him on behalf of the Company and
documented according to the Company's policies in the performance of his duties
as specified herein. Executive shall furnish the Company with the documentation
in connection with such expenses required by the Internal Revenue Code and the
regulations promulgated thereunder.
8. Proprietary Rights. It shall be part of the normal duties
of the Executive at all times to consider in what manner and by what new methods
or devices the products, services, processes, equipment or systems of the
Company might be improved and promptly to give to the Board full details of any
invention, discovery, design or improvement which he may from time to time make
or discover in the course of his duties and to further the interests of the
Company's undertaking with regard thereto. The Executive hereby agrees that the
sole ownership of any invention, discovery, design or improvement aforesaid and
all proprietary rights therein discovered or made by him (whether alone or
jointly with others) at any time during his engagement hereunder, shall belong
free of charge and exclusively to the Company or as it may direct, and he agrees
to execute and deliver all documentation related thereto deemed necessary or
helpful by the Company.
9. Noncompetition. Executive agrees that during the period
(the "Noncompetition Period") commencing on the end of the Employment Period and
ending on the date that is 24 months after the later of the date of his/her
cessation of employment with the Company, or the last date on which he is paid
by the Company, (which for purposes of Sections 8, 9, 10 and 11 of this
Agreement shall mean the Company and any affiliates controlling, controlled by
or under common control with Elcom, including their predecessors), he will not,
without prior written consent of the Chairman of the Company, either directly or
indirectly, in any capacity whatsoever, (a) compete with the Company by
soliciting the sale of personal computer products (such as computers, printers,
monitors, software, etc.) or services to any customer (including affiliates of
such customer) of the Company by whatever method or (b) operate, control,
advise, be employed and/or engaged by, perform any consulting services for,
invest in (other than the purchase of no more than 5 percent of the publicly
traded securities of a company whose securities are traded on a national stock
exchange) or otherwise become associated with, any person, company or other
entity who or which, at any time during the Noncompetition Period, competes with
the Company via the use of an electronic ordering methodology as defined herein.
As used in clause (b) above, "compete" is defined as the
development, marketing, distribution or sale
6
<PAGE> 7
of desktop, laptop, notebook or other commonly called "personal computer"
equipment, software, services, peripherals or accessories by any company or
entity or subdivision thereof in any geographical area in which the Company
maintains offices, sales agents, or otherwise conducts business. The Executive
further expressly represents and understands that if Executive's employment is
terminated, the Noncompetition Agreement will prohibit the Executive from future
employment with companies that compete with the Company, as defined in this
Noncompetition Agreement, and as such, might theoretically constrain some of the
Executive's overall possibilities for future employment. By Executive's
signature to this Noncompetition Agreement, Executive expressly represents that
his training, education and background are such that his ability to earn a
living shall not be impaired by the restrictions in this Noncompetition
Agreement. The definition of compete can be modified by mutually agreed
addendum, if and when the Company enters additional types or lines of
businesses.
10. Nondisclosure. Executive agrees during the period (the
"Nondisclosure Period") commencing on the end of the Employment Period and
ending on the date that is ten years after the later of the date of his
cessation of employment with the Company, or the date on which he is last paid
by the Company, whether or not under this Agreement, at all times to hold as
secret and confidential (unless disclosure is required pursuant to court order,
subpoena, in a governmental proceeding, arbitration, or pursuant to other
requirement of law) any and all knowledge, technical information, business
information, developments, trade secrets, know-how and confidences of the
Company or its business, including, without limitation, (a) any information or
business secrets relating to the products, customers, strategies, business,
conduct or operations of the Company, its subsidiaries or any of their
respective clients, customers, consultants, providers, licensors or licensees
(collectively, "Company Affiliates"); (b) any information regarding any current
or prior employees of the Company or any of its affiliates (except where a job
reference has been requested by an ex-employee in writing and the employee asked
to give such reference consents); (c) the existence or betterment of, or
possible new uses or applications for, any of the Company's products or services
or those of any Company Affiliates; (d) any of the Company's customer lists,
pricing and purchasing information or policies of the Company or any Company
Affiliates; and (e) any methods, ways of business etc., used in the development,
use, sale or marketing of the Company's products or services or those of any
Company Affiliates, (collectively, "Confidential Information") of which he has
acquired knowledge of during or after his employment with the Company, to the
extent that such matters (i) have not previously been officially made public or
are not thereafter made public, or (ii) do not
7
<PAGE> 8
otherwise become available to Executive, in either case, via a source not bound
by any confidentiality obligations to the Company or Company Affiliates. The
phrase "made public" as used in this Agreement shall apply to matters within the
domain of the general public or the Company's industry. During the Nondisclosure
Period, Executive agrees not to use, directly or indirectly, such knowledge for
his own benefit or for the benefit of others and agrees not to disclose any of
such Confidential Information without prior written consent of the Company. At
the cessation of employment with the Company, the Executive agrees to promptly
return all Company property to the Company as well as any and all Confidential
Information which relates in any way to any of the foregoing items covered in
this paragraph and to destroy any transcripts or copies the Executive may have
of such Confidential Information unless an alternative method of disposition is
approved by the Company.
11. Nonsolicitation/Noninterference. Executive agrees that
during the two (2) year period (the "Nonsolicitation Period") commencing on the
end of the Employment Period and ending on the date that is two (2) years after
the later of the date of his cessation of employment with the Company, or the
last date on which he is paid by the Company, he will not at any time, without
prior written consent of the Company, discuss employment opportunities with an
employee, directly or indirectly solicit, induce, or attempt to solicit or
induce any employee, former employee (as herein defined), agent, consultant, or
other representative or associate of the Company for the purpose of providing
employment opportunities with any entity or to terminate his/her relationship
with the Company. Executive further covenants and agrees that, during the
Nonsolicitation Period, he or she will not, without the prior written consent of
the Company, directly or indirectly, induce or attempt to induce any actual or
prospective licensors, licensees, customers or suppliers of the Company to
terminate, alter or change its relationship with the Company or otherwise
interfere with any relationship between the Company and any of its actual or
prospective licensors, licensees, suppliers or customers or their employees or
former employees. A "former employee" shall mean any person who was employed by
the Company at any time during the one (1) year period prior to Executive's
cessation of employment with the Company.
12. Severability. In the event that Sections 8, 9, 10 and 11
hereof shall be found by a court of competent jurisdiction to be invalid or
unenforceable as written as a matter of law, the parties hereto agree that such
court(s) may exercise its discretion in reforming such provision(s) to the end
that Executive shall be subject to intellectual property ownership,
noncompetition, nondisclosure and nonsolicitation/noninterference covenants that
are
8
<PAGE> 9
reasonable under the circumstances and enforceable by the Company.
13. Merger, Reconstruction or Acquisition. In the event that
the Company shall merge with another company (that is not immediately prior
thereto, a Company affiliate) and shall not be the surviving corporation, the
Executive shall be entitled to, and have the option to accept in writing, a
position with the acquiring or surviving company on terms not less favorable to
Executive in all material respects than the terms of this Agreement and which
shall be set forth in a written agreement between the acquiring company and
Executive prior to the consummation of such transaction. If substantially all
the assets of the Company are sold or otherwise transferred to another
unaffiliated corporation or party, it shall be a condition to such sale or
transfer that the transferee agrees to expressly assume the obligations
hereunder such that the provisions of this Agreement shall be binding upon the
entity to which such assets shall be sold or transferred and this provision also
shall apply in the event of any subsequent sale or transfer; provided, however,
that even in such instance, Executive shall have the option to elect not to
accept the Acquiror's employment arrangements (or this agreement), and instead
may elect to receive the benefits hereinafter described. If the acquiror or
surviving corporation does not agree with the Executive in writing to employ
Executive under materially the same terms of this Agreement, or if the Executive
elects not to accept an offer by the acquiror or surviving entity, for any
reason, then, upon consummation of any such previously-described transaction,
the Company, or the acquiring company or surviving corporation shall be
obligated to pay two (2) year's base salary in a lump sum, and all of
Executive's then outstanding stock options shall become fully vested and remain
exercisable for a period of 60 days thereafter, notwithstanding any provision to
the contrary in any stock option agreement or plan. Upon any such payment, the
duties of the Company and the Executive, one to the other, under this Agreement
shall terminate, except that the provisions of sections eight through twelve
hereof shall survive.
14. Acknowledgment. Executive specifically acknowledges that
the covenants set forth herein restricting competition, disclosure and
solicitation/interference are reasonable, appropriate and necessary as to
duration, scope and geographic area in view of the nature of the relationship
between Executive and the Company and the investment by the Company of
significant time and resources in the training, development and employment of
Executive. Executive warrants and represents that in the event that any of the
restrictions set forth in these covenants become operative, he will be able to
engage in other activities for the purpose of earning a livelihood, and shall
not be impaired by these restrictions.
9
<PAGE> 10
Executive further acknowledges that the remedy at law for any
breach of these covenants, including monetary damages to which the Company may
be entitled, will be inadequate and that the Company, its successors and/or
assigns, shall be entitled to injunctive relief against any breach without bond.
Such injunctive relief shall not be exclusive, but shall be in addition to any
other rights or remedies which the Company may have for any such breach
including immediate cessation of any payments due Executive under this
Agreement.
Executive acknowledges and agrees that the references in the
foregoing Sections 8, 9, 10 and 11 to the "Company" are intended to be
applicable to, and for the benefit of, any affiliated entity controlling,
controlled by or under common control with the Company and any predecessors
thereof, and such term for all purposes thereof shall include any such entities.
15. Governing Law. This Agreement shall be governed and
performed in accordance with, and only to the extent permitted by, the laws of
the Commonwealth of Massachusetts applicable to contracts made and to be
performed entirely within such Commonwealth of Massachusetts.
16. Assignment. This Agreement shall inure to the benefit of,
and shall be binding upon, the Company, its successors and assigns subject to
the conditions cited in Sections 5.D and 13 giving rise to the Executive's right
to terminate this Agreement. Neither the Company nor Executive shall assign this
Agreement without the prior written consent of the other party hereto; except as
expressly provided in Section 13 hereof.
17. Entire Agreement; Amendments; Waivers. This Agreement
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and replaces or supersedes any previous agreement on such
subject matter. It may not be changed orally, but only by agreement, in writing,
signed by each of the parties hereto. The terms or covenants of this Agreement
may be waived only be a written instrument specifically referring to this
Agreement, executed by the party waiving compliance. The failure of the Company
at any time, or from time to time, to require performance of any of Executive's
obligations under this Agreement shall in no manner affect the Company's right
to enforce any provisions of this Agreement at a subsequent time; and the waiver
by the Company of any right arising out of any breach shall not be construed as
a waiver of any right arising out of any subsequent breach.
18. Headings. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
10
<PAGE> 11
19. Counterparts. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed
this Employment Agreement as of the date first above written.
ELCOM INTERNATIONAL, INC.
"Company"
______________________________
Robert J. Crowell
Chairman and CEO
"Executive"
______________________________
Laurence F. Mulhern
11
<PAGE> 1
EXHIBIT 11
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) $ (83) $ 1,310 $ (1,254) $ 3,586
====== ======= ======== =======
Weighted Average Common Stock and Common
Equivalent Shares Outstanding During the Period 21,335 26,495 16,951 26,294
Dilutive Effect of Common Equivalent Shares (1) 1,866 2,940 1,866 3,310
------ ======= ======== -------
Weighted Average Common Shares Outstanding 23,201 29,435 18,817 29,604
======== ======= ======== =======
Net Income (Loss) Per Share (--) $ .04 $ (.07) $ .12
====== ======= ======== =======
</TABLE>
- -------------
(1) Pursuant to Securities and Exchange Staff Accounting Bulletin No. 83, stock
options issued at prices below the initial public offering price per share
("cheap stock") during the twelve month period immediately preceding a
company's initial public offering have been included as outstanding for the
1995 periods presented. The dilutive effect of the common and common
equivalent shares were computed in accordance with the treasury stock
method in the periods presented.
<PAGE> 2
November 12, 1996
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Dear Sirs:
Pursuant to regulations of the Securities and Exchange Commission,
submitted herewith for filing on behalf of Elcom International, Inc. (the
"Company") is the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
Elcom International, Inc.
By: /s/ Laurence F. Mulhern
-------------------------------------
Laurence F. Mulhern
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000900096
<NAME> ELCOM INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
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<ALLOWANCES> 2,072
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<PP&E> 22,758
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<CURRENT-LIABILITIES> 116,382
<BONDS> 0
0
0
<COMMON> 266
<OTHER-SE> 95,156
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<SALES> 444,572
<TOTAL-REVENUES> 444,572
<CGS> 393,855
<TOTAL-COSTS> 393,855
<OTHER-EXPENSES> 43,227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,705
<INCOME-PRETAX> 6,050
<INCOME-TAX> 2,464
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,586
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
