PRESIDENT'S REPORT

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OsBCLNv83AZJQR5uthOVySSvewTXJNXXg/2YTizr0WvXwIfwXjndgjKqyItnA0Fn 5PIRcUJQLGf7UuCfA1bP6Q== 0000926236-01-500039.txt : 20010319 0000926236-01-500039.hdr.sgml : 20010319 ACCESSION NUMBER: 0000926236-01-500039 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLS GARDNER ELECTRONICS CORP CENTRAL INDEX KEY: 0000105608 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 361944630 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08250 FILM NUMBER: 1569866 BUSINESS ADDRESS: STREET 1: 2701 N KILDARE AVE CITY: CHICAGO STATE: IL ZIP: 60639 BUSINESS PHONE: 773-252-8220 MAIL ADDRESS: STREET 1: 2701 NORTH KILDARE AVENUE CITY: CHICAGO STATE: IL ZIP: 60639 10-K 1 wgc10k2000a.txt FISCAL YEAR END DEC 31, 2000 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File Number 1-8250 WELLS-GARDNER ELECTRONICS CORPORATION (Exact name of registrant as specified in its charter) ILLINOIS 36-1944630 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 2701 North Kildare Avenue Chicago, Illinois 60639 (Address of principal executive offices) Registrant's telephone number, including area code: 773/252-8220 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $1.00 par value American Stock Exchange ----------------------------- ----------------------- Title of each class Name of each exchange on which registered Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant 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). YES X NO Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's voting stock held by non- affiliates of the registrant (assuming for the purposes hereof, that directors, executive officers and 10% or greater stockholders of the registrant are affiliates of the registrant), based upon the closing sale price of the registrants Common Stock on March 1, 2001 was approximately $9,969,000. The number of shares of the registrant's Common Stock outstanding as of March 1, 2001, was 4,908,139. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 2000 are incorporated into Part II of this Report on Form 10-K and filed as Exhibit 13 hereto. Portions of the Registrant's Definitive Proxy Statement relating to the Registrant's 2001 Annual Meeting of Stockholders to be filed hereafter are incorporated into Part II of this Report on Form 10-K. As used in this Annual Report on Form 10-K, the terms "we," "us," "our" and the Company mean Wells-Gardner Electronics Corporation, an Illinois corporation, and its subsidiaries, unless the context indicates a difference meaning, and the term "common stock" means our common stock, $1.00 par value per share. PART I Item 1. BUSINESS OVERVIEW Founded in 1925, Wells-Gardner Electronics Corporation[R] (the "Company") is a distributor and ISO 9001 certified manufacturer of color video monitors, video liquid crystal & plasma displays, coin doors, coin mechanisms and other related distribution products for a wide variety of markets including, but not limited to, gaming machines, coin-operated video games, leisure and fitness, automotive, display, intranet, medical, service and video walls. During 2000, the Company formed a 50/50 joint venture named Wells-Eastern Asia Displays ("WEA") to manufacture video monitors in Malaysia. In addition, the Company acquired American Gaming & Electronics, Inc., a New Jersey corporation and its affiliates ("AGE") in January 2000. AGE, a leading parts distributor to the gaming markets, sells parts and service to over 500 casinos in North America with offices in Las Vegas and Reno, NV; Egg Harbor Township, NJ; Hollywood, FL; Palm Springs, CA and Chicago, IL. PRODUCTS The Company's primary business is the distribution, design, manufacture, assembly, service and marketing of electronic components which consist of video color monitors and displays, gaming supplies and components, coin doors and mechanisms and the bonding of touch sensors to video monitors. Related video products and accessories accounted for approximately 99 percent of revenue in 2000, 1999 and 1998. The Company offers a full line of video monitors, with CRT sizes ranging from 13" to 39" with horizontal scan frequencies from 15kHz to 70kHz. In addition to providing standardized products, the Company also customizes electrical and mechanical applications to meet specific customer require- ments and optically bonds touch screen sensors to the face of the monitors to allow the user of a CRT video monitor to interact with a computer program by touching a video screen. The Company's sells into the following markets: Market 2000 1999 1998 -------------------------------------------- Gaming 41% 29% 22% Service & Coin 28% 29% 20% Amusement 24% 30% 38% Other 7% 12% 20% ------------------------ Totals 100% 100% 100% ======================== MANUFACTURING AND ASSEMBLY The Company's production activities consist primarily of wiring printed circuit boards, assembling finished units (and to a limited extent subassemblies), aligning, testing and optically bonding touch sensors in both its Chicago plant and in WEA's plant in Malaysia. The Company manufactures a limited range of electronic components and coin doors and mechanisms and therefore relies on outside sources for the majority of the other required components. A limited number of sources are available for such electronic components and the other raw materials. Two sources supply the Company with almost all of the chassis subassemblies for its two- dimensional color game monitors. Chassis subassemblies are contracted off shore, based on custom designs developed by the Company. As the Company believes is characteristic of other manufacturers in its industry, it has been confronted with long lead times and cost pressures. MARKETING AND SALES The Company sells products throughout the world. A portion of the Company's products are sold through James Industries, Inc. under a Sales Representation Agreement (See Item 13. Certain Relationships and Related Transactions). James Industries, Inc. is headquartered in Inverness, Illinois and uses the services of regional sub-representative agents and firms. The Company maintains its own internal sales staff primarily for sales of products not covered under the Sales Representation Agreement, repair and service of its products and to support its external sales representative organization. The Company is licensed on a non-exclusive basis under certain patents owned by RCA Corporation, covering the technical and electrical design of color display and video monitor chassis. Fees under these licenses are based on the number of units shipped and amounted to less than 0.1% of total 2000 revenue. Although certain of these licenses may expire in the future, it has been the practice of the Company to renew such licenses on substantially the same terms. However, failure of the Company to obtain renewal of any of these licenses could have a materially adverse effect on the Company's business, financial condition and results of operations. The Company's business is generally not seasonal. The Company has no unique or unusual practices relating to working capital items. The Company's largest customer accounted for total revenues of 21%, 32% and 33% in 2000, 1999 and 1998, respectively. The Company's 2000 year-end backlog was approximately $10.4 million, representing approximately three months sales. It is the Company's experience that well over 90 percent of backlog results in revenue recognition. No material portion of the Company's business is subject to re-negotiation of profits or termination of contracts or subcontracts at the election of the Government. During 2000, the Company spent approximately $1,400,000 for product engineering, research and development costs, compared to $1,334,000 in 1999 and $1,536,000 in 1998. Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has no material effect upon the capital expenditures, earnings and competitive position of the Company. At December 31, 2000, the Company employed approximately 205 persons. The Company believes its relationship with its employees is satisfactory. Export sales were approximately 3 percent of sales in 2000 and 1999 and 4 percent in 1998. RISK FACTORS RELATED TO OUR BUSINESS AND INDUSTRY Our business may be harmed if we are unable to renew the licenses for the intellectual property we use in the manufacture of our products. A significant portion of our revenues are derived from the sale of products we manufacture using licensed patents and/or technology. If we fail to renew these licenses on favorable terms or at all, we could be forced to stop manufacturing and distributing these products and our financial condition could be adversely affected. The loss of, or interruption of supply from, our key suppliers could limit our ability to manufacture our products. We purchase certain materials and components for our products from various suppliers, some of which are located outside of the U.S. Any loss of, or interruption of supply from our key suppliers may require us to find new suppliers. We could experience production or development delays while we seek new suppliers and could have difficulty finding new suppliers, which could substantially impair our operating results and business. We depend on one customer for a significant portion of our sales. A single customer accounted for 21% of our total revenues in 2000, 32% of our total revenues in 1999 and 33% of our total revenues in 1998. If this customer were to reduce the amount of products and/or services purchased from us or discontinue its business relationship with us, our financial condition could be adversely affected. Our growth could be impaired if we are not able to continue to develop and maintain the success of WEA. WEA, the Malaysian joint venture we established in January 2000 with Easttech, is an important part of our plan for growth. We expect to produce a significant amount of our manufacturing requirements at WEA's facility in Malaysia. Our growth will depend, in large part, on the success of WEA. If we are unable to successfully complete this transition, we may not be able to grow as expected. Our current business may suffer if our move takes longer than expected or is unsuccessful. We plan to move from our current manufacturing and corporate headquarters facility in Chicago, Illinois to a new facility in the Chicago metropolitan area during mid-2001. If this move takes longer than expected, costs more than anticipated or is unsuccessful, or if we have failed to anticipate our needs in connection with this space, our business may suffer. Intense competition in our industry could impair our ability to grow and achieve profitability. We may not be able to compete effectively with current or future competitors. The market for our products and services is rapidly evolving and intensely competitive. We expect this competition to further intensify in the future. Some of our competitors are large companies with greater financial, marketing and products development resources than ours. In addition, new competitors may enter our key markets. This may place us at a disadvantage in responding to our competitors' pricing strategies, technological advances and other initiatives. Our gaming business is heavily regulated and we depend on our ability to obtain/ maintain regulatory approvals. The manufacture and distribution of parts for gaming machines are subject to extensive federal, state, local and foreign regulations and taxes, and the governments of the various gaming jurisdictions amend these regulations from time to time. Virtually all of these jurisdictions require licenses, permits, documentation of qualification, including evidence of financial stability, and other forms of approval for manufacturers and distributors of gaming machines and for their officers, directors, major shareholders and key personnel. The revocation or denial of a license in a particular jurisdiction could adversely affect our ability to obtain or maintain licenses in other jurisdictions. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Because we want to provide you with more meaningful and useful information, this annual report includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects and opportunities. You can find many of these statements by looking for words such as "may," "will," "expect," "anticipate," "believe," "intend," "estimate" and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2001 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include but are not limited to the factors described under the heading "Risk Factors" above. We caution you not to place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this annual report. Item 2. PROPERTIES The Company's current manufacturing and corporate headquarters is located at 2701 North Kildare Avenue in Chicago, Illinois. During 2000, the Company sold its ownership in this property. It has entered into a monthly lease with the current owner and expects to move into a new, modern, leased facility during mid 2001, resulting in a one-time charge. The Company's current leased Kildare facility has approximately 207,000 square feet of floor space. Not less than 100,000 of the 207,000 square feet of the plant are at any time dedicated to production. Offices for engineering, sales and administration are also located at that facility. The plant is in good condition, is well maintained, and currently has excess production capacity. In 2000, the plant operated at an average 69 percent capacity based on one shift production. The Company also has other leased facilities to support the operations of AGE. Item 3. LEGAL PROCEEDINGS As the Company sells its products and services to a wide customer base, from time to time it may be named in legal proceedings. The Company aggressively reviews all claims on a timely basis and in the opinion of management, any currently pending legal claims against the Company have no basis and no loss contingency reserves have been established. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the fourth quarter of 2000. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS. The information required by this Item is set forth in Exhibit 13 hereto under the caption "Common Share Market Price," which information is contained in the Company's Annual Report to Shareholders for the year ended December 31, 2000, and incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The information required by this Item is set forth in Exhibit 13 hereto under the caption "Selected Financial Data," which information is contained in the Company's Annual Report to Shareholders for the year ended December 31, 2000, and incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth in Exhibit 13 hereto under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" which information is contained in the Company's Annual Report to Shareholders for the year ended December 31, 2000, and incorporated herein by reference. Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this Item is set forth in Exhibit 13 hereto under the caption "Market and Credit Risks" in the Management's Discussion and Analysis of Financial Condition and Results of Operations which information is contained in the Company's Annual Report to Shareholders for the year ended December 31, 2000, and incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements together with the notes thereto are set forth in Exhibit 13 hereto which information is contained in the Company's Annual Report to Shareholders for the year ended December 31, 2000 and incorporated herein by reference. Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Operations for years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity for years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for years ended December 31, 2000, 1999 and 1998 Notes to the Consolidated Financial Statements Independent Auditors' Report Quarterly financial data for the years ended December 31, 2000 and 1999 are set forth in Exhibit 13 hereto in Note 13 of "Notes to the Consolidated Financial Statements" and are contained in the Company's Annual Report to Shareholders for the year ended December 31, 2000, which information is hereby incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS The information required by this Item is incorporated by reference from the "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," section of the Company's definitive proxy statement to be filed with the SEC in connection with our 2001 annual meeting of shareholders. EXECUTIVE OFFICERS OF THE REGISTRANT Year First Elected As An Name Office Age Executive Officer --------------------- ----------------------------- --- ----------------- Anthony Spier Chairman of the Board, President & Chief Executive Officer 56 1994 (Alex) C.D. Alexander Director of Materials 44 2000 Kathleen E. Hoppe Chief Information Officer 54 1994 Mark E. Komorowski Vice President of Sales & President of AGE 35 1994 Eric Slagh Director of Quality & International Operations 35 1997 Jeffrey A. Sterling Vice President of Engineering 42 1998 George B. Toma Vice President of Finance, Chief Financial Officer, Treasurer & Corporate Secretary 33 1996 Randall S. Wells Executive Vice President & General Manager 49 1980 Unless otherwise indicated, each executive officer has served in various executive capacities with the Company for the past five years. (Alex) C.D. Alexander joined the Company as Director of Materials in October, 2000. Prior to joining the Company, Mr. Alexander was Director of Materials at Sigmatron International and Robertson Worldwide. Eric Slagh joined the Company as Director of Quality in May, 1997 and became Director of International Operations in January, 2000. Prior to joining the Company, Mr. Slagh was Quality Assurance Manager at Danfoss Electronic Drives. Jeff Sterling joined the Company as Vice President of Engineering in November, 1998. Prior to joining the Company, Mr. Sterling was Development Director of Commercial Products at Zenith Electronics. Item 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference under the captions "Summary Compensation Table," "Option Grants in 2000," "Aggregated Option Exercises in 2000 and Option Values at December 31, 2000," "Report of Board of Directors on Compensation," and "Compensation Committee Interlocks and Insider Participation," of the Company's 2001 annual meeting definitive proxy statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference under the caption "Securities Beneficially Owned by Principal Shareholders and Management," of the Company's 2001 annual meeting definitive proxy statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Information required by this Item is incorporated by reference under the captions "Compensation Committee Interlocks and Insider Participation," of the Company's 2001 annual meeting definitive proxy statement. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (1) Financial Statements The information required by this Item is set forth in Part II, Item 8 of this Report. The Independent Auditors Report is set forth following the Financial Statement Schedule referred to under (2) below. (2) Financial Statement Schedules The information required by this Item is set forth following the signature page of this Report. (3) Exhibits The following exhibits are incorporated by reference or filed herewith: 3.1. Articles of Incorporation of the Company, as amended, filed as Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 3.2. By-Laws of the Company, as amended, filed as Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 10.1*. Amended Employment Agreement dated February 29, 1996, between the Company and Anthony Spier and incorporated herein by reference. 10.2*. Wells-Gardner Electronics Corporation Employee 401K Plan dated January 1, 1990 and Amendment 1 dated February 11, 1992, and Amendment 2 dated January 20, 1994, filed as Exhibit 10.10 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. 10.3*. Wells-Gardner Electronics Corporation 1996 Nonemployee Director Plan, filed as Annex A to the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 1996 and incorporated herein by reference. 10.4*. Wells-Gardner Electronics Corporation Amended and Restated Incentive Stock Plan, as amended and filed as Exhibit 4.1 of the Company's Form S-8, dated August 21, 1998 and incorporated herein by reference. 10.5. Amended and Restated Sales Representative Agreement dated December 9, 1998 and Amendment 1 dated August 30, 1999 and incorporated by reference in this Annual Report on Form 10-K. 10.6. Voting Rights Agreement dated December 9, 1998 and Amendment 1 dated August 30, 1999, among the Company, Anthony Spier, John R. Blouin, James J. Roberts, Jr. and James Industries, Inc. and incorporated by reference in this Annual Report on Form 10-K. 10.7. Acquisition of Certain Assets of American Gaming and Electronics dated January 12, 2000, filed as Exhibits 2.1, 2.2 and 2.3 on Form 8-K , dated January 27, 2000 and incorporated herein by reference. 10.8. Executive Stock Award Plan, filed as Exhibits 4.1 and 4.2 of the Company's Form S-8, dated May 12, 2000 and incorporated by reference in this Annual Report on Form 10-K. 10.9 Credit Agreements dated September 1, 2000, between American National Bank and Trust Company and the Company, filed as Exhibits 10.1, 10.2 and 10.3 of the Company's Form 10-Q dated November 3, 2000 and incorporated herein by reference. 10.10. License Agreement dated July 1, 2000, between the Company and RCA Corporation. 10.11. Agreement dated July 3, 2000, between the Company and Local 1031, I.B.E.W., AFL-CIO. 13. Certain portions of the Company's Annual Report to Shareholders for the year ended December 31, 2000 as specified in Part II hereof. 23. Consent of KPMG LLP. *Management contract or compensatory plan or arrangement. b. Reports on Form 8-K No reports on Form 8-K were filed during the last quarter ended December 31, 2000. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WELLS-GARDNER ELECTRONICS CORPORATION By: /S/ ANTHONY SPIER ---------------------- Anthony Spier Chairman of the Board, President & Chief Executive Officer February 7, 2001 /S/ GEORGE B. TOMA ----------------------- George B. Toma CPA, CMA Vice President of Finance, Chief Financial Officer, Treasurer & Corporate Secretary February 7, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated. Signature Title Date --------- ----- ---- /S/ ANTHONY SPIER ----------------------- Anthony Spier Chairman of the Board, President & Chief Executive Officer February 7, 2001 /S/ MARSHALL L. BURMAN ----------------------- Marshall L. Burman Director February 7, 2001 /S/ JERRY KALOV ----------------------- Jerry Kalov Director February 7, 2001 /S/ FRANK R. MARTIN ----------------------- Frank R. Martin Director February 7, 2001 /S/ ERNEST R. WISH ----------------------- Ernest R. Wish Director February 7, 2001 FINANCIAL SCHEDULE Schedules not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereof. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ALLOWANCE FOR DOUBTFUL ACCOUNTS Balance at Beginning (1) (2) Balance at Year of Period Additions Deductions End of Period ---- --------- --------- ---------- ------------- 1998 264,000 36,000 215,000 85,000 1999 85,000 36,000 61,000 60,000 2000 60,000 64,000 34,000 90,000 (1) Provision for bad debt. (2) Accounts receivable written off against the allowance. EX-10.10 2 ex10-10.txt LICENSE AGREEMENT EXHIBIT 10.10 [L/CDM/NA/001103/F] AGREEMENT, dated as of July 1, 2000, between THOMSON MULTIMEDIA LICENSING INC. (hereinafter called "TML"), a Delaware, U.S.A., corporation having an office at Two Independence Way, Princeton, New Jersey, U.S.A., WELLS-GARDNER ELECTRONICS CORPORATION (hereinafter called "Licensee"), having an office at 2701 North Kildare Avenue, Chicago, Illinois 60639-2014, U.S.A. W I T N E S S E T H: In consideration of the premises and of the covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS For the purposes of this Agreement, the following terms are defined: SECTION 1. "Contract Apparatus" means "Color Display Monitors" and shall include both complete Color Display Monitors as well as such monitors which are complete except for cabinets or other permanent housings. SECTION 2. (a) "Chromatic Colors" means colors such as reds, oranges, yellows, greens, and blues, as distinguished from the achromatic colors of black, white and grays. (b) "Color Cathode Ray Tube" means an Electron Tube in which electrical impulses are converted into a visible representation thereof and in which such visible representation may be produced in two or more Chromatic Colors. (c) "Color Display Monitor" means color display apparatus designed or adapted to provide color display of alphanumeric and/or graphic information from computers, character generators, word processors or other similar types of equipment. However, the term "Color Display Monitor" shall not include any apparatus capable of receiving and processing standard broadcast television signals. (d) "Electron Tube" means a device comprising two or more electrodes and an envelope which is to any extent evacuated or contains gas, vapor or liquid under any degree of pressure, and which operates by the passage of an electric current through such vacuum, gas or vapor to change the form of, control or modify energy supplied thereto. SECTION 3. (a) (i) "Patents" means letters patent, certificates of utility and utility models, rights (by license or otherwise) with respect to or under letters patent, certificates of utility and utility models, applications for letters patent, certificates of utility and utility models which have been opened for public inspection, and all reissues, divisions, continuations and extensions thereof. The term "Patents" does not include copyrights or trademarks. (ii) "TML's Patents" means Patents (as hereinabove defined) owned, controlled and/or acquired by TML at any time during the term of this Agreement, with respect to which and to the extent to which, and subject to the conditions under which, TML shall have the right to grant or cause to be granted licenses to Licensee during the term of this Agreement. (b) "Subsidiary" of either party is any corporation (which term includes any legal entity similar to a corporation), or other kind of business organization, in which such party now or hereafter has a "controlling interest". "Controlling interest" means, in the case of a corporation, direct or indirect ownership or control by such party, at any time during the term of this Agreement, of that number of the shares thereof representing the right to elect a majority of the directors of the corporation or persons performing similar functions; and, in the case of any other kind of business organization, it means that direct or indirect ownership or control, at any time during the term of this Agreement, of the capital thereof, or other interest therein, by or through which such party exercises, or has the power to exercise, in any manner, directly or indirectly, control or direction thereof. Any such corporation or other kind of business organization shall constitute a Subsidiary only for a period during the term of this Agreement that such controlling interest exists. ARTICLE II LICENSES SECTION 1. TML hereby grants to Licensee a non-exclusive, non- transferable, non-assignable, indivisible license, right and privilege under all of TML's Patents of Canada, Mexico and the United States to make Contract Apparatus, and a non-exclusive, non-transferable, non-assignable, and indivisible license, right and privilege under all of TML's Patents of all countries of the world to use, offer for sale, import, lease or otherwise dispose of such Contract Apparatus. SECTION 2. Anything in this Agreement to the contrary notwithstanding, no license is herein granted, and no act or acts hereunder shall be construed as or result in conveying any license, to Licensee or to any third party, expressly or by implication, estoppel or otherwise: (a) with respect to Color Cathode Ray Tubes; and (b) other than the licenses herein expressly granted to Licensee pursuant to Section 1 of this Article II. SECTION 3. At any time during the term of this Agreement, upon written request of Licensee, TML agrees to grant or cause to be granted to Licensee, in a standard form or forms in which TML then grants or causes to be granted such license or licenses, a non-exclusive license or licenses for the manufacture of Contract Apparatus under TML's Patents of other countries of the world. ARTICLE III COMPENSATION SECTION 1. Licensee agrees to pay compensation to TML as follows: (a) the sum of U.S. $500.00 within thirty (30) days after this Agreement becomes effective; and (b) the sum of U.S. $1.25 with respect to each unit of Contract Apparatus licensed under Article II, Section 1 of this Agreement. SECTION 2. (a) Within thirty (30) days after March 31, June 30, September 30 and December 31 of each year during the term of this Agreement, Licensee shall furnish TML with a written statement specifying the number of units of Contract Apparatus licensed hereunder and used, sold, leased or otherwise disposed of by Licensee during the preceding calendar quarter, and the total net compensation payable with respect thereto. The first such statement furnished by Licensee to TML shall include such information for all Contract Apparatus licensed hereunder and used, sold, leased or otherwise disposed of by Licensee from the effective date of this Agreement to the last day of the calendar quarter covered by such statement. At the time of furnishing such statements, Licensee shall also make the payments prescribed therefor in Section 1 of this Article III in the manner set forth in Section 5 of this Article III. (b) A similar statement shall be rendered and payment made to TML within thirty (30) days after, and as of, the date of any termination of this Agreement covering the period from the end of that covered by the last preceding statement to the date of such termination and including all Contract Apparatus manufactured during the term of this Agreement, or actually in manufacture upon the date of termination of this Agreement, and not used, sold, leased or otherwise disposed of prior to such termination, which Contract Apparatus, for the purpose of computing the payments to be made under Section 1 of this Article III, shall be considered as having been used, sold, leased or otherwise disposed of by Licensee prior to termination of this Agreement. (c) Contract Apparatus shall be considered as used, sold, leased or otherwise disposed of, as the case may be, when billed out, delivered, shipped or mailed to a customer, or when used or set aside for future use by Licensee, whichever shall first occur. SECTION 3. Licensee shall keep true and accurate records, files and books of account containing all the data reasonably required for the full computation and verification of the amounts to be paid and the information to be given in the statements provided for herein. Licensee shall, during usual business hours, permit TML or its duly authorized representatives adequately to inspect the same for the sole purpose of determining the amounts payable by Licensee pursuant to Section 1 of this Article III. The inspections should be limited to one per year and upon 30 days advanced written notice and inspection by outside auditors or accountants. The results of these inspections should be held in strict confidence by Licensor and not be used for any purpose other than to enforce the terms of this license agreement. In lieu of such inspections by TML or its duly authorized representatives, Licensee shall have the option to have such inspections made at Licensee's expense by independent chartered or certified public accountants mutually acceptable to TML and Licensee (which acceptance shall not be unreasonably withheld). Such inspections shall be made under TML's instructions and the results thereof shall be made available to TML and Licensee when completed. Such option may be exercised at any time during the term of this Agreement in respect of any period for which an inspection has not been made to verify the amounts so payable. Exercise of such option by Licensee shall be in writing. SECTION 4. Licensee shall pay interest to TML from the date due to the date of payment upon any and all amounts overdue and payable hereunder at a rate equal to four percent (4.0%) over the published prime rate of the Chase Manhattan Bank, New York, New York, as in effect from time to time during the period that any such amount is overdue. SECTION 5. All payments hereunder by Licensee to TML shall be made at such places as TML may direct in writing from time to time without any deductions for taxes or charges of any kind, which taxes and charges, if any, are assumed by Licensee. Notwithstanding the foregoing, in the event such payment is made from, and with respect to Contract Apparatus manufactured in, a country other than the United States, any tax which may be imposed on TML by the Government of the country from which payment is made (or any political subdivision thereof), and required by such Government or political subdivision to be withheld by Licensee, with respect to the compensation payable to TML pursuant to Section 1 of this Article III, may be deducted by Licensee before payment of such compensation; provided, however, that if any such tax shall be imposed at a rate in excess of the United States corporation income tax applicable to TML on such compensation for the taxable period for which such compensation is payable, then Licensee shall assume the excess of such tax over and above such United States corporation income tax on such compensation, and shall pay such excess to or for the account of TML; and provided, further, that Licensee shall furnish TML with certified statements and receipts and with such other supporting data as may be required by the United States Tax Authorities to establish that any such tax has been withheld. ARTICLE IV TERM AND TERMINATION SECTION 1. This Agreement shall be effective from the date first above written and shall continue in effect, unless sooner terminated as elsewhere provided in this Agreement, until June 30, 2005. SECTION 2. (a) If Licensee shall at any time default in rendering any of the statements which may be required hereunder, or in the payment of any monies which may be due hereunder, or in fulfilling any of the other obligations or conditions hereof, and such default shall not be cured within thirty (30) days after written notice from TML to Licensee specifying the nature of the default, TML shall have the right to terminate this Agreement by giving written notice of termination to Licensee, and this Agreement shall terminate upon the giving of such notice. (b) TML shall also have the right, to the full extent permitted by law, to terminate this Agreement by giving written notice of termination to Licensee at any time upon or after the filing by Licensee of a petition in bankruptcy or insolvency, or upon or after any adjudication that Licensee is bankrupt or insolvent, or upon or after the filing by Licensee of any petition or answer seeking reorganization, readjustment or arrangementof the business of Licensee under any law relating to bankruptcy or insolvency, or upon or after the appointment of a receiver for all or substantially all of the property of Licensee, or upon or after the making by Licensee of any assignment or attempted assignment for the benefit of creditors, or upon or after the institution of any proceedings for the liquidation or winding up of Licensee's business or for the termination of its corporate charter, and this Agreement shall terminate upon the giving of such notice. (c) In the event of the direct or indirect taking over, or assumption of control, of Licensee by any superior authority, TML shall have the right to terminate this Agreement at any time thereafter upon giving written notice thereof to Licensee, and upon the giving of such notice of termination this Agreement shall terminate forthwith. SECTION 3. Upon termination of this Agreement, by expiration or otherwise, all licenses, rights and obligations hereunder shall cease and determine except that the licenses granted under Section 1 of Article II hereof shall continue as to all specific units of Contract Apparatus manufactured by Licensee during the term of this Agreement, or actually in manufacture on the date of termination of this Agreement, for the full terms of the Patents under which such Contract Apparatus is licensed hereunder to be made and used, sold, leased or otherwise disposed of, and except that no termination of this Agreement, by expiration or otherwise, shall release Licensee from any of its obligations accrued hereunder (including its obligations to furnish statements, to pay compensation, and permit inspection of its records, files, and books of account, with respect to Contract Apparatus manufactured during the term of this Agreement by Licensee), or rescind anything done or any payment made or other consideration given to either party hereunder, prior to the time such termination becomes effective. SECTION 4. No failure or delay on the part of TML in exercising its right of termination hereunder for any one or more defaults shall be construed to prejudice its right of termination for such or for any other or subsequent default. ARTICLE V FORCE MAJEURE Anything contained in this Agreement to the contrary notwithstanding, if a party is prevented from performing any of its obligations hereunder by laws, orders, regulations and directions of any Government having jurisdiction over the parties hereto, or any department, agency, corporation or court thereof, or by war, acts of public enemies, strikes or other labor disturbances, fires, floods, acts of God, or any causes of like or different kind beyond the control of either party, then, except as hereinafter provided in this Article V, such party shall be excused from any failure to perform any such obligation to the extent such failure is caused by any such law, order, regulation, direction or contingency. If Licensee is prevented by any such law, order, regulation, direction or contingency (each of which is hereinafter referred to as a "mandatory restriction") from furnishing the statements or making the payments provided for in Article III of this Agreement at the times and in the manner prescribed by such Article III, all such statements not furnished and payments not made during the continuance of any such mandatory restriction shall be furnished and made immediately upon the discontinuance of such mandatory restriction. ARTICLE VI FURTHER ASSURANCES, NOTICES AND MISCELLANEOUS PROVISIONS SECTION 1. (a) This Agreement shall be binding upon and inure to the benefit of the Subsidiaries and successors of Licensee and TML and the assigns of TML. It shall not be assignable by Licensee, in whole or in part, to any other party whatsoever, nor shall the rights herein of Licensee otherwise be or become in any way, directly or indirectly, transferable or available to, or divisible or capable of being shared with, or inure to the benefit of, any other party without the prior written consent of TML, which consent shall not be unreasonably withheld. (b) Licensee shall be responsible for, and hereby assumes full liability in respect of, all royalty reports and payments for all Contract Apparatus made and used, sold, leased or otherwise disposed of by its Subsidiaries and Licensee shall take all actions necessary to cause its Subsidiaries to comply with their obligations under this Agreement. Within thirty (30) days after written request therefor by TML, Licensee shall supply TML with a complete list in writing of its Subsidiaries engaged, as of the date of the request from TML, in the manufacture and sale of Contract Apparatus and shall thereafter notify TML in writing of any changes therein within thirty (30) days after each such change. SECTION 2. TML shall not be held responsible by Licensee for the validity of any of TML's Patents or for the termination of any such Patents should such Patents be terminated for any cause whatsoever, and TML shall not be required to secure any Patent or Patent rights. SECTION 3. Nothing contained in this Agreement shall be construed as imposing on either party any obligation, or as conferring on Licensee any right, to institute any suit or action for infringement of any of TML's Patents, or to defend any suit or action brought by a third party which challenges or concerns the validity of any of TML's Patents. SECTION 4. It is expressly agreed by the parties that all matters relating to the construction and interpretation of this Agreement shall be construed, and that the legal relations hereunder between the parties shall be determined, according to the laws of the State of New York, U.S.A., exclusive of the choice of law provisions. SECTION 5. Any notice or request required or permitted to be given under or in connection with this Agreement or the subject matter hereof shall be deemed to have been sufficiently given when, if given to TML, it shall be addressed to THOMSON multimedia Licensing Inc., at its postal address: P.O. Box 2023, Princeton, New Jersey 08543-2023, U.S.A., or its courier address: Two Independence Way, Princeton, New Jersey 08540, U.S.A., and when, if given to Licensee, it shall be addressed to Licensee at its address set forth on the first page hereof, and in each case either delivered at such address to an officer of the party to which given, or sent by registered airmail. If mailed, the date of mailing shall be deemed to be the date on which such notice or request has been given. Either party may be given written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such party as above provided at such changed address. SECTION 6. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges all prior discussions and negotiations between them, and neither of the parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as expressly provided herein or as duly set forth on or subsequent to the date hereof in writing and signed by a proper and duly authorized officer or representative of the party to be bound thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers or representatives as of the day and year first above written. THOMSON MULTIMEDIA WELLS-GARDNER LICENSING INC. ELECTRONICS CORPORATION By: By: ------------------------ ------------------------------ Date: Date: ------------------------ ------------------------------ Witness: Witness: ------------------------ ------------------------------ [L/CDM/NA/001103/F] WELLS-GARDNER ELECTRONICS CORPORATION 2701 North Kildare Avenue Chicago, Illinois 60639-2014 U.S.A. Gentlemen: Reference is made to the agreement between THOMSON multimedia Licensing Inc. ("TML") and your company ("Licensee") which relates to Color Display Monitors, is effective July 1, 2000, and identified by the symbol [L/CDM/NA/001103/F] ("Agreement"). Notwithstanding the provisions of Article III, Section 1 of the Agreement, the compensation payable to TML with respect to each unit of Contract Apparatus which is licensed under the Agreement and which is an "Analog Color Display Monitor" shall be U.S. $0.50. For the purposes of this letter, the term "Analog Color Display Monitor" shall mean a Color Display Monitor which does not utilize a digitally controlled chassis employing a microprocessor. Except as otherwise provided herein, all of the provisions, terms and conditions of the Agreement shall remain unchanged. Very truly yours, THOMSON MULTIMEDIA LICENSING INC. Agreed to and Accepted by: By: --------------------------- WELLS-GARDNER ELECTRONICS CORPORATION Date: --------------------------- By: --------------------------- Date: --------------------------- [L/CDM/NA/001103/F] Wells-Gardner Electronics Corporation 2701 North Kildare Avenue Chicago, Illinois 60639-2014 U.S.A. Gentlemen: Reference is made to the agreement between THOMSON multimedia Licensing Inc. ("TML") and your company ("Licensee") which relates to Color Display Monitors, is effective July 1, 2000, and identified by the symbol [L/CDM/NA/001103/F] ("Agreement"). TML and Licensee hereby agree as follows: 1. Inspections performed under the provisions of Article III, Section 3 of the Agreement shall be performed by outside auditors engaged by TML; shall be limited to one inspection per calendar year and shall be performed only upon thirty days written notice to Licensee. TML agrees to hold the results of such inspections in confidence, subject to legal and regulatory requirements. 2. TML agrees that it will exercise its right to receive interest from Licensee under the provisions of Article III, Section 4 of the Agreement only in those instances where the amounts overdue and payable with respect to any particular calendar quarter exceed 5% of the total amount payable with respect to such calendar quarter. 3. Notwithstanding the provisions of Article IV, Section 1 of the Agreement, the Agreement shall renew automatically for a one year term upon its expiration, provided that Licensee is not then in material breach of the Agreement; unless TML shall have provided written notice to Licensee of its intent not to renew the Agreement at least six months prior to such expiration. Except as otherwise provided herein, all of the provisions, terms and conditions of the Agreement shall remain unchanged. Very truly yours, THOMSON MULTIMEDIA LICENSING INC. Agreed to and Accepted by: By: --------------------------- WELLS-GARDNER ELECTRONICS CORPORATION Date: --------------------------- By: --------------------------- Date: --------------------------- EX-10.11 3 ex10-11.txt UNION AGREEMENT EXHIBIT 10.11 AGREEMENT BETWEEN WELLS GARDNER e l e c t r o n i c s c o r p o r a t i o n AND LOCAL 1031 OF THE INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO July 3, 2000 to June 29, 2003 TABLE OF CONTENT'S PAGE ARTICLE I UNION AND MANAGEMENT Section 1. Parties and Effective Date ............ 1 Section 2. Expiration Date and Renewal ........... 1 Section 3. Recognition ........................... 1 Section 4. Management ............................ 1-2 Section 5. Union Shop ............................ 2 Section 6. Check-off ............................. 2-3 Section 7. Non-Discrimination .................... 3 Section 8. Trial Period Employees ................ 3-4 ARTICLE II REPRESENTATIVE, GRIEVANCES AND ARBITRATION Section 1. Stewards .............................. 4 Section 2. Grievance Procedure ................... 4-6 Section 3. Arbitration ........................... 6 Section 4. No Strike or Lockouts ................. 6-7 ARTICLE III HOURS OF WORK AND OVERTIME Section 1. Regular Work Week ..................... 7 Section 2. No Staggering ......................... 7 Section 3. Changing Workweek ..................... 7 Section 4. Overtime .............................. 8 Section 5. Shift Premium ......................... 8 Section 6. Preference of Shift and Overtime ...... 8 Section 7. Lunch Periods ......................... 8 Section 8. Rest Periods .......................... 9 Section 9. Reporting Pay ......................... 9 Section 10. Call-Back Pay ......................... 9 Section 11. No Pyramiding ......................... 9 ARTICLE IV SENIORITY Section 1. Basis of Seniority ....................... 9 Section 2. Effect of Seniority ..................... 9-10 Section 3. Seniority List ........................... 10 Section 4. Temporary Layoffs ........................ 10-11 Section 5. Temporary Transfers ...................... 11 Section 6. Options .................................. 11 Section 7. Demotion ................................. 11-12 Section 8. Rights on Recall ......................... 12-13 Section 9. Skill & Ability .......................... 13 Section 10. Vacancies................................. 13-14 Section 11. On-the-Job-Training ...................... 14 Section 12. Leave of Absence ......................... 15 Section 13. Loss of Seniority ........................ 15-16 Section 14. Promotion to Exempt Positions ........... 16 TABLE OF CONTENT'S CONT'D PAGE ARTICLE V VACATION AND HOLIDAYS Section 1. Eligibility and Amount of Vacation ....... 16-17 Section 2. Minimum Hours ............................ 17 Section 3. Computation of Vacation Pay .............. 18 Section 4. Scheduling of Vacations .................. 18 Section 5. Date Due ................................. 18 Section 6. Consecutive Days, etc ................... 18 Section 7. Retiree Pro-Rata Vacation Pay ............ 19 Section 8. Holidays and Holiday pay ................. 19-20 Section 9. Floating Holiday ......................... 20 ARTICLE VI WAGES Section 1. Rates .................................... 20 Section 2. Cost Of Living ........................... 20-21 Section 3. New Classifications ...................... 21 Section 4. Upgrading ................................ 21 Section 5. New Experienced Employees ................ 21 Section 6. Payday ................................... 22 Section 7. Piece Work ............................... 22 Section 8. Pension Plan ............................. 22 ARTICLE VII INSURANCE ................................. 22-23 ARTICLE VIIIGENERAL PROVISIONS Section 1. Saving Clause........................... 23 Section 2. Bulletin Board........................... 23 Section 3. Election Day.............................. 23 Section 4. Supervisors............................... 24 Section 5. Right of Access........................... 24 Section 6. Conflict with State & Federal Laws........ 24 Section 7. Female Employees.......................... 24 Section 8. Paid Leave of Absence .................... 24-25 Section 9. Jury Service ............................. 25 Section 10. Safety and Health Provisions.............. 25 Section 11. Union Employee Educational Assistance Program 26 Section 12. Call-In Sick / Personal Day............... 27 Section 13. Inventory Shutdown Scheduling............. 27 Section 14. Severance Plan............................ 27 Section 15. 401K Savings Plan ........................ 27 APPENDIX "A" Wage Scale - Effective 06-30-97.......... 28-31 APPENDIX "B" Insurance Coverage for Employees & Dependents 32-33 APPENDIX "C" Piece Work / Incentive System........... 34 ARTICLE I UNION AND MANAGEMENT Section 1. Parties and Effective Date: The parties to this Agreement are: Wells-Gardner Electronics Corporation, its successors or assigns, hereinafter called the "Company" and Local 1031, International Brotherhood of Electrical Workers, AFL-CIO, hereinafter called the "Union". This Agreement shall become effective July 3, 2000. Section 2. Expiration Date and Renewal: This Agreement shall remain in full force and effect until June 29, 2003 and then shall automatically renew itself from year to year thereafter, unless the Company or the Union gives written notice to the other party to amend, modify or terminate within not less than sixty (60) days prior to any expiration date. The parties may by mutual agreement modify or amend this Agreement at any time hereafter. Section 3. Recognition: The Company recognizes the Union as the sole and exclusive collective bargaining agent for all of the Company's production and maintenance employees located at 2701 North Kildare Avenue, Chicago, Illinois 60639 excluding Wells-Gardner Electronics Corporation executives and non-working supervisors, office, clerical and sales employees, engineering and laboratory employees, supervisors, guards, outside truck drivers, journey & craft persons who are represented for purposes of collective bargaining by unions affiliated with the AFL-CIO. Section 4. Management: The management of the Company and its operations, the direction of the work force, including the right to hire, assign, suspend, transfer, promote, discharge or discipline for just cause and to maintain discipline and efficiency of its employees and the right to relieve employees from duty because of lack of work or for other legitimate reasons not in conflict with the provisions of this Agreement; the right to determine the extent to which the plant shall be operated; the right to introduce new or improved production methods, processes or equipment; the right to decide the number and locations of plants, the nature of equipment or machinery, the products to be manufactured, the methods and processes of manufacturing, the scheduling of production, the method of training employees, the designing and engineering of products and the control of raw materials; the right to continue in accordance with past practice to assign work to outside contractors; and the right to enact Company policies, plant rules and regulations which are not in conflict with this Agreement, are vested exclusively in the Company. The Union recognizes that there are functions, powers, authorities and responsibilities belonging solely to the Company, prominent among which, but by no means inclusive, are those enumerated in the preceding paragraph. The management rights enumerated in said paragraph are not inclusive and shall not be deemed to exclude other functions not herein listed. The term "just cause" as used in this Agreement includes but is not limited to any violations of a published plant rule established pursuant to the provisions of Article I. Section 5. Union Shop: All employees covered by the terms of this Agreement shall be required to become and remain members of the Union as a condition of employment from and after the sixty-first (61st) day following the date of their employment or the effective date of this Agreement, whichever is later. Section 6. Check-Off: The Company agrees that it will make weekly deductions from each weekly pay check covering any and all amount of dues and initiation fees that may hereafter become due to the Union for any of its employees covered hereunder, provided that the Union requests such deductions and accompanies such requests with properly and legally executed assignments, in accordance with law, authorizing such deductions. The employer further agrees that once each week, it will remit promptly to the Union such collected amounts. At the end of each calendar month, the Company shall forward to the Union an alphabetical list of the names and the total amounts deducted during said month from each employee covered. In lieu of this monthly alphabetical list, the Company may, at its option, forward to the Union such an alphabetical list each week along with the weekly remittance of collected amounts. If through inadvertence or error, the Company fails or neglects to make a deduction which is properly due and owing from an employee's weekly pay check, such deduction shall be made from the next weekly pay check of the employee and promptly remitted to the Union. It is expressly agreed and understood that the Union assumes full responsibility for the validity and the legality of such employee's deductions as are made by the Company and hereby agrees to indemnify and save the Company harmless, by virtue of such collections and payments to the Union. No deduction shall be made from any employee for union dues in any week in which such employee receives a check representing a total of less than eight (8) hours at the employees regular rate of pay nor shall any deduction be made from any employee's pay check prior to the date on which, by the terms of this Agreement, he/she is required to become a member of the Union as a condition of employment. Section 7. Non-Discrimination: It is agreed between the parties that in the policies and practices of the Company and in the membership policies and practices of the Union there shall continue to be no discrimination against any employee on account of race, creed, color, national origin or sex. Section 8. Trial Period Employees: (a) Trial Period: New employees shall be on trial until they have been employed for a period of sixty (60) calendar days and during such period the Company shall have the right to dismiss or retain the employee at its own discretion. Upon completion of such sixty (60) calendar days of employment, the employee shall be deemed to be a regular employee. In all instances where a trial period employee is laid off for lack of work or granted a leave of absence for illness or other good cause, such reduction from active employment shall be deemed to be a layoff, unless at the date it occurs, the employee is given a written notice stating that he/she is terminated. (b) Return from Leave or Recall of Laid Off Trial Period Employee: Trial period employees who are laid off and by election of the Company subsequently recalled or who are granted a leave of absence and subsequently return to work, must complete sixty (60) calendar days of trial period active employment within six (6) months of the date of their original hire date in order to become a regular employee. Periods of trial period active employment, as referred to above, shall include any week in which the employee works at least one full day. At such time as the employee completes sixty (60) calendar day trial period active employment, his/her "original hiring date", for the purpose of determining his/her length of service (in accordance with Article IV, Section 3(b)) shall be established as that date sixty (60) calendar days prior to the date of completion of the trial period employment requirement. (c) Trial Period Employee Recalled Before Expiration of Six-Month Period: Trial period employees who have not completed sixty (60) calendar days of trial period employment within six (6) months from their original date of hire, but who are recalled or return from a leave of absence prior to the expiration of such six-month period will be permitted to complete the trial period requirement, although the six-month period elapses before such trial period is completed, provided the employee is not laid off before he/she completes his/her trial period employment. If such a layoff occurs before the employee bas completed his/her trial period and the six-month period has expired, said employee will be considered to have been terminated rather than laid off. (d) Extension of Trial Period: The Company shall have the right to extend the trial period to ninety (90) calendar days upon written notice to the Union and the employee prior to completion of the normal sixty (60) day trial period and shall retain the right to dismiss such employee during this extension period without being subject to review. In all instances where the trial period of a new employee is so extended, such employee's responsibility to become and remain a member of the Union in good standing as a condition of employment after sixty (60) days shall not be affected; and any benefits of the contract such as holiday pay and insurance coverage shall accrue to such- employee at the end of the initial sixty day period. ARTICLE II REPRESENTATION, GRIEVANCES AND ARBITRATION Section 1. Stewards: The Company agrees to recognize the Chief Steward and Shop Stewards selected by the Union in accordance with the Union rules and regulations. Such Chief Steward and Stewards may act as a grievance committee at the request of, and with, the Business Manager of the Union, or his/her representative. The Union will notify the Company as to the identity of such Chief Steward or Stewards and the Company shall not be required to recognize any other employees in the adjustment of complaints than those whose names are furnished to the Company as aforesaid. Such Chief Steward and Stewards shall be granted a reasonable amount of time during working hours for the purpose of investigating and adjusting complaints, provided however, that such Chief Steward and Stewards shall not leave their work without the permission of the immediate supervisor. Such permission, however, shall not be arbitrarily withheld. The Chief Steward and Stewards shall be granted top seniority in their respective departments for the purpose of layoffs and recalls. Section 2. Grievance Procedure: Any grievance arising during the life of this contract pertaining to wages, hours of work and working conditions of employees in the bargaining unit shall be subject to the procedures outlined below: Either the Company or the Union or any employee (or Steward, Chief Steward or Business Representative in his/her behalf) may file grievances. Grievances of the Company or Union shall be presented directly to the other in writing. Grievances of the employees shall be reduced to writing on grievance forms provided by the Union. All answers by the Company shall likewise be in writing. Grievances will be handled as follows: Step 1. The employee, his/her Steward or both, shall present the matter in dispute for settlement to his/her Supervisor. If the Supervisor's decision is not satisfactory or is not given within three (3) working days, Step 2 will be followed. Step 2. Such grievance shall then be presented by the Chief Steward within three (3) working days after the Supervisor's unsatisfactory decision or failure to give a decision, whichever is applicable, to the Department Head. If the Department Head's decision is not satisfactory or is not given within three (3) working days, Step 3 will be followed. Step 3. Such grievance shall then be presented by the Business Representative of the Union within five (5) working days from receipt of the Department Head's unsatisfactory decision or failure to give a decision, whichever is applicable, to the Human Resources Director who shall give his/her answer not later than five (5) working days after the presentation of the grievance to him/her. If the decision of the Human Resources Director is not satisfactory, such grievance will be discussed by the Business Manager of the Union and the Human Resources Director within five (5) working days after receipt by the Business Manager of the unsatisfactory answer by the Human Resources Director. In the event the Company and the Union are unable to settle any grievance under the procedures outlined above, the grievance shall be further processed under Section 3 - Arbitration - of this Article. A grievance must be filed no later than five (5) working days after the occurrence of the event in which it is predicated, except in instances where the employee, or his/her Steward or Chief Steward, could not reasonably have been expected to be aware of the occurrence of the grievance. A failure to file a grievance within the period specified shall be deemed a waiver of such matter. In all cases of grievances relating to time not worked, the Company shall be responsible only for the actual loss sustained by an employee. Any settlement of any grievance between the Company and a Steward, Chief Steward, or Business Representative in Steps 1, 2, and 3 above will not be final until reviewed and approved by the Business Manager of the Union or his/her designated representative. The Company may consider the matter closed unless it has been otherwise notified by the Business Manager of the Union or his/her delegated representative within ten (10) days after notice bas been given him/her of the terms and conditions of the proposed grievance settlement. An employee may be discharged or disciplined for cause. However, in case any employee, or the Union in his/her behalf, claims that he/she has been unjustifiably discharged or disciplined, a written complaint shall be filed within five (5) working days from the date of his/her discharge or discipline. Such complaint or grievance shall start under Step 2 above. Prior to the discharge or disciplining of an employee (except in cases of an employee under the influence of alcohol, drugs, etc., or theft or sabotage), the Chief Steward shall be notified and given the opportunity to discuss the discharge or discipline. In case of discharge or discipline for being under the influence of alcohol, drugs, etc., or for theft or sabotage, the Chief Steward shall be notified Immediately after the discharge. Section 3. Arbitration: In the event that the grievance or complaint cannot be adjusted in any of the foregoing steps, the matter may, at the request of either party, be submitted for final and binding arbitration by an impartial arbitrator who shall be chosen by mutual agreement of the Company and the Union. In the event that the Company and the Union are unable to agree upon an arbitrator, the parties will request the Federal- Mediation and Conciliation Service to submit a panel of nine (9) qualified arbitrators. Both the Company and the Union shall have the right to strike four (4) names from the panel submitted to the parties. The remaining name on the panel shall then become the impartial arbitrator. In the consideration of discipline or discharge cases, the arbitrator shall have authority and jurisdiction to direct the payment of back pay for lost time resulting from discharge. The arbitrator's decision shall be final and binding upon all parties. However, an arbitrator shall have no power or authority to add to, alter, or modify the terms of this Agreement or any supplementary agreement made between the parties hereto. The expenses of arbitration (except those of the respective parties) shall be borne equally between the Company and the Union. Section 4. No Strikes or Lockouts: There shall be no strikes, refusal to work or slowdown by the Union during the life of this Agreement, and there shall be no lockout on the part of the Company, unless either the Company or the Union should refuse to participate in arbitration proceedings or abide by the decision of an arbitrator, in accordance with Section 3 of this Article. Should there be such refusal by either the Company or the Union, this Section, at the option of the other party, shall be deemed inapplicable. There shall be no liability on the part of the Union for unauthorized strikes, stoppages or slowdowns, by any of the employees, but the Company shall have the right to discipline or discharge any employee who initiates, instigates, or participates in such unauthorized strikes, stoppages, or slowdowns. In consideration of this Agreement, the Union agrees not to sue the Company, its officers or representatives, and the Company agrees not to sue the Union, its officers, agents, or members in connection with any labor relations matters in any court of law or equity. The parties agree that the sole procedure for settlement of any disputes concerning labor relations matters between the Company and the Union shall be the grievance and arbitration procedure hereof. ARTICLE III HOURS OF WORK AND OVERTIME Section 1. Regular Workweek: The regular workweek shall consist of forty (40) hours on a schedule of eight (8) hours per day Monday through Friday. Section 2. No Staggering: The working day shall be continuous and employees shall not be compelled to lay off work for any period of time during the day and to resume work thereafter during the same day except in the case of lunch period or rest period. Section 3. Changing Workweek: Any changes in the regular workweek shall be by mutual agreement between the Company and the Union. The Company reserves the right to change regularly scheduled starting and quitting hours under emergency conditions, in which event the time worked before normal starting time or after the normal quitting time will not be considered overtime work payable at one and one-half (1/) time the employee's straight-time rate unless more than eight (8) hours of work are performed in a day or unless an employee is prevented from performing eight (8) hours of work for reasons of the Company's convenience rather than for circumstances beyond the control of the Company. Section 4. Overtime: All work performed in excess of eight (8) hours in any one (1) day, and all work performed on Saturday, and all work performed prior to the employee's regular hour for starting or after the employee's regular hour for quitting shall be considered overtime and shall be compensated for on the basis of one and one-half (11/2) times the employees straight time rate. All work performed on Sunday shall be compensated for at two (2) times the employees straight time rate. Section 5. Shift Premiums: Work performed on the second (or afternoon) shift shall be paid for at the rate of ten (10%) percent more than the rate paid for similar work on the first (or day) shift. Work performed on the third (or night) shift shall be paid for at the rate of fifteen (15%) percent more than the rate paid for similar work on the first (or day) shift. In ascertaining the vacation or holiday benefits to which an employee may be entitled, the shift premium shall be included in the computations. Section 6. Preference of Shifts and Overtime: When a preference of shifts is available on account of the occurrence of a vacancy, preference will be given on the basis of seniority and preference in the assignment of overtime should be based on the following formula: (a) Overtime on a job shall be assigned to those regularly doing that job in their respective departments pursuant to the principle of "line intact". (b) If additional help is required, employees with the greatest seniority in their classification in the department concerned and capable of doing the job in that department will be selected. (c) In the event no qualified employees wish the overtime assignment, it shall be assigned to and worked by the junior employee. (d) If necessary to go outside of that particular department, plant wide seniority will prevail if capable of doing the job. (e) In the event an employee is requested by the Company to work overtime, daily or Saturday, and he/she agrees to perform the overtime work but: (1) fails to notify the Company of his/her inability to report to work; or (ii) fails to give good cause explaining his/her inability to report for work; or (iii) fails to report for work, the employee shall not be permitted to work any overtime in any department for a period not to exceed thirty (30) days following the time the employee was requested to perform the overtime work. Section 7. Lunch Period: There shall be an allowance of a lunch period near the middle of a work shift of thirty (30) consecutive minutes. Section 8. Rest Periods: On each shift of the day there shall be a ten (10) minute rest period for each four (4) hours worked without deduction in pay. Section 9. Reporting Pay: Employees who report for work in person and have not been previously notified not to report shall receive four (4) hours' work or the equivalent in pay, based upon their regular straight time hourly rate of pay, except in case of an emergency beyond the control of the Company. Section 10. Call-Back Pay: An employee who has left the plant and is called back to work shall work and receive no less than four (4) hours of overtime pay at his/her regular straight time rate of pay, or the applicable straight time rate of pay for the job performed, whichever is greater. Section 11. No Pyramiding: In no event shall overtime or premium pay provided for in this Article be pyramided or duplicated. Only the applicable provision yielding the largest amount of pay shall be applied and such payment shall satisfy the requirements of all other applicable provisions. This limitation, however, does not apply to shift premiums. ARTICLE IV SENIORITY Section 1. Basis of Seniority: Each employee will have seniority standing in the plant equal to the employee's total length of service with the Company in the bargaining unit, dated from his/her first day of last continuous employment therein except as provided in Sections 3, 11, and 12 of this Article. Section 2. Effect of Seniority: Except as provided in Section 6 of Article III and Section 7 of this Article, in all cases of increase or decrease of forces, transfer, promotion, or demotion of employees and preference in the selection of shifts, plant-wide seniority shall prevail, provided the employees possess sufficient skill and ability to satisfactorily perform the work to be done. Where new equipment or added responsibilities are added to existing job classifications, the Company, in the event of a reduction in force, shall go strictly by seniority, regardless of the lack of experience of the senior employee. The Company shall train as needed to retain the senior employees. Section 3. Seniority Lists: The Company will furnish to the Union immediately after the signing of this Agreement, a Seniority List and will post copies of such list on the bulletin boards in the plant. The list is to be revised at six (6) month intervals. The Company will also furnish to the Union monthly a list of additions to and deletions from the Seniority List. (a) Except as otherwise provided in this Agreement, the Seniority List is to be used to determine an employee's seniority as to layoffs, recalls, promotions and demotions. An employee shall have his/her seniority date computed from his/her original date of employment in the bargaining unit, in determining the employee's seniority in cases of layoffs, recalls, promotions and demotions. (b) The Seniority List is to be used to determine which bracket in the vacation schedule is applicable. Since an employee's vacation is based on his/her length of service with the Company, his/her original hiring date or date of rehire will determine the length of his/her vacation. The amount of vacation pay for any one (1) year may be adjusted to comply with the minimum hours provision in this Agreement, but such adjustment shall not affect a succeeding year or years. (c) Employees having the same seniority (hired on the same date) will, if necessary, be rated by the Company based on their attendance and tardiness record. The employee with the least number of day absences in the contract year would be rated as having the most seniority. If no seniority can be determined by attendance, then the employee with the least amount of tardiness in the contract year will be rated as having the most seniority. Section 4. Temporary Layoffs: The parties recognize the necessity of temporary layoffs caused by shortage of materials or other reasons. It is, therefore, mutually agreed that such temporary layoffs may be made from time to time without regard to plant-wide seniority programs embodied in the contract. It is further agreed, however, that the number of hours each such employee may be laid off on such temporary layoff shall be recorded and no individual employee may be laid off on such temporary layoff without regard to seniority in excess of eighty (80) hours in each contract year. When the individual employee has been laid off eighty (80) hours, then the Company is obligated to place him/her on another job in accordance with plant-wide seniority, provided such employee possesses sufficient ability, skill and experience to satisfactorily perform the work available. Section 5. Temporary Transfers: For periods of work not exceeding eighty (80) hours the Company may transfer or assign employees temporarily, on a voluntary basis, but subject to plant seniority in the class from which they are being transferred, to work in job classifications in which they do not hold a regular job assignment, but have sufficient skill and ability to satisfactorily perform the work. Such employees shall be paid as follows: (a) If temporarily assigned to a job in a higher labor grade, the employee shall be paid, for the time involved, the next higher rate above his/her regular job rate in the progression scale for the higher grade. (b) If temporarily assigned to a job in a lower labor grade, the employee shall be paid his/her regular job rate. Section 6. Option: Any employee who is subject to demotion or transfer because of material shortage, curtailment of work or similar reasons, may have the option of accepting such demotion or taking a layoff until there is sufficient work in his/her regular classification. An employee who accepts such demotion or transfer may exercise such option up to four (4) weeks after the transfer or demotion, but he/she must give four (4) days' notice to the Company before he/she may exercise the option to take a voluntary layoff under this provision. Section 7. Demotion: (a) In the event of a reduction in force, or reduction in the work force of a job classification, all probationary employees in the classification shall first be removed from the classification or laid off. If further reduction is required; (b) Employees below the maximum rate in their respective classification shall be removed beginning with the lowest wage group in such classification based upon their plant seniority. (c) Employees effected by a reduction in force of job classifications five (5) or above first shall be offered a position which they bad previously held provided that they have sufficient seniority to displace an existing employee in the particular job classification and they have not previously "signed off" during the life of this agreement on that job classification. If an employee does not have the seniority to be transferred to a previously held job classification in a higher classification, the employee shall be offered a previously held job classification in a lower classification. If the employee does not have sufficient seniority for any previously held job classification, the employee shall be given an option to be transferred to a position in classification four (4) or below, provided that the employee has sufficient seniority to displace an individual currently working in the particular job classification. Employees not having sufficient seniority for a previously held job classification or any position in job classification four (4) or below shall be laid off in accordance with contractual requirements. (d) Employees working in job classification four (4) or below during a reduction in force in those classifications shall first be offered a previously held position if they have sufficient seniority to displace an individual from the particular job classification. Otherwise, the employee shall be transferred to another job classification within classifications four (4) or below for which the employee has sufficient seniority to displace an employee of lesser plant seniority. If the employee does not have seniority to displace any individual in job classification four (4) or below, the employee shall be laid off in accordance with contractual requirements. (e) All employees transferred during a reduction in force to another job classification which they have not previously performed shall be subject to a three (3) day qualifying period. During this time, the employee may elect to relinquish the position for any reason and/or "sign-off" the job classification. An employee who voluntarily elects to relinquish a position by signing off the job classification shall be laid off. During this three (3) day qualifying period the Company reserves the right to determine in its sole discretion whether an employee can adequately perform a particular job within the three (3) day qualifying period and the Company may then decide to lay off the employee. An employee who signed off voluntarily shall not be permitted to transfer to that job classification in the event of a future reduction in force for the life of this Agreement. An employee laid-off by the Company for being unable to adequately perform the job classification shall not be permitted to transfer to that job classification in the event of a future reduction in force until the employee provides that he/she possesses sufficient skill and ability to satisfactorily perform the work to be done. (f) All recalls during an increase in the work force shall be made in reverse order of seniority and pursuant to the applicable subsections of Article IV, Section 7 and 8. If there are vacancies in job classifications which they have previously performed, unless they have sufficient seniority to return to the classification from which they were originally removed as the need for additional employees in such job classifications presents itself, they will be given an opportunity to fill such vacancies. An employee with seniority may be recalled to Code 4 or lower even though he/she has not previously performed the work in such classification. Section 8. Rights on Recall: Any employee being recalled after a layoff shall be assured at least two (2) straight weeks of employment at the regular workweek schedule. In the event the Company has recalled an employee with such assurance, and then because of conditions over which the Company has no control (such as, but not limited to, power failure inability to acquire machinery and equipment to replace worn out machinery and equipment, bona fide material shortages over which the Company has no control), the Company is unable to furnish such two (2) weeks of employment, the Company shall not be bound by this provision. In the event the Company does not assure such two (2) weeks of employment at the normal scheduled number of hours per week, the employee may elect to not return until such time as the Company does assure two (2) such consecutive weeks of employment at the normal scheduled number of hours per week without loss of seniority status. In the event the employee does elect not to return, that employee shall notify the Company by telegraphic message or registered mail or in person to that effect so that the Company may keep an accurate record of the employees who still wish to retain seniority status. In the event the employee fails to notify the Company of his/her election not to return as herein provided, and fails to report as specified under Section 13(h) of this Article IV, the employee shall be regarded as having resigned. Section 9. Skill and Ability: Every employee who has completed his/her trial period shall, for the purpose of this Article, be deemed to have sufficient skill and ability to perform any common labor or common assembly job - Code 4 and below. Section 10. Vacancies: In the event that a permanent job vacancy develops in a classification covered by this Agreement, other than common labor or assembly, a notice of such vacancy shall be bulletined for a period of two (2) working days. The bulletin shall contain the job title, the maximum rate to be paid for the job, and a brief description of the job to be performed. Should additional personnel be required for a job within thirty (30) days of the time the job was last posted, the Company shall not be required to bulletin again such job until expiration of the thirty (30) day period. It is understood that within such thirty (30) day period the Company may take such steps as are necessary to fill such open jobs, provided no qualified employees have bid or are available. However, if an employee is not currently working on the days the open job is posted, but returns to work within the thirty (30) day period referred to above, he/she may apply for such posted job and will be considered for such posted job vacancies still remaining open. Employees with seniority who desire promotions to posted higher rated classifications shall, during the period that such vacancy is bulletined, file a form provided by their Supervisor for this purpose. If applicants with qualifications sufficient to perform the work satisfactorily have made application for the bulletined job, the qualified applicant with the greatest plant seniority shall be selected. It is intended that whenever possible promotions shall be made within the ranks and according to seniority. The Company may fill a posted vacancy until it has been determined by the Company that there are applicants who possess the qualifications required. The Company may offer a posted vacancy to a new employee who did not apply, or may hire a new employee for such vacancy in the event the applicants for the posted vacancy do not possess sufficient qualifications to satisfactorily perform the job. It is understood that employees who have bid upon, have been accepted, and are working on the posted job will not be eligible to bid on an additional posted job for a period of three (3) months following the time the job for which they were accepted was posted. The successful bidder for a posted job opening shall have the option to return to his/her former job within a period of two (2) weeks following the first day worked in the posted job opening. The Company shall have the option, within the same two (2) week period to return such successful employee to his/her former job in the event such employee cannot satisfactorily perform the work required to be done. The successful bidder for a posted job opening shall receive retroactive pay from the first day worked in the posted job opening who successfully completes the two (2) week trial period. Section 11. On-the-Job Training: Employees who bid on posted jobs, but do not possess sufficient qualifications to be selected, may be considered for training under the following procedures: (a) The number to be considered for training will be in relation to the number needed to fill the posting at the time of posting. (b) Selection for training will be on the basis of related education, prior employment experience, current employment experience as related to the training to be given. Qualifications being comparable, seniority will govern. (c) Evaluation of qualifications for training, as well as the progress of the trainee, will be determined by the Company. (d) A trainee who is unable to progress satisfactorily will be returned to his/her prior classification without loss of seniority. Section 12. Leaves of Absence: (a) The Company may grant leaves of absence without pay to all regular employees of the Company for good cause, taking into consideration not only the personal problems of the employee but also the Company's operational needs for production. Such leaves for good cause other than for medical reasons shall not exceed ninety (90) days except for Union activity, which may be indefinite. Leaves of absence for illness will be granted for such periods as have been recommended by competent medical authority but not to exceed one (1) year. In the event an employee is hospitalized in excess of seven (7) days, an automatic leave of absence shall be granted up to thirty (30)days, provided that the Human Resources Director of the Company is notified of the hospitalization within three (3) working days from the last day worked. Any other request for leave of absence for illness must be made by an employee on forms provided by the Company and must be accompanied by a report from the employee's doctor recommending the time required for leave of absence. (b) Because pregnancy by itself is not a disabling condition for any fixed period of time, the Company agrees to grant maternity leaves of absence based upon the medical opinion of the employee's physician. The leave of absence shall begin when it is determined by the employee's physician that the employee is no longer able to perform those duties characteristic of her position. The leave shall continue until, and only until, the employee, on the basis of her physician's opinion, is able to return to work, not to exceed one (1) year. (c) Employees on a bona fide leave of absence, when returning to work, shall return to their former classification if such work is being performed. Application forms of all leaves of absence must be completed and be submitted to the Company within five (5) working days from their last day worked or their date of recall, and such application for leaves shall be required for any period of seven (7) or more consecutive calendar days in which the employee is out of the service of the Company. d) Employees granted a leave of absence will not be asked or required to use their remaining vacation days left before granting said leave. Section 13. Loss of Seniority: An employee shall lose his/her seniority when any of the following occur: (a) Discharge for cause. (b) Quitting. (c) Absence from work for three (3) working days without notifying the Human Resources Department of the Company. (d) Failure to apply for a leave of absence as required. (e) Exceeding leave of absence without notification to the Human Resources Department presenting good cause. (f) Working for another employer for wages while on leave of absence (this does not apply to leaves of absence for Union activity or layoffs). (g) Layoff or sick leave for a continuous period in excess of one (1) year for purposes of seniority only. (h) Failure to report for work on recall or to notify the Human Resources Department of intention to report within three (3) regularly scheduled working days following the date notification is sent by mailgram or certified letter to the employee's last known address registered with the Human Resources Department. Section 14. Promotion to Exempt Positions: Any employee covered by this Agreement who is transferred to a supervisory position outside of the bargaining unit, shall retain his/her seniority as of the date of transfer. Any employee who is, or has been, employed in a supervisory position outside of the bargaining unit, shall not accumulate seniority in the bargaining unit while so employed. ARTICLE V VACATIONS AND HOLIDAYS Section 1. Eligibility and Amount of Vacation: The Company will grant vacation with pay to each employee in accordance with the following schedule: (a) All employees who on June 1st have been employed by the Company (in or out of the bargaining unit) six (6) months or more but less than twelve (12) months, shall be granted one-half (1/2) week's vacation with pay; (b) All employees who on June 1st have been employed by the Company (in or out of the bargaining unit) for a period of twelve (12) or more months, but less than two (2) years, shall be granted one (1) week's vacation with pay; (c) All employees who on June 1st have been employed by the Company (in or out of the bargaining unit) for two (2) years or more, but less than ten (10) years, shall be granted two (2) weeks' vacation with pay; (d) All employees who on June 1st have been employed by the Company (in or out of the bargaining unit) ten (10) years or more, but less than fifteen (15) years, shall be granted three (3) weeks' vacation with pay; (e) All employees who on June 1st have been employed by the Company, (in or out of the bargaining unit), fifteen (15) years, but less than twenty-five (25) years, shall be granted four (4) weeks vacation with pay; (f) All employees who on June 1st have been employed by the Company (in or out of the bargaining unit) twenty-five (25) years or more, shall be granted five (5) week's vacation with pay; (g) Additional vacation with pay shall be granted to those employees who as of December 31, have accrued seniority which would entitle them to additional vacation benefits over those to which they were entitled on the preceding June 1. The same limitations and requirements as prescribed for in Article V shall- also apply and the date, June 1, shall be replaced by the date December 31, where appropriate. Section 2. Minimum Hours: (a) Employees with seniority (in or out of the bargaining unit). One (1) year or more. To qualify for full vacation benefits, the employee, as of June 1st with seniority, must have worked, or have been available for work eighty (80%) percent of the work year prior to June 1st. Time off due to occupational injury, jury duty or layoff shall be considered as time available for work. No vacation benefits shall be paid to an employee who has worked less than thirty (30%) percent of the work year prior to June 1st. An employee who has worked more than thirty (30%) percent of the work year, but has worked or been available for work less than eighty (80%) percent of the work year prior to June 1st, will be granted a vacation which will be equal to his/her vacation bracket multiplied by the percentage of time worked and time available for work. If an employee is on layoff, in military service, or bona fide leave of absence as of June 1st, he/she shall be paid at vacation time, the same portion of his/her vacation as the time actually worked bears to the work year, When he/she is recalled he/she must return within three (3) working days and work at least two (2) weeks. If he/she does so, he/she shall then receive the unpaid balance of his/her vacation benefit to which he/she is entitled. (b) Employees with seniority (in or out of the bargaining unit) of at least six (6) months, but less than one (1) year. To qualify for full vacation benefits the employee, as of June 1st with seniority, must have worked (availability for work does not apply) eighty (80%) percent of the time from date of employment to June 1st. An employee who has worked more than thirty (30%) percent but less than eighty (80%) percent of the time from date of employment to June 1st, will be granted a vacation equal to twenty (20) hours multiplied by the percentage of time actually worked. No vacation benefits will be paid to an employee who has worked less than thirty (30%) percent of the time from date of employment to June 1st. Section 3. Computation of Vacation Pay: In computing vacation benefits, one (1) week's vacation with pay shall be equivalent to five (5) working days, and eight (8) hours' pay shall be equivalent to one (1) working day. If the employee is paid at a flat hourly rate, the vacation pay shall be at the highest rate earned for at least thirty (30) consecutive days during the year prior to June 1st, including shift premiums, if any. Section 4. Scheduling of Vacations: Prior to May 1st of each calendar year, departmental heads will consult with all employees entitled to vacations and from such consultations the Company shall establish a working schedule agreeable to the Union for the vacation period. In determining vacation schedules, the Company will respect the seniority and wishes of the employee to the extent that its needs will permit. (a) The vacation season for those employees eligible for more than two (2) weeks vacation with pay, shall be during the twelve (12) month period beginning on January 1st. (b) The vacation season, for those employees hired between June 2 and prior to December 31, eligible for additional vacation with pay, shall be taken between their hire date and December 31. The Company may elect to close the plant for a specified vacation period. Section 5. Date Due: Vacation pay which bas been earned, in accordance with this Article, shall be paid to the employee on the payday immediately preceding the start of each employee's vacation. Section 6. Consecutive Days, Etc.: All vacations of two (2) weeks or less shall be taken on consecutive days unless the Company and the employee agree on a different division of the vacation time. If an employee is eligible for a vacation in excess of two (2) weeks, or additional vacation, his/her vacation schedule for such an additional vacation, if any, shall be determined pursuant to Section 4 of this Article. Vacations shall not be changed without thirty (30) days notice, or the consent of the employee involved. If any employee voluntarily responds to a Company request to return from his/her vacation prior to its expiration date, he/she shall be reimbursed for all out-of-pocket expense in connection with such recall and allotted an additional vacation period for the untaken vacation time. Section 7. Retiree Pro-rata Vacation Pay: Any employee who retires prior to June 1st of any calendar year at the retirement age prescribed by the Social Security laws of the United States and who has given to the Company a two (2) month notice in writing in advance of his/her intention to do so shall be paid the pro-rata vacation pay earned by such employee, the amount of which is to be determined by provisions of Section 1, 2, and 3 of Article V. Section 8. Holidays and Holiday Pay: Employees who qualify hereunder shall be paid for eight (8) hours straight-time pay for each of the following holidays or the dates on which they are observed, though no work shall be performed on such days: New Years' Day Fourth of July Dr. Martin Luther King's Birthday Labor Day Washington's Birthday Thanksgiving Day Good Friday Friday after Thanksgiving Day Memorial Day One Floating Holiday - Christmas Eve Day See Section 9 below Christmas Day Employees who work on said holidays shall be paid, in addition to eight (8) hours holiday pay, double time for all time worked. An employee shall be eligible for holiday pay who shall have been employed for a period of sixty (60) calendar days before such holiday and has met one of the following additional conditions: (a) Worked the regularly scheduled workday preceding and the regularly scheduled workday succeeding the holiday, unless an absence for one of such days shall be excused for good cause, substantiated by the employee, or (b) Been at work in the two (2) weeks preceding said holiday and laid off during such preceding two (2) weeks, or (c) Is on a bona fide leave of absence starting within the two (2) weeks immediately preceding such holiday, or on the workday immediately following such holiday, or (d) If no work is scheduled between two (2) holidays, to be eligible for pay for both holidays, an employee must work his/her preceding scheduled workday and his/her scheduled workday succeeding such holidays. To be eligible for pay for one (1) of the holidays, an employee must work either his/her scheduled workday preceding the first holiday or his/her scheduled workday succeeding the second holiday. (e) An employee who fails to work any portion of the last hour on the regularly scheduled workday preceding and the regularly scheduled workday succeeding a holiday or holidays, shall not lose holiday pay for such holidays if excused by the Company for good cause. Section 9. Floating Holiday: Subject to the eligibility requirements for holiday pay, the recognized holidays hereunder shall include one (1) additional holiday, designated as a "floating holiday". The Company shall select the day on which such holiday will be observed and shall give not less than two (2) weeks notice prior to the date on which such floating holiday will be celebrated. ARTICLE VI WAGES Section 1. Rates: Effective July 3, 2000 each employee shall receive a three percent (3%) increase in his/her straight time hourly rate of pay. Effective July 2, 2001 each employee shall receive an additional three percent (3%) increase in his/her straight time hourly rate of pay. Effective July 1, 2002 each employee shall receive an additional three percent (3%) increase in his/her straight time hourly rate of pay. These rates already include any increases that might have occurred by right of Section 2., Cost of Living of this Article VI. The wage rate, to be paid under the terms of this Agreement to employees in each occupational classification, are those appearing in Appendix "A" which reflect said wage increase and is attached hereto and made a part hereof. Such rates are minimum rates of pay only. The Company may not pay less than those rates, but nothing in this Agreement shall prevent the payment of rates higher than those listed in said schedule. Section 2. Cost of Living: If for the month of May 2001, the Revised Consumer Price Index for Urban Wage Earners and Clerical Workers, all items for Chicago published by the Bureau of Labor Statistics of the U.S. Department of Labor (or any successor agency thereto) (1967 = 100) has increased by more than four (4) points above said Index for the month of May 2000, then one (1c) cent shall be added to the hourly wage rates as set forth in Appendix "A" hereof and which are in effect from July 1, 2001 until July 1, 2002 for each full four-tenths (.4) of a point which said Index has risen above said four (4) points up to a maximum of fifteen (15c) cents. If for the month of May 2002 said Index has increased by more than four (4) points above said Index for the month of May 2001, then one (1c) cent shall be added to the hourly wage rates as set forth in Appendix "A" hereof and which are in effect from July 1, 2002 until July 1, 2003 for each full four-tenths (.4) of a point which said Index has risen above said four (4) points up to a maximum of fifteen (15c) cents. Section 3. New Classifications: Prior to establishing a new classification, the Union shall be advised of the Company's intention and the rate which the Company wishes to apply. After thirty (30) days of operation but before sixty (60) days, either party may request negotiations on the rate for the new classification. The rate resulting from these negotiations shall become the permanent rate. In the event no request is made to negotiate a change in the rate as to the new classification, it is understood that the established rate shall be the effective rate. Section 4. Upgrading:. An employee being upgraded, who has not previously worked in the classification to which he/she is upgraded, shall be placed in the next higher rate in the progression plan of the new classification above the rate being paid to such employee prior to the upgrading. If the employee has previously worked in the classification to which he/she is upgraded, he/she shall receive the rate to which the amount of his/her previous experience entitles him/her. Such changes in the rate shall be paid retroactive from the first day worked following such transfer who successfully completes the two (2) week trial period. To be eligible for a rate change, an employee must have worked at least four hundred (400) hours and a period of at least thirteen (13) weeks shall have elapsed since his/her first employment or his/her last classification change. Section 5. New Experienced Employees: New employees who have worked during the last eighteen (18) months in the type of work available and whose previous experience can be verified shall be placed on two (2) weeks trial period at the starting rate of pay in their respective classifications and at the expiration of such trial period, if retained in the employ of the Company, shall be given credit in the automatic progression plan, as outlined in Appendix "A" hereof for their proved experience in similar work. Section 6. Payday: Wages shall be paid on Friday of each week and shall include all work performed up until twelve (12) midnight of the previous Sunday. Section 7. Piece Work: If the Company utilizes a piece work incentive or bonus plan, the operations of such a plan shall be covered by the provisions of Appendix "C" hereof. Section 8. Pension Plan: During the term of this Agreement, the Company shall maintain for each of the employees covered by this Agreement a Pension Benefits Plan. The Company and the Union have agreed to a pension benefits plan named the National Industrial Group Pension Plan. The employee pension plan is funded solely by the Company and the contribution rate is based on cents per hour paid as follows: Effective July 3, 2000 _ thirty-four cents (34c) per hour will be contributed for each employee based upon hours paid of this Agreement. Effective July 2, 2001 - an additional three cents (3c) per hour will be contributed for a new total of thirty-seven cents (37c) based upon all hours paid during the second year of this Agreement. Effective July 1, 2002 - an additional three cents (3c) per hour will be contributed for a new total of forty cents (40c) based upon all hours paid during the third year of this Agreement. ARTICLE VII INSURANCE During the term of this Agreement, the Company will maintain for the employees covered by this Agreement, an insurance policy with a responsible insurance company with coverages and provisions set forth in Appendix "B" of this Agreement. The premium per week per employee, one (1) dependent and family coverage is guaranteed unchanged for the first year of this contract. HMO Plan: Employee - $ 2.74 per week Employee + 1 Dependent - $ 9.19 per week Family - $ 15.65 per week PPO Plan: Employee - $ 17.55 per week Employee + 1 Dependent - $ 43.71 per week Family - $ 70.87 per week For the second and third years of the contract, premium increases will be shared on a 50/50 basis only if the premium is increased over six percent (6%) for each year of the contract. This article applies only to employees with sixty (60) days or more of seniority but does not apply to part-time employees. ARTICLE VIII GENERAL PROVISIONS Section 1. Saving Clause: All benefits affecting the employees covered by this Agreement presently in effect and which are not definitely referred to or changed herein, shall remain in effect during the life of this contract. Section 2. Bulletin Board: A bulletin board will be provided by the Company for the Union's use. The Union shall have the privilege of posting notices concerning its official business and social activities upon such bulletin board. Where the size of the plant requires it, more than one (1) bulletin board will be furnished by the Company. Section 3. Election Day: In conformity with the laws of the State of Illinois, employees who are legitimate registered voters will be given time off not to exceed two (2) hours for voting at general elections. At the time of an election in which a President of the United States will be selected, employees will be given paid time off not to exceed two (2) hours. Section 4. Supervisors: Departmental production supervisors shall not engage in production work, except such production work may be undertaken when instructing new employees, breaking in a new job, correcting faults of production procedures and dealing with emergencies. Section 5. Right of Access: Authorized Union officers or representatives shall have access to the factory during business hours upon reasonable notification to the Company for investigation and adjustment of matters covered by or arising under this Agreement. Section 6. Conflict with State and Federal Law: Should any provision of this Agreement be declared illegal by any court of competent jurisdiction such provision shall immediately become null and void leaving the remainder of the Agreement in full force and effect and the parties shall thereupon seek to negotiate substitute provisions which are in conformity with the applicable law. Section 7. Female Employees: There shall be equal pay for equal work performed regardless of the sex of the employee. There shall be no discrimination in wages, hours, or other terms or conditions of employment, or in training or upgrading, on account of the sex or marital status of the employee. Section 8. Paid Leave of Absence: In instances of the death of a member of the immediate family of a regular employee, the Company will, where required, grant a paid leave of up to three (3) regular working days to enable such employee to attend the funeral and otherwise assist in arrangements pertaining to the burial of such member of the family. An employee who travels a long distance to attend a funeral or services shall be authorized one (1) additional day following the funeral or services, but not to exceed three (3) days pay. Each day's pay shall consist of the employee's regular rate of eight (8) hours. The term "immediate family", as used herein, is defined as consisting of the following members only: Mother, Father, Husband, Wife, Children, Brother, Sister, Mother-in-law, Father-in- law, Grandparents, Grandparents-in-law and Grandchildren. Where a death occurs to any such member of the employee's family, he/she shall make application to the Human Resources Director for such paid leave. Such paid leave will not be granted in instances when the employee, otherwise eligible, does not attend the funeral. The employee absent on a paid leave shall not be eligible for, or notified of, any overtime which is scheduled during the period of such employee's leave. This provision is not applicable if you are on a formal leave of absence, on a company designated holiday or during periods of vacation. Section 9. Jury Service: An employee who shall have been employed sixty (60) calendar days immediately prior to reporting for jury duty and who performs jury service shall be paid an amount for each day of the regular workweek that such employee performs jury service as shall equal eight (8) hours of straight-time pay at the employee's regular hourly rate less the jury fee legally payable to such employee for that day of jury service. An employee shall have performed jury service on any day that such employee reports to Court for jury service pursuant to an Order of Court. The payments as provided herein shall be for the entire period of service on a jury pursuant to an Order of Court. To be entitled to receive such jury service pay differential, such employee shall furnish the Human Resources Director of the Company a voucher from the Court wherein such jury service is performed setting forth the number of days of jury service and the jury fees paid to such employee for jury service. In the event an employee performs jury service on a day for which such employee receives a vacation and/or holiday pay, such employee shall not be paid jury service pay differential for that day. An employee who is on leave of absence, layoff, paid death leave, or who is accruing Workers' Compensation benefits shall not be paid jury service pay differential while on such status. An employee performing jury service shall return to work on his/her first regular workday after being excused from such jury service. Section 10. Safety and Health Provisions: The Company shall make reasonable provisions for the safety and health of employees during working hours and shall provide all reasonable protective devices and other equipment to protect them from injury. Section 11. Union Employee Educational Assistance Program: (A) Education Eligibility Requirements: 1. Educational courses must be related to the classification of work being or to be performed by the employee. 2. Such courses and institutions must be approved by the Company prior to enrollment. 3. Courses are to be taken during non-scheduled working hours. (B) Amount of Reimbursement: 1. For employees who complete specialized courses, the Company will pay up to 100% of the tuition charges per semester at the satisfactory (grade "C" or better) completion of the course material in an approved school. 2. When education expenses are partially paid by assistant- ships, scholarships, fellowships, or G.I. Bill Benefits, tuition reimbursements is based on the net amount actually paid by the employee, excluding amounts paid through assistantship, scholarships, fellowships, or G.I. Bill Benefits. (C) Method of Reimbursement: 1. To be eligible for tuition refund, the employee must, prior to the time of enrollment, fill out an application form per semester, for course(s) contemplated. 2. Obtain the approval of the employee's supervisor who in turn will get the Company approval through Human Resources. 3. Upon completion of course(s), submit to the employees supervisor a written statement from the school stating that the course(s) have been satisfactorily completed. This is usually a copy of the grade statement. 4. A tuition receipt. The supervisor will forward this information to the Human Resources Director and within two (2) weeks the employee will receive a check containing the proper tuition refund as well as his/her tuition receipt and grade statement. 5. If for any reason employment is terminated before completion of the program, then the Company's obligation ceases. Section 12. Call-in Sick / Personal Day: Each regular employee of the Company shall be eligible for a call-in sick/personal day of one (1) each contract year. Such day is not cumulative from year to year but the Company will pay the employee by July 1 of each contract year for the day not taken. One (1) such day shall equal eight (8) hours pay at the employee's regular hourly rate of pay. Section 13. Inventory Shutdown Scheduling: The Company will schedule inventory by departmental seniority, and shall, in the event that additional employees are required in the stock room area, first ask former stock room area employees to work. Section 14. Severance Plan: The Company will agree to negotiate a severance plan if the plant operations were to move beyond a radius of more than twenty (20) miles from the Chicago plant. Section 15. 401K Savings Plan: The Company agrees to start up and administer a 401K Savings Plan if thirty percent (30%) or more participation is achieved. Signed this______day of_______________, 2000. Local 1031, International Brotherhood Wells Gardner Of Electrical Workers, Electronics Corporation AFL-CIO ______________________________ ______________________________ Anthony Spier Jose A. Caez President Business Manager/Financial Sec'y ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, FOR PERIOD JULY 3, 2000 UNTIL JUNE 29, 2003. APPENDIX "A" WAGE SCALE EFFECTIVE 07/03/2000 THROUGH 06/29/2003 JOB CLASSIFICATION START 2MO 3MO ------------------ ----- ----- ----- 2-8 Sweeper 3-2 Assy., Wirer-Solderer 3-5 Riveter Effective 07/03/00 7.54 10.84 10.94 Effective 07/02/01 7.77 11.17 11.27 Effective 07/01/02 8.00 11.51 11.61 START 2MO 12MO 24MO 36MO ----- ----- ----- ----- ----- Hired After 7/1/97 7.11 7.75 8.38 9.66 Refer to 3 month rate above 3MO G.L. Specialist ----- Effective 07/03/00 11.54 Effective 07/02/01 11.89 Effective 07/01/02 12.25 JOB CLASSIFICATION START 2MO 3MO ------------------ ----- ----- ----- 4-1 Wire Cutting Machine Operator 4-3 Bailer-Sweeper 4-5 Packer-Final Assembly 4-6 Coin Effective 07/03/00 7.56 10.95 11.15 Effective 07/02/01 7.79 11.28 11.48 Effective 07/01/02 8.02 11.62 11.82 START 2MO 12MO 24MO 36MO ----- ----- ----- ----- ----- Hired After 7/1/97 7.13 7.78 8.43 9.72 Refer to 3 month 3MO G.L. Specialist ----- Effective 07/03/00 11.54 Effective 07/02/01 11.89 Effective 07/01/02 12.25 ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, FOR PERIOD JULY 3, 2000 UNTIL JUNE 29, 2003. APPENDIX "A" CONT'D WAGE SCALE EFFECTIVE 07/03/2000 THROUGH 06/29/2003 JOB CLASSIFICATION START 2MO 6MO ------------------ ----- ----- ----- 5-1 Heavy Packer 5-2 Stockkeeper, Stock Delivery 5-5 Rivet/Pems Set-Up Oper. 5-6 Prepare & Operate Insertion Machine 5-7 Automatic Checking Machine Operator Effective 07/03/00 7.63 11.02 11.23 Effective 07/02/01 7.86 11.35 11.57 Effective 07/01/02 8.10 11.69 11.92 START 2MO 12MO 24MO 36MO ----- ----- ----- ----- ----- Hired After 7/1/97 7.19 7.87 8.54 9.89 Refer to 6 month rate above 6MO G.L. Specialist ----- Effective 07/03/00 11.60 Effective 07/02/01 11.95 Effective 07/01/02 12.31 JOB CLASSIFICATION START 2MO 6MO ------------------ ----- ----- ----- 6-1 Solder Pot Operator Effective 07/03/00 7.74 10.95 11.28 Effective 07/02/01 7.97 11.28 11.62 Effective 07/01/02 8.21 11.62 11.97 7-2 Wire Cutting Mac, Set-Up & Oper. 7-5 Riding Power Vehicle Operator 7-7 Assy. Inspector 7-8 Relief & Repair Operator Effective 07/03/00 7.80 11.23 11.53 Effective 07/02/01 8.03 11.57 11.88 Effective 07/01/02 8.27 11.92 12.24 ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, FOR PERIOD JULY 3, 2000 UNTIL JUNE 29, 2003. APPENDIX "A" CONT'D WAGE SCALE EFFECTIVE 07/03/2000 THROUGH 06/29/2003 JOB CLASSIFICATION START 2MO 6MO ------------------ ----- ----- ----- 7-11 Building Fireperson Effective 07/03/00 7.90 11.36 11.62 Effective 07/02/01 8.14 11.70 11.97 Effective 07/01/02 8.38 12.05 12.33 G.L. Specialist Effective 07/03/00 11.91 Effective 07/02/01 12.27 Effective 07/01/02 12.64 JOB CLASSIFICATION START 2MO 6MO 9MO ------------------ ----- ----- ----- ----- 8-2 Tester-Phaser "B" (Printed Boards) 8-3 Bonding Machine Operator 8-4 Fine Patcher Effective 07/03/00 8.01 11.41 11.54 11.77 Effective 07/02/01 8.25 11.75 11.89 12.12 Effective 07/01/02 8.50 12.10 12.25 12.48 6MO G.L. Specialist ----- Effective 07/03/00 12.16 Effective 07/02/01 12.52 Effective 07/01/02 12.90 JOB CLASSIFICATION START 2MO 6MO 9MO 12MO ------------------ ----- ----- ----- ----- ----- 10-2 Tool Crib Worker Effective 07/03/00 8.20 11.60 11.71 11.86 11.99 Effective 07/02/01 8.45 11.95 12.06 12.22 12.35 Effective 07/01/02 8.70 12.31 12.42 12.59 12.72 11-2 Tester 11-6 Cabinet Finisher Effective 07/03/00 8.27 11.66 11.79 11.91 12.09 Effective 07/02/01 8.52 12.01 12.14 12.27 12.45 Effective 07/01/02 8.78 12.37 12.50 12.64 12.82 12MO G.L. Specialist ----- Effective 07/03/00 12.52 Effective 07/02/01 12.90 Effective 07/01/02 13.29 ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, FOR PERIOD JULY 3, 2000 UNTIL JUNE 29, 2003. APPENDIX "A" CONT'D WAGE SCALE EFFECTIVE 07/03/2000 THROUGH 06/29/2003 JOB CLASSIFICATION START 2MO 6MO 9MO 12MO ------------------ ----- ----- ----- ----- ----- 12-4 Precision Mechanical Assembler 12-9 Final Line Inspector(Comp.Prod.) Effective 07/03/00 8.32 11.86 11.94 12.10 12.27 Effective 07/02/01 8.57 12.22 12.30 12.46 12.64 Effective 07/01/02 8.83 12.59 12.67 12.83 13.02 12-10 Master Cabinet Finisher Effective 07/03/00 8.40 11.91 12.03 12.15 12.32 Effective 07/02/01 8.65 12.27 12.39 12.51 12.69 Effective 07/01/02 8.91 12.64 12.76 12.88 13.07 *12-12 Maintenance "B" Effective 07/03/00 8.74 12.14 12.31 12.52 12.98 Effective 07/02/01 9.00 12.50 12.68 12.90 13.37 Effective 07/01/02 9.27 12.88 13.06 13.29 13.77 G.L. Specialist Effective 07/03/00 12.76 Effective 07/02/01 13.14 Effective 07/01/02 13.53 13-1 Analyzer Effective 07/03/00 9.12 12.59 12.69 12.82 12.98 Effective 07/02/01 9.39 12.97 13.07 13.20 13.37 Effective 07/01/02 9.67 13.36 13.46 13.60 13.77 14-1 Master Analyzer 14-2 Maintenance "A" Effective 07/03/00 9.67 13.26 13.57 Effective 07/02/01 9.96 13.66 13.98 Effective 07/01/02 10.26 14.07 14.40 G.L. Specialist Effective 07/03/00 14.15 Effective 07/02/01 14.57 Effective 07/01/02 15.01 15-1 Senior Master Analyzer Effective 07/03/00 16.60 Effective 07/02/01 17.10 Effective 07/01/02 17.61 G.L. Specialist Effective 07/03/00 17.36 Effective 07/02/01 17.88 Effective 07/01/02 18.42 * Education Bonus 1 Course 10c per hour (after maximum rate) 2 or more Courses 10c per hour (additional) ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, FOR PERIOD JULY 3, 2000 UNTIL JUNE 29, 2003. APPENDIX "B" THE INSURANCE COVERAGE FOR EMPLOYEES AND DEPENDENTS COVERED BY THIS AGREEMENT NON-OCCUPATIONAL - WEEKLY DISABILITY BENEFITS: (EMPLOYEES ONLY) Benefits are payable for accident from the first (1st) day and for sickness from the eighth (8th) day for a period up to thirteen (13) weeks for any one (1) disability. The weekly benefits are: Effective 07/01/2000 - $205.00 Effective 07/01/2001 - $210.00 Effective 07/01/2002 - $215.00 LIFE INSURANCE: (Employees Only) Effective 07/01/2000 - $16,000 (AD&D - $16,000) Effective 07/01/2001 - $17,000 (AD&D - $17,000) Effective 07/01/2002 - $18,000 (AD&D - $18,000) DENTAL INSURANCE PLAN: Effective the first year of this Agreement, Olympia Plan 1500. The premium cost of this plan shall be $10.00 per month for the employee coverage to be paid entirely by the Company for the three (3) year term of this Agreement. The premium cost of this plan for single plus one coverage shall be $17.00 and family coverage shall be $20.00 per month. An employee may elect to secure this coverage for his/her dependents at a premium cost of $1.79 per week to be paid for by the employee for the three (3) year term of this Agreement. OPTICAL PLAN OFFERED BY UNITED OPTICAL INC.: Covers employee and dependents. Entire premium cost to be paid for by the Company for the three (3) year term of this Agreement. CONTINUATION OF INSURANCE COVERAGE: Temporary Lay-off: An insured, temporarily laid-off employee will be covered by insurance benefits at no cost until the end of the month in which the layoff occurs. ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, FOR PERIOD JULY 3, 2000 UNTIL JUNE 29, 2003. APPENDIX "B" (CONT'D) If a temporarily laid-off employee desires to continue the insurance, all coverages, except weekly disability benefits, may be continued for a period not to exceed six (6) months, providing the laid-off employee makes the first premium payment in full for the following month within seven (7) days from the date of the layoff, or the first of the following month, whichever occurs first. Sick Leave: The insurance for an employee on sick leave will be paid by Wells- Gardner Electronics Corporation for three (3) months. If the employee wishes to continue his/her insurance after this period, he/she may do so for an additional three (3) months, provided the required monthly premium is paid by the employee to Wells-Gardner Electronics Corporation before the end of the third month of sick leave and monthly thereafter. All employees shall be provided together with their dependents all rights under COBRA. Total Disability of Employee: In the event an employee becomes totally disabled, as determined by the provisions and regulations of the Social Security laws, the Company will pay the entire premium cost for the continuation of such employee's medical insurance coverage for a period of up to two (2) years or until such employee reaches age sixty-five (65), whichever occurs first. Death of Employee: In the event an employee dies while in the active employ of the Company, the Company will pay the entire premium cost for the continuation of the medical insurance coverage for the spouse and dependent children for a period up to one (1) year; provided however that: (1) Such medical insurance coverage shall cease upon the remarriage of the spouse and provided also that, (2) The spouse or dependent children shall not be eligible for coverage under any other employer paid insurance plan. ATTACHED TO AND MADE PART OF AGREEMENT BETWEEN WELLS-GARDNER ELECTRONICS CORPORATION AND LOCAL 1031, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, FOR PERIOD JULY 3, 2000 UNTIL JUNE 29, 2003. APPENDIX "C" It is understood and agreed by the parties hereto that the Company may continue and/or install a piece work or incentive system in its plant. Such incentive plan must be mutually agreed to between the parties. In the event it does so, piece work or incentive rates shall be established by the time studies made by the Company and same may be revised. Employees shall have the right to question the time study on any job which they believe to be improperly timed. In such event the Company shall cause an investigation to be made and if it believes that an error may have been committed, it shall cause such job to be re-timed. In the event such re-timing is still questioned or in the event the Company fails to re-time such job, the matter may be handled according to the grievance procedure provided for in this Agreement. It is understood and agreed that incentive rates will be so adjusted as to compensate employees working on the incentive basis for the rest periods without additional pay thereafter. EX-13 4 ex13b.htm ANNUAL REPORT PRESIDENT'S REPORT EXHIBIT 13

Wells-Gardner Electronics Corporation

2000 Annual Report

SELECTED FINANCIAL DATA
(in $000's except for per share data)
	Years Ended December 31,
	2000	1999	1998	1997	1996
Earnings Data:
Net sales	50,594	38,335	42,590	42,989	36,668
Earnings (loss) from operations	1,288	(723)	1,504	1,124	563
Gain on sale of fixed assets	329	---	---	---	---
Net earnings (loss)	851	(1,190)	974	775	403
Basic net earnings (loss) per share	0.17	(0.25)	0.21	0.17	0.09
Diluted net earnings (loss) per share	0.17	(0.25)	0.20	0.16	0.09

Balance Sheet Data:
Working capital	15,377	10,481	10,199	10,915	9,017
Total assets	26,076	18,789	19,671	17,520	14,125
Shareholders' equity	12,709	11,661	12,720	11,385	10,095

COMMON SHARE MARKET PRICE

The Company's common shares are traded on the American Stock Exchange under the symbol WGA.
On December 31, 2000, there were approximately 686 holders of record of the common shares.
A five percent (5%) stock dividend was paid in 2000 and 1999. High and low prices for the last two
years were:
		2000 Prices		1999 Prices
		High	Low	High	Low
Quarter ended:
March 31,		5	3	3 5/8	2 1/2
June 30,		4	2 3/4	3 1/2	2
September 30,		3 1/4	2 1/8	4 1/16	2 3/4
December 31,		2 11/16	1 1/2	3 11/16	2 3/4

PRESIDENT'S REPORT

TO OUR SHAREHOLDERS, CUSTOMERS, SUPPLIERS & EMPLOYEES:

We are pleased to report to you that Wells-Gardner made a profit for the fourth year in the last five. This is particularly gratifying in a year of enormous change for the Company, in which we started to implement our new strategic plan.

Our New Strategic Plan

We announced last year our new strategy for the 21^st Century and I am happy to report to you that the implementation is going well. Wells-Gardner has transitioned from a US based manufacturer primarily to the low growth amusement market to a global manufacturing, service and distribution Company to the fast growing gaming market. This was accomplished primarily by the acquisition of AGE and the establishment of our Malaysian manufacturing joint venture, WEA.

American Gaming & Electronics (AGE)

We acquired AGE in January 2000 and established it as a wholly owned subsidiary. We upgraded our offices in Las Vegas and New Jersey and added offices in Reno, Chicago and Palm Springs, CA during 2000 to bring our total number of AGE offices to 6. We also added new distribution lines including MicroTouch, Starpoint, Money Controls and others. We signed contracts to install several manufacturers' machines in New Jersey, California and Reno.

Wells Eastern Asia (WEA)

In January 2000 we established WEA, our 50/50 joint venture in Malaysia with Easttech, a public company traded on the Singapore stock exchange. This production facility is essential to our strategy of being a globally competitive manufacturer of video monitors. We anticipate that approximately 50 percent of our worldwide monitor manufacturing will be produced at WEA by the end of 2001.

Gaming Strategy

Wells-Gardner has developed a strategy of using its strengths in one segment of the gaming market to leverage itself and increase its market penetration in other segments of the gaming market. The Company is participating in four segments of the gaming market: monitor manufacturing in Malaysia and the US, distribution of Wells-Gardner's and other manufacturers' parts to casinos throughout North America, installing and servicing new gaming equipment into casinos in North America and refurbishing and selling used gaming equipment mainly outside North America. The strategy appears to be successful so far since in 2000 the gaming and service markets were responsible for 69 percent of the Company's revenue.

2000 Sales Grew By 32 Percent And Earnings Increased By About $2 million

2000 sales were $50.6 million, up from $38.3 million in 1999. The sales growth was primarily due to the implementation of the new strategic plan including the sales from the newly acquired AGE and the growth of the service business.

Earnings for 2000 were $851,000 or $0.17 per share compared to a loss of $1,190,000 or $0.25 per share in 1999. Included in the 2000 results was a non-recurring gain on the sale of assets of $329,000 or $0.07 per share.

2000 earnings were impacted by additional investments in new products, a new computer system and developing an international sales capability. These investments are expected to put us in a good competitive position in 2001.

New Digital Product Line

Wells-Gardner has released a full line of digital products for both the gaming and amusement markets. We will be able to manufacture these products in both Malaysia and the US. We have a competitive advantage over our major competitors and we believe that we could become the market leader in video monitors in the gaming industry by the end of 2002. Already we have obtained business from several new customers based entirely on our digital capability.

Quality Continues To Be The Top Priority

Wells-Gardner remains committed to be the "best-in-class" quality supplier in all our served markets. The Company obtained a further 3 years certification of the ISO 9001 accreditation taking us through the year 2003. As we have mentioned, we were the first open-frame monitor manufacturer to obtain this quality certification and this has been a valuable marketing advantage in selling to several highly prestigious accounts.

2001 Outlook

Wells-Gardner expects to continue its operational improvement as it completes the implementation of its strategic plan. The Company expects to obtain the benefits of its investments in new offices for AGE, its manufacturing capabilities in its Malaysian joint venture, its new digital product line and its international sales capabilities. The Company expects to move to new headquarters in 2001, which will result in a one-time charge.

Loss Of Allan Gardner

With deep regret, I report to you the passing of Allan Gardner in December 2000. Allan was associated with the Company for over 40 years. We will miss his special and unique contributions to the Company that bears his family's name.

We thank all of you for your continued support as we complete the implementation of our strategic plan. We are confident that this will lead to increased profitability and improved shareholder value.

Anthony Spier

Chairman of the Board, President

& Chief Executive Officer

March 16, 2001

Management's Discussion & Analysis of Financial Condition & Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net sales increased 32.0% to $50.6 million in 2000 compared to $38.3 million in 1999, as gross margin for 2000 increased to $9.9 million or 19.6% of sales compared to $5.0 million or 12.9% of sales in 1999. The percentage increase is attributed to additional revenue from the Company's acquisition of American Gaming and Electronics and additional sales from the Company's service business. Engineering, selling and administrative expenses increased to $8.6 million in 2000 compared to $5.7 million in 1999. The increase is attributed to the operating expenses incurred for American Gaming and Electronics and the Company's initiative to invest in international sales and new product development. Operating income for 2000 was $1.3 million compared to an operating loss of $723,000 in 1999. During the first quarter of 2000, the Company sold its headquarters and recognized a gain on the sale of fixed assets of $329,000. Other expense, net was $758,000 in 2000 compared to $467,000 in 1999 as the Company incurred additional debt financing and interest expense to fund the acquisition of American Gaming and Electronics and additional funding for operations throughout 2000. The Company recorded an $8,000 and $0 income tax provision in 2000 and 1999, respectively, as the Company has available a net operating loss carryforward of approximately $3.1 million at December 31, 2000. Net earnings for 2000 were $851,000 compared to a net loss of $1.2 million in 1999. For 2000, basic and diluted earnings per share were 17 cents, compared to basic and diluted loss per share of 25 cents for 1999.

On January 4, 2000, the Company announced that it entered into a 50/50 joint venture with Eastern Asia Technology Limited of Singapore to produce and manufacture a full line of open frame video monitors in Malaysia. The joint venture is accounted for under the equity method. The Company recorded a net loss on operations of $64,000 during 2000.

On January 12, 2000, the Company acquired certain assets of American Gaming and Electronics of Las Vegas, New Jersey and Florida. American Gaming and Electronics is the largest independent distributor of gaming parts and services in North America and is operated as a wholly owned subsidiary.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net sales decreased 10.0% to $38.3 million in 1999 compared to $42.6 million in 1998, while gross margin for 1999 decreased to $5.0 million or 12.9% of sales compared to $7.1 million or 16.7% of sales in 1998. The percentage decrease is attributed to lower production based on lower sales. Engineering, selling and administrative expenses increased to $5.7 million in 1999 compared to $5.6 million in 1998. Operating loss for 1999 was $723,000 compared to operating income of $1.5 million in 1998. Other expense, net was $467,000 in 1999 compared to $505,000 in 1998 as the Company continued debt financing and interest expense for the acquisition it closed in 1998. The Company recorded no income tax provision in 1999 compared to $25,000 in 1998. As of December 31, 1999, the Company has available a net operating loss carryforward. Net loss for 1999 was $1.2 million compared to net earnings of $974,000 in 1998. For 1999, basic and diluted loss per share was 25 cents, compared to basic earnings per share of 21 cents and diluted earnings per share of 20 cents for 1998.

On June 5, 1998, the Company acquired the mechanical coin door and mechanical coin mechanism business of Coin Controls, Inc. This consisted of the manufacturing, service, sales and marketing of mechanical coin door and coin mechanisms. These products are sold to the coin-operated video gaming, pinball, redemption and other markets. Under the terms of the agreement, Wells-Gardner acquired certain inventory, machinery, equipment, tooling and certain contract rights.

Market and Credit Risks

The Company is subject to certain market risks, mainly interest rates. During 2000, the Company entered into a long term, $12 million line of credit. At December 31, 2000, the Company had outstanding debt on this line of credit of $6.5 million. This balance consists of $5.0 million at an interest rate of 8.30% and $1.5 million at an interest rate of 9.50%. Additionally, at December 31, 2000, the Company had outstanding a $2.0 million installment note payable with at an interest rate of 8.95%. This note has a term of five years with equal monthly principal and interest payments, which began in 1999. All bank debt is unsecured. The Company believes that its exposure to interest rate fluctuations will be limited due to the Company's practice of maintaining a minimal cash balance in an effort to effectively use any excess cash flows to reduce outstanding debt. As of December 31, 2000, the Company had variable rate debt of $8.5 million. An adverse change in interest rates during the time that this debt is outstanding would cause an increase in the amount of interest paid. The Company may pay down the loans at any time without penalty. However, a 100 basis point increase in interest rates would result in an annual increase of approximately $85,000 in interest expense recognized in the financial statements. The Company continues to monitor changing economic conditions and based on current circumstances, does not expect to incur a substantial loss in future earnings or cash flows as a result of changing interest rates.

The Company is exposed to credit risk on certain assets, primarily accounts receivable. The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks.

Liquidity & Capital Resources

Accounts receivable increased to $7.7 million in 2000 compared to $4.8 million in 1999, while days outstanding were 55 days in 2000 compared to 50 in 1999. This increase is attributed to the significant increase in sales volume in 2000. Inventory increased to $11.9 million in 2000 compared to $8.5 million in 1999 and inventory turns were 3.4 in 2000 compared to 3.9 in 1999. This increase is attributed to the inventory on hand to support American Gaming and Electronics and higher finished goods and raw materials in the Company's core business. Other current assets increased to $1.2 million in 2000 from $609,000 in 1999. This increase is attributed to higher deposits on hand with the Company's strategic vendors. Intangibles, net increased to $2.7 million from $2.2 million in 1999, as the Company recorded goodwill and a non-compete agreement on its acquisition of American Gaming and Electronics. Total liabilities increased to $13.3 million in 2000 compared to $7.1 million in 1999. This increase is attributed to a higher accounts payable due to vendors and increased borrowing on the Company's line of credit to fund the growth of current and new operations. Shareholders' equity increased to $12.7 million in 2000 from $11.7 million in 1999 as book value was $2.59 per share in 2000 compared to $2.57 per share in 1999. Overall, the Company believes that its future financial requirements can be met with funds generated from operating activities and from its credit facility.

Inflation

During the past three years, management believes that inflation has not had a material effect on the Company's results of operations.

Year 2000

The Company experienced no difficulties with Y2K compliance and all systems functioned properly on and after January 1, 2001. The Company incurred no significant additional costs in its Y2K compliance efforts.

CONSOLIDATED BALANCE SHEETS
Years ended December 31,
(in $000's except for share information)
	2000	1999
ASSETS
Current Assets:
Cash & cash equivalents	85	119
Accounts receivable, net of allowances
of 70 in 2000, & 60 in 1999	7,746	4,795
Inventory	11,875	8,510
Prepaid expenses & other	1,186	609
Total current assets	20,892	14,033

Property, Plant & Equipment (at cost):
Land & land improvements	---	278
Leasehold improvements	12	3,569
Machinery, equipment & software	7,949	7,162
Total property, plant & equipment	7,961	11,009
Less accumulated depreciation	(5,677)	(8,442)
Property, plant & equipment, net	2,284	2,567

Other Assets:
Investment in joint venture	142	---
Intangibles, net	2,758	2,189
Total other assets	2,900	2,189
Total Assets	26,076	18,789

LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable	4,173	2,127
Accrued expenses	672	755
Installment note payable	670	670
Total current liabilities	5,515	3,552

Long-Term Liabilities:
Note payable	6,456	1,510
Installment note payable	1,396	2,066
Total long-term liabilities	7,852	3,576
Total Liabilities	13,367	7,128

Shareholders' Equity:
Common shares, $1 par value; 25,000,000 shares authorized;
4,897,869 shares issued at December 31, 2000
4,543,570 shares issued at December 31, 1999	4,898	4,544
Capital in excess of par value	2,763	1,869
Retained earnings	5,213	5,248
Unearned compensation	(165)	---
Total Shareholders' Equity	12,709	11,661
Total Liabilities & Shareholders' Equity	26,076	18,789

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
(in $000's except for share & per share data)
	2000	1999	1998
Net sales	50,594	38,335	42,590
Cost & expenses:
Cost of sales	40,673	33,370	35,484
Engineering, selling & administrative	8,633	5,688	5,602
Operating income (loss)	1,288	(723)	1,504
Gain on sale of fixed assets	329	---	---
Other expense, net	758	467	505
Earnings (loss) before income taxes	859	(1,190)	999
Income tax	8	0	25
Net earnings (loss)	851	(1,190)	974
Basic net earnings (loss) per share	0.17	(0.25)	0.21
Diluted net earnings (loss) per share	0.17	(0.25)	0.20
Basic average common shares outstanding	4,918,418	4,743,367	4,693,325
Diluted average common shares outstanding	5,000,376	4,743,367	4,852,441

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in $000's)
		Capital In			Total
	Common	Excess Of	Retained	Unearned	Shareholders'
	Shares	Par Value	Earnings	Compensation	Equity
December 31, 1997	4,215	1,424	5,933	(188)	11,384

Net earnings	---	---	974	---	974
Issuance of stock awards	14	52	---	(66)	---
Stock options exercised	57	51	---	---	108
Amortization of unearned compensation	---	---	---	254	254
December 31, 1998	4,286	1,527	6,907	---	12,720

Net loss	---	---	(1,190)	---	(1,190)
Stock dividend issued	215	254	(469)	---	---
Issuance of stock awards	30	63	---	---	93
Shares issued from stock purchase plan	12	24	---	---	36
Stock options exercised	1	1	---	---	2
December 31, 1999	4,544	1,869	5,248	---	11,661

Net earnings	---	---	851	---	851
Stock dividend issued	229	657	(886)	---	---
Issuance of stock awards	86	173	---	(180)	79
Shares issued from stock purchase plan	12	24	---	---	36
Stock options exercised	27	40	---	---	67
Amortization of unearned compensation	---	---	---	15	15
December 31, 2000	4,898	2,763	5,213	(165)	12,709

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in $000's)
		2000	1999	1998
Cash flows from operating activities:
	Net earnings (loss)	851	(1,190)	974
	Adjustments to reconcile net earnings (loss) to net
	cash provided by (used in) operating activities:
	Depreciation & amortization	586	647	508
	Amortization of unearned compensation	15	---	254
	Gain on sale of fixed assets	(329)	---	---
	Share of loss in joint venture	64	---	---
	Changes in current assets & liabilities
	(net of effects of acquisitions):
	Accounts receivable	(2,196)	353	83
	Note receivable	---	488	(113)
	Inventory	(2,522)	69	1,124
	Prepaid expenses & other	(571)	(181)	(191)
	Accounts payable	1,703	(420)	(905)
	Accrued expenses	(190)	(298)	171
Net cash provided by (used in) operating activities		(2,589)	(532)	1,905

Cash used in investing activities:
	Payments for acquisitions, net of cash acquired	(1,975)	---	(3,350)
	Proceeds from sale of fixed assets	1,499	---	---
	Additions to property, plant & equipment	(1,427)	(401)	(336)
Net cash used in investing activities		(1,903)	(401)	(3,686)

Cash provided by financing activities:
	Borrowings from note payable	4,276	896	1,550
	Proceeds from options exercised & purchase plan	182	130	107
Net cash provided by financing activities		4,458	1,026	1,657

Net increase (decrease) in cash & cash equivalents		(34)	93	(124)
Cash & cash equivalents at beginning of year		119	26	150
Cash & cash equivalents at end of year		85	119	26

Supplemental cash flows disclosure:
	Income taxes paid	8	---	25
	Interest paid	673	408	401

Supplemental schedule of non-cash activities:
	Investment in joint venture	200	---	---

See accompanying notes to the consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. DESCRIPTION OF THE BUSINESS

Wells-Gardner is an ISO 9001 certified sales, service, distribution and manufacturing company that primarily services the gaming and amusement markets, with facilities in the United States and also is Malaysia through its joint venture.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation

The consolidated financial statements of the Company at December 31, 2000 include the accounts of Wells Gardner Electronics Corporation and its wholly-owned subsidiary, American Gaming and Electronics. All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash & Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, commercial paper, certificates of deposit and money market funds, which have an original maturity of three months or less.

Financial Instruments

The fair value of the Company's financial instruments does not materially vary from the carrying value of such instruments.

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market.

Property, Plant & Equipment

Property, plant and equipment are stated at cost and are depreciated for financial reporting purposes over the estimated useful lives on a straight-line basis as follows: Machinery & Equipment - - five to fifteen years.

Internal Use Software

The Company has adopted the provisions of Statement of Position 98-1, "Accounting for the Costs of Software Developed or Obtained for Internal Use." Accordingly, certain costs incurred in the planning and development stage of internal use computer software projects are expensed, while costs incurred during the application development stage are capitalized. Total capitalized costs as of December 31, 2000 and 1999 were $1.2 million and $0, respectively. Capitalized software costs are amortized over the expected economic life of the software. No amount was charged to amortization expense during fiscal 2000 and 1999 as the software is currently in the development stage.

Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts should be evaluated. Impairment is measured by comparing the carrying value to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. The Company has determined, on the basis that there are no indicators, that as of December 31, 2000 there has been no impairment in the carrying values of long-lived assets.

Investments

The Company's joint venture in WEA is accounted for under the equity method of accounting in accordance with Accounting Principles Board (APB) No. 18, "The Equity Method of Accounting for Investments in Common Stock." Under this method, the investment is adjusted to recognize the Company's share of the losses in the joint venture. Write downs are recognized when the Company believes that a permanent impairment in value has occurred.

Intangibles

Intangible assets consist primarily of the cost of purchased businesses in excess of the fair value of net assets acquired and are amortized on a straight-line basis over periods of five and twenty years. The Company regularly reviews the performance of the acquired business to evaluate the realizability of the underlying goodwill. Amortization expense in 2000, 1999 and 1998 was approximately $225,000, $163,000 and $89,000 respectively.

Revenue Recognition

Revenue from sales of products is recorded at time of shipment.

Significant Customers

Approximately 21%, 32% and 33% of net sales in 2000, 1999 and 1998, respectively, were to the Company's largest customer.

Earnings Per Share

Basic earnings per share is based on the weighted average number of shares outstanding whereas diluted earnings per share includes the dilutive effect of unexercised common stock options. For all periods reported, earnings per share have been restated to reflect the stock dividends issued in 2000 and 1999.

Research & Development

Research and development costs for the years ended December 31, 2000, 1999 and 1998 were approximately $1,400,000, $1,334,000 and $1,536,000, respectively, which were 2.8%, 3.5% and 3.6% of annual sales, respectively.

Reclassifications

Certain amounts in previously issued financial statements have been reclassified to conform to the current year's presentation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock Dividend

On February 17, 2000 the Company announced a five percent stock dividend payable to all common stock shareholders of record as of April 14, 2000. The stock dividend resulted in the issuance of 228,582 additional common shares. Also, on March 16, 1999, the Company announced a five percent stock dividend payable to all common stock shareholders of record as of April 13, 1999. The stock dividend resulted in the issuance of 214,627 additional common shares. All reported earnings per share disclosures have been restated to reflect these dividends.

Note 3. RELATED-PARTY TRANSACTIONS

During the period 1998 to 2000, a portion of the Company's sales were made through a sales representative firm, James Industries Inc., whose Chairman and principal shareholder is a substantial beneficial shareholder of the Company. Commissions earned by James Industries Inc. for the years ended December 31, 2000, 1999 and 1998 were approximately $965,000, $1,076,000 and $1,386,000, respectively. Commissions owed to James Industries Inc. as of December 31, 2000, 1999 and 1998 were approximately $55,000, $72,000 and $148,000 respectively. Total commissions as a percentage of sales for the years ended December 31, 2000, 1999 and 1998 were 1.9%, 2.8% and 3.2%, respectively. Sales to James Industries Inc. for the years ended December 31, 2000, 1999 and 1998 were approximately $108,000, $261,000 and $258,000, respectively. Outstanding accounts receivable due from James Industries Inc. at December 31, 2000, 1999 and 1998 were approximately $2,000, $99,000 and $156,000, respectively.

Note 4. INVENTORY
Inventory consisted of the following components:
	December 31,
(in $000's)	2000	1999
Raw materials	5,616	6,123
Work in progress	1,059	402
Finished goods	5,200	1,985
Total	11,875	8,510

Note 5. DEBT

The long-term note payable consisted of a revolving line of credit balance of $6,456,000, bearing interest at 8.30% on $5,000,000 and 9.50% on $1,456,000 at December 31, 2000 and $1,510,000 bearing interest at 7.57% at December 31, 1999. During 2000, the Company entered into a new, long-term banking agreement with American National Bank and Trust Company of Chicago. The new agreement provides for a $12,000,000 revolving line of credit at a rate of either prime or the London Interbank Offered Rate (LIBOR) plus 160 basis points. This agreement runs through August 31, 2003. At December 31, 2000 the Company had an unused balance of $5,544,000 on its line of credit. The long-term note is uncollateralized with certain covenant restrictions.

During 1998, the Company entered into an uncollateriazlized installment note payable for $3,350,000 at a rate of LIBOR plus 225 basis points. The proceeds of this note were used for the 1998 acquisition discussed in Note 11. This note has a term of five years with sixty equal monthly principal payments of $55,833 plus interest, commencing February, 1999.

Note 6. STOCK PLANS

The Company maintains a Non-Qualified Option and Stock Award Plan under which officers and key employees may acquire up to a maximum of 1,543,500 common shares and a Nonemployee Director Stock Plan under which directors may acquire up to 275,625 common shares. Options may be granted thru December 31, 2008 at an option price not less than fair market value on the date of grant and are exercisable not earlier than six months nor later than ten years from the date of grant. Options vest over two and three year periods. As of December 31, 2000, 51 persons held outstanding options and were eligible to participate in the plans. Such options expire on dates ranging from April 23, 2001 to November 27, 2010.

The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock option plans been determined consistent with FASB Statement of Financial Accounting Standards No. 123 ("FAS 123"), the Company's net earnings (loss) available to common shareholders and net earnings (loss) per common share would have been as follows for the years ended December 31:


(in $000's except per share data)		2000	1999	1998
Net earnings (loss) available to common shareholders:
	As reported	851	(1,190)	974
	Pro forma	719	(1,301)	878
Net earnings (loss) per common and common equivalent share:
	Basic as reported	0.17	(0.25)	0.21
	Diluted as reported	0.17	(0.25)	0.20
	Pro forma - Basic	0.15	(0.27)	0.19
	Pro forma - Diluted	0.14	(0.27)	0.18

Under the stock option plans, the exercise price of each option equals the market price of the Company's stock on the date of grant. For purposes of calculating the compensation cost consistent with FAS 123, the fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 2000, 1999 and 1998, respectively: expected volatility of 25 percent; risk free interest rates ranging from 6.6 percent to 5.9 percent; and expected lives of 5 years. Additional information on shares subject to options is as follows:

	2000		1999		1998
		Weighted average		Weighted average		Weighted average
	Options	exercise price	Options	exercise price	Options	exercise price
Outstanding at beginning of year	1,162,778	3.48	867,864	3.98	663,774	3.56
Granted	298,712	3.39	334,492	2.51	327,342	4.73
Forfeited	(97,202)	3.67	(38,327)	3.69	(41,583)	4.30
Exercised	(26,818)	2.65	(1,251)	2.50	(81,669)	3.49
Outstanding at end of year	1,337,470	3.32	1,162,778	3.48	867,864	3.98
Weighted average fair value of options granted		0.86		1.54		1.38
Options exercisable at year end	928,738		726,812		449,927

The following table summarizes information about stock options outstanding at December 31, 2000:


		Weighted average
Range of	Options	remaining	Weighted average	Options
exercise prices	outstanding	contractual life	exercise price	exercisable
2.38 - 2.61	360,608	7.0	2.41	214,850
2.62 - 3.19	246,313	6.7	2.98	168,447
3.20 - 3.41	262,167	6.2	3.39	238,319
3.42 - 3.86	127,151	8.8	3.70	37,375
3.87 - 4.88	341,231	6.4	4.32	269,747
	1,337,470	6.8	3.32	928,738

Note 7. ACCRUED EXPENSES
Accrued expenses consisted of the following components:
	December 31,
(in $000's)	2000	1999
Payroll	115	84
Sales commissions	55	72
Warranty	90	186
Other accrued expenses	412	413
Total	672	755

Note 8. OTHER EXPENSE, NET
Other expense, net consisted of the following components:
	December 31,
(in $000's)	2000	1999	1998
Interest expense	673	408	401
Other expense, net	123	111	183
Other income, net	(38)	(52)	(79)
Other expense, net	758	467	505

Note 9. INCOME TAXES
The effective income tax rates differed from the expected Federal income tax rate (34%) for the following reasons:
		December 31,
(in $000's)		2000	1999	1998
	Computed expected tax expense (benefit)	292	(405)	340
	State income tax expense (benefit) net of Federal tax effect	49	(51)	37
	Other, net	1	40	(59)
	Change in valuation allowance	(334)	416	(293)
		8	---	25

Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities for
Financial reporting purposes and as measured by income tax regulations. Temporary differences which gave rise to
deferred tax assets and deferred tax liabilities consisted of:
			December 31,
(in $000's)			2000	1999
Deferred tax assets:
	Allowance for doubtful accounts		35	23
	Warranty reserve		35	72
	Inventory reserve		142	114
	Net operating loss carryforwards		1,190	1,135
	Alternative minimum tax credit carryforwards		73	62
	General business credit carryforwards		129	129
	Other		15	9
	Total gross deferred tax assets		1,619	1,544
	Less valuation allowance		(1,090)	(1,423)
	Net deferred tax assets		529	121
Deferred tax liabilities:
	Software implementation		314	---
	Deferred compensation		36	41
	Property, plant & equipment, principally depreciation		179	80
Net deferred taxes			---	---

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The net change in the valuation allowance for the year ended December 31, 2000 was a decrease of $334,000. At December 31, 2000, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $3,089,000 which are available to offset future Federal taxable income, if any, through 2019. The Company also has alternative minimum tax credit carryforwards of approximately $73,000 which are available to reduce future Federal regular income taxes, if any, over an indefinite period. In addition, the Company has general business credit carryforwards of approximately $129,000 which are available to reduce future Federal regular income taxes, if any. These general business credits are scheduled to expire in 2007.

Note 10. EARNINGS PER SHARE

During 2000 and 1999, the Company announced a five percent stock dividend payable to all common stock shareholders of record as of April 14, 2000 and April 13, 1999. All reported earnings per share disclosures have been restated to reflect this dividend. In accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share," the following table presents a reconciliation of the numerators and denominators of basic and diluted earnings per common share for the years ended:


		December 31,
(in $000's except for share data)		2000	1999	1998
Basic earnings (loss) per common share
	Net income (loss)	851	(1,190)	974
	Weighted average common shares outstanding	4,918	4,743	4,693
	Per share amount	0.17	(0.25)	0.21

Diluted earnings (loss) per common share
	Net income (loss)	851	(1,190)	974
	Weighted average common shares outstanding	4,918	4,743	4,693
	Add: Effect of dilutive stock options	82	---	159
	Adjusted weighted average common shares outstanding	5,000	4,743	4,852
	Per share amount	0.17	(0.25)	0.20

Options which had an anti-dilutive effect at December 31, 2000, 1999 and 1998 were 991,786, 679,205 and 374,092, respectively and were excluded from the diluted earnings per share calculation.

Note 11. JOINT VENTURE & ACQUISITIONS

On January 4, 2000, the Company entered into a 50/50 joint venture with Eastern Asia Technology Limited of Singapore to produce and manufacture video monitors in Malaysia. The joint venture is accounted for under the equity method of accounting.

On January 12, 2000, the Company acquired certain assets of American Gaming and Electronics of Las Vegas, New Jersey and Florida. This acquisition was accounted for under the purchase method of accounting and is operated as a wholly owned subsidiary. On June 5, 1998, the Company acquired the mechanical coin door and mechanical coin mechanism business of Coin Controls, Inc. This acquisition was accounted for under the purchase method of accounting. The proforma effects on the results of operations had the acquisitions occurred at the beginning of the year was immaterial.

Note 12. LEASE COMMITMENTS

The Company leases certain data processing and other equipment under operating lease agreements expiring through the year 2004. The future minimum lease payments required under operating leases are as follows:


	Years ending
(in $000's)	December 31,
2001	520
2002	257
2003	96
2004	66
Thereafter	---
	939

Rent expense related to operating leases was approximately $427,000, $161,000 and $50,000 during the years ended December 31, 2000, 1999 and 1998, respectively.

Note 13. UNAUDITED QUARTERLY FINANCIAL DATA


Selected quarterly data for 2000 and 1999 are as follows:
	2000
(in $000's except per share data)	First	Second	Third	Fourth
Net sales	12,899	14,009	10,796	12,890
Net earnings (loss)	596	133	232	(110)
Basic net earnings (loss) per share	0.11	0.03	0.05	(0.02)
Diluted net earnings (loss) per share	0.11	0.03	0.05	(0.02)

	1999
(in $000's except per share data)	First	Second	Third	Fourth
Net sales	9,207	11,035	9,086	9,007
Net earnings (loss)	(245)	404	31	(1,380)
Basic net earnings (loss) per share	(0.05)	0.09	0.00	(0.29)
Diluted net earnings (loss) per share	(0.05)	0.09	0.00	(0.29)

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of

Wells-Gardner Electronics Corporation:

We have audited the accompanying consolidated balance sheets of Wells-Gardner Electronics Corporation and subsidiary as of December 31, 2000 and 1999 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wells-Gardner Electronics Corporation and subsidiary at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Chicago, Illinois

February 2, 2001

BOARD OF DIRECTORS

Anthony Spier	Marshall L. Burman	Jerry Kalov
Chairman, President	Counsel with Wildman,	President of Kay &
Chief Executive Officer	Harrold, Allen & Dixon	Consulting

Frank R. Martin	Ernest R. Wish
Senior Partner of Righeimer,	Chairman of WRM, Inc.
Martin & Cinquino, P.C.

EXECUTIVE OFFICERS

Anthony Spier	(Alex) C.D. Alexander	Kathleen E. Hoppe
Chairman, President &	Director of Materials	Chief Information
Chief Executive Officer		Officer

Mark E. Komorowski	Jeffrey A. Sterling	Eric Slagh
Vice President of Sales	Vice President of Engineering	Director of Quality &
& President of American Gaming		International Operations

George B. Toma CPA,	CMA Randall S. Wells
Vice President of Finance,	Executive Vice President
Chief Financial Officer, Treasurer	& General Manager
& Corporate Secretary

CORPORATE INFORMATION

*ANNUAL MEETING*	CORPORATE BANKERS
The annual meeting of shareholders will take	American National Bank & Trust
place on April 24, 2001 at 2:00 p.m. at the	Chicago, Illinois
corporate offices of the Company.

	*INDEPENDENT AUDITORS*
*FORM 10-K*	KPMG LLP
A copy of the Company's annual report on	Chicago, Illinois
Form 10-K, without exhibits, as filed with the
Securities and Exchange Commission is available	GENERAL COUNSEL
without charge upon written request to Mr. George	Katten Muchin & Zavis
B. Toma at the corporate offices of the Company.	Chicago, Illinois

*TRANSFER AGENT*
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
800-246-5761

EX-23 5 ex23a.txt CONSENT OF KPMG LLP EXHIBIT 23 CONSENT OF KPMG LLP The Board of Directors and Shareholders Wells-Gardner Electronics Corporation: We consent to incorporation by reference in the Registration Statements on Form S-8 (#2-72090, #2-09137, #33-63920, #33-61535, #33-02981, and #333- 72629) of Wells-Gardner Electronics Corporation of our reports dated February 2, 2001, relating to the consolidated balance sheets of Wells- Gardner Electronics Corporation as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, and the related schedule, which reports are included in or incorporated by reference in the December 31, 2000 annual report on Form 10-K of Wells-Gardner Electronics Corporation. Chicago, Illinois March 16, 2001 -----END PRIVACY-ENHANCED MESSAGE-----