U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934 (Fee Required)
For the quarterly period ended September 30, 1998
/_/ Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required)
For the transition period from _______ to _______.
Commission File No. 333-44393
EUROPEAN MICRO HOLDINGS, INC.
-----------------------------
(Name of Registrant as Specified in Its Charter)
NEVADA 65-0803752
- ------ ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
6073 N.W. 167TH STREET, UNIT C-25, MIAMI, FLORIDA 33015
- ----------------------------------- -----------
(Address of Principal Executive (Zip Code)
Offices)
(305) 825-2458
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes /X/ No /_/
There were 4,933,900 shares of Common Stock, par value $0.01 per share,
outstanding as of October 31, 1998.
<PAGE>
EUROPEAN MICRO HOLDINGS, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of September 30, 1998 and
June 30, 1998...........................................................3
Consolidated Condensed Statements of Earnings for the three
months ended September 30, 1998 and 1997.............................4
Consolidated Statement of Changes in Shareholders' Equity
for the three months ended September 30, 1998........................5
Consolidated Condensed Statements of Cash Flows for the three months
ended September 30, 1998 and 1997....................................6
Notes to Consolidated Condensed Financial Statements....................7
2
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EUROPEAN MICRO HOLDINGS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
($ In thousands, except share and per share data)
(unaudited)
Sept. 30, June 30,
1998 1998
ASSETS
CURRENT ASSETS:
Cash $ 3,579 $ 5,012
Trade receivables, net 9,141 7,985
Discounted trade receivables 550 --
Due from related parties 1,340 898
Inventories, net 5,447 1,715
Deferred tax asset 32 26
Prepaid expenses 524 304
Other current assets 105 2,459
------- -------
TOTAL CURRENT ASSETS 20,718 18,399
Property and equipment, net 622 611
Investments 166 194
------- -------
TOTAL ASSETS $21,506 $19,204
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Discount creditor $ 468 $-
Trade payables 2,537 1,638
Other current liabilities 1,324 987
Due to related parties 9 238
Income taxes payable 2,518 2,577
------- -------
TOTAL CURRENT LIABILITIES 6,856 5,440
Long-term borrowings under capital
leases 70 84
------- -------
TOTAL LIABILITIES 6,926 5,524
------- -------
Commitments & contingencies -- --
SHAREHOLDERS' EQUITY:
Preferred stock $0.01 par value
shares: 1,000,000 authorized, no
shares issued and outstanding -- --
Common stock $0.01 par value
shares: 20,000,000 authorized at
September 30 and June 30, 1998,
shares issued and outstanding,
4,933,900 at September 30 and
June 30, 1998 49 49
Additional paid in capital 8,818 8,802
Retained earnings 5,495 4,773
Cumulative foreign currency
translation adjustment 218 56
------- -------
TOTAL SHAREHOLDERS' EQUITY 14,580 13,680
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $21,506 $19,204
======= =======
3
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CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ In thousands, except per share data)
(Unaudited)
Three months ended
September 30,
1998 1997
SALES:
Net sales $ 27,781 $ 14,767
Net sales to related parties 1,516 9,340
-------- --------
Total net sales 29,297 24,107
-------- --------
COST OF GOODS SOLD:
Cost of goods sold (24,854) (13,022)
Cost of goods sold to
related parties (1,498) (9,246)
-------- --------
Total cost of goods
sold (26,352) (22,268)
-------- --------
GROSS PROFIT 2,945 1,839
OPERATING EXPENSES:
Selling, general and
administrative expenses (1,717) (1,057)
Expenses attributable to
related parties (0) (25)
-------- --------
Total operating
expenses (1,717) (1,082)
-------- --------
OPERATING PROFIT 1,228 757
Interest expense, net (46) (101)
Equity in net income (loss)
of unconsolidated affiliate (28) 35
-------- --------
INCOME BEFORE INCOME TAXES 1,154 691
Income taxes (432) (206)
-------- --------
NET INCOME $ 722 $ 485
======== ========
NET INCOME PER SHARE - BASIC $ 0.15 $ 0.12
======== ========
NET INCOME PER SHARE -
DILUTED $ 0.15 $ 0.12
======== ========
4
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
($ in thousands, except share and per share data)
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID IN RETAINED COMPREHENSIVE SHAREHOLDERS'
COMMON STOCK CAPITAL EARNINGS INCOME EQUITY
SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 4,933,900 $ 49 8,802 4,773 56 $ 13,680
Net income -- -- -- 722 -- 722
Additional Initial Public
Offering Expenses -- -- (25) -- -- (25)
Compensation charge in
relation to share options
issued to non-employees -- -- 41 -- -- 41
Other comprehensive
income, net of tax and
foreign currency
translation adjustment -- -- -- -- 162 162
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1998 4,933,900 $ 49 8,818 5,495 218 $ 14,580
========= ========= ========= ========= ========= =========
</TABLE>
5
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three months ended
September 30,
1998 1997
OPERATING ACTIVITIES:
Net income $ 722 $ 485
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES
Depreciation and other 65 66
Provision for deferred taxes (6) (54)
Equity in net loss (income) of
unconsolidated affiliate 28 (35)
Compensation charge for non-employee
stock options 41 --
CHANGES IN ASSETS AND LIABILITIES
Trade and discounted receivables (1,706) (3,464)
Due from related parties (442) (791)
Inventory (3,732) 402
Other current assets 2,134 (882)
Trade payables 899 840
Due to related parties (229) 1,416
Taxes payable (59) 161
Other net 341 249
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,944) (1,607)
------- -------
INVESTING ACTIVITIES:
Purchase of fixed assets (54) (20)
Sale of fixed assets -- 12
------- -------
NET CASH USED IN INVESTING ACTIVITIES (54) (8)
------- -------
FINANCING ACTIVITIES:
Dividends paid -- (55)
Additional initial public offering
expenses (25) --
Repayment of capital leases, net (18) (42)
Change in bank line of credit -- (1,034)
Change in discount creditor 468 3,712
------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 425 2,581
------- -------
Exchange rate changes 140 (50)
------- -------
NET (DECREASE) INCREASE IN CASH (1,433) 916
Cash at beginning of period 5,012 288
------- -------
CASH AT END OF PERIOD $ 3,579 $ 1,204
======= =======
Interest paid $ 65 $ 223
======= =======
Taxes paid $ 391 $ 257
======= =======
6
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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1 INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain information and notes required by generally accepted accounting
principles for complete financial statements are not included herein. The
interim statements should be read in conjunction with the Company's financial
statements and notes thereto included in the Company's latest annual report on
Form 10-K.
In the Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and recurring
nature.
2 INVENTORY
Inventories comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Finished goods and goods for resale $5,454 $1,724
Less: Allowance for inventory
obsolescence (7) (9)
-------- --------
$5,447 $1,715
======== ========
The Company insures its inventory against theft and other damage up to a maximum
of the higher of $9,900,000 or the carrying value of the inventory. On September
30, 1998, the carrying value was $5,447,000.
Obsolescence comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Beginning balance $9 $35
Provision for obsolescence 39 248
Amounts written off (41) (274)
-------- --------
Ending balance $7 $9
======== ========
7
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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3 OTHER CURRENT ASSETS
Other current assets comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Amounts paid in advance for
inventories $- $2,015
Advanced Corporation Tax
recoverable - 145
Other 105 299
---- ------
$105 $2,459
==== ======
4 OTHER CURRENT LIABILITIES
Other current liabilities comprise ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
Accrued expenses $561 $710
Value Added Tax payable 502 41
Accrued Payroll Taxes & National Insurance 130 98
Current portion of capital leases 69 70
Others 62 68
------ ---
$1,324 987
====== ===
5 EARNINGS PER SHARE
The number of shares of common stock outstanding at the beginning and ending of
the period was 4,933,900. The weighted average number of shares for basic
earnings per share and diluted earnings per share was 4,933,900. Options to
purchase 294,000 shares of common stock at $10 per share were outstanding during
the quarter, but were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares. The weighted average number of shares used in the
1997 period reflects a retroactive adjustment to assume the 4,000,000 shares
issued in January 1998 in exchange for the shares of European Micro plc were
outstanding for the complete period in 1997.
6 RELATED PARTY TRANSACTIONS
European Micro Plc has belonged to a group of related companies called Micro
Computer Center Group (the "GROUP"). The Group is comprised of European Micro
Plc, Technology Express Inc. located in Nashville, Tennessee ("TECHNOLOGY
EXPRESS"), American Surgical Supply Corp. d/b/a American Micro Computer Center
in Miami, Florida ("AMERICAN MICRO COMPUTER CENTER") and, until August 1, 1997,
Ameritech Exports Inc. located in Miami, Florida ("AMERITECH EXPORTS") and
Ameritech Argentina S.A. located in Buenos Aires, Argentina ("AMERITECH
ARGENTINA"). All members of the Group were owned and controlled by either of the
two primary shareholders of European Micro Plc, John B. Gallagher and/or Harry
D. Shields and their families.
8
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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
6 RELATED PARTY TRANSACTIONS (CONTINUED)
The rates charged on related party sales are lower than they would be in arms
length transactions. There are bulk buying arrangements with the related parties
which gives European Micro Plc the benefit that it can buy large job-lots at
more competitive prices than it would otherwise be possible to do and then
immediately sell on part of the purchase to the related parties. In practical
terms, the sales to related parties are to the distributors in a similar trade
to European Micro Plc and these parties would not buy at higher prices.
Related party transactions are summarized as follows ($ in thousands):
Three months ended
September 30,
1998 1997
SALES
American Micro Computer Center $13 $5,836
Technology Express 1,503 $3,504
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$1,516 $9,340
====== ======
PURCHASES
American Micro Computer Center $- $-
Technology Express 12,439 2,545
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$12,439 $2,545
======= ======
Three months ended
September 30,
1998 1997
OPERATING EXPENSES
CONSULTANCY FEES PAID TO:
American Micro Computer Center $- $13
Technology Express - 12
------ ------
$- $25
======= ======
9
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NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
6 RELATED PARTY TRANSACTIONS (CONTINUED)
Due from related parties comprised the following balances ($ in thousands):
SEPT. 30, JUNE 30,
1998 1998
American Micro Computer
Center $17 $54
Technology Express 1,323 844
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$1,340 898
====== ======
Due to related parties comprised of following balances (in thousands):
SEPT. 30, JUNE 30,
1998 1998
American Micro Computer
Center $- 12
Technology Express 9 226
Ameritech Argentina - -
Ameritech Exports - -
------ ------
$9 238
====== ======
The entities listed above are related to the Company in the following manner:
AMERICAN MICRO COMPUTER CENTER
American Micro Computer Center is a distributor of computer hardware based in
Miami, Florida. John B. Gallagher who is Co-Chairman, Co-President, Director and
shareholder (owning 39% of the outstanding shares after the Offering) of
European Micro Holdings, Inc. is a president of American Micro Computer Center
and owns 33.3% of the stock in that company.
TECHNOLOGY EXPRESS
Until 1996, Technology Express was a full service authorized reseller of
computers and related products based in Nashville, Tennessee, selling primarily
to end-users. Technology Express was sold to Inacomp Computers in 1996.
Concurrently with the sale, Mr. Shields founded a new computer company with the
name Technology Express. This company is a distributor of computer products and
does not sell to end-users. Harry D. Shields who is Co-Chairman, Co-President,
Director and shareholder (owning 39% of the outstanding shares after the
Offering) of European Micro Holdings, Inc. is president of Technology Express
and owns 100% of the outstanding shares of common stock of that company.
10
<PAGE>
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
6 RELATED PARTY TRANSACTIONS (CONTINUED)
AMERITECH ARGENTINA
Ameritech Argentina is an authorized distributor of Compaq, Hewlett Packard, IBM
and Acer Computers and accessories in Argentina. Messrs. Shields and Gallagher
were both Directors of Ameritech Argentina and owned 50% of the outstanding
shares of common stock each until its sale on August 1, 1997.
AMERITECH EXPORTS
Ameritech Exports is an authorized distributor of Compaq computers and
accessories into Caribbean and certain parts of Central and South America.
Messrs. Shields and Gallagher were both Directors of Ameritech Exports and owned
50% of the outstanding shares of common stock each until its sale on August 1,
1997.
7 SUBSEQUENT EVENTS
On October 28, 1998, European Micro plc, a wholly-owned subsidiary of European
Micro Holdings, Inc. ("EUROPEAN MICRO HOLDINGS"), completed its acquisition of
all of the outstanding shares of capital stock of Sunbelt (UK) Limited
("SUNBELT"), a company registered in England and Wales, from the shareholders of
Sunbelt for $1,008,684 in cash and an earn-out based on the attainment of
certain performance criteria. At European Micro Holdings' discretion, the
earn-out will be payable in either cash or shares of common stock of European
Micro Holdings. The amount of consideration to be paid for the shares of Sunbelt
was determined based on a multiple of Sunbelt's net earnings and the attainment
of certain performance criteria. The funds used to acquire the shares of Sunbelt
came from the cash generated from the business operations of European Micro plc.
As a result of the acquisition, Sunbelt is a wholly-owned subsidiary of European
Micro plc. The acquisition will be accounted for using the purchase method of
accounting.
Sunbelt, formerly privately held, is a distributor of microcomputer products to
dealers, VARs and mass merchants throughout Western Europe. Sunbelt's trading
operations will be integrated with and into the operations of European Micro
plc. Sunbelt's business of distributing its Nova brand products will operate as
a separate business entity consistent with past practice. Sunbelt was
established in 1992 and is based in Wimbledon, England. For the fiscal year
ended June 30, 1998, Sunbelt had total sales of approximately U.S. $16.5 million
and pre-tax earnings of approximately U.S. $742,500.
11
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. THIS QUARTERLY REPORT
CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING, AMONG OTHER
THINGS, (A) EUROPEAN MICRO HOLDINGS' ("EUROPEAN MICRO HOLDINGS" OR THE
"COMPANY") PROJECTED SALES AND PROFITABILITY, (B) THE COMPANY'S GROWTH
STRATEGIES, (C) ANTICIPATED TRENDS IN THE COMPANY'S INDUSTRY, (D) THE COMPANY'S
FUTURE FINANCING PLANS AND (E) THE COMPANY'S ANTICIPATED NEEDS FOR WORKING
CAPITAL. IN ADDITION, WHEN USED IN THIS QUARTERLY REPORT, THE WORDS "BELIEVES,"
"ANTICIPATES," "INTENDS," "IN ANTICIPATION OF," "EXPECTS," AND SIMILAR WORDS ARE
INTENDED TO IDENTIFY CERTAIN FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE BASED LARGELY ON THE COMPANY'S EXPECTATIONS AND ARE SUBJECT TO A
NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S
CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CHANGES IN TRENDS IN THE ECONOMY AND THE COMPANY'S
INDUSTRY, REDUCTIONS IN THE AVAILABILITY OF FINANCING AND AVAILABILITY OF
COMPUTER PRODUCTS ON TERMS AS FAVORABLE AS EXPERIENCED BY THE COMPANY IN PRIOR
PERIODS AND OTHER FACTORS. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THERE CAN
BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY
REPORT WILL IN FACT OCCUR. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO
PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING
STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
UNLESS THE CONTEXT OTHERWISE REQUIRES AND EXCEPT AS OTHERWISE SPECIFIED,
REFERENCES HEREIN TO "EUROPEAN MICRO" OR THE "COMPANY" INCLUDE EUROPEAN MICRO
HOLDINGS AND ITS TWO WHOLLY-OWNED SUBSIDIARIES, EUROPEAN MICRO PLC, A COMPANY
ORGANIZED UNDER THE LAWS OF THE UNITED KINGDOM ("EUROPEAN MICRO UK"), AND
NOR'EASTER MICRO, INC., A NEVADA CORPORATION ("NOR'EASTER") (COLLECTIVELY, THE
TWO WHOLLY-OWNED SUBSIDIARIES ARE REFERRED TO AS THE "SUBSIDIARIES").
OVERVIEW
The Company is an independent distributor of microcomputer products,
including personal computers, memory modules, disc drives and networking
products, to customers mainly in Western Europe and to customers and related
parties in the United States. The Company's customers consist of more than 375
value-added resellers, corporate resellers, retailers, direct marketers and
distributors. The Company does not sell to end-users. Substantially all of the
products sold by the Company are manufactured by well-recognized manufacturers
such as IBM, Compaq and Hewlett-Packard, although the Company generally does not
obtain its inventory directly from such manufacturers. The Company monitors the
geographic pricing strategies related to such products, currency fluctuations
and product availability in order to obtain inventory at favorable prices from
other distributors, resellers and wholesalers.
The Company considers itself to be a focused distributor, as opposed to a
broadline distributor, dealing with a limited and select group of products from
a limited and select group of leading manufacturers. The Company believes that
being a focused distributor enables it to respond more quickly to customer
requests and gives it greater availability of products, access to products and
improved pricing. The Company believes that as a focused distributor it has been
able to develop greater expertise in the products which it sells. The Company
places significant emphasis on market awareness and planning and actively shares
this knowledge with its customers in order to further enhance trading relations.
The Company strives to monitor and react quickly to market trends in order to
enable its multilingual sales team to maintain the highest levels of customer
service.
European Micro Holdings was organized under the laws of the State of
Nevada and is the parent of European Micro UK and Nor'easter. Nor'easter was
organized under the laws of the State of Nevada on December 26, 1997, to serve
as an independent distributor of microcomputer products in the United States.
European Micro UK was organized under the laws of the United Kingdom in 1991 to
serve as an independent distributor to customers mainly in Western Europe and to
related parties in the United States. On January 31, 1998, European Micro
Holdings acquired one hundred percent (100%) of the issued and outstanding
shares of ordinary stock of European Micro UK in consideration for the issuance
of 4,000,000 newly issued shares of common stock, par value $0.01 per share (the
12
<PAGE>
"COMMON STOCK"), of European Micro Holdings. The 4,000,000 shares of Common
Stock of European Micro Holdings has been issued to the shareholders of European
Micro UK on a pro rata basis in accordance with such shareholders' respective
ownership interest in European Micro UK. As a result of the exchange, the
shareholders of European Micro UK together received all of the issued and
outstanding shares of Common Stock of European Micro Holdings prior to the
consummation of its initial public offering. These shareholders were John B.
Gallagher, Harry D. Shields, Thomas H. Minkoff, as trustee of the Gallagher
Family Trust, and Stuart S. Southard and Robert H. True, as Trustees of the 1997
Henry Daniel Shields Irrevocable Educational Trust. In addition, European Micro
UK became a wholly-owned subsidiary of European Micro Holdings.
European Micro UK is the parent of European Micro GmbH (formerly known as
European Micro Computer Center GmbH) ("EUROPEAN MICRO GERMANY"). European Micro
Germany was organized under the laws of Germany in 1993 and operates as a sales
office in Dusseldorf, Germany. All products sold by European Micro Germany are
procured and shipped from the facilities of European Micro UK. European Micro UK
has a 50% joint venture interest in Big Blue Europe, B.V. ("BIG BLUE EUROPE")
which was formed in January 1997. Big Blue Europe was organized under the laws
of Holland and is a computer parts distributor with offices located near
Amsterdam, Holland. Selling primarily to computer maintenance companies, Big
Blue Europe has experienced growth in sales and the Company believes that Big
Blue Europe is positioned to participate in the relatively high margin parts
after-market industry. Big Blue Europe has no affiliation with International
Business Machines Corporation.
On October 28, 1998, European Micro UK completed its acquisition of all of
the outstanding shares of capital stock of Sunbelt. As a result, Sunbelt became
a wholly-owned subsidiary of European Micro UK. This relationship is depicted in
the organizational chart below. See "Note 7 to the Consolidated Financial
Statements" and "Item 5. Other Information."
European Micro Holdings was formed in December 1997 to serve as a holding
company of the Subsidiaries. European Micro Holdings does not have any
operations of its own. Its headquarters are located at 6073 N.W. 167th Street,
Unit C-25, Miami, Florida 33015, and its telephone number is (305) 825-2458.
13
<PAGE>
The following organizational chart summarizes the relationships among
European Micro Holdings, Nor'easter, European Micro UK, European Micro
Germany, Big Blue Europe and Sunbelt.
[GRAPHIC OMITTED]
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentage
of net sales represented by certain items in European Micro's Consolidated
Condensed Statements of Earnings:
PERCENTAGE OF NET SALES
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---- ----
Net sales to third parties 94.8% 61.3%
Net sales to related parties 5.2% 38.7%
------- -------
Total net sales 100.0% 100.0%
------- -------
Cost of goods sold to third parties (84.8%) (54.0%)
Cost of goods sold to related parties (5.1%) (38.4%)
------- -------
Total cost of goods sold (89.9%) (92.4%)
------- -------
Total Gross Profit 10.1% 7.6%
Total operating expenses (5.9%) (4.5%)
------- -------
Operating profit 4.2% 3.1%
Interest expense (0.2%) (0.4%)
Share of (loss) / income in the
unconsolidated affiliate (0.1%) 0.1%
------- -------
Income before income taxes 3.9% 2.8%
Provision for income taxes (1.5%) (0.8%)
------- -------
Net Income 2.4% 2.0%
======= =======
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
TOTAL NET SALES. Total net sales increased $5.2 million, or 21.5%, from
$24.1 million in the three-month period ended September 30, 1997 to $29.3
million in the comparable period in 1998. Excluding net sales to related
parties, net sales increased $13.0 million, or 88.1%, from $14.8 million in the
three-month period ended September 30, 1997 to $27.8 million in the comparable
period in 1998. This increase was attributable to general sales growth
(accounting for approximately $6.6 million), the start-up growth of Nor'easter
which started its operations in February 1998 (accounting for approximately $5.2
million) and the growth of the Premier Dealers Club (accounting for
approximately $1.2 million). There can be no assurance that the Company will be
able to maintain the level of sales or sales growth achieved in this period
because of seasonal variations in the demand for the products and services
offered by the Company, the introduction of new hardware and software
technologies and products offering improved features and functionality, the
introduction of new products and services by the Company and its competitors,
the loss or consolidation of a significant supplier or customer, changes in the
level of operating expenses, inventory adjustments, product supply constraints
and competitive conditions, including pricing, interest rate fluctuations, the
impact of acquisitions, currency fluctuations and general economic conditions.
15
<PAGE>
Net sales to related parties decreased $7.8 million in the three-month
period ended September 30, 1998 from the comparable period in 1997. This
decrease is primarily attributable to large purchases of computer peripherals
made on behalf of related parties in the three-month period ended September 30,
1997 compared to the same period in 1998. In addition, the Company's purchases
from related parties increased by $9.9 million in the three-month period ended
September 30, 1998 from the comparable period in 1997. The related parties
consist of a group of entities in which an ownership interest is held by either
of the two primary shareholders of the Company, John B. Gallagher or Harry D.
Shields. See "Note 6 to the Consolidated Financial Statements." In order to
facilitate fast and efficient international transactions, each member of the
group has acted as a supplier for, and purchaser from, the other members of the
group. The group has attempted to price inter-group sales at one percent above
the selling group member's cost, although the group has made numerous exceptions
in times of short supply, to cover assembly costs and to reward certain group
members for exceptional low-cost purchases. None of the members of the group are
under any legal obligation to continue to act as a supplier for, or purchaser
from, the other members of the group. If the Company is unable to sell product
to the other members of the group, the Company's revenues will be significantly
reduced and its business, financial condition and results of operations will be
materially adversely affected.
GROSS PROFIT. Gross profit increased $1.1 million, or 60.1 %, from $1.8
million in the three-month period ended September 30, 1997 to $2.9 million in
the comparable period in 1998. Gross profit excluding related party transactions
increased $1.2 million, or 67.7%, from $1.7 million in the three-month period
ended September 30, 1997 to $2.9 million in the comparable period in 1998. This
increase is the result of market conditions which made it advantageous to
purchase from the other group members and sell to third parties during the
period. In the comparable period in 1997, the Company supplied product to the
other group members instead of purchasing product. This shift in market
conditions is due to currency fluctuations, product availability and changes in
geographic pricing strategies of the manufacturers and suppliers of the
Company's products. As discussed above, the mark-up on sales to related parties
is typically one percent over cost. Therefore, the gross profit of sales to
third parties is typically higher than the gross profit earned on sales to
related parties. Gross profit attributable to related party sales was $18,000 in
the three-month period ended September 30, 1998. This represents a margin of
approximately one percent as discussed above. The Company's business and results
of operations will be materially adversely affected if the Company is unable to
purchase product from the other members of the group (including Technology
Express) when such product could be purchased from these group members at prices
lower than available from other sources.
Gross margin increased by 2.5% from 7.6% in the three-month period ended
September 30, 1997 to 10.1% in the comparable period in 1998. Excluding related
party transactions, gross margin decreased from 11.8% in the three-month period
ended September 30, 1997 to 10.5% in the comparable period in 1998. This change
is related to the normal fluctuations in purchasing opportunities and sales
demand from quarter to quarter.
Foreign exchange gains and losses moved from a gain of $23,000 in the
three-month period ended September 30, 1997 to a loss of $132,000 in the
comparable period in 1998. This loss was attributable to the strengthening of
the pound sterling relative to other European currencies.
OPERATING EXPENSES. Operating expenses as a percentage of total net sales
increased from 4.5% in the three-month period ended September 30, 1997 to 5.9%
in the comparable period in 1998. Excluding related party transactions,
operating expenses as a percentage of net sales decreased from 7.2% in the
three-month period ended September 30, 1997 to 6.2% in the comparable period in
1998. Operating expenses increased primarily due to the increase in third party
sales and the decrease in related party sales, resulting in higher gross margins
for the period. This resulted in higher commission and bonus compensation during
the period because the Company's compensation structure rewards employees based
on the Company's profitability. For the reasons set forth above, the Company
achieved higher gross margins in the period which resulted in higher commission
and bonus compensation in the period.
INTEREST EXPENSE. Interest expense decreased by $55,000 from $101,000 in
the three-month period ended September 30, 1997 to $46,000 in the comparable
period in 1998. This was attributable to decreased borrowing during the period
because of the availability of the net proceeds from the Company's initial
public offering.
16
<PAGE>
INCOME TAXES. Income taxes as a percentage of earnings before income taxes
increased from 29.8% in the three-month period ended September 30, 1997 to 37.4%
in the comparable period in 1998. The increase was primarily attributable to an
increase in the amount of disallowed expenditures and higher corporate income
tax rates in the United States. The Company's effective income tax rate may
increase in the future as a result of the Company's product mix and variations
in the countries to which the Company sells its products.
INTEREST IN JOINT VENTURE. The Company's share of income or loss from Big
Blue Europe decreased from a gain of $35,000 in the three-month period ended
September 30, 1997 to a loss of $28,000 in the comparable period in 1998. This
reduction in earnings is attributed to an increased provision for inventory
obsolescence and a reduction in total sales.
SEASONALITY
European Micro typically experiences variability in its total net sales
and net income on a quarterly basis as a result of many factors. These include,
but are not limited to, seasonal variations in demand for the products and
services offered by the Company, the introduction of new hardware and software
technologies and products offering improved features and functionality, the
introduction of new products and services by the Company and its competitors,
the loss or consolidation of a significant supplier or customer, changes in the
level of operating expenses, inventory adjustments, product supply constraints
and competitive conditions, including pricing, interest rate fluctuations, the
impact of acquisitions, currency fluctuations and general economic conditions.
Historical operating results have included a reduction in demand in Europe
during the summer months.
LIQUIDITY AND CAPITAL RESOURCES
Short-term working capital requirements are funded by a combination of
short-term revolving lines of credit provided by National Westminster Bank Plc
together with accounts receivable financing provided by Lombard NatWest.
Short-term obligations must be repaid within one year. One line of credit and
the accounts receivable facilities are set and reviewed annually. The interest
rate on these facilities is based on a mark-up over the bank borrowing rate in
the United Kingdom. This line of credit facility was $830,000 in fiscal 1997 and
was increased to $2.0 million during fiscal 1998. The accounts receivable
financing provides financing for up to 85% of trade receivables. In June 1998,
the Company obtained a second short-term line of credit which is secured by the
Company's inventory. This facility allows the Company to borrow up to $5.6
million to assist in the purchase of inventory.
Long-term funding is supplied to the Company in the form of hire purchase
and capital lease agreements. Long-term obligations are due for repayment in
more than one year. These agreements are made through both Lloyds Bowmaker and
NatWest Vehicle Solutions, and are secured by vehicles owned by the Company. The
agreements are usually for 36 months from the date of purchase and are typically
for 80% of the purchase value of the vehicle. As of September 30, 1998, the
borrowings were $139,000, of which $70,000 was due after more than one year.
European Micro's typical principal need for additional working capital in
fiscal 1998 is expected to be for the purchase of additional inventory to
support growth and to take advantage of cash discounts offered by certain of
European Micro's suppliers for early payment. Working capital will also be
needed for expansion purposes, including acquisitions. European Micro expects to
obtain cash for these purposes through its internal cash flow and its existing
bank credit lines, but there can be no assurance that financing will be
available on terms acceptable to European Micro. The unavailability of such
financing could adversely affect the Company's business, financial condition and
results of operations.
Net cash used in operating activities during the three-month period to
September 30, 1998 amounted to $1.9 million. Significant factors in the use of
cash were an increase in trade and discounted receivables of $1.7 million and an
increase in inventory of $3.7 million. The increase in receivables was largely
attributable to the increase in net sales in the three-month period ended
September 30, 1998. The increase in inventory was largely attributable to large
17
<PAGE>
quantity purchases of computer products at prices which the Company considered
to be favorable. The amount of cash used in the Company's operations were
partially offset by net income in the period of $722,000, cash generated from an
increase in trade payables of $899,000, a reduction in other current assets
related to the prepayment of inventory at June 30, 1998 of $2.0 million.
Cash used in investing activities amounted to $54,000, consisting of
expenditures on fixtures and fittings of $11,000 and office equipment of
$43,000.
Cash provided by financing activities was $425,000, of which $468,000 was
provided by an increase in the Lombard NatWest debt discounting facility. Cash
was used by repayments of capital leases of $18,000 and additional expenses
associated with the initial public offering of $25,000.
Overall, the Company experienced a net decrease in cash of $1.4 million
for the three-month period ended September 30, 1998 which is after the impact of
exchange rates of $140,000.
ASSET MANAGEMENT
INVENTORY. European Micro's goal is to achieve high inventory turns and
maintain a low level of inventory on hand and thereby reduce European Micro's
working capital requirements. European Micro's strategy to achieve this goal is
to both effectively manage its inventory and achieve high order fill rates.
Inventory levels may vary from period to period, due to many factors, including
increases or decreases in sales levels, European Micro's practice of making
large-volume purchases when it deems such purchases to be attractive, new
products and changes in European Micro's product mix.
ACCOUNTS RECEIVABLE. European Micro sells its products and services to a
customer base of more than 375 value-added resellers, corporate resellers,
retailers and direct marketers. European Micro offers credit terms to qualifying
customers and also sells on a pre-pay and cash-on-delivery basis. With respect
to credit sales, European Micro attempts to control its bad debt exposure by
monitoring customers' creditworthiness and, where practicable, through
participation in credit associations that provide customer credit rating
information for certain accounts. Substantially all of European Micro UK's
accounts receivables are insured and its positive credit results have allowed
European Micro UK to enjoy what it believes to be one of the most competitive
insurance rates in the industry.
CURRENCY RISK MANAGEMENT
REPORTING CURRENCY. European Micro Holdings' and Nor'easter's reporting
and functional currency, as defined by Statement of Financial Accounting
Standards No. 52, is the United States dollar. The functional currency of
European Micro UK is the United Kingdom pound sterling. European Micro UK
translates into the reporting currency by measuring assets and liabilities using
the exchange rates in effect at the balance sheet date and results of operations
using the average exchange rates prevailing during the period.
HEDGING AND CURRENCY MANAGEMENT ACTIVITIES. European Micro Holdings does
not engage in hedging activities to guard against currency fluctuations between
the United Kingdom pound sterling and the United States dollar. Because the
functional currency of European Micro Holdings' main operating subsidiary,
European Micro UK, is the United Kingdom pound sterling, currency fluctuations
of the pound sterling relative to the dollar may have a material adverse affect
on the Company's business, financial condition and results of operations.
European Micro Holdings may engage in hedging activities in the future, although
no assurances can be given that it will engage in such activities and if it does
so that such activities will be successful.
European Micro UK recognizes that it has currency exposure when
transactions are consummated in currency other than the pound sterling. For
example, for the quarter ended September 30, 1998, purchases of inventory by
European Micro UK were in the United Kingdom pound sterling (17%), German Mark
(6%), United States dollar (70%) and other (7%). The most significant currencies
in which sales were made, other than the pound sterling (55%), were the German
Mark (19%), Dutch guilder (9%), French franc (7%) and others (10%).
Additionally, receivables are also significantly spread out over several
currencies. Lastly, to the extent that bank balances are maintained in different
currencies that would also be subject to fluctuations against the pound
sterling.
18
<PAGE>
The policy of the Company is not to hedge specifically against individual
daily transactions. Instead, the exposure to a currency is determined every two
to three days. This is done by comparing the bank account balances and account
receivables with accounts payable, all in the same currency to create a
"natural" hedge. Thereafter, to the extent that a bank balance and the account
receivable are not totally offset by the accounts payable, there would be a need
to cover the residual credit balance with a forward currency contract. The
Company tends to concentrate its currency management into four currencies --
United Kingdom pound sterling, United States dollar, Dutch guilder and German
Mark. It normally deems the exposure in other currencies to be minimal. However,
when the Company buys products in other currencies, the Company may, in
conjunction with current market advice, book a forward contract to cover current
and some anticipated future purchases.
ECONOMIC AND MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
sovereign currencies and a new currency called the "euro." These countries have
agreed to adopt the euro as their common legal currency on that date. The euro
will then trade on currency exchanges and be available for non-cash
transactions. Thereafter and until January 1, 2002, the existing sovereign
currencies will remain legal tender in these countries. On January 1, 2002, the
euro is scheduled to replace the sovereign legal currencies of these countries.
Through the operations of European Micro UK, the Company has significant
operations within the European Union, including many of the countries which are
scheduled to adopt to euro. The Company is evaluating the impact the euro will
have on its continuing business operations and no assurances can be given that
the euro will not have a material adverse affect on the Company's business,
financial condition and results of operations. However, the Company does not
expect the euro to have a material affect on its competitive position as a
result of price transparency within the European Union because the Company does
not rely on currency imbalances in purchasing inventory from within the European
Union. Moreover, the Company is evaluating its ability to update its information
technology to accommodate the adoption of the euro but it does not expect to
incur material costs in either evaluating or updating such technology. In
addition, the Company cannot accurately predict the impact the euro will have on
currency exchange rates or the Company's currency exchange rate risk. The
Internal Revenue Service ("IRS") has requested comments on various tax issues
raised by the euro conversion. The IRS is expected to publish guidelines on this
issue soon and, until such time, the Company cannot predict whether the IRS
guidelines will have any tax consequences on the Company.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the Year 2000. If not corrected in the
computer applications of the Company or its suppliers and customers, this
problem may cause computer applications to fail or to create erroneous results
by or at the Year 2000. The Company has received informal assurances from the
companies manufacturing the computer applications used in its business
operations that such computer applications are Year 2000 compliant. Although the
Company believes that its computer applications will not be affected by the Year
2000 problem, any failure or erroneous results produced thereby may have a
material adverse affect on the Company's business, financial condition or
results of operations. The Company does not generally sell software products and
therefore the Company does not expect its products to be affected by the Year
2000 problem.
The Company is evaluating the impact the Year 2000 problem will have on
its suppliers and customers, although the Company expects such evaluation to be
made informally through discussions with customers and suppliers. The failure of
the Company's suppliers and customers to correct the Year 2000 problem in their
computer applications may have a material adverse affect on the Company's
business, financial condition and results of operations. As of the date of this
filing, the Company cannot accurately anticipate or quantify the impact on the
Company of its suppliers' and customers' failure to correct this problem. The
Company is formulating contingency plans to implement in the event its
suppliers' and customers' fail to address the Year 2000 problem.
19
<PAGE>
INTER-GROUP SALES
In order to achieve attractive prices from suppliers, a large quantity of
a product must be firmly committed to. European Micro polls the other members of
the group for informal commitments to help distribute that product. Thereafter,
the purchasing member of the group, would obtain the product, examine the
product for damage and authenticity, and then supervise the shipping to the
other group members. In such capacity, the purchasing member of the group acts
as a "purchasing agent" for the other group members.
In the three-month period ended September 30, 1998, European Micro UK
benefited from low mark-up purchases from the other members of the group by $9.0
million and Nor'easter by $3.4 million. European Micro Holdings' sales to the
related parties during the three-month period ended September 30, 1998 decreased
$7.8 million from $9.3 million to $1.5 million. The primary reasons for this
reduction in related party sales is due to the availability of product at prices
in the United States more favorable than other sources of supply. While the
average margin on these sales was approximately 1.0% compared to an average
margin of 10.7% on sales to unrelated third parties during the same period, such
margin was sufficient to cover the costs incurred by the Company in purchasing
such products on behalf of the group. Significantly, European Micro was able to
enjoy the marginal benefits from the lower cost of the remaining product for its
sales. See "Note 6 to the Consolidated Financial Statements."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company utilizes derivative financial instruments in the form of
forward exchange contracts for the purpose of economic hedges of anticipated
sale and purchase transactions. In addition, the Company enters into economic
hedges for the purpose of hedging foreign currency market exposures of
underlying assets, liabilities and other obligations which exist as part of its
ongoing business operations.
Where the foreign currency exposure is covered by a forward foreign
exchange contract, the asset, liability or other obligation is recorded at the
contracted rate each month end and the resultant mark-to-market gains and losses
are recognized as cost of sales in the current period, generally consistent with
the period in which the gain or loss of the underlying transaction is
recognized. Cash flows associated with derivative transactions are classified in
the statement of cash flows in a manner consistent with those of the exposure
being hedged.
The Company places all foreign exchange forward contracts with Global
Financial Markets, a division of the National Westminster Bank Plc, a leading
European bank.
EXCHANGE RATE SENSITIVITY
The table below summarizes information on foreign currency forward
exchange agreements. The table presents the notional amounts and weighted
average exchange rates by expected (contractual) maturity dates ($ in thousands,
except exchange rates).
Expected
maturity or
transaction date Fair value
---------------- ----------
FORWARD EXCHANGE
AGREEMENTS
SEPTEMBER 30, 1998
(Receive $US/Pay(pound)) October 1, 1998
Contract amount $3,500 $3,560
Average contractual
exchange rate $1.674/(pound)1
20
<PAGE>
The fair value has been determined by applying the mid-price of the spread
on the buy or sell rates, as appropriate, of the relevant foreign currency at
the balance sheet date. The mid-price used is that quoted by the Financial
Times.
Income and losses in respect of the transaction foreign exchange
transactions were as follows ($ in thousands):
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------------------
(Loss) income on foreign exchange
transactions ($132) $23
===== ===
PART II
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a), (b) and (c). None.
(d) The Company's Registration Statement (the "REGISTRATION STATEMENT")
on Form S-1 filed by the Company on January 16, 1998 (File No. 333-44393) was
declared effective by the Securities and Exchange Commission on April 6, 1998.
As previously reported, European Micro Holdings received net proceeds of
$7,159,156 in the offering. European Micro Holdings has used the net proceeds in
the following manner:
USE OF NET PROCEEDS
NET PROCEEDS $7,159,156
Loaned to Subsidiaries for
Operations:
European Micro UK $3,500,000
Nor'easter 3,659,156
------------------
PROCEEDS UTILIZED IN THE PERIOD 7,159,156
-----------------
NET PROCEEDS STILL AVAILABLE $0
=================
European Micro UK used the $3.5 million of the proceeds received from
European Micro Holdings to pay down approximately $3.5 million its short-term
indebtedness. European Micro Holdings has loaned an aggregate of $3.7 million of
the net proceeds to Nor'easter, all of which has been used by Nor'easter to
purchase inventory. None of the payments of net proceeds were made to directors,
officers or persons owning ten percent or more of the outstanding Common Stock
of European Micro Holdings.
European Micro Holdings indicated in its Registration Statement that
$1.0 million would be used to fund the operations and provide working capital to
Nor'easter and $2.4 million would be used for expansion purposes, including
mergers and acquisitions. As indicated above, European Micro Holdings used $3.7
million to fund the operations of Nor'easter. This change in the anticipated use
of proceeds resulted from the availability of product at prices in the United
States more favorable than other sources of supply.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
21
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On October 28, 1998, European Micro UK completed its acquisition of all of
the outstanding shares of capital stock of Sunbelt from the shareholders of
Sunbelt for $1,008,684 in cash and an earn-out based on the attainment of
certain performance criteria. At European Micro Holdings' discretion, the
earn-out will be payable in either cash or shares of common stock of European
Micro Holdings. The amount of consideration to be paid for the shares of Sunbelt
was determined based on a multiple of Sunbelt's net earnings and the attainment
of certain performance criteria. The funds used to acquire the shares of Sunbelt
came from the cash generated from the business operations of European Micro plc.
As a result of the acquisition, Sunbelt is a wholly-owned subsidiary of European
Micro UK. The acquisition will be accounted for using the purchase method of
accounting.
Sunbelt, formerly privately held, is a distributor of microcomputer
products to dealers, VARs and mass merchants throughout Western Europe.
Sunbelt's trading operations will be integrated with and into the operations of
European Micro plc. Sunbelt's business of distributing its Nova brand products
will operate as a separate business entity consistent with past practice.
Sunbelt was established in 1992 and is based in Wimbledon, England. For the
fiscal year ended June 30, 1998, Sunbelt had total sales of approximately U.S.
$16.5 million and pre-tax earnings of approximately U.S.
$742,500.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Exhibit
No. Description Location
- ------ ----------- --------
2.01 Agreement for the Acquisition of Provided herewith
Sunbelt (UK) Limited by European
Micro Plc dated October 26, 1998
3.01 Articles of Incorporation Incorporated by reference to
Exhibit No. 3.01 to
Registrant's Registration
Statement (the "Registration
Statement") on Form S-1
(Registration Number
333-44393).
3.02 Certificate of Amendment of Incorporated by reference to
Articles of Incorporation Exhibit 3.02 to Registrant's
Form 10-Q for the quarter
ended March 31, 1998
3.03 Bylaws Incorporated by reference to
Exhibit No. 3.02 to the
Registration Statement.
4.01 Form of Stock Certificate Incorporated by reference to
Exhibit No. 4.01 to the
Registration Statement.
4.02 1998 Stock Incentive Plan Incorporated by reference to
Exhibit No. 4.02 to the
Registration Statement.
4.03 1998 Employee Stock Incorporated by reference to
Purchase Plan Exhibit No. 4.03 to the
Registration Statement.
4.04 Form of Lock-up Agreement Incorporated by reference to
Exhibit No. 4.04 to the
Registration Statement.
10.01 Form of Advice of Borrowing Terms Incorporated by reference to
22
<PAGE>
with National Westminster Bank Plc Exhibit No. 10.01 to the
Registration Statement.
10.02 Invoice Discounting Agreement Incorporated by reference to
with Lombard NatWest Discounting Exhibit No. 10.02 to the
Limited, dated November 21, 1996 Registration Statement.
10.03 Commercial Credit Insurance, Incorporated by reference to
policy number 60322, with Hermes Exhibit No. 10.03 to the
Kreditversicherungs-AG dated Registration Statement.
August 1, 1995
10.04 Commercial Credit Insurance, Incorporated by reference to
policy number 82692, with Hermes Exhibit No. 10.04 to the
Kreditversicherungs-AG dated Registration Statement.
August 1, 1995
10.05 Consignment Agreement with Incorporated by reference to
European Micro Computer B.V., Exhibit No. 10.05 to the
dated January 1996 Registration Statement.
10.06 Distributor Agreement with Incorporated by reference to
WatchGuard Technologies, Inc., Exhibit No. 10.06 to the
dated November 5, 1997 Registration Statement.
10.07 Shareholders' Cross-Purchase Incorporated by reference to
Agreement by and between Jeffrey Exhibit No. 10.07 to the
Gerard Alnwick, Marie Alnwick, Registration Statement.
European Micro Plc and Big Blue
Europe, B.V. dated August 21, 1997
10.08 Trusteed Shareholders Incorporated by reference to
Cross-Purchase Agreement by and Exhibit No. 10.08 to the
between John B. Gallagher, Harry Registration Statement.
D. Shields, Thomas H. Minkoff,
Trustee of the Gallagher Family
Trust, Robert H. True and Stuart
S. Southard, Trustees of the
Henry Daniel Shields 1997
Irrevocable Educational Trust,
European Micro Holdings and
SunTrust Bank, Nashville, N.A.,
as Trustee dated January 31, 1998
10.09 Executive Employment Agreement Incorporated by reference to
between John B. Gallagher and Exhibit No. 10.09 to the
European Micro Holdings, Inc. Registration Statement.
effective as of January 1, 1998
10.10 Executive Employment Agreement Incorporated by reference to
between Harry D. Shields and Exhibit No. 10.10 to the
European Micro Holdings, Inc. Registration Statement.
effective as of January 1, 1998
10.11 Contract of Employment Agreement Incorporated by reference to
between Laurence Gilbert and Exhibit No. 10.11 to the
European Micro UK dated March 14, Registration Statement.
1998
10.12 Contract of Employment between Incorporated by reference to
Bernadette Spofforth and European Exhibit No. 10.12 to the
Micro UK dated April 30, 1996 Registration Statement.
10.13 Subscription Agreement by and Incorporated by reference to
between John B. Gallagher, Harry Exhibit No. 10.13 to the
D. Shields, Thomas H. Minkoff, Registration Statement.
Trustee of the Gallagher Family
Trust, Robert H. True and Stuart
S. Southard, Trustees of the
Henry Daniel Shields 1997
Irrevocable Educational Trust,
European Micro Holdings, Inc.
effective as of January 31, 1998
10.14 Administrative Services Contract Incorporated by reference to
by and between European Micro Exhibit No. 10.14 to the
23
<PAGE>
Holdings, Inc. and European Micro Registration Statement.
Plc effective as of January 1,
1998
10.15 Escrow Agreement between European Incorporated by reference to
Micro Holdings, Inc., Tarpon Exhibit No. 10.15 to the
Scurry Investments, Inc. and The Registration Statement.
Chase Manhattan dated as of March
24, 1998
10.16 Form of Indemnification Incorporated by reference to
Agreements with officers and Exhibit No. 10.16 to the
directors Registration Statement.
10.17 Form of Transfer Agent Agreement Incorporated by reference to
with Chase Mellon Shareholder Exhibit No. 10.17 to the
Services, L.L.C. Registration Statement.
10.18 Form of Credit Agreement by and Incorporated by reference to
between European Micro UK and Exhibit No. 10.17 to the
National Westminster Bank Plc Annual Report on Form 10-K
for the fiscal year ended
June 30, 1998 filed with the
Commission on September 28,
1998
10.19 Consulting Contract dated Provided herewith
September 10, 1998 by and between
European Micro Holdings, Inc. and
The Equity Group
10.20 Service Agreement dated October Provided herewith
28, 1998 by and between European
Micro Holdings, Inc. and Michael
Gesner
10.21 Service Agreement dated October Provided herewith
28, 1998 by and between European
Micro Plc and Gerard O'Rourke
11.01 Statement re: Computation of Provided herewith
Earnings
15.01 Letter re: Unaudited Financial Not applicable
Information
18.01 Letter re Change in Accounting Not applicable
Principles
19.01 Report Furnished to Security Not applicable
Holders
22.01 Published Report Regarding Not applicable
Matters Submitted to Vote of
Security Holders
23.01 Consents of experts and counsel Not applicable
24.01 Power of Attorney Not applicable
27.01 Financial Data Schedule Provided herewith
(B) REPORTS ON FORM 8-K.
None.
24
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 13, 1998 EUROPEAN MICRO HOLDINGS, INC.
By: /s/ John B. Gallagher
---------------------
John B. Gallagher, Co-President
25
EXHIBIT 2.01
DATED 26TH DAY OF OCTOBER, 1998
AGREEMENT FOR THE
ACQUISITION OF
SUNBELT (UK) LIMITED
BY
EUROPEAN MICRO PLC
PHILIP CONN & CO
LINCOLN HOUSE
1 BRAZENNOSE STREET
MANCHESTER
M2 5FJ
TELE: 0161-833 9494
FAX: 0161-834 4540
REF: TJO/MJM
<PAGE>
CLAUSE
1. INTERPRETATION ..........................................................4
2. SALE AND PURCHASE.......................................................12
3. CONDITIONS..............................................................16
4. PERIOD TO COMPLETION....................................................17
5. COMPLETION..............................................................18
6. WARRANTIES AND INDEMNITIES..............................................20
7. RESTRICTIONS............................................................25
8. PENSIONS................................................................26
9. UNIT 1, SAXON BUSINESS CENTRE...........................................28
10. COSTS...................................................................28
11. EFFECT OF COMPLETION....................................................28
12. ACKNOWLEDGEMENTS........................................................29
13. ENTIRE AGREEMENT AND AMENDMENTS.........................................29
14. COUNTERPARTS............................................................29
15. MERGER OF AGREEMENTS....................................................29
16. GENERAL.................................................................30
17. SEVERABILITY............................................................30
18. LAW AND JURISDICTION....................................................31
2
<PAGE>
SCHEDULE 1....................................................................32
THE VENDORS
SCHEDULE 2....................................................................33
PARTICULARS RELATING TO THE COMPANY
SCHEDULE 3....................................................................34
THE PROPERTIES
SCHEDULE 4....................................................................35
WARRANTIES
SCHEDULE 5....................................................................78
DEED OF INDEMNITY
ANNEXURE A....................................................................87
Loan Note and Convertible Loan Note
ANNEXURE B....................................................................96
Deed of Waiver
ANNEXURE C....................................................................97
Schedule of Adjustments
ANNEXURE D....................................................................98
Service Contracts
3
<PAGE>
THIS AGREEMENT is made on 26th October 1998
BETWEEN:-
(1) EUROPEAN MICRO PLC a company incorporated in England and whose
registered office is situate at 20-24 Church Street, Altrincham,
Cheshire WA14 4DW (Company Number: 2663964) ("the Purchaser"); and
(2) The persons whose names and addresses are set out in column 1 of
Schedule 1 (together the "Vendors").
RECITALS:
(A) Sunbelt (UK) Limited is a private limited company incorporated in
England under the Companies Acts under number 02743684. Further details
relating to the Company are set out in Schedule 2.
(B) The Vendors are or will be upon Completion, the registered holders of
all of the Shares, the numbers of the Shares of which each of the
Vendors is the registered holder being set out opposite his name in
column 2 of Schedule 1, such Shares comprising in aggregate 100 per
cent of the issued share capital of the Company.
(C) The Vendors have agreed to sell, or procure to be sold, the Shares to
the Purchaser on the terms and subject to the conditions set out in
this agreement free from Encumbrances.
(D) The Vendors have made representations to the Purchaser in the terms of
the Warranties to the intent that the Purchaser should rely on such
Warranties in entering into this agreement.
THE PARTIES AGREE AS FOLLOWS:
1. INTERPRETATION
1.1 The following provisions shall have effect for the interpretation of
this agreement.
1.2 The following words, expressions and abbreviations shall, unless the
context otherwise requires, have the following meanings:
"ACCOUNTS" means financial statements of the Company and each of the
Subsidiaries, comprising the balance sheet of the Company, the consolidated
balance sheet and profit and loss account of the Group and the balance sheet and
profit and loss account of each of the Subsidiaries, together in each case with
the notes thereon as at and for the financial period ending on the Accounts
Date.;
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"ACCOUNTS DATE" means 30th June 1998;
"ACTIVITIES" means any activity, operation or process carried out by the Company
at any Property whether or not currently owned, occupied or used by the Company;
"ADJUSTED PRE-TAX EARNINGS" means pre-tax earnings adjusted in accordance with
clause 2.6;
"AGREED RATE" means 2 per cent above the base rate from time to time of National
Westminster Bank plc;
"AGREED FORM" means the form agreed between the parties on or prior to the date
of this agreement and initialled for the purposes of identification by their
respective solicitors;
"ASIAN SUBSIDIARY" means the company to be incorporated in Singapore as a wholly
owned subsidiary of EMCC which is to carry on its activities within the
territory, such activities to be restricted to purchasing and selling on its own
behalf or acting as commercial agent for the Purchaser's Group within the
territory save in the event that it makes any purchase of stock (inventory) from
any member of the Purchaser Group such purchases to be excluded for any
calculations of turnover so that the Asian Subsidiary shall only be credited
with sales in the territory;
"ASSOCIATE" means as defined in s435 of the Insolvency Act 1986 and "Associated
Company" shall be construed accordingly;
"BUSINESS DAY" means a day (other than Saturday or Sunday) on which banks are
open for business in London;
"BOOK VALUE AMOUNT" means: the Shareholders' Funds of the Company as at 30th
September 1998, reduced by the book value of all Intangible Assets of the
Company except cash and including goodwill, minority interests, research and
development costs, trademarks, trade names, copyrights, patents and franchises,
unamortized debt discounts and expenses, all determined in accordance with
clauses 2.6 and 2.7.
"CAA" means the Capital Allowances Act 1990;
"CGTA" means Capital Gains Tax Act 1979;
"COMPANY" means Sunbelt (UK) Limited which definition shall include any
Subsidiary undertaking wherever the context so admits;
"COMPANY'S ACCOUNTANTS" means Windsor Stebbing Marsh of Pinnacle House, 17-25
Hartfield Road, London SW19 3SE
"COMPANIES ACTS" has the meaning given to it in section 744 of the Companies Act
1985, together with the Companies Act 1989;
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"COMPLETION" means the completion of the sale and purchase of the Shares in
accordance with clause 5;
"COMPLETION DATE" means 26th October 1998 or such other date as the parties may
agree in writing;
"CONDITIONS" means the conditions set out in clause 3 of this agreement;
"CONNECTED PERSON" means as defined in s249 of the Insolvency Act 1986;
"DEED OF INDEMNITY" means a deed of indemnity in the form set out in Schedule 5;
"DISCLOSURE LETTER" means a letter at the Completion Date together with the
attachments thereto addressed by the Vendors' Solicitors on behalf of the
Vendors to the Purchaser's Solicitors on behalf of the Purchaser disclosing
exceptions to the Warranties;
"DISTRIBUTION" means a distribution as defined by sections 209 to 211
(inclusive) of the T.A. and section 418 of the T.A.;
"EMCC" means European Micro Holdings Inc. a company incorporated in the State of
Nevada (United States of America) with the State of Nevada file no. 28914-1997
and having its place of business at 6073 NW 167 Street, Unit C-25, Miami,
Florida 33015 United States of America;
"EMCC SHARES" means the shares of common stock of $0.01 the same being traded or
tradable on NASDAQ, credited as fully paid, in the capital of EMCC to be
allotted to the Vendors at the option of the Purchaser pursuant to clause 2.5,
as part of the consideration
"EMPLOYEES" shall mean the following employees of the Company employed by the
Company at the Completion Date and full particulars of whom are fully and
accurately set out in the Disclosure Letter:-
Dhaliwal, Embers, O'Brien, Patel, Thompson and Upton;
"ENCUMBRANCE" means any mortgage, charge (whether fixed or floating), pledge,
lien, security interest or other third party right or interest (legal or
equitable) over or in respect of the relevant asset, security or right;
"ENVIRONMENT" means any and all living organisms (including without limitation,
man), ecosystems, property and the media of air (including without limitation
air in buildings, natural or manmade structures, below or above ground) water,
(as defined in Section 104(1) of the Water Resources Act 1991 and within drains
and sewers) and land (including under any water as described above and whether
above or below surface);
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"ENVIRONMENTAL CONSENT" means any consent, approval, permit, licence, order,
filing, authorisation, exemption, registration, permission, reporting or notice
requirement and any related agreement required under any Environmental Law;
"ENVIRONMENTAL LAWS" means all international EU, national, federal, state or
local statutes, which for the avoidance of doubt shall include section 57 and
schedule 22 of the Environment Act 1995 and the guidance and regulations adopted
under those provisions, by-laws, orders, regulations or other law or subordinate
legislation or common law, all orders, ordinances decrees or regulatory codes of
practice, circulars, guidance notes and equivalent controls concerning the
protection of human health or which have as a purpose or effect the protection
or prevention of harm to the Environment or health and safety which are binding
in relation to the Properties and/or upon the Company in the relevant
jurisdiction in which the Company has been or is operating (including by the
export of its products, or its waste thereto) on or before Completion and which
for the avoidance of doubt shall specifically include all regulations in
relation to the control of noise;
"FIRST CONTINGENT EARN-OUT AMOUNT" means an amount equal to the product of:-
(i) Adjusted Pre-Tax Earnings of the Company for the fiscal year ended June
30, 1998, multiplied by
(ii) the sum of:
(1) twenty-five percent (25%) if the Nova Gross Profit (as defined
below) for the sale of Nova products by EMCC and its affiliates during
the First Earn-Out Period (as defined below) is at least (pound)600,000
and the Nova Gross Margin (as defined below) for such sales is at least
twenty percent (20%); plus
(2) twenty-five percent (25%) if the Nova Gross Profit for the sale
of Nova Products by EMCC and its affiliates the First Earn-Out Period
is at least (pound)800,000 and the Nova Gross Margin (as defined below)
for sale of such products is at least twenty percent (20%); plus
(3) twenty-five percent (25%) if at least four of the following
employees are employed by the Company, the Group or the Purchaser's
Group on the last day of the First Earn-Out Period: Dhaliwal, O'Brien,
Embers, Thompson, Patel and Upton unless such employees' contracts are
unlawfully or unfairly terminated; plus
(4) twenty-five percent (25%) if the Net Asian Revenue is at
least (pound)4,500,000
The First Contingent Earn-Out shall be payable pro rata if the Company achieves
ninety per cent (90%) or more of items (1), (2) and (4) above.
"FIRST EARN-OUT PERIOD" means a period of twelve (12) calendar months commencing
1st November 1998;
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"GROUP" means the Company and the Subsidiaries;
"GUARANTEED EARN-OUT AMOUNT" means two (2) times the Adjusted Pre-Tax Earnings
of the Company for the financial year ended June 30, 1998.
"I.C.T.A." means the Income and Corporation Taxes Act 1970 and any reference
thereto shall include any enactment repealed or modified thereby as if section
539 of the I.C.T.A. applied in like manner to this agreement;
"INTANGIBLE ASSETS" means any asset, non-monetary in nature and without physical
substance;
"INTELLECTUAL PROPERTY" means all rights in the nature of patent, trademark,
copyright, registered design, design right wheresoever situate and whether
registered or unregistered, registrable applied for or granted without
limitation;
"I.T.A." means the Inheritance Tax Act 1984 and any reference thereto shall
include any enactment repealed or modified thereby as if section 275 of the
I.T.A. applied in like manner to this agreement;
"KNOW-HOW AND CONFIDENTIAL INFORMATION" means any information known to the
Vendors or the Company which might be of commercial value and which in its
entirety as opposed to its individual components is not in the public domain;
"LOAN NOTE" and "CONVERTIBLE LOAN NOTE" mean the Loan Note and Convertible Loan
Note in the agreed form annexed hereto;
"MANAGEMENT ACCOUNTS" means the accounts prepared by the Company in the agreed
form for the period 30th June 1998 to 30th September 1998;
"NASDAQ" means the Exchange known as the National Association of Securities
Dealers Automated Quotations and recognised by the Securities and Exchange
Commission in the USA;
"NET ASIAN REVENUE" means the turnover of the Asian Subsidiary represented by
the cost of purchases (excluding any Nova Products) and the cost of sales made
in the territory less the costs of any purchases sourced from the Purchaser's
Group unless resold in the territory but so that the value of no item of stock
shall be credited more than once as an item of turnover and for the avoidance of
doubt any purchase or sale (as set out above) shall include any sale or purchase
made directly or indirectly by the Purchaser's Group or any Connected Person or
any of them in the territory except for any made by Big Blue Europe BV;
"NOVA GROSS MARGIN" means a fraction, the numerator of which is Gross Profit and
the denominator of which is net revenue generated for the sale of Nova Products;
"NOVA GROSS PROFIT" means the difference between the net revenue and cost of
sales of the Company including duty and freight;
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"NOVA PRODUCTS" means all micro-computers, micro-computer components or
peripherals excluding any such manufactured by IBM, Compaq, Hewlett-Packard or
Toshiba save where in respect of micro-computer components they are integrated
into a product sold under the Nova badge;
"PER SHARE VALUE" means the average closing price for the EMCC Shares on the
Nasdaq Stock Market during the thirty (30) trading days ending on the last
trading day before the date of issue of the EMCC Shares;
"PRE-TAX EARNINGS" means net income before taxes for the Company computed as
provided herein based on the audited accounts of the Company for the applicable
period;
"PROPERTIES" means the properties described in Schedule 3 or any part or parts
thereof and "Property" means any one of them;
"PURCHASER'S AUDITORS" means KPMG of St. James' Square, Manchester M2 6DS;
"PURCHASER'S GROUP" means the Purchaser, any parent company of the Purchaser and
any subsidiary or subsidiary undertaking of the Purchaser or of any such parent
company;
"PURCHASER'S SOLICITORS" means Philip Conn & Co., Lincoln House, 1 Brazennose
Street, Manchester M2 5FJ;
"SECOND CONTINGENT EARN-OUT AMOUNT" means an amount equal to the product of:-
(i) Adjusted Pre-Tax Earnings of the Company for the fiscal year ended June
30, 1998, multiplied by:
(ii) the sum of :
(1) thirty-three percent (33%) if the Nova Gross Profit for the sale of
Nova Products by EMCC and its affiliates during the Second Earn-Out
Period (as defined below) is at least (pound)1,000,000 and the Nova
Gross Margin for the sale of such products is at least twenty
percent (20%); plus
(2) thirty-three percent (33%) if the Nova Gross Profit for the sale of
Nova products by EMCC and its affiliates during the Second Earn-Out
Period (as defined below) is at least (pound)1,200,000 and the Nova
Gross Margin for the sale of such products is at least twenty
percent (20%); plus
(3) thirty-four percent (34%) if the Asian Net Revenue is at least
(pound)7,000,000, provided that if Mr. Gesner does not reside in
Asia after the end of the First Earn-Out Period, by reason of the
instruction or request of his employer then this sum shall be
payable in any event. For the avoidance of doubt this clause shall
not preclude the parties at any time renegotiating a variation of
this clause.
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The Second Contingent Earn-Out Amount shall be pro-rated if the Company
achieves ninety percent (90%) or more of items (1), (2) and (3) above.
"SECOND EARN-OUT PERIOD" means a period of twelve (12) months commencing 1st
November 1999;
"SHARES" means together the issued ordinary shares of (pound)1.00 and the `A'
Preference Shares in the capital of the Company registered in the name of the
Vendors in such numbers as is set out opposite their respective names in column
2 of Schedule 1;
"SHAREHOLDERS' FUNDS" means profits available for distribution as defined in
Part VIII of the Companies Act 1985 together with called up shares capital
including any share premium;
"SOFTWARE" means any program specifically written for the Company;
"SUBSIDIARY" means a subsidiary undertaking of the Company, as set out in s 736
of The Companies Act 1985;
"T.A." means the Income and Corporation Taxes Act 1988;
"T.C.G.A." means the Taxation of Chargeable Gains Act 1992 and any reference
thereto shall include any enactment repealed or modified thereby;
"TERRITORY" means throughout Asia and Australasia excluding Middle East, India,
Turkey, Israel, Pakistan, Bangladesh and Russia;
"THE FIRST INSTALMENT" means the amount payable on Completion pursuant to clause
2.4.1.2;
"THE PENSION SCHEME" means the Sunbelt (UK) Limited Executive Pension Plan
established under Scheme numbers 162-100690-96 and 162-100691-96 with Lincoln;
"THE SECOND INSTALMENT" means the amount payable within ninety (90) days of the
end of the First Earn-Out period;
"THE THIRD INSTALLMENT" means the amount payable within ninety (90) days of the
end of the Second Earn-Out Period;
"V.A.T.A." means the Value Added Tax Act 1994;
"VENDORS' SOLICITORS" means Arnold Fooks Chadwick of 15 Bolton Street,
Piccadilly, London W1Y 8AR;
"VENDORS' SOLICITORS' ACCOUNT" means such account as the Vendors' Solicitors
have notified to the Purchaser for the purposes of this agreement;
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"WARRANTIES" means the representations, warranties, covenants and undertakings
set out in Clause 6 and Schedule 4;
1.3 References to "F.A." followed by a stated year mean the Finance Act of
that year.
1.4 Words, expressions and abbreviations defined in the Deed of Indemnity
shall have the same meanings in this agreement and clause 1.3 of the Deed
of Indemnity shall apply to this agreement.
1.5 References to the parties hereto include the respective successors in
title to substantially the whole of their respective undertakings and, in
the case of individuals, to their respective estates and personal
representatives.
1.6 References to persons shall include bodies corporate and unincorporated,
associations, partnerships and individuals. Words denoting the singular
shall include the plural and words denoting any gender shall include all
genders.
1.7 References to statutes or statutory provisions include references to any
orders or regulations made thereunder and references to any statute,
provision, order or regulation include references to that statute,
provision, order or regulation as amended, modified, re-enacted or
replaced from time to time whether before or after the date hereof
(subject as otherwise expressly provided herein) and to any previous
statute, statutory provision, order or regulation amended, modified,
re-enacted or replaced by such statute, provision, order or regulation.
1.8 Headings to clauses, paragraphs and descriptive notes in brackets relating
to provisions of taxation statutes are for information only and shall not
form part of the operative provisions of this agreement and shall be
ignored in construing the same.
1.9 References to recitals, clauses, Annexures, Schedules are to recitals to,
clauses of, Annexures to and Schedules to this agreement. The recitals,
Annexures and Schedules form part of the operative provisions of this
agreement and references to this agreement shall, unless the context
otherwise requires, include references to the recitals, Annexures and the
Schedules.
1.10 Each of the Warranties in Clause 6 and Schedule 4 expressed to be given
"to the best of the Vendors' knowledge and belief" or "so far as the
Vendors are aware" or otherwise qualified by reference to the knowledge of
the Vendors shall be deemed not to be qualified in the manner stated
unless the Vendors have made all reasonable enquiries of each other, of
the directors, employees and agents of the Company and of the Subsidiaries
and of relevant third parties to establish the truth and accuracy of each
statement.
1.11 The obligations and liabilities of the Vendors under this agreement shall
be joint and several.
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2. SALE AND PURCHASE
2.1 Upon the terms and subject to the conditions of this agreement, the Vendor
with full title guarantee shall sell and the Purchaser shall purchase the
number of Shares of which each of the Vendors is the registered holder
being set out opposite each of the Vendors' names in column 2 of Schedule
1 with effect from the commencement of business on the Completion Date
free from all Encumbrances and together with all accrued benefits and
rights attaching thereto in respect of the Shares save immediately prior
to Completion the Vendors shall as members of the Company declare a final
dividend for the year ending 30th June 1998 of:
2.1.1 (pound)37.153 per share in respect of the Ordinary (pound)1
Shares; and
2.1.2 (pound)24.31 per share in respect of the `A' Preference Shares;
Further the Vendors shall as members of the Company declare an interim
dividend for the year ending 30th June 1999 of:
2.1.3 (pound)2.227 per share in respect of the Ordinary (pound)1 Shares
save that Gerard Denis Patrick O'Rourke shall absolutely and
irrevocably waive all right and entitlement to the dividend in
respect of all the Ordinary (pound)1 Shares held by him in the
terms of the Deed of Waiver in the agreed form annexed hereto at
Annexure B and
2.1.4 (pound)9.246 per share in respect of the `A' Preference Shares;
together "the Dividends." The Purchaser shall procure (a) that on
Completion the Company repays the Vendors' loan accounts which include the
interim dividends and (b) that a final dividend of at least a sum equal to
the interim dividend is voted.
2.2 The Vendors hereby represent, warrant, covenant and undertake with the
Purchaser (so as to bind them, their personal representatives, successors
and assigns) as follows:-
2.2.1 that each of them has the right to dispose of the Shares which
they purport to sell; and
2.2.2 that each of them is disposing of the Shares free from any
mortgage, charge or pledge, lien, security or other third party
right or interest (legal or equitable) or restriction together
with all such rights now or hereafter attaching thereto,
including the right to all dividends and other distributions (if
any) declared, made or paid after the Accounts Date save as
provided in clause 2.1.
2.3 The consideration for the sale of the Shares shall be equal to the sum of
the following:-
2.3.1 the Book Value Amount less the Dividends;
2.3.2 the Guaranteed Earn-Out Amount;
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2.3.3 the First Contingent Earn-Out Amount; and
2.3.4 the Second Contingent Earn-Out Amount.
2.4 The consideration payable shall be to each of the Vendors in such
proportions as is set out against their respective names in column 3 of
Schedule 1 in the following manner:-
2.4.1 at Completion the sum of (pound)600,407.72 on account of the sum
of :-
2.4.1.1 Book Value Amount less the Dividends, plus
2.4.1.2 the product of
(1) sixty percent (60%), multiplied by
(2) the Guaranteed Earn-Out Amount;
the payment due to be made to Mr O'Rourke pursuant to this clause
2.4.1 shall be satisfied by the issue of a Loan Note in the
agreed form by the Purchaser.
Any overpayment or underpayment made by the Purchaser pursuant to
this clause shall be adjusted as provided in clause 2 and paid or
repaid or the Loan Note adjusted accordingly as the case may be
within 90 days of the determination thereof or at the next
instalment whichever shall be the sooner.
2.4.2 On the nineteenth day after the end of the First Earn-Out Period,
an amount equal to the sum of :
2.4.2.1 twenty percent (20%) of the Guaranteed Earn-Out Amount,
plus
2.4.2.2 the First Contingent Earn-Out Amount; and
2.4.3 On the nineteenth day after the end of the Second Earn-Out
Period, an amount equal to the sum of
2.4.3.1 twenty percent (20%) of the Guaranteed Earn-Out Amount,
plus
2.4.3.2 the Second Contingent Earn-Out Amount.
2.5.1 Any portion of the Guaranteed Earn-Out Amount not paid at
Completion shall accrue interest at the agreed rate from the
Completion Date until the date payment is made. All amounts
payable in cash shall be paid by electronic transfer in sterling.
2.5.1.1 the Second Instalment and the Third Instalment due to Mr
Gesner shall at the option of the Purchaser be satisfied
in whole or in part by the allotment of EMCC Shares
(subject to clause 2.5.2 below);
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2.5.1.2 The Second Instalment and Third Instalment due to Mr
O'Rourke shall be satisfied by the issue of a
Convertible Loan Note in the agreed form.
2.5.2 Should the Purchaser pursuant to clause 2.5.1 elect to satisfy
the consideration by procuring the allotment of EMCC Shares and
the traded volume of EMCC Shares on NASDAQ in the 30 days prior
to the election being made not being equal to [three] times the
number of shares to be allotted ("the Trading Volume") then the
following conditions shall apply:
2.5.2.1 after 15 days of receipt of the said shares Mr Gesner
shall arrange to sell the shares received as far as
possible in equal lots over the next 40 succeeding
trading days;
2.5.2.2 in the event that the sums realised upon the sale of the
said shares shall be less than the amount due for either
the Second Instalment or the Third Instalment the
Purchaser shall pay to Mr Gesner the difference in cash
within 28 days of being notified of the amount of any
shortfall.
2.5.3 The number of EMCC Shares to be issued in satisfaction of any
portion of the Consideration shall be equal to the amount of the
Consideration so payable divided by the Per Share Value.
2.6 For the purposes of this Agreement the Book Value Amount and Pre Tax
Earnings shall be determined as provided herein and in accordance with
generally accepted accounting principles ("GAAP"), and on the same basis
the Accounts which shall be prepared on a consistent basis and accepted by
the Purchaser or Purchaser's Auditors.
2.7 In determining the Pre-Tax Earnings the following deductions and
adjustments shall be made:-
2.7.1 deducting any accounts receivable (trade debtors) (or any portion
thereof) identified in the Accounts as at the Accounts Date which
are not paid in full, without any set-off except in the case of
any contras of valid and outstanding sales and purchases made in
the ordinary course of business, within one hundred and eighty
(180) days of the Completion Date save where the Company has any
valid Trade Indemnity Insurance Claim in which case the period
applicable shall be two hundred and seventy (270) days, plus
2.7.2 deducting the cost of any stock (inventory) identified in the
Accounts as at the Accounts Date not sold by the Company within
one hundred and eighty (180) days of the Completion Date or if
such stock is sold at less than cost within the appropriate
period then deducting the difference between the cost of the
relevant stock and the sale price thereof.
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2.7.3 those adjustments and notes set out in the Schedule of
Adjustments annexed hereto as Annexure C;
2.7.4 any sums determined as adjustments by the Purchaser's Auditors to
the Pre-Tax Earnings as shown in the Accounts of the Company as
at the Accounts Date whether or not any such adjustment may give
rise to liability upon the Vendors pursuant to the Warranties or
the Deed of Indemnity save that no such adjustment shall be made
unless and until the sum of any such adjustments exceeds
(pound)10,000. Provided that no adjustments shall be made under
this clause of matters adjusted or noted in the Schedule of
Adjustments.
2.8 In determining the Book Value Amount the following deductions and
adjustments shall be made:
2.8.1 deducting any accounts receivable (or any portion thereof)
created prior to Completion which are not collected in full,
without any set-off except in the case of any contras of valid
and outstanding sales and purchases made in the ordinary course
of business, within one hundred and eighty (180) days of the
Completion Date save where the Company has any valid Trade
Indemnity Insurance Claim in which case the period applicable
shall be two hundred and seventy (270) days, plus
2.8.2 deducting the cost of any stock (inventory) identified in the
books of the Company as having been purchased by the Company
prior to the Completion Date not sold by the Company within one
hundred and eighty (180) days of the Completion Date or if such
stock is sold at less than cost within the appropriate period
then deducting the difference between the cost of the relevant
stock and the sale price thereof.
2.8.3 those adjustments and notes set out in the Schedule of
Adjustments annexed hereto as Annexure C.
2.8.4 any sums determined as adjustments by the Purchaser's Auditors to
the Book Value Amount or Pre-Tax Earnings as shown in the
Accounts as at the Accounts Date or in the books of the Company
as at the Completion Date by the Purchaser's Auditors upon review
of the Management Accounts, such review to be made within 90 days
of the Completion Date, whether or not any such adjustment may
give rise to liability upon the Vendors pursuant to the
Warranties or the Deed of Indemnity save that no such adjustment
shall be made unless and until the sum of any such adjustments
exceeds (pound)10,000. Provided that no adjustment shall be made
under this clause of the matters noted in the Schedule of
Adjustments.
2.9 Any accounts receivable or stock (inventory) which results in a reduction
in Pre-Tax Earnings or in the Book Value Amount under this clause shall be
assigned to the Vendors for the sum of (pound)1.00 if so required by the
Vendors.
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2.10 In the event of any over-payment or under-payment in any sum to be made
under the Agreement whether in cash or EMCC Shares such over-payment
shall be set off and deducted from any payment to be made to the
Vendors pursuant to this Agreement ("deferred consideration") whilst
such deferred consideration remains to be paid. Any under-payment shall
be made good on the next payment date, if any, and when all payments
have been made then any adjustment shall be paid or re-paid within 180
days of determination of any such adjustment.
2.11 If the Book Value Amount, the Pre Tax Earnings, the amount(s) of any
adjustment relating thereto or of any calculation of the consideration
is not accepted by either party then such dispute shall be resolved by
an independent accountant acting as an expert (in default of agreement
whose appointment shall be made by the President of the Institute of
Chartered Accountants) and whose determination shall, in the absence of
manifest error, be final and binding upon the parties. Any costs of the
reference, including the fees of the independent accountant, shall be
allocated and paid by the Purchaser or the Vendors, or divided among
them, on a basis determined by the independent accountant to be fair
taking into account his award.
2.12 Any payment of cash pursuant to this clause shall be made by means of
telegraphic transfer (or such other means as the Vendors' Solicitors
and the Purchaser's Solicitors shall agree in writing) on Completion
and to the Vendors' Solicitors' Account in accordance with clause 5.6
and receipt of the Vendors' Solicitors for such sum shall be good
discharge to the Purchaser. Any payment to be made by way of EMCC
Shares pursuant to this clause shall be made by delivering to the
Vendors' Solicitors share certificates in respect of the EMCC Shares
and receipt of the Vendors' Solicitors for such certificates shall be
good discharge to the Purchaser.
3. CONDITIONS
3.1 Completion of the purchase of the Shares is conditional upon the
fulfilment of each of the Conditions as follows:-
3.1.1 all necessary resolutions for the approval of the acquisition
contemplated by this agreement being passed at a meeting of
the Board of EMCC of the Purchaser to be held on or before the
Completion Date;
3.1.2 the entry into by EMCC and Michael Gesner of service
agreements in the agreed form annexed hereto
3.1.3 the entry into by the Purchaser and Gerard Patrick O'Rourke of
service agreements in the agreed form annexed hereto
3.2 If all of the Conditions (save for those compliance with which has been
waived in accordance with the terms of this agreement) have not been
fulfilled on or before the Completion Date the respective obligations
of the parties hereunder shall cease and except in relation to any
breach of any provision of this agreement prior thereto and except in
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relation to clause 11 no party shall have any claim against any other
party.
3.3 The Purchaser may by notice in writing to the Vendors waive any of the
Conditions contained in clause 3.1 in whole or in part.
3.4 The Vendors undertake to procure the fulfilment of the Conditions in
clause 3.1 by the Completion Date. If the Purchaser shall waive
compliance with all or any of such Conditions, such waiver shall only,
except as specifically other agreed by the Purchaser, operate so as to
enable Completion to take place and accordingly, if and to the extent
that the Purchaser waives compliance with any such Conditions, the
Vendors shall be and remain under an obligation to the Purchaser to use
all reasonable endeavours to procure fulfilment of such Conditions as
soon as possible after Completion or within such period for fulfilment
(if any) as shall have been agreed between the Purchaser and the
Vendors at or prior to Completion. Pending fulfilment of such
Conditions as aforesaid, the Vendors shall indemnify and keep
indemnified the Purchaser and the Company and each of the Subsidiaries
from and against all claims, demands, proceedings, losses, damages,
costs and expenses which may be asserted against or incurred by the
Purchaser or the Company or the Subsidiaries arising under or by virtue
of or in connection with the subject matter of such Conditions or the
non-fulfilment of such Conditions.
4. PERIOD TO COMPLETION
4.1 The Vendors covenant with the Purchaser to procure that the business
and activities of the Company and the Subsidiaries shall be conducted
in the ordinary course and in such a manner between the date hereof and
the Completion Date as to ensure that no act or event shall occur
during the period which would or might result in a breach of the
Warranties upon the repetition at Completion.
4.2 If at any time prior to Completion:-
4.2.1 a breach of any of the Warranties occurring prior to the date
hereof shall come to the notice of the Purchaser; or
4.2.2 there shall occur any act or event after the date hereof which
upon Completion would or might constitute a breach of any of
the Warranties; or
4.2.3 there is any breach or non-fulfilment by any of the Vendors of
his obligations hereunder.
Which in any such case is incapable of remedy or, if capable of remedy,
is not remedied by the Vendors by the date scheduled for Completion
hereunder or (if earlier) within seven days after notice thereof from
the Purchaser requiring the same to be remedied then in any such case
the Purchaser shall be entitled (in addition and without prejudice to
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any other right or remedies it may have against the Vendors under this
agreement or otherwise) to elect by notice in writing to the Vendors
not to complete the purchase of the Shares, in which event the
agreement to buy and sell the Shares contained in clause 2 shall be of
no effect.
4.3 If the Purchaser elects not to complete the purchase of the Shares
pursuant to clause 4.2 then (in addition and without prejudice to any
other rights or remedies the Purchaser may have against the Vendors)
the Vendors shall indemnify the Purchaser against all costs, charges
and expenses incurred by it in connection with the negotiation,
preparation, performance and termination of this agreement.
5. COMPLETION
5.1 Completion shall take place at the offices of the Purchaser's
Solicitors on the Completion Date.
5.2 On Completion the Vendors shall deliver to or, if the Purchaser shall
so require, make available to the Purchaser:-
5.2.1 transfers in common form relating to all the Shares duly
executed in favour of the Purchaser (or as it may direct);
5.2.2 share certificates relating to the Shares;
5.2.3 any waivers or consents by members of the Company or the
Subsidiaries or other persons which the Purchaser may
reasonably require so as to enable the Purchaser or its
nominees to be registered as the holders of the Shares and any
shares of Subsidiaries;
5.2.4 the common seals, certificates of incorporation and statutory
books, share certificate books, cheque books and all copies of
the memorandum and articles of association of the Company and
the Subsidiaries;
5.2.5 the Deed of Indemnity duly executed by the Vendors;
5.2.6 all land certificates, charge certificates, leases, title deeds
and other documents relating to the Properties (save to the
extent that the same are in the possession of mortgagees
thereof disclosed by or on behalf of the Vendors to the
Purchaser or its representatives and those for which a
certificate of title is to be produced as referred to in clause
5.2.7) and all copies thereof;
5.2.7 a certificate from the Vendors' Solicitors in the agreed terms
as to the title of the Company to the Property;
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5.2.8 All books of account or reference as to customers and other
records and all insurance policies in any way relating to or
concerning the respective businesses of the Company and the
Subsidiaries;
5.2.9 all licences, consents, permits and authorisations obtained by
or issued to the Company or the Subsidiaries or any other
person in connection with the business carried on by it and
them and such contracts, deeds or other documents (including
assignments of any such licences) as shall have been required
by the Purchaser's Solicitors prior to the date hereof;
5.2.10 duly executed transfers of each share in the Subsidiaries not
registered in the name of the Company or the Subsidiaries in
favour of the Purchaser or as it may direct;
5.2.11 Share certificates relating to all of the issued shares of each
of the Subsidiaries;
5.2.12 a release duly executed as a deed, in a form satisfactory to
the Purchaser, releasing the Company and the Subsidiaries from
any liability whatsoever (actual or contingent) which may be
owing to the Vendors by the Company or any of the Subsidiaries
other than any balance on the directors loan accounts;
5.2.13 an assignment in the agreed form of any trade marks, copyrights
and other intellectual property rights whether registered or
not.
5.3 At Completion the parties shall procure the passing of board
resolutions of the Company and each of the Subsidiaries:-
5.3.1 sanctioning for registration (subject where necessary to due
stamping) the transfers in respect of the Shares and any shares
to which clause 5.2.9 refers;
5.3.2 appointing such persons as the Purchaser may nominate to be the
directors of the Company and the Subsidiaries, being initially
Harry Daniel Shields, John Bartholomew Gallagher, Laurence
Martin Gilbert (as chairman of the Company) and Bernadette Mary
Spofforth;
5.3.3 revoking all mandates to bankers and giving authority in favour
of the directors appointed under paragraph (b) above or such
other persons as the Purchaser may nominate to operate the bank
accounts thereof;
5.3.4 approving the Deed of Indemnity and resolving the same be
executed as a deed by the Company and the Subsidiaries;
5.3.5 accepting the resignation of AFC Corporate Services Limited as
Company Secretary of the Company on the terms of the deed in
the agreed form made out in favour of the Company acknowleding
that he has no outstanding claims in respect of such office or
employment;
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5.3.6 resolving that Messrs. Gesner and O'Rourke enter into service
agreements in the agreed form.
5.4 On or prior to Completion the Vendors shall procure the repayment of
all sums (if any) owing to or from the Company or the Subsidiaries by
or to any of the Vendors or the directors of the Company or the
Subsidiaries or any of them or any spouse of any such Vendor or
director of any company directly or indirectly controlled by such
persons or is connected with them (as defined in section 346 of the
Act) or any of them or any partnership in which such persons or company
is a partner and whether or not such sums are due for repayment.
5.5 On or prior to Completion the Vendors shall if required by the
Purchaser procure that all potential beneficiaries under the Pension
Scheme shall irrevocably waive all and any claims and rights of action
whatsoever or howsoever arising against the Company and/or the
Subsidiaries.
5.6 Upon compliance by the Vendors with the provisions of clauses 5.2, 5.3,
5.4 and 5.5 the Purchaser shall:-
5.6.1 deliver to the Vendors' Solicitors a duly executed counterpart
of the Deed of Indemnity; and
5.6.2 pay or cause to be paid by way of telegraphic transfer to the
Vendors' Solicitors' Account and the receipt of the Vendors'
Solicitors therefore shall be a good discharge to the
Purchaser:-
5.6.2.1 by way of loan to the Company to pay the Dividends the
sum of (pound)708,140.88;
5.6.2.2 in payment of the consideration due on Completion the
sum of (pound)360,262.63
For the avoidance of doubt the Vendors' Solicitors have authority to
pay the Dividends to the Shareholders in accordance with their
respective entitlements.
5.6.3 deliver to the Vendors' Solicitors the duly executed Loan Note.
6. WARRANTIES AND INDEMNITIES
6.1 The Vendors represent and warrant to and covenant and undertake with
the Purchaser in the terms of the Warranties and so that the remedies
of the Purchaser in respect of any breach of any of the Warranties
shall continue to subsist notwithstanding Completion of the sale and
purchase hereunder.
6.2 Any information supplied by or on behalf of the Company or the
Subsidiaries to the Vendors or their agents or accountants, solicitors
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or other advisers in connection with the Warranties, the Disclosure
Letter or otherwise in relation to the business and affairs of the
Company or the Subsidiaries shall not constitute a representation or
warranty or guarantee as to the accuracy thereof by the Company or any
of the Subsidiaries and each of the Vendors hereby waive any and all
claims which they might otherwise have against the Company or the
Subsidiaries or any of their respective agents or employees in respect
thereof.
6.3 Each of the Warranties shall be construed as a separate representation,
warranty, covenant or undertaking (as the case may be) and (save as
expressly provided to the contrary) shall not be limited by the terms
of any of the other Warranties or by any other term of this agreement.
6.4 The Vendors further undertake with the Purchaser as follows: -
6.4.1 that they will disclose forthwith in writing to the Purchaser
any matter or thing which may arise or become known to any of
them after the date of the Disclosure Letter which is
inconsistent with any of the Warranties, or which is
sufficiently material as to be likely to affect the judgment
of a purchaser for value of the Shares;
6.4.2 that pending Completion neither they nor the Company nor the
Subsidiaries will do or omit to do or suffer to he done
anything whereby the Warranties would, upon their repetition
at Completion , be then untrue; and
6.4.3 that no event has occurred nor pending Completion will occur
which would or might give rise to a claim under the Deed of
Indemnity upon or after execution thereof;
6.5 The Vendors shall be under no liability under the Warranties in
relation to any matter forming the subject matter of a claim thereunder
to the extent that the same or circumstances giving rise thereto are
fairly disclosed in the Disclosure Letter or expressly provided for or
stated to be exceptions under the terms of this agreement. No letter,
document or other communication shall be deemed to constitute a
disclosure for the purposes of the Warranties unless the same is
accepted as such by the Purchaser and is expressly included in the
Disclosure Letter.
6.6 Save in the case of fraud or wilful non-disclosure by the Vendors, the
Vendors shall be under no liability in respect of any claim under the
Warranties or the Deed of Indemnity unless written notice of such claim
setting out details of the event or circumstance giving rise to the
breach, the basis upon which the Purchaser is making a claim and the
total amount of the liability which results shall have been served upon
the Vendors by the Purchaser within 3 years of the Completion date:
6.6.1 the amount payable in respect of the relevant claim has been
agreed by the Vendors within twelve months of the date of such
written notice; or
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6.6.2 legal proceedings have been instituted in respect of such claim
by the due service of process on the Vendors within twelve
months of the later of: -
6.6.2.1 the date of such written notice; and
6.6.2.2 in the event that the Vendors shall make in respect
thereof a request pursuant to clause 6.12(a)(ii) of
the Deed of Indemnity at Schedule 5 herein, the date
on which in respect of such proceedings as shall have
been instituted by the Purchaser pursuant to such
request judgment is given by a court of competent
jurisdiction or the date settlement is reached in such
third party proceedings with the consent of the
Vendors or on which the Vendors and the Purchaser
agree that proceedings or other action against the
third party shall be abandoned.
6.7 The Vendors shall be under no liability in respect of any claim under
the Warranties or the Deed of Indemnity unless and until the liability
in respect of that claim when aggregated with the liability of the
Vendors in respect of all such other claims shall exceed
(pound)10,000.00.
6.8 The aggregate liability of all Vendors in respect of any claim under
the Warranties and the Deed of Indemnity shall not save in the case of
fraud or wilful non-disclosure exceed the value of the Consideration
pursuant to clause 2.3 hereof and the Purchaser shall have the right to
treat as forfeit to the Purchaser such number of the EMCC Shares issued
to the Vendors or either of them pursuant to this Agreement which is
equal in value at the time of issue or time of forfeit whichever is the
greater to the liability of the Purchasers. Upon the occurrence of such
an event the Purchaser shall notify the Vendors in writing setting
forth the amount of the liability and the number of shares to be
forfeit. Unless the Vendors or either of them shall object in writing
within 15 days the shares shall be sold and the proceeds applied to
extinguish the claim.
6.9 No liability shall attach to the Vendors in respect of any claim under
the Warranties or the Deed of Indemnity to the extent that the claim or
the events giving rise to the claim would not have arisen but for an
act, omission or transaction of the Group otherwise than in the
ordinary and proper course of the business of the Group as at present
carried on.
6.10 The Vendors hereby covenant to pay to the Purchaser or the Purchaser's
Group any sums in respect of taxation (including any interest or
penalties) which the Purchaser or the Purchaser's Group is or becomes
liable to pay by virtue of any scheme or arrangement entered into prior
to Completion by the Vendors or the Company designed wholly or partly
for the purpose of avoiding or deferring tax.
6.11 In assessing any liabilities, damages or other amounts recoverable by
the Purchaser as a result of any claim under the Warranties and/or the
Deed of Indemnity there shall be taken into account by way of set-off
any benefit accruing to the Purchaser's Group in respect of any amount
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of tax relief obtained by the Purchaser's Group and any amounts by
which any taxation for which the Purchaser's Group is assessed or
accountable is reduced or extinguished, arising directly or indirectly
in consequence of the matter which gives rise to such a claim.
6.11.1 This clause shall apply in circumstances where:-
6.11.1.1 any claim is made against the Purchaser's Group
which may give rise to a claim against the Vendors
under the Warranties or the Deed of Indemnity; or
6.11.1.2 the Purchaser's Group is entitled to make recovery
from some other person any sum in respect of any
facts or circumstances by reference to which a claim
may be made against the Vendors under the Warranties
or the Deed of Indemnity; or
6.11.1.3 the Vendors shall have paid to the Purchaser's Group
an amount in respect of the claim under the
Warranties or the Deed of Indemnity and subsequent
to the making of such a payment the Purchaser's
Group becomes entitled to recover from some other
person a sum which is referrable to that payment.
6.11.2 The Purchaser shall and shall procure that the Purchaser's
Group shall:-
6.11.2.1 (prior to taking any action against the Vendors
under the Warranties or the Deed of Indemnity in the
case of clause 6.12(a)(i) and clause 6.12(a)(ii),
and subject to the Purchaser's Group being
indemnified and secured to the satisfaction of the
Purchaser by the Vendors against all reasonable
costs and expenses which may properly be incurred by
reason of such action) take all such action as the
majority of the Vendors may reasonably request to
avoid, dispute, resist, compromise, defend or appeal
against such claim against the Purchaser's Group as
is referred to in clause 6.12(a)(i) of the Deed of
Indemnity or to make such recovery by the
Purchaser's Group as referred to in clause
6.12(a)(ii) or clause 6.12(a)(iii) of the Deed of
Indemnity, as the case may be; and
6.11.2.2 in the case of said clause 6.12(a)(iii) only, repay
to the Vendors an amount equal to the amount so
recovered or, if lower, the amount paid by the
Vendors to the Purchaser.
6.12 The Purchaser shall as soon as reasonably practicable : -
6.12.1 inform the Vendors in writing of any fact, matter, event or
circumstance which comes to its notice whereby it appears that
the Vendors are liable to make any payment in respect of any
claim under the Warranties and/or the Deed of Indemnity or
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whereby it appears the Purchaser's Group shall become entitled
to recover from some other person a sum which is referable to
a payment already made by the Vendors in respect of such a
claim; and
6.12.2 thereafter keep the Vendors informed of all material
developments in relation to thereto.
6.13 No information relating to the Company or the Subsidiaries of which the
Purchaser has knowledge (actual or constructive) other than that
contained in or referred to in this agreement and/or included in the
Disclosure Letter and no investigation by or on behalf of the Purchaser
shall prejudice any claim by the Purchaser under the Warranties or
operate to reduce any amount recoverable thereunder.
6.14 If the Purchasers or the Group or any of them are entitled to make a
claim in respect of any act, event or default both under the Warranties
and under the Deed of Indemnity the claim shall be made first under the
Warranties and any amount payable to the Purchasers or the Group or any
of them under the Deed of Indemnity shall be reduced to the extent of
the claim.
6.15 The Vendors further agree to defend the Company against any action or
proceedings relating to any such losses as are mentioned in Clauses
9.15 to 9.16 inclusive to permit the Purchasers (at its option) to
become party to any such action or proceedings and to indemnify the
Purchasers against all costs (including legal costs) arising from such
defence.
6.16 The Vendors acknowledge that the Purchaser has entered into this
agreement in reliance upon the Warranties and each of them.
6.17 The Purchaser shall indemnify the Vendors against any liability to
taxation arising under ICTA s767A (change in company ownership
corporation tax)
6.18 The Purchaser undertakes that until the end of the Second Earn Out
Period to afford all reasonable assistance to enable the Company to run
their businesses in a manner consistent with the way it has been run
prior to the date hereof and in respect of the Asian Subsidiary to run
its business, with a view to enabling the Company and the Asian
Subsidiary to retain at all times sufficient working capital for the
reasonable requirements of their businesses.
6.19 If the Service Agreements to be entered into by Mr O'Rourke or Mr
Gesner are terminated in circumstances which any Court or Tribunal
shall find to amount to wrongful or unfair dismissal, including
constructive dismissal, then notwithstanding that the minimum gross
profit targets provided for in the First Contingent Earn Out Amount and
Second Contingent Earn Out Amount are not reached then payment shall be
made by the Purchaser to the Vendors as if those targets had been
achieved.
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6.20 If a matter or event is taken into account in determining the
consideration for the Shares then and to the extent that is taken into
account, it shall not give rise to a claim under the Warranties.
7. RESTRICTIONS
The Vendors undertake they shall not:
7.1.1 for a period of 3 years from the Completion Date, canvass,
solicit or approach or cause to be canvassed, solicited or
approached for orders of any person, firm or company who at
any time during the six months immediately preceding the
Completion Date is or was in connection with the Business:
7.1.1.1 negotiating with the Company for the supply of goods
or services;
7.1.1.2 a client or customer of the Company; and/or
7.1.1.3 in the habit of dealing with the Company.
where the orders relate to goods and/or services which are competitive
with or of the type supplied by the Company in respect of the supply of
which the Vendors (or any other employee on their behalf or under their
instruction) was engaged or concerned in the last six months
immediately preceding the Completion Date and where the Vendors (or any
other employee on their behalf or under their instruction) dealt or had
contact with that person;
7.1.2 for a period of 3 years immediately following the Completion
Date be engaged, concerned or interested in or provide
technical, commercial or professional advice to any other
business which supplies or is likely to supply goods and/or
services which are competitive with or of the same type as the
Business at the Completion Date and in respect of the supply
of which the Vendors were engaged or concerned in the last six
months immediately preceding the Completion Date;
7.1.3 for a period of 3 years from the Completion Date approach,
solicit, endeavour to entice away, employ, offer employment to
or procure the employment of any person who, at the Completion
Date, is employed in a managerial, supervisory, technical
sales, executive or administrative capacity or engaged as a
consultant by the Company at the Completion Date;
7.1.4 interfere or seek to interfere with the continuance, or any of
the terms, of the supply of goods or services to the Company
from any supplier who has been supplying goods and/or services
to the Company during the calendar year immediately preceding
the Completion Date; or
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7.1.5 represent himself as being in any way connected with or
interested in the business of the Company (other than a
consultant or a member if such be the case) or use any name
which is identical or similar to or likely to be confused with
the name of the Company or any product or service produced or
provided by the Company or which might suggest a connection
with the Company.
7.2 The Vendors agree that the covenants and undertakings contained in this
clause 7 are reasonable and are entered into for the purpose of
protecting the goodwill of the business of the Company and that
accordingly the benefit of the covenants and undertakings may be
assigned by the Purchaser and its successors in title without the
consent of the Vendors.
7.3 Each covenant and/or undertaking contained in this clause 7shall be
construed as a separate covenant and/or undertaking and if one or more
of the covenants and/or undertakings contained in this clause is held
to be against the public interest or unlawful or in any way an
unreasonable restraint of trade the remaining covenants and/or
undertakings shall continue to bind the Vendors.
7.4 If any covenant or undertaking contained in this clause 7 would be void
as drawn but would be valid if the period of application were reduced
or if some part of the covenant or undertaking were deleted the
covenant or undertaking in question shall apply with such modification
as may be necessary to make it valid and effective.
7.5 No provision of this agreement, by virtue of which this agreement is
subject to registration (if such be the case) under the Restrictive
Trade Practices Act 1976, shall take effect until the day after
particulars of this agreement have been furnished to the Director
General of Fair Trading pursuant to section 24 of that Act. For this
purpose the expression this "agreement" includes any agreement or
arrangement of which this agreement forms part and which is registrable
or by virtue of which this agreement is registrable.
7.6 Nothing in this clause 7 shall prevent the continued business of PC
Wise Inc. in the USA provided that business is continued in a manner
consistent with the way that business has been run prior to the date
hereof.
8. PENSIONS
8.1. As soon as practicable (and in any event not later than 14 days after
Completion) the Vendors shall (provided that the Purchaser, at the
Vendors' expense, assists so far as may reasonably be necessary):-
8.1.1 take all necessary actions and enter into all necessary
documentation to ensure that the Company is not or does not
remain a trustee or the principal employer or a participating
employer or retains any other liabilities of any nature in
respect of any of the Pension Scheme.
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8.1.2 deliver to the Purchaser such copy documentation and other
evidence as it shall reasonably require of substitution of
parties other than the Company as trustee and principal
employer in respect of the Pension Scheme.
8.2 Without prejudice to the entitlement of the Purchaser to claim damages
upon any other basis available to it (whether by virtue of any other
provision of this Agreement or otherwise) the Vendors jointly and
severally agree to indemnify and keep indemnified the Purchaser (on its
own behalf and as trustee on behalf all members of the Purchaser's
Group) against all and any liabilities, costs (including legal costs on
a full indemnity basis), claims, contributions, fees, demands,
penalties, taxation and other outgoings of whatsoever nature (whether
suffered by the Purchaser or any member of the Purchaser's Group and
whensoever arising) in relation to or by reference to:-
8.2.1 the Pension Scheme or the cessation of any of the Company's
liabilities in relation thereto whether pursuant to any
existing obligation of the Company under the terms of any
contract of employment or the provisions of any statute or
regulation or otherwise;
8.2.2 any breach of the provisions of paragraphs 12.1 to 12.4
inclusive of Schedule 4 to this Agreement;
8.2.3 any obligation to make any payment for or in connection with
the provision of relevant benefits (as defined in section
612(1) ICTA);
8.2.4 For the avoidance of doubt the provisions of clauses 6.6 and
6.7 of this Agreement shall not apply to or limit or restrict
the indemnity provided by this clause 8.
8.3 Notwithstanding the above the parties shall procure the payment of all
instalments due under Mr O'Rourke's present contract of employment with
the Company from 30th June 1998 to the Completion Date.
8.4 No objection shall be taken to any lawful pension payments made by the
Company (whether or not they are in excess of or under any contractual
entitlement).
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9. UNIT 1, SAXON BUSINESS CENTRE
9.1 Without prejudice to the entitlement of the Purchaser to claim damages
upon any other basis available to it (whether by virtue of any other
provision of this Agreement or otherwise) the Vendors jointly and
severally agree to indemnify and keep indemnified the Purchaser (on its
own behalf and as trustee on behalf all members of the Purchaser's
Group) against all and any liabilities, costs (including legal costs on
a full indemnity basis), claims, contributions, fees and demands
(whether suffered by the Purchaser or any member of the Purchaser's
Group and whensoever arising) in relation to or by reference to any
rent or sum payable as rent for any period after 23rd October 1998 or
for any breach of any repairing covenant arising out of a lease ("the
Lease") dated the 9th June 1995 and entered into between (1) the
Company and (2) John and May Quigley for the office premises known as
Unit 1, Saxon Business Centre, Windsor Avenue, Wimbledon, London ("the
Premises").
9.2 For the avoidance of doubt the provisions of clauses 6.6 and 6.7 of
this Agreement shall not apply to or limit or restrict the indemnity
provided by this clause 9.
10. COSTS
Each party agrees to pay, without right of reimbursement from the other
party and regardless of whether or not the transaction is consummated,
the costs incurred by it in connection with this transaction, including
legal fees and other costs incidental to the negotiation of the terms
of the transaction and the preparation of related documentation and
none of such fees shall be charged to the Company. Each party
represents to the others that it has dealt with no finder or broker in
connection with this transaction. Each party will indemnify and holder
the others harmless from any loss, liability or expense (including,
without limitation, legal fees) resulting from the indemnifying party's
breach of the representations and agreements.
11. EFFECT OF COMPLETION
11.1 The terms of this agreement shall in so far as not performed at
Completion and subject as specifically otherwise provided in this
agreement continue in force after and notwithstanding Completion.
11.2 Each and every provision of this Agreement shall wherever it may be
necessary to give full force and effect be deemed to be a continuing
obligation from the date of signature to the Date of Completion and
each and every obligation of the Vendors shall be repeated as at
Completion.
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12. ACKNOWLEDGMENTS
The Purchaser acknowledges that it has not been induced to enter into
this agreement by any representation or warranty express, implied, oral
or written and that all representations or warranties being given to
the Purchaser are limited to those contained in this Agreement and the
Disclosure Letter.
13. ENTIRE AGREEMENT AND AMENDMENTS
This Agreement, including the Schedules and Annexures referred to
herein as a part hereof, contains the entire understanding of the
parties hereto with respect to the subject matter herein and may be
amended only by instrument executed by the Vendors and the Purchaser or
their respective successors or assigns. There are no restrictions,
promises, warranties, conveyance, or undertakings other than those
expressly set forth herein. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
14. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which will be deemed an original but all of which together shall
constitute one and the same instrument.
15. MERGER OF AGREEMENTS
All representations, warranties, agreements and other inducements to
this Agreement or the transaction contemplated hereby, whether oral or
written, prior to the execution and delivery hereof between the parties
hereto have been included herein, or in the exhibits, Annexures and
Schedules or Disclosure Letter hereto, and shall be deemed to have been
fully performed and discharged to the extent not included herein or
therein. This Agreement including the exhibits, Annexures and Schedules
and Disclosure Letter hereto sets forth all rights, remedies,
obligations and liabilities of the parties, and no term or provision
hereof or thereof, including, without limitation, the terms and
provisions contained in this sentence, shall be waived, modified or
altered so as to impose any additional right or remedy, and no custom,
payment, act, knowledge, extension of time, favour or indulgence,
gratuitous or otherwise, or words or silence at any time, shall impose
any additional obligation, or grant any additional right or remedy, or
be deemed a waiver or release of any obligation, liability, right or
remedy except as set forth in a written instrument properly executed
and delivered by the parties sought to be charged, expressly stating
that it is, intended to be so effected, no assent, expressed or
implied, by either party to or of, any breach of any term or any
provision of this agreement or of the exhibits, Annexures or Schedules
shall be deemed to be an assent or waiver to or of such or any
succeeding breach of the same or any other such term or provision.
29
<PAGE>
16. GENERAL
16.1 If this agreement ceases to have effect the Purchaser will release and
return to the Company all documents concerning it provided to the
Purchaser or its advisers in connection with this agreement and will
not use or make available to any other person any information which it
or its advisers have been given in respect of the Company and which is
not in the public domain and each party shall continue to be bound by
the terms of a Confidentiality Letter entered into between the parties
and dated 4th September 1998
16.2 This agreement shall be binding upon each party's successors and
assigns and personal representatives (as the case may be).
16.3 Time shall be of the essence of this agreement, both as regards the
dates and periods specifically mentioned and as to any dates and
periods which may by agreement in writing between or on behalf of the
Vendors and the Purchaser be substituted for them.
16.4 Any notice required to be given by any of the parties under this
agreement may be sent by registered or certified mail prepaid to the
address of the addressee as set out in this agreement or to such other
address as the addressee may from time to time have notified for the
purpose of this clause. Communications sent by post shall be deemed to
have been received ninety-six hours after posting. In proving service
by post it shall only be necessary to prove that the communication was
contained in an envelope which was duly addressed and posted in
accordance with this clause.
16.5 This Agreement is personal to the parties and shall not be assignable
save that the Purchaser may at any time assign all or any part of its
rights and benefits under this Agreement, including the Warranties and
any cause of action arising under or in respect of any of them, to any
transferee of the share capital of the Company or to any member of the
Purchaser's Group, or to any affiliate of the Purchaser who may enforce
them as if it had also been named in this Agreement as the
Purchaser.16.5At any time after the date hereof the Vendors shall, at
the request of the Purchaser, execute or procure the execution of such
documents and do or procure the doing of such acts and things as the
Purchaser may reasonably require for the purposes of vesting the Shares
in the Purchaser or its nominees and of giving to the Purchaser the
full benefit of all the provisions of this Agreement.
17. SEVERABILITY
If at any time one or more of the provisions hereof is or becomes
invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability or the remaining provisions
hereof shall not be in any way affected or impaired thereby.
30
<PAGE>
18. LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with
the laws of England and the parties irrevocably agree that the Courts
of England shall have -exclusive jurisdiction to hear and determine any
suit, action or proceeding and to settle any disputes which may arise
under and/or out of and/or relating to and/or in connection with this
Agreement and such purposes irrevocably submit to the jurisdiction of
such courts.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement on the
date first above written
SIGNED as a DEED and delivered )
by MICHAEL CHARLES GESNER ) /s/ Michael Gesner
)
)
SIGNED as a DEED and delivered )
by GERARD DENIS PATRICK O'ROURKE ) /s/ Gerard O'Rourke
)
)
SIGNED as a DEED and delivered )
by Laurence Gilbert ) /s/ Laurence Gilbert
for and on behalf of )
EUROPEAN MICRO HOLDINGS PLC )
31
<PAGE>
SCHEDULE 1
Vendors' Holdings
<TABLE>
<CAPTION>
VENDORS' NAME AND ADDRESS NUMBER OF SHARES CONSIDERATION
- ------------------------- ---------------- -------------
<S> <C> <C>
Gerard O'Rourke 7,200 Ordinary (pound)1 40% of total less (pound)18
16 William Road fully paid
Wimbledon
London SW19 3PL 1,800 "A" Preference (pound)18
Shares fully paid
Michael Gesner 10,800 Ordinary (pound)1 60% of total less (pound)18
c/o Arthur Andersen Corporate fully paid
Service PTE Limited
10 Hoe Chiang Road
# 18-00Keppel Towers
Singapore 089315
</TABLE>
32
<PAGE>
SCHEDULE 2
PARTICULARS RELATING TO THE COMPANY
SUNBELT (UK) LTD
<TABLE>
<CAPTION>
<S> <C>
Authorised Share Capital: (pound)18,018 divided into 18,000 ordinary (pound)1 shares and 1,800
"A" non-voting shares of (pound)0.01 each
Issued Share Capital: All issued
Directors: Gerard Denis Patrick O'Rourke and Michael Gesner
Secretary: AFC Corporate Services Ltd
Auditors: Windsor Stebbing Marsh
Accounting Reference Date: 30th June
Registered Office: 15 Bolton Street, London W1Y 8AR
MICRO EXPANSION PRODUCTS LTD
Authorised Share Capital: (pound)1,000 divided into 1,000 ordinary (pound)1 shares
Issued Share Capital: (pound)2.00
Directors: Gerard Denis Patrick O'Rourke
Secretary: AFC Corporate Services Ltd
Auditors:
Accounting Reference Date:
Registered Office: 15 Bolton Street, London W1Y 8AR
</TABLE>
33
<PAGE>
SCHEDULE 3
THE PROPERTIES (IN RESPECT OF EACH)
Tenure: Leasehold
Description: Strudwick House, Boundary Business Park, Church
Road, Mitcham, Surrey
Mortgages or Charges: None
Leases etc. Lease dated 17th August 1998 between P & O
Property Holdings Limited (1) and the Company
(2) for a term of 10 years and 4 months.
Permitted uses/existing use: Use within Class B1 of the Schedule to the Town
& Country Planning (Use Classes) Order 1987.
34
<PAGE>
SCHEDULE 4
WARRANTIES
1. Constitution
2. Accounts
3. Business
4. Directors and Employees
5. The Group and its Bankers
6. Accuracy of Information
7. Tax
8. Environmental Matters
9. Information Technology and Millenium Compliance.
10. Property
11. Intellectual Property
12. Pensions
35
<PAGE>
1. CONSTITUTION
1.1 Memorandum and Articles
The memorandum and articles of association of the Company in the form
of the copies supplied to the Purchaser are complete and accurate and
have embodied therein or annexed thereto copies of all resolutions and
agreements as are referred to in section 380 of the Companies Act 1985,
and all amendments thereto (if any) were duly and properly made.
1.2 Register of Members
The register of members of the Company contains true and accurate
records of the members from time to time of the Company and the Company
has not been subject to any application under the Companies Act 1985
for rectification of such register.
1.3 Returns
All such resolutions returns and other documents required by the
Companies Act 1985 to be delivered to the Registrar of Companies have
been duly delivered and are true and accurate.
1.4 Powers of Attorney
The Company has not executed any power of attorney or conferred on any
person other than its directors, officers and employees any authority
to enter into any transaction on behalf of or to bind the Company in
any way.
1.5 Subsidiaries
The Company does not have any subsidiary undertakings other than those
listed in Schedule 3 nor does the Company own any shares or stock in
the capital of nor have any beneficial interest in any other company or
business organisation nor does the Company control or take part in the
management of any other company or business organisation. Each of the
Subsidiaries is a wholly-owned subsidiary of the Company.
36
<PAGE>
2. ACCOUNTS
2.1 Accounts Warranty
The Accounts comply with the provisions of the Companies Act 1985 as
applicable and have been prepared in accordance with the requirements
of all relevant statutes and with generally accepted accounting
principles and practices and are true and accurate in all respects so
far as they are stated to be facts and not estimates and accordingly
give a true and fair view of all the assets and liabilities (whether
present or future, actual or contingent) and of the state of affairs,
financial position and results of the Company as at and up to the
Accounts Date and, without prejudice to the generality of the
foregoing:-
(a) make full provision or reserve for depreciation, bad or doubtful
debts and other actual liabilities;
(b) either make full provision or reserve for or make fair disclosure
in notes of all contingent, postponed or deferred liabilities;
(c) do not overvalue assets or understate liabilities; and
(d) have not (save as disclosed therein) been affected by any
extraordinary, exceptional or non-recurring item or by any other
fact or circumstance rendering the profits or losses for the
relevant period unusually high or low.
2.2 Accounting Policy
The Accounts have been prepared on a basis consistent with the basis
upon which all audited accounts of the Company have been prepared since
the date of its incorporation.
2.3 Book Debts
No provision or reserve has been made in the Accounts for bad debts.
All Book debts owed to the Company and whether included in the Accounts
or arising since the Accounts Date will be duly paid in full not later
than 9th January 1999 and none of such debts has been the subject of
any factoring by the Company.
2.4 Stock in Trade
The value of the stock in trade as shown in the Accounts is at cost as
at the Accounts Date and stock and work-in-progress have been valued on
a basis consistent with the basis of valuation adopted in all audited
accounts of the Company since its date of incorporation and no
provision or reserve has been made in the Accounts for obsolete or slow
moving stock.
37
<PAGE>
2.5 Fixed Assets
The value of all of the fixed assets of the Company as shown in the
Accounts is at cost thereof less depreciation deducted from time to
time in a consistent manner and there has been no revaluation of such
fixed assets since their acquisition.
2.6 Off Balance Sheet Financing
Neither the Company nor any associated company has engaged in any
financing (including without prejudice to the generality of the
foregoing the incurring of any borrowing or any indebtedness in the
nature of borrowing including without limitation liabilities in the
nature of acceptances or acceptance credits) of a type which would not
be required to be shown or reflected in the Accounts.
2.7 Accounting Reference Date
The Company has notified to the registrar of companies 30th June as
being its accounting reference date pursuant to the Companies Act 1985
and has not at any time notified the registrar of companies of any
other date.
2.8 Books of Account
The Company has properly kept and maintained all necessary books of
account (reflecting in accordance with generally accepted accounting
principles and practices all transactions effected by the Company or to
which it is or has been a party) minute books records register of
members and other statutory books. All such documents contain full and
accurate records of all matters required to be recorded therein and all
deeds and documents (properly stamped where stamping is necessary for
enforcement thereof) belonging to the Company or which ought to be in
the possession of the Company and the common seal of the Company are in
the possession of the Company.
2.9 Management Accounts
The Management Accounts have been carefully prepared in accordance with
accounting policies consistent with those used in preparing the Audited
Accounts. The cumulative profits, assets and liabilities of the Company
stated in the Management Accounts have not been materially misstated
and are not materially inaccurate and the Vendors do not consider the
Management Accounts misleading.
38
<PAGE>
3. BUSINESS
3.1 Business since the Accounts Date
Since the Accounts Date there has been no material adverse change in
the financial or trading position or prospects of the Company and the
business of the Company has been conducted on a normal basis and the
Company has not disposed of any of its assets otherwise than in the
normal course of business or declared or paid any dividend on any of
its Shares or effected any distribution of its assets or made any loan
or other payment other than in the normal course of business.
3.2 Acquisition and Disposal of Assets
The Company has not since the Accounts Date acquired or agreed to
acquire any asset for a consideration which is higher than the market
value at the time of acquisition and has not disposed of or agreed to
dispose of any asset for a consideration which is lower than the market
value or the value thereof as shown in the books of the Company at the
time of disposal.
3.3 Charges and Title to Assets
(a) The Company has not created or agreed to create or suffered to
arise any Encumbrance over any part of its undertaking or
assets and the Company has and will at Completion have a good
and marketable title to all the assets included in the
Accounts and to all other assets (tangible or intangible) used
for the purpose of the Company's business at the date hereof
and to all assets acquired since the Accounts Date and prior
to Completion.
(b) The Company owns all vehicles, plant, machinery and equipment
required for the proper and efficient conduct of the business
of the Company.
(c) No person other than the Company has any right, title or
interest (present or future) in any asset of the Company or
any trade name, trade secret or secret process.
3.4 Leasing etc. Agreements
Full and accurate details of any hiring or leasing agreement, hire
purchase agreement, credit or conditional sale agreement, agreement for
payment on deferred terms or any other similar agreement to which the
Company is a party are contained in the Disclosure Letter and copies
annexed thereto unless the annual cost to the Company is less than
(pound)250.00.
39
<PAGE>
3.5 Onerous Obligations
The Company is not a party to any contract, transaction, arrangement or
liability which:-
(a) is of an unusual or abnormal nature, or outside the ordinary and
proper course of business;
(b) is for a fixed term of more than six months;
(c) is of a long-term nature (that is, unlikely to have been fully
performed, in accordance with its terms, more than six months
after the date on which it was entered into or undertaken);
(d) is incapable of termination in accordance with its terms, by the
Company, on 60 days' notice or less;
(e) is of a loss-making nature (that is, known to be likely to result
in a loss to the Company on completion of performance);
(f) cannot readily be fulfilled or performed by the Company on time
without undue, or unusual, expenditure of money, effort or
personnel;
(g) involves payment by the Company by reference to fluctuations in
the index of retail prices, or any other index or in the rate of
exchange for any currency;
(h) involves an aggregate outstanding expenditure by the Company of
more than (pound)500,000 ;
(i) restricts its freedom to engage in any activity or business or
confines its activity or business to a particular place; or
(j) involves, or is likely to involve, obligations or liabilities
which, by reason of their nature or magnitude, ought reasonably
to be made known to an intending purchaser of the Shares.
3.6 Supply Contracts
All agreements or arrangements for the supply of stock, raw materials,
products or goods to or by the Company which involve or are likely to
involve the supply of goods the aggregate sale value of which will
represent in excess of ten percent of the turnover for the preceding
financial year of the Company have been disclosed to the Purchaser in
writing. The Company has not been notified of nor are the Vendors aware
40
<PAGE>
of any breach of any of its obligations under any contract, transaction
or arrangement to which it is a party or by which it is bound.
3.7 Contracts with Connected Persons
Subsequent to Completion the Company will not have any contractual or
other arrangements of any sort with any of the Vendors or any body
corporate or person connected or associated with any of the Vendors
save as contemplated by this Agreement.
3.8 Events of Default
(a) No event has occurred or is subsisting which constitutes or
results in or would with the giving of notice and/or lapse of
time constitute or result in a default or the acceleration of
any obligation under any agreement or arrangement to which the
Company is a party or by which it or any of its properties,
revenues or assets are bound.
(b) The Company is not a party to any agreement or arrangement
which is capable of termination (without liability for
compensation) by any other person on a change in the
management control or shareholding of the Company or by reason
of the sale of the Shares under this agreement.
(c) To the best of the Vendors' knowledge, information and belief
but without enquiry having been made, after Completion
(whether by reason of an existing agreement or arrangement or
otherwise or as a result of the proposed acquisition of the
Company by the Purchaser): -
(i) no supplier of the Company will cease, or be entitled
to cease, supplying the Company or may substantially
reduce its supplies to the Company.
(ii) no customer of the Company will cease, or be entitled
to cease, to deal with the Company or may
substantially reduce its existing level of business
with the Company.
(iii) the Company will not lose the benefit of any right or
privilege which it enjoys;
(iv) no officer or senior employee of the Company will
leave.
3.9 Guarantees etc.
The Company has not given any guarantee, indemnity, warranty or bond or
incurred any other similar obligation or created any security for or in
respect of liabilities, actual or contingent, of any other person other
than any implied by law.
41
<PAGE>
3.10 Options over shares etc.
Since the Accounts Date no share or loan capital has been created or
issued or agreed to be created or issued and there are not any options
or other agreements outstanding which call or give any person the right
to call (whether or not subject to conditions) for the issue of any
share or loan capital of the Company and none of the Vendors is under
any obligation of any kind whatsoever whether actual or contingent to
sell, charge or otherwise dispose of any of the Shares or any interest
therein to any other person.
3.11 Litigation
The Company is not engaged in any litigation, arbitration, prosecution
or other legal proceedings (whether as plaintiff, defendant or third
party) and there are no such proceedings pending or threatened or any
proceedings in respect of which the Company is or might be liable to
indemnify any other person concerned therein, there are no claims,
facts or events which are likely to give rise to any such proceedings
and the Company is not engaged in and has not in the last six years
been engaged in and no facts or events exist or have occurred which are
likely to cause the Company to be involved in proceedings or enquiries
before any governmental or municipal board of enquiry or commission or
any other administrative body (whether judicial quasi-judicial or
otherwise) in which any unfavourable judgment or decision would or
might adversely affect the business of the Company or the value of any
of its assets.
3.12 Business name
The Company does not carry on, and has not in the past three years
carried on, any business under any name other than its corporate name.
3.13 Intra vires
The Company has the power to carry on its business as now conducted and
the business of the Company has at all times been carried on intra
vires.
3.14 Property in other companies
The Company is not liable to offer for sale transfer or otherwise
dispose of or purchase or otherwise acquire any assets, including
shares held by it in other bodies corporate under their articles of
association or any agreement or arrangement or to take or suffer any
action upon the happening of any such event.
42
<PAGE>
3.15 Insurance
(a) The Company has produced to the Purchaser details of all
insurance policies in effect in relation to its business and
assets and all such policies are in and full force effect and
not voidable.
(b) The policies of insurance which are maintained by the Company
afford the Company adequate cover against such risks as
companies carrying on the same type of business as the Company
commonly cover by insurance and in particular insure the
assets of the Company against fire in their full replacement
value.
(c) The Company is now, and has at all material times been,
adequately covered against accident, damage, injury, third
party loss (including product liability), loss of profits and
other risks normally covered by insurance and has at all times
effected such insurances as are required by law.
(d) There are no circumstances which might lead to any liability
under such insurance being avoided by the insurers or the
premiums being increased and there is no claim outstanding
under any such policy nor are the Vendors aware of any
circumstances likely to give rise to a claim.
3.16 Fair Trading and Compliance with Other Legislation
(a) Neither the Company, nor any of its officers, agents or
employees (during the course of their duties in relation to
the Company) have committed, or omitted to do, any act or
thing the commission or omission of which is, or could be, in
contravention of any Act, order, regulation or the like in the
United Kingdom or elsewhere which is punishable by fine or
other penalty or which may impose any other liabilities on the
Company or affect the validity or enforceability of any
agreement or arrangement to which it is a party.
(b) Without prejudice to the generality of the foregoing, the
Company has not done or omitted to do any act or thing in
contravention of the provisions of the Restrictive Trade
Practices Acts 1976 and 1977, the Fair Trading Act 1973, the
Competition Act 1980, Articles 85 and 86 of the Treaty of
Rome, the Resale Prices Act 1976, the Trade Descriptions Act
1968, the Consumer Credit Act 1974, the Consumer Protection
Act 1989, the Companies Acts, the Financial Services Act 1986,
the Banking Act 1987 and the Food Safety Act 1990 and all
statutory, municipal and other like requirements (including
orders and regulations affecting businesses carried on in
member states of the European Economic Community) applicable
to the business of the Company have been complied with.
43
<PAGE>
3.17 Licences
The Company has all licences, permissions, permits, consents and
authorisations required for the carrying on of its business and is not
in breach of the terms or conditions of such licences, permissions,
permits, consents and authorisations and there are no pending or
threatened proceedings which might in any way affect such licences,
permissions, permits, consents and authorisations and the Vendors are
not aware of any other reason why any of them should he suspended,
threatened or revoked or be invalid.
3.18 Grants
The Company has not applied for nor received any financial assistance
from any supranational, national or local agency, body or authority.
3.19 Possession of books, records etc
The Company has in its possession all books, records, Accounts and
other documents relating to the Company which it may be obliged to
produce under any contract or under any statutory provision now in
force to any party. Control of such books, records, Accounts and other
documents will remain in the hands of the Company following Completion.
4. DIRECTORS AND EMPLOYEES
4.1 The names of the Directors and Secretary shown in Schedule 2 are true
and complete and no person not named therein as such is a director of
the Company.
4.2 The particulars of all employees annexed to the Disclosure Letter show
all remuneration and other benefits:-
(a) actually provided; and
(b) which the Company is bound to provide (whether now or in the
future)
to each officer and employee of the Company and are true and complete
and include particulars of and details of participation in all profit
sharing, incentive, bonus, commission, share option, medical, permanent
health insurance, directors and officers insurance, travel, car,
redundancy and other benefit schemes, arrangements and understandings
(the "Schemes") operated for all or any employees or former employees
of the Company or their dependants whether legally binding on the
Company or not.
44
<PAGE>
4.3 The particulars of all employees annexed to the Disclosure Letter show
the names, job title, date of commencement of employment, date of birth
and period of continuous employment (calculated in accordance with
chapter 1 of part XIV of the Employment Rights Act 1996 ("ERA")) of
every employee of the Company.
4.4 The Disclosure Letter contains copies of all the standard terms and
conditions, staff handbooks and policies which apply to employees of
the Company and identifies which terms and conditions apply to which
employees.
4.5 The Schemes have at all times been operated in accordance with their
governing rules or terms and all applicable laws and all documents
which are required to be filed with any regulatory authority have been
so filed and all tax clearances and approvals necessary to obtain
favourable tax treatment for the Company and/or the participants in the
Schemes have been obtained and not withdrawn and no act or omission has
occurred which has or could prejudice any such tax clearance and/or
approval.
4.6 No past or present director, officer, employee, dependent or any other
participant thereof or any other participant in any Scheme has made any
claim against the Company in respect of any Scheme.
4.7 There are no service agreements or contracts of1 employment between the
Company and any of its directors or employees containing any provision
in addition to the matters required to be contained under section 1 of
the ERA. All employees of the Company have received a written statement
of particulars of their employment as required by section 1 of the ERA.
The terms of employment or engagement of all employees, agents,
consultants and professional advisers of the Company are such that
their employment or engagement may be terminated by not more than four
weeks' notice given at any time without liability for any payment
including by way of compensation or damages (except for unfair
dismissal or a statutory redundancy payment) and save as disclosed to
the Purchaser in the Disclosure Letter the Company has not entered into
any agreement or arrangement for the management or operation of its
business or any part thereof other than with its directors or
employees.
4.8 There are no training schemes, arrangements or proposals, whether past
or present, in respect of which a levy may henceforth become payable by
the Company under the Industrial Training Act 1982 (as amended) and
pending Completion no such schemes, arrangements or proposals will be
established or undertaken.
4.9 Since the Accounts Date the Company has not made, announced or proposed
any changes to the emoluments or benefits of or any bonus to any of its
directors, officers or employees and the Company is under no obligation
to make any such changes with or without retrospective operation.
- ---------------------
1
45
<PAGE>
4.10 No past or present director, officer or employee has any claim against
the Company.
(a) in respect of any accident or injury which is not fully covered
by insurance; or
(b) for breach of contract of services or for services; or
(c) for loss of office or arising out of or connected with the
termination of his office or employment (including any
redundancy payment);
and there is no event which would or might give rise to any such claim.
4.11 Within the three years preceding the date hereof the Company has not
been engaged or involved in any trade dispute (as defined in section
218 of the Trade Union and Labour Relations (Consolidation) Act 1992)
("TULR(C)A") with any employee, trade union, staff association or any
other body representing workers and no event has occurred which could
or might give rise to any such dispute and no industrial action
involving employees of the Company, official or unofficial, is now
occurring or threatened nor has any industrial relations or employment
matter been referred either by the Company or its employees or by any
trade union representing any of its employees to ACAS for advice,
conciliation or arbitration.
4.12 The Company has not within the three years preceding the date hereof
acquired or entered into any agreement which involved or may involve it
acquiring any undertaking or part of one such that the Transfer of
Undertakings (Protection of Employment) Regulations 1981 (the
"Regulations") applied or may apply thereto.
4.13 No directors, officers or employees of the Company are members of a
trade union, staff association or any other body representing workers
and no such union, association or body is recognised by the Company for
the purposes of collective bargaining.
4.14 The Disclosure Letter contains copies of and full details of all rights
and liabilities relating pursuant to any collective agreements (whether
with a trade union, staff association or any other body representing
workers and whether legally binding or not) concerning the Company.
4.15 The Company has complied in all material respects with all relevant
provisions of the Treaty of Rome, EC Directives, statutes, regulations,
codes of conduct, collective agreements, terms and conditions of
employment, orders, declarations and awards relevant to the company's
directors, officers and employees or the relations between the Company
and any trade union, staff association or any other body representing
workers.
46
<PAGE>
4.16 The Company has maintained adequate and suitable records regarding the
service of its directors, officers and employees and such records
comply with the requirements of the Data Protection Act 1984.
4.17 There are no amounts owing or agreed to be loaned or advanced by any of
the Vendors or by the Company to any directors, officers and employees
of the Company (other than amounts representing remuneration accrued
due for the current pay period, accrued holiday pay for the current
holiday year or for reimbursement of expenses).
4.18 There are no enquiries or investigations existing, pending or
threatened affecting the Company in relation to any directors, officers
or employees by the Equal Opportunities Commission, the Commission for
Racial Equality or the Health and Safety Executive or any other bodies
with similar functions or powers in relation to workers.
4.19 No director, officer or employee of the Company has given or received
notice to terminate his employment.
4.20 There are no directors, officers or employees of the Company who are
absent on grounds of disability or other leave of secondment, maternity
leave or absence.
4.21 There are no terms or conditions under which any director, officer or
employee of the Company is employed, nor has anything occurred prior to
Completion that may give rise to any claim for sex discrimination, race
discrimination or equal pay either under domestic United Kingdom or
European Law whether by such director, officer or employee or a
prospective director, officer or employee or otherwise.
4.22 The Vendors and the Company have complied with their obligations to
inform and consult with trade unions and other representatives of
workers and to send notices to the Secretary of State pursuant to
sections 188 to 194 of the TULR(C)A and regulations 10 and 11 of the
Regulations.
4.23 The salaries and wages and other benefits of all employees of the
Company have been paid or discharged in full in respect of the period
up to Completion.
5. THE GROUP AND ITS BANKERS
5.1 Borrowings
The total amount borrowed by the Company from its bankers or any other
party does not exceed its facilities and the total amount borrowed by
the Company from whatsoever source does not exceed any limitation on
its borrowing contained in its articles of association, or in any
debenture or loan stock deed or other instrument.
47
<PAGE>
5.2 Continuance of Facilities
Full and accurate details of all overdrafts, loans leases or other
financial facilities outstanding or available to the Company have been
supplied to the Purchaser and none of the Vendors nor the Company has
done anything whereby the continuance of any such facilities in full
force and effect might be affected or prejudiced.
5.3 Bank Accounts
A statement of all the bank accounts of the Company and of the credit
or debit balances on such accounts as at a date not more than seven
days before the date hereof has been supplied to the Purchaser. The
Company has not any other bank or deposit accounts (whether in credit
or overdrawn) not included in such statement. Since such statement
there have been no payments out of any such accounts except for routine
payments and the balances on current account are not now substantially
different from the balances shown on such statements.
5.4 Events of Default - Indebtedness
No circumstances have arisen or, to the best of the knowledge,
information and belief of the Vendors, are about to arise in
consequence of the acquisition of the Company by reason of any default
by the Company or any of its Subsidiaries such that any person is, or
will, or would with the giving of notice and/or lapse of time and/or
the satisfaction of any other condition become entitled to require
payment before its stated maturity of, or security for, any
indebtedness in respect of borrowed money of the Company which has not
been satisfied in full and, to the best of the knowledge, information
and belief of the Vendors no person to whom any indebtedness for
borrowed money of the Company which is payable on demand is owed
presently proposes to demand payment of, or security for, the same, and
there is no reason to suppose that any overdraft facility of the
Company will be, or is likely to be, withdrawn. The Company has also
complied with the original payment schedules.
6. ACCURACY OF LNFORMATION
6.1 All information contained in this agreement and the Disclosure Letter
concerning or which might concern the Company or its business, assets
or liabilities was when given and is now true and correct in all
respects and no matter or fact has not been disclosed the omission of
which renders any such information untrue or misleading and all facts
relating to the Company which could affect the value of the property,
business and undertaking of the Company or the Shares have been
disclosed.
7. TAXATION LNFORMATLON AND RETURNS
7.1 Returns
The Company has made all returns (including any VAT and company tax
returns including a self-assessment) and supplied all information and
given all notices to the Inland Revenue or other authority as
reasonably requested or required by law within any requisite period and
all such returns and information and notices are correct and accurate
in all respects and are not the subject of any dispute or enquiry and
there are no facts or circumstances likely to give rise to or be the
subject of any such dispute or enquiry.
7.2 Disclosures
All statements and disclosures made to any authority in connection with
any provision of the taxation statutes whatsoever were when made and
remain complete and accurate in all material respects.
7.3 Clearances
No action has been taken by the Company in respect of which any consent
or clearance from the Inland Revenue or other authority was required
save in circumstances where such consent or clearance was validly
obtained, and where any conditions attaching thereto were and will,
immediately following Completion , continue to be met.
7.4 Claims and Elections
The Company has not made and is not subject to any claim or election
under any or all of the following: -
(a) sections 279(1) to (6) of the T.C.G.A. (foreign assets: delayed
remittances);
(b) section 35 of the T.C.G.A. (capital gains: rebasing to 31 March
1982);
(c) section 24 of the T.C.G.A. (assets of negligible value or lost
or destroyed);
(d) section 154 and 175 of the T.C.G.A. and sections 152 and 153 of
the T.C.G.A. (roll-over relief);
(e) section 242 of the T.A. (surplus franked investment income).
(f) section 247 of the T.A. (group income);
(g) sections 584, 585 or 723 of the T.A. (foreign income etc. :
delayed remittances);
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(h) section 75 of the F.A. 1986 (stamp duty on reconstructions
etc.).
(i) section 161 TCGA (appropriations to and from stock).
7.5 Payment of tax by instalments
The Company has made no election or arrangement for the payment of tax
by instalments under sections 280 and 48 of the T.C.G.A.
7.6 Deed of Indemnity
No event has occurred which would or might give rise to a claim under
the Deed of Indemnity upon or after the execution thereof.
PROVISION FOR AND PAYMENT OF TAX
7.7 General
The Accounts make full provision or reserve in respect of any period
ended on or before the Accounts Date for all tax assessed or liable to
be assessed on the Company or for which it is accountable at the
Accounts Date whether or not the Company has or may have any right of
reimbursement against any other person including in particular (but
without prejudice to the generality of the foregoing) tax in respect of
property (of whatever nature) income, profits or gains held, earned,
accrued or received by or to any person on or before the Accounts Date
or by reference to any event occurring act done or circumstances
existing on or before that date including distributions made down to
such date or provided for in the Accounts and proper provision has been
made and shown in the Accounts for deferred taxation in accordance with
generally accepted accounting principles.
7.8 Payment of Tax
(a) The Company has duly and punctually paid all tax to the extent
that the same ought to have been paid and is not liable nor has
it within three years prior to the date hereof been liable to
pay any penalty or interest in connection therewith.
(b) Without prejudice to clause (a) of this clause the Company has
paid on the due date:-
(i) all value added tax and customs and excise duties (at the
correct tariff rate) in respect of goods or services sold
or supplied or imported;
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(ii) all tax due in respect of payments made by the Company
to any person which ought to have been made under
deduction of tax and all such tax has been properly
deducted from all such payments made;
(iii) all advance corporation tax due in respect of dividends
and other distributions made or paid by the Company; and
(iv) all social security contributions (both employers and
employees) due in respect of the Company's employees and
ex-employees.
7.9 Pay As You Earn
The Company has properly operated the P.A.Y.E. system and National
Insurance Contributions system deducting tax as required by law from
all payments to or treated as made to or benefits provided for
employees, ex-employees or independent contractors of the Company
(including any such payments within section 134 of the T.A.) and duly
accounted to the Inland Revenue for tax so deducted and has complied
with all its reporting obligations to the Inland Revenue in connection
with any such payments made or benefits provided, and no P.A.Y.E. audit
or National Insurance or VAT audit in respect of the Company has been
made by the Inland Revenue, Contributions Agency or H.M. Customs &
Excise nor has the Company been notified that any such audit will be
made and the Company has complied with all other obligations in respect
of National Insurance.
7.10 Give as You Earn
Details of any payroll deduction scheme pursuant to section 202 of the
T A. operated by the Company are set out in the Disclosure Letter and
any such scheme has been operated in accordance with that section and
regulations made thereunder.
7.11 Secondary Liability
No transaction or event has occurred in consequence of which the
Company is or may be held liable for any tax or deprived of relief or
allowances otherwise available to it or may otherwise be held liable
for or to indemnify any person in respect of any tax for which some
other company or person was primarily liable (whether by reason of any
such other company being or having been a member of the same group of
companies or otherwise).
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CORPORATION TAX
7.12 Changes in Trade etc.
(a) Within the period of three years ending with the date hereof
there has been no major change in the nature or conduct of any
trade or business carried on by the Company within the meaning
of section 245 or 768 of the T.A.
(b) There has been no cessation or discontinuance of any trade
carried on by the Company nor has the scale of activities in
any trade carried on by the Company within three years hereof
become small or negligible.
(c) Prior to the execution of this agreement no change of
ownership of the Company has taken place such that either or
both of sections 245 or 768 of the T.A. has or may be applied
to deny relief in respect of a loss or losses of the Company
or surplus advance corporation tax.
7.13 Trading Assets
In the event that any asset shown in the Accounts as a fixed asset is
disposed of immediately following Completion the proceeds derived from
such asset will not be treated as a trading receipt for tax purposes.
7.14 Deductions
The Company has not made any payment or incurred any liability to make
any payment which could be disallowed as a deduction in computing the
taxable profits of the Company or as a charge on the Company's income
including (but without prejudice to the generality of the foregoing)
any payment which could be disallowed under sections 74 (general rules
as to deductions not allowable), 338-340 (allowance of charges on
income), 779-789 (leased assets), section 787 (restriction of relief
for payments of interest) or section 125 of the T.A. (annual payments
for non-taxable consideration).
7.15 Sales at undervalue/overvalue
All transactions entered into by the Company have been entered into on
an arms length basis and the consideration (if any) charged or received
or paid by the Company on all transactions entered into by it has been
equal to the consideration which might have been expected to be charged
received or paid (as appropriate) between independent persons dealing
at arm's length and no notice or enquiry pursuant to section 770 of the
T.A. has been made in connection with any of such transactions.
7.16 Appropriations
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Since the Accounts Date the Company has not appropriated any of its
assets to or from trading stock.
7.17 Chargeable Policies
The Company is not and will not become liable to tax in respect of any
policy of insurance (including any life policy or life annuity
contracts) whether or not acquired as original beneficial owner.
7.18 Deep Discount Securities
(a) The Company has not issued or acquired any deep discount
securities as defined by paragraph 1(1) of schedule 4 of the
T.A.
(b) In so far as the Company has issued or acquired any deep
discount securities as defined by paragraph 1(1) of schedule 4
of the T.A. the Company has issued or acquired (as the case may
be) a relevant certificate in terms of paragraph 13 of schedule
4 of the T.A.
7.19 Foreign Borrowings
The Company has made no borrowings in a foreign currency whereby a
liability to tax may arise or may have arisen or a claim for tax has
been made.
7.20 Pension Fund Surplus
Since the Accounts Date the Company has not received any payment to
which schedule 22 of the T.A. applies.
CAPITAL ASSETS
7.21 Capital Allowances
(a) No balancing charge in respect of any capital allowances
claimed or given would arise if any assets of the Company were
to be realised for a consideration equal to the amount of the
book value thereof as shown or included in the Accounts.
(b) All necessary conditions for all capital allowances (as
defined in section 832(1) of the T.A.) claimed by the Company
were at all material times satisfied and remain satisfied and
the Company has not since the Accounts Date become liable for
any balancing charge.
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7.22 Finance Leases
(a) The Company is not and has not been the lessee under any
leases of plant or machinery which exceeds an annual cost to
the Company of (pound)250 save for the leases specified in the
Disclosure Letter (the "Leases").
(b) The machinery or plant subject to the Leases has in the period
which is the requisite period in respect of any expenditure
thereon by an owner or lessor for the purposes of section
39(1) of the CAA been used and only been used for a qualifying
purpose as defined by the section.
(c) No assets subject to the Leases have at any time been leased
by the Company or its lessees to a person who is not resident
in the UK and does not use the machinery or plant for the
purposes of a trade carried on there.
(d) The Vendors are not aware of any revenue investigation,
revenue enquiry or other circumstance which indicates that any
person who is or was a lessor or owner of equipment subject to
any to any of the Leases will or may be denied the first year
allowances and writing down allowances by reference to which
the initial rental under that Lease was calculated.
7.23 Investment Grants
The Company has not received any investment grant or similar payment or
allowance receivable by virtue of any statute.
DISTRIBUTIONS
7.24 Repayments of Share Capital
(a) The Company has not at any time after 6 April 1965 repaid or
agreed to repay or redeemed or agreed to redeem or purchased
or agreed to purchase (or made any contingent purchase
contract within the meaning of section 165 of the Companies
Act 1985) in respect of any of its issued share capital or any
class thereof. Further the Company has not after 6 April 1965
capitalised or agreed to capitalise in the form of shares,
debentures or other securities or in paying up amounts unpaid
on any shares, debentures or other securities any profits or
reserves of any class or description or passed or agreed to be
passed any resolution to do so.
(b) The Company has not made (and will not be deemed to have made)
any distribution within the meaning of sections 209 and 210 of
the T A. and section 236 of the I.C.T.A. since 5 April 1965
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except dividends properly authorised and shown in its Accounts
or as provided herein nor is the Company bound to make any
such distribution.
7.25 Payments to be treated as distributions
The Company has not issued any securities (within the meaning of
section 254(1) of the T.A.) which remain in issue where the interest
payable thereon falls to be treated as a distribution.
CHARGEABLE GAINS
7.26 Sales at Book Value
No chargeable gain or profit (disregarding the effects of any
indexation relief available) would arise if any assets of the Company
(other than trading stock) were to be realised for a consideration
equal to the amount of the book value thereof as shown or included in
the Accounts.
7.27 Value shifting
The Company has not been involved in any scheme or affected by any
arrangements whereby the value of any asset has been or will be reduced
such that sections 29 and/or 30 of the T.C.G.A. might be applicable.
7.28 Valuation of Assets
(a) The Company has not made any disposal of part of an asset part
of which is still owned by the Company at the date hereof
which has required or may or will require any computation
under section 42 of the T.C.G.A. (part disposals of assets).
(b) The Company has not disposed of or acquired any asset so that
section 17 of the T.C.G.A. might apply to restrict the
consideration deemed to be given on such disposal or
acquisition.
7.29 Chargeable Debts
No gains chargeable to corporation tax on chargeable gains will accrue
to the Company on the disposal of any debt owing to the Company.
7.30 Reconstructions
The Company has not been involved in any share for share exchange or
any scheme of reconstruction or amalgamation such as are mentioned in
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sections 135 and 136 of the T.C.G.A. or section 139 of the T.C.G.A.
under which shares or debentures have been or will be issued or assets
have been or will be transferred.
7.31 Corporate Bonds
There has been no relevant transaction to which section 117(8) of the
T.C.G.A. can apply to a corporate bond held by the
Company.
7.32 Depreciatory transactions
No loss which has arisen or which may hereafter arise on a disposal by
the Company of shares in or securities of any company is liable to be
reduced by virtue of the application of section 176 of the T.C.G.A.
(transactions in a group) or section 177 of the T.C.G.A. (dividend
stripping).
7.33 Transfers by way of gift
The Company has not made any such transfer of an asset at an undervalue
as is mentioned in section 125 of the T.C.G.A. or received any assets
by way of gift as mentioned in section 282 of the T.C.G.A.
ANTI AVOIDANCE PROVISIONS
7.34 Tax Schemes
The Company and the Vendors have not entered into nor been a party to
nor otherwise involved in any scheme or arrangement designed wholly or
partly for the purpose of avoiding or deferring tax which may give rise
to any liability to pay tax on the part of the Company, the Purchaser
or the Purchaser's Group
7.35 Transactions in Securities
The Company has not : -
(a) become liable for tax; or
(b) received and will not receive or be the subject of or be
adversely affected by any claim for tax arising under or
imposed by or resulting from the operation of sections 703-709
of the T.A. (whether alone or in conjunction with any other
provisions of any taxation statutes whatsoever) and which
wholly or partly results or arises from or is computed by
reference to circumstances existing or events occurring at any
time on or before the date hereof whether alone or in
conjunction with other circumstances arising before or after
Completion.
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7.36 Transactions in Land
The Company has not:-
(a) become liable for tax; or
(b) received and will not receive or be the subject of or be
adversely affected by any claim for tax;
arising under or imposed by or resulting from the operation of sections
776-778 of the T.A. (whether alone or in conjunction with any other
provisions of any taxation statutes whatsoever) and which wholly or
partly results or arises from or is computed by reference to
circumstances existing or events occurring at any time on or before the
date hereof whether alone or in conjunction with other circumstances
arising before or after Completion.
7.37 Sale and lease back of land
Since 22 June 1971 the Company has not entered into any transaction as
is mentioned in sections 34-37 or section 780 of the T.A.
7.38 Transactions between dealing and associated company
The Company has not entered into any transaction mentioned in section
774 of the T.A.
7.39 Loans or Credit
The Company has been involved in no transactions such that section 786
of the T.A. (transactions associated with loans or credit) might apply.
FOREIGN ELEMENT
7.40 Treasury Consents
The Company has not without the prior consent of the Treasury entered
into any of the transactions specified in section 765(1)(c) or (d) of
the T.A. nor did the Company prior to 15 March 1988 without such
consent enter into any of the transactions specified in section
765(1)(a) or (b) of the T.A.
7.41 Company Migration
Since 15 March 1988, no election has been made by the Company as the
principal company as defined in section 187 of the T.C.G.A.
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(postponement of charge on deemed disposal of assets by company ceasing
to be resident in the United Kingdom) nor has any company over which
the Company had control or which was a member of the same group of
companies as the Company ceased to be resident in the United Kingdom
otherwise than in compliance with section 130 of the F.A. 1988.
7.42 Transfers to non-resident company
The Company has not made any such transfer as is mentioned in section
140 of the T.C.G.A.
7.43 Double Taxation
The Company has not made and is not entitled to make any claim under
part XVIII of the T.A. and in respect of any such claims disclosed all
necessary conditions for all foreign tax credit claimed or to be
claimed by the Company were at all material times and remain satisfied
and in particular (but without prejudice to the generality of the
foregoing) the Company holds all tax deduction certificates or other
documentation necessary for production to H. M. Inland Revenue in
respect of such foreign tax.
7.44 Controlled Foreign Companies
The Company does not have and never has had an interest in a controlled
foreign company within the meaning of section 747 of the T.A. such that
all or any of the chargeable profits of the controlled foreign company
have been or will or may be apportioned to the Company.
7.45 Offshore Funds
The Company has not on or after 1 January 1984 disposed of and does not
now have a material interest in an offshore fund which at any material
time was or is a non-qualifying offshore fund within the meaning of
section 757 of the T.A. such that a disposal thereof by the Company has
given rise or will or may give rise to an offshore income gain.
7.46 Agency for Non Residents
The Company is not and has not been assessable to tax by virtue of
section 78 of the T.M.A. or section 126 of the Finance Act 1995.
CLOSE COMPANY
7.47 The Company is a close company as defined by section 414 T.A.
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GROUPS OF COMPANIES
7.48 Group Relief
The Disclosure Letter contains particulars of all arrangements relating
to group relief under sections 402-413 of the T.A. to which the Company
is or has been a party and:-
(a) all claims by the Company for group relief were when made and
are now valid and have been or will be allowed by way of
relief from corporation tax;
(b) the Company has not made nor is liable to make any payment for
group relief otherwise than in consideration for the surrender
of group relief allowable to the Company by way of relief from
corporation tax;
(c) the Company has received all payments due to it under any
arrangement or agreement for surrender of group relief by it;
(d) no such payment exceeds or could exceed the amount permitted
by section 402(6) of the T.A.;
(e) there exist or existed for any period of account in respect of
which a surrender has been made or purports to have been made
no arrangements such as are specified in section 410(1)-(6) of
the T.A.
7.49 Advance Corporation Tax
The Disclosure Letter contains particulars of all arrangements for the
surrender under section 240 of the T.A. of any amount of advance
corporation tax and in respect of receipts and surrenders disclosed: -
(a) the Company has not paid nor is liable to pay for the benefit
of any advance corporation tax which is or may become
incapable of set off against the Company's liability to
corporation tax;
(b) the Company has received all payments due to it for all
surrenders or purported surrenders of advance corporation tax
made by it;
(c) no such payment exceeds or could exceed the amount permitted
by section 240(8) of the T.A.; and
(d) there exist or existed for any period in respect of
which a claim under section 240 of the T.A. has been or is to
be made no arrangements such as are specified in sub-section
(11) of that section whereby any person could obtain control
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of the Company or of any subsidiary to which such surrender
purports or is purported to be made.
7.50 Surplus Advance Corporation Tax
The Company will not have any unrelieved surplus advance corporation
tax to which the provisions of section 32 of the FA 1998 or any
regulation made pursuant thereto relating to shadow advance corporation
tax will apply.
7.51 Intra-Group Transfers
The Company has not acquired any asset other than trading stock from
any other company belonging at the time of acquisition to the same
group of companies as the Company within the meaning of section 170 of
the T.C.G.A. and no member of any group of companies of which the
Company is or has at any material time been the principal company (as
defined in section 170(2)(b) of the T.C.G.A.) has so acquired any
asset.
INHERITANCE TAX
7.52 Gifts
(a) The Company is not, and will not become, liable to be assessed
to capital transfer tax or inheritance tax as donor or donee
of any gift or transferor or transferee of value (actual or
deemed) nor as a result of any disposition chargeable transfer
or transfer of value (actual or deemed) made by or deemed to
be made by any other person.
(b) The Company has not been a party to associated operations in
relation to a transfer of value within the meaning of section
268 of the I.T.A.
(c) No asset owned by the Company is subject to any sale, mortgage
or charge by virtue of s212 of the I.T.A.
7.53 Inland Revenue Charge
There is no unsatisfied liability to capital transfer tax attached or
attributable to the Shares or any asset of the Company and in
consequence no person has the power to raise the amount of such tax by
sale or mortgage of or by a terminable charge on any of the Shares or
assets of the Company as mentioned in section 212 of the I.T.A. and
none of the Shares or assets of the Company are subject to an Inland
Revenue charge within section 237 of the I.T.A.
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VALUE ADDED TAX
7.54 Value Added Tax
(a) The Company is a registered taxable person for the purpose of
the VAT legislation and has not at any time been treated as a
member of a group of companies for such purpose and has not
made any application to be so treated and no circumstances
exist whereby the Company would or might become liable for
value added tax as an agent or otherwise by virtue of section
47 of the V.A.T.A.
(b) The Company has complied in all respects with the requirements
and provisions of V.A.T.A. and all regulations and orders made
thereunder (the "VAT legislation") and has made and maintained
and will pending Completion make and maintain accurate and
up-to-date records invoices Accounts and other documents
required by or necessary for the purposes of the VAT
legislation and the Company has at all times punctually paid
and made all payments and returns required thereunder.
(c) That (without prejudice to the generality of clause (b) of
this clause) the Company has not: -
(i) taken part in conduct involving dishonesty as described
in section 60 of the V.A.T.A;
(ii) committed any serious misdeclaration or neglect as
described in section 63 of the V.A.T.A;
(iii) issued unauthorised invoices or failed to do anything
contemplated by section 67 of the V.A.T.A;
(iv) failed to comply with any regulatory requirements
described in section 69 of the V.A.T.A;
(v) been notified of any assessment within sections 59 and
74 of the V.A.T.A. or a surcharge notice under section
59 of the V.A.T.A;
(vi) made any agreement with the Commissioners of Customs and
Excise which agreement has not been put in writing as
contemplated by section 85 of the V.A.T.A.
(d) The Company has not made any exempt supplies in consequence of
which it is or will be unable to obtain credit for all input
tax paid by it during any VAT quarter ending after the
Accounts Date.
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STAMP DUTY
7.55 Stamp Duty and Capital Duty
The Company has duly paid all capital duty and loan capital duty for
which it is or has at any time been liable and all documents in the
enforcement of which the Company is or may be interested have been duly
stamped and since the Accounts Date the Company has not been a party to
any transaction whereby the Company was or is or could become liable to
stamp duty reserve tax.
FINANCE ACT 1996
7.56 Loan Relationships
The Company is not a party to any loan relationship as defined in
Chapter 11 of Finance Act which may give rise to any debits or credits
as there mentioned (other than in relation to interest).
7.57 The Company has duly submitted all claims (including without limitation
claims for capital allowances) and disclaimers.
7.58 Since the Accounts date the Company has not entered into any
transactions which will or may give rise to a liability to corporation
tax on chargeable gains or to any balancing charge.
7.59 The Company has not entered into any loan relationship for unallowable
purposes as defined in Schedule 9 paragraph 13 FA 1996.
7.60 The Company has not within the last three years elected under section
246A and 246B TA for any dividend paid or to be paid by it to be
treated as a foreign income dividend for the purposes of Chapter VA of
part VI of TA.
7.61 The Company has not made any qualifying distributions which could be
subject to paragraph 1(2) or (3) Schedule 7 FA 1997.
7.62 The Company has not made any loans to a participator or any associate
for the purpose of Section 419 TA and has not provided any payment or
benefit to a participator which has or could be treated as a
distribution for the purposes of Section 418 TA.
7.63 In relation to VAT on all invoices issued by the Company VAT at the
percentage rate which at the time of the relevant supply was chargeable
thereon has been so charged and all amounts of VAT which have been so
charged since the last return made by the Company to HM Customs &
Excise have been retained by the Company pending the next return date.
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8. ENVIRONMENTAL MATTERS
8.1 Licences
The Company has obtained and complied with the terms and conditions of
all Environmental Consents. All current Environmental Consents remain
in full force and effect. The Company has not received any notice of
and to the best of the Vendors' knowledge, information and belief there
are no circumstances that may lead to the revocation, modification,
suspension or that may prejudice or require material expenditure for
the renewal, extension, grant or transfer of any current Environmental
Consents.
8.2 Liability
The Company and the Properties comply and have at all times complied
with all Environmental Laws and there are no facts or circumstances
which interfere or prevent compliance with any Environmental Laws.
There are no civil, criminal arbitration or administrative actions,
claims, proceedings or suits pending or threatened against the Company
arising from or relating to Environmental Consents or Environmental Law
and to the best of the Vendors' knowledge, information and belief there
are no circumstances which may lead to such actions, claims,
proceedings or suit.
8.3 Notices and Complaints
The Company has not received any notice of enforcement, prohibition,
improvement, remediation or other notice of equivalent nature, or any
judgment order, decree, award, demand or decision in respect of the
Environment from any court, tribunal, arbitrator or governmental or
regulatory authority and there have been no complaints, investigation,
enquiries, requests for information or other formal or informal
indications of any possible claims or legal actions in respect of the
Environment from any person including without limitation any neighbour,
governmental or regulatory authority, current or former employee or
third party.
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8.4 Contaminated Land
There has not been and there is not present on, at or under the
Properties and there is and has been no release, migration, leakage,
spill, discharge, entry, deposit or emission onto or from the
Properties of any hazardous substance or waste.
There has not been any disposal, storage, release, leakage, migration,
spill, discharge, entry, deposit or emission of any hazardous substance
or waste into the environment caused by any activity of the Company
8.5 House-keeping
(a) Hazardous Substances kept on the Properties or used in
connection with or produced by any Activities have been kept
in tanks, containers (in both cases surrounded by suitable
bund), or proper storage buildings, as the case may be, all of
the foregoing being appropriate for the substance stored and
fit for the designated purpose.
(b) No PCBs, asbestos, underground storage tanks or pipework or
landfills are located on the Properties that violate in any
material respect any Environmental Law.
(c) The Company has not received, generated, handled, used stored,
treated, transported, kept, deposited, or disposed of Waste
at, on or under the Properties and has not permitted any third
party to do so nor has reasonable cause to believe that any
third party has done so.
(d) No Property is included on or referred to in any register of
land subject to contaminative use or any register of
contaminated land (whether or not publicly available) kept
pursuant to any Environmental Law and not, to the best of the
Vendors' knowledge, information and belief, are there any
circumstances which are likely to lead to such registration.
(e) Any substance for disposal has been delivered to an accredited
and insured carrier for onward disposal to an accredited and
insured third party where appropriate.
8.6 Future Laws
To the best of the Vendors' knowledge, information and belief there are
no changes likely in the Environmental Consents or in Environmental Law
or any anticipated Environmental Law that would require works or
material additional expenditure to ensure compliance with such
Environmental Consent or Environmental Law or anticipated Environmental
Law or that would prevent, restrict or hinder or otherwise affect the
use of the Properties or the Activities of the Company.
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8.7 Predecessors
To the best of the Vendors' knowledge, information and belief
predecessors in title (including all previous owners, occupiers and
managers) of the Properties or the Activities have complied with
Environmental Laws.
8.8 Documentation
Copies of all environmental reports, surveys, assessments and
investigations in respect of the Properties or Activities in the
possession or control of the Vendor and the Company have been disclosed
to the Purchaser and all necessary steps to comply with the
recommendation contained in such reports, surveys, assessments and
investigations have been completed.
9. INFORMATION TECHNOLOGY AND MILLENIUM COMPLIANCE
9.1 None of the business systems forming part of the Company Intellectual
Property has been copied wholly or substantially from any other
material.
9.2 All the business systems, excluding software, used in the business of
the Company are owned and operated by and are under the control of the
Company and are not wholly or partly dependent on any facilities which
are not under the ownership operation or control of the Company. No
action will be necessary to enable such systems to continue to be used
in the business of the Company to the same extent and in the same
manner as they have been used prior to the date hereof.
9.3 The Company is validly licensed to use the software used in its
business and no action will be necessary to enable it to continue to
use such software to the same extent and in the same manner as they
have been used prior to the date hereof.
9.4 All necessary steps have been taken to back up electrically stored
information used or likely to be used in the business of the Company
and the Vendors have in place adequate disaster recovery provisions and
security arrangements in relation to all business systems used in the
course of the business of the Company.
9.5 The performance of the business systems used in the business of the
Company will not be adversely affected by either any changes in and to
date information used therein or any changes to inputs, outputs, and
other manipulations of data in relation to dates from 1st January 2000
and thereafter. The Vendors have carried out an audit of the business
systems and are unaware of the fact or matter which may cause such
adverse consequences.
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9.6 The following information has been disclosed in the Disclosure Letter
in a manner which is true accurate and not misleading in all material
respects:-
(i) details of all software and of its use in the business of the
Company from time to time including but without limitation
details of access to and rights in relation to source code of
such software;
(ii) details of all computer systems support maintenance and
development agreements;
(iii) details of all hardware used in the business of the Company
from time to time and of its ownership; and
(iv) details of all third party access to business systems used in
the business of the Company.
10. PROPERTIES
10.1 TITLE
10.1.1 The Property comprises all the property owned, occupied or
otherwise used in connection with the business of the Company
and all the estate interest right and title whatsoever
(including for the avoidance of doubt interests in the nature
of options and rights in the nature of contractual licences) of
the Company in respect of any land or premises.
10.1.2 The Property is occupied under leases, the terms of which
permit the Company's occupation and use.
10.1.3 The Company is the legal and beneficial owner of a leasehold
interest in the Property for the term stated in Schedule 3.
10.1.4 The information contained in Schedule 3 as to the tenure of the
Property and the principal terms of the lease held by the
Company, is accurate in all respects.
10.2 ENCUMBRANCES
10.2.1 The Property is free from any mortgages, debenture, charge,
rent-charge, lien, local land charge, land charge or any other
encumbrance securing the repayment of monies or other
obligation or liability of the Company or any other person.
10.2.2 The Property is not subject to any outgoings other than
business rates, water rates insurance premiums, rent and
service charges.
10.2.3 The Property is not subject to any restrictive covenants,
stipulations, easements, profits a prendre, wayleaves, licences
grants, restrictions, overriding interests or other similar
rights vested in third parties.
10.2.4 Where any of the matters referred to in clauses 10.2.1, 10.2.2
and 10.2.3 have been disclosed in the Disclosure Letter, the
obligations and liabilities imposed and arising under them have
been fully observed and performed and any payments in respect
of them due and payable have been duly paid.
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10.2.5 The Property is not subject to any option, right of pre-emption
or right of first refusal.
10.3 PLANNING MATTERS
10.3.1 The use of the Property is the permitted use for the purposes
of the Planning Acts.
10.3.2 Planning permission has been obtained or is deemed to have been
granted for the purposes of the Planning Acts with respect to
the development of the Property, no permission has been
suspended or called in and no application for planning
permission is awaiting decision.
10.3.3 There is no known breach of building regulations with respect
to all development, alterations and improvements to the
Property.
10.3.4 The Company has complied and is complying in all respects with:
10.3.4.1 planning permissions, orders, and regulations issued
under the Planning Acts, the London Building Acts
and building regulation consents and by-laws for the
time being in force with respect to the Property;
10.3.4.2 all agreements under the Town and Country Planning
Act 1971 s 52 or planning obligations under the Town
and Country Planning Act 1990 s 106 undertaken with
respect to the Property; and
10.3.4.3 all agreements made under the Highways Act 1980 s 38
with respect to the Property.
10.3.5 The Property is not listed as being of special historic or
architectural importance or located in a conservation area.
10.3.6 All claims and liabilities under the Planning Acts or any other
legislation have been discharged and no claim or liability,
contingent or otherwise, is known to be outstanding.
10.4 STATUTORY OBLIGATIONS
10.4.1 The Company has complied and is complying with all applicable
statutory and by-law requirements with respect to the Property,
and in particular (but without limitation) with the
requirements as to fire precautions and under the Public Health
Acts and the Offices, Shops and Railway Premises Act 1963.
10.4.2 There is no known outstanding and unobserved or unperformed
obligation with respect to the Property necessary to comply
with the requirements (whether formal or informal) of any
competent authority exercising statutory or delegated powers.
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10.5 ADVERSE ORDERS
10.5.1 There are no compulsory purchase notices, orders or resolutions
affecting the Property and there are no circumstances likely to
lead to any being made.
10.5.2 There are no closing, demolition or clearance orders,
enforcement notices or stop notices affecting the Property and
there are no circumstances likely to lead to any being made.
10.6 CONDITION OF THE PROPERTY
10.6.1 The buildings and other structures on the Property are in good
and substantial repair and fit for the purposes of the business
carried on by the Company
10.6.2 To the Vendor's knowledge no building or structure on the
Property has at any time been affected by structural damage or
electrical defects or by timber infestation, rising damp or
disease.
10.6.3 There are no disputes with any neighbouring owner with respect
to boundary walls and fences or with respect to any easement or
right over or means of access to the Property.
10.6.4 The principal means of access to the Property is over roads
which have been taken over by the local or other highway
authority and which are maintainable at the public expense and
no means of access to the Property is subject to rights of
determination by any other party.
10.6.5 The Property enjoys the main services of water, drainage,
electricity and gas.
10.7 INSURANCE
10.7.1 The Property is insured in its full reinstatement value and
against third party and public liabilities to the extent
assessed by the Landlord's surveyor
10.7.2 All premiums payable in respect of insurance policies with
respect to the Property which have become due have been duly
paid and the Vendor is not aware of any circumstances which
have arisen which would vitiate or permit the insurers to avoid
the policies.
10.7.3 The information in the Disclosure Letter with respect to the
insurance policies is accurate in all respects.
10.8 LEASEHOLD PROPERTY
10.8.1 The Company has paid the rent and observed and performed the
covenants on the part of the tenant and the conditions
contained in the lease under which the Property is held, and
the last demand for rent (or receipt for rent if issued) was
unqualified, and the lease is valid and in full force.
10.8.2 All licences, consents and approvals required from the landlord
and any superior landlord have been obtained and the covenants
on the part of the tenant contained in the Licences, consents
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and approvals have been duly performed and observed.
10.8.3 There is no rent review in progress.
10.8.4 No obligation necessary to comply with any notice or other
requirement given by the landlord is outstanding and unobserved
or unperformed.
10.8.5 There is no obligation to reinstate the Property by removing or
dismantling any alteration made to it by the Company or any
predecessor in title.
10.8.6 There are no circumstances which would entitle any such
landlord to exercise any powers of entry or take possession
whether by means of peaceable re-entry or proceedings or which
would otherwise restrict the continued possession and enjoyment
of the Property.
10.8.7 The Company does not have any continuing liability in respect
of any other property formerly owned or occupied by the Company
either as original contracting party or by virtue of any direct
covenant having been given on a sale or assignment to the
Company or under an authorised guarantee agreement or as a
surety for the obligations of any other person in relation to
property.
10.9 TENANCIES
10.9.1 The Property is not subject to any tenancies
10.10 ENVIRONMENTAL MATTERS
10.10.1 The Company has at all times complied with environmental
legislation and there is nothing in on over or under the
Property the presence existence or condition of which
constitutes a breach of environmental legislation
10.10.2 No offence has been committed on or in connection with the
Property or any activities processes or substances in on over
or under the Property pursuant to environmental legislation.
10.11. CONTAMINATION
10.11.1 To the best of the Vendor's knowledge and belief none of the
Property:-
10.11.1.1 includes contaminated land as defined in the
Environmental Protection Act 1990 ("the EPA")
10.11.1.2 is the subject of a remediation statement or a
remediation notice for the purpose of the EPA
10.11.1.3 is within 250 meters of a landfill site
10.11.1.4 has been affected by any landfill gas or other
contaminants
10.12 GENERAL
10.12.1 There is no other matter of which the Vendor is or
ought to be aware on reasonable enquiry and which
adversely affects the value of the Property or casts
any doubt on the right or title of the Company
thereto which should be revealed to the Purchaser
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10.13 CERTIFICATE OF TITLE
10.13.1 The certificate of title in respect of the Property
dated 20th October 1998 and prepared and signed by
the Vendor's solicitor is true complete and accurate
in all respects and the Vendor is aware that the
Purchaser intends to place reliance thereon
11. INTELLECTUAL PROPERTY
11.1 The Company is the sole legal and beneficial owner free from
encumbrances of the Intellectual Property and (where such property is
capable of registration) the registered proprietor thereof and (save
for copyrights and unregistered design rights not included in the
Listed Intellectual Property) owns no other Intellectual Property.
11.2 No person has been authorised to make any use whatsoever of any
Intellectual Property owned by the Company.
11.3 All the Intellectual property used by the Company is owned by it and
does not use any Intellectual Property in respect of which any third
party has any right, title or interest.
11.4 None of the Intellectual Property is being used, claimed, applied for,
opposed to or attacked by any person.
11.5 The Vendor is not aware of any infringement of the Intellectual
Property or of any rights relating to it by any person.
11.6 There are no outstanding claims against the Company for infringement of
any Intellectual Property or of any rights relating to it used (or
which have been used) by the Company and during the last six years no
such claims have been settled by the giving of any undertakings which
remain in force. The Company has not received any actual or threatened
claim that any of the Intellectual Property Rights is invalid.
11.7 Know-how and Confidential Information used by the Company is kept
strictly confidential. The Company has not disclosed (except in the
ordinary course of its business) any of its know-how, trade secrets or
list of customers to any other person.
11.8 The Vendor has, if required to do so under the Data Protection Act
1984, duly registered as a data user in respect of the business carried
on by the Company and has complied with the data protection principles
as set out in the Act.
11.9 Any Software has been listed and all rights to the use thereof are
vested in the Company.
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12. PENSIONS
12. INTERPRETATION
12.1 DEFINITIONS
In this Schedule, where the context admits:
"Relevant Employee" means any past or present employee of the Company
or of any predecessor to all or part of its business.
12.2 EMPLOYEES
12.2.1 References in this Schedule to employees includes directors.
12.3 WARRANTIES AND REPRESENTATIONS
12.3.1 The Vendors hereby warrant and represent to and for the benefit
of the Purchaser in the following terms:
12.3.1.1 NO OTHER ARRANGEMENTS
Save for the Pension Scheme the Company is not a party
to nor participates in nor contributes to any scheme,
agreement or arrangement (whether legally enforceable
or not) for the provision of any pension, retirement,
death, incapacity, sickness, disability, accident or
other like benefits (including the payment after
cessation of employment with the Company of medical
expenses) for any Relevant Employee or for the widow,
widower, child or dependant of any Relevant Employee.
12.3.1.2 NO ASSURANCES ETC
Neither the Company any associated or connected
company:
12.3.1.2.1 has given any undertaking or assurance
(whether legally enforceable or not) as to
the continuance, introduction, improvement
or increase of any benefit of a kind
described in sub-paragraph 12.3.1.1 above,
or
12.3.1.2.2 is paying or has in the last two years paid
any such benefit,
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to (in either case) any Relevant Employee
or to any widow, widower, child or
dependant of any Relevant Employee.
12.3.1.3 MEMBERSHIP
Every person who has at any time had the
right to join, or apply to join, the
Pension Scheme has been properly advised of
that right. No Relevant Employee has been
excluded from membership of the Pension
Scheme or from any of the benefits
thereunder in contravention of Art 119 of
the Treaty of Rome, the Pensions Act 1995
or other applicable laws or requirements or
the provisions of the Pension Scheme or
otherwise.
12.3.1.4 BENEFITS
All benefits which are not money purchase
benefits and which are payable under the
Pension Scheme on the death of any person
while in employment to which the Pension
Scheme relates are insured fully under a
policy with an insurance company of good
repute and there are no grounds on which
that company might avoid liability under
that policy. All other benefits payable, or
prospectively or contingently payable,
under the Pension Scheme are money purchase
benefits. In this sub-paragraph "money
purchase benefits" has the same meaning as
in s 181(1) of the Pension Schemes Act
1993.
12.3.1.5 TRANSFER PAYMENTS
No transfer value has been paid (directly
or indirectly) to the Pension Scheme from
another arrangement for any member of the
Pension Scheme under which any benefits
referable to that member contravened Art
119 of the Treaty of Rome, s 62 of the
Pensions Act 1995 or other applicable law
or requirement.
12.3.1.6 CONTRIBUTIONS AND EXPENSES
Contributions to the Pension Scheme are not
paid in arrear and all contributions and
other amounts which have fallen due for
payment have been paid punctually. No fee,
charge or expense relating to or in
connection with the Pension Scheme has been
incurred but not paid, If any such fee,
charge or expense has been paid by any
person other than the Pension Scheme the
Pension Scheme has reimbursed that person
if and to the extent that the Pension
Scheme is or may become liable so to do.
12.3.1.7 COMPANY'S OBLIGATIONS
The Company:-
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12.3.1.7.1 has observed and performed
those provisions of the
Pension Scheme which apply
to it; [and]
12.3.1.7.2 may (without the consent of
any person or further
payment) terminate its
liability to contribute to
the Pension Scheme at any
time subject only to giving
such notice (if any) as is
expressly provided for in
the documentation containing
the current provisions
governing the Pension
Scheme); [and
12.3.1.7.3 has at all material times
held or been named in a
contracting-out certificate
(within the meaning of s7(1)
of the Pension Schemes Act
1993) referable to the
Pension Scheme].
12.3.1.8 NO OTHER EMPLOYER
The Company is the only employer for the
time being participating in the Pension
Scheme. No employer which has previously
participated in the Pension Scheme has any
claim under the Pension Scheme and in
respect of any such employer the period of
participation has been terminated and
benefits have been provided in accordance
with the provisions of the Pension Scheme.
12.3.1.9 ADMINISTRATION
All documentation and records in respect of
the Pension Scheme are up to date and so far
as the Vendors are aware complete and
accurate in all material respects.
12.3.1.10 INVESTMENT
Save for any deposit with a bank or building
society the only assets which the Pension
Scheme has held are insurance policies and
annuity contracts with insurance companies
of good repute.
12.3.1.11 COMPLIANCE
The Pension Scheme:
12.3.1.11.1 is an exempt approved scheme
(within the meaning of s
592(1) of the Income and
Corporation Taxes Act 1988);
12.3.1.11.2 has properly and punctually
accounted to the Inland
Revenue for all and any tax
for which the Pension Scheme
is liable or accountable;
and
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12.3.1.11.3 has at all times complied
with and been administered
in accordance with all
applicable laws, regulations
and requirements (including
those of the Board of Inland
Revenue and of trust law).
12.3.1.12 DISPUTES
None of the Pension Scheme, the Company or
any member of the Vendors' Group is engaged
or involved in any proceedings which relate
to or are in connection with the Pension
Scheme or the benefits thereunder and no
such proceedings are pending or threatened
and so far as the Vendor is aware there are
no facts likely to give rise to any such
proceedings. In this sub-paragraph
"proceedings" includes any litigation or
arbitration and also includes any
investigation or determination by the
Pensions Ombudsman or the Occupational
Pensions Advisory Service and any complaint
under any internal dispute resolution
procedure established in connection with the
Pension Scheme.
12.3.1.13 INDEMNITIES
In relation to the Pension Scheme or funds
which are or have been held for the purposes
thereof neither the Company nor the Pension
Scheme has given an indemnity or guarantee
or any person (other than in the case of the
Company any general indemnity in favour of
the trustees or administrator under the
documentation governing the Pension Scheme).
12.4 DAMAGE FOR BREACH OF PENSION WARRANTIES
12.4.1 In determining the damages flowing from any breach of
Warranties contained in paragraph 12.3, the Company shall be
deemed to be under a liability:
12.4.1.1 to provide and to continue to provide any
benefit of a kind referred to in that
paragraph which is now provided or has been
announced or is proposed; and
12.4.1.2 to maintain and to continue to maintain
(without benefits being reduced) the Pension
Scheme and any other arrangements of a kind
described in that paragraph which are now in
existence or are proposed and any
discretionary practices of a kind referred
to in that paragraph which have hitherto
been carried on.
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SCHEDULE 5
DEED OF INDEMNITY
THIS DEED OF INDEMNITY is made on 1998
BETWEEN:-
(1) THE PERSONS whose names and addresses are set out in column 1 of Schedule
1 hereto (together the "Covenantors"); and
(2) ( * ) whose registered office is at ( * ) (the "Purchaser" which
expression shall include its successors and assigns).
RECITALS:-
This Deed of Indemnity is entered into pursuant to the provisions of an
agreement (the "Sale Agreement") made on ( * ) 199 pursuant to which the
Purchaser agreed to purchase the whole of the share capital of ( * ).
THE PARTIES AGREE AS FOLLOWS:-
1. INTERPRETATION
1.1 Subject to clause 1.2 and unless the context otherwise indicates,
words, expressions and abbreviations defined in the Sale Agreement
shall have the same meanings in this deed and any provisions of the
Sale Agreement concerning matters of construction or interpretation
shall mutatis mutandis apply to this deed.
1.2 The following words, expressions and abbreviations used in this deed
shall, unless the context otherwise requires, have the following
meanings: -
"CLAIM FOR TAX" means any of the following:-
(a) any liability to make a payment of Tax and any claim,
assessment, demand, notice or other document issued or action
taken by or on behalf of any person authority or body
whatsoever and of whatever country which claims payment of Tax
or any submission, return or correspondence from which it
appears likely that there may be a liability to Tax or Claim
for Tax within (b) below; or
(b) any non-availability or loss of or reduction of any Relief
(including in particular a right to repayment) to the extent
that such Relief has been reflected in the net assets of the
Company as shown by the Accounts;
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"COMPANY" shall have the same meaning as in the main Agreement
"GROUP" shall be deemed to include the Company and any Subsidiary.
"GROUP RELIEF" means any of the following:-
(a) relief surrendered or claimed pursuant to chapter IV part X of
the T. A. 1988;
(b) advance corporation tax surrendered or claimed pursuant to
section 240 of the T.A. 1988;
(c) a Transferred Tax Refund;
"INCOME, PROFITS OR GAINS" includes any other measure by reference to
which Tax is computed;
"PURCHASER'S RELIEF" means any Relief to the extent that the same
either:-
(a) has been reflected in the net assets of the Company as shown by
the Accounts; or
(b) arises in respect of periods after the Accounts Date;
"RELEVANT EVENT" means every event, act, omission, default, occurrence,
circumstance, transaction, dealing or arrangement of any kind
whatsoever done or omitted to be done by the Covenantors or the Company
or which in any way concerns or affects the Company whether or not done
or omitted to be done by the Company or the Covenantors;
"RELIEF" means any allowance, credit, exemption, deduction or relief
from, in computing, against or in respect of Tax or any right to the
repayment of Tax;
"TAX" means any tax, and any duty, impost, levy or charge in the nature
of tax, whether domestic or foreign, and any fine, penalty or interest
connected therewith, including (without prejudice to the foregoing)
corporation tax, advance corporation tax, income tax, national
insurance and social security contribution, capital gains tax,
inheritance tax, petroleum revenue tax, value added tax, customs excise
and import duties, stamp duty, stamp duty reserve tax, insurance
premium tax, air passenger duty, rates and water rates and any other
payment whatsoever which the Company is or may be or become bound to
make to any person by reason of any taxation statutes;
"TAXATION STATUTES" means all statutes, decrees, orders and
regulations, whether domestic or foreign providing for or imposing any
Tax;
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"TRANSFERRED TAX REFUND" means a tax refund relating to an accounting
period as defined by section 102(3) of the F.A. 1989 in respect of
which a notice has been given pursuant to section 102(2) of the F.A.
1989.
"UTILISATION OF A PURCHASER'S RELIEF" means the utilisation or set off
of a Purchaser's Relief available to the Company.
1.3 References to Income, Profits or Gains being earned accrued or received
before a particular date shall include deemed income profits or gains
treated as earned accrued or received prior thereto.
1.4 The obligations and liabilities of the Covenantors under this deed
shall be joint and several.
2. INDEMNITY
2.1 Subject to clause 2.3, the Covenantors hereby covenant with the
Purchaser to pay from time to time to the Purchaser : -
(a) such sums as would if paid to the Company indemnify and keep
indemnified the Company against each and every Claim for Tax
where the Claim for Tax in question arises whether in whole or
in part : -
(i) in connection with or as a consequence of one or more
Relevant Events occurring or entered into on or before
Completion ; or
(ii) in respect of or by reference to any Income, Profits
or Gains earned, accrued or received on or before
Completion ; or
(iii) in consequence of the combined effect of two or more
Relevant Events of which at least one shall have
occurred on or before Completion but only in
circumstances where such Claim for Tax would not have
been suffered by the Company but for the failure of
any person (other than a company falling within the
definition of the Company for the purposes of this
deed) to discharge or pay any liability for Tax;
(b) such sums as would if paid to the Company indemnify and keep
indemnified the Company against:-
(i) each and every loss in whole or in part of the right to
receive any payment for Group Relief to the extent that
the payment or right to receive such payment has been
reflected in the net assets of the Company as shown by
the Accounts; and/or
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(ii) any liability to make any payment for Group Relief
and/or any liability to repay any payment received
for Group Relief to the extent that any such
liability has not been reflected in the net assets of
the Company as shown by the Accounts;
(c) such sums as will indemnify and keep indemnified the Purchaser
and such further sums as would if paid to the Company and/or
any subsidiary or holding company of the Purchaser (or any
subsidiary of any such holding company) indemnify the same
against all costs and expenses incurred or payable in
connection with:-
(i) any Claim for Tax the subject of a claim under clause
2.1(a), including all legal proceedings relating
thereto and the settlement of any Claim for Tax
and/or rebuttal of any contention or in connection
with any legal proceedings and reasonable steps taken
to avoid any Claim for Tax or contention whether
actual, threatened and/or anticipated;
(ii) any loss or liability as mentioned in clause 2.1(b)
including all legal proceedings relating thereto.
2.2 If any Claim for Tax or liability which would have otherwise given rise
to a Claim for Tax shall be reduced or avoided in consequence of any
Utilisation of a Purchaser's Relief this deed shall apply as if such
Purchaser's Relief had not been available so that the amounts paid by
the Covenantors hereunder shall be the amounts which would have been
payable in the absence of that or any other Purchaser's Relief.
2.3 The covenant contained in clause 2.1(a) shall not apply:-
(a) to any Claim for Tax to the extent that any Tax giving rise to
the same has been paid prior to the Accounts Date or that a
full and sufficient provision or reserve for the liability to
which the same relates has been made in the Accounts and for
the purposes of this clause 2.3(a) no provision or reserve
shall be prevented from being full and sufficient if the same
proves to be inadequate by reason only of an increase in rates
of Tax announced after the date of the Sale Agreement;
(b) to any Claim for Tax to the extent that the same shall have
arisen in consequence of any act or transaction which could
reasonably have been avoided, and which was carried out
without the agreement of the Covenantors by the Purchaser or
the Company after Completion otherwise than in the ordinary
course of business of the Company, and which the Purchaser was
or should reasonably have been aware would give rise to the
Claim for Tax in question; or
(c) to any Claim for Tax to the extent that it arises in the
ordinary course of business of the Company after the Accounts
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Date or as provided for in the Sale Agreement but on or before
Completion and for this purpose, but without limitation, the
following shall not be regarded as being in the ordinary
course of business: -
(i) the declaration or payment of any dividend or the
making of any other distribution save as provided for
in the Sale Agreement; or
(ii) any transaction entered into by the Company in
circumstances where the consideration (if any)
received by or as the case may be, paid by the
Company in respect thereof is less than or more than
the consideration deemed to have been received or
paid for Tax purposes but to the extent only of the
Claim for Tax arising in respect of the amount by
which the deemed consideration exceeds or is less
than the actual consideration; or
(iii) the Company ceasing or being deemed to cease, for Tax
purposes, to be the member of any Group or associated
with any other company or person whether in
consequence of the entering into of the Sale
Agreement or anything done under it or otherwise; or
(iv) a Relevant Event which gives rise to a liability on
the Company in respect of the Income, Profits or
Gains, whether actual or deemed, of any non-resident
person; or
(v) any other Relevant Event which gives rise to a
liability to Tax on deemed (as opposed to actual)
Income, Profits or Gains;
(d) to any Claim for Tax to the extent that the same is increased
as a result of any failure by the Purchaser or the Company to
comply with its obligations under clause 5.
(e) where the loss occasioned has been recovered pursuant to any
claim under the warranties or resulted in an adjustment to the
Consideration payable under the Sale Agreement.
2.4 In computing the amount to be paid by the Covenantors under this deed
in respect of any Claim for Tax no account shall be taken of any Tax
for which the Company would have been liable in respect of such amount
had it in fact been paid to the Company.
2.5 All sums payable by the Covenantors under this deed shall be paid free
and clear of all deductions or withholdings (including Tax) unless the
deduction or withholding is required by law, in which event or in the
event that the Purchaser shall incur any liability for Tax chargeable
or assessable in respect of any payment pursuant to this deed, the
Covenantors shall pay such additional amounts as shall be required to
ensure that the net amount received and retained by the Purchaser
(after Tax) will equal the full amount which would have been received
and retained by it had no such deduction or withholding been made
and/or no such liability to Tax been incurred and in applying this
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clause 2.5 no account shall be taken of the extent to which any
liability for Tax may be mitigated or offset by any Relief available to
the Purchaser so that where such Relief is available the additional
amount payable hereunder shall be the amount which would have been
payable in the absence of such availability.
3. TIMING
3.1 Where the Covenantors become liable to make any payment pursuant to
clause 2, the due date for the making of that payment shall be : -
(a) in so far as the claim arises pursuant to clause 2.1 (a) seven
days before the day on which a payment of Tax becomes due
under or in consequence of the Claim for Tax in question or
seven days before the day on which any repayment (or increased
repayment) of Tax which but for such Claim for Tax would have
been available, would have been due and for this purpose it
shall be assumed that the repayment would have become due at
the earliest possible date;
(b) in so far as the liability arises pursuant to clause 2.1(b)
nine months after the end of the accounting period of the
Company in relation to which the Group Relief surrender was
made or where the liability arises as a consequence of a
liability to repay any payment received for or to make any
payment for Group Relief, seven days before the day on which
the Company is liable to repay or pay such amounts;
(c) in so far as the claim arises pursuant to clause 2.1(c), seven
days before the day on which the costs and expenses fall due
for payment;
(d) in so far as the claim arises pursuant to clause 2.2, the date
on which payment would have become due under sub-clause (a)
above had no Purchaser's Relief been available and for this
purpose it shall be assumed that the Claim for Tax would have
been made and all Tax would have become due at the earliest
possible date (assuming no application for postponement).
3.2 Where but for the non-availability, loss or reduction of any
Purchaser's Relief the Company could have surrendered the same to
another company by way of Group Relief this deed and in particular
clause 3.1(a) shall apply as if the Tax which could have been saved as
a consequence of any such surrender would have been saved by the
Company but for the said non-availability, loss or reduction and at the
same time.
3.3 For the purposes hereof where Tax is due or a repayment due is lost or
reduced or a Group Relief payment is lost or reduced or falls to be
repaid or where, but for a Utilisation of a Purchaser's Relief Tax
would be due or costs and expenses fall due for payment, on more than
one occasion then paragraphs (a) to (d) of clause 3.1 shall apply
separately on each such occasion.
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3.4 If any sum due under clause 2 is not paid by the Covenantors by the
later of the due date and the date seven days after the date of the
demand made therefor the same shall carry interest (from such later
date until the date of payment) at the rate of four percent over base
rate for the time being of National Westminster Bank PLC (or in the
absence of such rate at such equivalent rate as the Purchaser shall
select) save that interest shall not start to run in respect of any
payments of Tax above until seven days before the day on which the
Company makes the payment of Tax due.
4. RIGHT TO REIMBURSEMENTS AND CREDITS
4.1 Subject to clause 4.3, in calculating amounts due from the Covenantors
under this deed no account shall be taken of any entitlement of the
Purchaser or the Company to make any recovery in respect of that amount
or the circumstances giving rise to the same from some other person or
of any Relief or other benefit which may become available to the
Purchaser or the Company in consequence of the Claim for Tax or the
loss or refund of the payment for Group Relief in question or the
circumstances giving rise to the same.
4.2 If the Purchaser or the Company is or becomes entitled to recover from
some other person (not being the Company or any employee of the Company
but including, inter alia, any Tax authority) any amount in respect of
the Claim for Tax resulting in a payment by the Covenantors to the
Purchaser under this deed, then the Purchaser shall promptly notify the
Covenantors of the said entitlement and, if so required by the
Covenantors and if the Covenantors shall undertake to pay all costs and
expenses incurred by the Purchaser and the Company and shall provide
reasonable security for the same, shall take all reasonable steps to
enforce or procure that the Company shall enforce that recovery
(keeping the Covenantors fully informed of progress) and shall apply
the same in accordance with clause 4.3.
4.3 If the Purchaser or the Company receives: -
(a) a recovery as mentioned in clause 4.2; or
(b) a benefit being either a reduction in Tax due and payable or
any increased repayment of Tax in either case as a result of
credit being obtained for Tax giving rise to a claim by the
Purchaser under the terms of this deed (other than a reduction
in a liability to Tax which would otherwise have itself given
rise to a payment hereunder or been taken into account in a
claim for damages under the Warranties);
then the Purchaser shall promptly pay to the Covenantors an amount
equal to so much of the benefit received or sum recovered (less any Tax
paid by the recipient in respect thereof and less any costs and
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expenses incurred by the Purchaser and the Company) as does not exceed
the amount which the Covenantors paid in respect of the Claim for Tax
in question (together with so much of any interest or repayment
supplement paid to the recipient of the recovery or benefit in respect
thereof as corresponds to the proportion of the recovery or benefit
accounted for under this clause 4.3, less any Tax thereon).
4.4 Where any recovery or benefit is accounted for under clause 4.3:-
(a) the amount of the payment originally made by the Covenantors
under clause 2 shall be treated as reduced for all purposes of
this deed (including any further application of this clause 4)
and of the Sale Agreement; and
(b) the same shall not prejudice the right of the Purchaser to
make further recoveries under this deed whether in respect of
matters to which the original claim related or otherwise.
5. RESISTANCE OF CLAIMS
5.1 If the Purchaser or the Company becomes aware of any Claim for Tax
(which expression shall for the avoidance of doubt include any claim
which would give rise to a Claim for Tax but for a Utilisation of a
Purchaser's Relief and shall also for the purposes of this clause 5
include any claim which may result in a loss of, or liability to repay,
a payment for Group Relief) which may result in the Purchaser having a
claim against the Covenantors under this deed, the Purchaser shall give
notice to the Covenantors in the manner provided by the Sale Agreement
as soon as is reasonably practicable and the Covenantors shall except
where an allegation of fraud or wilful default or neglect is made
forthwith be entitled at their sole discretion (but after consultation
with the Purchaser) to resist such Claim for Tax in the name of the
Purchaser or the Company or any of them but at the expense of the
Covenantors and to have the conduct of any appeal or incidental
negotiations provided that: -
(a) the Purchaser shall be kept fully informed of all matters
pertaining to the dispute; and
(b) no material communication, written or otherwise, pertaining to
the dispute (and in particular no proposal for or consent to
any settlement or compromise thereof shall be transmitted to
the Inland Revenue H.M. Customs & Excise or other taxation
authority or governmental body or authority without the same
having been submitted to, and approved by the Purchaser such
approval not to be unreasonably withheld or delayed; and
(c) no application shall be made for postponement of Tax unless
the Purchaser and the Company shall be provided with such
security as the Purchaser may reasonably require in respect of
sums subsequently becoming payable under this deed; and
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(d) the Covenantors shall not be entitled to resist any such
Claims for Tax before any court, tribunal or other appellate
body unless they have been advised by leading tax counsel,
after disclosure of all relevant information and documents,
that it is reasonable to resist the Claim for Tax in the
manner proposed by the Covenantors.
5.2 The Purchaser shall and shall procure that the Company shall give the
Covenantors all reasonable co-operation, access and assistance,
technical or otherwise, for the purpose of resisting such a Claim for
Tax provided that each of the Purchaser and the Company is indemnified
and secured to the satisfaction of the Purchaser by the Covenantors
against all losses (including additional Claims for Tax, costs, damages
and expenses) which may thereby be incurred.
5.3 If the Covenantors do not request the Purchaser or the Company to take
any appropriate action or shall fail to indemnify and secure the
Purchaser or the Company to its reasonable satisfaction within 21 days
of the said notice to the Covenantors, the Purchaser and/or the Company
shall be free to pay or settle the Claim for Tax on such terms as it
may in its absolute discretion thinks fit.
6. MISCELLANEOUS
6.1 Claims under this deed (whether being claims against the Covenantors
under clause 2 or claims by the Covenantors pursuant to clause 4) shall
be wholly barred and unenforceable unless full written particulars of
the claim shall have been given by the claimant within seven years and
one month of the Accounts Date.
6.2 In determining the amount of any Claim for Tax suffered by, or any
recovery or benefit received by, any company for the purposes of this
deed any party hereto may at its own expense request the auditors of
that company to determine the same and to provide a certificate
thereof; any certificate so provided shall be binding on the parties
hereto in the absence of manifest error.
6.3 The provisions of clauses 13 (Entire Agreement and Amendments), 14
(Counterparts), 16 (General) and 18 (Law and Jurisdiction) of the Sale
Agreement shall apply to this deed as if the same were incorporated
herein.
IN WITNESS whereof this deed has been executed on the date first above written.
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ANNEXURE A
EUROPEAN MICRO PLC
FLOATING RATE LOAN NOTE DUE 1ST NOVEMBER 2005
1 EUROPEAN MICRO PLC (the `Company') (registered number 2663964) whose
registered office is at 20-24 Church Street, Altrincham, Cheshire, WA14 4DW will
on 1st November 2005 (`Redemption Date') (or on any earlier date on which it
becomes payable in accordance with the Conditions) pay to the person named in
the Schedule (or the then Noteholder) the principal sum specified in the
Schedule, together with all outstanding interest and other sums due under the
Note.
2 Interest shall accrue on the Principal Sum at the best rate reasonably
obtainable for such sum placed on deposit with a London Clearing Bank from time
to time with effect from the date of the Note. The interest shall accrue from
day to day and shall be calculated on the basis of a 365 day year until the
relevant amount is paid or repaid. The interest shall be compounded on the last
Business Day in each of March, June, September and December and on the
Redemption Date and shall be payable on the date of repayment of the Principal
Sum.
3 The Note is issued subject to and with the benefit of the Conditions.
THE SCHEDULE
Noteholder: GERARD DENIS PATRICK O'ROURKE
Principal Sum: TWO HUNDRED AND FORTY THOUSAND ONE HUNDRED AND SIXTY
THREE POUNDS AND NINE PENCE ((POUND)240,163.09)
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CONDITIONS
1. DEFINITIONS
In the Note the following words and expressions have the meanings stated unless
they are inconsistent with the context:
`BUSINESS DAY' a day, other than a Saturday, on which banks in the City
of London are open for business;
`CONDITIONS' these conditions;
`NOTE' this loan stock note including the Conditions;
`NOTEHOLDER' at any time the then registered holder of the Note and,
where appropriate, the personal representatives of the registered
holder;
`PRINCIPAL SUM' the principal sum specified on the face of the Note or
the amount outstanding at the relevant time.
2. FORM
The Note is a single note for the Principal Sum together with interest due on
it.
3. REGISTER
The Company shall keep a register of Noteholders in which will be entered the
name and address of the holder of the Note, details of all transfers and
payments of principal and interest.
4. REPAYMENT IN DEFAULT
The Principal Sum, together with accrued interest and any other sums payable
under the Note, shall immediately become payable on the happening of any of the
following events:
4.1 an order being made or an effective resolution being passed for
the winding-up of the Company;
4.2 a receiver or administrator being appointed or an encumbrancer
taking possession of the whole or a substantial part of the
assets or undertaking of the Company; or
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4.3 the Company ceasing or threatening to cease to carry on its
business, except as part of a solvent reconstruction or
amalgamation.
5. TRANSFERS
The Note may be transferred only in whole. Transfers shall be in writing signed
by the transferor and shall be lodged with the Company together with such
evidence of title to the Note as the Company reasonably requires (including
production of the Note) and the transferee shall then be registered as the
holder of the Note. The Company shall be entitled to retain the transfer.
6. TRANSMISSION
A person entitled to the Note by reason of the death of the Noteholder or
otherwise by operation of law may, upon producing such evidence of his title as
the Company reasonably requires, be registered as the holder of the Note subject
to the Conditions.
7. TITLE
The Company shall recognise and treat the Noteholder as the sole absolute owner
of the Note and as alone entitled to receive and give effectual discharges for
sums payable under it. The Company shall not be affected by notice of a trust or
of the right, title or claim to the Note of any person other than the
Noteholder.
8. JOINT HOLDERS
In the case of joint registered Noteholders the Principal Sum and interest on it
and any other sums payable under the Note shall be deemed to be owing to them
upon a joint account.
9. PAYMENT
A cheque in respect of any sum payable under the Note, drawn on the Company's
bankers payable to the order of the Noteholder (or in case of joint Noteholders
to the order of the joint Noteholder named first in the register of
Noteholders), will be sent by post to the registered or last known address of
the Noteholder. The Company shall not be responsible for loss in transmission
and the payment of the cheque shall be a good discharge to the Company.
10. SET-OFF AND SECURITY
10.1 The Principal Sum and interest on it and any other sums payable under
the Note shall be paid without regard to any equities between the
Company and the original or any other Noteholder or any counter-claim
or right of set-off. The receipt of the Noteholder (or in the case of
joint Noteholders of the joint Noteholder who is named first in the
register of Noteholders) for the relevant payment shall be a good
discharge to the Company.
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10.2 The Principal Sum and interest on it and any other sums payable under
the Note shall be secured by way of a charge over deposit account in
the form annexed hereto which may at the option of the Company be
substituted by a guarantee in a form reasonably acceptable to the
Noteholder from a London Clearing Bank for an equal sum.
11. OPTIONAL EARLY REPAYMENT
11.1 The Noteholder may require the whole or any part (being an amount or
whole multiple of (pound)1) of the indebtedness outstanding in this
Loan Note to be redeemed by the Company at par with accrued interest
(subject to deduction of tax) on any date on or after the 1st day of
June 1999 by the Noteholder giving not less than 7 days' notice to the
Company.
12. REPLACEMENT NOTE
If the Note is worn out, defaced, lost or destroyed it may be renewed on terms
as to evidence of identity, indemnity and reimbursement of expense incurred by
the Company in investigating or verifying title as the Company requires. In the
case of defacement the Note must be surrendered before the new note is issued.
13. NOTICES
Notices given under the Note may be given by the Noteholder or by the Company by
posting them in prepaid letters addressed to the Company at its registered
office or to the Noteholder (or in the case of joint Noteholders to the
Noteholder who is first named in the register of Noteholders) at his address as
shown in the register. A notice shall be deemed to have been served 72 hours
after the time of posting.
Executed as a deed by the Company and delivered on _______________.
____________________ Director
____________________ Director/Secretary
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EUROPEAN MICRO PLC
CONVERTIBLE FLOATING RATE LOAN NOTE
DUE SIX YEARS AFTER DATE OF ISSUE
1 EUROPEAN MICRO PLC (the `Company') (registered number 2663964) whose
registered office is at 20-24 Church Street, Altrincham, Cheshire, WA14 4DW will
on the sixth anniversary of the date of issue (`Redemption Date') (or on any
earlier date on which it becomes payable in accordance with the Conditions) pay
to the person named in Schedule I (or the then Noteholder) the principal sum
specified in Schedule I, together with all outstanding interest and other sums
due under the Note.
2 Interest shall accrue on the Principal Sum, and on compounded interest, at the
rate of two per cent per annum above the base rate of National Westminster Bank
PLC from time to time with effect from the date of the Note. The interest shall
accrue from day to day and shall be calculated on the basis of a 365 day year
until the relevant amount is paid or repaid. The interest shall be compounded on
the last Business Day in each of March, June, September and December and on the
Redemption Date and shall be payable on the date of repayment of the Principal
Sum.
3 The Note is issued subject to and with the benefit of the Conditions.
SCHEDULE I
Noteholder: GERARD DENIS PATRICK O'ROURKE
Principal Sum: (POUND)_____________
SCHEDULE II
1. Should the Company pursuant to clause 5 elect to satisfy any sum due
under the terms of this Loan Note by procuring the allotment of EMCC
Shares and the traded volume of EMCC Shares on NASDAQ in the 30 days
prior to the election being made not being equal to three times the
number of shares to be allotted (`the Trading Volume') then the
following conditions shall apply.
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1.1 After 15 days of receipt of the said shares the Loan Noteholder
may arrange to sell the shares received as far as possible in
equal lots over the next 40 succeeding trading days.
1.2 In the event that the sums realised upon the sale of the said
shares shall be less than the cash amount due the Company shall
pay to the Loan Noteholder the difference in cash within 28 days
of being notified of the amount of any shortfall.
2. The number of EMCC Shares to be issued in satisfaction of any sum due
under the Loan Note shall be equal to the amount of the sum due under
the Loan Note so payable divided by the per share value save that if it
shall not be a whole multiple then any balance will be paid in cash.
CONDITIONS
1 DEFINITIONS
In the Note the following words and expressions have the meanings stated unless
they are inconsistent with the context:
`BUSINESS DAY' a day, other than a Saturday, on which banks in the City
of London are open for business;
`CONDITIONS' these conditions;
`EMCC' means European Micro Holdings Inc., a company incorporated in
the State of Nevada (United States of America) with a State of Nevada
File Number 28914-1997 and having its place of business at 6073 NW 167
Street, Unit C-25, Miama, Florida 33015, United States of America.
`EMCC SHARES' means the shares of common stock of US$0.01, the same
being traded or tradable on NASDAQ, credited as fully paid, in the
capital of EMCC;
`NOTE' this loan stock note including the Conditions;
`NOTEHOLDER' at any time the then registered holder of the Note and,
where appropriate, the personal representatives of the registered
holder;
`PRINCIPAL SUM' the principal sum specified on the face of the Note or
the amount outstanding at the relevant time.
<PAGE>
2 FORM
The Note is a single note for the Principal Sum together with interest due on
it.
3 REGISTER
The Company shall keep a register of Noteholders in which will be entered the
name and address of the holder of the Note, details of all transfers and
payments of principal and interest.
4 REPAYMENT IN DEFAULT
The Principal Sum, together with accrued interest and any other sums payable
under the Note, shall immediately become payable on the happening of any of the
following events:
4.1 an order being made or an effective resolution being passed for the
winding-up of the Company;
4.2 a receiver or administrator being appointed or an encumbrancer taking
possession of the whole or a substantial part of the assets or
undertaking of the Company; or
4.3 the Company ceasing or threatening to cease to carry on its business,
except as part of a solvent reconstruction or amalgamation.
5 SHARE OPTION
5.1 The Company may at its option satisfy any sum due under this Loan Note
either in cash or by EMCC Shares or any combination thereof. If the
Company issues EMCC Shares in respect of all or any part of the sums
due to the Noteholder then the provisions of Schedule 2 shall apply.
5.2 The share option as set out in 5.1 above shall not apply if payment is
due by reason of default as set out in clause 4.
6 TRANSFERS
The Note may be transferred only in whole. Transfers shall be in writing signed
by the transferor and shall be lodged with the Company together with such
evidence of title to the Note as the Company reasonably requires (including
production of the Note) and the transferee shall then be registered as the
holder of the Note. The Company shall be entitled to retain the transfer.
7 TRANSMISSION
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A person entitled to the Note by reason of the death of the Noteholder or
otherwise by operation of law may, upon producing such evidence of his title as
the Company reasonably requires, be registered as the holder of the Note subject
to the Conditions.
8 TITLE
The Company shall recognise and treat the Noteholder as the sole absolute owner
of the Note and as alone entitled to receive and give effectual discharges for
sums payable under it. The Company shall not be affected by notice of a trust or
of the right, title or claim to the Note of any person other than the
Noteholder.
9 JOINT HOLDERS
In the case of joint registered Noteholders the Principal Sum and interest on it
and any other sums payable under the Note shall be deemed to be owing to them
upon a joint account.
10 SATISFACTION
A cheque in respect of any sum payable under the Note, drawn on the Company's
bankers payable to the order of the Noteholder (or in case of joint Noteholders
to the order of the joint Noteholder named first in the register of Noteholders
or the relative share certificate), will be sent by post to the registered or
last known address of the Noteholder. The Company shall not be responsible for
loss in transmission and the payment of the cheque shall be a good discharge to
the Company.
11 SET-OFF
The Principal Sum and interest on it and any other sums payable under the Note
shall be paid without regard to any equities between the Company and the
original or any other Noteholder or any counter-claim or right of set-off. The
receipt of the Noteholder (or in the case of joint Noteholders of the joint
Noteholder who is named first in the register of Noteholders) for the relevant
payment shall be a good discharge to the Company.
12 OPTIONAL EARLY REPAYMENT
The Noteholder may require the whole or any part (being an amount or whole
multiple of (pound)1) of the indebtedness outstanding in this Loan Note to be
redeemed by the Company at par with accrued interest (subject to deduction of
tax) on any date on or after the expiry of eight months from the date of issue
by the Noteholder giving not less than 28 days' notice to the Company.
13 REPLACEMENT NOTE
If the Note is worn out, defaced, lost or destroyed it may be renewed on terms
as to evidence of identity, indemnity and reimbursement of expense incurred by
the Company in investigating or verifying title as the Company requires. In the
case of defacement the Note must be surrendered before the new note is issued.
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14 NOTICES
Notices given under the Note may be given by the Noteholder or by the Company by
posting them in prepaid letters addressed to the Company at its registered
office or to the Noteholder (or in the case of joint Noteholders to the
Noteholder who is first named in the register of Noteholders) at his address as
shown in the register. A notice shall be deemed to have been served 72 hours
after the time of posting.
Executed as a deed by the Company and delivered on _______________.
____________________ Director
____________________ Director/Secretary
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ANNEXURE B
COMPANY NO: 02743684
DEED OF WAIVER
RE: SUNBELT (UK) LIMITED ("THE COMPANY")
I, GERARD DENIS PATRICK O'ROURKE of 16 William Road, Wimbledon, London SW19 3PL
being the registered holder of 7,200 Ordinary Shares of (pound)1 each in the
capital of the Company, whose registered office is situated at 15 Bolton Street,
London W1Y 8AR DO HEREBY absolutely and irrevocably waive all right and
entitlement to the dividend of (pound)2.227 per Share recommended by the
Directors and if considered fit, to be approved by the Shareholders at an
emergency general meeting of the Company to be held on October 1998.
DATED this day of October 1998
SIGNED as a DEED )
by the said GERARD DENIS )
PATRICK O'ROURKE )
in the presence of:-
Witness:
Signature _______________________
Name_____________________________
Address__________________________
- ---------------------------------
- ---------------------------------
Occupation_______________________
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ANNEXURE C
COMPANY NO: 02743684
SUNBELT (UK) LIMITED
ADJUSTMENTS TO FINAL ACCOUNTS
YEAR ENDED 30TH JUNE 1998 (PER CLAUSE 2.7.3)
Pre-Tax Profit per audited Profit and Loss Accounts (pound)437,518
Profit effect of Credit Notes raised after Balance Sheet date ((pound)3,000)
Adjustment of Advertising Prepayment
Relating to advertisements in July and August 1998 ((pound)6,000)
Additional Audit Accrual per Windsor Stebbing Marsh ((pound)2,000)
Correction to PAYE Control Account ((pound)2,000)
(POUND)424,518
The following have been agreed as incorporated into the Accounts And shall not
be further adjusted for the purposes of clause 2.7.4:
(a). Increased purchases in trading account in respect of costs relating
to (pound)41,000 sales adjustment previously made. This reduced
profits and increased trade creditors ((pound)35,099)
(b). Removed management charge following receipt of Credit Note from
P.C. Wise Inc. This increased profits and increased the debtor due
From P.C. Wise Inc. (pound)25,034
ADJUSTMENTS TO BOOK VALUE AMOUNT (PER CLAUSE 2.8.3)
It is agreed that none of the costs associated with the move of the Company's
business to Strudwick House including decorating, furnishing, moving costs and
installation costs shall be deductible under any circumstances in determining
the Book Value Amount.
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ANNEXURE D
SERVICE CONTRACT
THIS AGREEMENT is made the _____ day of _______________, 1998
BETWEEN:
(1) EUROPEAN MICRO HOLDINGS INC. a company incorporated in the State of
Nevada (United States of America) with the State of Nevada file no.
28914-1997 and having its place of business at 6073 NW 167 Street, Unit
C-25, Miami, Florida 33015 United States of America (the "Employer")
(2) MICHAEL CHARLES GESNER of c/o Arthur Andersen, Corporate Service PTE
Ltd, 10 Hoe Chiang Road, # 18-00 Keppel Towers, Singapore 089315 (the
"Executive")
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have
the following meanings:
"the Board" means the Board of Directors
of the Employer and includes any
committee of the Board duly
convened by it
"the Commencement Date" means the day of 1998
"the Company" Sunbelt (UK) Limited
"EM Group Company" means the Employer and any
company which is a subsidiary or
affiliate of the Company
"the Employment" means the employment established
by this Agreement
"Intellectual Property" means (i) every invention
discovery design or improvement
(ii) every work in which
copyright may subsist, and (iii)
moral rights as defined by s 77
and s 80 of the Copyright Design
and Patents Act 1988.
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"$" means dollars of the United
States of America
"the Sale Agreement" means a contract made the
day of October 1998 between the
Executive and European Micro Plc.
"the Termination Date" means the termination date of the
Employment under this Agreement
howsoever terminated.
1.2 The headings in this Agreement shall not affect its
interpretation or construction.
1.3 Any reference in this Agreement to any statutory provision
includes any statutory modification or re-enactment of it or the
provision referred to.
2. EMPLOYMENT
The Employer shall employ the Executive and the Executive agrees to act as
Managing Director of the Asian subsidiary and as a Director of the Company or
any EM Group Company on the terms set out in this Agreement.
3 FREEDOM TO TAKE UP THE APPOINTMENT
The Executive warrants that by virtue of entering into this Agreement he will
not be in breach of any express or implied terms of any contract or of any other
obligation binding upon him.
4. PERIOD
The Executive's Employment shall commence with effect from the Commencement Date
and shall (subject as hereinafter provided) be for an initial fixed term of 2
years and 3 months and shall continue thereafter until terminated by either
party giving to the other not less than 6 months' written notice to expire on or
any time after the expiry date for the initial fixed term.
5. DUTIES OF THE APPOINTMENT
5.1 The Executive shall faithfully and diligently perform those
duties of his appointment and exercise such powers consistent
with them which are from time to time assigned to or vested in
him and shall use his best endeavours to promote the interests
of the Employer and any EM Group Company for which he is
required to perform duties.
5.2 The Executive shall (without further remuneration) if and for
so long as the Executive is so required by the Company:
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(i) carry out the duties of his appointment on behalf of any
EM Group Company
(ii) act as a director of any EM Group Company or hold any
other appointment or office as nominee or representative
of the Employer or any EM Group Company
(iii) carry out such duties and the duties attendant on any
such appointment as if they were duties to be performed
by him on behalf of the Company.
5.3. Carry out his primary duties to achieve so far as he is able
the targets set out in the Sale Agreement for the Asian
Subsidiary as defined therein.
6. OBEDIENCE AND REPORTING
The Executive shall obey all lawful and reasonable directions of the Board and
at all times keep the Board promptly and fully informed (in writing if so
requested) of his conduct of the business or affairs of the Company and any EM
Group Company and provide such explanations as the Board may require.
7. DEVOTION TO DUTIES
7.1 The Executive shall during the term of this Employment devote
substantially the whole of his time, attention and abilities
to the business and affairs of the Company unless prevented by
ill health from so doing and with the exception of PC Wise
Inc. shall not during the Employment either on his own account
or as the Company of others or otherwise be engaged or
concerned in any business other than that of the Company or
any EM Group Company or accept any other engagement or public
office except with the prior consent in writing of the Company
but the Executive may nevertheless be or become a minority
holder of any securities which are quoted on a recognized
investment exchange.
7.2 The Executive shall not be prevented from having any
shareholding in a company which exists at the date of this
Contract.
7.3 The Executive will be allowed to become a Shareholder in a
company which does not directly or indirectly compete with the
Company or any EM Group Company provided that consent is first
obtained from the Company in writing such consent not to be
unreasonably withheld.
8. COMPLIANCE/DEALINGS IN "SECURITIES"
The Executive shall during his Employment and for twelve (12) months after the
termination of his Employment comply and shall procure that his minor children
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shall comply with all applicable rules of law, any recognized investment
exchange regulations including the "Model Code for Securities Transactions by
Directors of Listed Companies' issued by the International Stock Exchange of the
United Kingdom and the Republic of Ireland Limited and any Company policy issued
in relation to dealings in shares, debentures or other securities of the Company
and any EM Group Company or any unpublished price sensitive information
affecting the securities of any other company.
9. COMPLIANCE/PROPER USE OF FUNDS
9.1 The Executive shall not use any funds for any unlawful
contribution, endorsement, gift, entertainment or other
unlawful expense relating to political activity, or make any
direct or indirect unlawful payment to any foreign or domestic
government official or employee and shall comply with the
United States Foreign Corrupt Practices Act of 1977 and any
other applicable law of the United States or any other country
in which the Executive is conducting business on behalf of the
Company or any of its subsidiaries or affiliates relating to
improper payments to governmental representatives.
9.2 Failure to comply with clause 9.1 shall constitute gross
misconduct and may result in the termination of the Executives
contract of employment in accordance with clause 23 hereto.
10. PLACE OF WORK
10.1 The Executive shall work in Singapore for a period of one year
from the date hereof and thereafter in such place as may be
agreed.
11. HOURS OF WORK
There are no normal fixed working hours for the Employment. The Executive is
expected to work at such times as the efficient and conscientious discharge of
his duties hereunder requires.
12. REMUNERATION
12.1 During the Employment the Executive shall receive as
remuneration a basic salary at the rate of $50,000 per annum
to be paid by equal monthly installments on the last day of
each calendar month. Any increase in remuneration shall be
notified in writing to the Executive and the details thereof
shall be entered in the table in Schedule 1 to the Company's
signed copy of this Agreement and initialed by an officer of
the Company.
12.2 In addition to the basic salary, the Executive shall receive a
bonus at a rate of 0.5% of the level of purchases by any EM
Group Company for which the Executive is responsible of Non
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Nova Products. For the first six months of this Agreement, the
Company guarantees the payment of $2,000 per month in bonuses
to the Executive. All bonuses shall be payable monthly in
arrears. To be eligible for bonuses the Executive must still
be in service and not under notice of termination.
12.3 The remuneration, bonuses and allowances shall unless
otherwise by agreement in writing by the Company be inclusive
of any fees or other remuneration which the Executive would
otherwise be entitled to receive from the Company or any EM
Group Company in connection with the performance of the duties
delegated to him under this Agreement.
12.4 The provisions of this clause shall be reviewable annually by
agreement.
13. ALLOWANCES
13.1 During the employment the Executive shall receive a Housing
Allowance of $6,000 per month for the first four months of
this Agreement and $4,000 per month for the following eight
months of this Agreement and thereafter for so long as he
shall be required by the Board to reside in Singapore.
13.2 In addition to the above, the Executive shall receive an
Education Allowance of up to $28,000 per annum for so long as
he shall have children in education in Singapore, the
Education Allowance payable shall not exceed $14,000 in
respect of any one (1) child of the Executive.
13.3 The Company shall pay for the air fares of the Executive
and/or his family up to $13,044 together with the costs of one
round trip for the Executive and his family to and from the
United States or Europe per year.
14. CAR
14.1 The Executive shall receive a car allowance of $3,000 per
month to provide a motor vehicle for his use in performing his
duties. The Executive shall maintain service tax and
comprehensively insure the car as appropriate and shall bear
all running expenses of the car including fuel consumed during
private use of the car. The Executive shall ensure that he has
at all times a current valid license to drive private motor
cars.
15. EXPENSES
15.1 In addition to his basic salary hereunder the Executive shall
be reimbursed the amount of all reasonable traveling, hotel,
entertainment and other expenses properly and necessarily
incurred and defrayed by him in the discharge of his duties
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hereunder (including "professional fees"). The Executive shall
produce to the Company at its request all supporting vouchers
and documents in respect of such expenses. The Company will
also pay any telephone expenses incurred by the Executive in
relation to this Contract of Employment upon production of
supporting bills in respect of such expenses.
15.2 The Executive shall be entitled to claim his reasonable
removal expenses incurred pursuant to this Agreement. Up to
$10,000 and shall be payable upon the provision by the
Executive of receipts in respect of such expenses.
16. PENSION AND OTHER BENEFITS
16.1 No pension contributions shall be paid by the Company on
behalf of the Executive. The Executive will however be
entitled to private health insurance for the benefit of
himself, his spouse and his children, if any, during the term
of this Agreement.
16.2 The Company shall pay the Executive's current life assurance
policy, such policy to continue for two years, the proceeds of
such policy to be for the benefit of the Executive's family or
estate, and the Company and the Executive shall take all
necessary actions and enter into all necessary documentation
to ensure that such is the case so that the Company shall have
no liability to make any payments other than in respect of any
proceeds of the said policy as received by it (and after
making due allowance for any liability to tax on any sum which
the Company have so received).
16.3 The Executive shall have the right to subscribe for up to
5,000 EMCC Shares as defined in the Agreement at the mid-price
for the same on NASDAQ at the date of this agreement at any
time after 3 years. This option shall lapse if the Executive
shall terminate this agreement before the option is exercised.
17. HOLIDAYS
17.1 The Executive shall be entitled (in addition to normal bank
and other public holidays) to twenty (20) days paid holiday in
each calendar year at such times as shall be convenient to the
Company and such additional holidays as the Board shall
approve.
17.2 The Executive shall not be entitled to carry forward any
unused holiday entitlement from one holiday year to the next
without the written consent of the Company.
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18. SICKNESS OR INJURY
18.1 The Executive agrees that at any time during the course of the
Employment he shall at the request of the Employer submit
himself to a medical examination by a registered medical
practitioner nominated by the Employer. The purpose of such
medical examination shall be to determine whether there are
any matters which might impair the Executive's ability to
perform his duties under this Agreement and accordingly the
Executive shall give such authority as is required for the
Company's nominated doctor to disclose to the Employer the
findings. All expenses associated with obtaining the report
will be borne by the Employer.
18.2 In the event that the Executive is unable to perform his
duties under this Agreement by reason of sickness or injury
for a period of seven (7) days or more, the Executive shall if
required to do so by the Employer provide the Employer with a
medical certificate in respect of the whole period of the
absence. Immediately following his return from any period of
absence the Executive shall complete a self-certification form
detailing the reason for the absence.
18.3 During the Executive's first ten (10) weeks of absence he will
receive ninety percent (90%) of his average weekly earnings
calculated by taking the total of his earnings over the
previous twelve months and dividing the same by fifty two
(52). At the end of such ten (10) week period any further
payment will only be made to the Executive at the discretion
of the Board.
18.4 The Employer shall have the right to deduct from the
remuneration paid to the Executive any statutory sick pay or
other social security benefits which he is entitled to claim
in consequence of sickness or accident or payable to him under
any scheme for the time being in force of which by virtue of
his employment by the Employer he is a non-contributory
member.
18.5 In the event that the Executive is incapable of performing his
duties by reason of injury sustained wholly or partially as a
result of actionable negligence or breach of any statutory
duty on the part of any third party all payments made to the
Executive by the Employer by way of remuneration shall to the
extent that compensation is recoverable from that third party
constitute loans by the Company to the Executive
(notwithstanding that as an interim measure income tax has
been deducted from payments as if they were emoluments of
employment) and shall be repaid when and to the extent that
the Executive recovers compensation for loss of earnings from
that third party by action or otherwise.
18.6 The Company will maintain on behalf of the Executive the
permanent health insurance scheme currently in place during
the term of this Agreement.
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19. CONFIDENTIALITY
The Executive shall not, either during the Employment, otherwise than in the
proper course of his duties, or thereafter, without the consent in writing of
the Employer being first obtained, use directly or indirectly, divulge to any
person, firm or company and shall during the continuance of the Employment use
his best endeavours to prevent the publication, disclosure or non-authorized use
of any confidential information of the Employer or any EM Group Company or any
of its or their secrets, dealings or transactions whatsoever which may have come
or may come to his knowledge during his Employment or previously or otherwise
and which include but are not limited to the following matters:
(i) the working of any manufacturing process or invention
or any other methods, formulae, technical data and
know-how used by or which relate to the business of
the Employer or any EM Group Company;
(ii) lists of customers and potential customers or of
suppliers and potential suppliers to the Employer and
any EM Group Company and any other information
collected by the Company and any EM Group Company in
relation to those customers or suppliers;
(iii) the dealings or transactions or other business
affairs of the Employer or any EM Group Company and
its or their finances or management accounts.
The restriction shall cease to apply to information or knowledge which may
(otherwise than by reason of the default of the Executive ) become available to
the public generally without requiring a significant expenditure of labour,
skill or money.
20. INTELLECTUAL PROPERTY
20.1 The Executive shall forthwith communicate to the Employer in
confidence all intellectual property which the Executive may
make or originate either solely or jointly with another or
others during the Employment (hereinafter referred to as
"Intellectual Property").
20.2 In the case of such Intellectual Property as is made or
originated hereunder wholly or substantially in the course of
his normal duties or in the course of duties specifically
assigned to him and which relate to the affairs of the
Employer or any EM Group Company the following subclauses of
this clause shall apply.
20.3 Such Intellectual Property (or in the case of the Intellectual
Property made or originated by the Executive jointly with
another or others to the full extent of the Executive's
interest therein so far as the law allows) shall be and become
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the exclusive property of the Employer and shall not be
disclosed to any other person, firm or company without the
consent of the Employer being previously obtained which if
given may be subject to conditions. The provisions of this
subclause shall not entitle the Executive to any compensation
beyond the salary hereinafter mentioned except that in the
case of any invention on which a British Patent has been
granted or assigned to the Employer and the Employer has
derived outstanding benefit from such patent, the Executive
may be entitled by virtue of s 40 of the Patents Act 1977.
20.4 The Executive shall if and when required by the Employer and
at the expense of the Employer do and/or combine with others
in doing all acts and sign and execute all applications and
other documents (including Powers of Attorney in favour of
nominees of the Company) necessary or incidental to obtaining,
maintaining or extending patent or other forms of protection
for such Intellectual Property in the UK and in any other part
of the world or for transferring to or vesting in the Employer
or its nominees the Executive's entire right, title and
interest to and in such Intellectual Property or to and in any
application, patent or other form of protection to copyright
as the case may be including the right to file applications in
the name of the Company or its nominees for patent or other
forms of protection or for registration of copyright in any
country claiming priority from the date of filing of any
application or other date from which priority may run in any
other country.
20.5 The provisions of this clause shall remain in full force and
effect notwithstanding that after the Executive has made or
originated any such Intellectual Property the Employment may
have ceased or been determined for any reason whatsoever with
the intention that the same shall bind the heirs of an/or
assigns of the Executive.
21. COPYRIGHT
The Executive shall promptly disclose to the Employer all works in which
copyright or design rights may exist which the Executive may make or originate
either solely or jointly with others during the Employment. Any such copyright
works or designs created by him in the normal course of his Employment or in the
course of carrying out duties specifically assigned to him which relate to the
affairs of the Employer shall be the property of the Employer whether or not the
work was made by direction of the Company or was intended for the Employer and
the copyright in it and the rights in any design shall belong to the Employer
and to the extent that such copyright or design rights are not otherwise vested
in the Employer the Executive hereby assigns the same to the Employer.
22. POST-TERMINATION OBLIGATIONS
22.1 The Executive shall not during the period of 2 years after
termination of the Employment solicit or endeavour to entice
away from or discourage from being employed by the Company or
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any EM Group Company any employee or director employed by the
Company or any EM Group Company and who to his knowledge was
an employee thereof at the date of such termination or whom to
his knowledge has at that date agreed to be engaged as an
employee of the Company or any EM Group Company and with whom
the Executive has dealt or had contact in the normal course of
his duties.
22.2 The Executive shall not for a period of 6 months after the
termination of the Employment (without the previous consent in
writing of the Company) and whether on his own account or for
any other person, firm or company directly in connection with
any business similar to or in competition with the business of
the Company solicit or endeavour to entice away from the
Company any person, firm or company (a) who or which in the
twelve (12) months prior to the end of his Employment shall
have been a customer of or in the habit of dealing with the
Company and (b) with whom or which the Executive had personal
dealings in the course of his employment in the twelve (12)
months prior to the end of his Employment.
22.3 The Executive shall not for a period of 6 months after the
termination of his Employment (without the previous consent in
writing of the Company) and whether on his own account or for
any other person, firm or company directly or indirectly in
connection with any business similar to or in competition with
the business of the Company do any business with, accept
orders from, or have any business dealings with any person,
firm or company (a) who or which in the twelve (12) months
prior to the end of his Employment was a customer of the
Company and (b) with whom or which the Executive had personal
dealings in the course of his Employment in the twelve (12)
months prior to the end of his Employment.
22.4 The Executive shall not for a period of 6 months after the
termination of his Employment and within the United Kingdom
(without the previous consent in writing of the Company)
directly or indirectly be engaged concerned or interested
(whether as principal, servant, agent, consultant or
otherwise) in any trade or business which is in competition
with any trade or business being carried on by the Company at
the end of the Employment or during a period of twelve (12)
months prior to the end of his Employment and with which the
Executive was concerned in the course of his Employment,
provided always that during such 6 month period the Employer
will pay the Executive a further 6 month salary and bonus even
though his Employment has been terminated but only in
circumstances where no summary termination has occurred in
accordance with Clause 22 of this Agreement and the Executive
is not in breach of the covenants contained in Clause 20.
Bonuses will be calculated by dividing the previous 12 months
bonus total by 12.
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22.5 The Executive shall not at any time after the Termination Date
represent himself as being employed by or connected with the
Employer or any EM Group Company.
22.6 The Executive acknowledges:
(i) that each of the foregoing subclauses of this clause
constitutes an entirely separate and independent
restriction on him; and
(ii) while at the date of this Agreement the duration,
extent and application of each of the restrictions are
considered by the parties no greater than is necessary
for the protection of the interests of the Employer and
any EM Group Company and reasonable in all the
circumstances it is acknowledged that restrictions of
such a nature may become invalid because of changing
circumstances and accordingly if any of the
restrictions shall be adjudged to be void or
ineffective for whatever reason but would be adjudged
to be valid and effective if part of the wording
thereof were deleted or the periods thereof reduced or
the area thereof reduced in scope they shall apply with
such modifications as may be necessary to make them
valid and effective.
23. DELIVERY OF DOCUMENTS AND PROPERTY
The Executive shall upon request at any time and in any event upon the
termination of the Executive's Employment immediately deliver up to the Employer
or its authorized representative all keys, security passes, credit cards, plans,
statistics, documents, records, papers, magnetic disks, tapes or other software
storage media and all property of whatsoever nature which may be in his
possession or control or relate in any way to the business affairs of the
Company or any EM Group Company and the Executive shall not, without the written
consent of the Company, retain any copies thereof.
24. REMEDIES
It is expressly agreed by the Executive and the Employer that the provisions of
clauses 17, 18, 19, 20 and 21 are reasonable for purposes of preserving for the
Employer its business, goodwill and proprietary information. In the event any
breach of the aforementioned provisions by the Executive, the parties recognize
and acknowledge that a remedy at law will be inadequate and the Company may
suffer irreparable injury. The Executive acknowledges that the services to be
rendered by him are of a character giving them peculiar value, the loss of which
cannot be adequately compensated for in damages; accordingly the Executive
consents to injunctive and other appropriate equitable relief upon the
institution of proceedings therefor by the Employer in order to protect the
Employer's rights. Such relief shall be in addition to any other relief to which
the Employer may be entitled at law or in equity.
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25. SUMMARY TERMINATION
In any of the following cases the Employer may terminate the Executive's
Employment by written notice taking effect on the date of its service in which
case the Executive shall not be entitled to any further payment from the
Employer except such sums as shall then have accrued due;
(i) if the Executive shall be guilty of any gross
misconduct or any repeated breach of any of the terms
of this Agreement;
(ii) if the Executive shall be convicted of a criminal
offense (except for a road traffic offense or an
offense not involving a custodial sentence);
(iii) if the Executive be adjudged bankrupt or makes any
composition or enters into any deed of arrangement
with his creditors;
(iv) if the Executive is prohibited by law from being or
acting as a director; if the Executive shall become of
unsound mind or become a patient under the Mental
Health Act 1983;
(v) if the Executive resigns as a director of the Company
otherwise than at the request of the Company
26. NO RIGHT TO WORK
26.1 The Employer shall be under no obligation to provide any work
for the Executive during any period of notice either given by
the Company or the Executive to terminate the Executive's
Employment under this Agreement. The Company may at any time
during the said period suspend the Executive from his
Employment or exclude him from any premises of the Employer.
Provided that during such period the Executive shall continue
to receive salary and all other contractual benefits.
26.2 If the Contract is terminated by notice in accordance with
Clause 4 then the period referred to in Clause 20.1 to 20.4
shall start to run from the date of such notice. This proviso
will not apply should the Contract be terminated in accordance
with Clause 23.
27. SHORT NOTICE
If the Executive shall at any time become or be unable properly to perform his
duties hereunder by reason of ill health accident or otherwise for a period or
periods aggregating at least one hundred eighty (180) days in any period of
twelve (12) consecutive calendar months the Company may by not less than three
(3) month's notice in writing determine this Agreement.
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28. RESIGNATION OF OFFICE
Upon the termination of the Employment the Executive shall at any time or from
time to time thereafter upon the request of the Company resign without claim for
compensation from all offices held by him in the Company and any EM Group
Company and should he fail to do so the Company is hereby irrevocably authorized
to appoint some person in his name and on his behalf to sign and execute all
documents or things necessary or requisite to give effect thereto.
29. RETIREMENT
The Employment shall automatically terminate on the Executive reaching his 65th
birthday.
30. PRIOR RIGHTS
The termination of the Employment shall be without prejudice to any right that
the Company may have in respect of any breach by the Executive of any of the
provisions of this Agreement which may have occurred prior to such
determination.
31. NOTICES
Any notice given under this Agreement shall be deemed to have been duly given if
dispatched by either party hereto by registered post addressed to the other
party in the case of the Company to its registered office for the time being and
in the case of the Executive to his last known address and such notice shall be
deemed to have been given on the day on which in the ordinary course of post it
would be delivered.
32. PRIOR AGREEMENTS
This Agreement is in substitution for all previous contracts of employment
express or implied between the Company or EM Group Company and the Executive
which shall be deemed to have been terminated by mutual consent as from the
Commencement Date.
33. DISCIPLINARY AND GRIEVANCE PROCEDURE
There are no fixed rules for the resolution of grievance or disciplinary
problems. In the event of the Executive being dissatisfied with any decision
taken against him, or have any grievance relating to the Employment, he should
apply in the first instance to the Chairman of the Board who will either propose
a solution or refer the matter to the Board for a final decision.
34. RECONSTRUCTION OR AMALGAMATION
If before the termination of this Agreement the Employment shall be determined
by reason of the liquidation of the Company for the purposes of reconstruction
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or amalgamation and the Executive shall be offered employment with any concern
or undertaking resulting from such reconstruction or amalgamation on terms and
conditions no less favorable than the terms of this Agreement then the Executive
shall have no claim against the Company in respect of the determination of the
Employment.
35. EMPLOYMENT RIGHTS ACT 1996
Schedule 2 to this Agreement sets out the particulars of employment not
contained in the Agreement that must be given to the Executive in accordance
with the terms of the said Employment Right Act 1996.
36. JURISDICTION AND LAW
This contract shall be construed according to English law whose Courts shall
have non-exclusive jurisdictions.
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SCHEDULE 1
TABLE OF SALARY INCREASES
Date of
Current Increase commencement New salary Signed
salary of new salary
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SCHEDULE 2
EMPLOYMENT RIGHTS ACT 1996
The following information is given to supplement the information given in the
Agreement in order to comply with the requirements of section 1 of the
Employment Rights Act of 1996.
1. The Executive's job title is Managing Director of the Asian subsidiary
and Director of the Company or any EM Group Company on the terms set
out in this Agreement
2. The Executive's continuous period of employment with the Company
commenced on the date hereof and is not continuous with any previous
period of employment with any other Company.
3. There are no collective agreements in force which affect the terms and
conditions of the Executive's employment.
4. There is no Pension Provision applicable to the employment.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as a Deed the
day and year first above written.
Signed by )
for and on behalf of the )
Company )
Signed by the Executive )
)
)
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SERVICE CONTRACT
THIS AGREEMENT is made the ____ day of ________________, 1998
BETWEEN:
(1) EUROPEAN MICRO PLC (registered number 2663964) having its registered
office at Market Court, 20-24 Church Street, Altrincham, Cheshire WA14
4DW (the "Company")
(2) GERARD DENIS PATRICK O'ROURKE of 16 William Road, Wimbledon, London,
SW19 3PL (the "Executive")
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1. In this Agreement the following words and expressions shall have
the following meanings:
"the Agreement" Means a contract between the Company and
the Executive and M. Gesner dated _____
day of _________
"the Board" means the Board of Directors of the
Company and includes any committee of
the Board duly convened by it
"the Commencement Date" means the ____ day of __________, 1998
"Sunbelt" means Sunbelt (UK) Limited
EM Group Company" means the Company and any Company which
is a subsidiary or affiliate of the
Company
"the Employment" means the employment established by this
Agreement
Intellectual Property" means (i) every invention discovery
design or improvement (ii) every work in
which copyright may subsist, and (iii)
moral rights as defined by s 77 and s 80
of the Copyright Design and Patents Act
1988.
"Nova Products" Shall have the same meaning as in the
Agreement
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"the Termination Date" means the termination date of the
Employment under this Agreement
howsoever terminated.
1.2. The headings in this Agreement shall not affect its
interpretation or construction.
1.3. Any reference in this Agreement to any statutory provision
includes any statutory modification or re-enactment of it or the
provision referred to.
2. EMPLOYMENT
The Company shall employ the Executive and the Executive also agrees to act as
Managing Director of Sunbelt on the terms set out in this Agreement.
3. FREEDOM TO TAKE UP THE APPOINTMENT
The Executive warrants that by virtue of entering into this Agreement he will
not be in breach of any express or implied terms of any contract or of any other
obligation binding upon him.
4. PERIOD
The Executive's Employment shall commence with effect from the Commencement Date
and shall (subject as hereinafter provided) be for an initial fixed term of 2
years and 3 months and shall continue thereafter until terminated by either
party giving to the other not less than 6 months' written notice to expire on or
any time after the expiry date for the initial fixed term.
5. DUTIES OF THE APPOINTMENT
5.1. The Executive shall faithfully and diligently perform those
duties of his appointment and exercise such powers consistent
with them which are from time to time assigned to or vested in
him and shall use his best endeavours to promote the interests
of Sunbelt and any EM Group Company for which he is required
to perform duties.
5.2. The Executive shall (without further remuneration) if and for so
long as the Executive is so required by the Company:
(i) carry out the duties of his appointment on behalf of any EM Group
Company
(ii) act as a director of any EM Group Company or hold any other
appointment or office as nominee or representative of Sunbelt or
any EM Group Company.
(iii) carry out such duties and the duties attendant on any such
appointment as if they were duties to be performed by him on
behalf of the Company.
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5.3 Use his reasonable endeavours to achieve the targets set out in
the Agreement.
6. OBEDIENCE AND REPORTING
The Executive shall obey all lawful and reasonable directions of the Board and
at all times keep the Board promptly and fully informed (in writing if so
requested) of his conduct of the business or affairs of Sunbelt and any EM Group
Company and provide such explanations as the Board may require.
7. DEVOTION TO DUTIES
7.1. The Executive shall during the term of this Employment devote
substantially the whole of his time, attention and abilities
to the business and affairs of Sunbelt unless prevented by ill
health from so doing and shall not during the Employment
either on his own account or as the employer of others or
otherwise be engaged or concerned in any business other than
that of Sunbelt or any EM Group Company or accept any other
engagement or public office except with the prior consent in
writing of the Company but the Executive may nevertheless be
or become a minority holder of any securities which are quoted
on a recognized investment exchange.
7.2. The Executive shall not be prevented from having any
shareholding in a company which exists at the date of this
Contract.
7.3. The Executive will be allowed to become a Shareholder in a
company which does not directly or indirectly compete with
Sunbelt or any EM Group Company provided that consent is first
obtained from the Company in writing such consent not to be
unreasonably withheld.
8. COMPLIANCE/DEALINGS IN "SECURITIES"
The Executive shall during his Employment and for twelve (12) months after the
termination of his Employment comply and shall procure that his minor children
shall comply with all applicable rules of law, any recognized investment
exchange regulations including the "Model Code for Securities Transactions by
Directors of Listed Companies' issued by the International Stock Exchange of the
United Kingdom and the Republic of Ireland Limited and any Company policy issued
in relation to dealings in shares, debentures or other securities of the Company
and any EM Group Company or any unpublished price sensitive information
affecting the securities of any other company.
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9. COMPLIANCE/PROPER USE OF FUNDS
9.1 The Executive shall not use any funds for any unlawful
contribution, endorsement, gift, entertainment or other
unlawful expense relating to political activity, or make any
direct or indirect unlawful payment to any foreign or domestic
government official or employee and shall comply with the
United States Foreign Corrupt Practices Act of 1977 and any
other applicable law of the United States or any other country
in which the Executive is conducting business on behalf of
Sunbelt or any of its subsidiaries or affiliates relating to
improper payments to governmental representatives.
9.2 Failure to comply with clause 9.1 shall constitute gross
misconduct and may result in the termination of the Executives
contract of employment in accordance with clause 23 hereto.
10. PLACE OF WORK
10.1. The Executive shall initially work at the offices of the
Sunbelt at Strudwick House, Boundary Business Park, Church
Road, Hitcham, Surrey but the Executive shall if required to
do so work in such place or places within a twenty (20) mile
radius of said offices as the Board may reasonably require for
the proper performance of his duties hereunder.
10.2. The Executive shall not be required (except for travel on the
business of Sunbelt or any EM Group Company) to reside in
other parts of the world.
11. HOURS OF WORK
There are no normal fixed working hours for the Employment. The Executive is
expected to work at such times as the efficient and conscientious discharge of
his duties hereunder requires and it is hereby agreed that the provisions of
regulation 4 of the Working Time Regulations 1998 shall not apply.
12. REMUNERATION
12.1. During the Employment the Executive shall receive as
remuneration a basic salary at the rate of (pound)50,000 per
annum to be paid by equal monthly installments on the last day
of each calendar month. Any increase in remuneration shall be
notified in writing to the Executive and the details thereof
shall be entered in the table in Schedule 1 to the Company's
signed copy of this Agreement and initialed by an officer of
the Company.
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12.2. The Executives remuneration takes into account any provision
for pension payments into which the Executive may have been
entitled prior to the date of this Agreement.
12.3. In addition to the basic salary the Executive shall receive
bonuses equal to 3.75% of the pre-tax gross profits of the
sale of Nova Products through Sunbelt. Such bonuses to be paid
monthly in arrears.
12.4. During the first six months of this Agreement the Executive
shall be guaranteed bonus payments of (pound)1,666.00 per
month. To be eligible for the bonus the Executive must still
be in service and not under notice of termination unless such
notice shall be wrongful or unfair.
12.5. The remuneration and bonuses shall unless otherwise agreed in
writing by the Company be inclusive of any fees or other
remuneration which the Executive would otherwise be entitled
to receive from the Company or any EM Group Company in
connection with the performance of the duties delegated to him
under this Agreement.
12.6. The provisions of this clause shall be reviewable annually by
agreement.
13. CAR
13.1. The Company shall pay the Executive a car allowance of
(pound)8,235 per annum. In addition the Company shall pay for
all fuel including fuel consumed during private use of the
car. The Executive shall ensure that he has at all times a
current valid license to drive private motor cars.
13.2. The Company shall provide the Executive with a Mobile
Telephone and pay the rental and cost of calls.
14. EXPENSES
In addition to his basic salary hereunder the Executive shall be reimbursed the
amount of all reasonable traveling, hotel, entertainment and other expenses
properly and necessarily incurred and defrayed by him in the discharge of his
duties hereunder (including "professional fees"). The Executive shall produce to
the Company at its request all supporting vouchers and documents in respect of
such expenses. The Company will also pay any telephone expenses incurred by the
Executive in relation to this Contract of Employment upon production of
supporting bills in respect of such expenses.
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15. PENSION AND OTHER BENEFITS
15.1 No pension contributions shall be paid by the Company on
behalf of the Executive. The Executive will however be
entitled to private health insurance for the benefit of
himself his spouse and dependent children if any.
15.2 The Executive shall have the right to subscribe for up to
5,000 EMCC Shares as defined in the Agreement at the mid-price
for the same on NASDAQ at the date of this agreement at any
time after 3 years. This option shall lapse if the Executive
shall terminate this agreement before the option is exercised.
16. HOLIDAYS
16.1. The Executive shall be entitled (in addition to normal bank
and other public holidays) to twenty (20) days paid holiday in
each calendar year at such times as shall be convenient to
Sunbelt and such additional holidays as the Board shall
approve.
16.2. The Executive shall not be entitled to carry forward any
unused holiday entitlement from one holiday year to the next
without the written consent of the Company.
17. SICKNESS OR INJURY
17.1. The Executive agrees that at any time during the course of the
Employment he shall at the request of the Company submit
himself to a medical examination by a registered medical
practitioner nominated by the Company. The purpose of such
medical examination shall be to determine whether there are
any matters which might impair the Executive's ability to
perform his duties under this Agreement and accordingly the
Executive shall give such authority as is required for the
Company's nominated doctor to disclose to the Company the
findings. All expenses associated with obtaining the report
will be borne by the Company.
17.2. In the event that the Executive is unable to perform his
duties under this Agreement by reason of sickness or injury
for a period of seven (7) days or more, the Executive shall if
required to do so by the Company provide the Company with a
medical certificate in respect of the whole period of the
absence. Immediately following his return from any period of
absence the Executive shall complete a self-certification form
detailing the reason for the absence.
17.3. During the Executive's first ten (10) weeks of absence he will
receive ninety percent (90%) of his average weekly earnings
calculated by taking the total of his earnings over the
previous twelve months and dividing the same by fifty two
(52). At the end of such ten (10) week period any further
payment will only be made to the Executive at the discretion
of the Board.
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17.4. The Company shall have the right to deduct from the
remuneration paid to the Executive any statutory sick pay or
other social security benefits which he is entitled to claim
in consequence of sickness or accident or payable to him under
any scheme for the time being in force of which by virtue of
his employment by the Company he is a non-contributory member.
17.5. In the event that the Executive is incapable of performing his
duties by reason of injury sustained wholly or partially as a
result of actionable negligence or breach of any statutory
duty on the part of any third party all payments made to the
Executive by the Company by way of remuneration shall to the
extent that compensation is recoverable from that third party
constitute loans by the Company to the Executive
(notwithstanding that as an interim measure income tax has
been deducted from payments as if they were emoluments of
employment) and shall be repaid when and to the extent that
the Executive recovers compensation for loss of earnings from
that third party by action or otherwise.
17.6. The Company will maintain on behalf of the Executive the
permanent health insurance scheme currently in place during
the term of this Agreement.
18. CONFIDENTIALITY
The Executive shall not, either during the Employment, otherwise than in the
proper course of his duties, or thereafter, without the consent in writing of
the Company being first obtained, use directly or indirectly, divulge to any
person, firm or company and shall during the continuance of the Employment use
his best endeavours to prevent the publication, disclosure or non-authorized use
of any confidential information of Sunbelt or any EM Group Company or any of its
or their secrets, dealings or transactions whatsoever which may have come or may
come to his knowledge during his Employment or previously or otherwise and which
include but are not limited to the following matters:
(i) the working of any manufacturing process or invention or any
other methods, formulae, technical data and know-how used by
or which relate to the business of Sunbelt or any EM Group
Company;
(ii) lists of customers and potential customers or of suppliers and
potential suppliers to Sunbelt and any EM Group Company and
any other information collected by Sunbelt and any EM Group
Company in relation to those customers or suppliers;
(iii) the dealings or transactions or other business affairs of
Sunbelt or any EM Group Company and its or their finances or
management accounts.
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The restriction shall cease to apply to information or knowledge which may
(otherwise than by reason of the default of the Executive) become available to
the public generally without requiring a significant expenditure of labour,
skill or money.
19. INTELLECTUAL PROPERTY
19.1. The Executive shall forthwith communicate to the Company in
confidence all intellectual property which the Executive may
make or originate either solely or jointly with another or
others during the Employment (hereinafter referred to as
"Intellectual Property").
19.2. In the case of such Intellectual Property as is made or
originated hereunder wholly or substantially in the course of
his normal duties or in the course of duties specifically
assigned to him and which relate to the affairs of Sunbelt or
any EM Group Company the following subclauses of this clause
shall apply.
19.3. Such Intellectual Property (or in the case of the Intellectual
Property made or originated by the Executive jointly with
another or others to the full extent of the Executive's
interest therein so far as the law allows) shall be and become
the exclusive property of the Company and shall not be
disclosed to any other person, firm or company without the
consent of the Company being previously obtained which if
given may be subject to conditions. The provisions of this
subclause shall not entitle the Executive to any compensation
beyond the salary hereinafter mentioned except that in the
case of any invention on which a British Patent has been
granted or assigned to the Company and the Company has derived
outstanding benefit from such patent, the Executive may be
entitled by virtue of s 40 of the Patents Act 1977.
19.4. The Executive shall if and when required by the Company and at
the expense of the Company do and/or combine with others in
doing all acts and sign and execute all applications and other
documents (including Powers of Attorney in favour of nominees
of the Company) necessary or incidental to obtaining,
maintaining or extending patent or other forms of protection
for such Intellectual Property in the UK and in any other part
of the world or for transferring to or vesting in the Company
or its nominees the Executive's entire right, title and
interest to and in such Intellectual Property or to and in any
application, patent or other form of protection to copyright
as the case may be including the right to file applications in
the name of the Company or its nominees for patent or other
forms of protection or for registration of copyright in any
country claiming priority from the date of filing of any
application or other date from which priority may run in any
other country.
19.5. The provisions of this clause shall remain in full force and
effect notwithstanding that after the Executive has made or
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originated any such Intellectual Property the Employment may
have ceased or been determined for any reason whatsoever with
the intention that the same shall bind the heirs of an/or
assigns of the Executive.
20. COPYRIGHT
The Executive shall promptly disclose to the Company all works in which
copyright or design rights may exist which the Executive may make or originate
either solely or jointly with others during the Employment. Any such copyright
works or designs created by him in the normal course of his Employment or in the
course of carrying out duties specifically assigned to him which relate to the
affairs of the Company shall be the property of the Company whether or not the
work was made by direction of the Company or was intended for the Company and
the copyright in it and the rights in any design shall belong to the Company and
to the extent that such copyright or design rights are not otherwise vested in
the Company the Executive hereby assigns the same to the Company.
21. POST-TERMINATION OBLIGATIONS
21.1. The Executive shall not during the period of 2 years after
termination of the Employment solicit or endeavour to entice
away from or discourage from being employed by Sunbelt or any
EM Group Company any employee or director employed by Sunbelt
or any EM Group Company and who to his knowledge was an
employee thereof at the date of such termination or whom to
his knowledge has at that date agreed to be engaged as an
employee of Sunbelt or any EM Group Company and with whom the
Executive has dealt or had contact in the normal course of his
duties.
21.2. The Executive shall not for a period of 6 months after the
termination of the Employment (without the previous consent in
writing of the Company) and whether on his own account or for
any other person, firm or company directly in connection with
any business similar to or in competition with the business of
Sunbelt solicit or endeavour to entice away from Sunbelt any
person, firm or company (a) who or which in the twelve (12)
months prior to the end of his Employment shall have been a
customer of or in the habit of dealing with Sunbelt and (b)
with whom or which the Executive had personal dealings in the
course of his employment in the twelve (12) months prior to
the end of his Employment.
21.3. The Executive shall not for a period of 6 months after the
termination of his Employment (without the previous consent in
writing of the Company) and whether on his own account or for
any other person, firm or company directly or indirectly in
connection with any business similar to or in competition with
the business of Sunbelt do any business with, accept orders
from, or have any business dealings with any person, firm or
company (a) who or which in the twelve (12) months prior to
the end of his Employment was a customer of Sunbelt and (b)
with whom or which the Executive had personal dealings in the
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course of his Employment in the twelve (12) months prior to
the end of his Employment.
21.4. The Executive shall not for a period of 6 months after the
termination of his Employment and within the United Kingdom
(without the previous consent in writing of the Company)
directly or indirectly be engaged concerned or interested
(whether as principal, servant, agent, consultant or
otherwise) in any trade or business which is in competition
with any trade or business being carried on by Sunbelt at the
end of the Employment or during a period of twelve (12) months
prior to the end of his Employment and with which the
Executive was concerned in the course of his Employment,
provided always that during such period the Company will pay
the Executive a further 6 month salary and bonus even though
his Employment has been terminated but only in circumstances
where no summary termination has occurred in accordance with
Clause 22 of this Agreement and the Executive is not in breach
of the covenants contained in Clause 20. Bonuses will be
calculated by dividing the previous 12 months bonus total by
12.
21.5. The Executive shall not at any time after the Termination Date
represent himself as being employed by or connected with
Sunbelt or any EM Group Company.
21.6. The Executive acknowledges:
(i) that each of the foregoing subclauses of this clause
constitutes an entirely separate and independent
restriction on him; and
(ii) while at the date of this Agreement the duration,
extent and application of each of the restrictions are
considered by the parties no greater than is necessary
for the protection of the interests of Sunbelt and any
EM Group Company and reasonable in all the
circumstances it is acknowledged that restrictions of
such a nature may become invalid because of changing
circumstances and accordingly if any of the
restrictions shall be adjudged to be void or
ineffective for whatever reason but would be adjudged
to be valid and effective if part of the wording
thereof were deleted or the periods thereof reduced or
the area thereof reduced in scope they shall apply
with such modifications as may be necessary to make
them valid and effective.
22. DELIVERY OF DOCUMENTS AND PROPERTY
The Executive shall upon request at any time and in any event upon the
termination of the Executive's Employment immediately deliver up to the Company
or its authorized representative all keys, security passes, credit cards, plans,
statistics, documents, records, papers, magnetic disks, tapes or other software
storage media and all property of whatsoever nature which may be in his
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possession or control or relate in any way to the business affairs of Sunbelt or
any EM Group Company and the Executive shall not, without the written consent of
the Company, retain any copies thereof.
23. REMEDIES
It is expressly agreed by the Executive and the Company that the provisions of
clauses 18, 19, 20, 21 and 22 are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. In the event any
breach of the aforementioned provisions by the Executive, the parties recognize
and acknowledge that a remedy at law will be inadequate and the Company may
suffer irreparable injury. The Executive acknowledges that the services to be
rendered by him are of a character giving them peculiar value, the loss of which
cannot be adequately compensated for in damages; accordingly the Executive
consents to injunctive and other appropriate equitable relief upon the
institution of proceedings therefor by the Company in order to protect the
Company's rights. Such relief shall be in addition to any other relief to which
the Company may be entitled at law or in equity.
24. SUMMARY TERMINATION
In any of the following cases the Company may terminate the Executive's
Employment by written notice taking effect on the date of its service in which
case the Executive shall not be entitled to any further payment from the Company
except such sums as shall then have accrued due;
(i) if the Executive shall be guilty of any gross
misconduct or any repeated breach of any of the terms
of this Agreement;
(ii) if the Executive shall be convicted of a criminal
offense (except for a road traffic offense or an
offense not involving a custodial sentence);
(iii) if the Executive be adjudged bankrupt or makes any
composition or enters into any deed of arrangement
with his creditors;
(iv) if the Executive is prohibited by law from being or
acting as a director;
(v) if the Executive shall become of unsound mind or
become a patient under the Mental Health Act 1983;
(vi) if the Executive resigns as a director of Sunbelt
otherwise than at the request of the Company
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25. NO RIGHT TO WORK
25.1. The Company shall be under no obligation to provide any work
for the Executive during any period of notice either given by
the Company or the Executive to terminate the Executive's
Employment under this Agreement. The Company may at any time
during the said period suspend the Executive from his
Employment or exclude him from any premises of Sunbelt or any
EM Group Company. Provided that during such period the
Executive shall continue to receive salary and all other
contractual benefits.
25.2. If the Contract is terminated by notice in accordance with
Clause 4 then the period referred to in Clause 20.1 to 20.4
shall start to run from the date of such notice. This proviso
will not apply should the Contract be terminated in accordance
with Clause 23.
26. SHORT NOTICE
If the Executive shall at any time become or be unable properly to perform his
duties hereunder by reason of ill health accident or otherwise for a period or
periods aggregating at least one hundred eighty (180) days in any period of
twelve (12) consecutive calendar months the Company may by not less than three
(3) month's notice in writing determine this Agreement.
27. RESIGNATION OF OFFICE
Upon the termination of the Employment the Executive shall at any time or from
time to time thereafter upon the request of the Company resign without claim for
compensation from all offices held by him in Sunbelt and any EM Group Company
and should he fail to do so the Company is hereby irrevocably authorized to
appoint some person in his name and on his behalf to sign and execute all
documents or things necessary or requisite to give effect thereto.
28. RETIREMENT
The Employment shall automatically terminate on the Executive reaching his 65th
birthday.
29. PRIOR RIGHTS
The termination of the Employment shall be without prejudice to any right that
the Company may have in respect of any breach by the Executive of any of the
provisions of this Agreement which may have occurred prior to such
determination.
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30. NOTICES
Any notice given under this Agreement shall be deemed to have been duly given if
dispatched by either party hereto by registered post addressed to the other
party in the case of the Company to its registered office for the time being and
in the case of the Executive to his last known address and such notice shall be
deemed to have been given on the day on which in the ordinary course of post it
would be delivered.
31. PRIOR AGREEMENTS
This Agreement is in substitution for all previous contracts of employment
express or implied between Sunbelt or any EM Group Company and the Executive
which shall be deemed to have been terminated by mutual consent as from the
Commencement Date.
32. DISCIPLINARY AND GRIEVANCE PROCEDURE
There are no fixed rules for the resolution of grievance or disciplinary
problems. In the event of the Executive being dissatisfied with any decision
taken against him, or have any grievance relating to the Employment, he should
apply in the first instance to the Chairman of the Board who will either propose
a solution or refer the matter to the Board for a final decision.
33. THE COMPANY'S STAFF HANDBOOK
The terms of the Company's standard terms and conditions and employment policies
and procedures which are set out in the Company's staff handbook shall be the
terms of the Executive Employment save to the extent that they are inconsistent
with this Agreement.
34. RECONSTRUCTION OR AMALGAMATION
If before the termination of this Agreement the Employment shall be determined
by reason of the liquidation of Sunbelt for the purposes of reconstruction or
amalgamation and the Executive shall be offered employment with any concern or
undertaking resulting from such reconstruction or amalgamation on terms and
conditions no less favorable than the terms of this Agreement then the Executive
shall have no claim against the Company in respect of the determination of the
Employment.
35. EMPLOYMENT RIGHTS ACT 1996
Schedule 2 to this Agreement sets out the particulars of employment not
contained in the Agreement that must be given to the Executive in accordance
with the terms of the said Employment Right Act 1996.
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SCHEDULE 1
TABLE OF SALARY INCREASES
Date of
Current Increase commencement New salary Signed
salary of new salary
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SCHEDULE 2
EMPLOYMENT RIGHTS ACT 1996
The following information is given to supplement the information given in the
Agreement in order to comply with the requirements of section 1 of the
Employment Rights Act of 1996.
1. The Executive's job title is Managing Director of Sunbelt (UK) Limited.
2. The Executive's continuous period of employment with the Company
commenced on 1st July 1992 and is not continuous with any previous
period of employment with any other employer.
3. There are no collective agreements in force which affect the terms and
conditions of the Executive's employment.
4. There is no Pension Provision applicable to the employment.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as a
Deed the day and year first above written.
Signed by )
for and on behalf of the )
Employer )
Signed by the Executive )
)
)
EXHIBIT 10.19
CONSULTING AGREEMENT
THIS CONTRACT made as of the 10th day of September, 1998, by and between
European Micro Holdings, Inc. ("European Micro"), a Nevada corporation, having
offices at 6073 N.W. 167th Street, Miami, Florida, and The Equity Group Inc.
("Equity"), a New York corporation, having offices at 800 Third Avenue, New
York, New York.
WHEREAS, European Micro desires to secure the services of Equity as a
consultant and Equity desires to provide such services to European Micro.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. Equity hereby agrees that it will render financial public
relations/investor relations services to European Micro. These services were
fully outlined in a Proposal to European Micro dated September 8, 1998, which is
attached hereto and incorporated.
2. The Term of this Contract shall commence on September 15, 1998 and
shall continue, unless sooner terminated by European Micro or Equity in
accordance with Paragraph 9 hereof until September 14, 2000.
3.
(a) In consideration of the services to be rendered and performed by
Equity during the term of this Contract, European Micro will pay Equity Seven
Thousand Two Hundred and Fifty Dollars ($7,250) upon the signing of the Contract
for the first month of services and Seven Thousand Two Hundred and Fifty Dollars
($7,250) per month at the beginning of each subsequent month of the consulting
period.
(b) Upon the execution of this Contract, European Micro will grant to
Equity an option under the Company's 1998 Stock Incentive Plan to purchase five
thousand (5,000) shares of common stock at Ten Dollars ($10.00) per share and
such option shall become exercisable on September 10, 1999. In addition, in the
event this Contract is not terminated in accordance with Paragraph 9 hereof
prior to September 10, 1999, European Micro will grant to Equity on September
10, 1999 an option to purchase an additional five thousand (5,0000 shares of
common stock at the closing price of the common stock on September 10, 1999.
Such option shall become exercisable on September 10, 2000.
(c) Equity shall also be reimbursed for all reasonable and necessary
out-of-pocket expenses incurred in the performance of its duties, upon
presentation of monthly statements.
<PAGE>
(d) In the event Equity arranges for a financing, acquisition, merger,
corporate sale, business combination or similar such transaction for European
Micro or in the event Equity introduces European Micro to any of the above
transactions through an intermediary, including but not limited to investment
banking firms, brokers, etc. (with such arrangements and introductions possibly
occurring in the course of Equity's financial public relations activities),
European Micro shall pay a separate and additional fee to Equity at the time of
closing of such transaction(s), in accordance with applicable industry standards
and mutually upon by Equity and European Micro prior to such closing(s).
4. Equity will use its best efforts to perform these services for European
Micro consistent with and specifically recognizing Equity's commitments and
obligations to other businesses for which it performs services.
5. Simultaneous with the execution of this Contract the parties will enter
into a Confidentiality Agreement (attached hereto).
6. As a consultant for European Micro, Equity must at all times rely upon
the accuracy and completeness of the information supplied to Equity by officers,
directors, agents and employees of European Micro. European Micro hereby agrees
that in the event Equity or any of its officers, directors, agents or employees
is a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), or to the extent that Equity or any such
indemnified person is a witness in any proceeding, by reason of the fact that
Equity is or was serving as a consultant to European Micro, whether the basis of
such proceeding is alleged action or inaction in such capacity as a consultant
or in any other capacity while serving as a consultant, Equity or any such
person shall be indemnified and held harmless by European Micro, to the fullest
extent permitted by applicable law, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by Equity or any such person in connection therewith, and such
indemnification shall continue as to Equity or any such person after Equity has
ceased to be a consultant to European Micro and shall inure to the benefit of
the successors, heirs, executors and administrators or such persons; provided,
however, that European Micro shall not be required to indemnify Equity or any
such person if Equity or any such person, as the case may be, was guilty of
negligence or misconduct. Equity or any such indemnified party shall have the
right to be paid by European Micro the expenses incurred in defending any such
proceeding in advance of its final disposition. This right to indemnification
and the right to payment of expenses incurred in defending a proceeding in
advance of its final disposition shall not be exclusive of any other right which
Equity may have.
7. Equity agrees to indemnify, hold harmless and defend European Micro,
its directors, officers, employees and agents from and against any and all
claims, actions, proceedings, losses, liabilities, costs and expenses
(including, without limitation, reasonable attorneys' fees) incurred by any of
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them in connection with or as the result of any negligence or misconduct by
Equity or any of its directors, officers, employees or agents, in connection
with the performance of Equity's services pursuant to this Contract.
8. In the event an action or proceeding is commenced with respect to this
Contract, the prevailing party shall be entitled to receive payment from the
other party of its legal fees and expenses.
9. This Contract may be terminated by European Micro or Equity on the
first year anniversary date of the commencement of services, upon 30 days prior
written to such effect. In the event European Micro or Equity elects to so
terminate this Contract: (a) European Micro shall be obligated to pay to Equity
fees and expense reimbursements with respect to the period through the date of
such termination; (b) Equity shall forfeit the Option to purchase 5,000 shares
for the second year of services; and (c) the provisions of Paragraphs 5, 6, 7
and 8 shall survive such termination and continue in full force and effect.
10. This Contract will not be assigned (including by operation of law) by
either party hereto and shall be interpreted under the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have executed this Contract on the
date above written.
THE EQUITY GROUP INC. EUROPEAN MICRO HOLDINGS, INC.
By: By:
-------------------- ------------------------
EXHIBIT 10.20
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SERVICE CONTRACT
----------------
THIS AGREEMENT is made the 28th day of October, 1998
BETWEEN:
(1) EUROPEAN MICRO HOLDINGS INC. a company incorporated in the State of Nevada
(United States of America) with the State of Nevada file no. 28914-1997
and having its place of business at 6073 NW 167 Street, Unit C-25, Miami,
Florida 33015 United States of America (the "Employer")
(2) MICHAEL CHARLES GESNER of c/o Arthur Andersen, Corporate Service PTE Ltd,
10 Hoe Chiang Road, # 18-00 Keppel Towers, Singapore 089315 (the
"Executive")
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1. In this Agreement the following words and expressions shall have the
following meanings:
"the Board" means the Board of Directors of the
Employer and includes any committee
of the Board duly convened by it
"the Commencement Date" means the 28th day of October, 1998
"the Company" Sunbelt (UK) Limited
"EM Group Company" means the Employer and any company
which is a subsidiary or affiliate of
the Company
"the Employment" means the employment established by
this Agreement
"Intellectual Property" means (i) every invention
discovery design or improvement (ii)
every work in which copyright may
subsist, and (iii) moral rights as
defined by s 77 and s 80 of the
Copyright Design and Patents Act 1988.
"$" means dollars of the United States of
America
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"the Sale Agreement" means a contract made the
day of October 1998 between the
Executive and European Micro Plc.
"the Termination Date" means the termination date of the
Employment under this Agreement
howsoever terminated.
1.2. The headings in this Agreement shall not affect its interpretation
or construction.
1.3. Any reference in this Agreement to any statutory provision includes
any statutory modification or re-enactment of it or the provision
referred to.
2. EMPLOYMENT
The Employer shall employ the Executive and the Executive agrees to act as
Managing Director of the Asian subsidiary and as a Director of the Company or
any EM Group Company on the terms set out in this Agreement.
3. FREEDOM TO TAKE UP THE APPOINTMENT
The Executive warrants that by virtue of entering into this Agreement he will
not be in breach of any express or implied terms of any contract or of any other
obligation binding upon him.
4. PERIOD
The Executive's Employment shall commence with effect from the Commencement Date
and shall (subject as hereinafter provided) be for an initial fixed term of 2
years and 3 months and shall continue thereafter until terminated by either
party giving to the other not less than 6 months' written notice to expire on or
any time after the expiry date for the initial fixed term.
5. DUTIES OF THE APPOINTMENT
5.1. The Executive shall faithfully and diligently perform those duties
of his appointment and exercise such powers consistent with them
which are from time to time assigned to or vested in him and shall
use his best endeavours to promote the interests of the Employer and
any EM Group Company for which he is required to perform duties.
5.2. The Executive shall (without further remuneration) if and for so
long as the Executive is so required by the Company:
(i) carry out the duties of his appointment on behalf of any EM
Group Company
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(ii) act as a director of any EM Group Company or hold any other
appointment or office as nominee or representative of the
Employer or any EM Group Company
(iii) carry out such duties and the duties attendant on any such
appointment as if they were duties to be performed by him on
behalf of the Company.
5.3. Carry out his primary duties to achieve so far as he is able the
targets set out in the Sale Agreement for the Asian Subsidiary as
defined therein.
6. OBEDIENCE AND REPORTING
The Executive shall obey all lawful and reasonable directions of the Board and
at all times keep the Board promptly and fully informed (in writing if so
requested) of his conduct of the business or affairs of the Company and any EM
Group Company and provide such explanations as the Board may require.
7. DEVOTION TO DUTIES
7.1. The Executive shall during the term of this Employment devote
substantially the whole of his time, attention and abilities to the
business and affairs of the Company unless prevented by ill health
from so doing and with the exception of PC Wise Inc. shall not
during the Employment either on his own account or as the Company of
others or otherwise be engaged or concerned in any business other
than that of the Company or any EM Group Company or accept any other
engagement or public office except with the prior consent in writing
of the Company but the Executive may nevertheless be or become a
minority holder of any securities which are quoted on a recognized
investment exchange.
7.2. The Executive shall not be prevented from having any shareholding in
a company which exists at the date of this Contract.
7.3. The Executive will be allowed to become a Shareholder in a company
which does not directly or indirectly compete with the Company or
any EM Group Company provided that consent is first obtained from
the Company in writing such consent not to be unreasonably withheld.
8. COMPLIANCE/DEALINGS IN "SECURITIES"
The Executive shall during his Employment and for twelve (12) months after the
termination of his Employment comply and shall procure that his minor children
shall comply with all applicable rules of law, any recognized investment
exchange regulations including the "Model Code for Securities Transactions by
Directors of Listed Companies' issued by the International Stock Exchange of the
United Kingdom and the Republic of Ireland Limited and any Company policy issued
in relation to dealings in shares, debentures or other securities of the Company
and any EM Group Company or any unpublished price sensitive information
affecting the securities of any other company.
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9. COMPLIANCE/PROPER USE OF FUNDS
9.1 The Executive shall not use any funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating
to political activity, or make any direct or indirect unlawful
payment to any foreign or domestic government official or employee
and shall comply with the United States Foreign Corrupt Practices
Act of 1977 and any other applicable law of the United States or any
other country in which the Executive is conducting business on
behalf of the Company or any of its subsidiaries or affiliates
relating to improper payments to governmental representatives.
9.2 Failure to comply with clause 9.1 shall constitute gross misconduct
and may result in the termination of the Executives contract of
employment in accordance with clause 23 hereto.
10. PLACE OF WORK
10.1. The Executive shall work in Singapore for a period of one year from
the date hereof and thereafter in such place as may be agreed.
11. HOURS OF WORK
There are no normal fixed working hours for the Employment. The Executive is
expected to work at such times as the efficient and conscientious discharge of
his duties hereunder requires.
12. REMUNERATION
12.1. During the Employment the Executive shall receive as remuneration a
basic salary at the rate of $50,000 per annum to be paid by equal
monthly installments on the last day of each calendar month. Any
increase in remuneration shall be notified in writing to the
Executive and the details thereof shall be entered in the table in
Schedule 1 to the Company's signed copy of this Agreement and
initialed by an officer of the Company.
12.2. In addition to the basic salary, the Executive shall receive a bonus
at a rate of 0.5% of the level of purchases by any EM Group Company
for which the Executive is responsible of Non Nova Products. For the
first six months of this Agreement, the Company guarantees the
payment of $2,000 per month in bonuses to the Executive. All bonuses
shall be payable monthly in arrears. To be eligible for bonuses the
Executive must still be in service and not under notice of
termination.
12.3. The remuneration, bonuses and allowances shall unless otherwise by
agreement in writing by the Company be inclusive of any fees or
other remuneration which the Executive would otherwise be entitled
to receive from the Company or any EM Group Company in connection
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with the performance of the duties delegated to him under this
Agreement.
12.4. The provisions of this clause shall be reviewable annually by
agreement.
13. ALLOWANCES
13.1 During the employment the Executive shall receive a Housing
Allowance of $6,000 per month for the first four months of this
Agreement and $4,000 per month for the following eight months of
this Agreement and thereafter for so long as he shall be required by
the Board to reside in Singapore.
13.2 In addition to the above, the Executive shall receive an Education
Allowance of up to $28,000 per annum for so long as he shall have
children in education in Singapore, the Education Allowance payable
shall not exceed $14,000 in respect of any one (1) child of the
Executive.
13.3 The Company shall pay for the air fares of the Executive and/or his
family up to $13,044 together with the costs of one round trip for
the Executive and his family to and from the United States or Europe
per year.
14. CAR
14.1. The Executive shall receive a car allowance of $3,000 per month to
provide a motor vehicle for his use in performing his duties The
Executive shall maintain service tax and comprehensively insure the
car as appropriate and shall bear all running expenses of the car
including fuel consumed during private use of the car. The Executive
shall ensure that he has at all times a current valid license to
drive private motor cars.
15. EXPENSES
15.1 In addition to his basic salary hereunder the Executive shall be
reimbursed the amount of all reasonable traveling, hotel,
entertainment and other expenses properly and necessarily incurred
and defrayed by him in the discharge of his duties hereunder
(including "professional fees"). The Executive shall produce to the
Company at its request all supporting vouchers and documents in
respect of such expenses. The Company will also pay any telephone
expenses incurred by the Executive in relation to this Contract of
Employment upon production of supporting bills in respect of such
expenses.
15.2 The Executive shall be entitled to claim his reasonable removal
expenses incurred pursuant to this Agreement. Up to $10,000 and
shall be payable upon the provision by the Executive of receipts in
respect of such expenses.
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16. PENSION AND OTHER BENEFITS
16.1 No pension contributions shall be paid by the Company on behalf of
the Executive. The Executive will however be entitled to private
health insurance for the benefit of himself, his spouse and his
children, if any, during the term of this Agreement.
16.2 The Company shall pay the Executive's current life assurance policy,
such policy to continue for two years, the proceeds of such policy
to be for the benefit of the Executive's family or estate, and the
Company and the Executive shall take all necessary actions and enter
into all necessary documentation to ensure that such is the case so
that the Company shall have no liability to make any payments other
than in respect of any proceeds of the said policy as received by it
(and after making due allowance for any liability to tax on any sum
which the Company have so received).
16.3 The Executive shall have the right to subscribe for up to 5,000 EMCC
Shares as defined in the Agreement at the mid-price for the same on
NASDAQ at the date of this agreement at any time after 3 years. This
option shall lapse if the Executive shall terminate this agreement
before the option is exercised.
17. HOLIDAYS
17.1. The Executive shall be entitled (in addition to normal bank and
other public holidays) to twenty (20) days paid holiday in each
calendar year at such times as shall be convenient to the Company
and such additional holidays as the Board shall approve.
17.2. The Executive shall not be entitled to carry forward any unused
holiday entitlement from one holiday year to the next without the
written consent of the Company.
18. SICKNESS OR INJURY
18.1. The Executive agrees that at any time during the course of the
Employment he shall at the request of the Employer submit himself to
a medical examination by a registered medical practitioner nominated
by the Employer. The purpose of such medical examination shall be to
determine whether there are any matters which might impair the
Executive's ability to perform his duties under this Agreement and
accordingly the Executive shall give such authority as is required
for the Company's nominated doctor to disclose to the Employer the
findings. All expenses associated with obtaining the report will be
borne by the Employer.
18.2. In the event that the Executive is unable to perform his duties
under this Agreement by reason of sickness or injury for a period of
seven (7) days or more, the Executive shall if required to do so by
the Employer provide the Employer with a medical certificate in
respect of the whole period of the absence. Immediately following
his return from any period of absence the Executive shall complete a
self-certification form detailing the reason for the absence.
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18.3. During the Executive's first ten (10) weeks of absence he will
receive ninety percent (90%) of his average weekly earnings
calculated by taking the total of his earnings over the previous
twelve months and dividing the same by fifty two (52). At the end of
such ten (10) week period any further payment will only be made to
the Executive at the discretion of the Board.
18.4. The Employer shall have the right to deduct from the remuneration
paid to the Executive any statutory sick pay or other social
security benefits which he is entitled to claim in consequence of
sickness or accident or payable to him under any scheme for the time
being in force of which by virtue of his employment by the Employer
he is a non-contributory member.
18.5. In the event that the Executive is incapable of performing his
duties by reason of injury sustained wholly or partially as a result
of actionable negligence or breach of any statutory duty on the part
of any third party all payments made to the Executive by the
Employer by way of remuneration shall to the extent that
compensation is recoverable from that third party constitute loans
by the Company to the Executive (notwithstanding that as an interim
measure income tax has been deducted from payments as if they were
emoluments of employment) and shall be repaid when and to the extent
that the Executive recovers compensation for loss of earnings from
that third party by action or otherwise.
18.6. The Company will maintain on behalf of the Executive the permanent
health insurance scheme currently in place during the term of this
Agreement.
19. CONFIDENTIALITY
The Executive shall not, either during the Employment, otherwise than in the
proper course of his duties, or thereafter, without the consent in writing of
the Employer being first obtained, use directly or indirectly, divulge to any
person, firm or company and shall during the continuance of the Employment use
his best endeavours to prevent the publication, disclosure or non-authorized use
of any confidential information of the Employer or any EM Group Company or any
of its or their secrets, dealings or transactions whatsoever which may have come
or may come to his knowledge during his Employment or previously or otherwise
and which include but are not limited to the following matters:
(i) the working of any manufacturing process or invention or any
other methods, formulae, technical data and know-how used by
or which relate to the business of the Employer or any EM
Group Company;
(ii) lists of customers and potential customers or of suppliers and
potential suppliers to the Employer and any EM Group Company
and any other information collected by the Company and any EM
Group Company in relation to those customers or suppliers;
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(iii) the dealings or transactions or other business affairs of the
Employer or any EM Group Company and its or their finances or
management accounts.
The restriction shall cease to apply to information or knowledge which may
(otherwise than by reason of the default of the Executive ) become available to
the public generally without requiring a significant expenditure of labour,
skill or money.
20. INTELLECTUAL PROPERTY
20.1. The Executive shall forthwith communicate to the Employer in
confidence all intellectual property which the Executive may make or
originate either solely or jointly with another or others during the
Employment (hereinafter referred to as "Intellectual Property").
20.2. In the case of such Intellectual Property as is made or originated
hereunder wholly or substantially in the course of his normal duties
or in the course of duties specifically assigned to him and which
relate to the affairs of the Employer or any EM Group Company the
following subclauses of this clause shall apply.
20.3. Such Intellectual Property (or in the case of the Intellectual
Property made or originated by the Executive jointly with another or
others to the full extent of the Executive's interest therein so far
as the law allows) shall be and become the exclusive property of the
Employer and shall not be disclosed to any other person, firm or
company without the consent of the Employer being previously
obtained which if given may be subject to conditions. The provisions
of this subclause shall not entitle the Executive to any
compensation beyond the salary hereinafter mentioned except that in
the case of any invention on which a British Patent has been granted
or assigned to the Employer and the Employer has derived outstanding
benefit from such patent, the Executive may be entitled by virtue of
s 40 of the Patents Act 1977.
20.4. The Executive shall if and when required by the Employer and at the
expense of the Employer do and/or combine with others in doing all
acts and sign and execute all applications and other documents
(including Powers of Attorney in favour of nominees of the Company)
necessary or incidental to obtaining, maintaining or extending
patent or other forms of protection for such Intellectual Property
in the UK and in any other part of the world or for transferring to
or vesting in the Employer or its nominees the Executive's entire
right, title and interest to and in such Intellectual Property or to
and in any application, patent or other form of protection to
copyright as the case may be including the right to file
applications in the name of the Company or its nominees for patent
or other forms of protection or for registration of copyright in any
country claiming priority from the date of filing of any application
or other date from which priority may run in any other country.
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20.5. The provisions of this clause shall remain in full force and effect
notwithstanding that after the Executive has made or originated any
such Intellectual Property the Employment may have ceased or been
determined for any reason whatsoever with the intention that the
same shall bind the heirs of an/or assigns of the Executive.
21. COPYRIGHT
The Executive shall promptly disclose to the Employer all works in which
copyright or design rights may exist which the Executive may make or originate
either solely or jointly with others during the Employment. Any such copyright
works or designs created by him in the normal course of his Employment or in the
course of carrying out duties specifically assigned to him which relate to the
affairs of the Employer shall be the property of the Employer whether or not the
work was made by direction of the Company or was intended for the Employer and
the copyright in it and the rights in any design shall belong to the Employer
and to the extent that such copyright or design rights are not otherwise vested
in the Employer the Executive hereby assigns the same to the Employer.
22. POST-TERMINATION OBLIGATIONS
22.1. The Executive shall not during the period of 2 years after
termination of the Employment solicit or endeavour to entice away
from or discourage from being employed by the Company or any EM
Group Company any employee or director employed by the Company or
any EM Group Company and who to his knowledge was an employee
thereof at the date of such termination or whom to his knowledge has
at that date agreed to be engaged as an employee of the Company or
any EM Group Company and with whom the Executive has dealt or had
contact in the normal course of his duties.
22.2. The Executive shall not for a period of 6 months after the
termination of the Employment (without the previous consent in
writing of the Company) and whether on his own account or for any
other person, firm or company directly in connection with any
business similar to or in competition with the business of the
Company solicit or endeavour to entice away from the Company any
person, firm or company (a) who or which in the twelve (12) months
prior to the end of his Employment shall have been a customer of or
in the habit of dealing with the Company and (b) with whom or which
the Executive had personal dealings in the course of his employment
in the twelve (12) months prior to the end of his Employment.
22.3. The Executive shall not for a period of 6 months after the
termination of his Employment (without the previous consent in
writing of the Company) and whether on his own account or for any
other person, firm or company directly or indirectly in connection
with any business similar to or in competition with the business of
the Company do any business with, accept orders from, or have any
business dealings with any person, firm or company (a) who or which
in the twelve (12) months prior to the end of his Employment was a
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customer of the Company and (b) with whom or which the Executive had
personal dealings in the course of his Employment in the twelve (12)
months prior to the end of his Employment.
22.4. The Executive shall not for a period of 6 months after the
termination of his Employment and within the United Kingdom (without
the previous consent in writing of the Company) directly or
indirectly be engaged concerned or interested (whether as principal,
servant, agent, consultant or otherwise) in any trade or business
which is in competition with any trade or business being carried on
by the Company at the end of the Employment or during a period of
twelve (12) months prior to the end of his Employment and with which
the Executive was concerned in the course of his Employment,
provided always that during such 6 month period the Employer will
pay the Executive a further 6 month salary and bonus even though his
Employment has been terminated but only in circumstances where no
summary termination has occurred in accordance with Clause 22 of
this Agreement and the Executive is not in breach of the covenants
contained in Clause 20. Bonuses will be calculated by dividing the
previous 12 months bonus total by 12.
22.5. The Executive shall not at any time after the Termination Date
represent himself as being employed by or connected with the
Employer or any EM Group Company.
22.6. The Executive acknowledges:
(i) that each of the foregoing subclauses of this clause
constitutes an entirely separate and independent restriction
on him; and
(ii) while at the date of this Agreement the duration, extent and
application of each of the restrictions are considered by the
parties no greater than is necessary for the protection of the
interests of the Employer and any EM Group Company and
reasonable in all the circumstances it is acknowledged that
restrictions of such a nature may become invalid because of
changing circumstances and accordingly if any of the
restrictions shall be adjudged to be void or ineffective for
whatever reason but would be adjudged to be valid and
effective if part of the wording thereof were deleted or the
periods thereof reduced or the area thereof reduced in scope
they shall apply with such modifications as may be necessary
to make them valid and effective.
23. DELIVERY OF DOCUMENTS AND PROPERTY
The Executive shall upon request at any time and in any event upon the
termination of the Executive's Employment immediately deliver up to the Employer
or its authorized representative all keys, security passes, credit cards, plans,
statistics, documents, records, papers, magnetic disks, tapes or other software
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storage media and all property of whatsoever nature which may be in his
possession or control or relate in any way to the business affairs of the
Company or any EM Group Company and the Executive shall not, without the written
consent of the Company, retain any copies thereof.
24. REMEDIES
It is expressly agreed by the Executive and the Employer that the provisions of
clauses 17, 18, 19, 20 and 21 are reasonable for purposes of preserving for the
Employer its business, goodwill and proprietary information. In the event any
breach of the aforementioned provisions by the Executive, the parties recognize
and acknowledge that a remedy at law will be inadequate and the Company may
suffer irreparable injury. The Executive acknowledges that the services to be
rendered by him are of a character giving them peculiar value, the loss of which
cannot be adequately compensated for in damages; accordingly the Executive
consents to injunctive and other appropriate equitable relief upon the
institution of proceedings therefor by the Employer in order to protect the
Employer's rights. Such relief shall be in addition to any other relief to which
the Employer may be entitled at law or in equity.
25. SUMMARY TERMINATION
In any of the following cases the Employer may terminate the Executive's
Employment by written notice taking effect on the date of its service in which
case the Executive shall not be entitled to any further payment from the
Employer except such sums as shall then have accrued due;
(i) if the Executive shall be guilty of any gross misconduct or
any repeated breach of any of the terms of this Agreement;
(ii) if the Executive shall be convicted of a criminal offense
(except for a road traffic offense or an offense not involving
a custodial sentence);
(iii) if the Executive be adjudged bankrupt or makes any composition
or enters into any deed of arrangement with his creditors;
(iv) if the Executive is prohibited by law from being or acting as
a director;
(v) if the Executive shall become of unsound mind or become a
patient under the Mental Health Act 1983;
(vi) if the Executive resigns as a director of the Company
otherwise than at the request of the Company
26. NO RIGHT TO WORK
26.1. The Employer shall be under no obligation to provide any work for
the Executive during any period of notice either given by the
Company or the Executive to terminate the Executive's Employment
under this Agreement. The Company may at any time during the said
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period suspend the Executive from his Employment or exclude him from
any premises of the Employer. Provided that during such period the
Executive shall continue to receive salary and all other contractual
benefits.
26.2. If the Contract is terminated by notice in accordance with Clause 4
then the period referred to in Clause 20.1 to 20.4 shall start to
run from the date of such notice. This proviso will not apply should
the Contract be terminated in accordance with Clause 23.
27. SHORT NOTICE
If the Executive shall at any time become or be unable properly to perform his
duties hereunder by reason of ill health accident or otherwise for a period or
periods aggregating at least one hundred eighty (180) days in any period of
twelve (12) consecutive calendar months the Company may by not less than three
(3) month's notice in writing determine this Agreement.
28. RESIGNATION OF OFFICE
Upon the termination of the Employment the Executive shall at any time or from
time to time thereafter upon the request of the Company resign without claim for
compensation from all offices held by him in the Company and any EM Group
Company and should he fail to do so the Company is hereby irrevocably authorized
to appoint some person in his name and on his behalf to sign and execute all
documents or things necessary or requisite to give effect thereto.
29. RETIREMENT
The Employment shall automatically terminate on the Executive reaching his 65th
birthday.
30. PRIOR RIGHTS
The termination of the Employment shall be without prejudice to any right that
the Company may have in respect of any breach by the Executive of any of the
provisions of this Agreement which may have occurred prior to such
determination.
31. NOTICES
Any notice given under this Agreement shall be deemed to have been duly given if
dispatched by either party hereto by registered post addressed to the other
party in the case of the Company to its registered office for the time being and
in the case of the Executive to his last known address and such notice shall be
deemed to have been given on the day on which in the ordinary course of post it
would be delivered.
32. PRIOR AGREEMENTS
This Agreement is in substitution for all previous contracts of employment
express or implied between the Company or EM Group Company and the Executive
which shall be deemed to have been terminated by mutual consent as from the
Commencement Date.
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33. DISCIPLINARY AND GRIEVANCE PROCEDURE
There are no fixed rules for the resolution of grievance or disciplinary
problems. In the event of the Executive being dissatisfied with any decision
taken against him, or have any grievance relating to the Employment, he should
apply in the first instance to the Chairman of the Board who will either propose
a solution or refer the matter to the Board for a final decision.
34. RECONSTRUCTION OR AMALGAMATION
If before the termination of this Agreement the Employment shall be determined
by reason of the liquidation of the Company for the purposes of reconstruction
or amalgamation and the Executive shall be offered employment with any concern
or undertaking resulting from such reconstruction or amalgamation on terms and
conditions no less favorable than the terms of this Agreement then the Executive
shall have no claim against the Company in respect of the determination of the
Employment.
35. EMPLOYMENT RIGHTS ACT 1996
Schedule 2 to this Agreement sets out the particulars of employment not
contained in the Agreement that must be given to the Executive in accordance
with the terms of the said Employment Right Act 1996.
36. Jurisdiction and Law
This contract shall be construed according to English law whose Courts shall
have non-exclusive jurisdictions.
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SCHEDULE 1
TABLE OF SALARY INCREASES
Date of
Current Increase commencement New salary Signed
salary of new salary
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SCHEDULE 2
EMPLOYMENT RIGHTS ACT 1996
The following information is given to supplement the information given in the
Agreement in order to comply with the requirements of section 1 of the
Employment Rights Act of 1996.
1. The Executive's job title is Managing Director of the Asian subsidiary and
Director of the Company or any EM Group Company on the terms set out in
this Agreement
2. The Executive's continuous period of employment with the Company commenced
on the date hereof and is not continuous with any previous period of
employment with any other Company.
3. There are no collective agreements in force which affect the terms and
conditions of the Executive's employment.
4. There is no Pension Provision applicable to the employment.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as a Deed the
day and year first above written.
Signed by Laurence Gilbert ) /s/ Laurence Gilbert
for and on behalf of the )
Company )
Signed by the Executive ) /s/ Michael Gesner
)
)
16
EXHIBIT 10.21
SERVICE CONTRACT
THIS AGREEMENT is made the 28th day of October, 1998
BETWEEN:
(1) EUROPEAN MICRO PLC (registered number 2663964) having its registered
office at Market Court, 20-24 Church Street, Altrincham, Cheshire WA14 4DW
(the "Company")
(2) GERARD DENIS PATRICK O'ROURKE of 16 William Road, Wimbledon, London, SW19
3PL (the "Executive")
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1. In this Agreement the following words and expressions shall have the
following meanings:
"the Agreement" Means a contract between the Company
and the Executive and M. Gesner dated
28th day of October, 1998
"the Board"
means the Board of Directors of the
Company and includes any committee of
the Board duly convened by it
"the Commencement Date" means the 28th day of October, 1998
"Sunbelt" means Sunbelt (UK) Limited
"EM Group Company" means the Company and any Company
which is a subsidiary or affiliate of
the Company
"the Employment" means the employment established by
this Agreement
"Intellectual Property" means (i) every invention discovery
design or improvement (ii) every work
in which copyright may subsist, and
(iii) moral rights as defined by s 77
and s 80 of the Copyright Design and
Patents Act 1988.
"Nova Products" Shall have the same meaning as in the
Agreement
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"the Termination Date" means the termination date of the
Employment under this Agreement
howsoever terminated.
1.2. The headings in this Agreement shall not affect its interpretation
or construction.
1.3. Any reference in this Agreement to any statutory provision includes
any statutory modification or re-enactment of it or the provision
referred to.
2. EMPLOYMENT
The Company shall employ the Executive and the Executive also agrees to act as
Managing Director of Sunbelt on the terms set out in this Agreement.
3. FREEDOM TO TAKE UP THE APPOINTMENT
The Executive warrants that by virtue of entering into this Agreement he will
not be in breach of any express or implied terms of any contract or of any other
obligation binding upon him.
4. PERIOD
The Executive's Employment shall commence with effect from the Commencement Date
and shall (subject as hereinafter provided) be for an initial fixed term of 2
years and 3 months and shall continue thereafter until terminated by either
party giving to the other not less than 6 months' written notice to expire on or
any time after the expiry date for the initial fixed term.
5. DUTIES OF THE APPOINTMENT
5.1. The Executive shall faithfully and diligently perform those duties
of his appointment and exercise such powers consistent with them
which are from time to time assigned to or vested in him and shall
use his best endeavours to promote the interests of Sunbelt and any
EM Group Company for which he is required to perform duties.
5.2. The Executive shall (without further remuneration) if and for so
long as the Executive is so required by the Company:
(i) carry out the duties of his appointment on behalf of any EM
Group Company
(ii) act as a director of any EM Group Company or hold any other
appointment or office as nominee or representative of Sunbelt
or any EM Group Company.
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<PAGE>
(iii) carry out such duties and the duties attendant on any such
appointment as if they were duties to be performed by him on
behalf of the Company.
5.3 Use his reasonable endeavours to achieve the targets set out in the
Agreement.
6. OBEDIENCE AND REPORTING
The Executive shall obey all lawful and reasonable directions of the Board and
at all times keep the Board promptly and fully informed (in writing if so
requested) of his conduct of the business or affairs of Sunbelt and any EM Group
Company and provide such explanations as the Board may require.
7. DEVOTION TO DUTIES
7.1. The Executive shall during the term of this Employment devote
substantially the whole of his time, attention and abilities to the
business and affairs of Sunbelt unless prevented by ill health from
so doing and shall not during the Employment either on his own
account or as the employer of others or otherwise be engaged or
concerned in any business other than that of Sunbelt or any EM Group
Company or accept any other engagement or public office except with
the prior consent in writing of the Company but the Executive may
nevertheless be or become a minority holder of any securities which
are quoted on a recognized investment exchange.
7.2. The Executive shall not be prevented from having any shareholding in
a company which exists at the date of this Contract.
7.3. The Executive will be allowed to become a Shareholder in a company
which does not directly or indirectly compete with Sunbelt or any EM
Group Company provided that consent is first obtained from the
Company in writing such consent not to be unreasonably withheld.
8. COMPLIANCE/DEALINGS IN "SECURITIES"
The Executive shall during his Employment and for twelve (12) months after the
termination of his Employment comply and shall procure that his minor children
shall comply with all applicable rules of law, any recognized investment
exchange regulations including the "Model Code for Securities Transactions by
Directors of Listed Companies' issued by the International Stock Exchange of the
United Kingdom and the Republic of Ireland Limited and any Company policy issued
in relation to dealings in shares, debentures or other securities of the Company
and any EM Group Company or any unpublished price sensitive information
affecting the securities of any other company.
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<PAGE>
9. COMPLIANCE/PROPER USE OF FUNDS
9.1 The Executive shall not use any funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating
to political activity, or make any direct or indirect unlawful
payment to any foreign or domestic government official or employee
and shall comply with the United States Foreign Corrupt Practices
Act of 1977 and any other applicable law of the United States or any
other country in which the Executive is conducting business on
behalf of Sunbelt or any of its subsidiaries or affiliates relating
to improper payments to governmental representatives.
9.2 Failure to comply with clause 9.1 shall constitute gross misconduct
and may result in the termination of the Executives contract of
employment in accordance with clause 23 hereto.
10. PLACE OF WORK
10.1. The Executive shall initially work at the offices of the Sunbelt at
Strudwick House, Boundary Business Park, Church Road, Hitcham,
Surrey but the Executive shall if required to do so work in such
place or places within a twenty (20) mile radius of said offices as
the Board may reasonably require for the proper performance of his
duties hereunder.
10.2. The Executive shall not be required (except for travel on the
business of Sunbelt or any EM Group Company) to reside in other
parts of the world.
11. HOURS OF WORK
There are no normal fixed working hours for the Employment. The Executive is
expected to work at such times as the efficient and conscientious discharge of
his duties hereunder requires and it is hereby agreed that the provisions of
regulation 4 of the Working Time Regulations 1998 shall not apply.
12. REMUNERATION
12.1. During the Employment the Executive shall receive as remuneration a
basic salary at the rate of (pound)50,000 per annum to be paid by
equal monthly installments on the last day of each calendar month.
Any increase in remuneration shall be notified in writing to the
Executive and the details thereof shall be entered in the table in
Schedule 1 to the Company's signed copy of this Agreement and
initialed by an officer of the Company.
12.2. The Executives remuneration takes into account any provision for
pension payments into which the Executive may have been entitled
prior to the date of this Agreement.
12.3. In addition to the basic salary the Executive shall receive bonuses
equal to 3.75% of the pre-tax gross profits of the sale of Nova
Products through Sunbelt. Such bonuses to be paid monthly in
arrears.
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12.4. During the first six months of this Agreement the Executive shall be
guaranteed bonus payments of (pound)1,666.00 per month. To be
eligible for the bonus the Executive must still be in service and
not under notice of termination unless such notice shall be wrongful
or unfair.
12.5. The remuneration and bonuses shall unless otherwise agreed in
writing by the Company be inclusive of any fees or other
remuneration which the Executive would otherwise be entitled to
receive from the Company or any EM Group Company in connection with
the performance of the duties delegated to him under this Agreement.
12.6. The provisions of this clause shall be reviewable annually by
agreement.
13. CAR
13.1. The Company shall pay the Executive a car allowance of (pound)8,235
per annum. In addition the Company shall pay for all fuel including
fuel consumed during private use of the car. The Executive shall
ensure that he has at all times a current valid license to drive
private motor cars.
13.2. The Company shall provide the Executive with a Mobile Telephone and
pay the rental and cost of calls.
14. EXPENSES
In addition to his basic salary hereunder the Executive shall be reimbursed the
amount of all reasonable traveling, hotel, entertainment and other expenses
properly and necessarily incurred and defrayed by him in the discharge of his
duties hereunder (including "professional fees"). The Executive shall produce to
the Company at its request all supporting vouchers and documents in respect of
such expenses. The Company will also pay any telephone expenses incurred by the
Executive in relation to this Contract of Employment upon production of
supporting bills in respect of such expenses.
15. PENSION AND OTHER BENEFITS
15.1 No pension contributions shall be paid by the Company on behalf of the
Executive. The Executive will however be entitled to private health
insurance for the benefit of himself his spouse and dependent children if
any.
15.2 The Executive shall have the right to subscribe for up to 5,000 EMCC
Shares as defined in the Agreement at the mid-price for the same on NASDAQ
at the date of this agreement at any time after 3 years. This option shall
lapse if the Executive shall terminate this agreement before the option is
exercised.
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16. HOLIDAYS
16.1. The Executive shall be entitled (in addition to normal bank and
other public holidays) to twenty (20) days paid holiday in each
calendar year at such times as shall be convenient to Sunbelt and
such additional holidays as the Board shall approve.
16.2. The Executive shall not be entitled to carry forward any unused
holiday entitlement from one holiday year to the next without the
written consent of the Company.
17. SICKNESS OR INJURY
17.1. The Executive agrees that at any time during the course of the
Employment he shall at the request of the Company submit himself to
a medical examination by a registered medical practitioner nominated
by the Company. The purpose of such medical examination shall be to
determine whether there are any matters which might impair the
Executive's ability to perform his duties under this Agreement and
accordingly the Executive shall give such authority as is required
for the Company's nominated doctor to disclose to the Company the
findings. All expenses associated with obtaining the report will be
borne by the Company.
17.2. In the event that the Executive is unable to perform his duties
under this Agreement by reason of sickness or injury for a period of
seven (7) days or more, the Executive shall if required to do so by
the Company provide the Company with a medical certificate in
respect of the whole period of the absence. Immediately following
his return from any period of absence the Executive shall complete a
self-certification form detailing the reason for the absence.
17.3. During the Executive's first ten (10) weeks of absence he will
receive ninety percent (90%) of his average weekly earnings
calculated by taking the total of his earnings over the previous
twelve months and dividing the same by fifty two (52). At the end of
such ten (10) week period any further payment will only be made to
the Executive at the discretion of the Board.
17.4. The Company shall have the right to deduct from the remuneration
paid to the Executive any statutory sick pay or other social
security benefits which he is entitled to claim in consequence of
sickness or accident or payable to him under any scheme for the time
being in force of which by virtue of his employment by the Company
he is a non-contributory member.
17.5. In the event that the Executive is incapable of performing his
duties by reason of injury sustained wholly or partially as a result
of actionable negligence or breach of any statutory duty on the part
of any third party all payments made to the Executive by the Company
by way of remuneration shall to the extent that compensation is
recoverable from that third party constitute loans by the Company to
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<PAGE>
the Executive (notwithstanding that as an interim measure income tax
has been deducted from payments as if they were emoluments of
employment) and shall be repaid when and to the extent that the
Executive recovers compensation for loss of earnings from that third
party by action or otherwise.
17.6. The Company will maintain on behalf of the Executive the permanent
health insurance scheme currently in place during the term of this
Agreement.
18. CONFIDENTIALITY
The Executive shall not, either during the Employment, otherwise than in the
proper course of his duties, or thereafter, without the consent in writing of
the Company being first obtained, use directly or indirectly, divulge to any
person, firm or company and shall during the continuance of the Employment use
his best endeavours to prevent the publication, disclosure or non-authorized use
of any confidential information of Sunbelt or any EM Group Company or any of its
or their secrets, dealings or transactions whatsoever which may have come or may
come to his knowledge during his Employment or previously or otherwise and which
include but are not limited to the following matters:
(i) the working of any manufacturing process or invention or any
other methods, formulae, technical data and know-how used by
or which relate to the business of Sunbelt or any EM Group
Company;
(ii) lists of customers and potential customers or of suppliers and
potential suppliers to Sunbelt and any EM Group Company and
any other information collected by Sunbelt and any EM Group
Company in relation to those customers or suppliers;
(iii) the dealings or transactions or other business affairs of
Sunbelt or any EM Group Company and its or their finances or
management accounts.
The restriction shall cease to apply to information or knowledge which may
(otherwise than by reason of the default of the Executive ) become available to
the public generally without requiring a significant expenditure of labour,
skill or money.
19. INTELLECTUAL PROPERTY
19.1. The Executive shall forthwith communicate to the Company in
confidence all intellectual property which the Executive may make or
originate either solely or jointly with another or others during the
Employment (hereinafter referred to as "Intellectual Property").
19.2. In the case of such Intellectual Property as is made or originated
hereunder wholly or substantially in the course of his normal duties
or in the course of duties specifically assigned to him and which
relate to the affairs of Sunbelt or any EM Group Company the
following subclauses of this clause shall apply.
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<PAGE>
19.3. Such Intellectual Property (or in the case of the Intellectual
Property made or originated by the Executive jointly with another or
others to the full extent of the Executive's interest therein so far
as the law allows) shall be and become the exclusive property of the
Company and shall not be disclosed to any other person, firm or
company without the consent of the Company being previously obtained
which if given may be subject to conditions. The provisions of this
subclause shall not entitle the Executive to any compensation beyond
the salary hereinafter mentioned except that in the case of any
invention on which a British Patent has been granted or assigned to
the Company and the Company has derived outstanding benefit from
such patent, the Executive may be entitled by virtue of s 40 of the
Patents Act 1977.
19.4. The Executive shall if and when required by the Company and at the
expense of the Company do and/or combine with others in doing all
acts and sign and execute all applications and other documents
(including Powers of Attorney in favour of nominees of the Company)
necessary or incidental to obtaining, maintaining or extending
patent or other forms of protection for such Intellectual Property
in the UK and in any other part of the world or for transferring to
or vesting in the Company or its nominees the Executive's entire
right, title and interest to and in such Intellectual Property or to
and in any application, patent or other form of protection to
copyright as the case may be including the right to file
applications in the name of the Company or its nominees for patent
or other forms of protection or for registration of copyright in any
country claiming priority from the date of filing of any application
or other date from which priority may run in any other country.
19.5. The provisions of this clause shall remain in full force and effect
notwithstanding that after the Executive has made or originated any
such Intellectual Property the Employment may have ceased or been
determined for any reason whatsoever with the intention that the
same shall bind the heirs of an/or assigns of the Executive.
20. COPYRIGHT
The Executive shall promptly disclose to the Company all works in which
copyright or design rights may exist which the Executive may make or originate
either solely or jointly with others during the Employment. Any such copyright
works or designs created by him in the normal course of his Employment or in the
course of carrying out duties specifically assigned to him which relate to the
affairs of the Company shall be the property of the Company whether or not the
work was made by direction of the Company or was intended for the Company and
the copyright in it and the rights in any design shall belong to the Company and
to the extent that such copyright or design rights are not otherwise vested in
the Company the Executive hereby assigns the same to the Company.
8
<PAGE>
21. POST-TERMINATION OBLIGATIONS
21.1. The Executive shall not during the period of 2 years after
termination of the Employment solicit or endeavour to entice away
from or discourage from being employed by Sunbelt or any EM Group
Company any employee or director employed by Sunbelt or any EM Group
Company and who to his knowledge was an employee thereof at the date
of such termination or whom to his knowledge has at that date agreed
to be engaged as an employee of Sunbelt or any EM Group Company and
with whom the Executive has dealt or had contact in the normal
course of his duties.
21.2. The Executive shall not for a period of 6 months after the
termination of the Employment (without the previous consent in
writing of the Company) and whether on his own account or for any
other person, firm or company directly in connection with any
business similar to or in competition with the business of Sunbelt
solicit or endeavour to entice away from Sunbelt any person, firm or
company (a) who or which in the twelve (12) months prior to the end
of his Employment shall have been a customer of or in the habit of
dealing with Sunbelt and (b) with whom or which the Executive had
personal dealings in the course of his employment in the twelve (12)
months prior to the end of his Employment.
21.3. The Executive shall not for a period of 6 months after the
termination of his Employment (without the previous consent in
writing of the Company) and whether on his own account or for any
other person, firm or company directly or indirectly in connection
with any business similar to or in competition with the business of
Sunbelt do any business with, accept orders from, or have any
business dealings with any person, firm or company (a) who or which
in the twelve (12) months prior to the end of his Employment was a
customer of Sunbelt and (b) with whom or which the Executive had
personal dealings in the course of his Employment in the twelve (12)
months prior to the end of his Employment.
21.4. The Executive shall not for a period of 6 months after the
termination of his Employment and within the United Kingdom (without
the previous consent in writing of the Company) directly or
indirectly be engaged concerned or interested (whether as principal,
servant, agent, consultant or otherwise) in any trade or business
which is in competition with any trade or business being carried on
by Sunbelt at the end of the Employment or during a period of twelve
(12) months prior to the end of his Employment and with which the
Executive was concerned in the course of his Employment, provided
always that during such period the Company will pay the Executive a
further 6 month salary and bonus even though his Employment has been
terminated but only in circumstances where no summary termination
has occurred in accordance with Clause 22 of this Agreement and the
Executive is not in breach of the covenants contained in Clause 20.
Bonuses will be calculated by dividing the previous 12 months bonus
total by 12.
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21.5. The Executive shall not at any time after the Termination Date
represent himself as being employed by or connected with Sunbelt or
any EM Group Company.
21.6. The Executive acknowledges:
(i) that each of the foregoing subclauses of this clause
constitutes an entirely separate and independent restriction
on him; and
(ii) while at the date of this Agreement the duration, extent
and application of each of the restrictions are considered
by the parties no greater than is necessary for the
protection of the interests of Sunbelt and any EM Group
Company and reasonable in all the circumstances it is
acknowledged that restrictions of such a nature may become
invalid because of changing circumstances and accordingly
if any of the restrictions shall be adjudged to be void or
ineffective for whatever reason but would be adjudged to be
valid and effective if part of the wording thereof were
deleted or the periods thereof reduced or the area thereof
reduced in scope they shall apply with such modifications
as may be necessary to make them valid and effective.
22. DELIVERY OF DOCUMENTS AND PROPERTY
The Executive shall upon request at any time and in any event upon the
termination of the Executive's Employment immediately deliver up to the Company
or its authorized representative all keys, security passes, credit cards, plans,
statistics, documents, records, papers, magnetic disks, tapes or other software
storage media and all property of whatsoever nature which may be in his
possession or control or relate in any way to the business affairs of Sunbelt or
any EM Group Company and the Executive shall not, without the written consent of
the Company, retain any copies thereof.
23. REMEDIES
It is expressly agreed by the Executive and the Company that the provisions of
clauses 18, 19, 20, 21 and 22 are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. In the event any
breach of the aforementioned provisions by the Executive, the parties recognize
and acknowledge that a remedy at law will be inadequate and the Company may
suffer irreparable injury. The Executive acknowledges that the services to be
rendered by him are of a character giving them peculiar value, the loss of which
cannot be adequately compensated for in damages; accordingly the Executive
consents to injunctive and other appropriate equitable relief upon the
institution of proceedings therefor by the Company in order to protect the
Company's rights. Such relief shall be in addition to any other relief to which
the Company may be entitled at law or in equity.
24. SUMMARY TERMINATION
In any of the following cases the Company may terminate the Executive's
Employment by written notice taking effect on the date of its service in which
10
<PAGE>
case the Executive shall not be entitled to any further payment from the Company
except such sums as shall then have accrued due;
(i) if the Executive shall be guilty of any gross misconduct or
any repeated breach of any of the terms of this Agreement;
(ii) if the Executive shall be convicted of a criminal offense
(except for a road traffic offense or an offense not involving
a custodial sentence);
(iii) if the Executive be adjudged bankrupt or makes any composition
or enters into any deed of arrangement with his creditors;
(iv) if the Executive is prohibited by law from being or acting as
a director;
(v) if the Executive shall become of unsound mind or become a
patient under the Mental Health Act 1983;
(vi) if the Executive resigns as a director of Sunbelt otherwise
than at the request of the Company
25. NO RIGHT TO WORK
25.1. The Company shall be under no obligation to provide any work for the
Executive during any period of notice either given by the Company or
the Executive to terminate the Executive's Employment under this
Agreement. The Company may at any time during the said period
suspend the Executive from his Employment or exclude him from any
premises of Sunbelt or any EM Group Company. Provided that during
such period the Executive shall continue to receive salary and all
other contractual benefits.
25.2. If the Contract is terminated by notice in accordance with Clause 4
then the period referred to in Clause 20.1 to 20.4 shall start to
run from the date of such notice. This proviso will not apply should
the Contract be terminated in accordance with Clause 23.
26. SHORT NOTICE
If the Executive shall at any time become or be unable properly to perform his
duties hereunder by reason of ill health accident or otherwise for a period or
periods aggregating at least one hundred eighty (180) days in any period of
twelve (12) consecutive calendar months the Company may by not less than three
(3) month's notice in writing determine this Agreement.
27. RESIGNATION OF OFFICE
Upon the termination of the Employment the Executive shall at any time or from
time to time thereafter upon the request of the Company resign without claim for
compensation from all offices held by him in Sunbelt and any EM Group Company
and should he fail to do so the Company is hereby irrevocably authorized to
11
<PAGE>
appoint some person in his name and on his behalf to sign and execute all
documents or things necessary or requisite to give effect thereto.
28. RETIREMENT
The Employment shall automatically terminate on the Executive reaching his 65th
birthday.
29. PRIOR RIGHTS
The termination of the Employment shall be without prejudice to any right that
the Company may have in respect of any breach by the Executive of any of the
provisions of this Agreement which may have occurred prior to such
determination.
30. NOTICES
Any notice given under this Agreement shall be deemed to have been duly given if
dispatched by either party hereto by registered post addressed to the other
party in the case of the Company to its registered office for the time being and
in the case of the Executive to his last known address and such notice shall be
deemed to have been given on the day on which in the ordinary course of post it
would be delivered.
31. PRIOR AGREEMENTS
This Agreement is in substitution for all previous contracts of employment
express or implied between Sunbelt or any EM Group Company and the Executive
which shall be deemed to have been terminated by mutual consent as from the
Commencement Date.
32. DISCIPLINARY AND GRIEVANCE PROCEDURE
There are no fixed rules for the resolution of grievance or disciplinary
problems. In the event of the Executive being dissatisfied with any decision
taken against him, or have any grievance relating to the Employment, he should
apply in the first instance to the Chairman of the Board who will either propose
a solution or refer the matter to the Board for a final decision.
33. THE COMPANY'S STAFF HANDBOOK
The terms of the Company's standard terms and conditions and employment policies
and procedures which are set out in the Company's staff handbook shall be the
terms of the Executive Employment save to the extent that they are inconsistent
with this Agreement.
34. RECONSTRUCTION OR AMALGAMATION
If before the termination of this Agreement the Employment shall be determined
by reason of the liquidation of Sunbelt for the purposes of reconstruction or
amalgamation and the Executive shall be offered employment with any concern or
undertaking resulting from such reconstruction or amalgamation on terms and
conditions no less favorable than the terms of this Agreement then the Executive
12
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shall have no claim against the Company in respect of the determination of the
Employment.
35. EMPLOYMENT RIGHTS ACT 1996
Schedule 2 to this Agreement sets out the particulars of employment not
contained in the Agreement that must be given to the Executive in accordance
with the terms of the said Employment Right Act 1996.
SCHEDULE 1
TABLE OF SALARY INCREASES
Date of
Current Increase commencement New salary Signed
salary of new salary
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SCHEDULE 2
EMPLOYMENT RIGHTS ACT 1996
The following information is given to supplement the information given in the
Agreement in order to comply with the requirements of section 1 of the
Employment Rights Act of 1996.
1. The Executive's job title is Managing Director of Sunbelt (UK) Limited.
2. The Executive's continuous period of employment with the Company commenced
on 1st July 1992 and is not continuous with any previous period of
employment with any other employer.
3. There are no collective agreements in force which affect the terms and
conditions of the Executive's employment.
4. There is no Pension Provision applicable to the employment.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement as a Deed the
day and year first above written.
Signed by Laurence Gilbert ) /s/ Laurence Gilbert
for and on behalf of the )
Employer )
Signed by the Executive ) /s/ Gerard O'Rourke
)
)
15
EXHIBIT 11.01
STATEMENT RE COMPUTATION OF EARNINGS
Earnings per share for the Company was calculated as follows:
THREE-MONTH PERIOD ENDED SEPT. 30,
EARNINGS: 1998 1997
- --------- ---- ----
Net income (in thousands) $722 485
Outstanding common stock at beginning of
quarter 4,933,900 4,000,000
New shares issued 0 0
Basic weighted average number of shares 4,933,900 4,000,000
Options to subscribe for new stock(1) 0 0
Diluted weighted average number of shares 4,933,900 4,000,000
Basic earnings per share 0.15 0.12
Diluted earnings per share 0.15 0.12
- ----------------------
(1) Options to purchase 294,000 shares of common stock of the Company at an
exercise price of $10.00 per share were outstanding on September 30, 1998, but
were excluded from the calculation of diluted earnings per share because the
exercise price was greater than the average market price of the shares.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statement of operations of European
Micro Holdings and the notes thereto set forth in the Prospectus. This
information is qualified in its entirety by reference to such financial
information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,579
<SECURITIES> 0
<RECEIVABLES> 11,059
<ALLOWANCES> 28
<INVENTORY> 5,447
<CURRENT-ASSETS> 20,718
<PP&E> 1,143
<DEPRECIATION> 521
<TOTAL-ASSETS> 21,506
<CURRENT-LIABILITIES> 6,856
<BONDS> 70
0
0
<COMMON> 49
<OTHER-SE> 14,531
<TOTAL-LIABILITY-AND-EQUITY> 21,506
<SALES> 29,297
<TOTAL-REVENUES> 29,297
<CGS> 26,352
<TOTAL-COSTS> 1,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 1,154
<INCOME-TAX> 432
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 722
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
