<PAGE> 1
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 March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission File No. 0-22064
ELEK-TEK, INC.
--------------
(Exact name of Registrant as specified in its charter)
Delaware 36-3042018
------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
7350 N. Linder Ave., Skokie, Illinois 60077
-------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(847) 677-7660
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
Number of shares outstanding at May 19, 1997 6,312,500
---------
<PAGE> 2
ELEK-TEK, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information
- ------- ----------------------
<S> <C> <C>
Item I. Financial Statements
Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996 3
Statements of Operations
(Unaudited) - for the three months ended
March 31, 1997 and 1996 4
Statements of Cash Flows
(Unaudited) - for the three months ended
March 31, 1997 and 1996 5
Notes to Condensed Financial Statements (Unaudited) 6
Item II. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7
Part II. Other Information
- -------- -----------------
Item 3 Default Upon Senior Securities 10
Item 6 Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
</TABLE>
2
<PAGE> 3
ELEK-TEK, INC
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,1997 December 31, 1996
---------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 879 $ 1,619
Accounts receivable, trade 19,911 23,700
Accounts receivable, vendor 5,837 7,628
Inventories 31,233 28,043
Refundable income taxes 3,237 3,556
Other 1 581 782
---------------- -----------------
Total current assets 62,678 65,328
Property, plant and equipment, net 15,759 15,587
Other assets 214 126
---------------- -----------------
Total assets $ 78,651 $ 81,041
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,734 $ 40,101
Accrued expenses 4,413 4,340
Customer deposits 289 526
Short-term debt 19,662 20,524
Subordinated notes payable to stockholders, current 2,286 2,000
---------------- -----------------
Total current liabilities 66,384 67,491
---------------- -----------------
Subordinated notes payable to stockholders, net of current 2,000 2,286
maturities ---------------- -----------------
Stockholders equity:
Preferred stock, $.01 par value; 500,000 shares authorized; none
issued or outstanding
Common stock, $.01 par value; 20,000,000 shares authorized;
6,312,500 shares issued and outstanding 63 63
Paid-in capital 14,356 14,356
Retained earnings (4,152) (3,155)
---------------- -----------------
Total stockholders' equity 10,267 11,264
---------------- -----------------
Total liabilities and stockholders' equity $ 78,651 $ 81,041
================ =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
ELEK-TEK, INC.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Net sales $ 68,373 $ 88,614
Cost of sales 59,741 77,434
--------------- ---------------
Gross profit 8,632 11,180
Selling, general, and administrative
expenses 9,067 11,598
--------------- ---------------
Loss from operations (435) (418)
Other (income) expense:
Other income, net (105) (76)
Interest expense 667 573
--------------- ---------------
562 497
--------------- ---------------
Loss before income tax benefit (997) (915)
Income tax benefit - 355
--------------- ---------------
Net loss $ (997) $ (560)
=============== ===============
Net loss per share $ (0.16) $ (0.09)
=============== ===============
Weighted average number of common
shares outstanding 6,312,361 6,300,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
ELEK-TEK, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ending March 31,
-----------------------------
MAR-97 MAR-96
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (997) $ (560)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation 587 562
Changes in assets and liabilities:
Accounts receivable, trade 3,789 (4,093)
Accounts receivable, vendor 1,791 1,585
Inventories (3,190) (3,117)
Refundable income taxes 319 -
Other assets (887) 2,132
Accounts payable (367) (3,049)
Accrued expenses and customer deposits (164) (49)
---------- ----------
Net cash provided by (used in) operating activities 881 (6,589)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (759) (210)
----------- -----------
Net cash used in investing activities (759) (210)
----------- -----------
Cash flows from financing activities:
Borrowings on revolving bank line of credit 73,902 24,700
Payments on revolving bank line of credit (74,764) (22,700)
Payments on subordinated notes payable to stockholders (143)
----------- -----------
Net cash (used in) provided by financing activities (862) 1,857
----------- -----------
Net decrease in cash and cash equivalents (740) (4,942)
Cash and cash equivalents, beginning of period 1,619 8,064
----------- -----------
Cash and cash equivalents, end pf, period $ 879 $ 3,122
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
ELEK-TEK,INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial information included herein is unaudited, but in the
opinion of management reflects all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the results for the
interim periods. The interim results of operations and cash flows are not
necessarily indicative of such results and cash flows for the entire year. The
year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. These financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
ELEK-TEK, Inc. (the "Company") Form 10-K for the period ended December 31,
1996.
2. DEBT
Recognition of the fourth quarter 1996 loss placed the Company in violation of
the financial covenants under the Company's credit and floor plan agreements.
The financial covenants include a minimum tangible net worth amount, a leverage
ratio and an interest coverage ratio as defined by the agreements. The Company
continues to be in default and is currently in discussion with its lenders
regarding an amendment to the agreements. The lenders have continued to fund
the Company under the existing terms of the agreements. There can be no
assurance that the lenders will continue to do so. In addition, there can be
no assurances that the Company will be able to obtain an amendment to the
agreements with the lenders. The inventory financing is included in accounts
payable on the balance sheet.
During the first quarter of 1997, the Company did not make the principal
payment on its subordinated notes. The Company will not resume these payments
until results of operations permit.
3. INCOME TAXES
Taxes on income are accounted for under the liability method. Deferred income
taxes are recorded to reflect the tax consequences on future years of
differences between the basis of assets and liabilities for income tax and for
financial reporting purposes. In addition, the amounts of any future tax
benefits are reduced by a valuation allowance to the extent such benefits are
uncertain of being ultimately realized.
4. RECLASSIFICATION
Certain reclassifications have been made to conform prior years' data to the
current presentation. These reclassifications have no effect on operations or
total stockholders' equity of the Company.
5. NEW ACCOUNTING PRONOUNCEMENT
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" in 1997 and will provide the
appropriate disclosures. FAS 128 is effective for financial statements issued
for periods ending after December 15, 1997. The Company does not expect the
adoption of FAS 128 to have a significant impact on its financial statements.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, items in the
condensed statements of operations, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 87.4% 87.4%
--------------------------
Gross Profit 12.6% 12.6%
Selling, general, and administrative expenses 13.2% 13.1%
--------------------------
Loss from operations (0.6%) (0.5%)
Other income , net (0.1%) (0.1%)
Interest expense 1.0% 0.6%
--------------------------
Loss before income tax benefit (1.5%) (1.0%)
Income tax benefit 0.0% (0.4%)
Net loss (1.5%) (0.6%)
==========================
</TABLE>
Three Months Ended March 31, 1997
Net sales for the three month period ended March 31, 1997 were $68.4 million, a
decrease of $20.2 million (22.8%) from the $88.6 million for the first quarter
of 1996. Comparable store sales decreased 29.1% over the same period last year.
Comparable store sales are net sales for stores that have been open for at
least the last twelve months. The Company attributes this decrease in total
sales and comparable store sales to a delay in PC purchases due to the
anticipation of new technology introductions expected in the second quarter,
the transition to a new sales team within the corporate sales organization, and
continued intense competition.
Gross margin was $8.6 million, or 12.6% of net sales, in the first quarter of
1997, compared to $11.2 million, or 12.6% of net sales, in the first quarter of
1996. Gross margin remained constant as a percentage of sales primarily due
to the aggressive cost management efforts undertaken by the Company during
1997, targeting higher margin sales, and new cost effective purchasing
strategies which offset lower price points.
For the first quarter of 1997, selling, general and administrative expenses
decreased $2.5 million from $11.6 million (13.1% of net sales) to $9.1 million
(13.2% of net sales) compared to the same period in 1996, due to management's
emphasis on containing costs. The decrease was mainly due to the following
reasons:
Total compensation expense decreased by $1.5 million (24% ), of which
$1.1 million was due to the 20% headcount reduction that occurred in
1996. At the end of the first quarter, the head count was 685 in 1997
versus 845 in 1996. Employee severance decreased by $.1 million due to
higher costs in 1996 from the restructuring of the executive and middle
management.
Total benefits expense decreased by $.1 million due to the reduction in
salary expense and the decrease in group plan costs. Management took
steps to reduce costs by restructuring the Company's benefits and
reallocated a portion of the savings to expand the existing benefit
programs.
Net advertising decreased by $.3 million over the same period last year
due to Elek-Tek's focus on increasing vendor marketing subsidies to a
level that is comparable to industry standards. Elek-Tek
7
<PAGE> 8
has made efforts to better track and collect co-op advertising dollars,
and participate in more of the vendor marketing programs offered.
Occupancy expense decreased by $.2 million which resulted from the
renegotiation of the Company's insurance policies, and the decrease in
security costs due to the better management of the loss prevention
function.
Professional fees decreased by $.3 million in 1997 which was primarily
due to the use of consultants for the inventory management project in
1996. This project was discontinued by the new executive management team
in the second quarter of 1996.
In the first quarter of 1996, the Company had a net deferred tax asset of $821.
No valuation allowance was provided since the asset was expected to be
realized through future operations, or through a net operating loss carryback
since sufficient taxes were paid in prior years. In the first quarter of
1997, the Company recorded a full valuation allowance on the net deferred tax
asset as a result of uncertainty of its ultimate realization.
Net loss for the first quarter of 1997 was $1.0 million, compared to net loss
for the same period in 1996 of $.6 million.
Liquidity and Capital Resources
Net cash provided by operating activities for the three month period ended
March 31, 1997 was $.9 million compared to $6.6 million used in operating
activities for the same period a year ago. The net cash provided by operating
activities for the first quarter of 1997 resulted primarily from the $3.8
million reduction in trade accounts receivable and the $1.8 million reduction
in vendor accounts receivable due to more effective collection efforts.
Net cash used in investing activities consisted of property and equipment
acquisitions of $.8 million, which primarily relates to the company-wide
management information system, leasehold improvements and equipment purchases.
Net cash used in financing activities totaled $.9 million and was due to net
payments on the Company's revolving credit facility.
Recognition of the fourth quarter 1996 loss placed the Company in violation of
the financial covenants under the Company's credit and floor plan agreements.
The financial covenants include a minimum tangible net worth amount, a leverage
ratio and an interest coverage ratio as defined by the agreements. The Company
continues to be in default and is currently in discussion with its lenders
regarding an amendment to the agreements. The lenders have continued to fund
the Company under the existing terms of the agreements. There can be no
assurance that the lenders will continue to do so. In addition, there can be
no assurances that the Company will be able to obtain an amendment to the
agreements with the lenders. The inventory financing is included in accounts
payable on the balance sheet.
Without an amendment of the current agreements or a replacement facility, the
Company would not have sufficient funds to pay its debts should the lenders
demand payment. A substantial portion of the inventories are financed through
open trade lines with vendors. The Company believes that it has satisfactory
relationships with its vendors.
The Company's financial statements have been prepared on a going concern basis
and do not contain adjustments which may be necessary should the Company be
forced to liquidate assets or take other action to satisfy debt payments or
discontinue its business.
8
<PAGE> 9
Management believes that its efforts in the future must be directed toward
reversing the sales decline, containing operating costs and improving gross
margins. There can be no assurances that these objectives will be
accomplished.
The Company has retained an investment banking firm to assist the Company in
evaluating a range of alternatives, including the possibility of raising
additional equity capital, the sale of the Company, a merger or another form of
business combination or affiliation, the purpose of which is to result in the
introduction of additional funds and/or other interested parties with
resources which may be compatible with the Company. However, no assurances can
be given that the Company will be successful in raising additional capital or
entering into a business alliance. Further, there can be no assurance,
assuming the Company is successful in raising additional funds or entering into
a business alliance, that the Company will achieve profitability. If this is
not achieved, management will be required to implement additional cost cutting
measures.
During the first quarter of 1997, the Company did not make the principal
payment on its subordinated notes. The Company will not resume these payments
until results of operations permit.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements made in this quarterly report that are not historical facts, are
forward looking statements, and therefore, involve risks and uncertainties,
including, but not limited to, the following risks: interest rates may rise,
competitors may open more stores in each of the Company's markets, further
intensifying competitive pressures; catalog production and mailing costs may
continue to rise; the new store may not attract the expected sales volume; the
new business strategy may not prove successful; and increased competition in
all channels may adversely affect gross margin, as well as other risks.
Without an amendment of the current credit agreement or a replacement facility,
the Company would not have sufficient funds to pay its debts should the lenders
demand payment. Accordingly, actual results may differ materially from those
set forth in the forward looking statements.
9
<PAGE> 10
PART II. OTHER INFORMATION
Items 3 - Default upon Senior Securities
Recognition of the fourth quarter 1996 loss placed the Company in violation of
the financial covenants under the Company's credit and floor plan agreements.
The financial covenants include a minimum tangible net worth amount, a leverage
ratio and an interest coverage ratio as defined by the agreements. The Company
continues to be in default and is currently in discussion with its lenders
regarding an amendment to the agreements. The lenders have continued to fund
the Company under the existing terms of the agreements. There can be no
assurance that the lenders will continue to do so. In addition, there can be
no assurances that the Company will be able to obtain an amendment to the
agreements with the lenders. The inventory financing is included in accounts
payable on the balance sheet.
Without an amendment of the current agreements or a replacement facility, the
Company would not have sufficient funds to pay its debts should the lenders
demand payment. A substantial portion of the inventories are financed through
open trade lines with vendors. The Company believes that it has satisfactory
relationships with its vendors.
The Company's financial statements have been prepared on a going concern basis
and do not contain adjustments which may be necessary should the Company be
forced to liquidate assets or take other action to satisfy debt payments or
discontinue its business.
Management believes that its efforts in the future must be directed toward
reversing the sales decline, containing operating costs and improving gross
margins. There can be no assurances that these objectives will be
accomplished.
The Company has retained an investment banking firm to assist the Company in
evaluating a range of alternatives, including the possibility of raising
additional equity capital, the sale of the Company, a merger or another form of
business combination or affiliation, the purpose of which is to result in the
introduction of additional funds and/or other interested parties with
resources which may be compatible with the Company. However, no assurances can
be given that the Company will be successful in raising additional capital or
enter into a business alliance. Further, there can be no assurance, assuming
the Company is successful in raising additional funds or entering into a
business alliance, that the Company will achieve profitability. If this is not
achieved, management will be required to implement additional cost cutting
measures.
During the first quarter of 1997, the Company did not make the principal
payment on its subordinated notes. The Company will not resume these payments
until results of operations permit.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibit 10.23 - Executive Officer's Severance Compensation Agreements
(b) Exhibit 11 - Computation of Earnings Per Share
(c) Exhibit 27 - Financial Data Schedule
(d) No reports on Form 8-K were filed during the quarter ended March 31,
1997.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ELEK-TEK, INC.
-------------
(Registrant)
Date: May 19, 1997 By: ----------------------------------
Richard L. Rodriguez.
President, Chief Executive Officer,
and Director
Date: May 19, 1997 By: ----------------------------------
Miguel A. Martinez, Jr.
Vice President, Chief Financial Officer and
Secretary (Principal Financial and Accounting
Officer)
11
<PAGE> 12
ELEK-TEK, INC.
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ----- -------------------
10.23 Executive Officer's Severance Compensation
Agreements
11 Computation of Earnings Per Share
27 Financial Data Schedule
12
<PAGE> 1
Exhibit 10.23
SEVERANCE COMPENSATION AGREEMENT
This Agreement (the "Agreement") is made as of this 2nd day of April,
1997, by and between Elek-Tek, Inc., a Delaware corporation (the "Company"),
and Miguel A. Martinez (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to continue to employ Executive and Executive
is willing to continue such employment, in part upon the terms and conditions
hereinafter set forth;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is appropriate to reinforce and encourage the continued attention and
dedication of members of the Company's management, including Executive, to
their assigned duties without distraction in potentially disturbing
circumstances arising from the possibility of a change in control of the
Company; and
WHEREAS, the parties desire to set forth the severance compensation which
the Company agrees it will pay to the Executive if the Executive's employment
with the Company terminates under one of the circumstances described herein
following a Change in Control of the Company (as defined herein).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
(a) Cause. "Cause" shall mean any one or more of the following:
i. engaging in a dishonest act, willful breach of
fiduciary duty, misappropriation or fraud against the Company or
any Subsidiary of the Company, or making any willful
misrepresentation to any holder of securities of the Company or
any member of the Board;
ii. any indictment or similar charge against an Executive
by a governmental office alleging the commission of a felony, or
a guilty plea or no-contest plea to a felony;
iii. repeated material failure by an Executive to follow
the Company's general policies, directives or orders applicable
to employees holding comparable positions; or
1
<PAGE> 2
iv. intentional destruction or theft of the Company's
property or falsification of the Company's documents.
Notwithstanding the foregoing, an Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution adopted by the affirmative vote of not
less than a majority of the members of the Company's Board who are not
employees of the Company (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board), finding that in their opinion the Company had Cause to
terminate the Executive.
(b) Change in Control. A "Change in Control" shall be deemed to have
occurred on the first to occur (the "Effective Date") of any of the following:
i. an "acquisition" (other than directly from the Company) of
any voting securities of the Company (the "Voting
Securities") (a) by any "Person" or "Group" (as such terms are
used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")), that has
direct or indirect "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding Voting Securities immediately prior to such
acquisition, or (b) by any Person or Group that, immediately
after such acquisition, has direct or indirect Beneficial
Ownership of thirty percent (30%) or more of the combined voting
power of the Company's then outstanding Voting Securities;
ii. the individuals who, immediately prior to the Effective
Date, are members of the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for
election by the Company's shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated
under the 1934 Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
iii. approval by shareholders of the Company of:
- 2 -
<PAGE> 3
(A) a merger, consolidation or reorganization involving the
Company, unless
(1) the shareholders of the Company immediately before
such merger, consolidation or reorganization, own or
will own, directly or indirectly, immediately
following such merger, consolidation or
reorganization, at least fifty-one percent (51%) of
the combined voting power of the outstanding Voting
Securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization;
(2) the individuals who were members of the Incumbent
Board immediately prior to the execution of the
agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds
of the members of the Board of Directors of the
Surviving Corporation; and
(3) no Person (other than the Company, any
Subsidiary, any employee benefit plan maintained by
the Company, the Surviving Corporation or any
Subsidiary (or any trust forming a part thereof), or
any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifteen percent (15%) or more of the
combined voting power of the Company's then
outstanding Voting Securities) has direct or indirect
Beneficial Ownership of fifteen percent (15%) or more
of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities.
(B) a complete liquidation or dissolution of the Company; or
(C) an agreement for the sale or other disposition of all
or substantially all of the assets of the Company to
any Person (other than a transfer to a Subsidiary).
(c) Date of Termination. "Date of Termination" shall mean in the case of
an Executive's death, the date of death, in the case of Good Reason, the last
day of Executive's employment, and in all other cases, the date specified in
the Notice of Termination.
- 3 -
<PAGE> 4
(d) Disability. "Disability" shall occur if as a result of an Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from the full-time performance of his or her duties with the Company for three
(3) consecutive months.
(e) Good Reason. "Good Reason" shall mean any one or more of the following
(without the Executive's express written consent):
i. a relocation of the Executive's principal place of
employment outside the Chicago metropolitan area, other than for
reasonably required travel on the business of the Company or a
Subsidiary of the Company;
ii. a material reduction in the Executive's base or
aggregate compensation, other than a general reduction
applicable to all or substantially all of the executive
employees of the Company or its Subsidiaries;
iii. a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which
represents an adverse change from the Executive's prior status,
title, position or responsibilities; or
iv. the purported termination of the Executive for Cause
which does not comply with the terms of Section 1(a) hereof.
(f) Notice of Termination. Any termination by the Company shall be
communicated by a Notice of Termination. A "Notice of Termination" shall mean
a written notice which, if termination is for Cause or Disability, shall
indicate those specific termination provisions in this Agreement relied upon
and set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. No purported termination by the Company following a
Change in Control shall be effective without such Notice of Termination.
(g) Retirement. For purposes of this Agreement, "Retirement" shall mean
termination of the Executive's employment after the Executive has attained age
65.
(h) Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean
any corporation, partnership, limited liability company, joint venture or other
entity in which another corporation, partnership, limited liability company,
joint venture or other entity (i) owns, or at any relevant time owned, directly
or indirectly, 50% or more of the outstanding voting securities or equity
interests or (ii) is a general partner.
2. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If, upon the first Change in Control of the Company following the
execution of this Agreement, (i) during the twelve month period thereafter, the
Company shall terminate the
- 4 -
<PAGE> 5
Executive's employment other than for Cause, Disability, Retirement or on
account of the Executive's death; or (ii) during the first six month period
thereafter, the Executive shall terminate employment for Good Reason; or (iii)
during the second six month period thereafter, the Executive shall terminate
employment for any reason, then:
(x) the Company shall pay to the Executive severance compensation
equal to the Executive's annual base salary in effect immediately prior to
the Change in Control, which compensation shall be payable in one lump sum
amount, subject to tax withholding, on or before the fifteenth day
following the Date of Termination; provided, however, that the Company
shall have no obligation to make any payments under this Agreement to the
Executive unless and until it shall receive from such Executive a full and
complete release of any and all liabilities, except for those provided
under this Agreement, in a form acceptable to the Company; and
(y) all stock options held by the Executive, without any further
action, shall be automatically exercisable in full, notwithstanding any
provisions to the contrary in Section 1 of the Elek-Tek, Inc. 1993
Incentive Stock Option Plan Incentive Stock Option Agreement dated April
22, 1996 between the Company and the Executive, which are hereby amended
to permit such exercise.
(b) An Executive's entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee benefit plans and other
applicable programs, policies and practices then in effect. The provisions of
this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish an Executive's existing
rights, or rights which accrue solely as a result of the passage of time, under
any benefit plan, stock option plan, employment agreement or other contract,
plan or arrangement.
(c) Notwithstanding anything contained in this Agreement to the contrary,
if an Executive's employment is terminated prior to a Change in Control and the
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who had indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control or (ii) otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the Executive shall
mean the date immediately prior to the date of such termination of the
Executive's employment.
(d) Nothing in this Agreement limits or restricts in any way the right of
the Company to terminate an Executive's employment with the Company with or
without cause.
3. NO OBLIGATION TO MITIGATE DAMAGES. The Executive shall not be required
to mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment provided for under this
- 5 -
<PAGE> 6
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer after the Date of Termination, or otherwise.
4. SUCCESSOR TO THE COMPANY.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, absolutely and
unconditionally to 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. Any failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession or assignment shall be a material breach of this Agreement and shall
entitle the Executive to terminate the Executive's employment for Good Reason.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined which executes and delivers the agreement or assumption provided for in
this Section 4 or which otherwise becomes bound by all terms and provisions of
this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts are still payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
5. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Secretary
Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, Illinois 60077
If to the Executive:
Miguel A. Martinez
2332 N. Douglas
Arlington Heights, Illinois 60004
- 6 -
<PAGE> 7
or such other 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.
6. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur if the Executive prevails in collecting
any amount under this Agreement which has been contested by the Company. The
parties may agree in advance as to amounts which are not contested, and any
amount which the Company shall offer to pay to the Executive in settlement of
any claim shall be deemed to be a non-contested amount.
7. CONFIDENTIALITY. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company and its
business so long as such information is not publicly disclosed.
8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
9. VALIDITY. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ELEK-TEK, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
--------------------------------------
Miguel A. Martinez
- 7 -
<PAGE> 8
SEVERANCE COMPENSATION AGREEMENT
This Agreement (the "Agreement") is made as of this 2nd day of April,
1997, by and between Elek-Tek, Inc., a Delaware corporation (the "Company"),
and Karim M. Hadchiti (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to continue to employ Executive and Executive
is willing to continue such employment, in part upon the terms and conditions
hereinafter set forth;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is appropriate to reinforce and encourage the continued attention and
dedication of members of the Company's management, including Executive, to
their assigned duties without distraction in potentially disturbing
circumstances arising from the possibility of a change in control of the
Company; and
WHEREAS, the parties desire to set forth the severance compensation which
the Company agrees it will pay to the Executive if the Executive's employment
with the Company terminates under one of the circumstances described herein
following a Change in Control of the Company (as defined herein).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
(a) Cause. "Cause" shall mean any one or more of the following:
i. engaging in a dishonest act, willful breach of
fiduciary duty, misappropriation or fraud against the Company or
any Subsidiary of the Company, or making any willful
misrepresentation to any holder of securities of the Company or
any member of the Board;
ii. any indictment or similar charge against an Executive
by a governmental office alleging the commission of a felony, or
a guilty plea or no-contest plea to a felony;
iii. repeated material failure by an Executive to follow
the Company's general policies, directives or orders applicable
to employees holding comparable positions; or
8
<PAGE> 9
iv. intentional destruction or theft of the Company's
property or falsification of the Company's documents.
Notwithstanding the foregoing, an Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution adopted by the affirmative vote of not
less than a majority of the members of the Company's Board who are not
employees of the Company (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board), finding that in their opinion the Company had Cause to
terminate the Executive.
(b) Change in Control. A "Change in Control" shall be deemed to have
occurred on the first to occur (the "Effective Date") of any of the following:
i. an "acquisition" (other than directly from the Company) of
any voting securities of the Company (the "Voting
Securities") (a) by any "Person" or "Group" (as such terms are
used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")), that has
direct or indirect "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding Voting Securities immediately prior to such
acquisition, or (b) by any Person or Group that, immediately
after such acquisition, has direct or indirect Beneficial
Ownership of thirty percent (30%) or more of the combined voting
power of the Company's then outstanding Voting Securities;
ii. the individuals who, immediately prior to the Effective
Date, are members of the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for
election by the Company's shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated
under the 1934 Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
iii. approval by shareholders of the Company of:
9
<PAGE> 10
(A) a merger, consolidation or reorganization involving the
Company, unless
(1) the shareholders of the Company immediately
before such merger, consolidation or
reorganization, own or will own, directly or
indirectly, immediately following such merger,
consolidation or reorganization, at least fifty-one
percent (51%) of the combined voting power of the
outstanding Voting Securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership
of the Voting Securities immediately before such
merger, consolidation or reorganization;
(2) the individuals who were members of the
Incumbent Board immediately prior to the
execution of the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the Board of Directors
of the Surviving Corporation; and
(3) no Person (other than the Company, any
Subsidiary, any employee benefit plan maintained by
the Company, the Surviving Corporation or any
Subsidiary (or any trust forming a part
thereof), or any Person who, immediately prior to
such merger, consolidation or reorganization had
Beneficial Ownership of fifteen percent (15%) or more
of the combined voting power of the Company's then
outstanding Voting Securities) has direct or indirect
Beneficial Ownership of fifteen percent (15%) or more
of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities.
(B) a complete liquidation or dissolution of the Company; or
(C) an agreement for the sale or other disposition of all
or substantially all of the assets of the Company to
any Person (other than a transfer to a Subsidiary).
(c) Date of Termination. "Date of Termination" shall mean in the case of
an Executive's death, the date of death, in the case of Good Reason, the last
day of Executive's employment, and in all other cases, the date specified in
the Notice of Termination.
(d) Disability. "Disability" shall occur if as a result of an Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from the full-time performance
10
<PAGE> 11
of his or her duties with the Company for three (3) consecutive months.
(e) Good Reason. "Good Reason" shall mean any one or more of the following
(without the Executive's express written consent):
i. a relocation of the Executive's principal place of
employment outside the Chicago metropolitan area, other than for
reasonably required travel on the business of the Company or a
Subsidiary of the Company;
ii. a material reduction in the Executive's base or
aggregate compensation, other than a general reduction
applicable to all or substantially all of the executive
employees of the Company or its Subsidiaries;
iii. a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which
represents an adverse change from the Executive's prior status,
title, position or responsibilities; or
iv. the purported termination of the Executive for Cause
which does not comply with the terms of Section 1(a) hereof.
(f) Notice of Termination. Any termination by the Company shall be
communicated by a Notice of Termination. A "Notice of Termination" shall mean
a written notice which, if termination is for Cause or Disability, shall
indicate those specific termination provisions in this Agreement relied upon
and set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. No purported termination by the Company following a
Change in Control shall be effective without such Notice of Termination.
(g) Retirement. For purposes of this Agreement, "Retirement" shall mean
termination of the Executive's employment after the Executive has attained age
65.
(h) Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean
any corporation, partnership, limited liability company, joint venture or other
entity in which another corporation, partnership, limited liability company,
joint venture or other entity (i) owns, or at any relevant time owned, directly
or indirectly, 50% or more of the outstanding voting securities or equity
interests or (ii) is a general partner.
2. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If, upon the first Change in Control of the Company following the
execution of this Agreement, (i) during the twelve month period thereafter, the
Company shall terminate the Executive's employment other than for Cause,
Disability, Retirement or on account of the Executive's death; or (ii) during
the first six month period thereafter, the Executive shall
11
<PAGE> 12
terminate employment for Good Reason; or (iii) during the second six month
period thereafter, the Executive shall terminate employment for any reason,
then:
(x) the Company shall pay to the Executive severance compensation
equal to the Executive's annual base salary in effect immediately prior to
the Change in Control, which compensation shall be payable in one lump sum
amount, subject to tax withholding, on or before the fifteenth day
following the Date of Termination; provided, however, that the
Company shall have no obligation to make any payments under this Agreement
to the Executive unless and until it shall receive from such Executive a
full and complete release of any and all liabilities, except for those
provided under this Agreement, in a form acceptable to the Company; and
(y) all stock options held by the Executive, without any further
action, shall be automatically exercisable in full, notwithstanding any
provisions to the contrary in Section 1 of the Elek-Tek, Inc. 1993
Incentive Stock Option Plan Incentive Stock Option Agreement dated April
22, 1996 between the Company and the Executive, which are hereby amended
to permit such exercise.
(b) An Executive's entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee benefit plans and other
applicable programs, policies and practices then in effect. The provisions of
this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish an Executive's existing
rights, or rights which accrue solely as a result of the passage of time, under
any benefit plan, stock option plan, employment agreement or other contract,
plan or arrangement.
(c) Notwithstanding anything contained in this Agreement to the contrary,
if an Executive's employment is terminated prior to a Change in Control and the
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who had indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control or (ii) otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the Executive shall
mean the date immediately prior to the date of such termination of the
Executive's employment.
(d) Nothing in this Agreement limits or restricts in any way the right of
the Company to terminate an Executive's employment with the Company with or
without cause.
3. NO OBLIGATION TO MITIGATE DAMAGES. The Executive shall not be required
to mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment provided for under this Agreement be reduced by any compensation earned
by the Executive as the result of employment by another employer after the Date
of Termination, or otherwise.
12
<PAGE> 13
4. SUCCESSOR TO THE COMPANY.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, absolutely and
unconditionally to 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. Any failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession or assignment shall be a material breach of this Agreement and shall
entitle the Executive to terminate the Executive's employment for Good Reason.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined which executes and delivers the agreement or assumption provided for in
this Section 4 or which otherwise becomes bound by all terms and provisions of
this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts are still payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
5. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Secretary
Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, Illinois 60077
If to the Executive:
Karim M. Hadchiti
143 Rivershire Lane
Lincolnshire, Illinois 60069
or such other 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.
13
<PAGE> 14
6. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur if the Executive prevails in collecting
any amount under this Agreement which has been contested by the Company. The
parties may agree in advance as to amounts which are not contested, and any
amount which the Company shall offer to pay to the Executive in settlement of
any claim shall be deemed to be a non-contested amount.
7. CONFIDENTIALITY. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company and its
business so long as such information is not publicly disclosed.
8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
9. VALIDITY. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ELEK-TEK, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Karim M. Hadchiti
14
<PAGE> 15
SEVERANCE COMPENSATION AGREEMENT
This Agreement (the "Agreement") is made as of this 2nd day of April,
1997, by and between Elek-Tek, Inc., a Delaware corporation (the "Company"),
and Scott F. Koerner (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to continue to employ Executive and Executive
is willing to continue such employment, in part upon the terms and conditions
hereinafter set forth;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is appropriate to reinforce and encourage the continued attention and
dedication of members of the Company's management, including Executive, to
their assigned duties without distraction in potentially disturbing
circumstances arising from the possibility of a change in control of the
Company; and
WHEREAS, the parties desire to set forth the severance compensation which
the Company agrees it will pay to the Executive if the Executive's employment
with the Company terminates under one of the circumstances described herein
following a Change in Control of the Company (as defined herein).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
(a) Cause. "Cause" shall mean any one or more of the following:
i. engaging in a dishonest act, willful breach of
fiduciary duty, misappropriation or fraud against the Company or
any Subsidiary of the Company, or making any willful
misrepresentation to any holder of securities of the Company or
any member of the Board;
ii. any indictment or similar charge against an Executive
by a governmental office alleging the commission of a felony, or
a guilty plea or no-contest plea to a felony;
iii. repeated material failure by an Executive to follow
the Company's general policies, directives or orders applicable
to employees holding comparable positions; or
15
<PAGE> 16
iv. intentional destruction or theft of the Company's
property or falsification of the Company's documents.
Notwithstanding the foregoing, an Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution adopted by the affirmative vote of not
less than a majority of the members of the Company's Board who are not
employees of the Company (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board), finding that in their opinion the Company had Cause to
terminate the Executive.
(b) Change in Control. A "Change in Control" shall be deemed to have
occurred on the first to occur (the "Effective Date") of any of the following:
i. an "acquisition" (other than directly from the
Company) of any voting securities of the Company (the "Voting
Securities") (a) by any "Person" or "Group" (as such terms are
used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")), that has
direct or indirect "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding Voting Securities immediately prior to such
acquisition, or (b) by any Person or Group that, immediately
after such acquisition, has direct or indirect Beneficial
Ownership of thirty percent (30%) or more of the combined voting
power of the Company's then outstanding Voting Securities;
ii. the individuals who, immediately prior to the
Effective Date, are members of the Board (the "Incumbent
Board"), cease for any reason to constitute at least two-thirds
of the Board; provided, however, that if the election, or
nomination for election by the Company's shareholders, of any
new director was approved by a vote of at least two-thirds of
the Incumbent Board, such new director shall, for purposes of
this Agreement, be considered as a member of the Incumbent
Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of
any agreement intended to avoid or settle any Election Contest
or Proxy Contest; or
iii. approval by shareholders of the Company of:
16
<PAGE> 17
(A) a merger, consolidation or reorganization involving the
Company, unless
(1) the shareholders of the Company immediately
before such merger, consolidation or reorganization,
own or will own, directly or indirectly, immediately
following such merger, consolidation or
reorganization, at least fifty-one percent (51%) of
the combined voting power of the outstanding Voting
Securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization;
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution
of the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the Board of Directors
of the Surviving Corporation; and
(3) no Person (other than the Company, any
Subsidiary, any employee benefit plan maintained by
the Company, the Surviving Corporation or any
Subsidiary (or any trust forming a part thereof), or
any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifteen percent (15%) or more of the
combined voting power of the Company's then
outstanding Voting Securities) has direct or indirect
Beneficial Ownership of fifteen percent (15%) or more
of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities.
(B) a complete liquidation or dissolution of the Company; or
(C) an agreement for the sale or other disposition of all
or substantially all of the assets of the Company to
any Person (other than a transfer to a Subsidiary).
(c) Date of Termination. "Date of Termination" shall mean in the case of
an Executive's death, the date of death, in the case of Good Reason, the last
day of Executive's employment, and in all other cases, the date specified in
the Notice of Termination.
(d) Disability. "Disability" shall occur if as a result of an Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from the full-time performance
17
<PAGE> 18
of his or her duties with the Company for three (3) consecutive months.
(e) Good Reason. "Good Reason" shall mean any one or more of the following
(without the Executive's express written consent):
i. a relocation of the Executive's principal place of
employment outside the Chicago metropolitan area, other than for
reasonably required travel on the business of the Company or a
Subsidiary of the Company;
ii. a material reduction in the Executive's base or
aggregate compensation, other than a general reduction
applicable to all or substantially all of the executive
employees of the Company or its Subsidiaries;
iii. a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which
represents an adverse change from the Executive's prior status,
title, position or responsibilities; or
iv. the purported termination of the Executive for Cause
which does not comply with the terms of Section 1(a) hereof.
(f) Notice of Termination. Any termination by the Company shall be
communicated by a Notice of Termination. A "Notice of Termination" shall mean
a written notice which, if termination is for Cause or Disability, shall
indicate those specific termination provisions in this Agreement relied upon
and set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. No purported termination by the Company following a
Change in Control shall be effective without such Notice of Termination.
(g) Retirement. For purposes of this Agreement, "Retirement" shall mean
termination of the Executive's employment after the Executive has attained age
65.
(h) Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean
any corporation, partnership, limited liability company, joint venture or other
entity in which another corporation, partnership, limited liability company,
joint venture or other entity (i) owns, or at any relevant time owned, directly
or indirectly, 50% or more of the outstanding voting securities or equity
interests or (ii) is a general partner.
2. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If, upon the first Change in Control of the Company following the
execution of this Agreement, (i) during the twelve month period thereafter, the
Company shall terminate the Executive's employment other than for Cause,
Disability, Retirement or on account of the Executive's death; or (ii) during
the first six month period thereafter, the Executive shall
18
<PAGE> 19
terminate employment for Good Reason; or (iii) during the second six month
period thereafter, the Executive shall terminate employment for any reason,
then:
(x) the Company shall pay to the Executive severance compensation
equal to the Executive's annual base salary in effect immediately prior to
the Change in Control, which compensation shall be payable in one lump sum
amount, subject to tax withholding, on or before the fifteenth day
following the Date of Termination; provided, however, that the Company
shall have no obligation to make any payments under this Agreement to the
Executive unless and until it shall receive from such Executive a full and
complete release of any and all liabilities, except for those provided
under this Agreement, in a form acceptable to the Company; and
(y) all stock options held by the Executive, without any further
action, shall be automatically exercisable in full, notwithstanding any
provisions to the contrary in Section 1 of the Elek-Tek, Inc. 1993
Incentive Stock Option Plan Incentive Stock Option Agreement dated April
22, 1996 between the Company and the Executive, which are hereby amended
to permit such exercise.
(b) An Executive's entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee benefit plans and other
applicable programs, policies and practices then in effect. The provisions of
this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish an Executive's existing
rights, or rights which accrue solely as a result of the passage of time, under
any benefit plan, stock option plan, employment agreement or other contract,
plan or arrangement.
(c) Notwithstanding anything contained in this Agreement to the contrary,
if an Executive's employment is terminated prior to a Change in Control and the
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who had indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control or (ii) otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the Executive shall
mean the date immediately prior to the date of such termination of the
Executive's employment.
(d) Nothing in this Agreement limits or restricts in any way the right of
the Company to terminate an Executive's employment with the Company with or
without cause.
3. NO OBLIGATION TO MITIGATE DAMAGES. The Executive shall not be required
to mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment provided for under this Agreement be reduced by any compensation earned
by the Executive as the result of employment by another employer after the Date
of Termination, or otherwise.
19
<PAGE> 20
4. SUCCESSOR TO THE COMPANY.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, absolutely and
unconditionally to 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. Any failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession or assignment shall be a material breach of this Agreement and shall
entitle the Executive to terminate the Executive's employment for Good Reason.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined which executes and delivers the agreement or assumption provided for in
this Section 4 or which otherwise becomes bound by all terms and provisions of
this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts are still payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
5. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Secretary
Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, Illinois 60077
If to the Executive:
Scott F. Koerner
3 Old Valley Road
Rolling Meadows, Illinois 60003
or such other 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.
20
<PAGE> 21
6. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur if the Executive prevails in collecting
any amount under this Agreement which has been contested by the Company. The
parties may agree in advance as to amounts which are not contested, and any
amount which the Company shall offer to pay to the Executive in settlement of
any claim shall be deemed to be a non-contested amount.
7. CONFIDENTIALITY. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company and its
business so long as such information is not publicly disclosed.
8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
9. VALIDITY. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ELEK-TEK, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
---------------------------------------
Scott F. Koerner
21
<PAGE> 22
SEVERANCE COMPENSATION AGREEMENT
This Agreement (the "Agreement") is made as of this 2nd day of April,
1997, by and between Elek-Tek, Inc., a Delaware corporation (the "Company"),
and Jane R. McCarthy (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to continue to employ Executive and Executive
is willing to continue such employment, in part upon the terms and conditions
hereinafter set forth;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is appropriate to reinforce and encourage the continued attention and
dedication of members of the Company's management, including Executive, to
their assigned duties without distraction in potentially disturbing
circumstances arising from the possibility of a change in control of the
Company; and
WHEREAS, the parties desire to set forth the severance compensation which
the Company agrees it will pay to the Executive if the Executive's employment
with the Company terminates under one of the circumstances described herein
following a Change in Control of the Company (as defined herein).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
(a) Cause. "Cause" shall mean any one or more of the following:
i. engaging in a dishonest act, willful breach of fiduciary
duty, misappropriation or fraud against the Company or any
Subsidiary of the Company, or making any willful
misrepresentation to any holder of securities of the Company or
any member of the Board;
ii. any indictment or similar charge against an Executive by a
governmental office alleging the commission of a felony, or a
guilty plea or no-contest plea to a felony;
iii. repeated material failure by an Executive to follow the
Company's general policies, directives or orders applicable to
employees holding comparable positions; or
22
<PAGE> 23
iv. intentional destruction or theft of the Company's
property or falsification of the Company's documents.
Notwithstanding the foregoing, an Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution adopted by the affirmative vote of not
less than a majority of the members of the Company's Board who are not
employees of the Company (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board), finding that in their opinion the Company had Cause to
terminate the Executive.
(b) Change in Control. A "Change in Control" shall be deemed to have
occurred on the first to occur (the "Effective Date") of any of the following:
i. an "acquisition" (other than directly from the Company) of
any voting securities of the Company (the "Voting
Securities") (a) by any "Person" or "Group" (as such terms are
used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")), that has
direct or indirect "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding Voting Securities immediately prior to such
acquisition, or (b) by any Person or Group that, immediately
after such acquisition, has direct or indirect Beneficial
Ownership of thirty percent (30%) or more of the combined voting
power of the Company's then outstanding Voting Securities;
ii. the individuals who, immediately prior to the Effective
Date, are members of the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for
election by the Company's shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated
under the 1934 Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
iii. approval by shareholders of the Company of:
23
<PAGE> 24
(A) a merger, consolidation or reorganization involving the
Company, unless
(1) the shareholders of the Company immediately
before such merger, consolidation or reorganization,
own or will own, directly or indirectly, immediately
following such merger, consolidation or
reorganization, at least fifty-one percent (51%) of
the combined voting power of the outstanding Voting
Securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization;
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the Board of Directors
of the Surviving Corporation; and
(3) no Person (other than the Company, any
Subsidiary, any employee benefit plan maintained by
the Company, the Surviving Corporation or any
Subsidiary (or any trust forming a part thereof), or
any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifteen percent (15%) or more of the
combined voting power of the Company's then
outstanding Voting Securities) has direct or indirect
Beneficial Ownership of fifteen percent (15%) or more
of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities.
(B) a complete liquidation or dissolution of the Company; or
(C) an agreement for the sale or other disposition of
all or substantially all of the assets of the Company to
any Person (other than a transfer to a Subsidiary).
(c) Date of Termination. "Date of Termination" shall mean in the case of
an Executive's death, the date of death, in the case of Good Reason, the last
day of Executive's employment, and in all other cases, the date specified in
the Notice of Termination.
(d) Disability. "Disability" shall occur if as a result of an Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from the full-time performance
24
<PAGE> 25
of his or her duties with the Company for three (3) consecutive months.
(e) Good Reason. "Good Reason" shall mean any one or more of the following
(without the Executive's express written consent):
i. a relocation of the Executive's principal place of
employment outside the Chicago metropolitan area, other than for
reasonably required travel on the business of the Company or a
Subsidiary of the Company;
ii. a material reduction in the Executive's base or
aggregate compensation, other than a general reduction
applicable to all or substantially all of the executive
employees of the Company or its Subsidiaries;
iii. a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which
represents an adverse change from the Executive's prior status,
title, position or responsibilities; or
iv. the purported termination of the Executive for Cause
which does not comply with the terms of Section 1(a) hereof.
(f) Notice of Termination. Any termination by the Company shall be
communicated by a Notice of Termination. A "Notice of Termination" shall mean
a written notice which, if termination is for Cause or Disability, shall
indicate those specific termination provisions in this Agreement relied upon
and set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. No purported termination by the Company following a
Change in Control shall be effective without such Notice of Termination.
(g) Retirement. For purposes of this Agreement, "Retirement" shall mean
termination of the Executive's employment after the Executive has attained age
65.
(h) Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean
any corporation, partnership, limited liability company, joint venture or other
entity in which another corporation, partnership, limited liability company,
joint venture or other entity (i) owns, or at any relevant time owned, directly
or indirectly, 50% or more of the outstanding voting securities or equity
interests or (ii) is a general partner.
2. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If, upon the first Change in Control of the Company following the
execution of this Agreement, (i) during the twelve month period thereafter, the
Company shall terminate the Executive's employment other than for Cause,
Disability, Retirement or on account of the Executive's death; or (ii) during
the first six month period thereafter, the Executive shall
25
<PAGE> 26
terminate employment for Good Reason; or (iii) during the second six month
period thereafter, the Executive shall terminate employment for any reason,
then:
(x) the Company shall pay to the Executive severance compensation
equal to the Executive's annual base salary in effect immediately prior to
the Change in Control, which compensation shall be payable in one lump sum
amount, subject to tax withholding, on or before the fifteenth day
following the Date of Termination; provided, however, that the Company
shall have no obligation to make any payments under this Agreement to the
Executive unless and until it shall receive from such Executive a full and
complete release of any and all liabilities, except for those provided
under this Agreement, in a form acceptable to the Company; and
(y) all stock options held by the Executive, without any further
action, shall be automatically exercisable in full, notwithstanding any
provisions to the contrary in Section 1 of the Elek-Tek, Inc. 1993
Incentive Stock Option Plan Incentive Stock Option Agreement dated April
22, 1996 between the Company and the Executive, which are hereby amended
to permit such exercise.
(b) An Executive's entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee benefit plans and other
applicable programs, policies and practices then in effect. The provisions of
this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish an Executive's existing
rights, or rights which accrue solely as a result of the passage of time, under
any benefit plan, stock option plan, employment agreement or other contract,
plan or arrangement.
(c) Notwithstanding anything contained in this Agreement to the contrary,
if an Executive's employment is terminated prior to a Change in Control and the
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who had indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control or (ii) otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the Executive shall
mean the date immediately prior to the date of such termination of the
Executive's employment.
(d) Nothing in this Agreement limits or restricts in any way the right of
the Company to terminate an Executive's employment with the Company with or
without cause.
3. NO OBLIGATION TO MITIGATE DAMAGES. The Executive shall not be required
to mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment provided for under this Agreement be reduced by any compensation earned
by the Executive as the result of employment by another employer after the Date
of Termination, or otherwise.
26
<PAGE> 27
4. SUCCESSOR TO THE COMPANY.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, absolutely and
unconditionally to 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. Any failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession or assignment shall be a material breach of this Agreement and shall
entitle the Executive to terminate the Executive's employment for Good Reason.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined which executes and delivers the agreement or assumption provided for in
this Section 4 or which otherwise becomes bound by all terms and provisions of
this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts are still payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
5. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Secretary
Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, Illinois 60077
If to the Executive:
Jane R. McCarthy
698 Smoke Tree Road
Deerfield, Illinois 60016
or such other 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.
27
<PAGE> 28
6. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur if the Executive prevails in collecting
any amount under this Agreement which has been contested by the Company. The
parties may agree in advance as to amounts which are not contested, and any
amount which the Company shall offer to pay to the Executive in settlement of
any claim shall be deemed to be a non-contested amount.
7. CONFIDENTIALITY. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company and its
business so long as such information is not publicly disclosed.
8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
9. VALIDITY. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ELEK-TEK, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Jane R. McCarthy
28
<PAGE> 29
SEVERANCE COMPENSATION AGREEMENT
This Agreement (the "Agreement") is made as of this 2nd day of April,
1997, by and between Elek-Tek, Inc., a Delaware corporation (the "Company"),
and David M. Zasada (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to continue to employ Executive and Executive
is willing to continue such employment, in part upon the terms and conditions
hereinafter set forth;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is appropriate to reinforce and encourage the continued attention and
dedication of members of the Company's management, including Executive, to
their assigned duties without distraction in potentially disturbing
circumstances arising from the possibility of a change in control of the
Company; and
WHEREAS, the parties desire to set forth the severance compensation which
the Company agrees it will pay to the Executive if the Executive's employment
with the Company terminates under one of the circumstances described herein
following a Change in Control of the Company (as defined herein).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
(a) Cause. "Cause" shall mean any one or more of the following:
i. engaging in a dishonest act, willful breach of
fiduciary duty, misappropriation or fraud against the Company or
any Subsidiary of the Company, or making any willful
misrepresentation to any holder of securities of the Company or
any member of the Board;
ii. any indictment or similar charge against an Executive
by a governmental office alleging the commission of a felony, or
a guilty plea or no-contest plea to a felony;
iii. repeated material failure by an Executive to follow
the Company's general policies, directives or orders applicable
to employees holding comparable positions; or
29
<PAGE> 30
iv. intentional destruction or theft of the Company's
property or falsification of the Company's documents.
Notwithstanding the foregoing, an Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution adopted by the affirmative vote of not
less than a majority of the members of the Company's Board who are not
employees of the Company (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board), finding that in their opinion the Company had Cause to
terminate the Executive.
(b) Change in Control. A "Change in Control" shall be deemed to have
occurred on the first to occur (the "Effective Date") of any of the following:
i. an "acquisition" (other than directly from the Company) of
any voting securities of the Company (the "Voting
Securities") (a) by any "Person" or "Group" (as such terms
are used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act")),
that has direct or indirect "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding Voting Securities immediately prior
to such acquisition, or (b) by any Person or Group that,
immediately after such acquisition, has direct or indirect
Beneficial Ownership of thirty percent (30%) or more of the
combined voting power of the Company's then outstanding Voting
Securities;
ii. the individuals who, immediately prior to the Effective
Date, are members of the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for
election by the Company's shareholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement,
be considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated
under the 1934 Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
iii. approval by shareholders of the Company of:
30
<PAGE> 31
(A) a merger, consolidation or reorganization involving the
Company, unless
(1) the shareholders of the Company immediately
before such merger, consolidation or reorganization,
own or will own, directly or indirectly, immediately
following such merger, consolidation or
reorganization, at least fifty-one percent (51%) of
the combined voting power of the outstanding Voting
Securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization;
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution
of the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the Board of Directors
of the Surviving Corporation; and
(3) no Person (other than the Company, any
Subsidiary, any employee benefit plan maintained by
the Company, the Surviving Corporation or any
Subsidiary (or any trust forming a part thereof), or
any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifteen percent (15%) or more of the
combined voting power of the Company's then
outstanding Voting Securities) has direct or indirect
Beneficial Ownership of fifteen percent (15%) or more
of the combined voting power of the Surviving
Corporation's then outstanding Voting Securities.
(B) a complete liquidation or dissolution of the Company; or
(C) an agreement for the sale or other disposition of
all or substantially all of the assets of the Company to
any Person (other than a transfer to a Subsidiary).
(c) Date of Termination. "Date of Termination" shall mean in the case of
an Executive's death, the date of death, in the case of Good Reason, the last
day of Executive's employment, and in all other cases, the date specified in
the Notice of Termination.
(d) Disability. "Disability" shall occur if as a result of an Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from the full-time performance
31
<PAGE> 32
of his or her duties with the Company for three (3) consecutive months.
(e) Good Reason. "Good Reason" shall mean any one or more of the following
(without the Executive's express written consent):
i. a relocation of the Executive's principal place of
employment outside the Chicago metropolitan area, other than for
reasonably required travel on the business of the Company or a
Subsidiary of the Company;
ii. a material reduction in the Executive's base or
aggregate compensation, other than a general reduction
applicable to all or substantially all of the executive
employees of the Company or its Subsidiaries;
iii. a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which
represents an adverse change from the Executive's prior status,
title, position or responsibilities; or
iv. the purported termination of the Executive for Cause
which does not comply with the terms of Section 1(a) hereof.
(f) Notice of Termination. Any termination by the Company shall be
communicated by a Notice of Termination. A "Notice of Termination" shall mean
a written notice which, if termination is for Cause or Disability, shall
indicate those specific termination provisions in this Agreement relied upon
and set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. No purported termination by the Company following a
Change in Control shall be effective without such Notice of Termination.
(g) Retirement. For purposes of this Agreement, "Retirement" shall mean
termination of the Executive's employment after the Executive has attained age
65.
(h) Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean
any corporation, partnership, limited liability company, joint venture or other
entity in which another corporation, partnership, limited liability company,
joint venture or other entity (i) owns, or at any relevant time owned, directly
or indirectly, 50% or more of the outstanding voting securities or equity
interests or (ii) is a general partner.
2. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If, upon the first Change in Control of the Company following the
execution of this Agreement, (i) during the twelve month period thereafter, the
Company shall terminate the Executive's employment other than for Cause,
Disability, Retirement or on account of the Executive's death; or (ii) during
the first six month period thereafter, the Executive shall
32
<PAGE> 33
terminate employment for Good Reason; or (iii) during the second six month
period thereafter, the Executive shall terminate employment for any reason,
then:
(x) the Company shall pay to the Executive severance compensation
equal to the Executive's annual base salary in effect immediately prior to
the Change in Control, which compensation shall be payable in one lump sum
amount, subject to tax withholding, on or before the fifteenth day
following the Date of Termination; provided, however, that the Company
shall have no obligation to make any payments under this Agreement to the
Executive unless and until it shall receive from such Executive a full and
complete release of any and all liabilities, except for those provided
under this Agreement, in a form acceptable to the Company; and
(y) all stock options held by the Executive, without any further
action, shall be automatically exercisable in full, notwithstanding any
provisions to the contrary in Section 1 of the Elek-Tek, Inc. 1993
Incentive Stock Option Plan Incentive Stock Option Agreement dated April
22, 1996 between the Company and the Executive, which are hereby amended
to permit such exercise.
(b) An Executive's entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee benefit plans and other
applicable programs, policies and practices then in effect. The provisions of
this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish an Executive's existing
rights, or rights which accrue solely as a result of the passage of time, under
any benefit plan, stock option plan, employment agreement or other contract,
plan or arrangement.
(c) Notwithstanding anything contained in this Agreement to the contrary,
if an Executive's employment is terminated prior to a Change in Control and the
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who had indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control or (ii) otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of this
Agreement, the date of a Change in Control with respect to the Executive shall
mean the date immediately prior to the date of such termination of the
Executive's employment.
(d) Nothing in this Agreement limits or restricts in any way the right of
the Company to terminate an Executive's employment with the Company with or
without cause.
3. NO OBLIGATION TO MITIGATE DAMAGES. The Executive shall not be required
to mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment provided for under this Agreement be reduced by any compensation earned
by the Executive as the result of employment by another employer after the Date
of Termination, or otherwise.
33
<PAGE> 34
4. SUCCESSOR TO THE COMPANY.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, absolutely and
unconditionally to 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. Any failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession or assignment shall be a material breach of this Agreement and shall
entitle the Executive to terminate the Executive's employment for Good Reason.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined which executes and delivers the agreement or assumption provided for in
this Section 4 or which otherwise becomes bound by all terms and provisions of
this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts are still payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee
or, if there be no such designee, to the Executive's estate.
5. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Secretary
Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, Illinois 60077
If to the Executive:
David M. Zasada
665 Spruce Tree Drive
Cary, Illinois 60013
or such other 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.
34
<PAGE> 35
6. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees and
expenses which the Executive may incur if the Executive prevails in collecting
any amount under this Agreement which has been contested by the Company. The
parties may agree in advance as to amounts which are not contested, and any
amount which the Company shall offer to pay to the Executive in settlement of
any claim shall be deemed to be a non-contested amount.
7. CONFIDENTIALITY. The Executive shall retain in confidence any and all
confidential information known to the Executive concerning the Company and its
business so long as such information is not publicly disclosed.
8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
9. VALIDITY. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ELEK-TEK, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
---------------------------------------
David M. Zasada
35
<PAGE> 1
ELEK-TEK, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
Net loss $ (997) $ (560)
Weighted average common shares outstanding 6,312,361 6,300,000
Primary earnings per common share (0.16) (0.09)
============= =============
- ------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net Loss $ (997) $ (560)
Weighted average common shares outstanding 6,312,361 6,300,000
Stock options assumed to be exercised - -
Weighted average common shares outstanding, ------------- -------------
as adjusted 6,312,361 6,300,000
============= =============
Fully diluted earnings per common share (0.16) (0.09)
============= =============
- ------------------------------------------------------------------------------------------
</TABLE>
Fully diluted earnings per common share was calculated using the treasury stock
method of accounting for stock options.
In 1996, stock options were anti-dilutive. In 1997, there were 584,000 stock
options outstanding which have not been included in the earnings per share
calculation because most of which were anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000908613
<NAME> ELEK-TEK,INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 879
<SECURITIES> 0
<RECEIVABLES> 20,380
<ALLOWANCES> 469
<INVENTORY> 31,233
<CURRENT-ASSETS> 62,678
<PP&E> 29,116
<DEPRECIATION> 13,357
<TOTAL-ASSETS> 78,651
<CURRENT-LIABILITIES> 66,384
<BONDS> 2,000
0
0
<COMMON> 63
<OTHER-SE> 10,204
<TOTAL-LIABILITY-AND-EQUITY> 78,651
<SALES> 66,138
<TOTAL-REVENUES> 68,373
<CGS> 59,066
<TOTAL-COSTS> 59,741
<OTHER-EXPENSES> 9,067
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 667
<INCOME-PRETAX> (997)
<INCOME-TAX> 0
<INCOME-CONTINUING> (997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (997)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
