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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 1997
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 26,991,623 shares of common stock, $.01 par value,
outstanding as of July 31, 1997.
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INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996
and June 30, 1997 (unaudited)...........................2
Consolidated Statements of Operations - Three and Six Month
Periods Ended June 30, 1996 and 1997 (unaudited)........3
Consolidated Statements of Cash Flows - Six Month Periods
Ended June 30, 1996 and 1997 (unaudited)................4
Notes to Consolidated Financial Statements (unaudited)....5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................6
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................12
Item 2. None.
Item 3. None.
Item 4. Submission of Matters to a Vote of Security Holders...............12
Item 5. None.
Item 6. Index to Exhibits and Reports on Form 8-K.........................13
Signature.................................................................13
1
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ELCOM INTERNATIONAL, INC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, June 30,
1996 1997
--------- ---------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 23,259 $ 32,239
Accounts receivable, net of allowance for doubtful
accounts of $4,312 and $4,125 ................. 151,344 156,641
Inventory ........................................ 34,718 43,936
Prepaids and other current assets ................ 864 2,031
-------- --------
Total current assets ...................... 210,185 234,847
-------- --------
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
Computer hardware and software ................... 17,577 20,330
Land, buildings and leasehold improvements ....... 3,415 3,382
Furniture, fixtures and equipment ................ 6,202 9,601
-------- --------
27,194 33,313
Less -- Accumulated depreciation and amortization 13,308 16,079
-------- --------
13,886 17,234
-------- --------
GOODWILL AND OTHER ASSETS, NET OF ACCUMULATED
AMORTIZATION ....................................... 36,698 37,867
-------- --------
$260,769 $289,948
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit .................................... $ 89,469 $101,236
Accounts payable ................................... 36,987 59,888
Accrued expenses and other current liabilities ..... 34,405 23,500
Current portion of capital lease obligations ....... 252 630
Current portion of long-term debt .................. 45 45
-------- --------
Total current liabilities ................... 161,158 185,299
-------- --------
OTHER DEFERRED LIABILITIES ........................... 32 28
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION .... 556 1,153
LONG-TERM DEBT, NET OF CURRENT PORTION ............... 420 398
-------- --------
1,008 1,579
-------- --------
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 -- 26,663,512 and
27,019,671 shares ............................... 267 270
Additional paid-in capital .......................... 98,483 99,446
Retained earnings (accumulated deficit) ........... (919) 3,104
Treasury stock, at cost -- 37,546 and 56,319 shares (366) (549)
Cumulative translation adjustment ................. 1,138 799
--------- ---------
Total stockholders' equity .......................... 98,603 103,070
========= =========
$ 260,769 $ 289,948
========= =========
The accompanying notes are an integral part of these consolidated
financial statements
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1996 1997 1996 1997
-------- -------- -------- --------
Net sales............................. $146,305 $198,157 $287,721 $374,436
Cost of sales ........................ 129,265 175,465 254,336 331,542
-------- -------- -------- --------
Gross profit ......................... 17,040 22,692 33,385 42,894
Expenses:
Selling, general and administrative. 14,226 18,307 28,046 34,675
Research and development ........... 300 290 585 565
-------- -------- -------- --------
Total expenses ....................... 14,526 18,597 28,631 35,240
-------- -------- -------- --------
Operating profit ..................... 2,514 4,095 4,754 7,654
Interest expense ..................... (962) (1,105) (1,769) (2,249)
Interest income and other, net ....... 418 142 983 716
-------- -------- -------- --------
Income before income taxes .......... 1,970 3,132 3,968 6,121
Provision for income taxes ........... 818 1,071 1,692 2,098
-------- -------- -------- --------
Net income ........................... $ 1,152 $ 2,061 $ 2,276 $ 4,023
======== ======== ======== ========
Net income per share ................. $ .04 $ .07 $ .08 $ .14
======== ======== ======== ========
Weighted average common shares
outstanding 30,079 29,737 29,604 29,316
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
------------------------------
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................... $ 2,276 $ 4,023
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization ................ 2,980 4,364
Provision for doubtful accounts .............. 230 750
Other deferred liabilities ................... (2) (4)
Changes in current assets and liabilities, net
of acquisitions --
Accounts receivable .......................... (37,518) (2,739)
Inventory..................................... (4,901) (9,268)
Prepaids and other current assets............. 236 (907)
Accounts payable.............................. (2,593) 21,549
Accrued expenses, other current liabilities
and other .................................. (1,094) (12,067)
-------- --------
Net cash provided by (used in)
operating activities .................. (40,386) 5,701
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and software.... (3,924) (4,866)
Increase in other assets and deferred costs..... (617) (30)
Purchase of Prophet Group....................... -- (391)
Purchase of Data Supplies, net of cash acquired. -- (2,660)
Other investing activities...................... 216 15
-------- --------
Net cash used in investing activities..... (4,325) (7,932)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit............ 17,660 10,761
Sale of common stock............................ 6,240 --
Repayment of capital lease obligations.......... (107) (386)
Proceeds from stock option exercises............ 327 782
-------- --------
Net cash provided by financing activities. 24,120 11,157
-------- --------
FOREIGN EXCHANGE EFFECT ON CASH................... (42) 54
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (20,633) 8,980
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 44,977 23,259
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 24,344 $ 32,239
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid................................... $ 1,719 $ 2,318
======== ========
Income taxes paid............................... $ 69 $ 798
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase in capital lease obligations........... $ -- $ 1,339
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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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 June 30, 1997, and the results of operations and cash flows
for the periods ended June 30, 1996 and 1997. 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, 1996 and the Company's current reports on Form 8-K
concerning the Final Agreement of Settlement and Mutual Release of All Claims
and Demands with the former owners of Computerware Business Trust
("Computerware"), dated March 26, 1997; the acquisition of Prophet Group Limited
dated December 6, 1996 and later amended on Form 8-K/A-1 filed on February 13,
1997; and the acquisition of Data Supplies Limited dated February 21, 1997 and
later amended on April 7, 1997.
2. Acquisition
On February 21, 1997, the Company acquired the entire share capital of Data
Supplies Limited, a corporation organized under the laws of the United Kingdom
("Data Supplies"). Data Supplies is a remarketer of personal computer products
with revenues for its fiscal year ended December 31, 1996 of approximately $21
million and is headquartered in Slough, Berkshire, United Kingdom. As
consideration for the acquisition of the entire share capital of Data Supplies,
the Company paid 1,000,000 British Pounds (approximately $1.6 million) and a
note in the amount of $752,000 to the Data Supplies shareholder. The note bears
interest at a rate of 5%. The operating results of Data Supplies have been
included in the Company's operating results since the date of acquisition.
3. Net Income Per Share
Net income per share is based on the weighted average number of common and
common equivalent shares outstanding during each period presented, calculated in
accordance with the treasury stock method. In February 1997, the Financial
Accounting Standards Board adopted Statement of Financial Accounting Standards
No. 128 (SFAS No. 128) effective for all periods ending after December 15, 1997.
This statement establishes revised standards for computing Earnings Per Share
("EPS") by replacing the presentation of primary EPS with a presentation of
basic EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. SFAS No. 128 also requires dual presentation of
Basic EPS and Diluted EPS on the face of the statement of operations. Diluted
EPS would not differ from Net Income Per Share as shown in the accompanying
Statements of Operations for the three and six month periods ended June 30, 1996
and 1997. Basic EPS, presented herein on a pro forma basis, is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1996 1997 1996 1997
-------- -------- -------- --------
Pro forma net income per share $.04 $.08 $.09 $.15
======== ======== ======== ========
Weighted average common shares 23,363 26,869 26,192 26,805
outstanding under Basic EPS ======== ======== ======== ========
5
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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 other traditional ordering
methods. In addition, the Company, through its wholly-owned subsidiary, Elcom
Systems, Inc. ("Elcom"), generates revenues from licensing its PECOS technology
and providing implementation and consulting services. On a stand alone basis,
for the six month periods ended June 30, 1997 and June 30, 1996, revenues
generated from Elcom Systems' licenses, including associated professional
services and maintenance fees, were approximately $2,530,000 and $1,345,000
respectively.
The Company was founded in 1992, commenced operations in December 1993
and has experienced rapid growth. The Company achieved its growth by using its
PECOS system as a value-add differentiator and by offering the use of the PECOS
system to its Catalink customers, by various marketing efforts, including the
expansion of its direct sales force nationwide, and by the acquisition of six
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. In December 1996, the Company acquired Prophet Group Limited, a
PC products remarketer and in February 1997, the Company acquired Data Supplies
Limited, a PC products remarketer, both of which are located in the United
Kingdom. The Prophet Group and Data Supplies acquisitions have been accounted
for as purchase transactions.
On April 4, 1997, Elcom Systems acquired an electronic procurement
software application which has been augmented and is being marketed as PECOS
Procurement Manager ("PECOS.PM"). The purchase price is approximately $1.1
million, consisting of cash and common stock. PECOS.PM is a software application
that is based upon a client/server architecture which automates the key
functions of an organization's purchasing activities resulting in reduced
overhead costs, more consistent and refined financial controls and more
effective management of external suppliers. Based upon customer-defined
privilege controls, the system supports such work flow processes as requisition
routing and approval, order placement and electronic payment processing.
Additionally, PECOS.PM is easily integrated with a wide range of enterprise
management information systems. The Company believes that the current
marketplace for a business to business supply-chain oriented electronic commerce
procurement solution is substantial. The Company intends to continue its
investment in PECOS.PM, including the development of a web-enabled version
expected in the third quarter of 1997 and complete integration with its existing
PECOS family of "full-circle" electronic commerce solutions expected by the end
of 1997 in order to deliver robust electronic commerce solutions for both
"sell-side" and "buy-side" licensees.
On April 4, 1997, in connection with the acquisition of PECOS.PM, the
Company issued into an escrow account an aggregate of 32,853 shares of its
Common Stock. The shares are to be distributed, upon the satisfaction of certain
conditions, to Kingbridge Limited Partnership for distribution to its limited
partners. Due to the limited number of such limited partners and their
sophistication and investigation regarding the Company, the issuance of
6
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such shares was made in reliance upon Section 4(2) of the Securities Act of
1933, and the rules and regulations thereunder.
On April 29, 1997, the Board of Directors adopted the 1997 Elcom
International Stock Option Plan reserving up to an aggregate of 1,000,000 shares
of the Company's Common Stock for possible issuances pursuant to stock options
granted thereunder. On the following day, the Company's wholly-owned subsidiary
Elcom Systems, Inc. canceled its Stock Option Plan under which no stock options
were then issued or outstanding.
On July 23, 1997, the Company announced that its Board of Directors
authorized the engagement of the investment banking firm of Smith Barney Inc. to
assist the Company by coordinating and evaluating options which would enable the
strategic potential of the Company to be realized. These actions, intended to
maximize stockholder value, will include evaluating the possible sale or merger
of the Company, strategic financing options, and potential strategic partners.
The rapid growth of the Company, and the Board of Directors' belief that the
Company's stock is undervalued in the marketplace have prompted the Company to
take this step. There can be no assurance that the Company will be successful in
consummating a transaction or realizing additional stockholder value as a result
of this process.
Results of Operations
Quarter ended June 30, 1997 compared to the quarter ended June 30, 1996.
Net Sales. Net sales for the quarter ended June 30, 1997 increased to
$198 million from $146 million in the same period of 1996, an increase of $52
million or 35%. Net sales in the United States increased to $127 million in the
1997 quarter from $108 million in the quarter ended June 30, 1996, an 18%
increase. Net sales of the Company's United Kingdom based operations increased
to $71 million in the 1997 quarter from $38 million in the second quarter of
1996. Net sales for the second quarter of 1997 in the United Kingdom included a
total of $14 million generated by Prophet Group Limited (acquired in December
1996) and Data Supplies Limited (acquired in February 1997).
Gross Profit. Gross profit for the quarter ended June 30, 1997
increased to $22.7 million from $17.0 million in the 1996 quarter, an increase
of $5.7 million or 33%. The increase in gross profit dollars generated resulted
from the substantial growth in net sales, including sales generated by recent
acquisitions. Gross profit, including the contribution from acquisitions, as a
percent of net sales decreased slightly from 11.6% in the 1996 quarter to 11.5%
in the 1997 quarter. 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 margins than other
customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended June 30, 1997 increased to $18.3
million from $14.2 million in the 1996 quarter, an increase of $4.1 million or
29%. This increase is attributable primarily to the increase in the Company's
work force and the expenses of the acquired companies. Other selling, general
and administrative expenses also increased as the Company continued to invest in
administrative infrastructure to support its current and future growth,
including the ongoing development and implementation of its new Oracle-based
management information system. Until such new system is operational, the Company
will be required to maintain additional personnel and manual support processes
to facilitate its anticipated growth in volume. In the 1997 quarter, the
selling, general and administrative expenses of Elcom Systems increased
approximately $1 million over the same period in 1996. This increase relates to
additional Elcom Systems corporate infrastructure and staffing, particularly in
marketing and a direct sales force, targeted to generate additional license
revenues. At the beginning of the third quarter the direct sales force was
significantly reduced to a level more consistent with Elcom Systems' current and
near-term revenues. Elcom Systems is now expanding its indirect selling
methodologies, which are focused on partnering with systems integrators and
software vendors.
7
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Overall, selling, general and administrative expenses decreased as a
percentage of net sales for the quarter ended June 30, 1997 to 9.2%, from 9.7%
in the comparable 1996 quarter, reflecting the impact of slower overall expense
growth relative to the increase in net sales.
Research and Development Expenses. Research and development expenses
consist primarily of the cost of research and development personnel and
independent contractors. Research and development expenses have remained
relatively constant between 1996 and 1997. The Company believes that on-going
investments in research and development are required to remain competitive in
the electronic commerce software industry and the Company expects to continue
investing significant amounts therein. The Company's research and development
expenses are focused on developing incremental functionality and features for
its PECOS technologies, including the recently acquired PECOS Procurement
Manager technology, as well as modifications to allow PECOS to communicate using
the Internet and the continued development of a browser compliant version of its
PECOS technology for license to other companies.
Interest Expense. Interest expense for the quarter ended June 30, 1997
increased to $1.1 million from $1.0 million in the comparable period of 1996.
Interest expense in both years relates to floor plan line of credit borrowings
which increased significantly in 1997 over 1996 in support of the Company's
increased balances of accounts receivable and inventory and reflects a decrease
in pricing on the primary United States facility from prime plus 1% in 1996 to
prime minus 1% in the 1997 quarter.
Interest Income and Other, Net. Interest income and other, net, for the
quarter ended June 30, 1997 decreased to $142,000 in the 1997 quarter from
$418,000 in the 1996 quarter, resulting from a decrease in the average cash and
cash equivalents available for investment in the 1997 quarter.
Income Tax Provision. The income tax provision in 1997 and 1996
primarily relates to the income taxes of the Company's United Kingdom based
operations, as well as certain current state income taxes payable by the
Company.
Net Income. The Company reported net income for the quarter ended June
30, 1997 as a consequence of the results of the factors described herein. The
June 30, 1997 quarter is the seventh consecutive quarter in which the Company
has reported net income since its initial public offering in December 1995,
after reporting net losses in all previous quarters from its inception in 1992.
Six months ended June 30,1997 compared to the six months ended June 30, 1996.
Net Sales. Net sales for the six months ended June 30, 1997 increased
to $374 million from $288 million in the same period of 1996, an increase of $86
million or 30%. This increase is generally attributable to increased sales
staffing and the consequent generation of new customers and related sales, and
to a certain extent, from increased sales to existing customers, and revenues of
companies recently acquired. Net sales in the United States increased to $231
million in the first half of 1997 from $204 million in the six months ended June
30, 1996, a 13% increase, which reflects relatively soft demand in the United
States in the first quarter of 1997 offset somewhat by strong growth in the
United States in the second quarter. Net sales of the Company's United Kingdom
based operations increased to $143 million from $84 million in the first six
months of 1996. Net sales for the first six months of 1997 included a total of
$26 million generated by Prophet Group Limited and Data Supplies Limited.
Gross Profit. Gross profit for the first six months of 1997 increased
to $42.9 million from $33.4 million in the first half of 1996, an increase of
$9.5 million or 28%. The increase in gross profit dollars resulted from the
substantial growth in net sales. Gross profit, including the contribution from
acquisitions, as a percent of net sales decreased slightly from 11.6% in the
first six months of 1996 to 11.5% in the first six months of 1997. The gross
profit percentage was slightly higher than anticipated in 1997 due to an
increase in the portion of revenues generated by the Company's United Kingdom
operations, and from services (in both the United States and United Kingdom),
both of which generate higher gross profit margins than the large customer
accounts where demand in the United States was softer than anticipated in the
first three months of 1997. The Company anticipates that its gross profit
percentage will continue to decline because Catalink's business strategy
includes generating substantial
8
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incremental revenue from both new and existing large volume corporate accounts
which typically generate lower margins than other customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1997 increased to
$34.7 million from $28.0 million in the six months ended June 30, 1996, an
increase of $6.7 million or 24%. This increase is attributable primarily to the
increase in the Company's work force and the expenses of the acquired companies.
Other selling, general and administrative expenses also increased as the Company
continued to invest in administrative infrastructure to support its current and
future growth, including the ongoing development and implementation of its new
management information system. Until such new system is operational, the Company
will be required to maintain additional personnel and manual support processes
to facilitate its anticipated growth in volume. Nonetheless, selling, general
and administrative expenses decreased as a percentage of net sales for the six
months ended June 30, 1997 to 9.3%, from 9.7% in the comparable period of 1996,
reflecting the impact of the increase in net sales.
Research and Development Expense. Research and development expense has
remained relatively constant between 1996 and 1997. The Company's research and
development expenses are focused on developing incremental functionality and
features for its PECOS technologies, including the recently acquired PECOS
Procurement Manager technology as well as modifications to allow PECOS to
communicate using the Internet and the continued development of a browser
compliant version of its PECOS technology for license to other companies.
Interest Expense. Interest expense for six month period ended June 30,
1997 increased to $2.25 million from $1.8 million in the comparable period of
1996. Interest expense in both years relates to floor plan line of credit
borrowings in support of the Company's accounts receivable and inventory
balances and for 1997 is reflective of a reduction in pricing from prime plus 1%
in the first six months of 1996, to the prime rate in the first two months of
1997 and prime minus 1% thereafter.
Interest Income and Other, Net. Interest income and other, net, for the
six month period ended June 30, 1997 decreased to $716,000 from $983,000 in the
same period of 1996. Other income in 1997 includes proceeds of $389,000
resulting from the sale of the Bristol, PA. rental division in March 1997, net
of certain redundant operating and severance expenses of the Pennsylvania group
which have been phased-out and consolidated into the Company's headquarters and
new East coast configuration and distribution facility which was opened in
Canton, MA in the first quarter of 1997.
Income Tax Provision. The income tax provision in 1997 and 1996
primarily relates to the income taxes of the Company's United Kingdom based
operations, as well as certain current state income taxes payable by the
Company.
Net Income. The Company reported net income for the six month periods
ended June 30, 1997 and 1996 as a result of the factors described herein.
Liquidity and Capital Resources
Net cash provided by operating activities for the six month period
ended June 30, 1997 was $5.7 million, and reflects a net increase in current
liabilities of $9.5 million (primarily related to the timing of certain
payments) and is net of both a $2.7 million increase in accounts receivable,
resulting from the Company's increase in net sales during the 1997 period, and a
$9.3 million increase in inventory related to the Company's manufacturer direct
purchasing arrangements which were instituted in the United States in 1997. Net
cash used for investing activities was $7.9 million, consisting of $4.9 million
in additions to property, equipment and software and $3.0 million related to
acquisitions. Net cash provided by financing activities was $11.2 million,
including $782,000 in proceeds from the exercise of stock options and a $10.8
million net increase in borrowings under floor plan lines of credit.
Net cash used in operating activities for the six month period ended
June 30, 1996 was $40.4 million, including $37.5 million relating to increases
in accounts receivable, resulting from the Company's increase in net
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sales during the 1996 period. Net cash used for investing activities was $4.3
million, primarily consisting of $3.9 million in additions to property,
equipment and software and an increase of $617,000 in other assets and deferred
costs. Net cash provided by financing activities was $24.1 million, including
$6.2 million in net proceeds from the Company's sale of common stock to the
underwriters upon exercise of their over-allotment option, $327,000 in proceeds
from the exercise of stock options and a $17.7 million net increase in
borrowings under floor plan lines of credit.
At June 30, 1997, the Company's principal sources of liquidity included
cash and cash equivalents of $32 million and floor plan lines of credit from
Deutsche Financial Services Corporation ("DFSC"). The DFSC facility provides for
aggregate borrowings of up to $100 million, with interest payable at prime (8.5%
at June 30, 1997) minus 1%. Approximately one-half of the Company's initial
borrowings are eligible to be interest free until after 30 days have lapsed.
Through February 28, 1997, interest was payable monthly at the prime rate before
being reduced to prime minus 1%. Availability of borrowings is based on DFSC's
determination as to eligible accounts receivable and inventory. At June 30,
1997, the Company's borrowings from DFSC on its floor plan line of credit were
$78 million, which approximated the Company's availability based on eligible
accounts receivable and inventory at that date. The DFSC line of credit is
secured primarily by the Company's inventory and accounts receivable, although
substantially all of the Company's other United States assets also are 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.
Historically, the Company's financing requirements have been met by the DFSC
facility, however, there can be no assurance 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 $9.5 million floor plan financing agreement with IBM Credit Corporation
("IBMCC") to support purchases of IBM products. At June 30, 1997, the Company's
borrowings from IBMCC on its floor plan line of credit were $3 million. The DFSC
and IBMCC borrowing facilities relate to domestic operations only.
Lantec maintains a financing facility with Kellock Limited, an
affiliate of NatWest Bank, PLC, which provides for borrowings of up to
approximately $16.6 million. Borrowings bear interest at the Bank of Scotland
base rate (6.75% at June 30, 1997) plus 1.2% and are primarily secured by
accounts receivable.
AMA maintains a factoring agreement with International Factors Limited
("IFL"), under which IFL acts as AMA's factor for a portion of its accounts
receivable. The factoring charges amount to the Lloyds Bank base rate (6.75% at
June 30, 1997) plus 1.75% of the accounts receivable assigned, in addition to
certain administration charges, as defined.
Prophet Group maintains a financing arrangement with Confidential
Invoice Discounting Limited, a financing company, which provides for borrowings
up to the lesser of the security value of accounts receivable, as defined, or
$6.7 million. Borrowings bear interest at the Lloyds Bank base rate (6.75% at
June 30, 1997) plus 1.25%.
Data Supplies Limited maintains a financing arrangement with Alex
Lawrie Factors Limited, a financing company, which provides for borrowings up to
the lesser of the security value of accounts receivable, as defined, or $2.9
million. Borrowings bear interest at the Bank of Scotland base rate (6.75% at
June 30, 1997) plus 1.75%.
As of June 30, 1997, the Company had borrowings aggregating
approximately $20 million outstanding under the aforementioned United Kingdom
facilities, which approximated its availability thereunder.
Based upon ongoing analyses, and the requirement that it establish a
direct purchasing relationship with a major PC manufacturer to support
fulfillment requirements under a contract awarded in 1996, the Company has begun
purchasing products directly from selected manufacturers. Although the Company's
inventory investment
10
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has increased substantially since December 31, 1996, the Company believes that
these investments will improve its delivery time to customers and the quality
control of configured systems and, over time, may increase the profitability of
the Company. The Company also believes that it can substantially mitigate the
risks associated with additional inventory positions by limiting the range of
models it stocks to those in demand and by carefully monitoring items on hand
relative to demand. The Company also intends to maintain logistical and
traditional relationships with selected distributors and/or aggregators.
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 could include forward-looking
information. All statements other than statements of historical fact, including,
without limitation, those with respect to the Company's objectives, plans and
strategies set forth herein and those preceded by or that include the words
"believes," "expects," "anticipates," or similar expressions, are
forward-looking statements. Although the Company believes that such
forward-looking statements are reasonable, it can give no assurance that the
Company's expectations are correct. These forward-looking statements 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
industry's acceptance and usage of electronic commerce software systems, the
impact of competitive technology, products and pricing, control of expenses,
levels of gross margins, revenue growth, overall business conditions, price
decreases of PC products, corporate demand for PC products, the success and
timing of implementing the Company's new management information system,
availability of appropriate financing, risks associated with acquisitions of
companies, the consequent results of operations given the aforementioned
factors, and other risks detailed in the Company's 1996 Annual Report on Form
10-K and from time to time in the Company's other SEC reports, including the
Company's prospectus included as part of the S-1 Registration Statement declared
effective on December 19, 1995 under the Securities Act of 1933. Regarding the
Company's evaluation of possible strategic partners, there can be no assurance
that any strategic alternatives, including any possible arrangements with a
strategic partner or the possible sale or merger of the Company, can be
successfully identified or solicited, negotiated, or consummated to the
betterment of the Company or the Company's stock price, or what the timing,
terms, or ultimate impact of any such arrangement might be.
11
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
On March 26, 1997, the Company and certain of its subsidiaries entered
into a Final Agreement of Settlement and Mutual Release of All Claims and
Demands with the former owners of Computerware, which the Company acquired in
February 1995, including the dismissal of all litigation pending against the
principal former owners of Computerware (and related counterclaims against the
Company). The essence of the settlement, a complete copy of which was filed as
an exhibit to a Current Report on Form 8-K dated March 26, 1997, and filed on
April 8, 1997, includes a confirmation of the merger transaction and confirms
that the 1,326,417 shares of the Company's stock issued in 1995 is the
appropriate and final amount of the stock due and payable in connection with the
transaction. In addition, the principal former owners of Computerware have
agreed to certain volume and manner of sale limitations on their ability to sell
their shares of the Company's common stock. The settlement of these disputes and
related litigation did not have a material impact on the Company's results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Company's stockholders was held on June 10,
1997. Two matters as specified in the Company's Notice of Annual Meeting and
Proxy Statement dated April 28, 1997, a copy of which has been previously filed
with the Securities and Exchange Commission, were considered, voted upon and
approved by the Company's stockholders. The specific results of the voting on
the two matters are as follows:
Proposal I: Messrs. J. Richard Cordsen and Richard J.Harries,Jr. were
elected to the Board of Directors of the Company, each for a term
to expire at the 2000 Annual Meeting, by the following vote:
Number of Shares Voted
-----------------------------------------------
For Withheld
------------------ -----------------
J. Richard Cordsen 18,108,258 29,500
Richard J. Harries, Jr. 18,107,858 29,900
Following the meeting, each of Messrs. Crowell, Ortiz, Rousou and Smith
also continued as Directors of the Company.
Proposal II: The Company's stockholders ratified and approved the
Company's 1996 Stock Option Plan by the following vote:
Number of Shares Voted
--------------------------------------------------------------------
For Against Withheld
------------ ------------ ------------
12,997,973 914,643 37,266
12
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(10.19) Amended Employment Agreement by and between the Company and
Robert J. Crowell dated June 1, 1997 (x) (*)
(10.29) 1995 Non-Employee Director Stock Option Plan of the Company
(1), and Amendment No.1 thereto (x) (*)
(10.37) Amended Employment Agreement by and between the Company and
Laurence F. Mulhern dated June 1, 1997 (x) (*)
(10.38) The 1997 Stock Option Plan of Elcom International, Inc. (x)(*)
(11) Statement re: computation of net income per common share (x)
(27) Financial Data Schedule (x)
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(1) Previously filed as an exhibit to Registration Statement
No. 33-98866 on Form S-1 and incorporated herein by reference
(x) Filed herewith
(*) Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K.
On April 7, 1997, the Company filed an Amended Current Report on Form
8-K/A-1 with respect to the acquisition of Data Supplies Limited dated
February 21, 1997. On April 8, 1997, the Company filed a Current Report
on Form 8-K dated March 26, 1997 with respect to the Final Agreement of
Settlement and Mutual Release of All Claims and Demands with the former
owners of Computerware Business Trust.
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: August 12, 1997 By: /s/ Laurence F. Mulhern
------------------------------
Laurence F. Mulhern
Chief Financial Officer and Treasurer
13
EXHIBIT 10.19
AMENDED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective as of the 1st day of June, 1997,
by and between Elcom International, Inc., a Delaware corporation with its
principal place of business at 10 Oceana Way, Norwood, Massachusetts 02062
("Elcom" or the "Company"), and Robert J. Crowell, currently residing at 115
Walpole Street, Dover, Massachusetts 02030 (the "Executive").
WITNESSETH:
WHEREAS, the Executive is considered a key employee of the Company; and
WHEREAS, the Executive and the Company have entered into an Employment
Agreement as of September 20, 1995, which is due soon for renewal and which the
parties recognize has become somewhat out of date; and
WHEREAS, the Company desires to employ Executive consistent with the
terms of this Agreement; and
WHEREAS, it is the desire of the Company and Executive, in order to
insure Executive's continued employment with the Company, to further amend the
existing employment agreement and for convenience sake, the parties desire to
amend and restate the employment agreement in accordance with the terms hereof;
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 Chairman of the
Board and Chief Executive Officer of the Company. During the course of his
employment, Executive shall have those duties and
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responsibilities, and the authority, customarily possessed by the Chairman and
Chief Executive Officer of a major corporation and such additional duties as may
be assigned to him from time to time by the Board of Directors of the Company
(the "Board") which are consistent with the positions of Chairman and Chief
Executive Officer of a major corporation. Nothing in this Agreement shall
preclude the Executive from devoting reasonable periods of time to charitable
and community activities or the management of his investment assets, provided
such activities do not significantly interfere with the performance by the
Executive of his duties hereunder. Furthermore, service by the Executive on the
boards of other companies shall not be deemed to be a violation of this
Agreement, provided such service does not significantly interfere with the
confidentiality provisions or performance of his duties hereunder. If the
Executive voluntarily relinquishes the title, duties and responsibilities of
Chief Executive Officer in writing after request from the Board, in order to
function solely as the Chairman of the Board with the title, duties and
responsibilities thereof, then Executive shall thereafter still be entitled to
all of the same rights, benefits, privileges and protections hereunder.
2. Salary. During the course of employment, unless modified by the
Compensation Committee of the Board (the "Compensation Committee") of the
Company, commencing on the date hereof, and continuing thereafter, the Company
will pay Executive for his performance of the duties specified herein at an
annual base salary of Three Hundred Twenty-Five Thousand Dollars ($325,000.00)
per year, subject to review as hereinafter described (the "Base Salary"),
payable twice per month or otherwise in accordance with the Company's payment
policies for its other executives. On an annual basis commencing in 1998, during
the first ninety (90) days of the fiscal year (which should be following the
preparation of the Company's annual audited financial statements), the
Compensation Committee will review Executive's Base Salary and other
compensation during the period of his employment hereunder and, at the
discretion of a majority of the Compensation Committee, they may increase, but
not decrease, Executive's Base Salary and other compensation based upon his
performance, the generally prevailing industry executive salary scales and total
compensation packages, the Company's results of operation, and other relevant
factors. It is acknowledged that in the past, Executive has, and in the future,
Executive may, enter into temporary arrangements with the Company, and as an
accommodation may temporarily reduce the amount of his Base Salary then payable
in consideration for other matters and that, except to the extent expressly
provided in any
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other such arrangement in a writing signed by Executive, Executive's Base Salary
for all other purposes hereunder shall be and remain as established pursuant to
this Section 2.
3. Executive Profit Performance Bonus. The Executive shall continue to
be entitled to participate in the Company's Executive Profit Performance Bonus
Plan (or similar plan providing benefits no less favorable to the Executive),
that is being established by the Company, at a minimum rate of 35% of any bonus
pool generated by such Plan, and such Plan, after its adoption shall not be
modified, amended or terminated in any way that may have an adverse effect on
Executive without his prior written consent.
4. Benefits.
A. Payment of Compensation. The annual Base Salary
described in Section 2 hereof shall be paid throughout the term of this
Agreement subject to the following:
i. Such compensation shall not terminate, but
rather shall be payable to the extent of two
times the amount of the Executive's
then-applicable annual Base Salary, upon the
Executive's death or disability as described
in Section 5, A and B hereof, respectively;
ii. Such compensation shall terminate upon the
Executive's resignation other than for "Good
Reason" as described in Section 5, C hereof,
or upon the termination of the Executive's
employment by the Company "For Cause" as
described in Section 5, D hereof; and
iii. Such compensation shall not terminate, but
rather shall be payable to the extent of two
times the amount of the Executive's then
applicable annual Base Salary, upon the
Executive's resignation for "Good Reason" as
described in Section 5, C hereof or upon the
termination of the Executive's employment by
the Company other than "For Cause" as
described in Section 5, D hereof.
B. Vacations. During the course of employment, Executive shall
be entitled to six (6)weeks vacation per year, without carryover, to be taken
at a time or times acceptable to the Executive and otherwise consistent with
the terms and conditions of this Agreement.
C. Stock Options. Following each annual compensation review
date during the term of this Agreement, but no later than July of each year, the
Company shall make or cause to be made under its Stock Option
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Plan(s) grants of options to Executive in amounts not less than previous annual
regular grants and commensurate with his position and performance (on terms no
less favorable than the terms of options as granted to other executives), taking
into account Executive's current salary level and expected performance for the
next fiscal year. Such options shall be exercisable within a maximum of one (1)
year from the date of grant, unless a different exercise period is requested by
Executive and agreed to by the Compensation Committee. To the maximum extent
allowable, all such options shall be incentive stock options under the Internal
Revenue Code. So long as Executive owns at least 10% of the outstanding stock of
the Company, all options which are incentive stock options shall have an
exercise price of 110% of the fair market value of the underlying common stock.
All other options (including any options granted when Executive no longer owns
10% of the Company's outstanding stock) shall have an exercise price per share
equal to the fair market value as of the date of grant. The option grants
described herein need not be the exclusive options granted to Executive by the
Company under the Stock Option Plan(s) or otherwise.
D. Additional Compensation. The Executive shall be eligible to
participate in incentive, profit-sharing, annual cash bonus, deferred
compensation, supplemental retirement and any other similar plans maintained by
the Company for the benefit of one or more of its executives as determined by
the Compensation Committee, and shall be entitled to participate in any other
plans (even if only for Executive) deemed appropriate by the Compensation
Committee.
E. Other Executive Fringe Benefits. The Executive shall be
included to the extent eligible thereunder (at the expense of the Company, if
provided at Company expense for other executives of the Company) under any and
all existing plans or arrangements (and any plans or arrangements which may
be adopted) providing benefits for its employees, including but not limited to
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 from time to time during
the term of this Agreement.
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<PAGE>
F. Level of Additional Compensation and Fringe Benefits.
Additional compensation as described in Section 4, D above or other executive
fringe benefits as described in Section 4, E above are to be calculated for and
awarded to the Executive in at least as beneficial a manner as they are
calculated for and awarded to any other executives.
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, 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, except
(i) as provided in Section 6 below, and (ii) the death of the Executive shall
not adversely affect the rights of his beneficiaries to any benefits under the
Company's employee benefit plans or arrangements in which he may be a
participant, in accordance with the terms thereof, including, but not limited to
those referred to in Section 5, F hereof.
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 (i)as provided in
Section 6 below, and (ii) the disability of the Executive shall not adversely
affect his rights to any benefits under the Company's employee benefit
plans or arrangements in which he may be a participant, in accordance with the
provisions thereof, including
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<PAGE>
but not limited to those referred to in Section 5, F hereof. The term
"disability" 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 designated by Executive and reasonably acceptable to the Board
of Directors.
C. Resignation.
If the Executive voluntarily leaves the employ of the Company
during the term of this Agreement for "Good Reason" (as hereafter defined), 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 (i) as provided in Section 6 below, and (ii) the termination of
employment by Executive for Good Reason shall not adversely affect his rights to
any benefits under the Company's employee benefit plans or arrangements in which
he may be a participant, in accordance with the terms thereof, including, but
not limited to those referred to in Section 5, F hereof.
If the Executive voluntarily leaves the employ of the Company
during the term of this Agreement for reasons not constituting "Good Reason",
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 such voluntary termination of employment by the
Executive shall not adversely affect (i) his rights to any benefits under the
Company's employee benefit plans or arrangements in which he may be a
participant, in accordance with the provisions thereof, including but not
limited to those referred to in Section 5, F hereof or (ii) any pre-existing
obligations of the Company to Executive for his benefit, including any accrued
but unpaid compensation or benefits.
For purposes of this Agreement, "Good Reason" means the
occurrence of any reduction in the aggregate direct remuneration of the
Executive or any reduction in the position, authority or office of the
Executive,
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any reduction in the Executive's responsibilities or duties for the Company or
any reduction in the Executive's support staff or direct or secondary reports,
any pattern of events or circumstances which impedes the Executive in the
exercise of his authorities, powers, functions or duties hereunder in the manner
in which they would normally be exercised by the Chairman and Chief Executive
Officer of a major corporation, any adverse change or reduction in the aggregate
Executive benefits, perquisites or fringe benefits provided to the Executive as
of the date of this Agreement (provided that any reduction in such aggregate
Executive benefits, perquisites or fringe benefits that is required by law or
applies generally to all employees of the Company shall not constitute "Good
Reason" as defined hereunder), a change in the Executive's reporting
relationship, any relocation of the Executive's principal place of work with the
Company to a place more than twenty-five (25) miles from the current office or
the breach or default by the Company of any of its agreements or obligations
under any provision of this Agreement. The Executive shall give written notice
to the Company on or before the date of termination of employment for Good
Reason specifying the reasons for such termination.
D. Termination by Company.
The Company may terminate the Executive's employment
at any time, without cause, upon a unanimous vote of the Board of Directors of
the Company (the "Board") (with Executive abstaining), subject to providing the
benefits herein specified in accordance with the terms hereof. The Company, by
action of the Board of Directors, may terminate the Executive's employment at
any time "For Cause" (as hereafter 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 such termination of employment of the Executive by the Company "For Cause"
shall not adversely affect (i) his rights to any benefits under the Company's
employee benefit plans or arrangements in which he may be a participant, in
accordance with the provisions thereof, including but not limited to those
referred to in Section 5, F hereof or (ii) any pre-existing obligations of the
Company to Executive or for his benefit, including any accrued but unpaid
compensation or benefits.
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<PAGE>
As used herein, the words "For Cause" shall be deemed to mean
only the following: (i) commission by the Executive (evidenced by a conviction
or written, voluntary and freely given confession) of a criminal act
constituting a felony which causes the Company or any affiliated company a
substantial detriment; or (ii) acting in material breach or contravention of the
non-competition, non-solicitation and non-disclosure covenants set forth in
Sections 9, 10 and 11 hereof, which is not cured in all material respects within
thirty (30) days after the Board gives written notice thereof to the Executive;
or (iii) commission by the Executive, when carrying out the Executive's duties
under this Agreement, of acts or the omission of any act, which both: (A)
constitute gross negligence or willful misconduct and (B) results in material
economic harm to the Company, which is not cured in all material respects within
thirty (30) days after the Board gives written notice thereof to the Executive.
E. Notice of Termination.
Any termination of the Executive's employment by the
Company or by the Executive shall be communicated by written Notice of
Termination to the other party hereto, which shall set forth the effective date
of such termination (not earlier than the date of mailing, or delivery by other
means, of the notice).
F. Continuation of Executive Benefits.
The death, disability or termination of employment of
the Executive, whether or not voluntary, whether or not for "Good Reason" and
whether or not "For Cause" shall not result in the loss by the Executive or his
beneficiaries of any benefits under any life insurance, death benefit, pension,
profit sharing, stock option, medical, deferred compensation, supplemental
executive retirement plan or other employee benefit plan or arrangement except
as specifically provided for in such plan or arrangement.
-8-
<PAGE>
6. Compensation Upon Death or Disability of Executive, Upon
Voluntary Termination for Good Reason or Involuntary Termination Other Than For
Cause.
If the Executive's employment with the Company shall be
terminated, during the term of this Agreement, by the death or disability of the
Executive, by the Executive for "Good Reason" or by the Company other than "For
Cause", then the Executive shall be entitled to the benefits provided below:
i. the Company shall pay the Executive, on a
monthly basis and in equal payment amounts,
the amount described in Section 4, A, (i) or
(iii) hereof, whichever shall be applicable,
determined by reference to his Base Salary
determined under Section 2 hereof as of the
date of his termination of employment,
through the date that is twelve monthly
payments thereafter (irrespective of the
then-remaining term of the Agreement);
ii. full participation (without proration) in
the annual Executive Profit Performance
Plan Bonus, or applicable similar plan, for
that year if his termination of employment
is on or subsequent to March 1 of the
respective fiscal year;
iii. full participation in any other performance
award if the performance measuring period
ends within six months following his
termination of employment;
iv. the choice of exercising all vested stock
options up to the longer of (i)one year after
his termination of employment, or (ii) the
exercise period following such termination
provided for in the applicable option
agreement, provided that this provision
shall not extend the term of his options
beyond their terms as initially granted
and the Company agrees to cause such
exercise to be allowed (including following
the request of the Compensation Committee
to permit suchexercise) pursuant to the
Company's Stock Option Plan(s) or the
comparable provision of any future plan or
agreement; and
v. the Company shall maintain in full force
and effect, following the cessation of the
Executive's active employment by the
Company, for the Executive's continued
benefit through the end of the term of
this Agreement, and any period during
which Executive is acting as a consultant
to the Company, all employee medical,
dental or other fringe benefit plans and
arrangements in which he was entitled to
participate immediately prior to the date of
Notice of Termination as in effect under
Section 4 hereof at the time of such
termination, provided that if such continued
coverage would jeopardize the tax qualified
status of such plan or arrangement with
respect to any other employee or the
Company, the Company may elect to provide
the said benefit on an individual basis or
provide cash compensation equivalent to the
benefit which otherwise would have been
provided, so that the Executive shall suffer
no financialloss whatsoever due to such
substitution.
Except as provided in Section 6 (iv) above, nothing in this
Agreement shall be construed as amending any compensation or fringe benefit plan
or arrangement of the Company. All rights of the Executive
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under any such plan or arrangement 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.
7. Expenses.
The Company shall reimburse Executive for reasonable business
expenses incurred by him on behalf of the Company in the performance of his
duties as specified herein.
8. Term.
Subject to the following sentence, this Agreement's term shall
begin on the effective date written above and shall terminate three (3) years
thereafter; provided, however, that if one party has not notified the other
party in writing prior to the date that is two (2) months before the end of the
term of this Agreement that such notifying party wishes the Agreement to
terminate at the end of such term, then the term of this Agreement automatically
shall extend for additional one (1) year terms, subject again to the same
automatic extension provisions. Notwithstanding the foregoing, at any time
during the sixty (60) day period ending thirty (30) days prior to each
anniversary of the effective date written above, Executive shall be entitled to
notify the Company that he desires to terminate this Agreement and this
Agreement shall terminate upon such respective anniversary date; provided, that,
in order to assure the Company that it has access to Executive's significant
expertise and knowledge base, within five days thereafter, the Company and the
Executive shall enter into a Consulting Agreement providing for Executive's
specified availability for a three (3) year period for $125,000 per year, in a
form to be mutually agreed within ninety (90) days hereafter, which form shall
thereafter be attached hereto as Exhibit A.
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9. Noncompetition.
Executive agrees that during the thirty-six (36) month period
commencing on the date of his cessation of employment with the Company hereunder
(the "Noncompetition Period"), he will not, either directly or indirectly, in
any capacity whatsoever, (a) compete with the Company by soliciting any 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. As used above,
"compete" is defined as the marketing, distribution or sale of desktop, laptop,
notebook or other commonly called "personal computer" equipment, existing
software "shrink-wrapped" applications (i.e., in existence as of June 1, 1997),
services, peripherals, or accessories in the geographical area in which the
Company maintains offices, sales agents, has customers or otherwise conducts
business; provided; however, that "competes" shall not mean the involvement in
any of the following: (i) a company with less than 10% of its revenues for any
fiscal year during the Non-competition Period from any of the foregoing defined
"competitive" activities, or (ii) a company with a primary purpose of marketing
and developing its own software that otherwise does not exceed the threshold in
subclause (i), if such threshold was thirty percent (30%), or (iii) any entity
which has annualized revenues (at the time Executive commences, or were to
commence, his relationship with such entity) of less than $3 million. The
Executive further expressly represents and understands that if Executive's
employment is terminated, this Agreement will prohibit the Executive from future
employment with all major companies that compete with the Company, as defined in
this Agreement, and as such, will constrain some of the Executive's overall
possibilities for future employment. By Executive's signature to this 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 restriction
in this Agreement.
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10. Nondisclosure.
Executive agrees 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 and confidences of the Company or its business,
including, without limitation, (a) information or business secrets relating to
the products, customers, business, conduct or operations of the Company or any
of its respective clients, customers, consultants or licensees; and (b) any of
the Company's customer lists, pricing and purchasing information or policies
(collectively, "Confidential Information"), of which he has acquired knowledge
during or after his employment with the Company, to the extent that such matters
(i) have not previously been made public or are not thereafter made public, or
(ii) do not otherwise become available to Executive, in either case, via a
source not bound by any confidentiality obligations to the Company. 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. Executive agrees not to use,
directly or indirectly, such knowledge for his own benefit or for the benefit of
others and/or 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 to the Company any and all written
Confidential Information received from the Company 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 Information unless an
alternative method of disposition is approved by the Company.
11. Nonsolicitation/Noninterference.
Executive agrees that during the two (2) year period
commencing on the date of his cessation of employment with the Company (the
"Nonsolicitation Period"), he will not at any time, without prior written
consent of the Company, 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 or to terminate such individual's
relationship with the Company. Executive
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further covenants and agrees that, during the Nonsolicitation Period, he will
not, without the prior written consent of the Company, directly or indirectly,
induce or attempt to induce any actual or prospective 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 suppliers or customers. 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. Intellectual Property Assignment.
Executive agrees that all ideas, improvements, computer
programs, code, or flowcharts, inventions, and discoveries that are directly
related to the business of the Company either as previously conducted or as
conducted at any time during Executive's employment, that Executive may have
made or that Executive may make or conceive, alone or jointly with others, prior
to or during Executive's employment with the Company shall be the sole property
of the Company, and Executive agrees:
(a) to promptly disclose any such ideas,
improvements, inventions, and discoveries to
the Company; and
(b) to treat such ideas, improvements,
inventions, and discoveries as the trade
secrets of the Company; and
(c) not to disclose such ideas, improvements,
inventions, and discoveries to anyone, both
during and after Executive's employment with
the Company, without the Company's prior
written approval.
Executive hereby assigns all of Executive's right, title and interest, in and to
any such ideas, improvements, inventions, or discoveries, including any
potential patent rights and any additional rights conferred by law upon
Executive as the author, designer, or inventor thereof, to (a) vest full title
in the idea, improvement, invention, or discovery in the Company, and (b) to
enable the Company to seek, maintain or enforce patent or other protection
thereon anywhere in the world.
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Executive agrees that the Company is the author (owner) of any work of
authorship or copyrightable work ("Work") created by Executive, in whole or in
part, during Executive's employment by the Company and directly relating to the
business of the Company as previously conducted or as conducted at any time
during Executive's employment. Executive acknowledges that each writing and
other literary Work , each drawing and other pictorial and/or graphic Work and
any audio-visual Work, created by Executive, in whole or in part, and directly
relating to his position or responsibilities with the Company has been prepared
by Executive for the Company as a Work for hire. Executive agrees that in the
event that such Work is not considered Work for hire, Executive hereby assigns
all copyright and any other rights conferred in law unto Executive in and to
such Work to the Company. Executive agrees that at the request of the Company,
Executive will execute any documents deemed necessary by the Company to (a) vest
full title to the Work in the Company, and (b) enable the Company to register,
maintain, or enforce copyrights in the Work anywhere in the world. Executive
will treat any such Work as the trade secrets of the Company and will not
disclose it to anyone both during and after Executive's employment by the
Company, without the Company's prior written approval.
Executive recognizes that the ideas, improvements, inventions,
discoveries and Works directly relating to Executive's activities while working
for the Company and conceived or made by him, alone or with others, within one
(1) year after termination of Executive's employment may have been conceived in
significant part while employed by the Company. Accordingly, Executive agrees
that such ideas, improvements, inventions, discoveries and Works, if directly
related to any of the business activities or computer software or software
development processes of the Company, shall be presumed to have been conceived
during Executive's employment with the Company and shall be and hereby are
assigned in accordance with the foregoing provisions, unless Executive receives
prior written consent from the Company otherwise.
13. Severability; Certain Exclusions.
In the event that Sections 9, 10, 11, or 12 (the "Restrictive
Covenants") 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
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that such court(s) may exercise its discretion in reforming such provision(s) to
the end that Executive shall be subject to noncompetition, nondisclosure,
nonsolicitation/noninterference, and intellectual property assignment covenants
that are reasonable under the circumstances and enforceable by the Company.
Notwithstanding any other provision contained in this
Agreement, none of the Restrictive Covenants contained in Sections 9, 10 or 12
hereof shall be binding on, be applicable to, or shall limit the Executive in
connection with any relationship that he may have or develop with any entity
that, at the time of his cessation of employment with the Company, was a
licensee of the Company (and/or any of its affiliates, including a licensee of
the technology of its Elcom Systems, Inc. subsidiary) or is an affiliate of the
Company (hereafter, "Related Entities"). Further, the covenants contained in
Section 11 hereof shall not be binding on or be applicable to the Executive in
connection with any relationship that he has or may develop with a Related
Entity, more than 10% of the equity (represented by the right to vote in the
election of directors or similar governing body) of which was beneficially owned
by the Company or any of its affiliates, at any of the following times: (i) at
the time that a license agreement, if any, was entered into by the Company or
any of its affiliates, (ii) at the time of Executive's cessation of employment
with the Company, and/or (iii) at such subsequent time as the activity under
Section 11 is undertaken.
14. Acknowledgment.
Executive specifically acknowledges that the covenants set
forth herein restricting competition, disclosure, solicitation/interference and
ownership of intellectual property 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.
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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.
15. Limitation of Payment.
Notwithstanding anything in this Agreement to the contrary, if
receipt of any of the benefits hereunder would subject the Executive to tax
under Section 4999 of the Internal Revenue Code of 1986, as amended (or similar
successor statute) (hereafter "Section 4999"), the Company shall promptly pay to
the Executive a "gross up" amount that would allow the Executive to receive the
net after-tax amount he would have received but for the application of said
Section 4999 to any payments hereunder, including any payments made pursuant to
this Section 15.
16. 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.
17. Assignment.
This Agreement shall inure to the benefit of, and shall be
binding upon, the Company, its successors and assigns. If substantially all the
assets of the Company are sold or otherwise transferred to another 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 provision of
this Agreement shall be binding upon and inure to the benefit of the corporation
to which such assets shall be sold or transferred, and this provision shall
apply in the event of any
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subsequent sale or transfer. Neither the Company nor Executive shall assign this
Agreement without the prior written consent of the other party hereto.
18. 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 agreements on such subject matter, including any and all
prior employment agreements between Executive and Catalink Direct, Inc. and/or
any other affiliate of the Company. 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 by a written instrument
specifically referring to this Agreement, executed by the party waiving
compliance. Any such waiver, amendment or modification on behalf of the Company,
unless otherwise specified herein, may be authorized either by a simple majority
of the Board (excluding Executive for all purposes) or a majority of the
Compensation Committee members. 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
provision 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.
19. 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.
20. 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.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above
written.
ELCOM INTERNATIONAL, INC.
"Elcom"
Date: June 1, 1997
/s/ William W. Smith
-------------------------------
William W. Smith, Vice Chairman
ROBERT J. CROWELL
"Executive"
Date: June 1, 1997
/s/ Robert J. Crowell
-----------------------------
Robert J. Crowell
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EXHIBIT 10.29
AMENDMENT NO. 1
to
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Elcom International, Inc., hereinafter called the "Company,' hereby adopts
Amendment No. 1 to the Company's 1995 Non-Employee Director Stock Option Plan
(the "Plan") pursuant to the following terms and provisions:
A. The name of the Plan is hereby changed to "the Elcom International, Inc.
1995 Non-Employee Director Stock Option Plan," and all references to "Catalink
Direct, Inc." are hereby amended to read "Elcom International, Inc."
B. Subsection b of Section 4 of the Plan is amended by adding thereto the
following additional paragraph, immediately following the end of the existing
Subsection b:
"Notwithstanding any other provision of the Plan, the Board of
Directors of the Company, acting by a majority of the Directors who
are not eligible Directors under the Plan (the "Ineligible Directors")
may, from time to time in the discretion of the Ineligible Directors,
amend any or all of the options granted to eligible Directors under
the Plan which are then outstanding and unexercised, including without
limitation by reducing the price at which each share of Common Stock
may be purchased pursuant to an option granted under the Plan, such
that the price as reduced shall be no less than the "fair market
value" (as determined pursuant to Section 7) for each such share as of
the date of such reduction, but in no event shall such price be less
than the par value of such shares of Common Stock."
IN WITNESS WHEREOF, Elcom International, Inc., by its appropriate officer
duly authorized, has executed this instrument as of the 3rd day of April, 1997.
ELCOM INTERNATIONAL, INC.
By: /s/ Laurence F. Mulhern
-----------------------
Secretary
EXHIBIT 10.37
AMENDED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective as of the 1st day of
June, 1997, 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 is considered a key employee of the Company; and
WHEREAS, the Executive and the Company have entered into an Employment
Agreement as of July 1, 1996 which the parties recognize has become somewhat out
of date;
WHEREAS, the Company desires to employ Executive consistent with the terms
of this Agreement, and;
WHEREAS, it is the desire of the Company and Executive, in order to insure
Executive's continued employment with the Company, to further amend the existing
employment agreement in accordance with the terms hereof;
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.
During the course of his employment, Executive shall have those duties and
responsibilities, and the authority, customarily possessed by the Chief
Financial Officer and Corporate Executive Vice President of a major corporation
and such additional duties as may be assigned to him by the Chairman of Elcom
and/or from time to time by the Board of Directors of the Company (the "Board")
which are consistent with the positions of Chief Financial Officer and Corporate
Executive Vice President of a major corporation. Nothing in this Agreement shall
preclude the Executive from devoting reasonable periods of time to charitable
and community
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activities or the management of his investment assets, provided such activities
do not significantly interfere with the performance by the Executive of his
duties hereunder. Furthermore, service by the Executive on the boards of other
companies shall not be deemed to be a violation of this Agreement, provided such
service does not significantly interfere with the confidentiality provisions or
performance of his duties hereunder.
2. Salary. During the course of employment, unless modified by
the Compensation Committee of the Board (the "Compensation Committee") of the
Company, commencing on the date hereof, and continuing thereafter, the Company
will pay Executive for his performance of the duties specified herein at an
annual base salary of Two Hundred Seventy-Five Thousand Dollars ($275,000) per
year, subject to minimum increases and further review as hereinafter described
(the "Base Salary"), payable twice per month or otherwise in accordance with the
Company's payment policies for its other executives. On the first day of April
of each calendar year hereafter (commencing on April 1, 1998), Executive shall
receive an increase in his Base Salary hereunder of at least ten percent (10%)
of the then-prevailing Base Salary provided for hereunder (the "Minimum
Increase"). In addition, on an annual basis commencing in 1998, during the first
ninety (90) days of the fiscal year (which should be following the preparation
of the Company's annual audited financial statements), the Compensation
Committee will review Executive's Base Salary and other compensation during the
period of his employment hereunder and, at the discretion of a majority of the
Compensation Committee, they may increase, but not decrease, Executive's Base
Salary (beyond the Minimum Increase) and other compensation based upon his
performance, the generally prevailing industry executive salary scales and total
compensation packages, the Company's results of operation, and other relevant
facts. It is acknowledged that in the past, Executive has, and in the future,
Executive may, enter into temporary arrangements with the Company, and as an
accommodation may temporarily reduce the amount of his Base Salary then payable
in consideration for other matters and that, except to the extent expressly
provided in any other such arrangement in a writing signed by Executive,
Executive's Base Salary for all other purposes hereunder shall be and remain as
established pursuant to this Section 2.
3. Executive Profit Performance Bonus. The Executive shall
continue to be entitled to participate in the Company's Executive Profit
Performance Bonus Plan (or similar plan providing benefits no less favorable to
the Executive), that is being established by the Company, at a minimum rate of
17.5% of any bonus pool
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generated by such Plan, and such Plan, after its adoption shall not be modified,
amended or terminated in any way that may have an adverse effect on Executive
without his prior written consent.
4. Benefits.
A. Payment of Compensation. The annual Base Salary
described in Section 2 hereof shall be paid throughout the term of this
Agreement subject to the following:
i. Such compensation shall not
terminate, but rather shall be
payable to the extent of two times
the amount of the Executive's
then-applicable annual Base Salary,
upon the Executive's death or
disability as described in Section
5, A and B hereof, respectively;
ii. Such compensation shall terminate
upon the Executive's resignation
other than for "Good Reason" as
described in Section 5, C hereof, or
upon the termination of the
Executive's employment by the
Company "For Cause" as described in
Section 5, D hereof; and
iii. Such compensation shall not
terminate, but rather shall be
payable to the extent of two times
the amount of the Executive's then
applicable annual Base Salary, upon
the Executive's resignation for
"Good Reason" as described in
Section 5, C hereof or upon the
termination of the Executive's
employment by the Company other than
"For Cause" as described in Section
5, D hereof.
B. Vacations. During the course of employment,
Executive shall be entitled to five (5) weeks of vacation per year, to be taken
at a time or times acceptable to the Executive and otherwise consistent with the
terms and conditions of this Agreement.
C. Stock Options. Following each annual
compensation review date during the term of this Agreement, but no later than
July of each year, the Company shall make or cause to be made under its Stock
Option Plan(s) grants of options to Executive in amounts not less than previous
annual regular grants and commensurate with his position and performance (on
terms no less favorable than the terms of options as granted to other
executives), taking into account Executive's current salary level and expected
performance for the next fiscal year. Such options shall be exercisable within a
maximum of one (1) year from the date of grant, unless a different exercise
period is requested by Executive and agreed to by the Compensation Committee. To
the maximum extent allowable, all such options shall be incentive stock options
under the Internal Revenue Code. All other options shall have an exercise price
per share equal to the fair market value as of the date of grant. The option
grants described
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herein need not be the exclusive options granted to Executive by the Company
under the Stock Option Plan(s) or otherwise.
D. Additional Compensation. The Executive shall
be eligible to participate in incentive, profit-sharing, annual cash bonus,
deferred compensation, supplemental retirement and any other similar plans
maintained by the Company for the benefit of one or more of its executives as
determined by the Compensation Committee, and shall be entitled to participate
in any other plans deemed appropriate by the Compensation Committee.
E. Other Executive Fringe Benefits. The
Executive shall be included to the extent eligible thereunder (at the expense of
the Company, if provided at Company expense for other executives of the Company)
under any and all existing plans or arrangements (and any plans or arrangements
which may be adopted) providing benefits for its employees, including but not
limited to 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 from time to
time during the term of this Agreement.
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,
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, except (i) as provided in Section 6 below, and (ii) the death of the
Executive shall not adversely affect the rights of his beneficiaries to any
benefits under the Company's employee benefit plans or arrangements in which he
may be a participant, in accordance with the terms thereof, including but not
limited to those referred to in Section 5, F hereof.
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
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the date the Executive is determined to be disabled, except (i) as provided in
Section 6 below, and (ii) the disability of the Executive shall not adversely
affect his rights to any benefits under the Company's employee benefit plans or
arrangements in which he may be a participant, in accordance with the provisions
thereof, including but not limited to those referred to in Section 5, F hereof.
The term "disability" 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 designated by Executive and
reasonably acceptable to the Board of Directors.
C. Resignation.
If the Executive voluntarily leaves the
employ of the Company during the term of this Agreement for "Good Reason" (as
hereafter defined), 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 (i) as provided in Section 6 below, and (ii)
the termination of employment by Executive for Good Reason shall not adversely
affect his rights to any benefits under the Company's employee benefit plans or
arrangements in which he may be a participant, in accordance with the terms
thereof, including, but not limited to those referred to in Section 5, F hereof.
If the Executive voluntarily leaves the employ of
the Company during the term of this Agreement for reasons not constituting "Good
Reason", 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 such voluntary termination of employment by the
Executive shall not adversely affect (i) his rights to any benefits under the
Company's employee benefit plans or arrangements in which he may be a
participant, in accordance with the provisions thereof, including but not
limited to those referred to in Section 5, F hereof or (ii) any pre-existing
obligations of the Company to Executive for his benefit, including any accrued
but unpaid compensation or benefits.
For purposes of this Agreement, "Good Reason" means
the occurrence of a significant reduction in the aggregate direct remuneration
of the Executive or any reduction in the position, authority or office of the
Executive, any significant reduction in the Executive's responsibilities or
duties for the Company or any significant reduction in the Executive's support
staff or direct or secondary reports, any pattern of events or circumstances
which impedes the Executive in the exercise of his authorities, powers,
functions or duties hereunder in the manner in which they would normally be
exercised by the Chief Financial Officer and Corporate Executive Vice President
of a major
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corporation, any significant adverse change or reduction in the aggregate
Executive benefits, perquisites or fringe benefits provided to the Executive as
of the date of this Agreement (provided that any reduction in such aggregate
Executive benefits, perquisites or fringe benefits that is required by law or
applies generally to all employees of the Company shall not constitute "Good
Reason" as defined hereunder), a change in the Executive's reporting
relationship, any relocation of the Executive's principal place of work with the
Company to a place more than twenty-five (25) miles from the current office or
the breach or default by the Company of any of its agreements or obligations
under any provision of this Agreement. As used in this Section 5, C, a
"significant reduction" in the aggregate direct remuneration or in the aggregate
Executive benefits, perquisites or fringe benefits shall be deemed to result
from any reduction or any series of reductions which, in the aggregate, exceeds
five percent (5%) of such aggregate direct remuneration or such aggregate
Executive benefits, perquisites or fringe benefits, as the case may be. The
Executive shall give written notice to the Company on or before the date of
termination of employment for Good Reason specifying the reasons for such
termination.
D. Termination by Company.
The Company may terminate the Executive's
employment at any time, without cause, upon a majority vote of the Board of
Directors of the Company (the "Board"), subject to providing the benefits herein
specified in accordance with the terms hereof. The Company, by action of the
Chairman and/or Chief Executive Officer and/or the Board, 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 such termination of employment of the Executive by the
Company "For Cause" shall not adversely affect (i) his rights to any benefits
under the Company's employee benefit plans or arrangements in which he may be a
participant, in accordance with the provisions thereof, including but not
limited to those referred to in Section 5, F hereof or (ii) any pre-existing
obligations of the Company to Executive or for his benefit, including any
accrued but unpaid compensation or benefits.
As used herein, the words "For Cause"
shall be deemed to mean only the following: (i) commission by the Executive
(evidenced by a conviction or written, voluntary and freely given confession) of
a criminal act constituting a felony which causes the Company or any affiliated
company a substantial detriment; or (ii) acting in material breach or
contravention of the non-competition, non-solicitation and non-disclosure
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covenants set forth in Sections 9, 10 and 11 hereof, which is not cured in all
material respects within thirty (30) days after the Board gives written notice
thereof to the Executive; or (iii) commission by the Executive, when carrying
out the Executive's duties under this Agreement, of acts or the omission of any
act, which both: (A) constitute gross negligence or willful misconduct and (B)
results in material economic harm to the Company, which is not cured in all
material respects within thirty (30) days after the Board gives written notice
thereof to the Executive.
E. Notice of Termination.
Any termination of the Executive's
employment by the Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto, which shall set forth the
effective date of such termination (not earlier than the date of mailing, or
delivery by other means, of the notice).
F. Continuation of Executive Benefits.
The death, disability or termination of
employment of the Executive, whether or not voluntary, whether or not for "Good
Reason" and whether or not "For Cause" shall not result in the loss by the
Executive or his beneficiaries of any benefits under any life insurance, death
benefit, pension, profit sharing, stock option, medical, deferred compensation,
supplemental executive retirement plan or other employee benefit plan or
arrangement except as specifically provided for in such plan or arrangement.
6. Compensation Upon Death or Disability of Executive, Upon
Voluntary Termination for Good Reason or Involuntary Termination Other Than For
Cause. If the Executive's employment with the Company shall be terminated during
the term of this Agreement, by the death or disability of the Executive, by the
Executive for "Good Reason" or by the Company other than "For Cause", then the
Executive shall be entitled to the benefits provided below:
i. the Company shall pay the Executive, on
a monthly basis and in equal payment
amounts, the amount described in Section 4,
A, (i) or (iii) hereof, whichever shall be
applicable, determined by reference to his
Base Salary determined under Section 2
hereof as of the date of his termination of
employment, through the date that is twelve
monthly payments thereafter (irrespective
of the then remaining term of the
Agreement);
ii. full participation (without
proration) in the annual Executive Profit
Performance Plan Bonus, or applicable
similar plan, for that year if his
termination of employment is on or
subsequent to March 1 of the respective
fiscal year;
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iii. full participation in any other
performance award if the performance
measuring period ends within six months
following his termination of employment;
iv. the choice of exercising all vested
stock options up to the longer of (i) one
year after his termination of employment,
or (ii) the exercise period following such
termination provided for in the applicable
option agreement, provided that this
provision shall not extend the term of his
options beyond their terms as initially
granted and the Company agrees to cause
such exercise to be allowed (including
following the request of the Compensation
Committee to permit such exercise) pursuant
to the Company's Stock Option Plan(s) or
the comparable provision of any future plan
or agreement; and
v. the Company shall maintain in full
force and effect, following the cessation
of the Executive's active employment by the
Company, for the Executive's continued
benefit through the end of the term of this
Agreement, and any period during which
Executive is acting as a consultant to the
Company, all employee medical, dental or
other fringe benefit plans and arrangements
in which he was entitled to participate
immediately prior to the date of Notice of
Termination as in effect under Section 4
hereof at the time of such termination,
provided that if such continued coverage
would jeopardize the tax qualified status
of such plan or arrangement with respect to
any other employee or the Company, the
Company may elect to provide the said
benefit on an individual basis or provide
cash compensation equivalent to the benefit
which otherwise would have been provided,
so that the Executive shall suffer no
financial loss whatsoever due to such
substitution.
Except as provided in Section 6 (iv) above, nothing in this
Agreement shall be construed as amending any compensation or fringe benefit plan
or arrangement of the Company. All rights of the Executive under any such plan
or arrangement 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.
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.
8. Term. Subject to the following sentence, this Agreement's
term shall begin on the effective date written above and shall terminate three
(3) years thereafter; provided, however, that if one party has not notified the
other party in writing prior to the date that is three (3) months before the end
of the term of this Agreement that such
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notifying party wishes the Agreement to terminate at the end of such term, then
the term of this Agreement automatically shall extend for additional one (1)
year terms, subject again to the same automatic extension provisions.
Notwithstanding the foregoing, at any time during the sixty (60) day period
ending thirty (30) days prior to each of March 31, 1999 and March 31, 2000,
respectively, Executive shall be entitled to notify the Company that he desires
to terminate this Agreement and this Agreement shall terminate upon such
respective March 31st; provided, that, in order to assure the Company that it
has access to Executive's significant expertise and knowledge base, within five
days thereafter, the Company and the Executive shall enter into a Consulting
Agreement providing for Executive's specified availability for a two (2) year
period for $100,000 per year, in a form to be mutually agreed within ninety (90)
days hereafter, which form shall thereafter be attached hereto as Exhibit A.
9. Noncompetition. Executive agrees that during the period
(the "Noncompetition Period") commencing on the date hereof 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
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. For purposes of Sections 9, 10, 11 and 12 of this
Agreement, the "Company" shall mean the Company and any affiliates controlling,
controlled by or under common control with Elcom, including their predecessors.
As used above, "compete" is defined as the marketing,
distribution or sale of desktop, laptop, notebook or other commonly called
"personal computer" equipment, existing software "shrink-wrapped" applications
(i.e., in existence as of June 1, 1997), services, peripherals, or accessories
in the geographical area in which the Company maintains offices, sales agents,
has customers or otherwise conducts business; provided, however, that "competes"
shall not mean the involvement in any of the following: (i) a company with less
than 10% of its revenues
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for any fiscal year during the Non-competition Period from any of the foregoing
defined "competitive" activities, or (ii) a company with a primary purpose of
marketing and developing its own software that otherwise does not exceed the
threshold in subclause (i), if such threshold was thirty percent (30%), or (iii)
any entity which has annualized revenues (at the time Executive commences, or
were to commence, his relationship with such entity) of less than $3 million.
The Executive further expressly represents and understands that if Executive's
employment is terminated, this Agreement will prohibit the Executive from future
employment with all major companies that compete with the Company, as defined in
this Agreement, and as such, will constrain some of the Executive's overall
possibilities for future employment. By Executive's signature to this 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 restriction
in this Agreement.
10. Nondisclosure. Executive agrees during the period (the
"Nondisclosure Period") commencing on the date hereof 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, and confidences of the Company or its business,
including, without limitation, (a) information or business secrets relating to
the products, customers, business, conduct or operations of the Company, or any
of its respective clients, customers, consultants or licensees; and (b) any of
the Company's customer lists, pricing and purchasing information or policies
(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 made public or are not thereafter made
public, or (ii) do not otherwise become available to Executive, in either case,
via a source not bound by any confidentiality obligations to the Company. 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/or 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 to the Company any and all written Confidential Information received from
the Company
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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
Information unless an alternative method of disposition is approved by the
Company.
11. Nonsolicitation/Noninterference. Executive agrees that
during the period (the "Nonsolicitation Period") beginning on the date hereof
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, 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 or to terminate such individual's relationship with the
Company. Executive further covenants and agrees that, during the Nonsolicitation
Period, he will not, without the prior written consent of the Company, directly
or indirectly, induce or attempt to induce any actual or prospective 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 suppliers or customers. 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. 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 such 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.
13. Severability; Certain Exclusions. In the event that
Sections 9, 10, 11 or 12 (the "Restrictive Covenants") 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
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nonsolicitation/ noninterference covenants that are reasonable under the
circumstances and enforceable by the Company.
Notwithstanding any other provision contained in this
Agreement, none of the Restrictive Covenants contained in Sections 9, 10 or 12
hereof shall be binding on, be applicable to, or shall limit the Executive in
connection with any relationship that he may have or develop with any entity
that, at the time of his cessation of employment with the Company, was a
licensee of the Company (and/or any of its affiliates, including a licensee of
the technology of its Elcom Systems, Inc. subsidiary) or is an affiliate of the
Company (hereafter, "Related Entities"). Further, the covenants contained in
Section 11 hereof shall not be binding on or be applicable to the Executive in
connection with any relationship that he has or may develop with a Related
Entity, more than 10% of the equity (represented by the right to vote in the
election of directors or similar governing body) of which was beneficially owned
by the Company or any of its affiliates, at any of the following times: (i) at
the time that the license agreement, if any, was entered into, (ii) at the time
of Executive's cessation of employment with the Company, and/or (iii) at such
subsequent time as the activity under Section 11 is undertaken.
14. Acknowledgment. Executive specifically acknowledges that
the covenants set forth herein restricting competition, disclosure,
solicitation/interference and ownership of intellectual property 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.
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.
15. Limitation of Payment. Notwithstanding anything in this
Agreement to the contrary, if receipt of any of the benefits hereunder would
subject the Executive to tax under Section 4999 of the Internal Revenue Code of
1986, as amended (or similar successor statute) (hereafter "Section 4999"), the
Company shall promptly pay to
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the Executive a "gross up" amount that would allow the Executive to receive the
net after-tax amount he would have received but for the application of said
Section 4999 to any payments hereunder, including any payments made pursuant to
this Section 15.
16. 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.
17. Assignment. This Agreement shall inure to the benefit of,
and shall be binding upon, the Company, its successors and assigns. If
substantially all the assets of the Company are sold or otherwise transferred to
another 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 provision of this Agreement shall be binding upon and inure to the
benefit of the corporation to which such assets shall be sold or transferred,
and this provision shall apply in the event of any subsequent sale or transfer.
Neither the Company nor Executive shall assign this Agreement without the prior
written consent of the other party hereto.
18. 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 agreements on such
subject matter, including any and all prior employment agreements between
Executive and the Company and/or any affiliate of the Company. 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 by a written
instrument specifically referring to this Agreement, executed by the party
waiving compliance. Any such waiver, amendment or modification on behalf of the
Company, unless otherwise specified herein, may be authorized either by a simple
majority to the Board (excluding Executive for all purposes) or a majority of
the Compensation Committee members. 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 provision 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 raising out of any subsequent breach.
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19. 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.
20. 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.
"Elcom"
Date: June 1, 1997
/s/ Robert J. Crowell
-------------------------
Robert J. Crowell, Chairman of the Board and Chief
Executive Officer
LAURENCE F. MULHERN
"Executive"
Date: June 1, 1997
/s/ Laurence F. Mulhern
-------------------------
Laurence F. Mulhern
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EXHIBIT 10.38
THE 1997 STOCK OPTION PLAN
OF ELCOM INTERNATIONAL, INC.
April 29, 1997
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 422 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 1997 Stock
Option Plan of Elcom International, Inc., as
it was originally adopted, and as it may be
amended.
(k) The word "Subsidiary" shall mean any entity
at least 50% of the equity of which is owned
directly or indirectly by the Company.
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(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 April 29, 1997. 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 April 29, 1998, 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;
(d) to determine the option price of Common
Stock subject to an option, including
any repricing thereof;
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(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 422 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
1,000,000 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 150,000, subject to the other provisions of
this Section 6. Either treasury or authorized and unissued shares of Common
Stock, or both, in such
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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
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,
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<PAGE>
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
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
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<PAGE>
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
(which may be included in the option agreement), 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 (which may be included in the option agreement) 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, but
need not, 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 Company or a Subsidiary as such a
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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 to prevent options granted as Incentive
Stock Options from qualifying as such within the meaning of Section 422 of the
Code.
-7-
<PAGE>
(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; or
(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, Inc. an opinion of counsel or other
evidence, in either case, 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".
-8-
<PAGE>
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.
(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
-9-
<PAGE>
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 April
29, 2007, and thereafter no options shall be granted under the Plan. All options
outstanding at the time of termination of the Plan shall continue 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.
-10-
<PAGE>
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 29th
day of April, 1997
ELCOM INTERNATIONAL, INC.
By: /s/ Robert J. Crowell
--------------------------------
Robert J. Crowell
Chairman of the Board and Chief
Executive Officer
-11-
EXHIBIT 11
ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- ---------
Net Income $ 1,152 $ 2,061 $ 2,276 $ 4,023
======== ======== ======== ========
Weighted Average Common Stock and
Common Equivalent Shares
Outstanding During the Period 26,363 26,869 26,192 26,805
Dilutive Effect of Common Equivalent
Shares(1) 3,716 2,868 3,412 2,511
-------- -------- -------- --------
Weighted Average Common Shares
Outstanding 30,079 29,737 29,604 29,316
======== ======== ======== ========
Net Income Per Share $ .04 $ .07 $ .08 $ .14
======== ======== ======== ========
(1) The dilutive effect of common equivalent shares was computed in
accordance with the treasury stock method in each of the periods
presented.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 32,239
<SECURITIES> 0
<RECEIVABLES> 160,766
<ALLOWANCES> 4,125
<INVENTORY> 43,936
<CURRENT-ASSETS> 234,847
<PP&E> 33,313
<DEPRECIATION> 16,079
<TOTAL-ASSETS> 289,948
<CURRENT-LIABILITIES> 185,299
<BONDS> 398
0
0
<COMMON> 270
<OTHER-SE> 102,800
<TOTAL-LIABILITY-AND-EQUITY> 289,948
<SALES> 374,436
<TOTAL-REVENUES> 374,436
<CGS> 331,542
<TOTAL-COSTS> 331,542
<OTHER-EXPENSES> 34,490
<LOSS-PROVISION> 750
<INTEREST-EXPENSE> 2,249
<INCOME-PRETAX> 6,121
<INCOME-TAX> 2,098
<INCOME-CONTINUING> 4,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,023
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
