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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-22064
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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 August 19, 1997 6,312,500
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ELEK-TEK, INC.
INDEX
<TABLE>
<S> <C> <C>
Part I. Financial Information
- ------- ----------------------
Item I. Financial Statements
Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996 3
Statements of Operations
(Unaudited) - for the three months ended
June 30, 1997 and 1996 and the six months
ended June 30, 1997 and 1996 4
Statements of Cash Flows 5
(Unaudited) - for the six months ended
June 30, 1997 and 1996
Notes to Condensed Financial Statements (Unaudited) 6
Item II. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II. Other Information
- -------- -----------------
Item 3 Default Upon Senior Securities 12
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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ELEK-TEK, INC
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------- ------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,499 $ 1,619
Accounts receivable, trade 22,476 23,700
Accounts receivable, vendor 3,930 7,628
Inventories 23,783 28,043
Other 1,775 4,338
--------------- ------------------
Total current assets 53,463 65,328
Property, plant and equipment, net 15,466 15,587
Other assets 220 126
--------------- ------------------
Total assets $ 69,149 $ 81,041
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,397 $ 40,101
Accrued expenses 3,719 4,340
Customer deposits 142 526
Short-Term debt 16,917 20,524
Subordinated notes payable to stockholders, current 2,572 2,000
--------------- ------------------
Total current liabilities 59,747 67,491
--------------- ------------------
Long-term debt:
Subordinated notes payable to stockholders, net of current maturities 1,714 2,286
--------------- ------------------
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 (6,731) (3,155)
--------------- ------------------
Total stockholders' equity 7,688 11,264
--------------- ------------------
Total liabilities and stockholders' equity $ 69,149 $ 81,041
=============== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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ELEK-TEK, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 64,501 $ 77,301 $ 132,874 $ 165,915
Cost of sales 57,459 74,704 117,200 152,138
---------- ---------- ---------- ----------
Gross profit 7,042 2,597 15,674 13,777
Selling, general, and
administrative expenses 8,999 12,457 18,066 24,055
---------- ---------- ---------- ----------
Loss from operations (1,957) (9,860) (2,392) (10,278)
Other (income) expense:
Other income, net (50) (72) (155) (148)
Interest expense 672 575 1,339 1,148
---------- ---------- ---------- ----------
622 503 1,184 1,000
---------- ---------- ---------- ----------
Loss before income tax benefit (2,579) (10,363) (3,576) (11,278)
Income tax benefit - (4,023) - (4,378)
---------- ---------- ---------- ----------
Net loss $ (2,579) $ (6,340) $ (3,576) $ (6,900)
========== ========== ========== ==========
Net loss per share ($0.41) ($1.01) ($0.57) ($1.10)
========== ========== ========== ==========
Weighted average number of
common shares outstanding 6,312,500 6,300,000 6,312,431 6,300,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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\
ELEK-TEK, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($3,576) ($6,900)
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 1,168 1,119
Deferred taxes - (4,378)
Changes in assets and liabilities:
Accounts receivable, trade 1,224 641
Accounts receivable, vendor 3,698 (1,370)
Inventories 4,260 10,126
Other assets 2,469 2,540
Accounts payable (3,704) (5,101)
Accrued expenses and customer deposits (1,005) (94)
---------- ---------
Net cash provided by (used in) operating activities 4,534 (3,417)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,047) (770)
---------- ---------
Net cash used in investing activities (1,047) (770)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving bank line of credit 141,317 40,100
Payments on revolving bank line of credit (144,924) (41,400)
Payments on subordinated notes payable to stockholders - (142)
---------- ---------
Net cash used in financing activities (3,607) (1,442)
---------- ---------
Net decrease in cash and cash equivalents (120) (5,629)
Cash and cash equivalents, beginning of period 1,619 8,064
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,499 $ 2,435
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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ELEK-TEK, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The 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 year ended December 31, 1996.
2. SHORT-TERM DEBT
On June 4, 1997, the Company modified the terms and conditions of its credit
and floor plan agreements which included an amended termination date of January
2, 1998, an increase in the interest rate to prime plus two and a half percent,
and prohibited the Company from making principal or interest payments on
subordinated notes. The principal amount of the agreement was also reduced
from $50.0 million to $39.0 million; $16.9 million and $11.3 million was
outstanding under the credit and floor plan agreements as of June 30, 1997,
respectively. The financial covenants which include a minimum tangible net
worth amount, a leverage ratio and an interest coverage ratio were modified and
three additional covenants were added. The additional requirements include
maintaining a $1.0 million minimum availability under the credit agreement, a
maximum cash balance of $750,000 in the operating accounts, and a maximum
average days payable outstanding rate of 65 days.
Recognition of the second quarter loss placed the Company in violation of the
financial covenants under the Company's credit and floor plan agreements, as
amended. The Company 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 assurance that
the Company will be able to obtain an amendment to the agreements with the
lenders.
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.
3. PROPERTY, PLANT & EQUIPMENT
Property, Plant and Equipment contains accumulated expenditures of $1.0
million, which includes hardware, software and consulting fees, to establish an
improved information management system. In late April, this project was
postponed due to financial constraints and the potential sale of the Company.
There can be no assurance that the project will resume and reach completion
should financing become available. It is estimated that $.5 million would be
written-off if another software manufacturer were selected. The unaudited
financial statements have been prepared as if the project will reach
completion.
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ELEK-TEK, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. 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
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.
5. 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.
6. NEW ACCOUNTING PRONOUNCEMENT
The Company will adopt the provision 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.
The Company will adopt the provision of Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" in 1998 and will provide the appropriate disclosures if
applicable. FAS 131 is effective for financial statements issued for periods
beginning after December 15, 1997. The Company does not expect the adoption of
FAS 131 to have a significant impact on its financial statements.
7. SUBSEQUENT EVENTS
As of July 30, 1997 the Company was in default of the terms of the financing
program agreement with International Business Machines Credit Corporation.
The vendor withdrew it's line of credit with the Company and has demanded
payment in full of their outstanding balance. International Business Machines
Credit Corporation is currently working with the Company to reestablish a line
of credit with the vendor and to pay down their outstanding balance.
On August 15, 1997 the Company failed to meet the $3.9 million payment due to
their senior lenders under the floor plan agreement. The senior lenders are
currently working with the Company on a plan to pay this obligation.
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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 Six Months Ended
June 30, June 30,
--------------------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.0% 96.6% 88.2% 91.7%
Gross profit 11.0% 3.4% 11.8% 8.3%
Selling, general and
administrative expenses 14.0% 16.1% 13.6% 14.5%
Loss from operations -3.0% -12.7% -1.8% -6.2%
Other income, net 0.0% 0.1% 0.1% 0.1%
Interest expense 1.0% 0.8% 1.0% 0.7%
Loss before income tax benefit -4.0% -13.4% -2.7% -6.8%
Income tax benefit 0.0% -5.2% 0.0% -2.6%
Net loss -4.0% -8.2% -2.7% -4.2%
</TABLE>
Three Months Ended June 30, 1997
Net sales for the three month period ended June 30, 1997 were $64.5 million, a
decrease of $12.8 million (16.6%) from the $77.3 million for the second quarter
of 1996. Comparable store sales decreased by 17.9% over the same period last
year. Sales decreased both in average price and in volume over the same period
last year. Prices were reduced by approximately 15.6% which reduced sales by
$6.9 million. The categories most affected by the reduction in average unit
prices were personal computers (laptops and desktops), monitors, and memory
products. Sales volume was down approximately 26.7% which reduced sales by
$5.9 million, and can be attributed to the restriction of product availability
in the second quarter of 1997.
Gross margin increased $4.4 million over the same period one year ago. For the
three month period ending June 30, 1997, gross margin was $7.0 million (11.0%
of net sales) compared to $2.6 million (3.4% of net sales) in 1996. During the
second quarter 1996 there were special charge adjustments impacting gross
margin relating to accounts payable, to reflect estimated amounts of contested
balances outstanding and to inventory valuations. In addition, an adjustment
of $1.4 million for inventory shrink was recorded in 1996. The impact of these
adjustments lowered gross margin by $6.4 million (8.3% of net sales) in 1996.
Excluding these adjustments, gross margin as a percentage of sales for the
second quarter of 1996 would have been $9.0 million (11.7%. of net sales).
Gross margin remained relatively constant as a percentage of sales primarily
due to the aggressive cost management efforts undertaken by the Company during
1997 including targeting higher margin sales to offset higher product costs.
The Company's product costs were higher in the second quarter of 1997, due to
an increase in purchases from distribution sources which resulted from
restrictions in availability of newly released products and in vendor credit
lines.
8
<PAGE> 9
Selling, general and administrative expenses decreased by $3.5 million (27.7%)
over the same period last year. The second quarter of 1997 expenses were $9.0
million (14.0% of net sales) compared to $12.5 million (16.1% of net sales) for
the same three month period in 1996. Several factors contributed to the
decrease:
Total compensation and benefits expenses decreased by $2.2 million (30.0%)
of which $1.8 million was primarily due to the company-wide headcount
reduction and the restructuring of the executive and middle management
including roughly $.3 million in one-time recruiting and relocation costs
that occurred in 1996. The average headcount (using the headcount at
month-end for three months) in the second quarter of 1997 was 641 versus
752 in 1996, a reduction of 15%. Commissions expense also decreased by
$.2 million due to lower sales.
Credit and collection expenses decreased by $.8 million largely due to a
reduction in returned customer checks, credit card chargebacks and bad
debt expense. The Company has focused on stronger controls, and
aggressively pursuing the collection of aged accounts to reduce these
expenses. Credit card fees were lower due to decreased sales.
Professional fees decreased by $.4 million for the second quarter of 1997
from the same period one year ago. In 1996, consultants were used to
design and implement an inventory management system that was later
discontinued by the new executive management team.
Interest expense for the three month period ended June 30, 1997 was $.7 million
compared to $.6 million for the same period one year ago. Interest expense
increased slightly due to higher loan rates despite a lower average borrowing
base. Borrowings decreased due to lower inventory levels and improved cash
management practices.
As a result of the above, the net loss for the second quarter of 1997 was $2.6
million, or $ .41 per share, compared to net loss of $6.3 million, or $1.01 per
share, for the second quarter of 1996.
Six Months Ended June 30, 1997
For the six months ending June 30, 1997, net sales decreased $33.0 million or
19.9% from $165.9 million in 1996 to $132.9 million in 1997. Comparable store
sales decreased by 21.8% over the same period last year. Sales decreased for
the six month period both in volume and in average price over the same period
last year. Sales volume was down approximately 27.0% which reduced sales by
$14.2 million. The Company attributes this decrease to a slow-down of customer
purchases due to the anticipation of new technology introductions, a
restriction in product availability and a transition to a new sales team within
the corporate sales organization. Prices were lower by approximately 11.8% on
products in 1997 which resulted in an $18.8 million decrease in sales. The
categories most affected by the reduction in average unit prices were personal
computers (laptops and desktops), multimedia, and memory products. Whether
significant pricing reductions will continue is uncertain, but management does
not intend to allow its competitors to gain a pricing advantage in the markets
in which it operates.
Gross margin was $15.7 million (11.8% of net sales) in 1997 compared to $13.8
million (8.3% of net sales) for the same period last year, an increase of $1.9
million. During the second quarter of 1996, there were special charge
adjustments impacting gross margin relating to accounts payable, to reflect
estimated amounts of contested balances outstanding and to inventory
valuations. In addition, an adjustment of $2.4 million for inventory shrink
was recorded in 1996 versus $.9 million in 1997. The impact of these
adjustments lowered gross margin by $7.4 million or 4.5% of net sales in 1996.
Excluding these adjustments, gross margin as a percentage of sales would have
been 12.8% in 1996. The decline in gross margin as a percentage of sales from
12.8% to 11.8% is primarily due to higher product costs due to an increase in
purchases from distribution sources which resulted from restrictions in
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availability of newly released products and in vendor credit lines. Total
rebates were also lower than during the same period last year as a result of
decreased purchases from direct sources.
Management believes gross margin can be improved through better inventory
purchasing practices, stronger inventory controls, and increased focus on
vendor rebates. These cost management strategies have been implemented to
combat price reduction pressures by the consumer electronics and office
products retailers and to prepare for a greater concentration of corporate
sales, which has a lower margin.
Selling, general and administrative expenses for the six month period ending
June 30, 1997 decreased $6.0 million or 24.9% from $24.1million (14.5% of net
sales) to $18.1 million (13.6% of net sales) from the same period last year.
The major reasons for the $6.0 million decrease were:
Total compensation and benefits expenses decreased by $3.9 million (26.3%)
of which $3.3 million was primarily due to the company-wide headcount
reduction and the restructuring of the executive and middle management
including roughly $.3 million in one-time recruiting and relocation costs
that occurred in 1996. The average headcount (using the headcount at
month-end for six months) for the first six months of 1997 was 664 versus
805 in 1996, a reduction of 18%. Commissions expense also decreased by
$.3 million due to lower sales.
Credit and collection expenses decreased $.9 million primarily due to
lower returned checks, lower credit card chargebacks and a decrease in bad
debt expense. The Company has implemented stronger controls and is
aggressively pursuing the collection of aged accounts. Another factor for
the decline is lower bank card fees resulting from the decreased sales.
Professional fees decreased $.6 million in the first six months of 1997
versus the same period in 1996. In 1996, consultants were contracted to
design and implement a new supply chain to reduce inventory levels while
improving in-stock positions. This project was discontinued by the new
executive management team in the second quarter of 1996.
Interest expense for the six month period ended June 30, 1997 was $1.3 million
compared to $1.1 million for the same period one year ago, an increase of $.2
million. Although the average borrowing base was lower by $8.8 million from
$30.8 million to $22.0 million during the six months ended June 30, 1996 and
1997, respectively, the increase in interest expense was attributed to higher
borrowing rates. Average borrowings decreased due to lower inventory levels
and improved cash management practices.
At the end of the second quarter of 1996, the Company had a net deferred tax
asset of $5,199. 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 second
quarter of 1997, the Company continued to record a full valuation allowance on
the net deferred tax asset as a result of uncertainty of its ultimate
realization.
Net loss was $3.6 million, or $.57 per share, for the six month period ended
June 30, 1997 compared to the net loss of $6.9 million, or $1.10 per share, for
the same period last year.
Liquidity and Capital Resources
Net cash provided by operating activities for the six month period ended June
30, 1997 was $4.5 million compared to net cash used of $3.4 million for the
same six month period one year ago. Net cash provided by operating activities
was primarily attributed to lower inventory levels, realization of a 1996
federal tax refund, and the
10
<PAGE> 11
Company's aggressive collection of co-op advertising, vendor receivables, and
customer receivables. The combined inventory, federal tax and accounts
receivable reduction provided cash of $11.7 million. This was partially offset
by the net loss of $3.6 million and the reduction in accounts payable of $3.7
million which related to the timing of payments and reduced inventory levels.
Net cash used in investing activities consisted of property and equipment
acquisitions of $1.0 million, which primarily related to the company-wide
management information system, leasehold improvements and equipment purchases.
In late April, the new management information system project was postponed due
to financial constraints and the potential sale of the Company. There can be
no assurance that the project will resume and reach completion should financing
become available. It is estimated that $.5 million would be written-off if
another software manufacturer were selected. The unaudited financial
statements have been prepared as if the project will reach completion.
Net cash used in financing activities totaled $3.6 million and was primarily
due to net payments on the Company's revolving credit facility.
On June 4, 1997, the Company modified the terms and conditions of its credit
and floor plan agreements which included an amended termination date of January
2, 1998, an increase in the interest rate to prime plus two and a half percent,
and prohibited the Company from making principal or interest payments on
subordinated notes. The aggregate principal amount of the agreements was
also reduced from $50.0 million to $39.0 million; $16.9 million and $11.3
million was outstanding under the credit and floor plan agreements as of June
30, 1997, respectively. The financial covenants, which include a minimum
tangible net worth amount, a leverage ratio and an interest coverage ratio,
were modified and three additional covenants were added. The additional
requirements include maintaining a $1.0 million minimum availability under the
credit agreement, a maximum cash balance of $750,000 in the operating
accounts, and a maximum average days payable outstanding rate of 65 days.
Recognition of the second quarter loss placed the Company in violation of the
financial covenants under the Company's credit and floor plan agreements, as
amended. The Company 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 assurance that
the Company will be able to obtain an amendment to the agreements with the
lenders.
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'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.
In the first quarter of 1997, the Company 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 and/or consider other alternatives.
11
<PAGE> 12
During the first and second quarters of 1997, the Company did not make the
principal payments on its subordinated notes, and is now prohibited from making
principal or interest payments under the senior lending agreements, as amended.
As of July 30, 1997 the Company was in default of the terms of the financing
program agreement with International Business Machines Credit Corporation.
The vendor withdrew it's line of credit with the Company and has demanded
payment in full of their outstanding balance. International Business Machines
Credit Corporation is currently working with the Company to reestablish a line
of credit with the vendor and to pay down their outstanding balance.
On August 15, 1997 the Company failed to meet the $3.9 million payment due to
their senior lenders under the floor plan agreement. The senior lenders are
currently working with the Company on a plan to pay this obligation.
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; increased competition in all channels may adversely affect
gross margin; vendors may discontinue rebates and other purchasing discount
programs; without an amendment of the current credit agreement or 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.
PART II. OTHER INFORMATION
Items 3 - Default upon Senior Securities
On June 4, 1997, the Company modified the terms and conditions of its credit
and floor plan agreements which included an amended termination date of January
2, 1998, an increase in the interest rate to prime plus two and a half percent,
and prohibited the Company from making principal or interest payments on
subordinated notes. The aggregate principal amount of the agreements was
also reduced from $50.0 million to $39.0 million; $16.9 million and $11.3
million was outstanding under the credit and floor plan agreements as of June
30, 1997, respectively. The financial covenants, which include a minimum
tangible net worth amount, a leverage ratio and an interest coverage ratio,
were modified and three additional covenants were added. The additional
requirements include maintaining a $1.0 million minimum availability under the
credit agreement, a maximum cash balance of $750,000 in the operating
accounts, and a maximum average days payable outstanding rate of 65 days.
Recognition of the second quarter loss placed the Company in violation of the
financial covenants under the Company's credit and floor plan agreements, as
amended. The Company 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 assurance that
the Company will be able to obtain an amendment to the agreements with the
lenders.
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.
12
<PAGE> 13
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.
In the first quarter of 1997, the Company 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 and second quarters of 1997, the Company did not make the
principal payments on its subordinated notes, and is now prohibited from making
principal or interest payments under the senior lending agreements, as amended.
As of July 30, 1997 the Company was in default of the terms of the financing
program agreement with International Business Machines Credit Corporation.
The vendor withdrew it's line of credit with the Company and has demanded
payment in full of their outstanding balance. International Business Machines
Credit Corporation is currently working with the Company to reestablish a line
of credit with the vendor and to pay down their outstanding balance.
On August 15, 1997 the Company failed to meet the $3.9 million payment due to
their senior lenders under the floor plan agreement. The senior lenders are
currently working with the Company on a plan to pay this obligation.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibit 10.24 - Amendment to the Deutsche Financial Services
Corporation/Nations Credit Commercial Corporation of America-Business
Credit and Security Agreement dated June 4, 1997.
(b) Exhibit 10.25 - Employment Agreement dated June 30, 1997 between
Registrant and Richard Rodriguez.
(c) Exhibit 10.26 - Mortgage Note dated June 30, 1997 between Registrant
and Richard Rodriguez.
(d) Exhibit 11.0 - Computation of Earnings Per Share.
(e) Exhibit 27.0 - Financial Data Schedule.
(f) No reports on Form 8-K were filed during the quarter ended June 30,
1997.
13
<PAGE> 14
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: August 19, 1997 By:
-----------------------------------
Richard L. Rodriguez.
President, Chief Executive Officer,
and Director
Date: August 19, 1997 By:
-----------------------------------
Miguel A. Martinez, Jr.
Vice President, Chief Financial Officer and
Secretary (Principal Financial and Accounting
Officer)
14
<PAGE> 1
EXHIBIT 10.24
AGREEMENT
This Agreement ("Agreement") is entered into on this 4th day of June,
1997, by and among ELEK-TEK, INC., a Delaware corporation, with its principal
place of business at 7350 North Linder Avenue, Skokie, Illinois 60077
("Borrower"), NATIONSCREDIT COMMERCIAL CORPORATION OF AMERICA, a North Carolina
corporation ("Nations"), DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada
corporation, in its individual capacity ("DFS"), and DFS as Agent under the
Credit Facility (as defined below) (in such agent capacity, the "Agent") (all
of the foregoing being referred to collectively as the "Parties"). (DFS, in
its individual capacity under the AWF (as defined below), and as a "Lender" and
Agent under the Credit Agreement, and Nations, as a "Lender" under the Credit
Agreement, are sometimes hereinafter referred to individually as a "Lender
Party" and collectively as the "Lender Parties.")
RECITALS
A. The Lender Parties have extended a credit facility to Borrower
pursuant to the terms of (i) a Business Credit and Security Agreement dated as
of October 31, 1996 (as amended, the "Credit Agreement"; capitalized terms used
but not defined herein shall have the meanings given them in the Credit
Agreement), (ii) an Agreement for Wholesale Financing dated on or about October
31, 1996 (as amended, "AWF"), and (iii) the other Loan Documents.
B. The Obligations are secured by the Collateral. There is presently due
and owing: (i) a principal amount of $13,113,298.37 under the Credit Agreement,
and (ii) a principal amount of $12,861,589.26 under the AWF; as well as accrued
interest and fees and expenses incurred by the Lender Parties.
C. As of the date hereof, Borrower is in Default of the following sections
of the Credit Agreement and similar sections of the AWF:
(i) Section 9.3.1(a)(i) and (ii);
(ii) Section 9.3.1(b)(i) and (ii);
(iii) Section 9.3.1(c) with respect to the minimum ratio as of 12/31/96
and 3/31/97;
(iv) Section 9.1.10(a) with respect to the due date for the delivery of
the 12/31/96 financial statements and the requirement for delivery of an
unqualified opinion of its auditors for such period; and
(v) Section 10(f) with respect to certain of Borrower's Subordinated Debt
obligations;
all as more specifically described in a certain letter of even date
herewith from Borrower to Agent (collectively, the "Designated
Defaults").
1
<PAGE> 2
D. Borrower hereby acknowledges the Designated Defaults. Rather than
dispute the Designated Defaults, the Parties have elected to resolve this
matter by this Agreement. As a result of the Designated Defaults, Borrower
acknowledges that the Lender Parties can proceed to enforce all rights and
remedies pursuant to the Loan Documents.
E. Borrower has requested that the Lender Parties waive the Designated
Defaults.
F. In exchange for the agreements, representations, covenants, releases
and confirmations of Borrower contained and referenced herein, the Lender
Parties are willing to agree to such waivers.
G. Borrower acknowledges that each of DFS, Agent and each Lender has
performed all obligations on its part to be performed under the Loan Documents
and Borrower has no defenses to the payment of the sums due or to its
performance thereunder.
NOW, THEREFORE, for and in consideration of the above premises, the mutual
promises and covenants contained herein, and for such other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
1. Waiver. Subject to the terms and conditions set forth herein, the
Lender Parties waive the Designated Defaults.
2. Waiver Terms and Conditions. Notwithstanding the provisions of Section
1 of this Agreement, the agreement to waive the Designated Defaults contained
herein shall be conditioned upon the following terms:
(a) The overall credit facility maximum under the Loan Documents is
hereby reduced from $50,000,000 to $39,000,000, to consist of: (i) a reduction
of the maximum working capital facility under the Credit Agreement from
$35,000,000 to $26,000,000 (including therein, a reduction of the maximum
amount of the Eligible Inventory Availability sublimit from $15,000,000 to
$10,000,000), and (ii) a reduction of the maximum facility available under the
AWF from $15,000,000 to $13,000,000.
(b) An independent appraiser, chosen by Agent, in Agent's sole
discretion, shall perform an appraisal of the Eligible Inventory. To the
extent that the value of the Eligible Inventory, as indicated by the appraisal
recommends a reduction in the advance rate for Eligible Inventory, as the
Lender Parties shall determine, in their absolute discretion, the Lender
Parties may, in their absolute discretion, reduce such advance rate downward
from sixty percent (60%). All fees, charges, and expenses arising from or in
any way relating to any such appraisal shall be the sole responsibility of
Borrower.
(c) The Loan Documents are hereby amended, effective as applicable by
deleting each and every reference therein to the existing Financial Covenants,
and replacing them with the following new Financial Covenants:
2
<PAGE> 3
Borrower agrees that it will at all times maintain the following:
(i) a Tangible Net Worth plus Subordinated Debt in the combined amount
of not less than the amount shown below for the period corresponding
thereto:
<TABLE>
<CAPTION>
Period Amount
--------------------- ----------
<S> <C>
Month ending 5/31/97 $7,200,000
Month ending 6/30/97 $7,868,000
Month ending 7/31/97 $7,378,000
Month ending 8/31/97 $7,610,000
Month ending 9/30/97 $8,499,000
Month ending 10/31/97 $7,962,000
Month ending 11/30/97 $8,261,000
Month ending 12/31/97 $9,830,000
and each month thereafter
</TABLE>
(ii) a ratio of Debt minus Subordinated Debt to Tangible Net Worth
plus Subordinated Debt of not more than the ratio shown below for the
period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
--------------------- -----------
<S> <C>
Month ending 5/31/97 9.60 to 1.0
Month ending 6/30/97 8.80 to 1.0
Month ending 7/31/97 9.50 to 1.0
Month ending 8/31/97 9.90 to 1.0
Month ending 9/30/97 9.40 to 1.0
Month ending 10/31/97 9.70 to 1.0
Month ending 11/30/97 9.40 to 1.0
Month ending 12/31/97 7.60 to 1.0
and each month thereafter
</TABLE>
(iii) commencing with Borrower's quarter ending June 30, 1997 and for
each fiscal quarter thereafter, a ratio of EBITDA to total interest
expenses of not less than one and one-half to one (1.5 to 1.0)
"EBITDA" as referenced above shall mean "EBIT" as defined currently in
the Loan Documents, further modified to add back into Borrower's
consolidated net income, provisions for depreciation and amortization
of Intangibles.
(iv) The amount of average days at any time Borrower's accounts
payable are outstanding shall at no time exceed 65 days, as determined by
the product resulting from multiplying (x) Borrower's accounts payable
divided by its cost of goods sold, times (y) 365/12.
(d) The Loan Documents are hereby amended to provide that
notwithstanding anything to the contrary, all collections of Borrower's
Accounts from retail sales: (i) attributable to Borrower's Illinois locations
shall be deposited into; and (ii) attributable to Borrower's locations outside
3
<PAGE> 4
Illinois shall be swept daily by Agent into; the Lockbox established pursuant
to that certain Lockbox and Blocked Account Agreement with LaSalle National
Bank dated as of October 31, 1996, or to such other account as Agent shall
direct.
(e) Notwithstanding anything to the contrary, Borrower agrees that the
Lender Parties may examine the Collateral and otherwise perform the inspections
described in the Loan Documents, at any time, and from time to time, during
normal business hours, as frequently as deemed necessary.
(f) From and after the date hereof, Borrower shall at all times maintain
excess availability under the Credit Facility under the Credit Agreement of at
least One Million Dollars ($1,000,000).
(g) The Loan Documents are hereby amended to provide that
notwithstanding anything therein to the contrary, the financing programs
extended thereunder shall have a term expiring on January 2, 1998, with no
"automatic" renewals thereof, and that termination for any reason, prior to
such date shall require, among other things, Borrower's payment to Agent, for
the pro rata benefit of DFS and Nations, of a termination fee of $50,000. The
foregoing termination fee is in lieu of that set forth in Section 4.1 of the
Credit Agreement.
(h) The Loan Documents are hereby amended to provide that
notwithstanding anything to the contrary, Borrower shall not permit the balance
in its operating account(s) to exceed, at any time, $750,000.
(i) The Loan Documents are hereby amended to provide that
notwithstanding anything to the contrary, Borrower shall no longer be permitted
to make principal or interest payments on the Subordinated Debt owing to Morton
Goldman and the Estate of Hal Goldman.
(j) The Loan Documents are hereby amended to provide that
notwithstanding anything to the contrary, Borrower shall be required to deliver
a Borrowing Base Certificate on a daily basis.
(k) Section 3.2(a) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following new such section:
"(a) Interest. Borrower hereby agrees to pay interest to Agent, on
behalf of the Lenders, on the Daily Contract Balance (as defined below)
owed under Borrower's Loans at a rate that is two and one half
percentage points (2.5%) per annum above the Prime Rate. Interest on the
Loans prior to maturity shall be payable monthly and at maturity."
(l) The definition of "Subordinated Debt" in clause (v) of Section 9.3.1
of the Credit Agreement is hereby deleted in its entirety and replaced with the
following new definition thereof:
"(v) 'Subordinated Debt' means all of Borrower's Debt (including accrued
interest thereon) which is subordinated to the payment of Borrower's
liabilities to the Lenders by an agreement in form and substance
satisfactory to the Required Lenders."
4
<PAGE> 5
3. Conditions Precedent. The effectiveness of this Agreement is subject
to the satisfaction, in Agent's sole discretion, of the following conditions:
(a) Execution and delivery to Agent of an original counterpart(s) of
this Agreement by Borrower and Nations on or before 5:00 p.m. Chicago, IL time
on June 5, 1997.
(b) The accuracy of the 12/31/96 and 3/31/97 financial statements and
other historical information submitted by Borrower.
(c) Borrower's payment in good funds to Agent, for the pro rata
benefit of DFS and Nations, of a waiver and amendment fee in the amount of
$100,000, which fee shall be payable as follows: (i) $35,000 upon Borrower's
execution of this Agreement, (ii) $32,500 within 30 days of such date of
execution, and (iii) $32,500 within 60 days of such date of execution;
provided, that the timing for payment of the fees set forth in items (ii) and
(iii) above shall be accelerated upon a Default.
4. Representations and Warranties. Borrower represents and warrants to
the Lender Parties that:
(a) Borrower's execution, delivery and performance of this Agreement is
not subject to the prior consent or approval of any third party or governmental
authority.
(b) Except for the representation made in the last sentence of Section
8.1 of the Credit Agreement with respect to material adverse changes in the
financial or business condition of Borrower subsequent to the date of
Borrower's submission of the financial statements referenced in Section 8.1 of
the Credit Agreement, all the obligations, representations and warranties
contained in the Loan Documents remain in full force and effect, are hereby
restated and reaffirmed as of the date hereof, as amended hereby, and no
Default or Unmatured Default has occurred or is continuing except for the
Designated Defaults.
(c) The execution, delivery and performance of this Agreement by
Borrower does not violate, contravene, or conflict with any statute, rule,
regulation, agreement or instrument or order binding upon Borrower or to which
Borrower is subject.
(d) This Agreement constitutes the valid and binding obligation of
Borrower and is enforceable in accordance with its terms.
5. Covenants. Borrower agrees and covenants that:
(a) Borrower is bound by the covenants and agreements set forth in the
Loan Documents, as amended hereby, and hereby restates and reaffirms each and
every such covenant on and as of the date hereof, as amended hereby.
(b) Borrower hereby grants DFS an irrevocable license to have an
employee on site during business hours at Borrower's business premises to
5
<PAGE> 6
monitor Borrower's compliance with this Agreement and the Loan Documents, and
for such other purposes permitted under the Loan Documents. Borrower
acknowledges and agrees that the presence of any such personnel on Borrower's
premises shall be for purposes of protecting each Lender Party's' interest in
the Collateral and never deemed as any Lender Party's' exercise of control over
Borrower, the Collateral or Borrower's business.
(c) Borrower shall deliver all of the documents and instruments
requested by the Lender Parties in conjunction with this Agreement and the Loan
Documents to maintain, confirm and protect the security interest in the
Collateral, and otherwise to effectuate the transactions contemplated hereby
and thereby.
(d) Borrower shall promptly notify Agent of (i) any adverse change in
the financial condition or business of Borrower; (ii) any default under any
agreement, contract or other instrument to which Borrower is a party, whereby
any of Borrower's properties are bound, or any acceleration of the maturity of
any indebtedness owing by Borrower; (iii) any material adverse claim against or
affecting Borrower or any of Borrower's property; (iv) any material litigation,
arbitration or other claim or controversy which might become the subject of
litigation against Borrower or affecting any of Borrower's properties; and (v)
any bankruptcy proceeding filed by or against the Borrower under the Federal
Bankruptcy Code, any state insolvency law or any similar law.
(e) Time shall be of the essence with respect to Borrower's obligations
under this Agreement.
6. Default/Remedies. Upon: (a) the occurrence of a Default or an Unmatured
Default, including but not limited to a default under this Agreement, other
than a Designated Default, or (b) the institution by Borrower or any Person on
behalf of Borrower, of any litigation or other legal action against one or all
of the Lender Parties, seeking to have set aside or otherwise enjoin the
performance of any provision of this Agreement or any other Loan Document; the
Lender Parties shall be entitled to take such action(s) as provided under the
terms of the Loan Documents. Borrower, except where prohibited by law, waives
any notice of default, acceleration, termination of forbearance or other notice
requirements or provisions contained within the Loan Documents, or imposed by
applicable law prior to a Lender Party undertaking any such actions.
7. Borrower's Releases. Borrower and its managers, shareholders,
representatives, parent corporations, subsidiaries, affiliates, agents,
partners, servants, employees, attorneys, heirs, successors and assigns, have
this day RELEASED and by these presents do RELEASE, ACQUIT and FOREVER
DISCHARGE, DFS, each Lender, and Agent, and their respective predecessors,
successors, assigns, managers, shareholders, representatives, parent
corporations, subsidiaries, affiliates, agents, servants, employees, attorneys,
officers, and directors, each in their respective corporate and individual
capacities (collectively, the "Released Parties") from any and all claims or
causes of action, suits, debts, sums of money, accounts, reckonings, covenants,
contracts, controversies, agreements, promises, rights, variances, trespasses,
damages, judgments, executions, claims and demands whatsoever
6
<PAGE> 7
which they have, which are based on facts or circumstances which arose or
existed from the beginning of time to the date hereof, whether known or
unknown, asserted or unasserted, equitable or at law, arising under or pursuant
to common or statutory law, rules or regulations, and which arose in the course
of dealings between any of the Released Parties and Borrower, or any of them,
or which are directly or indirectly attributable to any Loan Document, or the
rights, interest, covenants, or agreements evidenced thereby, or any security
therefor, all loan modification documents, this Agreement, any documents or
instruments executed or delivered in connection with the foregoing, or the
negotiation, execution, delivery, administration, management, collection or
enforcement thereof (collectively, the "Applicable Transactions"). The
foregoing release shall relate to any and all claims and causes of action of
any kind or character relating to the Applicable Transactions, growing out of
or in any way connected with or resulting from the acts, actions, or omissions,
of any of the Released Parties, including, without limitation, any loss, costs,
or damage arising or incurred in connection with any usurious interest, breach
of fiduciary duty, breach of any duty of fair dealing, breach of confidence,
undue influence, duress, economic coercion, conflict of interest, negligence,
bad faith, malpractice, intentional or negligent infliction of mental distress,
tortious interference with contractual relations, tortious interference with
corporate or partnership governance or prospective business advantage, breach
of contract, deceptive trade practices, libel or slander (without admitting or
implying that any such claim or cause of action exists or has any validity).
8. Miscellaneous.
(a) Waivers. No failure to exercise, and no delay in exercising, on the
part of any Lender Party, any right under this Agreement or any Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right. The rights of each Lender Party in such documents shall be in
addition to all other rights provided by law. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand. Nothing herein or in
any Loan Document shall be construed to be a waiver by a Lender Party of any
Default under any Loan Document, other than the Designated Defaults, as
specifically described herein and subject to the terms hereof. The Lender
Parties reserve all of their rights and remedies under the Loan Documents.
Further, no Lender Party has consented to, nor shall anything herein be
construed to imply a Lender Party's consent to, a release of the liens and
security interest in the Collateral granted under the Loan Documents.
(b) Survival of Representations and Warranties. All representations,
warranties, covenants and conditions made in this Agreement and the Loan
Documents, as amended hereby, shall survive the execution and delivery of these
documents.
(c) Severability. Any provision of this Agreement held by an arbitrator
or a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Agreement and the effect
7
<PAGE> 8
thereof shall be confined to the provision so held to be invalid or
unenforceable.
(d) Applicable Law. This Agreement shall be deemed to have been made,
and to be performable in Illinois and shall be governed by and construed in
accordance with the laws of the State of Illinois.
(e) Successors and Assigns. This Agreement is binding upon and shall
inure to the benefit of each Lender Party, Borrower, and each of them, and
their respective successors, heirs and assigns, except that Borrower may not
assign or transfer any of its rights or obligations hereunder.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
(g) Notices. Any notice required or permitted to be given by any party
hereunder shall be conclusively deemed to have been given and received if made
in accordance with the relevant provisions of the Loan Documents.
(h) Headings. The headings, captions and arrangements used in this
Agreement are for convenience only and shall not affect the interpretation of
this Agreement.
(i) Full and Independent Knowledge. Each Party hereto represents that
it has been represented by an attorney in conjunction with the preparation and
review of this Agreement, that its representative has specifically discussed
with its attorney the meaning and effect of this Agreement and that its
representative has carefully read and understands the scope and effect each
provision contained herein. Each Party further represents that it does not
rely and has not relied upon any representation or statement made by the other
Party hereto or any of its representatives with regard to the subject matter,
basis or effect of this Agreement. There are no unwritten agreements between
the Parties. This Agreement may only be amended by a writing signed by the
Parties.
(j) Ownership Claims. Each Party hereto warrants and represents to each
of the other that it has not heretofore assigned or transferred, or purported
to assign or transfer, to any person or entity, any claim or any portion
thereof or interest therein, and agrees to indemnify, defend and hold each
other Party harmless from and against any and all claims based on or arising
out of such assignment or transfer purported assignment or transfer of claims
or any portion thereof or interest therein.
(k) Further Assurances. Each of the Parties, without further
consideration, agrees to execute and deliver such other documents and take such
other action as may be necessary to consummate more effectively the subject
matter hereof.
(l) Dispute Resolution. Any controversy or claim arising out of or
relating to this Agreement, the relationship resulting in or from this
8
<PAGE> 9
Agreement or the breach of any duties hereunder will be settled by Arbitration
in accordance with the provisions of the relevant sections of the Loan
Documents.
(m) Recitals. The above Recitals are true and correct in all respects and
are hereby incorporated into this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
This Agreement is EXECUTED as of the date first written above.
ATTEST: ELEK-TEK, INC.
Miguel Martinez, Jr. By: Richard Rodriguez
- -------------------- ---------------------------
Secretary Name: Richard Rodriguez
---------------------------
Title: President & CEO
---------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF Illinois )
) ss:
COUNTY OF Cook)
On the 4th day of June, 1997, before me personally came, Richard
Rodriguez, who being by me duly sworn, did depose and say that he is the
President of ELEK-TEK, INC., known to me to be the person who executed the
within Agreement on behalf of said corporation, and acknowledged to me that he
executed the same for the purposes therein stated.
Mary Homes (SEAL)
- ---------------------------------
Notary Public
My commission expires: 3-08-2000
----------------------------------------
10
<PAGE> 11
This Agreement is EXECUTED as of the date first written above.
ATTEST: DEUTSCHE FINANCIAL SERVICES
CORPORATION, in its individual
capacity and in its capacity as
Agent and a Lender
Miguel Martinez, Jr. By: Richard Rodriguez
- -------------------- ----------------------------------
Secretary Name: Richard Rodriguez
----------------------------------
Title: Sr. Regional Vice President
----------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF Illinois )
) ss:
COUNTY OF Cook )
On the 4th day of June, 1997, before me personally came, Richard
Rodriguez, who being by me duly sworn, did depose and say that s/he is the Sr.
Regional Vice President of Deutsche Financial Services Corporation, known to me
to be the person who executed the within Agreement on behalf of said
corporation, and acknowledged to me that s/he executed the same for the
purposes therein stated.
Mary Homes (SEAL)
- ---------------------------------
Notary Public
My commission expires: 3-08-2000
----------------------------------------
11
<PAGE> 12
This Agreement is EXECUTED as of the date first written above.
ATTEST: NATIONSCREDIT COMMERCIAL CORPORATION
OF AMERICA
By: Ralph Throneberry
- ---------------------------- ------------------------------------
Secretary
Name: Ralph Throneberry
------------------------------------
Title: Senior Vice President
------------------------------------
CORPORATE ACKNOWLEDGMENT
STATE OF Texas )
) ss:
COUNTY OF Dallas )
On the 4th day of June, 1997, before me personally came, Ralph
Throneberry, who being by me duly sworn, did depose and say that s/he is the
Senior Vice President of NationsCredit Commercial Corporation of America, known
to me to be the person who executed the within Agreement on behalf of said
corporation, and acknowledged to me that s/he executed the same for the
purposes therein stated.
- ------------------------------------ (SEAL)
Notary Public
My commission expires:
----------------------------------
12
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
AGREEMENT made as of June 30, 1997 by and between Elek-Tek, Inc., a
Delaware corporation ("Employer"), and Richard Rodriguez ("Executive").
WHEREAS, Executive has been employed as the President and Chief Operating
Officer of Employer since March 1, 1996 and as Chief Executive Officer since
April 19, 1996, pursuant to that certain employment agreement dated March 1,
1996;
WHEREAS, Employer and Executive desire to make certain modifications to
the compensation and other terms and conditions of Executive's employment by
Employer.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. Employer hereby continues to employ Executive and
Executive hereby accepts continued employment with Employer for the term of the
Agreement set forth in Section 2 below, in the position and with the duties and
responsibilities set forth in Sections 4 and 5 below, and upon the other terms
and conditions hereinafter stated.
2. TERM. This Agreement is for the four-year period ("Term") commencing
on March 1, 1996 (the "Commencement Date") and terminating on the fourth
anniversary of the Commencement Date or upon Executive's earlier death,
Disability (as defined below) or termination pursuant to Section 13. The Term
shall be automatically extended for successive one-year periods, unless at
least one hundred eighty (180) days prior to the end of the initial Term or any
successive Term (i) Employer, by written notice to Executive, elects not to
have the Term automatically extended, or (ii) Executive, by written notice to
Employer, elects not to have the Term automatically extended.
3. DEFINITIONS.
(a) Cause. "Cause" shall mean any one or more of the following:
i. engaging in a dishonest act, breach of fiduciary
duty, misappropriation or fraud against Employer or any
Subsidiary of Employer, or making any willful
misrepresentation to any holder of securities of Employer or
any member of the Board of Directors of Employer, or any other
misconduct which is materially injurious to Employer or any
Subsidiary of Employer;
ii. any material breach by Executive of the terms of
his employment, which is not remedied with five (5) days of
notice of such breach; or
iii. any indictment or similar charge against Executive by a
governmental
<PAGE> 2
office alleging the commission of a felony; or a guilty plea
or no-contest plea to a felony.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution adopted by the affirmative vote of not
less than a majority of the members of the Employer's Board who are not
employees of the Employer (after reasonable notice to Executive and an
opportunity for Executive, together with Executive's counsel, to be heard
before the Board), finding that in their opinion the Employer had Cause
to terminate 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 Employer) of
any voting securities of the Employer (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 Employer'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 Employer'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 Employer'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
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iii. approval by shareholders of the Employer of:
(A) a merger, consolidation or reorganization involving the
Employer, unless
(1) the shareholders of the Employer 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 Employer, any
Subsidiary, any employee benefit plan maintained
by the Employer, 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
Employer'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 Employer;
or
(C) an agreement for the sale or other disposition of all or
substantially all of the assets of the Employer to any
Person (other than a transfer to a Subsidiary).
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<PAGE> 4
(c) Date of Termination. "Date of Termination" shall mean in the
case of Executive's death, the date of death, in the case of Good
Reason, the last day of Executive's employment, in the case of
Disability, thirty (30) days after Notice of Termination is given
(provided Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day period), and
in all other cases, the date specified in the Notice of Termination.
(d) Disability. "Disability" shall occur if as a result of
Executive's incapacity due to physical or mental illness, Executive
shall have been absent from the full-time performance of his duties
with the Employer for three (3) consecutive months.
(e) Good Reason. "Good Reason" shall mean any one or more of the
following (without Executive's express written consent):
(i) a relocation of Executive's principal place of
employment outside the Chicago metropolitan area, other than
for reasonably required travel on the business of the Employer
or a Subsidiary of the Employer;
(ii) a reduction in Executive's base compensation;
(iii) a change in Executive's status, title, position
or responsibilities (including reporting responsibilities)
which represents an adverse change from Executive's prior
status, title, position or responsibilities; or
(iv) the purported termination of Executive for Cause
which does not comply with the terms of subsection (a) hereof.
(f) Notice of Termination. Any termination by the Employer 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 Executive's employment under the provision so
indicated. No purported termination by the Employer 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 Executive's employment after 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
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<PAGE> 5
indirectly, 50% or more of the outstanding voting securities or
equity interests or (ii) is a general partner.
4. POSITION. Executive shall serve as President, Chief Executive
Officer and Chief Operating Officer of Employer.
5. DUTIES AND RESPONSIBILITIES.
(a) Employer hereby engages Executive as a full-time executive
employee and Executive accepts such employment, on the terms and
subject to the conditions set forth in this Agreement. During the
Term, Executive shall devote all of his business time and best
efforts to, and shall perform faithfully, loyally and efficiently,
his duties as President of Employer and shall exercise such powers
and fulfill such responsibilities as may be duly assigned to or
vested in him by the Chairman of the Board or the Board of Directors
of Employer (the "Board of Directors") consistent with the
responsibilities of the President.
(b) During the Term, Executive will not engage in other
employment or consulting work or any trade or business for his own
account or on behalf of any other person, firm or corporation.
Notwithstanding the foregoing, Executive may (i) serve on such
corporate, civic, industry or charitable boards or committees as are
approved by the Board of Directors and (ii) manage his own and his
immediate family's personal investments, provided that the
activities permitted by clauses (i) and (ii) above shall not,
individually or in the aggregate, interfere in any material respect
with the performance of Executive's responsibilities hereunder.
6. SALARY/BONUS. For all services rendered by Executive under this
Agreement, Employer shall pay to Executive an aggregate annual base salary of
$260,000, payable in accordance with Employer's regular payroll procedures.
Employer shall review possible increases in Executive's salary at least
annually, with any such increases subject to the determination of the Board of
Directors.
Beginning January 1, 1999, Executive will be eligible for an annual
performance bonus. Such annual bonuses shall be payable based on goals to be
mutually determined by the Board of Directors and the Executive, which goals
shall be based on net earnings, provided, if such goals are achieved with
respect to any fiscal year of Employer commencing after December 31, 1998,
Executive shall be entitled to receive a performance bonus in an amount equal
to not less than twenty (20) percent of Executive's base salary as of the last
day of said fiscal year. In the event the Employer and the Executive are not
able to agree on the goals to be used to determine if Executive is entitled to
a performance bonus for any fiscal year, then the goals for this purpose shall
automatically be deemed to be the Employer's budgeted net earnings for the
fiscal year, as established by the Executive and approved by the Board of
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<PAGE> 6
Directors. In the event Executive's employment is terminated by Employer
before the end of a fiscal year, then unless such termination is for Cause,
Executive shall be entitled to receive a pro rata portion of his performance
bonus, if any, based on the number of months, including portions thereof,
during which Executive was employed during said fiscal year, based on net
earnings of the Employer for said fiscal year as reflected in Employer's
audited financial statements for said fiscal year.
7. INCENTIVE STOCK OPTIONS. Executive is entitled to participate
in Employer's 1993 Incentive Stock Option Plan ("Plan") and on March 11, 1996
was granted thereunder stock options (the "Options") to acquire 126,000 shares
of Common Stock, par value $.01 per share ("Common Stock"), of Employer.
8. EMPLOYEE BENEFITS. Employer shall provide or cause to be
provided to Executive and to Executive's dependents, at Employer's expense, all
medical and dental benefits provided to other executives of Employer. During
any waiting period for insurance eligibility, COBRA insurance costs for
Executive and Executive's dependents will be paid by Employer.
9. VEHICLE ALLOWANCE. Employer will provide to Executive a monthly
automobile allowance or an automobile consistent with Employer's existing
practices with other executives of Employer. Employer will pay or reimburse
Executive's reasonable maintenance and insurance expenses for such vehicle.
10. VACATION. Executive shall be entitled to two weeks vacation
during each consecutive twelve month period of employment beginning on the
Commencement Date and each anniversary thereof. In the event that the full
vacation is not taken by Executive during any such period, no vacation time
shall accrue for use in future periods, except as approved by the Board of
Directors.
11. INDEMNIFICATION. Employer shall indemnify Executive pursuant
to an indemnification agreement in the form used by Employer for its other
officers and directors. In addition, Executive shall be covered by Employer's
Directors and Officers liability insurance policy.
12. BUSINESS EXPENSES. Executive will be reimbursed for all
reasonable ordinary and necessary business expenses incurred by him in
connection with his employment (to be supported by receipts and other
documentation as required by the Internal Revenue Code and in conformance with
Employer's normal procedures).
13. TERMINATION.
(a) General. Subject to the provisions of Sections 14 and 15,
Employer or Executive may terminate the employment of Executive
at any time with or
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<PAGE> 7
without Cause.
(b) Disability. If, as a result of Executive's incapacity due to
Disability and within thirty (30) days after Notice of Termination
is given by Employer, Executive shall not have returned to the
full-time performance of his duties, for purposes of this Agreement
Executive's employment may be terminated by Employer for Disability.
14. PAYMENTS DURING DISABILITY OR UPON DEATH OR TERMINATION. Executive
or his estate shall be entitled to the following during a period of Disability,
upon death or, unless termination occurs during the twelve (12) month period
following a Change in Control, upon termination of Executive's employment by
Executive or Employer, as the case may be:
(a) During any period that Executive fails to perform his
full-time duties with Employer as a result of incapacity due to
physical or mental illness, Executive shall continue to receive his
base salary at the rate in effect at the commencement of any such
period minus any disability benefits received by him under any
insurance or disability plan of the Employer. Thereafter, if
terminated for Disability, Executive shall be entitled to receive
the severance compensation provided for in Subsections 14(c)(ii),
(iii) and (iv), as applicable.
(b) If Executive's employment is terminated by Executive or by
Employer for Cause, Employer shall pay Executive his full base
salary through the Date of Termination at the rate in effect at the
time notice of termination is given, plus all other amounts or
benefits to which Executive is entitled through such date under any
plan, arrangement or practice in effect at the time of such
termination, minus any amounts owed by Executive to Employer. If
Executive's employment is terminated by Employer for Cause, all
outstanding stock options granted to Executive shall immediately
terminate, and Employer shall have no further obligations to
Executive under this Agreement (other than COBRA and accrued and
unpaid vacation).
(c) If Executive's employment by Employer shall be terminated by
reason of Executive's death or by Employer other than for Cause or
Retirement, then Executive shall be entitled to the following:
(i) Employer shall pay to Executive any unpaid base
salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, no later than the
fifth day following the Date of Termination;
(ii) if such termination occurs during the initial
Term hereof, Employer shall pay to Executive severance
compensation equal to Executive's annual
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<PAGE> 8
base salary in effect at the Date of Termination, which
compensation shall be payable monthly in twelve equal
installments, subject to tax withholding, beginning no later
than the first payroll date of the month following such
termination;
(iii) if such termination occurs during any successive
Term hereof, Employer shall pay to Executive severance
compensation equal to one-half Executive's annual base salary
in effect at the Date of Termination, which compensation shall
be payable monthly in six equal installments, subject to tax
withholding, beginning no later than the first payroll date of
the month following such termination;
(iv) Executive shall be entitled to any other
compensation and benefits granted under this Agreement,
including but not limited to those listed in Sections 8 and 9
hereof, for a period of one year from the Date of Termination.
Such benefits shall be determined in accordance with the
Employer's employee benefit plans and other applicable
programs, policies and practices then in effect as though
Executive was still then in the employ of the Employer. The
provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or
in any way diminish 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.
15. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
(a) If, upon the first Change in Control of the Employer
following the execution of this Agreement, (i) during the twelve
month period thereafter, the Employer shall terminate Executive's
employment other than for Cause, Disability, Retirement or on
account of Executive's death; or (ii) during the first six month
period thereafter, 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 Employer shall pay to Executive severance compensation
equal to 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 Employer shall have no obligation
to make any payments under this Agreement to Executive unless
and until it shall receive from Executive a full and complete
release of any and all liabilities, except for those
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<PAGE> 9
provided under this Agreement, in a form acceptable to the
Employer;
(y) all stock options held by 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 March 11, 1996 between the
Employer and Executive, which are hereby amended to permit
such exercise; and
(z) Executive shall be entitled to any other
compensation and benefits granted under this Agreement,
including but not limited to those listed in Sections 8 and 9
hereof, for a period of one year from the Date of Termination.
Such benefits shall be determined in accordance with the
Employer's employee benefit plans and other applicable
programs, policies and practices then in effect as though
Executive was still then in the employ of the Employer. The
provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or
in any way diminish 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.
(b) If Executive terminates his employment other than for Good
Reason during the first six month period following a Change in
Control, Employer shall pay Executive his full base salary through
the Date of Termination at the rate in effect at the time notice of
termination is given, plus all other amounts or benefits to which
Executive is entitled through such date under any plan, arrangement
or practice in effect at the time of such termination, minus any
amounts owed by Executive to Employer.
(c) If Executive's employment is terminated by Employer for Cause
during the twelve (12) month period following a Change in Control,
Employer shall pay Executive his full base salary through the Date
of Termination at the rate in effect at the time notice of
termination is given, plus all other amounts or benefits to which
Executive is entitled through such date under any plan, arrangement
or practice in effect at the time of such termination, minus any
amounts owed by Executive to Employer. Additionally, all
outstanding stock options granted to Executive shall immediately
terminate, and Employer shall have no further obligations to
Executive under this Agreement (other than COBRA and accrued and
unpaid vacation).
(d) Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change
in Control and
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<PAGE> 10
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 Executive shall mean the
date immediately prior to the date of such termination of
Executive's employment.
16. CONFIDENTIALITY AND NON-SOLICITATION COVENANTS. Executive covenants
and agrees that during the Term he shall not directly or indirectly be
financially interested in, or represent or render any advice or services to,
any other business which is competitive with that of Employer or any of its
affiliates; provided, however, that the foregoing restriction shall not
preclude Executive from the ownership of not over one percent (1%) of the
voting securities of any corporation whose securities are registered under
Section 12(b) or (g) of the Securities Exchange Act of 1934 even if its
business competes with that of Employer or any of its affiliates. Except as
provided in the next two sentences, Executive covenants and agrees that all
information, knowledge or data of or pertaining to Employer or any of its
affiliates, or pertaining to any other person, firm, corporation or business
organization with which they or any of them may do business during the Term and
which is not generally known in the relevant trade or industry (and whether
relating to methods, merchandising, purchasing processes, techniques,
discoveries, pricing, sales practices, marketing or any other proprietary
matters) ("Employer Information") shall be kept secret and confidential at all
times during and after the end of the Term and shall not be used or divulged by
him outside the scope of his employment as contemplated by this Agreement,
except as Employer may otherwise expressly authorize by Board action. In the
event that Executive is requested in a judicial, administrative or governmental
proceeding to disclose any Employer Information, Executive will promptly so
notify Employer so that Employer may seek a protective order at Employer's
expense or other appropriate remedy and/or waive compliance with this
Agreement. If such protective order or other remedy is not obtained or
Employer waive compliance with this Agreement and disclosure of any of Employer
Information is required, Executive may furnish the material so required to be
furnished, but Executive will furnish only that portion of Employer Information
which is legally required and will exercise his best efforts to obtain a
protective order or other reliable assurance that confidential treatment will
be accorded Employer Information furnished.
Executive agrees and acknowledges that (a) the services of Executive
pursuant to this Agreement are unique and extraordinary, and (b) Employer and
its affiliates will be dependent upon Executive for the development and growth
of its business and related functions. Accordingly, Executive covenants and
agrees that for two (2) years after termination of his employment for any
reason, he will not solicit any employee of Employer or any of its affiliates
to leave the employ of Employer or any of its affiliates or aid any competitive
business organization in any attempt to hire any such person who was an
employee of Employer or any of its affiliates within the one (1) year period
preceding Executive's
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termination date.
17. SUCCESSORS AND ASSIGNS. This Agreement is a personal contract, and
the rights and interests of Executive hereunder and under the awards and plans
referred to herein may not be sold, transferred, assigned, pledged, encumbered,
or hypothecated by him, except as otherwise expressly permitted by the
provisions of this Agreement or such awards or plans. Except as may be
expressly provided otherwise herein, this Agreement shall be binding upon
Employer and inure to the benefit of Employer and its affiliates, and its
successors and assigns, including (but not limited to) any corporation which
may acquire all or substantially all of Employer' assets or business or into or
with which Employer or an affiliate may be consolidated or merged.
18. JURISDICTION AND GOVERNING LAW. Any controversy or claim arising out
of or relating to this Agreement, or any breach thereof, shall be subject to
resolution in the state or federal courts in Illinois and shall be governed by
the laws of the State of Illinois, without giving effect to principles of
conflicts of laws thereof.
19. ENTIRE AGREEMENT. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersede all undertakings and agreements, whether oral or in writing,
previously entered into by them with respect thereto including the Employment
Agreement dated March 1, 1996 between the parties hereto. No representations
or warranties of any kind or nature relating to Employer or any affiliate or
their respective businesses, assets, liabilities, operations, future plans or
prospects have been made by or on behalf of Employer or any affiliate to
Executive, nor have any representations or warranties of any kind or nature
been made by Executive to Employer or any affiliate.
20. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may
be amended or waived unless such amendment or waiver is agreed to in writing,
signed by Executive and by a duly authorized officer of Employer. No waiver by
any party hereto of any breach by another party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of a similar or dissimilar condition or provision at the same time,
any prior time or any subsequent time.
21. NOTICES. Any notice to be given hereunder shall be in writing and
delivered personally or by overnight courier or sent by registered or certified
mail, postage prepaid, return receipt requested, addressed to the party
concerned at the address indicated below or to such other address as such party
may subsequently give notice of hereunder in writing:
To: Richard Rodriguez
24 Mayfair Lane
Lincolnshire, Illinois 60069
Marked: Personal and Confidential
With a copy to:
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Musick, Peeler and Garrett
One Wilshire Boulevard
Suite 2000
Los Angeles, California 90017
Attention: David C. Wright, Esq.
To: Elek-Tek, Inc.
7350 North Linder Avenue
Skokie, Illinois 60077
Attn: Chairman of the Board of Directors
With a copy to:
Lord, Bissell & Brook
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Louis E. Rosen
Any notice delivered personally or by overnight courier under this Section
shall be deemed given on the date delivered and any notice sent by registered
or certified mail, postage prepaid, return receipt requested, shall be deemed
given on the date mailed.
22. SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected
thereby, and each provision hereof shall be validated and shall be enforced to
the fullest extent permitted by law.
23. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
24. HEADINGS. All descriptive headings of sections and paragraphs
in this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
25. WITHHOLDING TAXES. All payments to Executive under this
Agreement shall be reduced by any applicable federal, state or city withholding
taxes.
This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall be one and the same
agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ELEK-TEK, INC.
By:
------------------------------
Title:
---------------------------
RICHARD RODRIGUEZ
---------------------------------
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<PAGE> 1
EXHIBIT 10.26
MORTGAGE NOTE
$150,000.00 Chicago,
Illinois
June 30, 1997
Richard L. Rodriguez, (the "Borrower"), for value received, hereby
promises to pay to the order of Elek-Tek, Inc., a Delaware corporation (the
"Lender"), at 7350 N. Linder Avenue, Skokie, Illinois, or at such other place
as Lender may from time to time in writing designate, in lawful money of the
United States of America, the principal sum of ONE HUNDRED FIFTY THOUSAND AND
NO/100 DOLLARS ($150,000.00) on or before March 1, 1999 ("Mortgage Note
Termination Date"), which is the third anniversary of the Commencement Date as
defined and set forth in the Employment Agreement dated March 1, 1996, as
amended, by and between Borrower and Lender ("Employment Agreement"). The
indebtedness evidenced by this Mortgage Note shall bear no interest. This
Mortgage Note is issued in replacement of a mortgage note issued in May 1996.
Notwithstanding the foregoing, the $150,000 loan debt under this Mortgage
Note (the "Debt") shall be forgiven according to the following terms and
conditions:
(a) Fifty thousand dollars of the Debt is hereby forgiven by the
Company as of the date hereof.
(b) Provided Borrower is an employee of Lender on the forgiveness
date thereof, the Debt shall be forgiven annually in fifty thousand
dollar ($50,000) increments on each of the first day of January 1998
and 1999.
(c) If Borrower terminates his employment with Lender for any
reason, the next fifty thousand dollar ($50,000) increment of Debt
to be forgiven shall be forgiven on a pro rata basis based on the
number of days of employment completed in the fiscal year of the
termination (calculated from January 1, 1997 if termination occurs
in 1997); provided, however, that if Borrower terminates his
employment with Lender for any reason during the second six (6)
months following a Change in Control, in addition to any pro rata
amount forgiven as of the Date of Termination a fifty thousand
dollar ($50,000) increment of the Debt shall also be immediately
forgiven. If Borrower terminates his employment with Lender (other
than by death or Disability), the remaining principal under this
Mortgage Note (following any forgiveness of Debt provided for in
this Mortgage Note) shall immediately be repaid in full by Borrower
to Lender.
(d) If Borrower is terminated by Lender for Cause, the
outstanding principal under this Mortgage Note shall immediately be
repaid in full by Borrower to Lender. If terminated for Cause,
Borrower shall not receive any pro rata loan forgiveness.
<PAGE> 2
(e) If Borrower is terminated by Lender without Cause, the next
fifty thousand dollar ($50,000) increment of Debt to be forgiven
shall be forgiven on a pro rata basis based on the number of days of
employment completed in the fiscal year of the termination
(calculated from January 1, 1997 if termination occurs in 1997).
(f) Notwithstanding the foregoing, all of the Debt shall be
immediately forgiven if during the first six (6) month period
following a Change in Control (i) Borrower is terminated by Lender
other than for Cause or (ii) Borrower terminates his employment for
Good Reason.
All capitalized terms herein, which are not defined, are to be given the
same meaning as in the Employment Agreement. The term "Junior Mortgage" shall
mean the Junior Mortgage and Security Agreement from Borrower to Lender,
covering certain real and personal property described therein situated in the
County of Lake, State of Illinois (the "Mortgaged Property").
Payment of this Mortgage Note is secured by the Junior Mortgage.
The remedies of Lender, as provided in this Mortgage Note and the Junior
Mortgage shall be cumulative and concurrent and may be pursued singly,
successively or together, at the sole discretion of Lender, and may be
exercised as often as occasion therefor shall occur; and the failure to
exercise any such right or remedy shall in no event be construed as a waiver or
release thereof. The holder of this Mortgage Note is entitled to all of the
benefits and the collateral security provided in the Junior Mortgage. The
Borrower agrees to pay all costs of collection and all attorneys fees paid or
incurred in enforcing any of the Lender's rights hereunder promptly on demand
of the Lender. Borrower waives presentment for payment, demand, notice of
demand, notice of nonpayment or dishonor, protest and notice of protest of this
Mortgage Note, and all other notices in connection with the delivery,
acceptance, performance, default, or enforcement of the payment of this
Mortgage Note.
Lender shall not be deemed, by any act of omission or commission, to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and signed by Lender and, then, only to the extent specifically set forth in
the writing. A waiver with reference to one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy as to a subsequent
event.
This instrument shall be governed by and construed according to the laws
of the State of Illinois.
Whenever used, the singular number shall include the plural, the plural
shall include the singular, and the words "Lender" and "Borrower" shall be
deemed to include their respective heirs, administrators, executors, successors
and assigns.
In the event any one or more of the provisions hereof shall be invalid,
illegal or
<PAGE> 3
unenforceable in any respect, the validity of the remaining provisions
hereof shall be in no way affected, prejudiced or disturbed thereby.
This Mortgage Note may be executed in counterparts, and all said
counterparts when taken together shall constitute one and the same Mortgage
Note.
The Borrower expressly submits and consents to the jurisdiction of any
state or federal court located within Lake County, Illinois, in any action,
suit or proceeding (whether in contract or tort, at law or in equity) commenced
therein in connection with or with respect to this Mortgage Note or the Junior
Mortgage (including, without limitation, any defenses or counterclaims
therein), and Borrower waives any objection to venue in connection therewith.
BORROWER AND LENDER EACH HEREBY ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS
A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, AND AFTER CONSULTING WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVE ANY RIGHT TO JURY TRIAL THAT THEY MAY NOW OR HEREAFTER HAVE
UNDER ANY APPLICABLE LAWS. The Borrower hereby waives personal services of any
and all process or papers issued or served in connection with the foregoing and
agrees that service of such process of papers may be made by registered or
certified mail, postage prepaid, return receipt requested, directed to the
Borrower.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
duly executed this Mortgage Note the date and year first above written.
______________________________
Richard L. Rodriguez
3
<PAGE> 1
- --------------------------------------------------------------------------------
Exhibit 11
ELEK-TEK, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
---------- ----------- ---------- -----------
PRIMARY EARNINGS (LOSS) PER COMMON SHARE
<S> <C> <C> <C>
Net earnings (loss) $ (2,579) $ (6,340) $ (3,576) $ (6,900)
Weighted average common shares outstanding 6,312,500 6,300,000 6,312,431 6,300,000
Primary earnings (loss) per common share $ (0.41) $ (1.01) $ (0.57) $ (1.10)
- -------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) $ (2,579) $ (6,340) $ (3,576) $ (6,900)
Weighted average common shares outstanding 6,312,500 6,300,000 6,312,431 6,300,000
Stock options assumed to be exercised - - - -
Weighted average common shares outstanding,
as adjusted
----------- ---------- ---------- -----------
6,312,500 6,300,000 6,312,431 6,300,000
=========== ========== ========== ===========
Fully diluted earnings (loss) per common share $ (0.41) $ (1.01) $ (0.57) $ (1.10)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were 572,500 and 333,500 stock options outstanding in 1997 and 1996
respectively, which have not been included in the earnings per share
calculation since assumption would be anti-dilutive due to loss for the period.
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,499
<SECURITIES> 0
<RECEIVABLES> 23,091
<ALLOWANCES> 615
<INVENTORY> 23,783
<CURRENT-ASSETS> 53,463
<PP&E> 29,343
<DEPRECIATION> 13,968
<TOTAL-ASSETS> 69,149
<CURRENT-LIABILITIES> 59,747
<BONDS> 2,572
0
0
<COMMON> 63
<OTHER-SE> 7,688
<TOTAL-LIABILITY-AND-EQUITY> 69,149
<SALES> 61,841
<TOTAL-REVENUES> 64,501
<CGS> 56,864
<TOTAL-COSTS> 57,459
<OTHER-EXPENSES> 8,999
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 672
<INCOME-PRETAX> (2,579)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,579)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
