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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 September 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 27,087,575 shares of common stock, $.01 par value,
outstanding as of October 24, 1997.
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INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996
and September 30, 1997 (unaudited)................................2
Consolidated Statements of Operations - Three and Nine
Month Periods Ended September 30, 1996 and 1997 (unaudited).......3
Consolidated Statements of Cash Flows - Nine Month Periods
Ended September 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................................................13
Item 2. None.
Item 3. None.
Item 4. None.
Item 5. None.
Item 6. Index to Exhibits and Reports on Form 8-K....................... 13
Signature ............................................................... 14
1
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December September
31, 1996 30, 1997
----------- -----------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 23,259 $ 31,360
Accounts receivable, net of allowance for doubtful
accounts of $4,312 and $4,003 ..................... 151,344 172,588
Inventory ............................................ 34,718 44,791
Prepaids and other current assets .................... 864 1,512
-------- --------
Total current assets .......................... 210,185 250,251
-------- --------
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
Computer hardware and software ....................... 17,577 22,083
Land, buildings and leasehold improvements ........... 3,415 3,359
Furniture, fixtures and equipment .................... 6,202 9,777
-------- --------
27,194 35,219
Less -- Accumulated depreciation and amortization .... 13,308 17,332
-------- --------
13,886 17,887
-------- --------
GOODWILL AND OTHER ASSETS, NET OF ACCUMULATED
AMORTIZATION ......................................... 36,698 36,586
-------- --------
$260,769 $304,724
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit .................................... $ 89,469 $105,820
Accounts payable ................................... 36,987 66,364
Accrued expenses and other current liabilities ..... 34,405 23,766
Current portion of capital lease obligations ....... 252 674
Current portion of long-term debt .................. 45 45
-------- --------
Total current liabilities ................... 161,158 196,669
-------- --------
OTHER DEFERRED LIABILITIES ........................... 32 441
CAPITAL LEASE OBLIGATIONS, NET OF CURREN PORTION ..... 556 1,091
LONG-TERM DEBT, NET OF CURRENT PORTION ............... 420 386
-------- --------
1,008 1,918
-------- --------
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
- 26,663,512 and 27,128,489 shares................. 267 271
Additional paid-in capital ............................ 98,483 99,717
Retained earnings (accumulated deficit) ............... (919) 6,516
Treasury stock, at cost -- 37,546 and 56,319 shares.... (366) (549)
Cumulative translation adjustment ..................... 1,138 182
--------- ---------
Total stockholders' equity ..................... 98,603 106,137
--------- ---------
260,769 $ 304,724
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
2
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------
1996 1997 1996 1997
--------- --------- --------- --------
Net sales ........................... $ 156,851 $ 198,373 $ 444,572 $ 572,809
Cost of sales ....................... 139,519 174,337 393,855 505,879
--------- --------- --------- --------
Gross profit ........................ 17,332 24,036 50,717 66,930
Expenses:
Selling, general and administrative 14,346 17,922 42,392 52,597
Research and development .......... 250 350 835 915
--------- --------- --------- --------
otal expenses ...................... 14,596 18,272 43,227 53,512
--------- --------- --------- --------
Operating profit .................... 2,736 5,764 7,490 13,418
Interest expense .................... (936) (1,390) (2,705) (3,639)
Interest income and other, net ...... 282 256 1,265 972
--------- --------- --------- --------
Income before income taxes ......... 2,082 4,630 6,050 10,751
Provision for income taxes ......... 772 1,218 2,464 3,316
--------- --------- --------- --------
Net income .......................... $ 1,310 $ 3,412 $ 3,586 $ 7,435
========= ========= ========= ========
Net income per share ............... $ .04 $ .11 $ .12 $ .25
========= ========= ========= ========
Weighted average common shares
outstanding ....................... 29,435 30,759 29,604 29,796
========= ========= ========= ========
The accompanying notes are an integral part of
these consolidated financial statements.
3
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ELCOM INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
----------------------
1996 1997
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 3,586 $ 7,435
Adjustments to reconcile net income to net
cash provided by (used in) operating activities --
Depreciation and amortization ....................... 4,745 6,548
Provision for doubtful accounts .................... 525 1,319
Other deferred liabilities .......................... (2) 409
Changes in current assets and liabilities,
net of acquisitions --
Accounts receivable ............................... (55,227) (21,010)
Inventory ......................................... (7,028) (10,632)
Prepaids and other current assets ................. 707 (244)
Accounts payable .................................. 8,276 29,675
Accrued expenses, other current
liabilities and other ........................... 223 (11,328)
-------- --------
Net cash provided by (used in)
operating activities .......................... (44,195) 2,172
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and
software ............................................ (4,944) (6,947)
(Increase) decrease in other assets and
deferred costs ...................................... (764) 47
Purchase of Prophet Group ............................. -- (391)
Purchase of Data Supplies, net of cash acquired........ -- (2,660)
Other investing activities ............................ 216 37
-------- --------
Net cash used in investin activities ............ (5,492) (9,914)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit .................. 18,349 15,940
Sale of common stock .................................. 6,240 --
Repayment of capital lease obligations ................ (166) (559)
Proceeds from stock option exercises .................. 787 1,237
Purchase of Treasury Stock ............................ (366) (183)
-------- --------
Net cash provided by financing
activities .................................... 24,844 16,435
-------- --------
FOREIGN EXCHANGE EFFECT ON CASH ......................... (28) (592)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................... (24,871) 8,101
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ................................... 44,977 23,259
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................ $ 20,106 $ 31,360
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid ......................................... $ 2,650 $ 3,732
======== ========
Income taxes paid ..................................... $ 73 $ 1,020
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase in capital lease obligations ................. $ 176 $ 1,488
======== ========
(See Note 2 for noncash acquisition information)
The accompanying notes are an integral part of
these consolidated financial statements.
4
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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 September 30, 1997, and the results of operations and cash
flows for the periods ended September 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) plus 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 nine month periods ended September
30, 1996 and 1997. Basic EPS, presented herein on a pro forma basis, is as
follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- ----------------
1996 1997 1996 1997
-------- ------- ------- ------
Pro forma net income per share $.05 $.13 $.14 $.28
======== ======= ======= ======
Weighted average common shares
outstanding under Basic EPS 26,495 27,017 26,294 26,876
======== ======= ======= ======
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 nine
month periods ended September 30, 1997 and September 30, 1996, revenues
generated from Elcom Systems' licenses, including associated professional
services and maintenance fees, were approximately $3,911,000 and $2,263,000
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 was approximately $1.1
million, consisting of cash and common stock. PECOS.pm is an enterprise software
application that is based upon 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, electronic order placement and automated payment
processing. Additionally, PECOS.pm can be 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 which
will be deployed to a large beta customer during the fourth quarter, with
further development during 1998 to integrate other PECOS functions and features.
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, and on September 9, 1997, issued an additional 16,427 shares into
the escrow account upon the second closing of the transaction. The shares are to
be distributed, upon the satisfaction of certain conditions, to Kingbridge
Limited Partnership for distribution to its limited partners, the first of which
distributions, in the amount of 16,427 shares, was made on September 9, 1997.
Due to the limited number
6
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of such limited partners and their sophistication and investigation regarding
the Company, the issuance of 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.
It is anticipated that the Company will finalize its evaluation of strategic
alternatives by the holiday season. The rapid growth of the Company, and the
Board of Directors' belief that the Company's stock is undervalued in the
marketplace 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.
On September 4, 1997, the Company's Board of Directors approved and
adopted the Executive Profit Performance Bonus Plan for Executive Officers (the
"Executive Plan") and the Key Personnel Profit Performance Bonus Plan (the "Key
Personnel Plan" and, together with the Executive Plan, the "Plans"). The Plans
will only be effective if approved by the stockholders of the Company, and
provide that the designated Executive Officers and Key Personnel collectively
will be entitled to a bonus based on a designated portion of the year-to-year
increase in the Company's Operating Profit (as defined in the Plans). The
aggregate total of the designated percentages for bonuses under both Plans
cannot exceed 20% of the increase in the Company's Operating Profit (the "Bonus
Pool") and an individual's annual participation in the Bonus Pool is limited to
two times base salary. The Plans cover fiscal years commencing in 1998. The
Company expects to seek approval and ratification of the Plans by its
stockholders at the next stockholder meeting.
Results of Operations
Quarter ended September 30, 1997 compared to the quarter ended September 30,
1996.
Net Sales. Net sales for the quarter ended September 30, 1997 increased to
$198 million from $157 million in the same period of 1996, an increase of $41
million or 26%. Net sales in the United States increased to $124 million in the
1997 quarter from $113 million in the quarter ended September 30, 1996, a 10%
increase which reflects management's decision to defer significant expansion of
its domestic sales force until 1998 when its new management information system
is expected to be fully operational. Net sales of the Company's United Kingdom
based operations increased to $74 million in the 1997 quarter from $44 million
in the third quarter of 1996, a 68% increase. Net sales for the third quarter of
1997 in the United Kingdom included a total of $15 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 September 30, 1997
increased to $24.0 million from $17.3 million in the 1996 quarter, an increase
of $6.7 million or 39%. The increase in gross profit dollars generated resulted
primarily 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 increased from 11.0% in the 1996 quarter to 12.1% in
the 1997 quarter. The gross profit percentage was higher in 1997 principally due
to new direct purchasing programs implemented with several major manufacturers
in the United States, coupled with an increase in the portion of revenues
generated by the Company's United Kingdom operations, and from an increase in
higher margin professional services revenues in both countries. The Company
anticipates that ongoing increases in direct purchasing volume, and continued
growth in professional services revenues should mitigate a portion of the
product gross margin decline expected to be associated with targeted expansion
of sales to high volume corporate accounts in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended September 30, 1997 increased to
$17.9 million from $14.4 million in the 1996 quarter, an increase of $3.5
7
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million or 24%. This increase is attributable primarily to the cost of the
Company's work force and other 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
Oracle-based management information system. Until such system is fully
integrated, the Company continues to maintain additional personnel and manual
support processes to facilitate its anticipated growth in volume. In the third
quarter of 1997, the selling, general and administrative expenses of Elcom
Systems increased approximately $475,000 over the same period in 1996. At the
beginning of the third quarter, the direct sales force of Elcom Systems was
significantly reduced to a level more consistent with its current and near-term
product marketing strategy and revenue expectations. Elcom Systems is now
expanding its indirect selling methodologies, which are focused on partnering
with systems integrators and software vendors.
Overall, selling, general and administrative expenses decreased as a
percentage of net sales for the quarter ended September 30, 1997 to 9.0%, from
9.2% in the comparable 1996 quarter, reflecting the impact of slower overall
expense growth relative to the increase in net sales, as the Company maintains
its focus on controlling expenses.
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 increased from
$250,000 in the 1996 quarter to $350,000 in the 1997 quarter. 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.pm technology, as well as modifications to allow PECOS to
communicate using the Internet and the continued development of a browser
compliant and Java-enabled version of its PECOS technology for license to other
companies.
Interest Expense. Interest expense for the quarter ended September 30,
1997 increased to $1.4 million from $0.9 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 credit facility from the prime
rate in the 1996 quarter to prime minus 1% in the 1997 quarter.
Interest Income and Other, Net. Interest income and other, net, for the
quarter ended September 30, 1997 decreased to $256,000 from $282,000 in the 1996
quarter, resulting from a slight decrease in the average on hand balances of
cash and cash equivalents available for investment in the 1997 quarter.
Income Tax Provision. The income tax provisions in 1997 and 1996 primarily
relate to the income taxes of the Company's United Kingdom based operations, as
well as certain current state income taxes payable by the Company. The Company
anticipates utilizing substantially all of its federal net operating loss carry
forward to offset most of its 1997 federal taxable income.
Net Income. The Company reported net income for the quarter ended
September 30, 1997 as a consequence of the results of the factors described
herein. The September 30, 1997 quarter is the eighth 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.
Nine months ended September 30, 1997 compared to the nine months ended September
30, 1996.
Net Sales. Net sales for the nine months ended September 30, 1997 increased
to $573 million from $445 million in the same period of 1996, an increase of
$128 million or 29%. 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 the revenues
of companies acquired in the fourth quarter of 1996 and first quarter of 1997.
Net sales in the United States increased to $356 million in the first nine
months of 1997 from $317 million in the nine months ended September 30, 1996, a
12% increase, which reflects management's decision to defer significant
expansion of its domestic sales force until 1998 when its new management
information system is expected to be fully operational. Net sales of the
Company's United Kingdom based operations increased 70% to $217 million in
8
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the 1997 period from $128 million in the first nine months of 1996. Net sales
for the first nine months of 1997 included a total of $41 million generated by
Prophet Group Limited and Data Supplies Limited which were acquired after
September 30, 1996.
Gross Profit. Gross profit for the first nine months of 1997 increased to
$66.9 million from $50.7 million in the 1996 period, an increase of $16.2
million or 32%. The increase in gross profit dollars resulted primarily from the
substantial growth in net sales. Gross profit, including the contribution from
acquisitions, as a percent of net sales increased from 11.4% in the first nine
months of 1996 to 11.7% in the first nine months of 1997. The gross profit
percentage was higher in 1997 principally due to new direct purchasing programs
implemented with several major manufacturers in the United States, coupled with
an increase in the portion of revenues generated by the Company's United Kingdom
operations, and from an increase in higher margin professional services revenues
in both countries. The Company anticipates that ongoing increases in direct
purchasing volume, and continued growth in professional services revenues should
mitigate a portion of the product gross margin decline expected to be associated
with targeted expansion of sales to high volume corporate accounts in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1997 increased
to $52.6 million from $42.4 million in the nine months ended September 30, 1996,
an increase of $10.2 million or 24%. This increase is attributable primarily to
the cost of the Company's work force and other 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 management information system. Until such system is fully integrated, the
Company continues 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 nine
months ended September 30, 1997 to 9.2%, from 9.5% in the comparable period of
1996, reflecting the impact of the Company's expense control efforts.
Research and Development Expenses. Research and development expenses have
remained relatively constant, increasing approximately 10% from $835,000 in 1996
to $915,000 in 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.pm technology as well as modifications to
allow PECOS to communicate using the Internet and the continued development of a
browser compliant and Java-enabled version of its PECOS technology for license
to other companies.
Interest Expense. Interest expense for nine month period ended September
30, 1997 increased to $3.6 million from $2.7 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 is reflective of reductions in pricing on the principal United
States credit facility from prime plus 1% in the first six months of 1996, to
the prime rate as of July 1, 1996 and an additional reduction to prime minus 1%
as of March 1, 1997.
Interest Income and Other, Net. Interest income and other, net, for the
nine month period ended September 30, 1997 decreased to $972,000 from $1,265,000
in the same period of 1996 and reflects a reduction in on hand balances of cash
and cash equivalents available for investment. The reduction in other income in
1997 is net of a gain 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 late in the first quarter
of 1997.
Income Tax Provision. The income tax provisions in 1997 and 1996 primarily
relate to the income taxes of the Company's United Kingdom based operations, as
well as certain current state income taxes payable by the Company. The Company
anticipates utilizing substantially all of its federal net operating loss carry
forward to offset most of its 1997 federal taxable income.
Net Income. The Company reported net income for the nine month periods
ended September 30, 1997 and 1996 as a result of the factors described herein.
9
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Liquidity and Capital Resources
Net cash provided by operating activities for the nine month period ended
September 30, 1997 was $2.2 million, and reflects a net increase in accounts
payable and accrued expenses and other current liabilities of $18.4 million
(primarily related to the timing of certain payments) and is net of both a $21.0
million increase in accounts receivable, resulting primarily from the Company's
increase in net sales during the 1997 period, and a $10.6 million increase in
inventory which is related to the Company's direct purchasing arrangements with
manufacturers which were instituted in the United States in 1997. Net cash used
for investing activities was $9.9 million, consisting primarily of $6.9 million
in additions to property, equipment and software and $3.1 million related to
acquisitions. Net cash provided by financing activities was $16.4 million,
including a $15.9 million net increase in borrowings under floor plan lines of
credit and $1.2 million in proceeds from the exercise of stock options.
Net cash used in operating activities for the nine month period ended
September 30, 1996 was $44.2 million, including $55.2 million relating to
increases in accounts receivable, resulting primarily from the Company's
increase in net sales during the 1996 period. Net cash used for investing
activities in the 1996 period was $5.5 million, primarily consisting of $4.9
million in additions to property, equipment and software and an increase of
$700,000 in other assets and deferred costs. Net cash provided by financing
activities was $24.9 million, including $6.2 million in net proceeds from the
Company's sale of common stock to the underwriters upon exercise of their
over-allotment option, $787,000 in proceeds from the exercise of stock options
and an $18.3 million net increase in borrowings under floor plan lines of
credit.
At September 30, 1997, the Company's principal sources of liquidity
included cash and cash equivalents of $31.4 million and floor plan lines of
credit from Deutsche Financial Services Corporation ("DFSC"). The DFSC facility
was increased in September 1997 and provides for aggregate borrowings of up to
$120 million, with interest payable at prime (8.5% at September 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 September 30, 1997, the Company's
borrowings from DFSC on its floor plan line of credit were approximately $80
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 September 30, 1997, the
Company's borrowings from IBMCC on its floor plan line of credit were
approximately $4 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 $16.2
million. Borrowings bear interest at the Bank of Scotland base rate (7.0% at
September 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
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<PAGE>
(7.0% at September 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 $6.5
million. Borrowings bear interest at the Lloyds Bank base rate (7.0% at
September 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 $2.8
million. Borrowings bear interest at the Bank of Scotland base rate (7.0% at
September 30, 1997) plus 1.75%.
As of September 30, 1997, the Company had borrowings aggregating
approximately $22 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 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. These direct purchasing arrangements
have favorably impacted gross profit in the third quarter of 1997, as the volume
of direct purchases has increased significantly over prior quarters. The Company
also believes that it can substantially mitigate the risks associated with its
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 continue to maintain logistical and traditional
relationships with selected distributors and/or aggregators.
As of September 30, 1997, the Company sold options to acquire its entire
ownership interest in ShopLink Incorporated. The Company received $418,000 in
payment for the options which may be exercised through March 31, 1999. If
exercised, the Company would receive payments of up to an additional $4.2
million. The Company has included the $418,000 received in payment for the
options in other deferred liabilities.
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
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
11
<PAGE>
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.
12
<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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(10.1) Form of Indemnity Agreement for Executive Officers and/or Directors
of the Company (1) with attached list of Director and/or Executive
Officer Indemnitees (x) (*)
(10.4) $120,000,000 Business Credit and Security Agreement Dated as of
March 1, 1997 among Catalink Direct, Inc., Catalink Direct
(Pennsylvania), Inc. and Deutsche Financial Services Corporation (2)
and Amendment to Business Credit and Security Agreement (x)
(10.19) Amended Employment Agreement by and between the Company and Robert
J. Crowell dated June 1, 1997 (3) and Form of Consulting Agreement
appended thereto as Exhibit A (x) (*)
(10.23) Employee Benefits Agreement by and between the Company and Andres
Escallon dated August 1, 1997 (x) (*)
(10.37) Amended Employment Agreement by and between the Company and
Laurence F. Mulhern dated June 1, 1997 (3) and Form of Consulting
Agreement appended thereto as Exhibit A (x) (*)
(10.39) Elcom International, Inc. Executive Profit Performance Bonus Plan
for Executive Officers dated September 4, 1997 (x) (*)
(10.40) Elcom International, Inc. Key Personnel Profit Performance Bonus
Plan dated September 4, 1997 (x) (*)
(10.41) Engagement letter between the Company and Smith Barney Inc. dated
July 21, 1997 (x)
(11) Statement re: computation of net income per common share (x)
(27) Financial Data Schedule (x)
(1) Previously filed as an exhibit to Registration Statement No.
33-98866 on Form S-1 and incorporated herein by reference
(2) Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 and incorporated
herein by reference
(x) Filed herewith
(*) Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K - None
13
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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: October 30, 1997 By: /s/ Laurence F. Mulhern
---------------------------
Laurence F. Mulhern
Chief Financial Officer and Treasurer
EXHIBIT 10.1
LIST OF DIRECTORS AND/OR EXECUTIVE OFFICERS
WITH INDEMNITY AGREEMENTS
WITH THE COMPANY
Name of Capacity in Date of
Indemnitee Which Indemnified Agreement
Robert J. Crowell ..... Executive Officer and Director October 9, 1995
William W. Smith ...... Director October 9, 1995
Laurence F. Mulhern ... Executive Officer October 9, 1995
Andres Escallon ....... Executive Officer October 9, 1995
John W. Ortiz ......... Director October 9, 1995
Richard J. Harries, Jr Director October 9, 1995
J. Richard Cordsen .... Director October 9, 1995
James Rousou .......... Executive Officer and Director May 30, 1996
Peter F. McAree ....... Executive Officer August 22, 1997
John R. Kovalcik, Jr .. Former Executive Officer and October 9, 1995
Former Director
David Wolf ............ Former Executive Officer October 9, 1995
Exhibit 10.4
AMENDMENT TO BUSINESS CREDIT AND SECURITY AGREEMENT
This Amendment is made to that certain Business Credit and Security
Agreement dated as of March 1, 1997 by and among Catalink Direct, Inc., Catalink
Direct (Pennsylvania), Inc. (the foregoing being referred to collectively as
"Borrower") and Deutsche Financial Services Corporation ("DFS") (as amended, the
"Agreement").
WHEREAS, Borrower and DFS are parties to the Agreement and they now desire
to amend the Agreement on and subject to the terms hereof:
NOW, THEREFORE, in consideration of the covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, DFS and Borrower agree as follows:
1. Section 3.1 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"3.1 Total Credit Facility. In consideration of Borrower's
payment and performance of its Obligations and subject to the terms and
conditions contained in this Agreement, DFS agrees to provide, and
Borrower agrees to accept, an aggregate credit facility (the "Credit
Facility") of up to One Hundred Twenty Million Dollars ($120,000,000)
(the "Total Credit Limit"). The Credit Facility shall be available in
the form of the following types of Loans: (a) Floorplan Inventory
Loans, (b) Working Capital Loans, and (c) Overadvance Loans. No Loans
need be made by DFS if Borrower is in Default or if there exists any
Unmatured Default. This is an agreement regarding the extension of
credit, and not the provision of goods or services."
2. The introductory paragraph to Section 3.2 of the Agreement is hereby
deleted in its entirety and replaced with the following:
"Subject to the terms of this Agreement, DFS may provide to Borrower
floorplan financing for the acquisition of Inventory from vendors
approved by DFS in DFS' reasonable credit judgment (each advance being
a "Floorplan Inventory Loan"), up to an aggregate unpaid principal
amount at any time not to exceed Sixty-One Million Dollars
($61,000,000) (collectively, the "Floorplan Inventory Loan Facility").
DFS may, however, at any time and without notice to Borrower, elect not
to finance any Inventory sold by particular vendors who are in default
of their obligations to DFS. DFS may at any time suspend or terminate
the relationship or approval of any vendor. DFS will use reasonable
efforts to attempt to give Borrower prior notice of such suspension or
termination."
3. The introductory paragraph to Section 3.3 is hereby deleted in its
entirety and replaced with the
following:
"Subject to the terms of this Agreement, DFS agrees, for so long as no
Default exists, to provide to Borrower, and Borrower agrees to accept,
working capital financing (each advance being a "Working Capital Loan")
on Eligible Accounts and Eligible Inventory in the maximum aggregate
unpaid principal amount at any time equal to the lesser of (i) the
Borrowing Base and (ii) Fifty-Six Million Dollars ($56,000,000) ("Total
Working Capital Credit Limit"). A request for a Working Capital Loan
shall be made, or shall be deemed to be made, as provided in Section
5.1 hereof."
4. The second to last sentence of Section 3.4 is hereby deleted in its
entirety and replaced with the following:
"Notwithstanding anything else herein, the total outstanding principal
amount of all Loans under this Agreement shall not at any time exceed
$120,000,000."
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All other terms as they appear in the Agreement, to the extent not
inconsistent with the foregoing, are ratified and remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, Borrower and DFS have executed this Amendment to
Business Credit and Security Agreement this 8th day of September, 1997.
CATALINK DIRECT, INC.
ATTEST: By: /s/ Laurence F. Mulhern
/s/ Alfred J. Gauvin Title: Chief Financial Officer
Assistant Secretary
CATALINK DIRECT (PENNSYLVANIA), INC.
ATTEST: By: /s/ Laurence F. Mulhern
/s/ Alfred J. Gauvin Title: Chief Financial Officer
Assistant Secretary
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ A. D. Hartford
Title: Regional Vice President
2
Exhibit 10.19
Exhibit A
CONSULTING AGREEMENT
THIS AGREEMENT is made this ____ day of _______, ____between
ELCOM INTERNATIONAL, INC., a Delaware corporation (the "Company"), and ROBERT J.
CROWELL, an individual (the "Consultant").
RECITALS:
A. Pursuant to an Employment Agreement dated as of June 1,
1997 (the "Employment Agreement"), Consultant is the Chairman of the Board and
Chief Executive Officer of the Company.
B. Consultant is a key employee of the Company and has
obtained valuable knowledge and experience pertaining to the Company's
technology, the sale of personal computer products and services (the "Business")
of the Company, specifically including strategic planning, the sales and
marketing functions of such Business, financial and financing matters,
acquisition strategies and implementation, management information systems,
management and operations of the Business and the Company, personnel matters and
reporting and disclosure considerations ("Areas of Expertise").
C. In order to assure that the Company continues to receive
the benefit of Consultant's knowledge and expertise following the termination of
his employment with the Company, the parties hereto desire to enter into this
Agreement pursuant to Section 8 of the Employment Agreement.
NOW, THEREFORE, in consideration of and in reliance upon the
mutual benefits provided hereunder, the Company and the Consultant hereby agree
as follows:
1. Services. For the three (3) year period commencing on the
date that Consultant terminates the Employment Agreement, in accordance with the
terms of the second sentence of Section 8 of the Employment Agreement (the
"Consulting Period"), the Consultant shall serve as a management and financial
consultant to the Company. As such, Consultant shall be on-call for the Company
between the hours of 9:00 a.m. and 5:00 p.m., Boston time, on the first four (4)
Mondays of each month during the Consulting Period for a total of thirty-two
(32) hours per month, to render such advice and assistance regarding operations
of the Business, relationships with and service to major customers, development
of new accounts, strategic planning, financial matters and other matters within
his Areas of Expertise as may reasonably be requested of him by the Company.
Consultant agrees to provide such services in person at any location of the
Company located within fifty (50) miles of downtown Boston, or otherwise shall
make himself available by telephone. Further, the Company and Consultant shall
be entitled to
<PAGE>
mutually agree on alternative times and/or places for the provision of such
services to the extent that mutually satisfactory arrangements can be made.
2. Restrictive Covenants.
2.1 Noncompetition. Consultant agrees that
during (the "Noncompetition Period")
period commencing on the date hereof and continuing so long as Consultant
receives payments under this Agreement, Consultant 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 ten percent (10%) of its revenues for any fiscal year
during the Noncompetition 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 Consultant commences, or were to commence, his
relationship with such entity) of less than $3 million. The Consultant further
expressly represents and understands that this Agreement will prohibit the
Consultant from employment during the Noncompetition Period with companies that
compete with the Company, as defined in this Agreement, and as such, will
constrain some of the Consultant's overall possibilities for future employment.
By Consultant's signature to this Agreement, Consultant 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.
2.2 Nondisclosure. Consultant 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 the Consulting Period or 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 Consultant,
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
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<PAGE>
or the Company's industry. Consultant 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 end of the Consulting Period, the Consultant 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 Consultant may have
of such Information unless an alternative method of disposition is approved by
the Company.
2.3 Nonsolicitation/Noninterference. Consultant agrees that during the
period (the "Nonsolicitation Period"), commencing on the date hereof and ending
on the date on which he is last paid by the Company under this Agreement, 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. Consultant
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 the cessation of the Consulting Period.
2.4 Severability; Certain Exclusions. In the event
that Sections 2.1, 2.2 or 2.3 (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
Consultant shall be subject to noncompetition, nondisclosure and
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 2.1, 2.2 or
2.3 hereof shall be binding on, be applicable to, or shall limit the Consultant
in connection with any relationship that he may have or develop with any entity
that, at the end of the Consulting Period, 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 2.3 hereof shall not be
binding on or be applicable to the Consultant in connection with any
relationship that he has or may develop with a Related Entity, more than ten
percent (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 end of the Consulting Period, and/or (iii) at such
subsequent time as the activity under Section 2.3 is undertaken.
-3-
<PAGE>
2.5 Acknowledgment. Consultant specifically acknowledges that the
covenants set forth herein restricting competition, disclosure and
solicitation/interference are reasonable, appropriate, and necessary as to
duration, scope, and geographic area in view of the nature of the relationship
between Consultant and the Company and the investment by the Company of
significant time and resources in the training, development, and employment of
Consultant. Consultant 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.
Consultant 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.
3. Payments. As compensation for his consulting services to
the Company during the Consulting Period and the non-disclosure, non-competition
and non-interference covenants contained herein, the Company shall pay
Consultant One Hundred Twenty-Five Thousand Dollars ($125,000.00) per year,
commencing on the date hereof, and payable in twenty-four (24) equal, bi-monthly
payments on the 1st (first) and 15th (fifteenth) day of each month, for three
years and until payment of an aggregate of Three Hundred Seventy-Five Thousand
Dollars ($375,000.00) hereunder.
3.1 Benefits. Consultant will not, by reason of this
Agreement, participate in any employee benefit or insurance plan or any other
plan or receive any other fringe benefit which is provided by the Company for
its executives or employees, but may receive such benefits to the extent
provided for in the Employment Agreement or otherwise.
3.2 Reimbursement of Expenses. The Company shall
reimburse Consultant for all reasonable expenses incurred by him on behalf of
the Company in the course of performing those services which the Consultant has
been requested to perform by the Company; provided that the Consultant shall
submit to the Company all documentation of such expenses necessary for tax
purposes. Notwithstanding anything to the contrary herein, the Consultant shall
be reimbursed for reasonable expenses for training related to his performance of
his services hereunder; provided, the Consultant first obtains the consent of
the Company for such training.
4. Assignment. Any attempt by Consultant to assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Company will be void. The Company may assign this Agreement as
part of the sale of its business without the prior written consent of the
Consultant so long as the purchaser expressly agrees to assume and be
responsible for the obligations hereunder.
5. Independent Contractor. It is expressly understood and
agreed that Consultant is an independent contractor and is not in any manner an
agent or employee of the
-4-
<PAGE>
Company, nor is Consultant authorized or empowered to conduct business under the
name of, or for the account of, the Company or to incur obligations of any kind,
express or implied, on behalf of the Company, or to make any promise, warranty
or representation on the Company's behalf with respect to any product or service
of the Company.
6. Construction.
6.1 Waiver. Failure of the Company at any time
to enforce any provision of this Agreement or to require performance by
Consultant of any provision hereof shall in no way affect the validity of this
Agreement or any part hereof or the right of the Company thereafter to enforce
its rights hereunder; nor shall it be taken to constitute a condonation or
waiver by the Company of that default or any other or subsequent default or
breach. To the extent permitted by Massachusetts law, each party waives any
provision of law which renders any provision of this Agreement unenforceable or
void in any respect.
6.2 Governing Law. This Agreement shall be
governed by Massachusetts law, without regard to conflict of laws principles
thereof.
6.3 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.
6.4 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.
6.5 Entire Agreement. This Agreement constitutes
the entire understanding and agreement among the parties hereto concerning the
subject matter hereof. All negotiations among the parties hereto concerning the
subject matter hereof are merged into this Agreement, and there are no
representations, warranties, covenants, understandings, or agreements, oral or
otherwise, in relation thereto among the parties hereto other than those
incorporated herein. No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by the parties hereto.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
INTENDING TO BE LEGALLY BOUND, the parties or their duly
authorized representatives have signed this Agreement on the date first above
written.
_________________________
Robert J. Crowell
(the "Consultant")
ELCOM INTERNATIONAL, INC.
By: _________________________
Title: _________________________
(the "Company")
-6-
Exhibit 10.23
EMPLOYEE BENEFITS AGREEMENT
This Employee Benefits Agreement (the "Agreement") is entered into as
of the 1st day of August, 1997, by and between Elcom International, Inc. (the
"Company") and Andres Escallon ("Employee").
WITNESSETH:
WHEREAS, Employee is a key employee of the Company; and
WHEREAS, the Company considers that providing Employee with certain
employment benefits will operate as an incentive for Employee during the period
of this Agreement, during which the Company and/or one or more of its
subsidiaries may undergo a change in control or ownership; and
WHEREAS, this Agreement is intended to provide benefits only in the
event of a change in control or ownership of the Company and/or one or more of
its subsidiaries prior to January 1, 1999 (the "Expiration Date").
NOW THEREFORE, to induce Employee to remain productive, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Employee agree as follows:
1. Definitions.
(a) "Change of Control" shall mean the occurrence of any
one of the following events:
(i) The stockholders of the Company approve (A) a merger or
consolidation of the Company with any other
corporation, other than a merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving
entity) more than eighty percent (80%) of the combined
voting power of the voting securities of the Company or
such surviving entity outstanding immediately after
such merger or consolidation, or (B) a plan of complete
liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially
all the assets of the Company and/or one or more of its
subsidiaries to other than any of its subsidiaries; or
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(ii) During any period of one (1) year, a majority of the
Board of Directors of the Company ceases to be
comprised of "Continuing Directors," which term, for
purposes of this Subsection 1(a), shall mean
individuals who at the beginning of any period of one
(1) year (not including any period which ended prior to
the date of this Agreement) constitute the Board and
any new director(s) whose election by the Board or
nomination for election by the Company's stockholders,
as applicable, was approved by a vote of at least a
majority of the directors then still in office who
either were directors at the beginning of the period or
whose election or nomination for election was
previously so approved; or
(iii) Any "person" (as defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
and/or any of its subsidiaries representing fifty
percent (50%) or more of the combined voting power of
such entity's then outstanding securities; provided
that a Change of Control shall not be deemed to occur
under this clause (iii) by reason of the acquisition of
securities by the Company and/or any of its
subsidiaries or an employee benefit plan (or any trust
funding such a plan) maintained by the Company and/or
any of its subsidiaries.
(b) "Severance Payments" shall mean any payment or distribution of
compensation or benefits made pursuant to Section 3 of this
Agreement.
(c) "Separation Date" shall mean the date, if any, of termination
of Employee's employment relationship with the Company.
(d) "Voluntary Separation" shall mean the voluntary resignation by
Employee from employment with the Company other than a
voluntary resignation following either of the following two
events:
(i) any future reduction in Employee's base salary; or
(ii) a future relocation of Employee's place of employment
which results in an increase of twenty-five (25)
miles or more in the distance from Employee's
residence to Employee's place of employment.
(e) "Termination With Cause" shall mean any termination of
Employee by the Company for malfeasance, insubordination,
theft, fraud, embezzlement, conviction of a felony, being
under the influence of alcohol or unlawful drugs during
business hours, the violation of Section 4 of this Agreement
or of any other agreement with the Company, the removal of any
equipment without the Company's written permission, the
violation of any state or federal law, repeated
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tardiness without acceptable reasons therefor, and/or the
failure to comply with any of the Company's written
policies and procedures.
2. Termination of Employee Related to Change of Control. In the event
of Employee's termination of employment with the Company within twelve (12)
months following the date on which there is a Change of Control of the Company
and/or any of its subsidiaries, the Company shall provide Employee with the
Severance Payments outlined in Section 3, unless the termination is a
Termination With Cause or a Voluntary Separation.
3. Severance Payments. In the event that Employee is entitled to
Severance Payments pursuant to the terms of Section 2, the Company will make the
payments described below, subject to Section 13 hereof.
(a) Compensation. The Company shall pay Employee an amount equal
to 24 (twenty-four) months base salary as of the Separation
Date, without giving effect to any future reduction in base
salary prior to the Separation Date, payable in accordance
with the provisions of Section 13 hereof. Subject to Section
13 hereof, such payments shall be made in accordance with the
Company's normal payroll practices as such practices shall be
in effect from time to time, provided, however, that the
Company may elect to accelerate payments required under this
Section 3(a).
(b) Employee Benefits. Employee shall be entitled to the
following benefits:
(i) Vacation. Any accrued vacation pay due but not yet
taken at the Separation Date shall be paid to
Employee within thirty (30) days following the
Separation Date.
(ii) Health Benefits. If Employee participated in any health
benefit plan in effect immediately prior to the
Separation Date, and if Employee elects to continue
participating in such plan pursuant to the terms of
said plan and the Comprehensive Omnibus Budget
Reconciliation Act ("COBRA"), the Company shall pay for
its normal portion of the costs of Employee's
participation in such plan from the Separation Date
until the earlier of: (a) the date which is three
months following the Separation Date; or (b) the date
of Employee's eligibility in any health benefit plan
offered by Employee's new employer, if any. Employee
shall notify the Company in writing within thirty (30)
days of any new employment.
(iii) Retirement and Benefit Plans. Notwithstanding
anything in this Agreement to the contrary,
Employee's rights in any retirement, pension, stock
option or profit-sharing plans offered by the Company
shall be governed by the rules of such plans as well
as by applicable law.
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(iv) Outplacement Assistance. The Company will provide
Employee up to two (2) months of employment
outplacement services with a Company-selected
service.
4. Continuing Obligations. In order to induce the Company to enter into
this Agreement, Employee hereby agrees that all documents, records, techniques,
business secrets and other information which have come into Employee's
possession from time to time during Employee's continued employment by the
Company or which may come into Employee's possession during Employee's
employment hereunder, shall be deemed to be confidential and proprietary to the
Company, and Employee further agrees to retain in confidence any confidential
information known to Employee concerning the Company, any subsidiary of the
Company, and their respective businesses so long as such information is not
publicly disclosed. Employee further agrees to cooperate fully as requested from
time to time by the Company's Board of Directors or Company Management in
connection with any transaction involving the possible sale of the Company
and/or any of its subsidiaries. Employee further agrees not to speak about a
possible sale of the Company and/or any of its subsidiaries with or otherwise
respond to requests to or from any third parties involving the possible sale of
the Company and/or any of its subsidiaries, unless specifically authorized to do
so by the Company. The obligations of Employee under this Section 4 shall be in
addition to, and shall not limit, any other obligation of Employee to the
Company with respect to the matters set forth herein or otherwise.
5. Assignments and Transfers. Employee agrees that Employee will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement, nor shall Employee's rights be subject to encumbrance or the claims
of creditors. Any purported assignment shall be null and void. This Agreement
shall inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. This Agreement shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns, and the Company shall
require any successor or assign to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place,
except no assumption shall be required if this Agreement is automatically
assumed by operation of law. The term "the Company" as used herein shall include
such successors and assigns. The term "successors and assigns" as used herein
shall include a corporation or other entity acquiring at least 51% of the
outstanding shares of the Company or all or substantially all of the assets and
business of the Company.
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6. Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given and received when delivered, including by a national over
night courier service or when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the Company at:
Elcom International, Inc.
10 Oceana Way
Norwood, Massachusetts 02062
Attn: Chief Financial Officer
and to Employee at:
Andres Escallon
10 Fox Hill Road
Wellesley, MA 02181
or such address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
7. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
8. At-Will Employment. At the present time, the Company and Employee
have, and will continue to have, an at-will employment relationship. That is,
either party can terminate the employment relationship for any reason at any
time. Nothing contained in this Agreement shall be interpreted to amend or alter
this at-will employment relationship.
9. Entire Agreement. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to Employee's
severance benefits and supersedes any previous or contemporaneous agreements.
10. Amendments; Waivers. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, signed by Employee and by a
duly authorized representative of the Company other than Employee. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power hereunder preclude any other or further exercise thereof
or the exercise of any other right, remedy, or power provided herein or by law
or in equity.
11. Severability; Enforcement. If any provision of this Agreement, or
the application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect.
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Notwithstanding any other provision in this Agreement to the contrary, if
Employee breaches any term of this Agreement, the Company may immediately cease
making Severance Payments.
12. Arbitration. The parties agree to submit any unresolved substantial
dispute arising under this Agreement to arbitration. Arbitration shall be by a
single arbitrator in the Norwood, Massachusetts area experienced in the matters
at issue selected by the Company and Employee in accordance with the commercial
arbitration rules of the American Arbitration Association. The decision of the
arbitrator shall be final and binding as to any matter submitted to arbitration
under this Agreement. All costs and expenses incurred in connection with any
such arbitration proceeding shall be borne by the party against whom the
decision is rendered as provided by the arbitrator.
13. Release. As a condition to and in consideration for the receipt of
Severance Payments to which Employee may be entitled pursuant to Section 3
hereof, Employee agrees to execute a Release Agreement with the Company, in
substantially the same form as that attached hereto as Exhibit A (the "Release
Agreement"), within the 30-day period beginning 21 days after Employee's
Separation Date. The Company shall not be obligated to make any Severance
Payments unless and until the Company shall have received from Employee a
validly executed Release Agreement that shall not have been revoked by Employee
during the applicable Revocation Period, as such term is defined in the Release
Agreement, in compliance with applicable law. Provided that Company receives
from Employee a validly executed Release Agreement which is not revoked during
the applicable Revocation Period, the Company agrees to commence making any
Severance Payments theretofore withheld within 30 days of the expiration of such
Revocation Period.
14. Expiration Date. This Agreement shall be null and void in the event
that a Change of Control does not occur on or before the Expiration Date.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year set forth above.
ELCOM INTERNATIONAL, INC.
("Company")
By /S/ Robert J. Crowell
Robert J. Crowell
Chairman and Chief Executive Officer
By /s/ Andres Escallon
Andres Escallon
("Employee")
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RELEASE AGREEMENT
This Release Agreement (the "Agreement") is entered into as of the
Effective Date of the Agreement stated on the signature page below, by and
between Elcom International, Inc. (the "Company") and Andres Escallon
("Employee").
WITNESSETH:
WHEREAS, Employee and the Company have entered into a Employee Benefits
Agreement dated as of August 1, 1997 (the "Employee Benefits Agreement"); and
WHEREAS, Employee is entitled to certain benefits under the Employee
Benefits Agreement, pursuant to Section 13 of which payment of such benefits is
made conditional upon and in consideration for Employee's valid execution of a
Release Agreement, all as more completely described in the Employee Benefits
Agreement (Capitalized terms not otherwise defined herein shall have the meaning
ascribed to them in the Employee Benefits Agreement.).
NOW THEREFORE, to induce the Company to make the Severance Payments
pursuant to the Employee Benefits Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Employee agree as follows:
1. Release. Employee does hereby, for Employee and for Employee's
heirs, executors, successors and assigns, release and forever discharge the
Company, and the subsidiaries, divisions and affiliated businesses of the
Company, together with all of their officers, directors, management,
representatives, employees, shareholders, agents, successors, assigns, attorneys
and other affiliated persons, both known and unknown, in both their personal and
agency capacities (collectively, the "Releasees"), of and from any and all
claims, demands, actions or causes of action, damages, or suits at law or
equity, of whatsoever kind or nature, including, but not limited to, all claims
and/or demands for back pay, reinstatement, hire or re-hire, front pay, group
insurance or employee benefits of whatsoever kind (except as to rights expressly
provided for herein and in the Employee Benefits Agreement), claims for monies
and/or expenses, any claims arising out of or relating to the cessation of
Employee's employment with the Company, the sale of the stock or assets of the
Company and/or any of its subsidiaries, any claims for failing to obtain
employment at any other company or with any other person or employer, and/or
demands for attorneys' fees and legal expenses that Employee has or may have by
reason of any matter or thing arising out of, or in any way connected with,
directly or indirectly, any act and/or omission that has occurred prior to the
Effective Date of Agreement (as hereinafter defined). Employee further agrees
not to directly or indirectly pursue or initiate any action or legal proceeding
of any kind against the Releasees arising out of or related to the claims
released in the preceding sentence of this Section 1, or the sale of the stock
or assets of the
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Company and/or any of its subsidiaries and also waives any right to recover as a
result of any such proceedings initiated on Employee's behalf. Notwithstanding
the foregoing, Employee and the Company agree and acknowledge that this Release
shall not apply to the obligations of the Company arising solely under this
Agreement or under the Employee Benefits Agreement.
2. ADEA. Employee recognizes and understands that, by executing this
Agreement, Employee shall be releasing the Releasees from any and all claims
that Employee now has, or subsequently may have, under the Age Discrimination in
Employment Act of 1967, 19 U.S.C. ss.ss.621 et seq., as amended (the "ADEA"), by
reason of any matter or thing arising out of, or in any way connected with,
directly or indirectly, any acts or omissions which have occurred prior to and
including the Effective Date of this Agreement. In other words, Employee will
have none of the legal rights against the aforementioned Releasees that Employee
would have had otherwise under federal age discrimination law by signing this
Agreement.
3. "Consideration Period." The Company hereby notifies Employee of his
right to consult with Employee's chosen legal counsel before executing this
Agreement. The Company shall afford, and Employee acknowledges receiving, not
less than twenty-one (21) calendar days in which to consider this Agreement to
insure that Employee's execution of this Agreement is knowing and voluntary. In
signing below, Employee expressly acknowledges that Employee has had at least
twenty-one (21) days to consider this Agreement and that Employee's execution of
same is with full knowledge of the consequences thereof and is of Employee's own
free will.
4. Revocation Period. Employee and the Company agree and recognize
that, for a period of seven (7) calendar days following Employee's execution of
this Agreement (the "Revocation Period"), Employee may revoke this Agreement by
providing written notice revoking the same, within the Revocation Period, to
Catalink Direct, Inc., 10 Oceana Way, Norwood, Massachusetts 02602, Attn: Chief
Financial Officer. Such revocation of this Agreement by Employee will
automatically revoke the Severance Payments provided for in the Employee
Benefits Agreement and Employee will not be entitled to any of the amounts
described therein.
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IN WITNESS WHEREOF, Employee and the Company have executed this
Agreement effective and binding as of the Effective Date.
Date of Execution by Employee
"Effective Date of Agreement" is AGREED TO AND ACCEPTED BY
the 8th calendar day after this DateEMPLOYEE
Andres Escallon
Execution witnessed by:
Date of Execution by the Company AGREED TO AND ACCEPTED BY
THE COMPANY
ELCOM INTERNATIONAL, INC.
By:
Its:
Execution witnessed by:
Date of Receipt by Employee RECEIPT ACKNOWLEDGED BY
EMPLOYEE
Andres Escallon
Receipt witnessed by:
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Exhibit 10.37
Exhibit A
CONSULTING AGREEMENT
THIS AGREEMENT is made this ____ day of _______, ____between
ELCOM INTERNATIONAL, INC., a Delaware corporation (the "Company"), and LAURENCE
F. MULHERN, an individual (the "Consultant").
RECITALS:
A. Pursuant to an Employment Agreement dated as of June 1,
1997 (the "Employment Agreement"), Consultant is the Chief Financial Officer and
a Corporate Executive Vice President of the Company.
B. Consultant is a key employee of the Company and has
obtained valuable knowledge and experience pertaining to the licensing of the
Company's technology, the sale of personal computer products and services (the
"Business") of the Company, specifically including the financing of such
Business, acquisition strategies and implementation, management information
systems, employee benefits, taxes, human resources and personnel matters and
reporting and disclosure considerations ("Areas of Expertise").
C. In order to assure that the Company continues to receive
the benefit of Consultant's knowledge and expertise following the termination of
his employment with the Company, the parties hereto desire to enter into this
Agreement pursuant to Section 8 of the Employment Agreement.
NOW, THEREFORE, in consideration of and in reliance upon the
mutual benefits provided hereunder, the Company and the Consultant hereby agree
as follows:
1. Services. For the two (2) year period commencing on the
date (either March 31, 1999 or March 31, 2000, as applicable) that Consultant
terminates the Employment Agreement, in accordance with the terms of the second
sentence of Section 8 of the Employment Agreement, (the "Consulting Period"),
the Consultant shall serve as a management and financial consultant to the
Company. As such, Consultant shall make himself generally available to the
Company between the hours of 9:00 a.m. and 5:00 p.m., Boston time, on the first
four (4) Mondays of each month during the Consulting Period for a total of
thirty-two (32) hours per month, to render such advice and assistance regarding
day-to-day operations of the Business, relationships with and service to
existing customers, development of new accounts, strategic planning, financial
matters and other matters within his Areas of Expertise as may reasonably be
requested of him by the Company. Consultant agrees to provide such services in
person at any location of the Company located within fifty (50) miles of
downtown Boston, or otherwise shall make himself available by telephone.
Further, the Company and Consultant shall be entitled to
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mutually agree on alternative times and/or places for the provision of such
services to the extent that mutually satisfactory arrangements can be made.
2. Restrictive Covenants.
2.1 Noncompetition. Consultant agrees that
during the period (the "Noncompetition Period") commencing on the date hereof
and continuing so long as Consultant receives payments under this Agreement,
Consultant will not, without prior written consent 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% 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 Section 2 of this Agreement, the "Company" shall mean the
Company and any affiliates controlling, controlled by or under common control
with Elcom International, Inc., including their respective 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 for any fiscal year during the Noncompetition 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
30%, or (iii) any entity which has annualized revenues (at the time Consultant
commences, or were to commence, his relationship with such entity) of less than
$3 million. The Consultant further expressly represents and understands that
this Agreement will prohibit the Consultant from employment during the
Noncompetition Period with all major companies that compete with the Company, as
defined in this Agreement, and as such, will constrain some of the Consultant's
overall possibilities for future employment. By Consultant's signature to this
Agreement, Consultant 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.
2.2 Nondisclosure. Consultant agrees during
the period (the "Nondisclosure Period") commencing on the date hereof and ending
on the date on which he is last paid by the Company under this Agreement, at all
times to hold as a 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,
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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 the Consulting Period or 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 Consultant,
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, Consultant 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 end of the Consulting Period, the Consultant
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 Consultant may have of such Information unless an alternative method
of disposition is approved by the Company.
2.3 Nonsolicitation/Noninterference. Consultant
agrees that during the period (the "Nonsolicitation Period") beginning on the
date hereof and ending on the date on which he is last paid by the Company under
this Agreement, 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. Consultant 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 Consultant's cessation of the
Consulting Period.
2.4 Severability; Certain Exclusions. In the
event that Section 2, or any portion (the "Restrictive Covenants") thereof,
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 Consultant shall be subject to noncompetition, nondisclosure and
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 Section 2 hereof shall
be binding on, be applicable to, or shall limit the Consultant in connection
with any relationship that he may have or develop with any entity that, at the
end of the Consulting Period, 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
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Section 2.3 hereof shall not be binding on or be applicable to the Consultant 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 end
of the Consulting Period, and/or (iii) at such subsequent time as the activity
under Section 2.3 is undertaken.
2.5. Acknowledgment. Consultant specifically
acknowledges that the covenants set forth herein restricting competition,
disclosure and solicitation/interference are reasonable, appropriate, and
necessary as to duration, scope, and geographic area in view of the nature of
the relationship between Consultant and the Company and the investment by the
Company of significant time and resources in the training, development, and
employment of Consultant. Consultant 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.
Consultant 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.
3. Payments. As compensation for his consulting services to
the Company during the Consulting Period and the non-disclosure, non-competition
and non-interference covenants contained herein, the Company shall pay
Consultant One Hundred Thousand Dollars ($100,000.00) per year, commencing on
the date hereof, and payable in twenty-four (24) equal, bi-monthly payments on
the 1st (first) and 15th (fifteenth) day of each month, for two years and until
the payment of an aggregate of Two Hundred Thousand Dollars ($200,000.00)
hereunder.
3.1 Benefits. Consultant will not, by reason of this
Agreement, participate in any employee benefit or insurance plan or any other
plan or receive any other fringe benefit which is provided by the Company for
its executives or employees, but may receive such benefits to the extent
provided for in the Employment Agreement or otherwise.
3.2 Reimbursement of Expenses. The Company
shall reimburse Consultant for all reasonable expenses incurred by him on behalf
of the Company in the course of performing those services which the Consultant
has been requested to perform by the Company; provided that the Consultant shall
submit to the Company all documentation of such expenses necessary for tax
purposes. Notwithstanding anything to the contrary herein, the Consultant shall
be reimbursed for reasonable expenses for training related to his performance of
his services hereunder; provided, the Consultant first obtains the consent of
the Company for such training.
4. Assignment. Any attempt by Consultant to assign this
Agreement or any
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rights or obligations hereunder without the prior written consent of the Company
will be void. The Company may assign this Agreement as part of the sale of its
business without the prior written consent of the Consultant so long as the
purchaser expressly agrees to assume and be responsible for the obligations
hereunder.
5. Independent Contractor. It is expressly understood and
agreed that Consultant is an independent contractor and is not in any manner an
agent or employee of the Company, nor is Consultant authorized or empowered to
conduct business under the name of, or for the account of, the Company or to
incur obligations of any kind, express or implied, on behalf of the Company, or
to make any promise, warranty or representation on the Company's behalf with
respect to any product or service of the Company.
6. Construction.
6.1 Waiver. Failure of the Company at any time
to enforce any provision of this Agreement or to require performance by
Consultant of any provision hereof shall in no way affect the validity of this
Agreement or any part hereof or the right of the Company thereafter to enforce
its rights hereunder; nor shall it be taken to constitute a condonation or
waiver by the Company of that default or any other or subsequent default or
breach. To the extent permitted by Massachusetts law, each party waives any
provision of law which renders any provision of this Agreement unenforceable or
void in any respect.
6.2 Governing Law. This Agreement shall be
governed by Massachusetts law, without regard to conflict of laws principles
thereof.
6.3 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.
6.4 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.
6.5 Entire Agreement. This Agreement
constitutes the entire understanding and agreement among the parties hereto
concerning the subject matter hereof. All negotiations among the parties hereto
concerning the subject matter hereof are merged into this Agreement, and there
are no representations, warranties, covenants, understandings, or agreements,
oral or otherwise, in relation thereto among the parties hereto other than those
incorporated herein. No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by the parties hereto.
-5-
<PAGE>
INTENDING TO BE LEGALLY BOUND, the parties or their duly
authorized representatives have signed this Agreement on the date first above
written.
_________________________
Laurence F. Mulhern
(the "Consultant")
ELCOM INTERNATIONAL, INC.
By: _________________________
Title: _________________________
(the "Company")
-6-
Exhibit 10.39
ELCOM INTERNATIONAL, INC.
EXECUTIVE PROFIT PERFORMANCE BONUS PLAN
FOR EXECUTIVE OFFICERS
SECTION 1. Purpose. The purpose of the Elcom International, Inc. Executive
Profit Performance Bonus Plan for Executive Officers (the "Plan") is to provide
incentives for specified executive officers whose performance in fulfilling the
responsibilities of their positions can have a major impact on the profitability
and future growth of Elcom International, Inc. (the "Company") and its
subsidiaries.
SECTION 2. Definitions. For the purposes of the Plan, the following terms
shall have the meanings indicated:
(a) "Aggregate Bonus Pool" shall mean with respect to any
Fiscal Year (as defined below) an amount equal to twenty percent (20%) of the
Positive Change in Operating Profit (Loss) (as such terms are defined below), if
any.
(b) "Applicable Law" shall mean 26 U.S.C. ss. 162(m) and
regulations and rulings lawfully promulgated thereunder by an agency of the
federal government.
(c) "Base Salary" shall mean for any Covered Employee (as
defined below) in respect of any Fiscal Year his annual base salary effective on
the ninetieth (90th) day of such Fiscal Year, as determined by the Committee (as
defined below) (including, without limitation, pursuant to any written agreement
with a Covered Employee) and without regard to any waivers of payment by the
Covered Employee.
(d) "Board of Directors" shall mean the Board of Directors of
the Company.
(e) "Bonus Award" shall mean the amount payable to a Covered
Employee under the Plan in respect of any Fiscal Year.
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(f) "Committee" shall mean the Compensation Committee of the
Board of Directors, which shall be comprised solely of two or more Outside
Directors (as defined below); provided, that if any member of the Committee does
not qualify as an Outside Director, a subcommittee of the Committee shall be
established comprised only of two or more Outside Directors and such
subcommittee shall act as the Committee hereunder and be vested with all of the
authorities and responsibilities of the Committee.
(g) "Covered Employee" shall mean in respect of any Fiscal
Year those of the Eligible Personnel (as defined below) as are listed on Exhibit
A hereto prior to the ninetieth (90th) day of such Fiscal Year, as determined by
the Committee.
(h) "Eligible Personnel" shall mean in respect of any Fiscal
Year, those persons who were the Company's executive officers on the ninetieth
(90th) day of such Fiscal Year.
(i) "Fiscal Year" shall mean any fiscal year of the Company,
commencing with the fiscal year which begins on January 1, 1998.
(j) "Individual Gross Bonus Percentage" shall mean, with
respect to each Fiscal Year, the percentage of the Aggregate Bonus Pool for each
respective Covered Employee as set forth on Exhibit A attached hereto as
established by the Committee by no later than the ninetieth (90th) day of such
Fiscal Year, subject to Section 7 hereof.
(k) "Operating Profit (Loss)" shall mean, for any Fiscal Year,
the Operating Profit (Loss) as shown on the Company's financial statement as
certified by the Company's independent certified public accountants which shall
be net of any charges for amounts earned relative to such Fiscal Year relating
to the Plan or the Elcom International, Inc. Key Personnel Performance Bonus
Plan.
2
<PAGE>
(l) "Outside Director" shall mean an outside director under
the Applicable Law.
(m) "Plan" shall mean the Elcom International, Inc.
Executive Profit Performance Bonus Plan for Executive Officers as set forth
in this document and as later amended in accordance with the terms hereof.
(n) "Positive Change" shall mean, in respect of any Fiscal
Year, the increase (including, for this purpose, the reduction of a loss) in the
Operating Profit (Loss) from the prior Fiscal Year.
SECTION 3. Administration.
(a) Committee. The Plan shall be administered by the Committee. The
Committee shall have full authority to interpret the Plan and from time to time
to adopt such rules and regulations for carrying out the Plan as it may deem
best.
(b) Committee Determinations. All determinations by the Committee shall
be made by the affirmative vote of a majority of its members, but any
determination reduced to writing and signed by a majority of the members shall
be fully as effective as if it had been made by a majority vote at a meeting
duly called and held. All decisions by the Committee pursuant to the provisions
of the Plan and all orders or resolutions of the Committee pursuant thereto
shall be final, conclusive and binding on all persons, including the Covered
Employees, the Company, its subsidiaries, and its stockholders.
SECTION 4. Determination, etc. of Bonus Awards.
(a) Determination of Bonus Awards. Subject to the next sentence, the
Bonus Award of any Covered Employee for any Fiscal Year shall be the Individual
Gross Bonus Percentage of
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<PAGE>
the Aggregate Bonus Pool as set forth for such Covered Employee in the attached
Exhibit A. Notwithstanding the preceding sentence:
(i) the sum of the Bonus Awards of all Covered Employees for
any Fiscal Year shall not exceed the Aggregate Bonus Pool for the Fiscal Year;
and
(ii) in no event shall a Bonus Award for a particular Covered
Employee exceed the lesser of (a) One Million Dollars ($1,000,000); or (b) two
(2) times the Covered Employee's Base Salary in respect of such Fiscal Year.
(b) Announcement of Bonus Awards. No later than ninety (90) days after
the close of a Fiscal Year, the Committee shall inform each Covered Employee of
his respective Bonus Award for the Fiscal Year.
(c) Payment of Bonus Awards. Bonus Awards shall be paid in cash to the
Covered Employees promptly following the announcement of the Bonus Awards.
(d) Certification of Bonus Awards. Prior to paying any Bonus Award in
respect of any Fiscal Year, the Committee shall certify in writing to the Board
of Directors the amount of such Bonus Award and that such Bonus Award was
determined in accordance with the terms of the Plan. For this purpose, approved
minutes of the Committee meeting in which the certification is made shall be
treated as a written certification.
SECTION 5. Effective Date and Stockholder Approval. The Plan shall
become effective for the Fiscal Year commencing on January 1, 1998; provided,
however, that the Plan shall be of no force and effect, and no bonus or other
payment shall be made hereunder, unless it is approved by the Company's
stockholders as provided in the Applicable Law at the Company's 1998 annual
meeting of stockholders, or any special meeting of stockholders, in either case
on or before the date specified in the Applicable Law.
4
<PAGE>
SECTION 6. Effect of Agreements with Covered Employee. The payment of
any Bonus Award to a Covered Employee shall be subject to any limitations that
may be set forth in any written agreement between the Company and the Covered
Employee including, without limitation, any employment agreement, and this Plan
shall not be construed as superseding or modifying the terms of any such
agreement.
SECTION 7. Amendment and Termination of the Plan. This Plan (including
Exhibit A hereto) may not be terminated, modified or amended in any way that may
have any adverse effect on any Covered Employee without the written consent of
any affected Covered Employee until after December 31, 2000; provided that
additional Eligible Personnel and their respective percentage(s) may be added to
Exhibit A. Thereafter, the Board of Directors may at any time terminate, in
whole or in part, or from time to time amend the Plan; provided, that no such
amendment or termination shall adversely affect the rights of any Covered
Employee with respect to Bonus Awards in respect of a Fiscal Year which has
commenced. The Board of Directors may at any time and from time to time delegate
to the Committee any or all of its authority under this Section 7.
SECTION 8. General Provisions.
(a) No Assignment. No portion of any Bonus Award may be assigned or
transferred other than by will or by the laws of descent and distribution prior
to the payment thereof.
(b) Tax Requirements. All payments of Bonus Awards shall be subject to
withholding in respect of income and other taxes required by law to be withheld,
in accordance with the Company's customary procedures.
(c) No Additional Rights. A Covered Employee shall not have any right
to be retained in the employ of the Company or any of its subsidiaries by reason
of any provision of
5
<PAGE>
the Plan, and the right of the Company or any such subsidiary to dismiss or
discharge any such Covered Employee or to terminate any arrangement pursuant to
which any such Covered Employee provides services to the Company or a subsidiary
specifically is not hereby changed or altered in any respect.
(d) Liability. The Board of Directors and the Committee shall be
entitled to rely on the advice of counsel and other experts, including the
Company's independent certified public accountants. No member of the Board of
Directors or of the Committee shall be, nor shall any officers of the Company or
its subsidiaries be, liable for any act or failure to act under the Plan, except
in circumstances involving bad faith on the part of such member or officer.
(e) Other Compensation Arrangements. Nothing contained in the Plan
shall prevent the Company or any subsidiary or affiliate of the Company from
adopting or continuing in effect other compensation arrangements, which
arrangements may be either generally applicable or applicable only to designated
individuals, including the Covered Employees.
IN WITNESS WHEREOF, Elcom International, Inc., by its appropriate
officer duly authorized, has executed this document as of the 4th day of
September, 1997.
ELCOM INTERNATIONAL, INC.
By: /s/ William W. Smith
William W. Smith
Vice Chairman of the Board
6
<PAGE>
Schedule A
Name and Title of Executive Individual Gross Bonus Percentage
of 20% Total Pool
Robert J. Crowell - Chairman and Chief
Executive Officer .......................... 35 %
James R. Rousou - Corporate Executive Vice
President and President and CEO, Catalink
Direct, Inc. ............................... 22 %
Laurence F. Mulhern - Corporate Executive
Vice President, Chief Financial Officer,
Treasurer and Secretary .................... 17.5 %
------
TOTAL ....................... 74.5 %
Exhibit 10.40
ELCOM INTERNATIONAL, INC.
KEY PERSONNEL PROFIT PERFORMANCE BONUS PLAN
SECTION 1. Purpose. The purpose of the Elcom International, Inc. Key
Personnel Profit Performance Bonus Plan (the "Plan") is to provide incentives
for key personnel (other than executive officers) whose performance in
fulfilling the responsibilities of their positions can have a major impact on
the profitability and future growth of Elcom International, Inc. (the "Company")
and its subsidiaries.
SECTION 2. Definitions. For the purposes of the Plan, the following terms
shall have the meanings indicated:
(a) "Aggregate Bonus Pool" shall mean with respect to any
Fiscal Year (as defined below) an amount equal to twenty percent (20%) of the
Positive Change in Operating Profit (Loss) (as such terms are defined below), if
any, minus the aggregate amount payable pursuant to the Executive Officers Plan
(as defined below) in respect of such Fiscal Year.
(b) "Applicable Law" shall mean 26 U.S.C. ss. 162(m) and
regulations and rulings lawfully promulgated thereunder by an agency of the
federal government.
(c) "Base Salary" shall mean for any Covered Employee (as
defined below) in respect of any Fiscal Year his annual base salary effective on
the last day of such Fiscal Year, as determined by the Committee (as defined
below) (including, without limitation, pursuant to any written agreement with a
Covered Employee) and without regard to any waivers of payment by the Covered
Employee.
(d) "Board of Directors" shall mean the Board of Directors of
the Company.
1
<PAGE>
(e) "Bonus Award" shall mean the amount payable to a Covered
Employee under the Plan in respect of any Fiscal Year.
(f) "Committee" shall mean the Compensation Committee of the
Board of Directors.
(g) "Covered Employee" shall mean in respect of any Fiscal
Year those of the Eligible Personnel(as defined below) as are listed on
Exhibit A hereto by the last day of such Fiscal Year, as determined by the
Committee.
(h) "Eligible Personnel" shall mean in respect of any Fiscal
Year, those persons who were among the key personnel of the Company or any of
its subsidiaries (other than the Company's executive officers) at any time
during the Fiscal Year, as determined by the Committee.
(i) "Executive Officers Plan" shall mean the Elcom
International, Inc. Executive Profit Performance Bonus Plan for Executive
Officers, as it may exist from time to time.
(j) "Fiscal Year" shall mean any fiscal year of the Company,
commencing with the fiscal year which begins on January 1, 1998.
(k) "Individual Gross Bonus Percentage" shall mean, with
respect to each Fiscal Year, the percentage of the Aggregate Bonus Pool for each
respective Covered Employee as set forth on Exhibit A attached hereto, as
established by the Committee by the end of such Fiscal Year, subject to Section
7 hereof.
(l) "Operating Profit (Loss)" shall mean, for any Fiscal Year,
the Operating Profit (Loss) as shown on the Company's financial statement as
certified by the Company's
2
<PAGE>
independent certified public accountants which shall be net of any charges
for amounts earned relative to such Fiscal Year relating to the Plan or the
Executive Officers Plan.
(m) "Plan" shall mean the Elcom International, Inc. Key
Personnel Profit Performance Bonus Plan as set forth in this document and as
later amended in accordance with the terms hereof.
(n) "Positive Change" shall mean, in respect of any Fiscal
Year, the increase (including, for this purpose, the reduction of a loss) in the
Operating Profit (Loss) from the prior Fiscal Year.
SECTION 3. Administration.
(a) Committee. The Plan shall be administered by the Committee. The
Committee shall have full authority to interpret the Plan and from time to time
to adopt such rules and regulations for carrying out the Plan as it may deem
best.
(b) Committee Determinations. All determinations by the Committee shall
be made by the affirmative vote of a majority of its members, but any
determination reduced to writing and signed by a majority of the members shall
be fully as effective as if it had been made by a majority vote at a meeting
duly called and held. All decisions by the Committee pursuant to the provisions
of the Plan and all orders or resolutions of the Committee pursuant thereto
shall be final, conclusive and binding on all persons, including the Covered
Employees, the Company, its subsidiaries, and its stockholders.
SECTION 4. Determination, etc. of Bonus Awards.
(a) Determination of Bonus Awards. Subject to the next sentence, the
Bonus Award of any Covered Employee for any Fiscal Year shall be the Individual
Gross Bonus Percentage of
3
<PAGE>
the Aggregate Bonus Pool as set forth for such Covered Employee in the
attached Exhibit A. Notwithstanding the preceding sentence:
(i) the sum of the Bonus Awards of all Covered Employees for
any Fiscal Year shall not exceed the Aggregate Bonus Pool for the Fiscal Year;
and
(ii) in no event shall a Bonus Award for a particular Covered
Employee exceed the lesser of (a) Five Hundred Thousand Dollars ($500,000); or
(b) two (2) times the Covered Employee's Base Salary in respect of such Fiscal
Year.
(b) Announcement of Bonus Awards. No later than ninety (90) days after
the close of a Fiscal Year, the Committee shall inform each Covered Employee of
his respective Bonus Award for the Fiscal Year.
(c) Payment of Bonus Awards. Bonus Awards shall be paid in cash to the
Covered Employees promptly following the announcement of the Bonus Awards.
(d) Certification of Bonus Awards. Prior to paying any Bonus Award in
respect of any Fiscal Year, the Committee shall certify in writing to the Board
of Directors the amount of such Bonus Award and that such Bonus Award was
determined in accordance with the terms of the Plan. For this purpose, approved
minutes of the Committee meeting in which the certification is made shall be
treated as a written certification.
SECTION 5. Effective Date and Condition Precedent. The Plan shall
become effective for the Fiscal Year commencing on January 1, 1998; provided,
however, that the Plan shall be of no force and effect, and no bonus or other
payment shall be made hereunder, unless adoption of the Executive Officers Plan
is approved by the Company's stockholders as provided in the Applicable Law at
the Company's 1998 annual meeting of stockholders, or any special
4
<PAGE>
meeting of stockholders, in either case on or before the date specified in
the Applicable Law with respect to stockholder approval of such Plan.
SECTION 6. Effect of Agreements with Covered Employee. The payment of
any Bonus Award to a Covered Employee shall be subject to any limitations that
may be set forth in any written agreement between the Company and the Covered
Employee including, without limitation, any employment agreement, and this Plan
shall not be construed as superseding or modifying the terms of any such
agreement.
SECTION 7. Amendment and Termination of the Plan. This Plan (including
Exhibit A hereto) may not be terminated, modified or amended in any way that may
have any adverse effect on any Covered Employee without the written consent of
any affected Covered Employee until after December 31, 2000; provided that
additional Eligible Personnel and their respective percentage(s) may be added to
Exhibit A. Thereafter, the Board of Directors may at any time terminate, in
whole or in part, or from time to time amend the Plan; provided, that no such
amendment or termination shall adversely affect the rights of any Covered
Employee with respect to Bonus Awards in respect of a Fiscal Year which has
commenced. The Board of Directors may at any time and from time to time delegate
to the Committee any or all of its authority under this Section 7.
SECTION 8. General Provisions.
(a) No Assignment. No portion of any Bonus Award may be assigned or
transferred other than by will or by the laws of descent and distribution prior
to the payment thereof.
(b) Tax Requirements. All payments of Bonus Awards shall be subject to
withholding in respect of income and other taxes required by law to be withheld,
in accordance with the Company's customary procedures.
5
<PAGE>
(c) No Additional Rights. A Covered Employee shall not have any right
to be retained in the employ of the Company or any of its subsidiaries by reason
of any provision of the Plan, and the right of the Company or any such
subsidiary to dismiss or discharge any such Covered Employee or to terminate any
arrangement pursuant to which any such Covered Employee provides services to the
Company or a subsidiary specifically is not hereby changed or altered in any
respect.
(d) Liability. The Board of Directors and the Committee shall be
entitled to rely on the advice of counsel and other experts, including the
Company's independent certified public accountants. No member of the Board of
Directors or of the Committee shall be, nor shall any officers of the Company or
its subsidiaries be, liable for any act or failure to act under the Plan, except
in circumstances involving bad faith on the part of such member or officer.
(e) Other Compensation Arrangements. Nothing contained in the Plan
shall prevent the Company or any subsidiary or affiliate of the Company from
adopting or continuing in effect other compensation arrangements, which
arrangements may be either generally applicable or applicable only to designated
individuals, including the Covered Employees.
IN WITNESS WHEREOF, Elcom International, Inc., by its appropriate
officer duly authorized, has executed this document as of the 4th day of
September, 1997.
ELCOM INTERNATIONAL, INC.
By: /s/ William W. Smith
William W. Smith
Vice Chairman of the Board
6
<PAGE>
Schedule A
Name of Covered Employee Individual Gross Bonus Percentage
(of Aggregate Bonus Pool)
Exhibit 10.41
CONFIDENTIAL
July 21, 1997
Elcom International, Inc.
10 Oceana Way
Norwood, MA 02062
Attention: Robert J. Crowell
Chairman & CEO
Gentlemen:
The purpose of this letter is to confirm the engagement of Smith Barney Inc.
("Smith Barney") to act as exclusive financial advisor to Elcom International,
Inc. (together with its affiliates and subsidiaries, the "Company") in
connection with a potential Transaction involving the Company. For purposes
hereof, a "Transaction" shall mean, whether in one or a series of transactions,
the sale or other transfer, directly or indirectly, of all or a significant
portion of the assets or securities of the Company or any other extraordinary
corporate transaction involving the Company, whether by way of a merger or
consolidation, reorganization, recapitalization or restructuring, tender or
exchange offer, negotiated purchase, leveraged buyout, minority investment or
partnership, collaborative venture or otherwise, excluding any intra-company
transactions with subsidiaries of the Company.
1. In connection with its engagement hereunder, Smith Barney shall:
a. review the business and operations of the Company and its historical
and projected financial condition;
b. identify potential parties to a Transaction and, if requested by the
Company, contact such parties and/or their representatives and assist
the Company in negotiations relating to a Transaction;
c. evaluate and recommend financial and strategic alternatives with
respect to a Transaction;
d. advise the Company as to the timing, structure and pricing of a
Transaction;
<PAGE>
Page 2
e. assist the Company in the preparation of a confidential memorandum
describing the Company and its operation and in the preparation and
negotiation of (and, if requested, execute on behalf of the Company)
any confidentiality agreement to be entered into by third parties in
connection with a Transaction;
f. if requested by the Company, render an opinion to the Board of
Directors of the Company that, depending upon the nature of the
Transaction, the consideration to be received by the Company or its
stockholders, as the case may be, in connection with the proposed
Transaction is fair to the Company or such stockholders from a
financial point of view (an "Opinion") and, at the request of the
Company, shall confirm such Opinion, at an appropriate time, prior to
the consummation of the proposed Transaction; and
g. provide such other financial advisory and investment banking services
as are customary for similar transactions and as may be mutually
agreed upon by the Company and Smith Barney.
It is expressly understood and acknowledged that, for purposes of Smith
Barney's engagement hereunder, the term "Transaction" shall not include a
private placement or underwritten public offering, but that Smith Barney
shall have a right of first refusal during the term of this agreement to
act as the Company's exclusive agent and/or lead underwriter in connection
with any private placement, public offering or other financing that may be
undertaken by the Company, excluding working capital financings undertaken
by the Company in the ordinary course of business, on terms and conditions
customary for similar transactions.
In connection with the services contemplated by clause (e) above, the
Company hereby authorizes the negotiation and execution by Smith Barney on
behalf of the Company of confidentiality agreements in a form approved by
counsel to the Company to be entered into by third parties in connection
with a Transaction and the use of the confidential memorandum or other data
furnished to Smith Barney by the Company for distribution to potential
parties to a Transaction in a form approved by counsel to the Company.
2. As compensation for Smith Barney's services hereunder, the Company
hereby agrees to pay Smith Barney the following fees:
Retainer Fee
a. The retainer fee (the "Retainer Fee") has been waived.
Opinion Fee
b. An opinion fee of $500,000 (the "Opinion Fee"), payable in cash
promptly upon delivery by Smith Barney of an Opinion (whether
oral or written, as requested by the Company).
<PAGE>
Page 3
Transaction Fee
c. A transaction fee to be determined in accordance with Schedule B
hereto, payable in cash promptly upon consummation of a
Transaction if, during the term of this agreement or within 12
months thereafter, a Transaction is consummated or a definitive
agreement is entered into that subsequently results in a
Transaction; provided, however, that, unless otherwise agreed to
in writing by Smith Barney and a third party to a Transaction,
following the sale of the securities of the Company qualifying as
a Transaction for which Smith Barney has been paid a Transaction
Fee in full, Smith Barney shall not be entitled to receive from
such third party, or the Company, a Transaction Fee for a
subsequent transaction entered into by such third party,
involving that part of the Company which was acquired in such
transaction by such third party.
Certain Fee Credits
d. The Opinion Fee, to the extent previously paid, shall be credited
against the Transaction Fee payable to Smith Barney hereunder.
3. In addition to any fees that may be payable to Smith Barney hereunder
(and regardless of whether a Transaction occurs), the Company hereby
agrees from time to time upon request, to reimburse Smith Barney
promptly for reasonable travel and other reasonable out-of-pocket
expenses incurred by Smith Barney in performing its services
hereunder, including the reasonable fees and expenses of its legal
counsel; such fees and expenses shall not exceed $40,000 without the
consent of the Company, such consent not to be unreasonably withheld.
Smith Barney will provide reasonable documentation for travel and
out-of-pocket expenses incurred.
4. The term of Smith Barney's engagement as financial advisor to the
Company shall commence on the date hereof and continue until the
earlier of (i) the consummation of a Transaction, (ii) termination by
either party upon 30 days' prior written notice, or (iii) 12 months
after the date hereof, unless extended by mutual written consent,
provided, however, that no such termination shall affect the
indemnification, contribution and confidentiality obligations of the
Company, the right of first refusal of Smith Barney, the right of
Smith Barney to receive any fees payable hereunder or fees that have
accrued prior to such termination or the right of Smith Barney to
receive reimbursement for its reasonable out-of-pocket expenses as
described above.
5. The Company agrees to indemnify Smith Barney and related persons in
accordance with the indemnification letter attached hereto as Schedule
A, the provisions of which are incorporated herein in their entirety.
6. The Company recognizes and confirms that Smith Barney in acting
pursuant to this engagement will be using information in reports and
other information provided by others, including, without limitation,
information provided by or on behalf of the
<PAGE>
Page 4
Company, and that Smith Barney does not assume responsibility for
and may rely, without independent verification, on any such reports
and information. The Company hereby warrants that any information
relating to the Company that is furnished to Smith Barney by or on
behalf of the Company will be fair, accurate and complete and will not
contain any material omissions or misstatements of fact. The Company
agrees that any information or advice (including, without limitation,
the Opinion) rendered by Smith Barney or its representatives in
connection with this engagement is for the confidential use of the
Company's Board of Directors only in its evaluation of a Transaction
and, except as otherwise required by law, the Company will not and
will not permit any third party to disclose or otherwise refer to such
Opinion, advice or information in any manner without Smith Barney's
prior written consent; provided however, that the Company may disclose
the opinion as required in a proxy statement or other document filed
with the Securities and Exchange Commission in connection with a
Transaction, as long as the Company provides Smith Barney with a
reasonable opportunity to review and approve any description of such
opinion or a description of Smith Barney services hereunder. Smith
Barney will, except as required by law, treat all material, non-public
information as confidential and will destroy or return such
information to the Company and will destroy or return all copies of
such information provided to Smith Barney by the Company, upon the
completion or termination of the term of this agreement, and upon
written request by Company.
7. The Company or Smith Barney may, at its own expense, issue a press
release, place announcements or advertisements in financial newspapers
and journals, describing this engagement, subject to review and
approval by the other party.
8. This agreement (a) shall be governed by and construed in accordance
with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law
thereof, (b) incorporates the entire understanding of the parties with
respect to the subject matter hereof and supersedes all previous
agreements should they exist with respect thereto, (c) may not be
amended or modified except in a writing executed by the Company and
Smith Barney and (d) shall be binding upon and inure to the benefit of
the Company, Smith Barney, the other Indemnified Parties and their
respective successors and assigns. The Company and Smith Barney agree
to waive trial by jury in any action, proceeding or counterclaim
brought by or on behalf of either party with respect to any matter
whatsoever relating to or arising out of any actual or proposed
Transaction or the engagement of or performance by Smith Barney
hereunder. The Company hereby irrevocably designates Robert J.
Crowell, 10 Oceana Way, Norwood, MA 02062 as agent upon whom process
against the Company may be served. The Company acknowledges that Smith
Barney in connection with its engagement hereunder is acting as an
independent contractor with duties owing solely to the Company and
that nothing in this agreement is intended to confer upon any other
person any rights or remedies hereunder or by reason hereof.
<PAGE>
Page 5
This agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same
agreement. Please confirm that the foregoing is in accordance with your
understanding of our agreement by signing and returning to us a copy of this
letter.
Very truly yours,
SMITH BARNEY INC.
By /s/ Conrad L. Bringsjord
Conrad L. Bringsjord
Managing Director
Accepted and agreed to as of
the date set forth above:
ELCOM INTERNATIONAL, INC.
By /s/ Robert J. Crowell
Robert J. Crowell
Chairman and CEO
<PAGE>
Page 6
SCHEDULE A
INDEMNIFICATION
Recognizing that transactions of the type contemplated in this engagement
sometimes result in litigation and that Smith Barney's role is advisory, the
Company agrees to indemnify and hold harmless Smith Barney, its affiliates and
their respective officers, directors, employees, agents and controlling persons
(collectively, the "Indemnified Parties"), from and against any losses, claims,
damages and liabilities, joint or several, related to or arising in any manner
out of any transaction, proposal or any other matter (collectively, the
"Matters") contemplated by the engagement of Smith Barney hereunder, and will
periodically reimburse the Indemnified Parties for all reasonable expenses
(including reasonable fees and expenses of legal counsel) incurred in connection
with the investigation of, preparation for or defense of any pending or
threatened claim related to or arising in any manner out of any Matter
contemplated by the engagement of Smith Barney hereunder, or any action or
proceeding arising therefrom (collectively, "Proceedings"), whether or not such
Indemnified Party is a formal party to any such Proceeding; provided, however,
that such indemnification of any such Indemnified Party shall not apply if such
Indemnified Party is the plaintiff in, or otherwise initiates, any action or
proceeding against the Company, the primary subject matter of which is the
performance of this agreement by the Company, and a final judgment on the
primary merits of such matter is made in favor of the Company in any such
dispute. Notwithstanding the foregoing, the Company shall not be liable in
respect of any losses, claims, damages, liabilities or expenses that a court of
competent jurisdiction shall have determined by final judgment resulted
primarily from the gross negligence, bad faith, or willful misconduct of an
Indemnified Party ("a Finding"), and such Indemnified Party shall repay any
amounts previously reimbursed by the Company that are related to or arise out of
the act or omission of such Indemnified Party which is the subject of such
finding. The Company further agrees that it will not, without the prior written
consent of Smith Barney, which consent shall not be unreasonably withheld,
settle, compromise or consent to the entry of any judgment in any pending or
threatened Proceeding in respect of which indemnification may be sought
hereunder (whether or not Smith Barney or any Indemnified Party is an actual or
potential party to such Proceeding), unless such settlement, compromise or
consent includes an unconditional release of Smith Barney and each other
Indemnified Party hereunder from all liability arising out of such Proceeding.
The Company agrees that if any indemnification or reimbursement sought pursuant
to this letter were for any reason other than pursuant to the terms of this
agreement not to be available to any Indemnified Party or insufficient to hold
it harmless as and to the extent contemplated by this letter, then the Company
shall contribute to the amount paid or payable by such Indemnified Party in
respect of losses, claims, damages and liabilities in such proportion as is
appropriate to reflect the relative benefits to the Company and its stockholders
on the one hand, and Smith Barney on the other, in connection with the Matters
to which such indemnification or reimbursement relates or, if such allocation is
not permitted by applicable law, not only such relative benefits but also the
relative faults of such parties as well as any other equitable considerations.
It is hereby agreed that the relative benefits to the Company and/or its
<PAGE>
Page 7
stockholders and to Smith Barney with respect to Smith Barney's engagement shall
be deemed to be in the same proportion as (i) the total value paid or received
or to be paid or received by the Company and/or its stockholders pursuant to the
Matters (whether or not consummated) for which Smith Barney is engaged to render
financial advisory services bears to (ii) the fees paid to Smith Barney in
connection with such engagement. Absent a Finding, in no event shall the
Indemnified Parties contribute or otherwise be liable for an amount in excess of
the aggregate amount of fees actually received by Smith Barney pursuant to such
engagement (excluding amounts received by Smith Barney as reimbursement of
expenses).
The Company further agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with Smith Barney's engagement hereunder except for losses,
claims, damages, liabilities or expenses that a court of competent jurisdiction
shall have determined by final judgment resulted solely from the gross
negligence, bad faith, or willful misconduct of such Indemnified Party. The
indemnity, reimbursement and contribution obligations of the Company shall be in
addition to any liability which the Company may otherwise have and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company or an Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth herein shall
remain operative and in full force and effect regardless of (i) any withdrawal,
termination or consummation of or failure to initiate or consummate any Matter
referred to herein, (ii) any investigation made by or on behalf of any party
hereto or any person controlling (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended) any party hereto, (iii) any termination or the completion
or expiration of this letter or Smith Barney's engagement and (iv) whether or
not Smith Barney shall, or shall not be called upon to, render any formal or
informal advice in the course of such engagement.
Very truly yours,
SMITH BARNEY INC.
By /s/ Conrad L. Bringsjord
Conrad L. Bringsjord
Managing Director
Accepted and agreed to:
ELCOM INTERNATIONAL, INC.
By /s/ Robert J. Crowell
Robert J. Crowell
Chairman and CEO
<PAGE>
Page 8
SCHEDULE B
SMITH BARNEY INC.
TRANSACTION FEE SCHEDULE
The Transaction Fee shall be calculated by multiplying the Transaction Value by
the applicable Transaction Fee Percentage. For Transaction Values of $25 million
or less, the Transaction Fee shall be a minimum of $500,000; for Transaction
Values in excess of $10 billion, the Transaction Fee Percentage shall be 0.20%;
and for all other Transaction Values, the Transaction Fee Percentage shall be
calculated in accordance with the following table, where the Transaction Fee
Percentage is prorated between the intervals of the Transaction Value Markers.
Transaction Transaction
Value Marker Fee Percentage Transaction Fee
($000) ($)
$ 25,000 2.00% $ 500,000
$ 50,000 1.50% $ 750,000
$ 100,000 1.20% $1,200,000
$ 200,000 1.00% $2,000,000
$ 500,000 0.70% $3,500,000
$1,000,000 0.50% $5,000,000
$2,000,000 0.40% $8,000,000
$5,000,000 0.30% $15,000,000
$10,000,000 0.20% $20,000,000
"Transaction Value" shall mean the total proceeds and other consideration paid
or received or to be paid or received in connection with a Transaction (which
consideration shall be deemed to include amounts in escrow), including, without
limitation: (i) cash; (ii) notes, securities and other property; (iii) certain
liabilities, including all debt, capital leases, pension liabilities and
guarantees, assumed, acquired or refinanced; (iv) payments made in installments;
(v) amounts payable under consulting agreements, agreements not to compete or
similar arrangements (including such payments to management, but not including
any existing severance related payments); (vi) contingent payments (whether or
not related to future earnings or operations); and (vii) if the Transaction
involves the disposition of assets, the net value of current assets not sold.
For purposes of computing any fees payable to Smith Barney hereunder, non-cash
consideration shall be valued as follows: (x) publicly traded securities shall
be valued at the average of their closing prices (as reported in The Wall Street
Journal) for the five trading days prior to the closing of the Transaction and
(y) any other non-cash consideration shall be valued at the fair market value
thereof as determined in good faith by the Company and Smith Barney.
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 $ 1,310 $ 3,412 $ 3,586 $ 7,435
======== ======== ======== ========
Weighted Average Common Stock and
Common Equivalent Shares
Outstanding During the Period 26,495 27,017 26,294 26,876
Dilutive Effect of Common Equivalent
Shares(1) 2,940 3,742 3,310 2,920
-------- -------- -------- --------
Weighted Average Common Shares
Outstanding 29,435 30,759 29,604 29,796
======== ======== ======== ========
Net Income Per Share $ .04 $ .11 $ .12 $ .25
======== ======== ======== ========
(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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 31,360
<SECURITIES> 0
<RECEIVABLES> 176,591
<ALLOWANCES> 4,003
<INVENTORY> 44,791
<CURRENT-ASSETS> 250,251
<PP&E> 35,219
<DEPRECIATION> 17,332
<TOTAL-ASSETS> 304,724
<CURRENT-LIABILITIES> 196,669
<BONDS> 386
0
0
<COMMON> 271
<OTHER-SE> 105,866
<TOTAL-LIABILITY-AND-EQUITY> 304,724
<SALES> 572,809
<TOTAL-REVENUES> 572,809
<CGS> 505,879
<TOTAL-COSTS> 505,879
<OTHER-EXPENSES> 52,193
<LOSS-PROVISION> 1,319
<INTEREST-EXPENSE> 3,639
<INCOME-PRETAX> 10,751
<INCOME-TAX> 3,316
<INCOME-CONTINUING> 7,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,435
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
