As filed with the Securities and Exchange Commission on January 16, 1998
Registration No.___________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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EUROPEAN MICRO HOLDINGS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
NEVADA 5045 65-0803752
- ---------------------------- ---------------------------- -----------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No
organization)
6073 N.W. 167TH STREET, UNIT C-25
MIAMI, FLORIDA 33015
(305) 825-2458
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
CSC SERVICES OF NEVADA, INC.
502 EAST JOHN STREET
CARSON CITY, NEVADA 89706
(702) 882-3072
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Clayton E. Parker, Esq. D. Ronald Surbey, Esq.
Troy J. Rillo, Esq. Holland & Knight LLP
Kirkpatrick & Lockhart LLP One East Broward Boulevard
201 S. Biscayne Boulevard, Suite 2000 Fort Lauderdale, Florida 33301
Miami, Florida 33131 (954) 525-1000
(305) 539-3300
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE
======================================== ================== =================== ==================== ============
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share 1,100,000 shares $10.00 $11,000,000 $3,245
======================================== ================== =================== ==================== ============
<FN>
- ----------
(1) Estimated solely for the purpose of calculating the registration fee; based
on a bona fide estimate of the maximum offering price of the securities
being registered in accordance with Rule 457(a).
</FN>
</TABLE>
<PAGE>
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
I-2
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 16, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
EUROPEAN MICRO HOLDINGS, INC. [LOGO]
1,100,000 SHARES OF COMMON STOCK
Of the 1,100,000 shares of common stock (the "COMMON STOCK") offered hereby
(the "OFFERING"), 1,000,000 shares are being offered by European Micro Holdings,
Inc. ("EUROPEAN MICRO" or the "COMPANY") and 100,000 shares are being offered by
certain shareholders of the Company (the "SELLING SHAREHOLDERS"). The Company
will not receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders." Prior to this Offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be $10.00 per
share. See "Underwriting" for information relating to the factors to be
considered in determining the initial public offering price. Application has
been made to have the Common Stock listed on The Nasdaq National Market System
under the symbol "EMCC."
-----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
THESE SECURITIES ARE BEING OFFERED ON A BEST EFFORTS BASIS BY TARPON
SCURRY INVESTMENTS INC. (THE "UNDERWRITER"). THE TERMINATION DATE OF THE
OFFERING IS __________________, 1998 (THE "TERMINATION DATE"). ALL PROCEEDS FROM
THE PURCHASE OF SECURITIES WILL BE HELD IN A NON-INTEREST BEARING ESCROW ACCOUNT
BY THE CHASE MANHATTAN BANK, N.A. (THE "ESCROW AGENT") UNTIL THE TERMINATION
DATE. IF ON THE TERMINATION DATE AT LEAST $10,000,000 OF SECURITIES HAS BEEN
PURCHASED FROM THE COMPANY, THE PROCEEDS WILL BE DISBURSED BY THE ESCROW AGENT
TO THE COMPANY. IF ON THE TERMINATION DATE THE AGGREGATE AMOUNT OF SECURITIES
PURCHASED FROM THE COMPANY IS GREATER THAN $7,000,000 BUT LESS THAN $10,000,000,
THE COMPANY SHALL HAVE THE DISCRETION TO ACCEPT THE OFFERING, IN WHICH CASE ALL
PROCEEDS WILL BE DISBURSED BY THE ESCROW AGENT TO THE COMPANY, OR TO RETURN ALL
PROCEEDS TO THE PURCHASERS. IF ON THE TERMINATION DATE THE AGGREGATE AMOUNT OF
SECURITIES PURCHASED FROM THE COMPANY IS LESS THAN $7,000,000, THE OFFERING WILL
BE TERMINATED AND ALL PROCEEDS WILL BE RETURNED TO THE PURCHASERS. NO SECURITIES
OF THE SELLING SHAREHOLDERS WILL BE SOLD UNTIL $10,000,000 OF SECURITIES HAS
BEEN PURCHASED FROM THE COMPANY.
<PAGE>
<TABLE>
<CAPTION>
============================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY (2) SHAREHOLDERS(2)
- --------------------------- ----------- -------------- ----------- --------------------
<S> <C> <C> <C> <C>
Per Share.................. $10.00 $0.80 $9.20 $9.20
Total Minimum (3).......... $7,000,000 $560,000 $6,440,000 $0
Total Maximum.............. $11,000,000 $880,000 $9,200,000 $920,000
<FN>
- ----------
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $652,000.
Except for the underwriting discounts and commissions, all expenses
associated with the sale of the shares of Common Stock by the Selling
Shareholders will be borne by the Company.
(3) No securities of the Selling Shareholders will be sold until $10,000,000 of
securities has been purchased from the Company.
</FN>
</TABLE>
-----------------
The shares of Common Stock are being sold for the account of the Company
and the Selling Shareholders by the Underwriter on a "best efforts" basis,
subject to prior sale, when, as and if accepted by the Company and the
Underwriter and subject to the Company's right to reject any order in whole or
in part. It is expected that delivery of certificates for such shares will be
made through the offices of the Underwriter in Oak Brook, Illinois, on or about
__________, 1998.
TARPON SCURRY INVESTMENTS INC.
The date of this Prospectus is __________, 1998.
2
<PAGE>
-----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY ON THE NASDAQ
"NATIONAL" MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
-----------------
UNLESS OTHERWISE STATED, ALL AMOUNTS IN THIS PROSPECTUS ARE STATED IN
UNITED STATES DOLLARS. THE TRANSLATION FROM FOREIGN CURRENCIES TO UNITED STATES
DOLLARS IS PERFORMED FOR BALANCE SHEET ACCOUNTS USING EXCHANGE RATES IN EFFECT
AT THE BALANCE SHEET DATE AND FOR REVENUE AND EXPENSE ACCOUNTS USING THE AVERAGE
EXCHANGE RATES DURING THE PERIOD.
-----------------
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES CERTAIN OF THE COMPANY'S
OFFICERS AND DIRECTORS ARE RESIDENTS OF THE UNITED KINGDOM. AS SUCH, IT MAY NOT
BE POSSIBLE FOR INVESTORS TO EFFECT SERVICE OF PROCESS WITHIN THE UNITED STATES
UPON CERTAIN OF THE COMPANY'S OFFICERS AND DIRECTORS. MOREOVER, IT MAY NOT BE
POSSIBLE TO ENFORCE A JUDGMENT OF A COURT OF THE UNITED STATES UPON CERTAIN OF
ITS OFFICERS AND DIRECTORS FOR ANY CIVIL LIABILITIES ARISING UNDER OR RELATED TO
AN ALLEGED VIOLATION OF THE FEDERAL OR STATE SECURITIES LAWS OF THE UNITED
STATES. THE COMPANY HAS BEEN ADVISED BY ITS ENGLISH LEGAL COUNSEL, PHILIP CONN &
CO., THAT THERE IS DOUBT AS TO THE ENFORCEABILITY IN THE UNITED KINGDOM, IN BOTH
ORIGINAL ACTIONS OR IN ACTIONS FOR ENFORCEMENT OF JUDGMENTS OF UNITED STATES
COURTS, OF CIVIL LIABILITIES PREDICATED SOLELY UPON SUCH SECURITIES LAWS.
-----------------
3
<PAGE>
PROSPECTUS SUMMARY
ON DECEMBER 23, 1997, EUROPEAN MICRO HOLDINGS, INC. WAS FORMED TO SERVE AS
A HOLDING COMPANY AND HAS NO OPERATIONS OF ITS OWN. CERTAIN INFORMATION
CONTAINED IN THIS PROSPECTUS ASSUMES THAT ALL OF THE SHARES OF EUROPEAN MICRO
PLC CURRENTLY HELD BY THE SELLING SHAREHOLDERS HAVE BEEN EXCHANGED FOR 4,000,000
SHARES OF COMMON STOCK OF EUROPEAN MICRO HOLDINGS, INC. (THE "SHARE EXCHANGE").
THE COMPANY EXPECTS SUCH EXCHANGE TO BE CONSUMMATED PRIOR TO THE OFFERING.
UNLESS THE CONTEXT OTHERWISE REQUIRES AND EXCEPT AS OTHERWISE SPECIFIED,
REFERENCES HEREIN TO "EUROPEAN MICRO" OR THE "COMPANY" INCLUDE EUROPEAN MICRO
HOLDINGS, INC. AND ITS TWO WHOLLY-OWNED SUBSIDIARIES (ASSUMING THE SHARE
EXCHANGE HAS BEEN CONSUMMATED), EUROPEAN MICRO PLC, A PUBLIC LIMITED COMPANY
ORGANIZED UNDER THE LAWS OF THE UNITED KINGDOM ("EUROPEAN MICRO PLC"), AND
NOR'EASTER MICRO, INC., A NEVADA CORPORATION ("NOR'EASTER") (COLLECTIVELY THE
TWO WHOLLY OWNED SUBSIDIARIES ARE REFERRED TO AS THE "SUBSIDIARIES"). NOR'EASTER
WAS FORMED ON DECEMBER 26, 1997, TO SERVE AS AN INDEPENDENT DISTRIBUTOR OF
MICROCOMPUTER PRODUCTS IN THE UNITED STATES.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THAT APPEARING UNDER THE CAPTION "RISK FACTORS," AND
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. REFERENCES HEREIN TO FISCAL YEARS ARE REFERENCES
TO THE FISCAL YEAR OF EUROPEAN MICRO ENDED JUNE 30 OF THE YEAR SPECIFIED.
CERTAIN INFORMATION (FINANCIAL AND OTHERWISE) IN THIS PROSPECTUS HAS BEEN
ADJUSTED TO REFLECT A REORGANIZATION OF THE COMPANY BY WHICH THE SHAREHOLDERS OF
EUROPEAN MICRO PLC HAVE EXCHANGED THEIR SHARES OF EUROPEAN MICRO PLC FOR SHARES
IN EUROPEAN MICRO HOLDINGS, INC. RESULTING IN EUROPEAN MICRO HOLDINGS, INC.
BECOMING THE PARENT CORPORATION OF EUROPEAN MICRO PLC. SEE "CERTAIN TRANSACTIONS
AND RELATED TRANSACTIONS."
THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), WHICH
REPRESENT EUROPEAN MICRO'S EXPECTATIONS OR BELIEFS, INCLUDING, BUT NOT LIMITED
TO, STATEMENTS CONCERNING FUTURE GROSS MARGINS AND SALES. ANY FORWARD-LOOKING
STATEMENT SPEAKS ONLY AS OF THE DATE ON WHICH SUCH STATEMENT IS MADE, AND
EUROPEAN MICRO UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT
OR STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE ON WHICH SUCH
STATEMENT IS MADE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. NEW
FACTORS EMERGE FROM TIME TO TIME, AND IT IS NOT POSSIBLE FOR MANAGEMENT TO
PREDICT ALL OF SUCH FACTORS. THESE STATEMENTS BY THEIR NATURE INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND EUROPEAN
MICRO'S CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY
OF IMPORTANT FACTORS, INCLUDING THE LEVEL OF ACQUISITION OPPORTUNITIES AVAILABLE
TO THE COMPANY AND THE COMPANY'S ABILITY TO EFFICIENTLY PRICE AND NEGOTIATE SUCH
ACQUISITIONS ON A FAVORABLE BASIS, THE FINANCIAL CONDITION OF THE COMPANY'S
CUSTOMERS, THE FAILURE TO PROPERLY MANAGE GROWTH, CHANGES IN ECONOMIC
CONDITIONS, DEMAND FOR THE PRODUCTS OFFERED BY THE COMPANY AND CHANGES IN THE
COMPETITIVE ENVIRONMENT. FURTHER, MANAGEMENT CANNOT ASSESS THE IMPACT OF EACH
SUCH FACTOR ON THE BUSINESS OR THE EXTENT TO WHICH ANY FACTOR, OR COMBINATION OF
FACTORS, MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN
ANY FORWARD-LOOKING STATEMENTS.
THE COMPANY
European Micro Holdings, Inc. was formed in December 1997 to serve as a
holding company of the Subsidiaries. European Micro Holdings, Inc. does not have
any operations of its own. Its headquarters are located at 6073 N.W. 167th
Street, Unit C-25, Miami, Florida 33015, where its telephone number is (305)
825-2458. European Micro Plc was organized under the laws of the United Kingdom
in 1991 and became a public limited company in 1994. European Micro Plc is an
independent distributor of microcomputer products mainly in Western Europe and
to related parties in the United States. Nor'easter was organized under the laws
of the State of Nevada in December 1997. Nor'easter is a start-up company which
was formed to be an independent distributor of microcomputer products in the
United States.
European Micro Plc is the parent of European Micro GmbH ("EUROPEAN MICRO
GMBH") (formerly known as European Micro Computer Center GmbH) and European
Micro B.V. ("EUROPEAN MICRO B.V.") (formerly known as European Micro Computer
Center B.V.) and has a 50% joint venture interest in Big Blue Europe, B.V. ("BIG
BLUE EUROPE"). European Micro GmbH was formed in 1993 as a wholly owned
subsidiary of European Micro Plc and it operates as a sales office in Germany.
All products sold by European Micro GmbH are procured and shipped from the
facilities of European Micro Plc. European Micro B.V. was formed in 1995 and
commenced operations in
4
<PAGE>
January 1996 and ceased operations in December 1996. European Micro B.V. was a
computer parts distributor. All products sold by European Micro B.V. were
procured and shipped from the Company's facilities located in Manchester,
England. In January 1997, European Micro Plc agreed with Big Blue Products,
Inc., a New York corporation ("BIG BLUE Products"), to form Big Blue Europe. Big
Blue Europe is a computer parts distributor 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 high margin parts after-market industry. Big
Blue Europe has no affiliation with IBM.
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 related parties in the
United States. The Company's customers consist of more than 250 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, Hewlett-Packard and 3Com, although the Company generally does not obtain
its inventory directly from such manufacturers. European Micro monitors the
geographic pricing strategies of such manufacturers, currency fluctuations and
product availability in order to obtain inventory at favorable prices from other
distributors, resellers and wholesalers. As a result of this purchasing
strategy, the Company has achieved gross margins of 11.0% and 11.4% for the
fiscal years ended June 30, 1996 and 1997, respectively. In the three-year
period ended June 30, 1997, total net sales of European Micro increased from
$33.9 million in 1995 to $46.7 million in 1997 and operating profit of European
Micro increased from $1.8 million in 1995 to $2.0 million in 1997. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations."
European Micro considers itself to be a focused distributor, as opposed to
a broadline distributor, dealing with a limited and select group of high quality
manufacturers and only limited products from such manufacturers. It believes
that being a focused distributor enables it to respond 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 such products. 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, thus enabling its
multilingual sales team to maintain the highest levels of customer service.
STRATEGY
European Micro's objectives are to continue to strengthen its position as a
distributor of microcomputer products within Western Europe. It also proposes to
expand its operations into the United States, Eastern Europe, and to a lesser
extent, Africa, the Middle East and Asia. In attempting to achieve these
objectives, the Company intends to implement the following strategies:
GROWTH THROUGH START-UPS AND ACQUISITIONS. The Company's objectives are to
strengthen its position as a leading distributor of microcomputer products in
Western Europe and possibly expand into other geographic regions such as the
United States and Eastern Europe, and to a lesser extent, Africa, the Middle
East and Asia. The Company hopes to expand into these markets through a
combination of start-up companies and acquisitions of existing distributors,
although the Company has not identified any acquisition candidates and there can
be no assurances that any acquisitions can be consummated on terms satisfactory
to the Company. The Company expects to seek acquisition candidates which have
strong entrepreneurial management teams with experience in the local markets and
the potential to benefit the economies of scale that the Company could provide
through its focused product lines. The Company intends that any acquisitions
will adopt its policies and financial reporting procedures but operate as
autonomous business units.
FOCUSED DISTRIBUTION. European Micro's strategy is to operate as a focused
distributor by addressing each national market with a limited and select group
of high quality manufacturers and only limited products from such manufacturers
which the Company believes helps it achieve a degree of strength within its
chosen markets. The Company believes that this policy will further enhance its
relationships with both its suppliers and customers. In addition, the Company
intends to seek new products and suppliers that will reflect the requirements of
the marketplace while at the same time remaining a focused distributor. The
Company believes that this focused
5
<PAGE>
approach also results in more effective asset management. Generally, because
popular products from leading manufacturers are in greater demand, the Company
believes that this results in more efficient inventory management by virtue of
greater inventory turns and, therefore, lower working capital requirements.
FURTHER DEVELOP NEW INTERNATIONAL MARKETS. European Micro has, to date,
focused its activities on the distribution of microcomputer products in Western
Europe and to related parties in the United States. However, the Company
believes that new opportunities are emerging in Eastern Europe, Africa, the
Middle East and Asia as well as more mature markets such as North America. The
Company believes that its success in the culturally and linguistically diverse
markets of Western Europe will be advantageous to the Company in expanding into
new regions.
INTERNET PRODUCTS. European Micro plans to address directly the demand
for internet oriented products. The Company has recently received distribution
rights to distribute firewall products manufactured by WatchGuard Technologies,
Inc. throughout Europe. The Company intends to acquire distribution rights in
other products and to enhance its technical capability by recruiting qualified
personnel.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by European Micro.......................... 1,000,000 shares
Common Stock offered by the Selling Shareholders................ 100,000 shares
Common Stock to be Outstanding after the Offering .............. 5,000,000 shares(1)
Use of Proceeds................................................. The net proceeds of this Offering will be
used to expand European Micro's ability to
fund the operations and provide working
capital to European Micro Plc, for expansion
purposes, including mergers and acquisitions,
to fund operations and provide working capital
to Nor'easter Micro, Inc., to expand its sales
and marketing capabilities and for general corporate
purposes, including investor relations.
Proposed Nasdaq National Market System Symbol..................... Common Stock: "EMCC"
<FN>
- ----------------------
(1) Excludes (i) 500,000 shares issuable upon the exercise of options to
purchase shares of Common Stock reserved for issuance upon the grant of
options under European Micro's 1998 Stock Incentive Plan and (ii) 50,000
shares of Common Stock reserved for issuance under European Micro's 1998
Employee Stock Purchase Plan. See "Management - 1998 Stock Incentive Plan"
and "Management - 1998 Employee Stock Purchase Plan."
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected statement of operations and balance sheet data
of the Company as of June 30, 1996 and 1997 and each of the years in the
three-year period ended June 30, 1997 have been derived from the Company's
audited financial statements and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. The following selected statement of operations and balance seet
data of the Company as of June 30, 1993, 1994 and 1995 and for the fiscal years
ended June 30, 1993 and 1994, and the three months ended September 30, 1996 and
1997 have been derived from unaudited consolidated financial statements of the
Company. In the opinion of the management, the unaudited financial statements of
the Company have been prepared on the same basis as the audited financial
statements included herein and include all adjustments necessary for the fair
presentation of financial position and results of operations at these dates and
for these periods which adjustments are only of a normal requiring nature. The
results of operations for interim periods are not necessarily indicative of
results that may be expected for the full year. All figures are in thousands
except share and per share data. See "Index to Financial Statements."
PRO FORMA QUARTER QUARTER
AS ENDED ENDED SEPT.
YEAR ENDED JUNE 30, ADJUSTED SEPT. 30, 30,
1993 1994 1995 1996 1997 1997(2) 1996 1997
---------- ------------ ------------ ------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales $24,277 29,235 33,864 40,348 46,655 46,655 8,696 24,107
Income from operations 1,622 984 1,848 1,478 2,051 2,051 443 757
Net income 1,064 524 1,115 845 1,034 1,034 287 485
Net income per share $1.06 0.52 1.12 0.85 1.03 0.21 0.29 0.49
Weighted average common
shares outstanding 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 5,000,000 1,000,000 1,000,000
AS PRO
JUNE 30, HISTORICAL ADJUSTED(1) FORMA(2) SEPT. 30
1993 1994 1995 1996 1997 1997 1997 1997
------------ ------------ ---------- ------------ ------------- -------------- ------------ ------------
BALANCE SHEET DATA:
Working capital(3)........ $196 674 1,736 1,474 1,976 1,476 10,024 2,321
Total assets.............. 1,927 3,928 5,873 7,857 8,844 8,344 16,892 14,568
Long-term debt, net of
current portion........ 39 68 41 37 45 45 45 54
Shareholders' equity...... $308 843 1,924 1,769 2,511 2,011 10,559 2,919
<FN>
- ----------
(1) Reflects the impact of the $500,000 cash dividend to be paid before the
completion of this Offering but excludes the impact of the Offering. See
"Dividend Policy."
(2) Gives effect to the sale by European Micro of 1,000,000 shares of Common
Stock in the Offering (at an assumed initial public offering price of
$10.00 per share and after deducting the $500,000 cash dividend to be paid
before the completion of this Offering and the estimated underwriting
discounts and commissions and offering expenses) and the anticipated
application of the net proceeds therefrom.
(3) Total current assets less current liabilities.
</FN>
</TABLE>
7
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE
RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OFFERED HEREBY. EUROPEAN MICRO CAUTIONS
THAT THE FACTORS DESCRIBED BELOW COULD CAUSE ACTUAL RESULTS OR OUTCOMES TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS OF
EUROPEAN MICRO MADE BY OR ON BEHALF OF EUROPEAN MICRO.
SOURCES OF SUPPLY
Substantially all of the products purchased by European Micro are
trademarked or copyrighted products manufactured which may have been sold to
distributors by the manufacturers and resold to the Company. From time to time,
trademark or copyright owners and their licensees and trade associations have
initiated litigation or administrative agency proceedings seeking to halt the
importation of such products into many of the countries in which the Company
operates. There can be no assurance that future judicial, legislative or
administrative agency action in such countries, including possible import,
export, tariff or other trade restrictions, will not limit or eliminate some of
the Company's secondary sources of supply or other business activities. In
addition, there can be no assurance that the Company's business activities will
not become the subject of legal or administrative actions brought by
manufacturers, distributors or others based on violations of trademark or
copyright rights or other laws. Such judicial, legislative, administrative or
legal actions could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company may attempt to sell
products in the United States in the future. United States trademark and
copyright owners and their licensees and trade associations in other industries
have initiated litigation or administrative agency proceedings seeking to halt
the importation into the United States of foreign manufactured or previously
exported trademarked or copyrighted products. Such actions in the United States
may prevent the Company from selling products in the United States or, if, at
that time, the Company is already selling products in the United States, cease
selling products in the United States. See "Business - Sources of Supply."
RELATED PARTY PURCHASES AND SALES
Since its formation in 1991, the Company has belonged to a group of
related companies called the Micro Computer Center Group (the "GROUP"). The
Group is comprised of European Micro, 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, John
B. Gallagher and/or Harry D. Shields. 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. Such factors as country
supply, currency fluctuation and manufacturer's geographic pricing strategy lead
to a constantly changing model where purchases and sales to other members of the
Group depend on the then current economic balance. 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. This low mark-up has enabled each Group member to buy
product quickly and efficiently in the others' primary territory and to take
advantage of quantity purchasing, financing and logistics of the other members.
Additionally, the Company has paid certain management and consulting fees to the
other members of the Group. The amount of these fees is set forth in the
"Certain Relationships and Related Transactions" section of this Prospectus.
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The following table describes the inter-Group sales and purchases for
the time periods specified (in thousands):
(UNAUDITED)
YEAR ENDED JUNE 30, QUARTER ENDED
1995 1996 1997 SEPT. 30, 1997
------- ------- ------- --------------
SALES
American Micro Computer Center $ 323 306 66 5,836
Technology Express, Inc. 22 104 (2) 3,504
Ameritech Argentina S.A -- -- 90 --
Ameritech Exports Inc. 1 26 -- --
====== ====== ====== ======
$ 346 436 154 9,340
====== ====== ====== ======
(UNAUDITED)
YEAR ENDED JUNE 30, QUARTER ENDED
1995 1996 1997 SEPT. 30, 1997
-------- ------- ------- --------------
PURCHASES
American Micro Computer Center $ 4,082 2,289 1,092 --
Technology Express, Inc. 3,265 14,890 20,717 2,545
Ameritech Argentina S.A -- -- -- --
Ameritech Exports Inc. 70 1,116 848 --
======= ======= ======= =======
$ 7,417 18,295 22,657 2,545
======= ======= ======= =======
With the exception of the quarter ended September 30, 1997, European
Micro has traditionally purchased significantly more products than it has sold
to the United States members of the Group. 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. Any member of the Group could at its sole
discretion terminate its relationship with the other members of the Group. In
the event that the Company was unable to purchase product from the United States
members of the Group in accordance with the inter-Group pricing structure, the
Company's margins would be significantly reduced and its business, financial
condition and results of operations would be materially adversely effected.
Moreover, in the event the Company was unable to sell product to other members
of the Group, the Company's revenues will be significantly reduced and its
business, financial condition and results of operations would be materially
adversely affected. See "Certain Relationships and Related Transactions."
The Group pricing structure is subject to review by the applicable
taxing agency, including The Internal Revenue Service in the United States and
Inland Revenue in the United Kingdom. An adverse decision by any such taxing
agency with respect to the inter-Group pricing structure could result in the
imposition of additional income taxes, interest or penalties. This would have a
material adverse effect on the Company's business, financial condition and
results of operations.
NARROW PROFIT MARGINS
As a result of intense price competition in the microcomputer products
industry, European Micro has had, and expects to continue to have, narrow gross
profit and operating profit margins. These narrow margins magnify the impact on
operating results of variations in sales and operating costs. The Company's
gross margins have declined from 14.2% for 1995 to 7.6% for the quarter ended
September 30, 1997, and operating margins have declined from 5.5% for 1995 to
3.1% for the quarter ended September 30, 1997. The Company has taken a number of
steps intended to address these declining margins, including improving and
enhancing its information systems and partially offsetting the effects of such
low gross profit margins by increasing sales and reducing operating expenses as
a percentage of sales. There can be no assurance that the Company will maintain
or increase sales or further reduce operating expenses as a percentage of sales
in the future. Moreover, there can be no assurance that these steps will prevent
these margins from continuing to decline. Future gross profit margins may be
adversely affected by changes in product mix, manufacturer pricing actions and
competitive and economic pressures. While
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the Company will continue to explore ways to improve gross margins and reduce
operating expenses as a percentage of sales, there can be no assurance that the
Company will be successful in such efforts or that the Company's margins will
not decline in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CUSTOMER CREDIT EXPOSURE
European Micro sells its products and services to a customer base of
more than 250 value-added resellers, corporate resellers, retailers, direct
marketers and distributors. The Company finances a significant portion of such
sales. As a result, the Company's business could be adversely affected in the
event of the deterioration of the financial condition of its customers,
resulting in the customers' inability to repay the Company. In order to minimize
the risk associated with such credit, the Company has sought to insure
substantially all of its accounts receivable. No assurances can be given that
the Company will maintain such insurance or, if such insurance is maintained,
that it will be maintained in an amount equal to the aggregate amount of credit
extended by the Company. In addition, no assurances can be given that such
insurance will be available in the future on terms acceptable to the Company, if
at all. Moreover, the deterioration of the financial condition of one or more of
its customers may make future sales to such customers uninsurable.
ABILITY TO INSURE INVENTORY AGAINST THEFT
The Company has experienced several thefts of inventory in 1997. The
Company insures its inventory against theft and other damage up to a maximum of
$2,900,000. See "Note 7 of the Notes to Financial Statements." There can be no
assurance that such insurance coverage will adequately compensate the Company
for all losses incurred as a result of theft or other casualty and there can be
no assurance that the Company will be able to find replacement coverage if such
coverage terminates or is otherwise canceled. A loss in excess of the Company's
coverage or for which coverage is not available could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that such coverage will remain available and, if
available, at affordable rates.
ACQUISITIONS
European Micro may use a portion of the net proceeds from this Offering
for acquisitions of other companies' assets or product lines that the Company
believes would complement or expand its existing business. No letters of intent
or other documents regarding such acquisition have been entered into.
Acquisitions involve a number of risks that could adversely affect the Company's
operating results, including: (i) the diversion of management's attention; (ii)
the difficulty of assimilation of the operations and personnel of the acquired
companies; (iii) the amortization of acquired intangible assets; (iv) the
assumption of potential liabilities, disclosed or undisclosed, associated with
the businesses acquired, which may exceed the amount of indemnification
available from the seller, if any; (v) the risk that the financial and
accounting systems utilized by the businesses acquired will not meet the
Company's standards; (vi) the risk that the businesses acquired will not
maintain the quality of services that the Company has historically provided;
(vii) the dilutive effect of the use of the Company's Common Stock as
consideration for acquisitions; and (viii) the inability to attract and retain
qualified local management. There can be no assurance that the Company will
consummate any future acquisitions on satisfactory terms, if at all, that
adequate financing will be available on terms acceptable to the Company, if at
all, or that any acquired operations will be successfully integrated, if at all,
or that such operations will ultimately have a positive impact on the Company's
business, financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
European Micro's existing and planned international operations are
subject to political and economic uncertainties, including, without limitation,
inflation, hyperinflation, risk of renegotiation or modification of existing
agreements or arrangements with governmental authorities, transportation,
tariffs, export controls, foreign exchange restrictions which limit the
repatriation of investments and earnings therefrom, changes in taxation,
governmental challenges to the Company's tax strategies, hostilities and
confiscation or nationalization of property. The Company's expected expansion
into certain markets, such as Asia and Eastern Europe, pose a greater risk of
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currency fluctuations and bad debts than the Company's current business
operations in Western Europe and the United States. Changes related to these
matters could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISK OF CURRENCY FLUCTUATIONS
With the exception of the quarter ended September 30, 1997, a
significant amount of European Micro's sales have historically been to customers
outside of the United States. A majority of the Company's sales were denominated
in currencies other than the United States dollar. Changes in the value of
foreign currencies relative to the United States dollar could adversely affect
the Company's results of operations and financial position, and transaction
gains and losses could contribute to fluctuations in the Company's results of
operations and cash position. When possible, the Company engages in currency
hedging transactions primarily through the purchase and sale of forward
contracts intended to reduce these risks. There can be no assurance that
fluctuations in foreign currency rates will not have a material adverse effect
on the Company's business, financial condition and results of operations.
MANAGEMENT OF GROWTH
The rapid growth of the Company's business has required the Company to
make significant additions in personnel and has significantly increased its
working capital requirements. Such growth has resulted in new and increased
responsibilities for management personnel and has placed and continues to place
a significant strain upon the Company's management, operating and financial
systems and other resources. There can be no assurance that the strain placed
upon the Company's management, operating and financial systems and other
resources will not have a material adverse effect on the Company's business,
financial condition and results of operations, nor can there be any assurance
that the Company will be able to attract or retain sufficient personnel to
continue the planned expansion of its operations. Also crucial to the Company's
success in managing its growth will be its ability to achieve economies of
scale, such as enhanced purchasing power, the ability to purchase a higher
percentage of product on credit and the ability to obtain product which the
Company might not otherwise be able to obtain. There can be no assurance that
the Company will be able to achieve such economies of scale, and the failure to
do so could have a material adverse effect on the Company's business, financial
condition and results of operations. Although the Company has experienced
significant sales growth, such growth may not be indicative of future sales
growth.
To manage the expansion of its operations, the Company must
continuously evaluate the adequacy of its management structure and its existing
systems and procedures, including, without limitation, its data processing,
financial and internal control systems. When entering new geographic markets,
the Company will be required to implement its policies and financial reporting
procedures, recruit personnel, and adapt its distribution systems to varying
cultural, economic and governmental systems. There can be no assurance that
management will adequately anticipate all of the changing demands that growth
could impose on the Company's systems, procedures, and structure. In addition,
the Company will be required to react to changes in its industry, and there can
be no assurance that it will be able to do so successfully or at all. Any
failure to adequately anticipate and respond to such changing demands may have a
material adverse effect on the Company's business, financial condition and
results of operations.
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DEPENDENCE ON KEY PERSONNEL
The Company's success to date has been significantly dependent on the
contributions of John B. Gallagher and Harry D. Shields, the founders of the
Company. The loss of the services of either person would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's success also depends to a significant extent upon a number of its
other key employees, and the loss of the services of one or more other key
employees could also have a material adverse effect on the Company. The COMPANY
has key-man life insurance policies with respect to one of these key employees.
In addition, the Company believes that its future success will depend in part
upon its ability to attract and retain additional highly-skilled professional,
managerial, sales and marketing personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting, training and retaining the personnel that it requires for its
business and planned growth, and the failure to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RELIANCE ON KEY PRODUCTS AND KEY SUPPLIERS
European Micro does not manufacture any of its own products but rather
resells products purchased from suppliers. For the fiscal year ended June 30,
1997, the five best selling products accounted for 46.7% of its net sales.
During this same period, the Company obtained 86.5% of its products from ten
suppliers (36.2% excluding Technology Express) Accordingly, the Company is
highly dependent upon such suppliers and the loss of a combination of suppliers
or the inability to obtain adequate supplies of such products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
NO CONTRACTS OR DISTRIBUTION AGREEMENTS WITH SUPPLIERS
European Micro is an independent distributor of personal computer and
related products. With only one exception, the Company does not enter into any
long-term distribution arrangement with its suppliers. Rather, the Company
depends almost entirely on the availability of product in the surplus or
aftermarket. The Company is dependent upon the supply of products available from
its suppliers. The microcomputer products industry is characterized by periods
of severe product shortages and customer backlog due to suppliers' difficulty in
projecting demand. There can be no assurance that suppliers will be able to
maintain an adequate supply of products which will adequately fulfill all of the
Company's customer orders on a timely basis. Failure to obtain adequate product
in required quantities would have a material adverse effect on the Company's
business, financial and results of operations. Moreover, because the Company
does not utilize supplier contracts, it does not enjoy the traditional benefits
that they provide, such as inventory price protection, market development funds
or payment terms.
RELIANCE ON KEY CUSTOMERS AND KEY MARKETS
For the fiscal year ended June 30, 1997, European Micro's twenty
largest customers accounted for 53.8% of the Company's net sales. None of these
customers individually accounted for more than 8.1% of such net sales. As such,
the Company is highly dependent upon such customers and the loss of any such
customer or customers could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, certain
markets within which the Company operates represent a high percentage of its
total operating earnings and net sales. For example, approximately 45.1% of net
sales were attributable to the markets of the United Kingdom. Decreases in the
volume of sales in such regions or declines in operating margins could have a
material adverse effect on the Company's business, financial condition or
results of operations.
RISKS ASSOCIATED WITH HOLDING FOREIGN SUBSIDIARIES
All of the operations of European Micro Holdings, Inc. are and will be
conducted through the Subsidiaries and any other direct and indirect
subsidiaries. European Micro Holdings, Inc.'s available cash will depend upon
the cash flow of its subsidiaries and the ability of those subsidiaries to make
funds available to European Micro Holdings, Inc. in the form of loans,
dividends, intercompany advances, management fees or otherwise. The subsidiaries
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to make funds available to European Micro Holdings, Inc., whether in
the form of loans, dividends, intercompany advances,
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<PAGE>
management fees or otherwise. Certain subsidiaries currently are organized
outside the United States and applicable law in certain countries may limit the
ability of such subsidiaries to pay dividends in the absence of sufficient
withholding taxes, distributable reserves or for other reasons. The Subsidiaries
are not currently subject to any currency exchange controls. However, future
exchange controls, or the existence of such controls in other countries in which
European Micro establishes or acquires subsidiaries, could limit or restrict the
ability of European Micro to obtain loans, dividends, intercompany advances,
management fees or otherwise access financial resources of such subsidiaries. In
addition, the subsidiaries may from time to time in the future become parties to
financing arrangements, which may contain limitations on the ability of such
subsidiaries to pay dividends or to make loans or advances to European Micro
Holdings, Inc. In the event of any insolvency, bankruptcy or similar
proceedings, creditors of the subsidiaries would generally be entitled to
priority over European Micro Holdings, Inc. with respect to assets of the
affected subsidiaries.
AVAILABLE CAPITAL
The Company's business often requires the volume buying of discounted
products. This requires the Company to have sufficient available cash or
financing to be able to take advantage of such discounted prices on a timely
basis. There can be no assurance that the Company will continue to have
available cash or financing. A shortage of available cash or financing may
prevent the Company from being able to purchase inventory at favorable prices
and therefore have a material adverse effect on the Company's business,
financial condition and results of operations.
NEED FOR ADDITIONAL CAPITAL AND RISK OF INDEBTEDNESS
European Micro has historically grown through internal expansion, which
has resulted in the need for significant amounts of capital or financing which
often has been provided by the Company's founding shareholders. To maintain
historical levels of growth, European Micro may need to seek additional funding
through public or private financing and may, when attractive sources of capital
become available, elect to obtain capital in anticipation of such needs. There
can be no assurances that the founding shareholders will continue to extend
credit to the Company. Adequate funds may not be available when needed or may
not be available on terms favorable to European Micro. If additional funds are
raised by issuing equity securities, dilution to existing shareholders may
result. If funding is insufficient, the Company may be required to delay, reduce
the scope of or eliminate some or all of its expansion plans.
The Company may incur substantial amounts of indebtedness in its
operations. European Micro expects to dedicate an increasing portion of its cash
flow to servicing such indebtedness, thereby exposing it to the risks inherent
in a highly leveraged company, including, among other things, interest rate and
default risks. An increase in interest rates charged by lending institutions
will increase the cost of servicing the Company's indebtedness as well as
increase the cost of financing future acquisitions. Additionally, the Company
anticipates that such indebtedness will be secured by liens on the Company's
assets, and a default on such indebtedness may result in the Company's lenders
foreclosing such liens. The occurrence of any of these things could have a
material adverse affect on the Company's business, financial condition and
results of operations. Loan agreements also typically impose substantial
restrictions on borrowers and normally require strict compliance with certain
financial ratios and other criteria, all of which may significantly restrict the
Company's business or financial flexibility and have a material adverse effect
on the Company's business and financial condition. If funding is insufficient,
European Micro may be required to delay, reduce the scope of or eliminate some
or all of its expansion plans. This would have a material adverse effect of the
Company's business, financial condition and results of operations.
VARIABILITY OF CUSTOMER REQUIREMENTS
The level and timing of orders placed by European Micro's customers
vary due to a number of factors, including customer attempts to manage
inventory, changes in customers' strategies and variations in demand for
products. European Micro relies on its estimate of anticipated future volumes
when making commitments regarding the quantities and the mix of products that it
intends to carry in inventory. European Micro does not have long term contracts
with its customers. As such, nothing would prohibit European Micro's customers
from reducing or eliminating their orders with European Micro which would result
in a decrease in sales and an increase in inventory
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carrying costs and obsolescence. Any significant reduction in customer orders
could have a material adverse effect on European Micro's business, financial
condition and results of operation.
COMPETITION
European Micro operates in a highly competitive environment. The
computer wholesale distribution industry is characterized by intense
competition, based primarily on product availability, credit availability,
price, speed of delivery, quality and depth of product lines, service and
support. Certain of European Micro's competitors have greater financial,
marketing, service and technical support resources than European Micro and may
sell products at prices below those charged by European Micro. There can be no
assurance that European Micro's resources will be sufficient to allow European
Micro to compete effectively in the future. Continued increases in competition
could have a material adverse effect on European Micro's results of operations
because of price reductions and potential loss of market share.
FLUCTUATIONS IN QUARTERLY RESULTS
European Micro's quarterly net sales and operating results have varied
significantly in the past and will likely continue to do so in the future as a
result of such factors as 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,
competitive conditions including pricing, interest rate fluctuations, the impact
of acquisitions, currency fluctuations, and general economic conditions.
Specific historical seasonal variations in European Micro's operating
results have included a reduction in demand in Europe during the summer months
and the product cycle of major products. European Micro may be unable to adjust
spending sufficiently in a timely manner to compensate for any unexpected sales
shortfall, which could materially adversely affect quarterly operating results.
Accordingly, European Micro believes that period-to-period comparisons of its
operating results should not be relied upon as an indication of future
performance. In addition, the results of any quarterly period are not indicative
of results to be expected for a full fiscal year. In certain future quarters,
European Micro's operating results may be below the expectations of public
market analysts or investors. In such event, the market price of the Common
Stock would be materially adversely affected.
EFFECTS OF TECHNOLOGICAL CHANGE
The products sold by European Micro are characterized by rapidly
changing technology, frequent new product introductions and evolving industry
standards that can render the products marketed by European Micro obsolete or
unmarketable in a relatively short period of time. Although it is the policy of
most manufacturers of microcomputer products to protect distributors in the form
of price protection and/or stock rotation, the nature of European Micro's
business does not allow it to enjoy those benefits. See "Risk Factors - No
Contracts or Distribution Agreements with Vendors." European Micro's future
success will depend upon its ability to limit its exposure to obsolescence in
its inventory and to gain access to its vendors' new product lines, as well as
product lines of any additional vendors that release new and desirable
technology.
CONTROL BY CURRENT SHAREHOLDERS
Upon completion of the Offering, the Selling Shareholders will own
beneficially approximately 78% of the outstanding shares of Common Stock. As a
result, these shareholders, acting together, will retain the voting power
required to approve all matters requiring approval by European Micro's
shareholders, including the election of directors of the Company, transactions
involving the potential sale or merger of the Company, the issuance of
additional equity, warrants or options, or the incurrence of significant
indebtedness. Pursuant to a Shareholders Agreement which the Selling
Shareholders anticipate entering into before the completion of this Offering,
Messrs. Gallagher and Shields will agree to vote all shares of Common Stock
owned or controlled by them, together on all matters submitted to a vote of the
shareholders of European Micro, including the election of directors. See
"Principal and Selling Shareholders - Shareholder Cross-Purchase Agreement."
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ANTI-TAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock in one or more series and to fix the powers,
designations, preferences and relative rights thereof without any further vote
or action by the Company's shareholders. The issuance of Preferred Stock could
dilute the voting power of holders of Common Stock and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company's Articles of Incorporation provide that the holders of a majority of
the Preferred Stock, voting separately from the holders of the Common Stock,
must approve certain transactions. The Company has a staggered board. Therefore,
any shareholder (other than Messrs. Gallagher and Shields) interested in gaining
control of the Company will be precluded from electing a majority of directors
in any single year. Certain change of control transactions such as mergers,
share exchange or sale of substantially all of the assets of the Company require
an affirmative vote of a majority of the holders of the Company's Common Stock
and a majority of the holders of the Company's Preferred Stock.
In addition, Messrs. Gallagher and Shields control approximately 78% of
the outstanding shares of Common Stock and the voting power of these
shareholders could have the effect of delaying or preventing a change in control
of European Micro. These, and certain other provisions of the Company's Articles
of Incorporation and By-laws, as well as Nevada law, may operate in a manner
that could discourage or render more difficult a takeover of the Company or the
removal of management or the Board of Directors or may limit the price certain
investors may be willing to pay in the future for shares of Common Stock. See
"Principal Shareholders" and "Description of Capital Stock-Anti-takeover Effects
of Provisions of the Articles of Incorporation, By-laws and Nevada Law."
FOREIGN CORRUPT PRACTICES ACT
The Company, like other companies operating internationally, is subject
to the Foreign Corrupt Practices Act ("FCPA") and other laws which prohibit
improper payments to foreign governments and their officials by United States
and other business entities. The FCPA also requires companies to maintain
accurate record keeping and systems of internal control to ensure that funds are
not misappropriated. The Company's operations in certain countries creates the
risk of an unauthorized payment by an employee or agent of the Company which
would be in violation of such laws, including the Foreign Corrupt Practices Act.
Violations of the Foreign Corrupt Practices Act or these other laws may result
in severe criminal penalties which could have a material adverse effect on the
Company's business, financial condition and results of operations.
NO ANTICIPATION OF DIVIDENDS FOLLOWING OFFERING
European Micro anticipates that, following the completion of this
Offering and for the foreseeable future, earnings, if any, will be retained for
the development of its business and will not be distributed to shareholders as
dividends. The declaration and payment of any dividends by European Micro at
some future time, if any, will depend upon European Micro's results of
operations, financial condition, cash requirements, future prospects,
limitations imposed by credit agreements or senior securities and any other
factors deemed relevant by European Micro's Board of Directors. The declaration
and payment of dividends, if at all, by European Micro will be at the discretion
of the Board of Directors. See "Dividend Policy."
BROAD DISCRETION IN USE OF PROCEEDS
European Micro intends to use the net proceeds of this Offering for the
purposes set forth in the Section entitled "Use of Proceeds." However,
management of European Micro has broad discretion to adjust the application and
allocation of the net proceeds of this Offering in order to address different
circumstances and opportunities. As a result, European Micro's success will be
substantially dependent upon the discretion and judgment of the management of
European Micro with respect to the application and allocation of the net
proceeds of this Offering.
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QUALIFICATION AND MAINTENANCE CRITERIA FOR NASDAQ SECURITIES
The National Association of Securities Dealers, Inc. ("NASD"), which
administers The Nasdaq National Market System (the exchange which European Micro
proposes to list the Common Stock for trading), requires that in order to be
included on this market, a company must satisfy and maintain certain financial
requirements established by the NASD. The failure to satisfy or maintain such
requirements may result in the discontinuance of the inclusion of the Common
Stock on these markets. In such event trading, if any, of the Common Stock may
then continue to be conducted in the non-Nasdaq over-the-counter market in what
are commonly referred to as the "pink sheets." An investor will find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Common Stock. If European Micro fails to meet certain requirements,
sales of the Common Stock would be subject to a rule promulgated by the
Commission which imposes various sales practice requirements on broker-dealers
who sell securities governed by the rule to persons other than established
customers and accredited investors. For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transactions prior to
sale. Consequently, the rule may have a material adverse effect on the ability
of broker-dealers to sell the Common Stock, which may affect the ability of
purchasers in this Offering to sell the Common Stock in the secondary market.
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or, if one does develop, that it will be maintained.
The initial public offering price, which will be established by negotiations
between European Micro and the representatives of the Underwriters, does not
reflect book value per share or any other quantitative factor and may not be
indicative of prices that will prevail in the trading market for the Common
Stock. The stock market has experienced extreme price and volume fluctuations
which have particularly affected the market price for many computer related
distribution companies and which have often been unrelated to the operating
performance of these companies. The trading price of the Common Stock could also
be subject to significant fluctuations in response to variations in periodic
operating results, changes in management, future announcements concerning
European Micro, legislative or regulatory changes, general trends in the
industry and other events or factors.
DILUTION
The initial public offering price of the Common Stock is substantially
more than the net tangible book value per share of the Common Stock.
Accordingly, the purchasers of shares of Common Stock pursuant to the Offering
will experience immediate and substantial dilution in the net tangible book
value per share of Common Stock from the initial public offering price. The net
tangible book value dilution to new investors in the Offering will be $7.89 per
share at an assumed initial public offering price of $10.00 per share. See
"Dilution."
UNDERWRITER'S INFLUENCE ON THE MARKET
A significant amount of the Common Stock offered hereby will be sold to
customers of the Underwriter. Such customers subsequently may engage in
transactions for the sale or purchase of such shares through or with the
Underwriter. Although it has no obligation to do so, the Underwriter intends to
make a market in the Common Stock and may otherwise effect transactions in the
Common Stock. If it participates in the market, the Underwriter may exert a
substantial influence on the market, if one develops, for the Common Stock. Such
market-making activity may be discontinued at any time. The price and liquidity
of the Common Stock may be significantly affected by the degree, if any, of the
Underwriter's participation in such market. See "Underwriting."
LIMITATION ON UNDERWRITER'S MARKET MAKING
Unless granted an exemption from the Commission's Rule 10b-6, the
Underwriter will be prohibited from engaging in any market making activities
with regard to European Micro's securities while the Underwriter is engaged in a
distribution of the Common Stock and for a period of up to ten days prior to
such activities. The inability of the Underwriter to engage in such market
activities may have a material adverse effect on the market price of the Common
Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
this Offering, including sales pursuant to Rule 144 promulgated under the
Securities Act or otherwise, or the perception that such sales could occur, may
adversely affect the market price of European Micro's Common Stock. Upon
completion of this Offering, European Micro will have 5,000,000 shares of Common
Stock outstanding. Of these shares, all of the 1,100,000 shares sold in this
Offering will be freely tradable without restriction or further registration
under the Securities Act. All of the remaining 3,900,000 shares are deemed
"restricted shares" under Rule 144 in that they were originally issued and sold
in private transactions in reliance upon exemptions under the Securities Act.
All of those shares are held by the Selling Shareholders who are deemed
"affiliates" of European Micro as such term is defined in Rule 144. The
restricted shares may not be sold except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption from registration
such as the exemption provided by Rule 144 under the Securities Act. Except for
the 100,000 shares of Common Stock being sold by the Selling Shareholders in
this Offering, the Selling Shareholders have agreed not to sell or dispose of
any of the remaining 3,900,000 shares of Common Stock held by them for six
months after the date of this Prospectus without the prior written consent of
the Underwriter. For the period beginning six months after the date of this
Prospectus and ending one year from such date, the Selling Shareholders have
agreed not to sell or dispose of any of the remaining 3,900,000 shares of Common
Stock held by them in amounts exceeding those set forth in Section (e)(1) of
Rule 144 promulgated under the Securities Act and only in the manner of sale
provided in Section (f) of such rule. See "Underwriting." Subject to the
restrictions described above, the Selling Shareholders have certain demand and
piggy-back registration rights with respect to the shares of Common Stock held
by them. Either of the Selling Shareholders may require the Company to file a
registration statement with respect to the 3,900,000 shares once per year.
Moreover, either may include these shares in certain other offerings by the
Company. See "Description of Capital Stock - Registration Rights."
LABOR RELATIONS
European Micro's labor force is currently not unionized. European
Micro, however, does business in certain foreign countries where labor
disruption is more common than in the United States. The majority of the freight
carriers used by European Micro are unionized. A labor strike by one of European
Micro's freight carriers or vendors, a general strike by civil service
employees, a governmental shutdown or any type of labor disruption could have a
material adverse effect on European Micro's business, financial and results of
operation.
USE OF PROCEEDS
The net proceeds to European Micro (after deducting underwriting
discounts and commissions and estimated offering expenses) from the sale of
1,000,000 shares of Common Stock offered by the Company, assuming a public
offering price of $10 per share, are estimated to be approximately $8,548,000.
The Company will not receive any portion of the proceeds from the sale of shares
by the Selling Shareholders. See "Principal and Selling Shareholders."
The Company expects to use the net proceeds of this Offering to expand
its ability to fund operations and provide working capital to European Micro Plc
(approximately $4,000,000), for expansion purposes, including mergers and
acquisitions (approximately $2,500,000), to fund operations and provide working
capital to Nor'easter (approximately $1,000,000), to expand its sales and
marketing capabilities (approximately $500,000) and for general corporate
purposes, including investor relations (approximately $500,000). European Micro
is not currently engaged in any discussions for any material acquisitions and no
assurance can be given that any such acquisitions will be consummated or when,
if any, expansions will occur.
Pending utilization as described above, the net proceeds of this
Offering will be invested in short-term, high grade, interest-bearing
securities.
17
<PAGE>
DIVIDEND POLICY
During the fiscal years ended June 30, 1996 and 1997, European Micro
declared and paid cash dividends of $961,000 or $0.96 per share and $562,000 or
$0.56 per share, respectively. The dividends per share were calculated based on
1,000,000 shares of Common Stock outstanding.
Before the completion of this Offering, European Micro anticipates
declaring and paying a cash dividend of $500,000 or $0.50 per share of Common
Stock. The effect of this cash dividend will be to reduce both the cash and
retained earnings on the consolidated balance sheet of European Micro by an
aggregate of $500,000. In addition, the proposed cash dividend will reduce the
amount of cash available to European Micro for working capital and other
corporate purposes.
European Micro anticipates that, following the completion of the
Offering, earnings will be retained for development of its business and will not
be distributed to shareholders as dividends. The declaration and payment by
European Micro of any future dividends and the amount thereof will depend upon
European Micro's results of operations, financial condition, cash requirements,
future prospects, limitations imposed by credit agreements or senior securities
and other factors deemed relevant by the Board of Directors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
18
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of June 30, 1997, and (ii) the pro forma capitalization of the
Company as of such date as adjusted to reflect the sale by the Company of
1,000,000 shares of Common Stock in the Offering at an assumed initial public
offering price of $10.00 per share after deducting estimated underwriting
discounts and commissions and estimated offering expenses and the anticipated
application of the net proceeds therefrom and the impact of the $500,000 cash
dividend to be paid before the completion of this Offering.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------------
ACTUAL AS ADJUSTED(1) PRO FORMA (2)(3)
------------- - -------------- ---------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current portion..................... $45 45 45
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000
shares authorized, none issued on a proforma -- -- --
basis ..............................................
Common Stock, par value (pound sterling)1 per share;
1,001,000 shares authorized, 1,000,000 shares
issued and outstanding. On a proforma basis, par
value $0.01 per share; 20,000,000 shares authorized;
5,000,000 shares issued and outstanding............. 1,664 1,664 50
Additional paid-in capital........................... -- -- 10,162
Retained Earnings.................................... 826 326 326
Cumulative foreign currency adjustment............... 21 21 21
---------- ---------- ----------
Total stockholders' equity.......................... $2,511 2,011 10,559
---------- ---------- ----------
Total capitalization................................ $2,556 2,056 10,604
========== ========== ==========
<FN>
- ----------
(1) Reflects the impact of the $500,000 cash dividend to be paid before the
completion of this Offering but excludes the impact of the Offering..
See "Dividend Policy."
(2) Excludes (i) 500,000 shares issuable upon the exercise of options to
purchase shares of Common Stock reserved for issuance upon the grant of
options under European Micro's 1998 Stock Incentive Plan and (ii)
50,000 shares of Common Stock that have been reserved for issuance
under European Micro's Employee Stock Purchase Plan. See "Management -
1998 Stock Incentive Plan" and "Management - 1998 Employee Stock
Purchase Plan."
(3) This reflects the impact of both the $500,000 cash dividend to be paid
before the completion of this Offering and the estimated net proceeds
of the Offering.
</FN>
</TABLE>
19
<PAGE>
DILUTION
THE PER SHARE DATA IN THE FOLLOWING TABLE ASSUMES THAT ALL SHARES OF
EUROPEAN MICRO PLC CURRENTLY HELD BY THE SELLING SHAREHOLDERS HAVE BEEN
EXCHANGED FOR 4,000,000 SHARES OF COMMON STOCK OF EUROPEAN MICRO HOLDINGS, INC.
THE COMPANY EXPECTS SUCH EXCHANGE TO BE CONSUMMATED PRIOR TO THE OFFERING. THE
COMPANY FURTHER BELIEVES THAT THE FOLLOWING TABLE IS MORE MEANINGFUL WHEN
PRESENTED IN THIS FASHION.
The pro forma net tangible book value of the Company at June 30, 1997,
as adjusted for the $500,000 cash dividend to be paid before the completion of
the Offering was $2,011,000 or $0.50 per share of Common Stock assuming
4,000,000 shares outstanding. All per share calculations immediately after the
Offering assume 5,000,000 shares of Common Stock are outstanding. After giving
effect to the sale of the shares of Common Stock in the Offering (at an assumed
initial offering price of $10.00 per share) and after deducting anticipated
offering expenses and underwriting discounts and commissions, the adjusted pro
forma net tangible book value of the Company at June 30, 1997 would have been
$10,559,000 or $2.11 per share, representing an immediate $7.89 per share
dilution to new investors purchasing shares at the initial public offering
price. The following table illustrates such per share dilution.
Assumed initial public offering price per share.................... $10.00
Pro forma net tangible book value
per share before the Offering(1)................. $0.50
Increase per share attributable to new investors..... $1.61
-----
Adjusted pro forma net tangible book
value per share after the Offering............................ $2.11
-----
Dilution per share to new investors (2)............................ $7.89
=====
----------------
(1) Reflects the impact of the $500,000 cash dividend to be paid
before the completion of this Offering but excludes the
impact of the Offering. See "Dividend Policy."
(2) Dilution is determined by subtracting pro forma net tangible
book value per share after giving effect to the Offering
from the initial public offering price paid by a new
investor for a share of Common Stock.
Sales of the Common Stock for other purposes after the completion of
the Offering could also have dilutive effect to those persons purchasing Common
Stock in the Offering.
The following table sets forth, on a pro forma basis as of June 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing shareholders
and by new investors (assuming the sale by the Company of 1,000,000 shares in
the Offering at an assumed initial public offering price of $10.00 per share),
before deduction of underwriting discounts and commissions and offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- ---------------------------------------
PERCENT AFTER PERCENT AVERAGE
NUMBER OFFERING AMOUNT AFTER PRICE PER
OFFERING SHARE
--------- ------------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).. 3,900,000 78% $ 1,622,000(2) 12.9% $0.42
New shareholders.......... 1,100,000 22% $11,000,000 87.1% $10.00
Total................ 5,000,000 100% $12,622,000 100.0%
========= ==== =========== ======
<FN>
- --------------
(1) Sales by Selling Shareholders in this Offering will reduce the number of
shares held by existing shareholders to 3,900,000 or 78% of the total
number of shares of Common Stock to be outstanding after this Offering.
See "Principal and Selling Shareholders."
20
<PAGE>
(2) The total consideration paid by the Existing Shareholders was $1,664,000
or $0.42 per share assuming 4,000,000 shares outstanding. This amount
has been reduced by $42,000, the total consideration paid by the
Existing Shareholders for the 100,000 shares of Common Stock to be sold
in this Offering by the Existing Shareholders.
</FN>
</TABLE>
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected statement of operations and balance sheet data
of the Company as of June 30, 1996 and 1997 and each of the years in the
three-year period ended June 30, 1997 have been derived from the Company's
audited consolidated financial statements and should be read in conjunction with
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this Offering Memorandum. The following selected statement of operations and
balance sheet data of the Company as of June 30, 1993, 1994 and 1995 and for the
fiscal years ended June 30, 1993 and 1994, and the three months ended September
30, 1996 and 1997 have been derived from unaudited consolidated financial
statements of the Company. In the opinion of the management, the unaudited
consolidated financial statements of the Company have been prepared on the same
basis as the audited consolidated financial statements included herein and
include all adjustments necessary for the fair presentation of financial
position and results of operations at these dates and for these periods which
adjustments are only of a normal requiring nature. The results of operations for
interim periods are not necessarily indicative of results that may be expected
for the full year. All figures are in thousands except per share data. See
"Index to Financial Statements."
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
YEAR ENDED JUNE 30, SEPT. 30, SEPT. 30,
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales to third parties $23,968 28,293 33,518 39,912 46,501 8,628 14,767
Net sales to related parties 309 942 346 436 154 68 9,340
Total net sales 24,277 29,235 33,864 40,348 46,655 8,696 24,107
Cost of goods sold (21,256) (25,761) (29,040) (35,892) (41,319) (7,466) (22,268)
------- ------- ------- ------- ------- ------- -------
Gross Profit 3,021 3,474 4,824 4,456 5,336 1,230 1,839
------- ------- ------- ------- ------- ------- -------
Operating expenses (1,313) (2,368) (2,832) (2,884) (3,230) (734) (1,057)
Operating expenses
attributable to related parties (80) (120) (144) (94) (55) (53) (25)
------- ------- ------- ------- ------- ------- -------
Total operating expenses (1,393) (2,488) (2,976) (2,978) (3,285) (787) (1,082)
------- ------- ------- ------- ------- ------- -------
Operating profit 1,628 986 1,848 1,478 2,051 443 757
------- ------- ------- ------- ------- ------- -------
Interest expense (18) (30) (156) (160) (293) (14) (101)
------- ------- ------- ------- ------- ------- -------
Share of net (loss) income
in unconsolidated affiliate -- -- -- -- (73) -- 35
Income before income taxes 1,610 956 1,692 1,318 1,685 429 691
Taxes on income (546) (432) (577) (473) (651) (142) (206)
------- ------- ------- ------- ------- ------- -------
Net income $ 1,064 524 1,115 845 1,034 287 485
======= ======= ======= ======= ======= ======= =======
Net income per share $1.06 0.52 1.12 0.85 1.03 0.29 0.49
Cash dividend per share $0.24 -- 0.10 0.24 0.14 0.17 0.01
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, HISTORICAL AS ADJUSTED(1) PRO FORMA(2) SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1997 1997
------ ----- ----- ----- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(3) ... $ 196 674 1,736 1,474 1,976 1,476 10,024 2,321
Total assets ......... 1,927 3,928 5,873 7,857 8,844 8,344 16,892 14,568
Long-term debt, net of
current portion ... 39 68 41 37 45 45 45 45
Shareholders' equity . $ 308 843 1,924 1,769 2,511 2,011 10,559 2,919
<FN>
- ----------
(1) Reflects the impact of the $500,000 cash dividend to be paid before the completion of this Offering but
excludes the impact of the Offering. See "Dividend Policy."
(2) Gives effect to the sale by European Micro of 1,000,000 shares of Common
Stock in the Offering (at an assumed initial public offering price of
$10.00 per share and after deducting the $500,000 cash dividend to be
paid before the completion of this Offering and the estimated
underwriting discounts and commissions and offering expenses) and the
anticipated application of the net proceeds therefrom.
(3) Total current assets less current liabilities.
</FN>
</TABLE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for each of the four quarters in the periods ended
June 30, 1996 and 1997. In the opinion of management, this information has been
prepared on the same basis as the audited consolidated financial statements
appearing elsewhere in this Prospectus, and includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of this
information in accordance with generally accepted accounting principles. Such
quarterly results are not necessarily indicative of future results of operations
and should be read in conjunction with the audited consolidated financial
statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
QUARTER ENDED
-------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales(1) $8,718 9,323 8,092 14,214
Gross profit 1,013 1,143 912 1,388
Net Income 245 282 117 201
Net income per share 0.24 0.28 0.12 0.20
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
QUARTER ENDED
-------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Sales $8,696 10,963 13,571 13,425
Gross Profit 1,231 1,025 1,454 1,627
Net Income(2) 287 94 291 362
Net income per
share(2) 0.29 0.09 0.29 0.36
</TABLE>
- ------------
(1) The net sales for the quarter ended June 30, 1996, increased primarily due
to the Company's purchase of products in short supply in Europe from related
parties in the United States. The demand for such products resulted in
increased net sales for the quarter.
(2) Net Income and net income per share for the quarter ended December 31, 1996,
decreased primarily due to adverse fluctuations in the exchange rates in
Europe, particularly the British pound. The rapid strengthening of British
pound affected central European currency debtor balances considerably.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF EUROPEAN MICRO AND THE NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
European Micro is an independent distributor of microcomputer products,
including personal computers, memory modules, disc drives and networking
products, operating primarily in Western Europe. European Micro has pursued and
expects to continue to pursue a strategy of purchasing product for resale on the
worldwide surplus or aftermarket, as opposed to purchasing product for resale
directly from manufacturers. European Micro's ability to purchase products for
resale in these markets has enabled European Micro to significantly increase net
sales and achieve strong operating results. For the three-year period ended June
30, 1997, European Micro's total net sales increased from $33.9 million in 1995
to $46.7 million in 1997, and gross profit increased from $4.8 million to $5.3
million. European Micro attributes these increases in sales to increased
customer demand for European Micro's products and, more recently, to the
expansion of the range of products offered.
European Micro has derived all of its operating income and cash flow
from its operating subsidiary organized and operated in the United Kingdom,
European Micro Plc. Generally, European Micro purchases and sells its products
in currencies other than the United States dollar. European Micro seeks to limit
its exposure to currency fluctuations through hedging. See "Risk Factors --
Currency Risk Management."
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 Statements of Operations:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
(UNAUDITED)
THREE MONTHS ENDED
FISCAL YEARS ENDING JUNE 30, SEPTEMBER 30,
--------------------------- ------------------
1995 1996 1997 1996 1997
----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Net sales to third parties 99.0% 98.9% 99.7% 99.2% 61.3%
Net sales to related parties 1.0% 1.1% 0.3% 0.8% 38.7%
----- ----- ----- ----- -----
Total net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of goods sold (85.8%) (89.0%) (88.6%) (85.9%) (92.4%)
----- ----- ----- ----- -----
Gross profit 14.2% 11.0% 11.4% 14.1% 7.6%
Operating expenses (8.7%) (7.3%) (7.0%) (9.0%) (4.5%)
----- ----- ----- ----- -----
Operating profit 5.5% 3.7% 4.4% 5.1% 3.1%
Interest expense (0.5%) (0.4%) (0.6%) (0.2%) (0.4%)
Share of net profit/loss Joint Venture -- -- (0.2%) -- 0.1%
----- ----- ----- ----- -----
Income before income taxes 5.0% 3.3% 3.6% 4.9% 2.8%
Provision for income taxes (1.7%) (1.2%) (1.4%) (1.6%) (0.8%)
----- ----- ----- ----- -----
Net Income 3.3% 2.1% 2.2% 3.3% 2.0%
===== ===== ===== ===== =====
</TABLE>
24
<PAGE>
QUARTER ENDED SEPTEMBER 30, 1997 AND 1996
TOTAL NET SALES. Total net sales increased $15.4 million, or 177.0%,
from $8.7 million in the three month period ended September 30, 1996 to $24.1
million in the three months ended September 30, 1997. This increase was
attributable to net sales to related parties and internal growth of the
business, including the Premier Dealers Club. See "Business."
Net sales to related parties increased $9.2 million, from $68,000 in
the three month period ended September 30, 1996 to $9.3 million in the
comparable period in 1997. This increase is attributable to extraordinary
opportunities in the United States, caused by product shortages of certain
computer peripherals in the United States which did not exist in Europe in the
prior comparable period.
Excluding net sales to related parties, net sales increased $6.2
million, or 72.1%, from $8.6 million in the three month period ended September
30, 1996 to $14.8 million in the comparable period in 1997. This is largely
attributable to sales growth in connection with the establishment of the Premier
Dealers Club. See "Business."
GROSS PROFIT. Gross profit increased $0.6 million, or 50%, from $1.2
million in the three month period ended September 30, 1996 to $1.8 million in
the comparable period in 1997 due principally to greater sales in the period.
Gross profit excluding related party transactions increased to $1.6 million the
three month period ended September 30, 1997.
Gross margin decreased from 14.1% in the three month period ended
September 30, 1996 to 7.6% in the comparable period in 1997. This decrease was
largely attributable to lower gross margins associated with net sales to related
parties. Excluding related party transactions, gross margin decreased from 14.1%
in the three month period ended September 30, 1996 to 11.0% in the comparable
period in 1997. The actual decrease was attributable to higher than usual
margins in the period ended 1996 caused by a large volume of higher margin
computer system sales in August and September 1996. The company does not expect
this level of margin to be regularly achievable. The company views the margins
in the period ended 1997 lower than normal due to fluctuating product shortages
in the period.
OPERATING EXPENSES. Operating expenses as a percentage of total net
sales decreased from 9.1% in the three month period ended September 30, 1996 to
4.5% in the comparable period in 1997. This percentage decrease is attributable
to the increased sales volume associated with related party transactions in 1997
and the corresponding overheads that are not incurred in these transactions.
Excluding related party transactions, operating expenses as a percentage of net
sales decreased from 8.5% in the three month period ended September 30, 1996 to
7.2% in the comparable period in 1997. Operating expenses consist primarily of
fixed costs, such as wages, salaries, rents and rates. Therefore, while net
sales have increased in the period there has not been a corresponding increase
in the fixed cost base.
INTEREST EXPENSE. Interest expense increased $87,000 from $14,000 in
three month period ended September 30, 1996 to $101,000 in the comparable period
in 1997. This was attributable to increased borrowings by European Micro.
INCOME TAXES. Income taxes as a percentage of earnings before income
taxes decreased from 33.1% in the three month period ended September 30, 1996 to
31.4% in the comparable period in 1997. This decrease was attributable to a
reduction in the corporate tax rate in the United Kingdom.
INTEREST IN JOINT VENTURE. European Micro's share of income from Big
Blue Europe was $35,000 in the three month period ended September 30, 1997.
These earnings are attributed to the business maturing past the start-up stage.
The company expects this trend to continue as Big Blue Europe attracts more
customers and further strengthens existing relationships.
25
<PAGE>
FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
TOTAL NET SALES. Total net sales increased $6.4 million, or 15.9%, from
$40.3 million in 1996 to $46.7 million in 1997. Excluding net sales to related
parties, net sales increased $6.6 million, or 16.5%, from $39.9 million in 1996
to $46.5 million in 1997. The increase in net sales was largely attributable to
the internal growth of European Micro's business, addition of salespersons,
greater market share and the development of key product niches. Additional
growth in the period ended 1997 was fueled by the increase and strengthening of
certain related hardware. This growth was primarily driven by the increased
demand for the peripherals required by the hardware intensive
enterprise-computing sector.
Net sales to related parties decreased $282,000 from $436,000 in 1996
to $154,000 in 1997. This did not have any material effect on the Company's
results of operations in the fiscal year ended June 30, 1997.
GROSS PROFIT. Gross profit increased $0.8 million or 17.8%, from $4.5
million in 1996 to $5.3 million in 1997 due to increased sales in the period.
Related party transactions did not have a material affect on gross profit in
this period.
Gross Margins increased from 11.0% in 1996 to 11.4% in 1997. This was
attributable to European Micro's product mix. The gross margins were not
materially affected by the related party transactions in the fiscal years ended
1997 and 1996, respectively. The Company does not expect the margins to continue
to rise.
OPERATING EXPENSES. Operating expenses as a percentage of total net
sales decreased from 7.4% in 1996 to 7.0% in 1997. Operating expenses consist
primarily of fixed costs, such as wages, salaries, rents and rates. Therefore,
while net sales have increased in the period there has not been a corresponding
increase in the fixed cost base.
INTEREST EXPENSE. Interest Expense increased $133,000 from $160,000 in
1996 to $293,000 in 1997. The increase was attributable to increased borrowings
by European Micro in 1997.
INCOME TAXES. Income taxes as a percentage of earnings before income
taxes increased from 35.9% in 1996 to 37.0% in 1997. The increase was primarily
attributed to the increase in disallowed travel and entertainment expenditures
for corporate income tax purposes.
INTEREST IN JOINT VENTURE. European Micro's share of losses from Big
Blue Europe was $73,000 in 1997. These losses are attributed to business
start-up costs. Big Blue Europe commenced operations in January 1997.
FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
TOTAL NET SALES. Total net sales increased $6.4 million, or 18.9%, from
$33.9 million in 1995 to $40.3 in 1996. This increase in net sales was related
to an increase in the customer base. A major catalyst in the increase in sales
was the addition of new products to the Company's existing product lines.
Related parties transactions were not material in this period.
GROSS PROFIT. Gross profit decreased $0.3 million, or 6.3%, from $4.8
million in 1995 to $4.5 million in 1996 due principally to margin decreases in
computer memory. Related party transactions did not have a material affect on
gross profit in this period.
Gross margin decreased from 14.2% in 1995 to 11.0% in 1996 due in large
part to drastic worldwide computer memory price drops. These drops in prices
caused cascading negative pressure on margins. Margins in the period ended 1996
fell also in part to the lower margin from sales of certain computer
peripherals. Gross margins were not materially affected by related party
transactions.
OPERATING EXPENSES. Operating expenses as a percentage of total net
sales decreased from 8.8% in 1995 to 7.4% in 1996. Operating expenses consist
primarily of fixed costs, such as wages, salaries, rents and rates. Therefore,
while net sales have increased in the period there has not been a corresponding
increase in the fixed cost base.
26
<PAGE>
INTEREST EXPENSE. Interest expense increased $4,000, or 2.6%, from
$156,000 in 1995 to $160,000 in 1996. The increase is attributable to increased
borrowings by European Micro.
INCOME TAXES. Income taxes as a percentage of earnings before income
taxes increased from 34.1% in 1995 to 35.9% in 1996. This increase was primarily
attributed to the increase in disallowed travel and entertainment expenditures
for corporation tax purposes.
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,
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
FISCAL YEAR ENDED JUNE 30, 1997. Cash provided by operating activities
during the year amounted to $247,000. Significant factors in the generation of
cash were net income for the year amounting to $ 1,034,000 and increases in
trade payables of $1,011,000. This was primarily due to a significant move
towards third party suppliers as opposed to related party purchases which had
been particularly high in 1996. Cash was also provided by reductions in amounts
due from related parties ($139,000) and a decrease in other current assets
($267,000). The cash provided by operations was partially offset by the decrease
in amounts due to related parties of $956,000 (as a result of the high third
party purchases), an increase in trade receivables of $672,000 and an increase
in inventory of $540,000. The increase in trade receivables was due to both a
movement away from central European sales towards UK sales, which traditionally
have longer credit terms and the continuing pressure to offer longer credit
terms to the maturing marketplace.
Cash used in investing activities amounted to $412,000 which was
primarily attributable to the purchase of fixed assets amounting $195,000 which
was partially offset by disposals ($47,000) and the investment in an
unconsolidated affiliate, Big Blue Europe B.V. of $264,000. The larger fixed
asset purchases included the addition of two cars ($69,000) and computer
equipment for additional staff, network upgrades and lap top computers
($86,000). Fixtures and Fittings purchases during the year of $40,000 included
additional furniture for the increase in employee numbers and $15,000 of
warehouse security measures.
Cash used in financing activities amounting to $123,000 was used
primarily for the payment of dividends amounting to $562,000, reductions in the
bank overdraft amounting to $314,000 and repayment of capital leases of $71,000.
The generation of $824,000 through trade receivable discounting was brought
about partially through the increase in trade receivables and partially through
a change in banking policy in December 1996. Where the company had only
discounted UK receivables up to December 1996, the change in policy allowed the
company to additionally discount central European trade receivables. Against
this increase in the discounting creditor the level of the bank overdraft was
reduced and this is reflected by the $314,000 reduction in the bank overdraft
Exchange movements of $254,000 had a favorable effect. This arises as a
result of the year end sterling to dollar exchange rate moving from (pound
sterling)1:$15538 as of June 30, 1996 to (pound sterling)1:$1.6643 as of June
30, 1997 and the resultant effect on translating the balance of net assets as
of June 30, 1996 together with the retained earnings for the year is June 30,
1997 with the rate of June 30, 1997.
The overall net decrease in cash was $34,000.
FISCAL YEAR ENDED JUNE 30, 1996. Cash provided by operating activities
amounting to $170,000 was primarily attributable to net income generated for the
year amounting to $845,000, an increase in amounts due
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<PAGE>
to related parties of $866,000, reductions in inventory of $661,000 and an
increase in other current liabilities ($425,000). These amounts were partially
offset by an increase in trade receivables of $1,677,000 and increases in the
amounts due from related parties of $611,000. In addition cash was also used to
reduce trade payables ($407,000). May 96 was a particularly strong month for
European Micro, the highest monthly turnover in the Company's history. Certain
UK customers had bought significant volumes and value of product, and with the
larger customers having longer credit terms, some May 1996 debt was still
outstanding at the end of June 1996. Much of the product bought at the end of
the 1996 fiscal year was purchased from related parties, and with the cash used
in funding trade receivables the level of payables due to related parties was
high, while the payables to third parties reduced.
Inventory value decreased in the fiscal year to June 1996 by $611,000.
Such fluctuations are not uncommon given that European Micro typically purchases
large amounts of inventory at a time which is then sold over a period of weeks.
This creates an uneven inventory balance month on month.
The nature of product availability and pricing made it attractive for
related parties to buy from the Company.
Cash used in investing activities amounted to $157,000 of this $171,000
related to the purchase of fixed assets consisting primarily of $100,000 of
motor vehicle purchases. This was partially offset by sales of fixed assets
($14,000).
Cash provided by financing activities of $292,000 primarily resulted
from an increase in the level of the bank overdraft of $1,029,000 and an
increase in the discount creditor of $283,000. Cash was used in the payment of
dividends amounting to $961,000 and $59,000 of payments made on capital leases.
The net increase in cash was $275,000, which is after the impact of
exchange rates amounting to $30,000.
FISCAL YEAR ENDED JUNE 30, 1995. Cash used in operating activities was
$991,000. The significant areas where cash was used were increases in trade
receivables of $832,000 and decreases in trade payables of $808,000 and other
current liabilities ($302,000). The increase in trade receivables reflects the
terms needed to be offered to attract more customers and business. This trend
continues on into the fiscal years 1996 and 1997. The trade payables decreased
significantly due to the short payment terms - the business grew dramatically in
1995 as a result of favorable product purchases. Cash was also used as a result
of an increase in other current assets ($232,000). Cash used in operating
activities was partially offset by net income for the year amounting to
$1,115,000.
Cash used in investing activities amounted to $55,000. This was as a
result of fixed asset purchases, which primarily consisted of motor vehicles
($150,000) and computer equipment ($57,000), amounting in total to $222,000.
This was partially offset by disposals of two high value motor cars and a small
amount of office equipment amounting in total to $167,000.
Cash provided by financing activities amounted to $640,000. The
majority of cash was provided by the introduction of trade receivable
discounting which generated $1,116,000. The discounting facility is used in the
same manner as an overdraft and can therefore vary dramatically in relation to
inventory, receivables and payables. This was partially offset by cash used in
financing dividend payments amounting to $391,000 and repayment of capital
leases ($43,000).
The net decrease in cash was $357,000 after the impact of exchange rate
changes amounting to $49,000.
QUARTER ENDED SEPTEMBER 30, 1997. Cash used in operating activities
amounted to $1,607,000. Significant cash was used following an increase in trade
receivables amounting to $3,464,000 which was a result of the considerable
increase in business in the quarter including significant UK sales with longer
credit terms. In addition there were also significant increases in amounts due
from related parties of $791,000. This was due to exceptional purchasing
opportunities in Europe, from which related parties benefited through European
Micro plc. Further cash was used following an increase in other current assets
of $882,000 which was due to an increase in value added tax receivable and in
the timing of payments for insurance's, rent and rates. The cash used was
partially offset by net
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<PAGE>
income generated in the quarter amounting to $485,000 and cash provided
following increases in amounts due to related parties of $1,416,000. These
increases were due to loan money received to assist in funding the significant
level of purchases. Cash was also provided by an increases in trade payables of
$840,000 which was due to outstanding letters of credit with a significant
supplier. Further cash was provided by increases in taxes payable ($161,000) and
other current liabilities ($249,000).
Cash used in investing activities amounted to $8,000. This was
primarily attributable to the purchase and sale of motor cars.
Cash provided by financing activities amounted to $2,581,000. This is
mainly a result of increases in the level of the discounting creditor amounting
to $3,712,000, which was achieved through the increase in trade receivables.
This was partially offset by reductions in the bank overdraft amounting to
$1,034,000 and total cash used of $97,000 to pay dividends and repayments on
capital leases.
Overall net increase in cash was $916,000 after the impact of exchange
rate changes of $50,000.
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. 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 effect on the
Company's business, financial condition or results of operations.
The Company is evaluating the impact the Year 2000 problem will have on
its suppliers and customers. 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 Prospectus, the Company cannot
accurately anticipate or quantify the impact on the Company of its suppliers and
customers failure to correct this problem.
ASSET MANAGEMENT
INVENTORY. European Micro's goal is to achieve high inventory turns and
maintain a low number of stock keeping units ("SKUS") 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
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 250 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's accounts
receivables are insured and its positive credit results have allowed European
Micro 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, Inc.'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
Plc is the United Kingdom Pound Sterling. European Micro Plc translates into the
reporting
29
<PAGE>
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 attempts to
limit its risk of currency fluctuations through hedging where possible. European
Micro utilizes derivative financial instruments in the form of forward exchange
contracts for the purpose of economic hedges of anticipated transactions. In
addition European Micro 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. In the
quarter ended June 30, 1997 purchases of inventory by European Micro, were in
United States dollars (50%), Pounds Sterling (38%), Dutch Guilders (9%) and
other (3%). The most significant currencies in which sales were made, other than
Pounds Sterling (63%), were the German Mark (15%), the French Franc (6%) and the
United States Dollar (6%).
30
<PAGE>
BUSINESS
European Micro Holdings, Inc. was formed in December 1997 to serve as a
holding company of the Subsidiaries. European Micro Holdings, Inc. does not have
any operations of its own. Its headquarters are located at 6073 N.W. 167th
Street, Unit C-25, Miami, Florida 33015, where its telephone number is (305)
825-2458. European Micro Plc was organized under the laws of the United Kingdom
in 1991 and became a public limited company in 1994. European Micro Plc is an
independent distributor of microcomputer products mainly in Western Europe and
to related parties in the United States. Nor'easter was organized under the laws
of the State of Nevada in December 1997. Nor'easter is a start-up company which
was formed to be an independent distributor of microcomputer products in the
United States.
European Micro Plc is the parent of European Micro GmbH and European
Micro B.V. and has a 50% joint venture interest in Big Blue Europe, B.V.
European Micro GmbH was formed in 1993 as a wholly owned subsidiary of European
Micro Plc and it operates as a sales office in Germany. All products sold by
European Micro GmbH are procured and shipped from the facilities of European
Micro Plc. European Micro B.V. was formed in 1995 and commenced operations in
January 1996 and ceased operations in December 1996. European Micro B.V. was a
computer parts distributor. All products sold by European Micro B.V. were
procured and shipped from the Company's facilities located in Manchester,
England. In January 1997, European Micro Plc agreed with Big Blue Products,
Inc., a New York corporation, to form Big Blue Europe. Big Blue Europe is a
computer parts distributor 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 high margin parts after-market industry. Big Blue Europe has no affiliation
with IBM.
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 related parties in the
United States. The Company's customers consist more than 250 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, Hewlett-Packard and 3Com, although the Company generally does not obtain
its inventory directly from such manufacturers. European Micro monitors the
geographic pricing strategies of such manufacturers, currency fluctuations and
product availability in order to obtain inventory at favorable prices from other
distributors, resellers and wholesalers. As a result of this purchasing
strategy, the Company has achieved gross margins of 11.0% and 11.4% for the
fiscal years ended June 30, 1996 and 1997, respectively. In the three-year
period ended June 30, 1997, total net sales of European Micro increased from
$33.9 million in 1995 to $46.7 million in 1997 and operating profit of European
Micro increased from $1.8 million in 1995 to $2.0 million in 1997. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations."
European Micro considers itself to be a focused distributor, as opposed
to a broadline distributor, dealing with a limited and select group of high
quality manufacturers and only limited products from such manufacturers. It
believes that being a focused distributor enables it to respond 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 expertise in such products. The Company
places significant emphasis on market awareness and planning and actively shares
this pool of knowledge with its customers in order to further enhance trading
relations. The Company strives to monitor and react quickly to market trends,
thus enabling its multilingual sales team to maintain the highest levels of
customer service.
In 1996, European Micro introduced the Premier Dealers Club to attempt
to attract small and medium sized resellers by offering them value-added
procurement services that they were not enjoying from their current broadline
distributors. Members of the Premier Dealers Club agree to purchase a target
amount of products from the Company for a given period and those members
achieving such goals earn rebates. Members also enjoy priority access to
products in short supply, expedited shipment of orders, monthly analysis of
purchases and rebates earned, internet ordering, marketing information and
purchasing and outsourcing assistance.
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<PAGE>
Recently, European Micro has set up an Internet Services Division to
address the demand for internet oriented products. The Company recently entered
into a Master Distribution Agreement with WatchGuard Technologies, Inc. to
distribute its WatchGuard range of firewall products throughout Europe. These
products have enjoyed extensive press coverage in the industry. European Micro
intends to acquire distribution rights in other products and to enhance its
technical capability by recruiting qualified personnel.
European Micro is attempting to build a brand name in the microcomputer
industry. To that end, European Micro has applied for trademark protection both
in the United Kingdom and within the European Community. The Company believes
that such trademarks will help establish a brand name with its customers and
dealers. The following is a summary of the trademarks which the Company has
applied for and their current status:
<TABLE>
<CAPTION>
TRADE MARK CLASS(1) NO. APPLICANT DATE OF FILING COMMENTS
- ---------- -------- -------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
European Micro 9 438689 European Micro Plc 12-23-96 Community Trade
Mark application
European Micro Plc & Logo 9 2119204 European Micro Plc 12-20-96 U.K. Trade Mark
granted
Premier Dealers CLUB & 9 2152310 European Micro Plc 11-29-97 U.K. Trade Mark
Logo application
Premier Dealers CLUB & 9 695072 European Micro Plc Pending Community Trade
Logo Mark application
<FN>
- ---------------------
(1) Class 9 covers computer software; computer peripherals; parts and
accessories for all the aforesaid goods.
</FN>
</TABLE>
INDUSTRY
The microcomputer products industry has grown significantly in recent
years, primarily due to increasing worldwide demand for computer products and
the use of distribution channels by manufacturers for the distribution of
products. There are two traditional distribution channels in the microcomputer
industry: (i) those that sell directly to end-users ("RESELLERS") and (ii) those
that sell to resellers ("DISTRIBUTORS"). Distributors generally purchase a wide
range of products in bulk directly from manufacturers and then ship products in
smaller quantities to many different types of resellers, which typically include
dealers, value-added resellers, system integrators, mail order resellers,
computer products superstores and mass merchants. European Micro is an
independent distributor and generally does not purchase products directly from
manufacturers but purchases from other distributors. See "Risk Factors - No
Contracts or Distribution Agreements with Suppliers."
European Micro believes that the microcomputer products industry is
ideally suited for distributors because of the large number of fragmented
resellers in the industry. As a result, it is cost efficient for manufacturers
to outsource a portion of their distribution, credit, inventory, marketing and
customer support requirements to distributors. In addition, resellers
traditionally have not been able to efficiently establish direct purchasing
relationships with each manufacturer because of the large number of
manufacturers in the industry. Instead, resellers have traditionally relied on
distributors to satisfy a significant portion of their product, financing,
marketing and technical support needs. The Company believes that resellers are
also increasingly relying on distributors for inventory management and credit
rather than stocking large inventories themselves and maintaining credit lines
to finance their working capital needs. The Company believes the need for
distributors in the microcomputer industry will continue to grow. It also
believes that more manufacturers are using distributors as declining hardware
prices, coupled with rising selling costs, make it difficult for manufacturers
to efficiently deal directly with resellers.
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<PAGE>
According to International Data Corporation (the "IDC"), in 1996,
Western Europe represented approximately 24% of the worldwide personal computer
market. While the Company's sales have historically been in Western Europe and
to related parties in the United States, the Company intends to address the
emerging markets of Eastern Europe, the Middle East and Africa, regions which
the Company believes are underserved relative to the industry and offer
substantial growth opportunities. The IDC projects a greater increase in the
growth of personal computer sales in Eastern Europe, the Middle East and Africa
when compared with the more mature market areas.
STRATEGY
European Micro's objectives are to continue to strengthen its position
as a distributor of microcomputer products within Western Europe. It also
proposes to expand its operations into the United States, Eastern Europe, and to
a lesser extent, Africa, Middle East and Asia. In attempting to achieve these
objectives, the Company intends to implement the following strategies:
GROWTH THROUGH START-UPS AND ACQUISITIONS. The Company's objectives are
to strengthen its position as a leading distributor of microcomputer products in
Western Europe and possibly expand into other geographic regions such as the
United States and Eastern Europe, and to a lesser extent, Africa, the Middle
East and Asia. The Company hopes to expand into these markets through a
combination of start-up companies and acquisitions of existing distributors,
although the Company has not identified any acquisition candidates and there can
be no assurances that any acquisitions can be consummated on terms satisfactory
to the Company. The Company expects to seek acquisition candidates which have
strong entrepreneurial management teams with experience in the local markets and
the potential to benefit the economies of scale that the Company could provide
through its focused product lines. The Company intends that any acquisitions
will adopt its policies and financial reporting procedures but operate as
autonomous business units.
FOCUSED DISTRIBUTION. European Micro's strategy is to operate as a
focused distributor by addressing each national market with a limited and select
group of high quality manufacturers and only limited products from such
manufacturers which the Company believes helps it achieve a degree of strength
within its chosen markets. The Company believes that this policy will further
enhance its relationships with both its suppliers and customers. In addition,
the Company intends to seek new products and suppliers that will reflect the
requirements of the marketplace while at the same time remaining a focused
distributor. The Company believes that this focused approach also results in
more effective asset management. Generally, because popular products from
leading manufacturers are in greater demand, the Company believes that this
results in more efficient inventory management by virtue of greater inventory
turns and, therefore, lower working capital requirements.
FURTHER DEVELOP NEW INTERNATIONAL MARKETS. European Micro has, to date,
focused its activities on the distribution of microcomputer products in Western
Europe and to related parties in the United States. However, the Company
believes that new opportunities are emerging in Eastern Europe, Africa, Middle
East and Asia as well as more mature markets such as North America. The Company
believes that its success in the culturally and linguistically diverse markets
of Western Europe will be advantageous to the Company in expanding into new
regions.
INTERNET PRODUCTS. European Micro plans to address directly the demand
for internet oriented products. The Company has recently acquired distribution
rights to distribute firewall products manufactured by WatchGuard Technologies,
Inc. throughout Europe. European Micro intends to acquire distribution rights in
other products and to enhance its technical capability by recruiting qualified
personnel.
PRODUCTS AND CUSTOMERS
European Micro's sales consist of hardware products such as personal
computers, memory modules, disc drives and networking products to a customer
base of more than 250 value-added resellers, corporate resellers, retailers,
direct marketers and distributors. The Company anticipates the continued
expansion of its customer database as the Premier Dealers Club and Internet
Services Division add new products and services. For the quarter ended September
30, 1997, the Company's product mix by category was storage products (34%),
networking (33%), system units (14%), memory (11%), and other (8%). For the
fiscal year ended June 30, 1997, the five best
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<PAGE>
selling products accounted for 46.7% of European Micro's net sales. These
products generally have short life cycles as technological obsolescence ensures
that the end-user must constantly update hardware for new technology. In order
to reduce its exposure to obsolescence, European Micro strives to achieve a
continually high rate of inventory turnover.
European Micro purchases its products from distributors and other
suppliers in large quantities. As a focused distributor, the Company focuses on
a small number of leading manufacturers in each product category and on a small
number of high volume items of that manufacturer. As a result, the Company
carries fewer individual products from fewer manufacturers than the broadline
distributors. The Company believes that this policy has enabled it to achieve an
important market position in respect of both its chosen products and its
geographical areas.
European Micro's customers typically rely on distributors as their
principal source of microcomputer products. The Company finances a significant
portion of its total sales. In order to minimize the risk associated with such
credit, European Micro has sought to insure substantially all of its accounts
receivable. See "Risk Factors - Customer Credit Exposure." For the fiscal year
ended June 30, 1997, no single customer accounted for more than 8.17% of
European Micro's total net sales. The Company does not believe the loss of any
customer would have a material adverse effect on its business, financial
condition or results of operations. The Company's backlog of orders is not
considered material to its business.
SUPPLIER RELATIONS
European Micro obtains its products from distributors and other
suppliers throughout the world in an attempt to obtain products at favorable
prices while also maintaining continuity of supply. The Company generally makes
its purchases based on the most favorable combination of prices, quantities and
product selection, and therefore its suppliers are constantly changing. As a
result, the Company does not believe that the loss of any single supplier other
than Technology Express would have a material adverse effect on its operations.
For the fiscal year ended June 30, 1997, the Company obtained 86.5% of its
products from ten suppliers (36.2% excluding Technology Express). The Company
does not generally obtain product directly from manufacturers and generally does
not enter into any long-term or exclusive distribution agreements with its
suppliers (except for the Master Distribution Agreement with WatchGuard
Technologies, Inc.). In some cases suppliers are also customers. Whenever
possible, product is purchased with the benefit of price protection so that the
Company will receive a credit in the event the price of a product is reduced by
the manufacturer.
Suppliers deliver products against purchase orders tendered by European
Micro. The Company often requests specific delivery dates in its purchase orders
and lead times for delivery from suppliers are typically short. Delivery is,
however, subject to availability, and, while suppliers have no liability to the
Company for failure to meet a delivery date, orders may be canceled by the
Company where the terms of the order have not been met. From time to time the
Company experiences delivery delays and inventory shortages. The Company
believes that these delays and shortages are common to other distributors of
microcomputer products. The Company believes that it has a better chance than
its competitors in Europe to have availability of product since it sources
product internationally and does not, like many of its competitors, rely on a
single contractual source of product supply.
Historically, European Micro has paid for a significant amount of
product on delivery, a practice which leads to lower prices and earlier delivery
dates. European Micro's suppliers have increased available credit commensurate
with its growth and the Company expects to continue to take advantage of credit
purchases.
Substantially all of the products purchased by European Micro are
trademarked or copyrighted products which may have been sold to distributors by
the manufacturers and resold to the Company. From time to time, trademark or
copyright owners and their licensees and trade associations have initiated
litigation or administrative agency proceedings seeking to halt the importation
of such products into many of the countries in which the Company operates. There
can be no assurance that future judicial, legislative or administrative agency
action in such countries, including possible import, export, tariff or other
trade restrictions, will not limit or eliminate some of the Company's secondary
sources of supply or other business activities. In addition, there can be no
assurance that the Company's business activities will not become the subject of
legal or administrative actions brought by manufacturers, distributors or others
based on violations of trademark or copyright rights or other laws. Such
34
<PAGE>
judicial, legislative, administrative or legal actions could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company may attempt to sell products in the United States in the
future. United States trademark and copyright owners and their licensees and
trade associations in other industries have initiated litigation or
administrative agency proceedings seeking to halt the importation into the
United States of foreign manufactured or previously exported trademarked or
copyrighted products. Such actions in the United States may prevent the Company
from selling products in the United States or, if, at that time, the Company is
already selling products in the United States, cease selling products in the
United States. See "Risk Factors - Sources of Supply."
SALES AND MARKETING
In order to address the individual customs, practices and business
conventions in the countries in which European Micro operates, the Company
employs a sales staff conversant in the local languages and with a general
knowledge of the applicable markets. Oversight and strategic direction are
provided by senior management of the Company.
SALES. European Micro markets its products to distributors and
resellers, not end-users. As of September 30, 1997, the Company distributed
products to more than 250 value-added resellers, corporate resellers, retailers,
direct marketers and distributors. The Company's customers typically place
orders with a sales representative. The Company maintains detailed information
regarding its current inventory levels and pricing. The Company has historically
experienced a reduction in demand during the summer months. See "Management's
Discussion and Analysis - Seasonality."
MARKETING. European Micro's marketing department monitors and evaluates
national market trends, price movements and changes in product specifications.
It is also responsible for developing and implementing the Company's advertising
programs. The marketing department routinely queries the Company's customer base
to ascertain how customers value its products, services, sales and support
compared to its competitors. The feedback allows the Company to constantly
tailor its business to its customers' needs. The Company recently introduced the
Premier Dealers Club which allows members to earn rebates on the purchase of
products, priority access to products in short supply, expedited shipment of
orders, internet ordering and purchasing and outsourcing assistance.
COMPETITION
European Micro operates in an industry which is characterized by
intense competition based on price, product availability and delivery times. Its
competitors include manufacturers and international distributors. Some of the
Company's competitors have greater financial and administrative resources than
the Company. The Company believes availability of the right product at the right
price is the key element of competitiveness and attempts to differentiate itself
from its competition by providing a select number of products from a few name
brand manufacturers and maintaining a sufficient inventory of such products.
Furthermore, the Company enhances its competitive position by providing
responsible and responsive customer service through the dedicated support of its
highly trained sales personnel.
EMPLOYEES
European Micro Plc currently has twenty four full time employees in the
United Kingdom. European Micro GmbH currently has four full time employees in
Germany. As of January 1998, Nor'easter has one full time employee in the United
States. Big Blue Europe currently has sixteen full time employees in Holland. Of
the total number of employees, nineteen work in marketing and sales, eight work
in warehousing and delivery and twenty one are employed in administrative and
other support positions. None of the Company's employees are represented by
unions. There has been no disruption of operations due to a labor dispute.
Management considers its relations with its employees to be good.
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<PAGE>
FACILITIES
The corporate headquarters of European Micro Holdings, Inc. is located
in Miami, Florida. Approximately 350 square feet is dedicated to management
offices. European Micro Plc operates primarily from facilities located in
Manchester, England. Approximately 4,400 square feet of the facilities in
Manchester are allocated to offices, including management, sales, and
administrative areas and the remaining 8,000 square feet is warehousing space.
European Micro's facilities are described below:
LOCATION SQUARE FEET LEASE EXPIRATION
-------- ----------- ----------------
Manchester (warehouse)(1) 8,000 2012
Manchester (offices)(1) 4,400 2002
Germany(2) 1,360 2004
Netherlands(3) 18,000 2002
- -------------
(1) European Micro Plc
(2) European Micro GmbH
(3) Big Blue Europe 50% Joint Venture
The German office is a sales office with no warehousing facility. All
products are shipped from the Company's Manchester facility directly to the
customer. European Micro considers its existing facilities to be adequate for
its foreseeable needs.
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
36
<PAGE>
MANAGEMENT
The executive officers and directors of European Micro, as well as
certain key employees, and their ages as of January 1, 1998, are as follows:
NAME AGE POSITION
- ---- --- --------
Harry D. Shields 47 Co-Chairman, Co-President and Director
John B. Gallagher 42 Co-Chairman, Co-President and Director
Jay Nash 36 Chief Financial Officer and Controller
Laurence Gilbert 52 Director and Managing Director of European Micro Plc
Bernadette Spofforth 28 Director and Sales Director of European Micro Plc
Kyle R. Saxon 46 Director
HARRY D. SHIELDS is co-founder of European Micro Holdings, Inc. and
European Micro Plc and has served as Co-Chairman, Co-President and Director of
European Micro Holdings, Inc. since it was formed in December 1997. Mr. Shields
has also served as Co-Chairman and Director of European Micro Plc since it was
formed in 1991. He has served as president of Technology Express since 1986,
Director of the Group since 1989, and was a Director of Ameritech Exports from
1992 to 1997. Mr. Shields has a Bachelor of Arts from DePaul University and a
Masters Science from the University of Tennessee.
JOHN B. GALLAGHER is co-founder of European Micro Holdings, Inc. and
European Micro Plc and has served as Co-Chairman, Co-President and Director of
European Micro Holdings, Inc. since it was formed in December 1997. Mr.
Gallagher has also served as Co-Chairman and Director of European Micro Plc
since its was formed in 1991. He has been Director of the Group since 1989, was
a Director and President of Ameritech Exports Miami from 1992 to 1997, and
President of American Micro Computer Center since 1989. Mr. Gallagher is a
non-practicing attorney with a Bachelor of Arts and a Juris Doctorate both from
the University of Florida.
JAY NASH has been Chief Financial Officer and Controller of European
Micro Holdings, Inc. since it was formed in December 1997. He has served as Vice
President of Technology Express since 1992 and was an accountant with Jacques
Miller from 1986 to 1992 and KPMG Peat Marwick from 1983 to 1986. Mr. Nash is a
Certified Public Accountant with a Bachelor of Science in Accounting from the
University of Tennessee.
LAURENCE GILBERT has been a Director of European Micro since it was
formed in December 1997. Mr. Gilbert has been Managing Director of European
Micro Plc since 1996 and was Finance Director of the Group from 1995 to 1996. He
served as a Management Consultant from 1994 to 1995 and Managing Director of
Gilbert Lawton Ltd. from 1991 to 1993. Mr. Gilbert is a Chartered Accountant.
BERNADETTE SPOFFORTH has been a Director of European Micro Holdings,
Inc. since it was formed in December 1997. Ms. Spofforth has been Director of
Sales of European Micro Plc since 1994 and served as Sales Manager of European
Micro Plc from 1991 to 1994. Mrs. Spofforth was a Sales Executive with Cavelle
Data Systems Ltd. from 1988 to 1991.
KYLE R. SAXON has been a Director of European Micro Holdings, Inc.
since its formation. Mr. Saxon is also a Director of European Micro Plc. He is a
partner at the law firm of Catlin, Saxon, Tuttle, and Evans. Mr. Saxon has a
Bachelor of Arts and a Juris Doctorate both from the University of Florida.
DIRECTOR--DESIGNEE
The Company's Board of Directors expects Barrett Sutton (the "DIRECTOR-
DESIGNEE") to become a member of the Board of Directors before the completion of
this Offering. Information regarding the Director-Designee is provided below:
BARRETT SUTTON has been an attorney, Executive Vice-President and
General Counsel for General Capital Corporation and Gen Cap America, Inc. since
1995. He practiced law with the firm of White & Reasor from 1981 to 1994.
Effective January 1, 1998, Mr. Sutton will be a partner at the law firm of Tuke
Yopp & Sweeney. Mr. Sutton has a Bachelor of Arts from Vanderbilt University and
a Juris Doctorate from the University of Virginia.
37
<PAGE>
DIRECTORS
The Board of Directors has been divided into three equal size classes
serving staggered three-year terms. The term of office of the Class I directors
will expire at the 1999 annual meeting of shareholders, the term of the Class II
directors will expire at the 2000 annual meeting of shareholders and the term of
the Class III director will expire at the 2001 annual meeting of shareholders.
At each annual meeting of shareholders, the class of directors to be elected at
such meeting will be elected for a three-year term, and the directors in the
other two classes will continue in office. Because holders of Common Stock will
have no right to cumulative voting for the election of directors at annual
meetings of shareholders, the holders of a majority of the Common Stock will be
able to elect all of the successors of the class of directors whose term expires
at that meeting. The staggered term for directors may affect the shareholders'
ability to change control of the Company even if a change in control is in the
shareholders' interest.
Under Nevada law, any vacancy in the Board of Directors, including any
vacancies resulting from an increase in the number of directors, shall be filled
by the vote of a majority of the remaining directors. The authority of the Board
of Directors to fill vacancies may result in a majority of the directors being
elected without a vote of the shareholders. See "Description of Capital Stock --
Anti-Takeover Effects of Provisions of the Articles of Incorporation, By-Laws
and Nevada Law."
As of the date of this Prospectus, the name, class and expiration date
of the initial term of the directors is as follows:
CLASS 1 CLASS II CLASS III
- ------- -------- ---------
(Terms expiring 1999) (Terms expiring 2000) (Terms expiring 2001)
Laurence Gilbert Vacant(1) John Gallagher
Bernadette Spofforth Kyle Saxon Harry Shields
- -----------------
(1) The Company expects this vacancy on the Board of Directors to be filled by
the Director-Designee before the completion of this Offering. See
"Management--Director-Designee".
INDEMNIFICATION AND LIMITED LIABILITY
Pursuant to its Articles of Incorporation, European Micro is obligated
to indemnify each of its directors and officers to the fullest extent permitted
by law with respect to all liability and loss suffered, and reasonable expense
incurred, by such person in any action, suit or proceeding in which such person
was or is made or threatened to be made a party or is otherwise involved by
reason of the fact that such person is or was a director or officer of European
Micro. The Articles of Incorporation further eliminate the personal liability of
a director or an officer to European Micro or to any of its shareholders for
monetary damage for a breach of fiduciary duty as a director or an officer,
except for: (i) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law; or (ii) the payment of distributions in violation of
Section 78.300 of Nevada Revised Statutes ("NRS"). European Micro is also
obligated to pay the reasonable expenses of indemnified directors or officers in
defending such proceedings if the indemnified party agrees to repay all amounts
advanced should it be ultimately determined that such person is not entitled to
indemnification.
European Micro maintains an insurance policy covering directors and
officers under which the insurer agrees to pay, subject to certain exclusions,
for any claim made against the directors and officers of European Micro for a
wrongful act for which they may become legally obligated to pay or for which
European Micro is required to indemnify its directors and officers.
COMMITTEES
Before the completion of this Offering, the Company expects to form an
Audit Committee to consist of at least three Directors, a majority of whom will
be independent directors. The functions of the Audit Committee will be to: (1)
recommend annually to the Board of Directors the appointment of the independent
auditors of European Micro, (2) discuss and review, in advance, the scope and
the fees of the annual audit and review the results thereof with the independent
auditors, (3) review and approve non-audit services of the independent auditors,
(4) review compliance with existing major accounting and financial reporting
policies of European Micro, (5) review the adequacy of the financial
organization
38
<PAGE>
of European Micro, and (6) review management's procedures and policies relating
to the adequacy of European Micro's internal accounting controls and compliance
with applicable laws relating to accounting practices.
Before the completion of this Offering, the Company expects to form a
Compensation Committee to consist of four Directors, two of whom will be
independent Directors. This Committee will be responsible for making
recommendations to the Board of Directors regarding compensation arrangements
for the Company's officers.
Before the completion of this Offering, the Company expects to form a
Stock Option Committee to consist of two Directors, both of whom will be
independent Directors. This committee will be responsible for making
recommendations to the Board of Directors regarding the adoption of any employee
benefit plans (including the 1998 Stock Incentive Plan and the 1998 Employee
Stock Purchase Plan) and the grant of stock options or other benefits under such
plans.
DIRECTOR COMPENSATION
Non-employee Directors receive $1,000 for attendance at Board of
Director meetings whether in person or by telephone and are reimbursed for all
out-of-pocket expenses incurred in attending meetings of the Board of Directors
and committees thereof.
European Micro's 1998 Stock Incentive Plan (the "INCENTIVE PLAN")
provides that directors who are not employees of European Micro will
automatically be granted options to purchase (i) 10,000 shares of European
Micro's Common Stock in connection with their appointment to European Micro's
Board of Directors and (ii) 5,000 shares of European Micro's Common Stock each
year thereafter that such non-employee director serves on European Micro's Board
of Directors. See "- 1998 Stock Incentive Plan." Such options will vest after
one year of service on the Board of Directors. The options granted to European
Micro's initial non-employee directors will have an exercise price of 100% of
the offering price in this Offering. Options granted after completion of this
Offering will be priced no less than 100% of the fair market value on the date
of the grant. Options granted to non-employee directors will be non-statutory
options and will become exercisable after one year of service on the Board of
Directors and will be exercisable for ten years from the date of the grant,
except that options exercisable at the time of a director's death may be
exercised for twelve months thereafter. Under the terms of the Incentive Plan,
neither the Board of Directors nor any committee thereof will have any
discretion with respect to options granted to directors.
1998 STOCK INCENTIVE PLAN
The Board of Directors plan to adopt an Incentive Plan to be effective
upon the consummation of this Offering. The Incentive Plan provides a means to
attract, motivate, retain and reward key employees of European Micro and its
Subsidiaries and other selected persons and promote the success of European
Micro. A maximum of 500,000 shares of Common Stock (subject to certain
anti-dilutive adjustments) may be issued pursuant to grants and awards under the
Incentive Plan.
ADMINISTRATION AND ELIGIBILITY. The Incentive Plan will be administered
by the Board of Directors or a committee appointed by the Board of Directors
(currently the Stock Option Committee) (the "ADMINISTRATOR"). The Incentive Plan
empowers the Administrator to, among other things, interpret the Incentive Plan,
to make all determinations deemed necessary or advisable for the administration
of the Incentive Plan and to award to officers, and other key employees of
European Micro and its Subsidiaries and certain other eligible persons
("ELIGIBLE EMPLOYEES"), as selected by the Administrator, options, including
incentive stock options ("ISOS") as defined in the Internal Revenue Code (the
"CODE"), stock appreciation rights ("SARS"), shares of restricted stock,
performance shares and other awards valued by reference to Common Stock, based
on the performance of the participant, the performance of European Micro or its
Common Stock or such other factors as the Administrator deems appropriate. The
various types of awards under the Incentive Plan are collectively referred to as
"Awards."
TRANSFERABILITY. Generally, Awards under the Incentive Plan are not
transferable other than by will or the laws of descent and distribution, are
exercisable only by the participant and may be paid only to the participant or
the participant's beneficiary or representatives. However, the Administrator may
establish conditions and
39
<PAGE>
procedures under which exercise by and transfers and payments to certain third
parties are permitted, to the extent permitted by law.
OPTIONS. An option is the right to purchase shares of Common Stock at a
future date at a specified price. The option price is generally the closing
price for a share of Common Stock as reported on a national securities exchange,
as quoted on The Nasdaq National Market System, or the closing bid price as
reported by The Nasdaq National Market, whichever is applicable (the `FAIR
MARKET VALUE"), on the date of grant, but may be a lesser amount if authorized
by the Administrator. The Incentive Plan authorizes the Administrator to award
options to purchase Common Stock at an exercise price which may be less than
100% of the Fair Market Value of such stock at the time the option is granted,
except in the case of ISOs.
An option may be granted as an incentive stock option, as defined in
Section 422 of the Code, or a non-qualified stock option. An ISO may not be
granted to a person who, at the time the ISO is granted, owns more than 10% of
the total combined voting power of all classes of stock of European Micro and
its Subsidiaries unless the exercise price is at least 110% of the Fair Market
Value of shares of Common Stock subject to the option and such option by its
terms is not exercisable after the expiration of five years from the date such
option is granted. The aggregate Fair Market Value of shares of Common Stock
(determined at the time the option is granted) for which ISOs may be first
exercisable by an option holder during any calendar year under the Incentive
Plan or any other plan of European Micro or its Subsidiaries may not exceed
$100,000. A non-qualified stock option is not subject to any of these
limitations.
The Incentive Plan permits optionees, with certain exceptions, to pay
the exercise price of options in cash, Common Stock (valued at its Fair Market
Value on the date of exercise), a combination thereof or, if an option award so
provides, by delivering irrevocable instructions to a stockbroker to promptly
deliver the exercise price to European Micro upon exercise (i.e. a so-called
"cashless exercise"). Cash received by European Micro upon exercise will
constitute general funds of European Micro and shares of Common Stock received
by European Micro upon exercise will return to the status of authorized but
unissued shares.
CONSIDERATION FOR AWARDS. Typically, the only consideration received by
European Micro for the grant of an Award under the Incentive Plan will be the
future services by the optionee (as contemplated by the vesting schedule or
required by agreement), past services or a combination thereof.
SARS. The Incentive Plan authorizes the Administrator to grant SARs
independent of any other Award or concurrently (and in tandem) with the grant of
options. An SAR granted in tandem with an option is only exercisable when and to
the extent that the related option is exercisable. An SAR entitles the holder to
receive upon exercise the excess of the Fair Market Value of a specified number
of shares of Common Stock at the time of exercise over the option price. This
amount may be paid in Common Stock (valued at its Fair Market Value on the date
of exercise), cash or a combination thereof, as the Administrator may determine.
Unless the agreement awarding such option in connection with the SAR provides
otherwise, the option granted concurrently with the SAR must be canceled to the
extent that the appreciation right is exercised and the SAR must be canceled to
the extent the option is exercised. SARs limited to certain periods of time
around a major event, such as a reorganization or change of control, may also be
granted under the Incentive Plan.
RESTRICTED STOCK. The Incentive Plan authorizes the Administrator to
grant restricted stock to Eligible Employees on such conditions and with such
restricted periods as the Administrator may designate. During the restricted
period, stock certificates evidencing the restricted shares may be held by
European Micro or a third party designated by the Administrator and the
restricted shares may not be sold, assigned, transferred, pledged or otherwise
encumbered.
PERFORMANCE SHARE AWARDS. The Administrator may, in its discretion,
grant Performance Share Awards to Eligible Employees based upon such factors as
the Administrator deems relevant in light of the specific type and terms of the
Awards. The amount of cash or shares or other property that may be deliverable
pursuant to these Awards will be based upon the degree of attainment over a
specified period of not more than ten years (a "PERFORMANCE CYCLE") as may be
established by the Administrator of such measures of the performance of European
Micro, the Subsidiaries or any part thereof or the participant as may be
established by the Administrator. The
40
<PAGE>
Administrator may provide for full or partial credit, prior to completion of a
Performance Cycle or the attainment of the performance achievement specified in
the Award, in the event of the participant's death, retirement, or disability, a
Change of Control (as defined in the Incentive Plan) or in such other
circumstances as the Administrator may determine.
SPECIAL PERFORMANCE-BASED SHARE AWARDS. In addition to awards granted
under other provisions of the Incentive Plan, performance-based awards within
the meaning of Section 162(m) of the Code and awards based on operating income,
return on investment, return on shareholders' equity, earnings before interest,
taxes, depreciation and amortization or earning per share or other business
criteria ("OTHER PERFORMANCE-BASED AWARDS") relative to preestablished
performance goals, may be granted under the Incentive Plan. The specific
performance goals relative to these business criteria must be approved by the
Administrator in advance of applicable deadlines under the Code and while the
performance relating to the goals remains substantially uncertain. The
applicable performance measurement period may not be less than one nor more than
ten years.
TERM AND EXERCISE PERIOD OF AWARDS. The Incentive Plan provides that
awards may be granted for such terms as the Administrator may determine but not
greater than ten years after the date of the Award. The Incentive Plan does not
impose any minimum vesting period, post-termination exercise period or pricing
requirement, although in the ordinary course, customary restrictions will likely
be imposed. Options and SARs will generally be exercisable during the holder's
employment by European Micro or by a related company and unearned restricted
stock and other Awards will generally be forfeited upon the termination of the
holder's employment prior to the end of the restricted or performance period.
Generally, options which have become exercisable prior to termination of
employment will terminate on the date of such termination of employment, unless
extended by the Administrator. Such periods, however, cannot exceed the
expiration dates of the Options. SARs have the same post-termination provisions
as the Options to which they relate. The Administrator has the authority to
accelerate the exercisability of Awards or (within the maximum ten-year term)
extend the exercisability periods.
TERMINATION, AMENDMENT AND ADJUSTMENT. The Incentive Plan may be
terminated by the Board of Directors at any time. In addition, the Board of
Directors may amend the Incentive Plan from time to time, without the
authorization or approval of European Micro's shareholders, unless the amendment
(i) materially increases the benefits accruing to participants under the
Incentive Plan, (ii) materially increases the aggregate number of securities
that may be issued under the Incentive Plan or (iii) materially modifies the
requirements as to eligibility for participation in the Incentive Plan, but in
each case only to the extent then required by the Code or applicable law, or
deemed necessary or advisable by the Board of Directors.
Upon the occurrence of a change of control, all options become
immediately exercisable and all restrictions on restricted shares lapse. A
change of control includes:
(1) approval of the Company's shareholders of a consolidation or merger
of the Company with any third party, unless the Company is the entity surviving
such merger or consolidation;
(2) approval of the Company's shareholders of a transfer of all or
substantially all of the assets of the Company to a third party or a complete
liquidation or dissolution of the Company;
(3) a third party (other than Messrs. Gallagher or Shields), directly
or indirectly, through one or more subsidiaries or transactions or acting in
concert with one or more persons or entities: (a) acquires any combination of
beneficial ownership of the Company's voting stock and irrevocable proxies
representing more than 20% of the Company's voting stock; (b) acquires the
ability to control in any manner the election of a majority of the directors of
the Company; or (c) acquires the ability to directly or indirectly exercise a
controlling influence over the management or policies of the Company;
(4) any election has occurred of persons to the Company's Board of
Directors that causes a majority of such Board to consist of persons other than
(a) persons who were members of the Board on _____________, 1998 (the "EFFECTIVE
DATE") or (b) persons who were nominated for election as members of the Board by
the Board (or a committee of the Board) at a time when the majority of the Board
(or of such committee) consisted of persons who were members of the Board on the
Effective Date; or
41
<PAGE>
(5) A determination is made by the Commission or any similar agency
having regulatory control over the Company that a change in control, as defined
in the securities laws or regulations then applicable to the Company, has
occurred.
NON-EMPLOYEE DIRECTOR OPTIONS. The Incentive Plan provides that
directors who are not employees of European Micro or its subsidiaries will
automatically be granted options to purchase (i) 10,000 shares of European
Micro's Common Stock in connection with their appointment to European Micro's
Board of Directors and (ii) 5,000 shares of European Micro's Common Stock each
year thereafter that such non-employee director serves on European Board of
Directors. The option price is the Fair Market Value of a share of Common Stock
on the date of grant of such option. Options granted to non-employee directors
will become exercisable after one year of service on the Board of Directors and
will be exercisable for ten years from the date of grant.
If a non-employee director's service with the Company terminates by
reason of death, his or her option may be exercised for a period of one year
from the date of death or until the expiration of the option, which ever is
shorter. If a non-employee director's service with the Company terminates other
than by reason of death, his or her option may be exercised for a period of
three months from the date of such termination or until the expiration of the
state term of the option, whichever is shorter. See "Management - Director
Compensation."
ANTIDILUTION PROVISIONS. The number of shares of Common Stock
authorized to be issued under the Incentive Plan and subject to outstanding
awards (and the purchase or exercise price thereof) will be adjusted to prevent
dilution or enlargement of rights in the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation or other change
in capitalization with a similar substantive effect upon the Incentive Plan or
the awards.
NON-EXCLUSIVITY. The Incentive Plan is not exclusive and does not limit
the authority of the Board of Directors or the Administrator to grant other
awards, in stock or cash, or to authorize other compensation, under any other
plan or authority.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company anticipates that upon adopting the 1998 Employee Stock
Purchase Plan (the "PURCHASE PLAN") a total of 50,000 shares of Common Stock
will be reserved for issuance under the Purchase Plan. The Purchase Plan will
permit eligible employees of European Micro and the Subsidiaries to purchase
Common Stock at a discount through accumulated payroll deductions. Employees are
generally eligible to participate in the Purchase Plan after _________ months of
full time employment with European Micro or the Subsidiaries. The Purchase Plan
will be implemented through sequential offering periods, each of which is
approximately three months in duration. However, the initial offering period
under the Purchase Plan will commence on the closing of this Offering and will
end on __________, 1998. Participants will purchase shares of Common Stock on
the last day of each offering period. Employees may end their participation in
the Purchase Plan at any time during an offering period and participation ends
automatically upon the participant's termination of employment.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides information
relating to compensation for the three most recently completed fiscal years for
European Micro Plc's Co-Chairmen and its five other most highly compensated
executive officers (collectively, the "NAMED EXECUTIVE OFFICERS").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION
------------------- ------------
NAME AND PRINCIPAL FISCAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION
- ------------------ ------ ------ ----- -------------
<S> <C> <C> <C> <C>
John Gallagher 1997 -0- -0- -0-
Co-Chairman and 1996 -0- -0- -0-
Director 1995 $4,388 -0- -0-
Harry Shields 1997 -0- -0- -0-
Co-Chairman and 1996 -0- -0- -0-
Director 1995 $4,388 -0- -0-
Laurence Gilbert (2) 1997 $64,364 $90,152 $11,160
Managing Director 1996 $29,418
1995 $13,319
Nils Wager(3) 1997 $20,962 $169,582 $450
Managing Director 1996 $73,626 $241,860 $14,509
1995 $75,748 $347,367 $59,469
Bernadette Spofforth 1997 $48,328 $248,902 $13,979
Director of Sales 1996 $28,433 $168,971 $10,509
1995 $26,641 $119,668 $8,348
<FN>
- ----------------
(1) All compensation described in this table was paid by European Micro Plc.
European Micro Holdings, Inc. paid no compensation during the three most
recently completed fiscal years.
(2) Mr. Gilbert became Managing Director on November 1996. All other
compensation for the years 1996 and 1995 were for consultancy fees paid to
Mr. Gilbert prior to his becoming an officer of the Company.
(3) As of November 1996, Mr. Wager is no longer employed by the Company.
</FN>
</TABLE>
The following table sets forth certain information with respect to the
grant of stock options by European Micro to the Named Executive Officers to whom
stock options were granted under the terms of the Incentive Plan:
[TO BE PROVIDED]
43
<PAGE>
EMPLOYMENT AGREEMENTS
European Micro will enter into five-year employment agreements with
each of Messrs. Gallagher and Shields. Pursuant to the agreements, each
executive is employed as Co-Chairman and Co-President of European Micro. These
agreements are effective as of January 1, 1998, and provide for annual base
salaries of $175,000 each, plus annual cost of living adjustments and other
increases to be determined annually be the Board of Directors or the
Compensation Committee. In addition, each executive is entitled to annual
incentive bonus compensation in an amount to be determined by the Board of
Directors or a committee thereof.
Each agreement further provides that each of Messrs. Gallagher and
Shields will devote a significant amount of his working time and efforts to the
business and affairs of European Micro; provided, however, that each of Messrs.
Gallagher and Shields may devote a reasonable amount of time and effort to other
business affairs, including, in the case of Mr. Gallagher, American Micro
Computer Center and, in the case of Mr. Shields, Technology Express and in each
case other activities disclosed to the Board of Directors.
The agreements also provide that upon termination of employment without
"cause" or termination by the executive for "good reason" (which includes a
change of control of European Micro), the executive is entitled to receive, in
addition to all accrued or earned but unpaid salary, bonus or benefits, an
amount equal to three times the compensation such executive would be entitled to
receive in the current fiscal year, including base salary and incentive bonus
compensation. For the purposes hereof, the amount of incentive bonus
compensation such executive would be entitled to receive in the current fiscal
year is equal to the largest amount accrued for any of the two most recently
completed fiscal years. In addition, European Micro will pay certain relocation
expenses incurred by the executive in change of principal residence and will
indemnify the executive for any loss sustained in the sale of his principal
residence. The agreements also provide that the executive will not compete with
European Micro during his employment (except for activities related to American
Micro Computer Center and Technology Express and such other activities disclosed
to the Board of Directors) and for two years thereafter unless European Micro
terminates the executive without "cause" or the executive terminates his
employment for "good reason."
In addition, the agreements grant each of Messrs. Gallagher and Shields
demand and piggy-back registration rights with respect to the shares of Common
Stock held by each. Each executive may individually require European Micro to
file a registration statement with respect to these shares on annual basis.
Moreover, each executive may include these shares in certain other offerings by
European Micro. See "Description of Capital Stock - Registration Rights."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended June 30, 1997, the Company had no compensation
committee. No officers or employees, or former officers or employees, of the
Company participated in deliberations of the Company's Board of Directors
concerning executive officer compensation. As of the date of this Prospectus,
the Compensation Committee is composed of Messrs. Gallagher and Shields, each of
whom is a Co-Chairman, Co-President and Director of the Company and Co-Chairman
of each of the Subsidiaries.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
European Micro Holdings, Inc. expects to acquire one hundred percent
(100%) of the issued and outstanding shares of ordinary stock of European Micro
Plc in consideration for the issuance of 4,000,000 newly issued shares of Common
Stock of European Micro Holdings, Inc. The 4,000,000 shares of Common Stock of
European Micro Holdings, Inc. will be issued to the shareholders of European
Micro Plc on a pro rata basis in accordance with such shareholder's respective
ownership interests in European Micro Plc or 2,000,000 shares of Common Stock to
each of Messrs. Gallagher and Shields. As a result of the exchange, Messrs.
Gallagher and Shields will own one hundred percent (100%) of the issued and
outstanding Common Stock of European Micro Holdings, Inc. prior to the
consummation of this Offering. For a discussion of the number of shares of
Common Stock owned by Messrs. Gallagher and Shields after the closing of this
Offering see "Principal and Selling Shareholders."
44
<PAGE>
Since its formation in 1991, European Micro Plc has belonged to the
Group (as defined on page 8). The Group is comprised of European Micro,
Technology Express, American Micro Computer Center and, until August 1, 1997,
Ameritech Exports and Ameritech Argentina. All members of the Group were owned
and controlled by either of the two primary shareholders of European Micro,
Messrs. Gallagher and Shields. 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. Such factors as country
supply, currency fluctuation, and manufacturer's geographic pricing strategy
lead to a constantly changing model where purchases and sales to other members
of the Group depend on the then current economic balance. Inter-Group sales have
historically been one percent above the selling Group member's cost. This low
mark-up has enabled each Group member to buy product quickly and efficiently in
the others' primary territory and to take advantage of quantity purchasing,
financing and logistics of the other members of the Group. The Group has made
numerous exceptions to the general one-percent mark-up pricing policy in times
of short supply, to cover build-up costs and to reward certain Group members for
exceptional low-cost purchases. Additionally, European Micro Plc has paid
certain management and consulting fees to the other members of the Group.
Inter-Group purchases and sales are as follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED JUNE. 30, QUARTER ENDED
------------------------------- --------------
1995 1996 1997 SEPT. 30, 1997
------- ------- ------- --------------
<S> <C> <C> <C> <C>
SALES
American Micro Computer Center $ 323 306 66 5,836
Technology Express, Inc. 22 104 (2) 3,504
Ameritech Argentina S.A -- -- 90 --
Ameritech Exports Inc. 1 26 -- --
======= ======= ======= =======
$ 346 436 154 9,340
======= ======= ======= =======
PURCHASES
American Micro Computer Center $4,082 2,289 1,092 --
Technology Express, Inc. 3,265 14,890 20,717 2,545
Ameritech Argentina S.A -- -- -- --
Ameritech Exports Inc. 70 1,116 848 --
======= ======= ======= =======
$7,417 18,295 22,657 2,545
======= ======= ======= =======
</TABLE>
45
<PAGE>
The management and consulting fees paid by European Micro Plc to other Group
members are as follows (in thousands):
(UNAUDITED)
YEAR ENDED JUNE. 30, QUARTER ENDED
1995 1996 1997 SEPT. 30, 1997
---- ---- ---- --------------
American Micro Computer Center $ 56 50 60 13
Technology Express, Inc. 56 50 60 12
---- ---- ---- ----
$112 100 120 25
==== ==== ==== ====
CONSULTANCY FEES
Technology Express, Inc. $ 32 37 16 --
---- ---- ---- ----
$ 32 37 16 --
==== ==== ==== ====
RECHARGED CONSULTANCY FEES
American Micro Computer Center $-- (14) (27) --
Technology Express, Inc. -- (14) (27) --
Ameritech Argentina S.A -- (8) (13) --
Ameritech Exports Inc. -- (7) (14) --
---- ---- ---- ----
$-- (43) (81) --
---- ---- ---- ----
$ 144 94 55 25
==== ==== ==== ====
Sales to and from Group members has resulted in the following accounts
receivable (in thousands):
(UNAUDITED)
YEAR ENDED JUNE 30, QUARTER ENDED
1995 1996 1997 SEPT. 30, 1997
---- ---- ---- --------------
American Micro Computer Center $ 97 259 240 1,315
Technology Express, Inc. -- 15 -- --
Ameritech Argentina S.A -- 274 329 22
Ameritech Exports Inc. -- 160 -- --
----- ----- ----- -----
$ 97 708 569 1,337
===== ===== ===== =====
Accounts payable to Group members are as follows (in thousands):
(UNAUDITED)
YEAR ENDED JUNE 30, QUARTER ENDED
1995 1996 1997 SEPT. 30, 1997
---- ---- ---- --------------
American Micro Computer Center $ 34 90 -- --
Technology Express, Inc. 242 535 188 1,604
Ameritech Argentina S.A -- 281 -- --
Ameritech Exports Inc. 2 238 -- --
----- ----- ----- -----
$278 1,144 188 1,604
===== ===== ===== =====
The entities listed above are related to European Micro in the following manner:
46
<PAGE>
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 is the president of American Micro Computer Center,
and owns 33.3% of the outstanding shares of common stock of that company.
TECHNOLOGY EXPRESS, INC.
Until 1996, Technology Express, Inc. 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
by the same name. This new company is a distributor of computer products,
focusing primarily on governmental and international sales of computer products.
It 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 is president of Technology Express, and
owns 100% of the outstanding shares of common stock of that company.
AMERITECH ARGENTINA SA
Ameritech Argentina SA is an authorized distributor of Compaq, Hewlett
Packard, IBM and Acer computers and accessories in Argentina. Each of Messrs.
Gallagher and Shields owned 50% of the outstanding shares of common stock each
until its sale on August 1, 1997.
AMERITECH EXPORTS INC.
Ameritech Exports Inc. is an authorized distributor of Compaq computers
and accessories into Caribbean and certain parts of Central and South America.
Messrs. Gallagher and Shields were both officers and directors of Ameritech
Exports Inc. and owned 25% and 50% of the outstanding shares of common stock,
respectively, until its sale on August 1, 1997.
BIG BLUE EUROPE
Big Blue Europe is a distributor of new and used components to third
party maintenance companies, self-maintainers and computer dealers located in
Europe. European Micro Plc owns 50% of the outstanding shares of ordinary stock
of Big Blue Europe. In addition, Messrs. Gallagher and Shields are directors of
Big Blue Europe.
47
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
THE SHARE DATA IN THE FOLLOWING TABLE ASSUMES THAT ALL 1,000,000 SHARES
OF EUROPEAN MICRO PLC CURRENTLY HELD BY THE SELLING SHAREHOLDERS HAVE BEEN
EXCHANGED FOR 4,000,000 SHARES OF COMMON STOCK OF EUROPEAN MICRO HOLDINGS, INC.
THE COMPANY EXPECTS SUCH EXCHANGE TO BE CONSUMMATED PRIOR TO THE OFFERING. THE
COMPANY FURTHER BELIEVES THAT THE FOLLOWING TABLE IS MORE MEANINGFUL WHEN
PRESENTED IN THIS FASHION.
The following table sets forth certain information known to European
Micro with respect to the beneficial ownership of Common Stock as of and as
adjusted to reflect the sale of the Common Stock in the Offering by (i) each
person who is known by European Micro to beneficially own more than five percent
of outstanding Common Stock, (ii) each of European Micro's directors, (iii) each
named executive officer, and (iv) all directors and officers of European Micro
as a group. Unless otherwise indicated, the person or persons named have sole
voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF COMMON
OWNERSHIP OF COMMON SHARES SHARES TO BE SOLD IN OWNERSHIP OF COMMON SHARES
PRIOR TO THIS OFFERING OFFERING(6) AFTER THIS OFFERING
-------------------------- -------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
NAME OF OWNER NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
- ------------- --------- ---------- ------ --------- ----------
John B. Gallagher(1) 2,000,000 50% 50,000 1,950,000 39%
Harry D. Shields(2) 2,000,000 50% 50,000 1,950,000 39%
Jay Nash(2) -- -- -- -- --
Laurence Gilbert(3) -- -- -- -- --
Bernadette Spofforth(3) -- -- -- -- --
Kyle Saxon(4) -- -- -- -- --
Barrett Sutton(5) -- -- -- -- --
All officers and directors 4,000,000 100% 100,000 3,900,000 78%
as a group
<FN>
- -----------------
(1) Business address is 6073 N.W. 167th Street, Unit C-25, Miami, Florida 33015.
(2) Business address is 808 Third Avenue South, Nashville, Tennessee 37210.
(3) Business address is 20-24 Church Street, Altrincham, Manchester, England
WA14 4DW.
(4) Business address is 1700 Alfred I. DuPont Building, 169 East Flagler
Street, Miami, Florida 33131-1298.
(5) Director-Designee whose business address is NationsBank Plaza - Suite 1100,
414 Union Street, Nashville, Tennessee 37219.
(6) Assumes that the Offering will be fully subscribed and therefore a total of
$10,000,000 of Common Stock will be sold by the Company and $1,000,000 of
Common Stock will be sold by the Selling Shareholders.
</FN>
</TABLE>
SHAREHOLDER CROSS-PURCHASE AGREEMENT
John B. Gallagher and Harry D. Shields will enter into a Shareholder
Cross-Purchase Agreement pursuant to which Messrs. Gallagher and Shields will
agree to vote all shares of the Common Stock they own or control together on all
matters submitted to a vote of the shareholders of European Micro, including the
election of directors. See "Risk Factors - Control by Current Shareholders." In
addition, in the event of the death of either Mr.
48
<PAGE>
Gallagher or Mr. Shields, the survivor will be entitled to purchase 50% of the
share of Common Stock of the deceased shareholder at predetermined price. Each
of Messrs. Gallagher and Shields will maintain life insurance on the life of the
other. The proceeds of such life insurance will be paid to the estate of the
deceased shareholder in consideration for 50% of the shares of such shareholder.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock. Upon the closing
of this Offering, the Company expects to have 5,000,000 of Common Stock
outstanding. The following description is a summary of the capital stock of the
Company and is subject to and qualified in its entirety by reference to the
provisions of the Articles of Incorporation (the "ARTICLES OF INCORPORATION")
and the Bylaws (the "BYLAWS") of the Company, which are included as exhibits to
the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Each share of Common Stock entitles the holder to one vote on each
matter submitted to a vote of the Company's shareholders, including the election
of directors. There is no cumulative voting. See "Risk Factors Control by
Current Shareholders." Subject to preferences that may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock have no preemptive, conversion or other subscription rights. There are no
redemption or sinking fund provisions available to the Common Stock. In the
event of liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by the NRS, or the rules of any quotation system or national
securities exchange on which stock of the Company may be quoted or listed, to
provide for the issuance of shares of Preferred Stock in one or more series; to
establish from time to time the number of shares to be included in each such
series; to fix the rights, powers, preferences, and privileges of the shares of
such series, without any further vote or action by the shareholders. Depending
upon the terms of the Preferred Stock established by the Board of Directors, any
or all series of Preferred Stock could have preference over the Common Stock
with respect to dividends and other distributions and upon liquidation of the
Company or could have voting or conversion rights that could adversely affect
the holders of the outstanding Common Stock. The Company has no present plans to
issue any shares of Preferred Stock.
LIMITATION OF LIABILITY; INDEMNIFICATION
As permitted by the NRS, the Articles of Incorporation provide that
directors of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by the NRS (which currently provides that such
liability may be so limited, except for: (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law; or (ii) the payment
of distributions in violation of NRS 78.300.
Each person who is or was a party to any action by reason of the fact
that such person is or was a director or officer of the Company shall be
indemnified and held harmless by the Company to the fullest extent permitted by
the NRS. This right to indemnification also includes the right to have paid by
the Company the expenses incurred in connection with any such proceeding in
advance of its final disposition, to the fullest extent permitted by the NRS. In
addition, the Company may, by action of the Board of Directors, provide
indemnification to such other employees and agents of the Company to such extent
as the Board of Directors determines to be appropriate under the NRS.
As a result of this provision, the Company and its shareholders may be
unable to obtain monetary damages from a director for breach of his duty of
care. Although shareholders may continue to seek injunctive and other equitable
relief for an alleged breach of fiduciary duty by a director, shareholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.
50
<PAGE>
REGISTRATION RIGHTS
In January 1998, each of Messrs. Gallagher and Shields has been granted
the right, subject to various restrictions and limitations, at any time
following consummation of the Offering to individually request that the Company
file with the Commission a registration statement for the proposed sale of any
shares of Common Stock (including Common Stock to be issued upon the exercise of
options) held by either of them, subject only to the lock-up period in the
Underwriting Agreement, entered into on __________, 1998, between the Company
and the Underwriter (the "UNDERWRITING AGREEMENT"). See "Shares Eligible for
Future Sale." Each of Messrs. Gallagher and Shields may exercise such rights
once each per calendar year. The Company may postpone any such requested
registration for a period of up to 120 days if the Company believes that such
registration would not be in the Company's interest. If either Messrs. Gallagher
or Shields exercises his right to demand the Company to register his shares,
then the other shall have the right to register an equivalent number of shares
without reducing the number of number of rights such person has to demand
registration in any calendar year. In addition, each of Messrs. Gallagher and
Shields has an unlimited number of piggyback registration rights in respect to
any shares of Common Stock (including Common Stock issued to be issued upon the
exercise of options). The piggyback registration rights will allow the holders
to include their shares of Common Stock in any registration statement filed by
the Company, subject to certain limitations.
The Company will pay all expenses (other than underwriting discounts
and commissions of the selling shareholders) in connection with up to two
requested registrations, as well as any registrations pursuant to the exercise
of piggyback rights. The Company also will agree to indemnify such persons
against certain liabilities, including liabilities arising under the Securities
Act of 1933, as amended. The registration rights granted to Messrs. Gallagher
and Shields will remain as long as such person remains an "affiliate" of the
Company for purposes of Rule 144.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND
NEVADA LAW
The following provisions of the Articles of Incorporation and Bylaws of
European Micro could discourage potential acquisition proposals and could delay
or prevent a change in control of European Micro. Such provisions may also have
the effect of preventing changes in the management of European Micro. See "Risk
Factors -Anti-Takeover Considerations."
DIRECTORS. The Company's Articles of Incorporation divides the
Company's Board of Directors into three classes with regular three year
staggered terms. Pursuant to Section 78.335 of the NRS, any director may be
removed from office by the vote of shareholders representing two-thirds of the
outstanding shares of common stock. As a result, a shareholder interested in
gaining control of the Company will be precluded from removing incumbent
directors absent a vote of 67% of the outstanding Common Stock. In addition, all
vacancies on the Board of Directors may be filled by a majority of directors
even if a quorum of directors is possible. The authority of the Board of
Directors to fill such vacancies may result in a majority of the directors being
elected without a vote of the shareholders. Shareholders have no right to compel
an election in such cases. Any vacancies (including those caused by an increase
in the number of directors), however, may be filled by a majority of the
remaining directors and therefore the nominees of dissident shareholder may be
precluded from filling any vacancies. Consequently, a shareholder interested in
gaining control of the Company will only be able to elect a minority of the
Company's Board of Directors in any given year. Consequently, two annual
meetings will be necessary for such a shareholder to gain control of the
Company's Board of Directors.
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans.
BLANK CHECK PREFERRED STOCK. The existence of authorized but unissued
and unreserved shares of Preferred Stock may enable the Board of Directors to
issue shares to persons friendly to current management which would render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
51
<PAGE>
NEVADA BUSINESS COMBINATION LAW. The State of Nevada has enacted
legislation that may deter or frustrate takeovers of Nevada corporations. The
Nevada Business Combination Law generally prohibits a Nevada corporation from
engaging in a business combination with an "interested stockholder" (defined
generally as any person who beneficially owns 10% or more of the outstanding
voting stock of the Company or any person affiliated with such person) for a
period of three years following the date that such stockholder became an
interested stockholder, unless the combination or the purchase of shares made by
the interested stockholder on the interested stockholder's date of acquiring
shares is approved by the board of directors of the corporation before that
date. A corporation may not engage in any combination with an interested
stockholder of the corporation after the expiration of three years after his
date of acquiring shares unless: (i) the combination or the purchase of shares
made by the interested stockholder is approved by the board of directors of the
corporation before the date such interested stockholder acquired such shares;
(ii) a combination approved by the affirmative vote of the holders of stock
representing a majority of the outstanding voting power not beneficially owned
by the interested stockholder proposing the combination, or any affiliate or
associate of the interested stockholder proposing the combination, at a meeting
called for that purpose no earlier than three years after the interested
stockholder's date of acquiring shares; or (iii) if the aggregate amount of cash
and the market value, as of the date of consummation, of consideration other
than cash to be received per share by all of the holders of outstanding common
shares of the corporation not beneficially owned by the interested stockholder,
satisfies the fair value requirements of Section 78.441 of NRS.
CERTAIN LIMITATIONS ON SHAREHOLDERS' ACTIONS
NOTICE PROCEDURES FOR SHAREHOLDER PROPOSALS AT ANNUAL MEETINGS. The
Bylaws of the Company establish advance notice procedures with respect to
shareholder proposals to be brought before an annual meeting of shareholders.
These procedures, which are in addition to any other applicable requirements of
law, require that a shareholder must give notice to the Company not less than
120 days nor more than 180 days prior to the first anniversary of the date of
the notice of annual meeting provided with respect to the previous year's annual
meeting.
SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the shareholders
of the Company may be called by its Board of Directors or other persons
authorized to do so under Nevada law. Under applicable Nevada law, shareholders
do not have the right to call a special meeting of the shareholders. This may
have of the effect of discouraging potential acquisition proposals and could
delay or prevent a change in control of European Micro by precluding a dissident
shareholder from forcing a special meeting to consider removing the Board of
Directors or otherwise.
SHAREHOLDER VOTES ON CERTAIN MATTERS. The holders of the Company's
Common Stock and Preferred Stock vote as a single group on all matters except
the following, which require the affirmative vote of a majority of the holders
of the Company's Common Stock and a majority of the holders of the Company's
Preferred Stock: (a) any merger or consolidation of the Company with or into any
other corporation except in the case of a merger into the Company of a
subsidiary of the Company 90% or more of which is owned by the Company and which
does not require a vote of shareholders under Nevada law; (b) any share exchange
in which a corporation, person or entity acquires the issued or outstanding
shares of stock of the Company pursuant to a vote of shareholders of the
Company; (c) any, sale, lease, exchange or other transfer of all, or
substantially all, of the assets of the Company to any other corporation, person
or entity; or (d) any amendment to the Articles of Incorporation of the Company.
If shares of Preferred Stock are issued and outstanding, this provision would
render more difficult or discourage an attempt to obtain control of the Company
by means of a proxy contest, tender offer, merger or otherwise, and thereby
protect the continuity of management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C. its address is 4 Station Square, Third Floor,
Pittsburgh, Pennsylvania 15219-1173.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has not been any public market for the
Common Stock of the Company. No prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions described below lapse, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock.
Upon completion of this Offering, the Company will have 5,000,000
shares of Common Stock outstanding. Of these shares, all of the 1,100,000 shares
offered by the Company and the Selling Shareholders in this Offering will be
freely transferable without restriction under the Securities Act, unless they
are held by "affiliates" of the Company, as that term is used under the
Securities Act and the rules and regulations promulgated thereunder. The
remaining 3,900,000 shares of outstanding Common Stock which are held by Messrs.
Gallagher and Shields are "restricted" securities within the meaning of Rule 144
under the Securities Act. These shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 144,
which is summarized below. See "Risk Factor - Shares Eligible for Future Sale."
Each of Messrs. Gallagher and Shields have agreed not to offer, sell or
otherwise dispose of any of the Restricted Stock for a period of six months
after the date of this Prospectus without the prior written consent of the
Underwriter. For the period of six months after the date of this Prospectus and
ending one year after the date of this Prospectus, Messrs. Gallagher and Shield
have agreed not to offer, sell or otherwise dispose of any Restricted Stock in
amounts exceeding the volume restrictions set forth in Section (e)(1) of Rule
144 and only in the manner of sale provided in Section (f) of Rule 144 ("LIMITED
SALE PERIOD"). The Underwriter may remove these restrictions with respect to the
Restricted Stock in its discretion. See "Underwriting." Messrs. Gallagher and
Shields may not offer, sell or otherwise dispose of their shares of Common
Stock, subject to the conditions and restrictions of Rule 144 unless such shares
are registered pursuant to the Securities Act of 1933, as amended. The shares of
Common Stock held by Messrs. Gallagher and Shields carry certain demand and
incidental (I.E. piggyback) rights to require the Company to register sales of
such shares of Common Stock and to participate in certain subsequent
registrations of the Common Stock by the Company for sale to the public. See
"Description of Capital Stock."
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least one year (including the
holding period of any prior owner other than an affiliate) is entitled to sell
in a broker's transaction or to a market maker, within any three-month period, a
number of shares that does not exceed the greater of (i) one percent (1%) of the
then outstanding shares of Common Stock (approximately 50,000 shares based on
the number of shares to be outstanding after this Offering), or (ii) the average
weekly trading volume in the public market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain requirements as to the manner and notice of sale
and the availability of public information concerning the Company. Persons who
are not affiliates of the Company whose shares have been held for at least two
years would be entitled to sell such shares under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, notice or public information
requirements described above.
The Company intends to file a registration statement covering all
shares of Common Stock issuable under the Company's employee benefit plans in
effect on the date of this Prospectus, including the Incentive Plan and Purchase
Plan. See "Management - 1998 Stock Incentive Plan" and "Management - 1998
Employee Stock Purchase Plan." Accordingly, any shares issued under the
Company's employee benefit plans or upon the exercise of options issued under
such plans will be eligible for sale in the public market beginning on the
effective date of such registration statement.
53
<PAGE>
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to use its best efforts to sell up to 1,100,000 shares
of Common Stock. If on the Termination Date at least $10,000,000 of securities
has been purchased, then the proceeds will be disbursed by the Escrow Agent to
European Micro. If on the Termination Date the aggregate amount of securities
purchased is greater than $7,000,000 but less than $10,000,000, then European
Micro shall have the discretion to accept the Offering, in which case all
proceeds will be disbursed by the Escrow Agent to European Micro, or to return
all proceeds to the purchasers. If on the Termination Date the aggregate amount
of securities purchased is less than $7,000,000, then all proceeds will be
returned to the purchasers, and the Offering will be terminated. No securities
of the Selling Shareholders will be sold until $10,000,000 of securities have
been purchased from the Company.
The Underwriter has advised European Micro that it proposes to offer
shares of the Common Stock to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession of not more than $_______ per share, of which $________
may be reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Underwriter. No such reduction shall change the amount of proceeds to be
received by European Micro as set forth on the cover page of this Prospectus.
The Underwriter does not intend to sell any of the Common Stock offered
hereunder to accounts for which it exercises discretionary authority.
The Underwriting Agreement provides that European Micro and the
Underwriter shall indemnify one another against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments which may be
required to be made in respect thereof.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby was determined through negotiations between the
Company and the Underwriter. Among the factors considered in such negotiations
were prevailing market conditions, certain financial information of the Company,
market valuations of other companies that European Micro and the Underwriter
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
The Underwriter has advised European Micro that, pursuant to Regulation
M under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids
to not exceed a specified maximum Syndicate covering transactions involve
purchases of the Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In "passive' market
making, market makers in the Common Stock who are the Underwriter, or
prospective underwriters or managers may, subject to certain limitations, made
bids for or purchases the Common Stock until the time, if any, at which a
stabilizing bid is made. Penalty bids permit the Underwriter to reclaim a
selling concession from a syndicate member when shares of Common Stock
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
European Micro has agreed to pay the Underwriter a non-accountable
expense allowance (the "ALLOWANCE") of up to $225,000. The Allowance is
intended, among other things, to cover expenses, such as attorney's fees and
"blue sky" filings and charges, which are incurred by the Underwriter incident
to this Offering.
The Company has agreed to grant options to purchase up to 25,000 shares
of Common Stock to Thomas Minkoff as a finder's fee for introducing the Company
to the Underwriter. The options will have an exercise price equal to 100% of the
Offering price. Mr. Minkoff is the first cousin of John B. Gallagher, the
Co-Chairman, Co-President, a director and one of the Selling Shareholders.
54
<PAGE>
Except for the 100,000 shares of Common Stock being sold by the Selling
Shareholders, European Micro and the Selling Shareholders have agreed not to
sell or dispose of any shares of Common Stock for a period at least six months
from the date of this Prospectus without the Underwriter's prior written
consent. For the period beginning six months after the date of this Prospectus
and ending one year after the date of this Prospectus, European Micro and the
Selling Shareholders have agreed not to sell or dispose of any shares of Common
Stock in amounts exceeding those set forth in Section (e)(1) of Rule 144
promulgated under the Securities Act and only in the manner of sale provided in
Section (f) of such rule.
EXPERTS
The consolidated financial statements of European Micro Plc as of June
30, 1996 and 1997 and for each of the years in the three-year period ended June
30, 1997, in this Prospectus and elsewhere in the Registration Statement have
been audited by KPMG, independent auditors, as stated in their report herein and
elsewhere in the Registration Statement, and are included herein in reliance
upon the report of such firm given their authority as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for European Micro by Kirkpatrick & Lockhart LLP, Miami, Florida.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriter by Holland & Knight LLP, Fort Lauderdale, Florida.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. The summaries in
this Prospectus of additional information included in the Registration Statement
or any exhibit thereto are qualified in their entirety by reference to such
information or exhibit. For further information with respect to The Company and
the Common Stock, reference is hereby made to such Registration Statement and
the exhibits and schedules thereto. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference. The Registration
Statement, including exhibits and schedules thereto may be inspected without
charge at the public reference facilities maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the following regional offices of the Commission: 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, or obtained from the
Commission upon payment of the fees prescribed by the Commission. In addition,
registration statements and certain other documents filed with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the World Wide Web,
located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
REPORTS TO SHAREHOLDERS
The Company is currently not subject to the informational requirements
of the Securities Exchange Act of 1934, as amended. The Company intends to
furnish to its shareholders annual reports containing financial statements and
an opinion thereon expressed by independent certified public accountants and
quarterly reports for the first three quarters of each fiscal year containing
interim financial information.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
EUROPEAN MICRO PLC AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and (unaudited)
September 30, 1997 F-3
Consolidated Statements of Earnings for the years ended June 30, 1995,
1996 and 1997 and (unaudited) for the quarter ended September 30, 1996
and 1997 F-4
Consolidated Statements of Changes in Shareholders' Equity for the years
ended June 30, 1995, 1996 and 1997 and (unaudited) for the quarter ended
September 30, 1997 F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1996 and 1997 and (unaudited) for the quarter ended September 30, 1996
and 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and the Shareholders of
European Micro Plc:
We have audited the accompanying consolidated balance sheets of European Micro
Plc and its subsidiaries as of June 30, 1996 and 1997, and the related
consolidated statements of earnings, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of European Micro Plc
and its subsidiaries as of June 30, 1996 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997 in conformity with generally accepted accounting principles
in the United States.
/s/ KPMG
CHARTERED ACCOUNTANTS
REGISTERED AUDITORS
Manchester, England
January 16, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
(UNAUDITED)
JUNE 30, JUNE 30, SEPT. 30,
1996 1997 1997
--------- -------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 322 288 1,204
Trade receivables, net (Note 6) 3,314 2,956 1,781
Discounted trade receivables (Note 6) 1,749 2,779 7,418
Due from related parties (Note 21) 708 569 1,360
Inventories, net (Note 7) 1,020 1,560 1,159
Deferred tax asset (Note 14) 33 -- --
Prepaid expenses 64 75 247
Other current assets (Note 8) 315 37 747
------- ------- -------
TOTAL CURRENT ASSETS 7,525 8,264 13,916
Property and equipment, net (Note 9) 332 389 426
Investment (Note 10) -- 191 226
------- ------- -------
TOTAL ASSETS $ 7,857 8,844 14,568
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft (Note 11) 1,348 1,034 --
Discount creditor (Note 12 ) 1,399 2,223 5,934
Trade payables (Note 13) 1,027 2,038 2,878
Other current liabilities (Note 15) 672 376 644
Due to related parties (Note 21) 1,144 188 1,604
Income taxes payable (Note 14) 461 375 535
Deferred income taxes (Note 14) -- 54 --
------- ------- -------
TOTAL CURRENT LIABILITIES 6,051 6,288 11,595
Long term borrowings (Note 16) 37 45 54
------- ------- -------
TOTAL LIABILITIES 6,088 6,333 11,649
------- ------- -------
Commitments & contingencies (Note 18) -- -- --
SHAREHOLDERS' EQUITY:
Common stock, authorized shares at (pound sterling)
1, par value, 1996 and 1997, 101,000 in 1996
and 1,001,000 in 1997; shares issued and
outstanding, 1,000,000 in 1996 and 1997 (Notes
3 and 17) 155 1,664 1,664
Additional paid in capital -- -- --
Retained earnings 1,610 826 1,283
Cumulative foreign currency translation adjustment 4 21 (28)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 1,769 2,511 2,919
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,857 8,844 14,568
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
(UNAUDITED)
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
--------------------------------- -------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET SALES:
Net sales to third parties (Note 3) $ 33,518 39,912 46,501 8,628 14,767
Net sales to related parties
(Note 21) 346 436 154 68 9,340
-------- -------- -------- -------- --------
TOTAL NET SALES 33,864 40,348 46,655 8,696 24,107
Cost of goods sold (29,040) (35,892) (41,319) (7,466) (22,268)
-------- -------- -------- -------- --------
GROSS PROFIT 4,824 4,456 5,336 1,230 1,839
OPERATING EXPENSES:
Selling, general and administrative
expenses (Note 3) (2,832) (2,884) (3,230) (734) (1,057)
Expenses attributable to related
parties (Note 21) (144) (94) (55) (53) (25)
-------- -------- -------- -------- --------
TOTAL OPERATING EXPENSES (2,976) (2,978) (3,285) (787) (1,082)
-------- -------- -------- -------- --------
OPERATING PROFIT 1,848 1,478 2,051 443 757
Interest expense (156) (160) (293) (14) (101)
Equity in net (loss) income
of unconsolidated affiliate (Note 10) -- -- (73) -- 35
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,692 1,318 1,685 429 691
Taxes on income (Note 3 and 14) (577) (473) (651) (142) (206)
-------- -------- -------- -------- --------
NET INCOME $ 1,115 845 1,034 287 485
======== ======== ======== ======== ========
Net income per share - basic
(Note 3) $ 1.12 0.85 1.03 0.29 0.49
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands, except share and per share data)
CUMULATIVE
FOREIGN
CURRENCY TOTAL
COMMON STOCK RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT EARNINGS ADJUSTMENT EQUITY
--------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1994 1,000,000 $ 159 1,026 -- 1,185
Net income -- -- 1,115 -- 1,115
Dividends declared ($0.39 per
share) -- -- (391) -- (391)
Foreign currency translation
adjustment -- -- -- 15 15
--------- --------- --------- --------- ---------
Balance at June 30, 1995 1,000,000 159 1,750 15 1,924
Net income -- -- 845 -- 845
Dividends declared ($0.96 per share) -- -- (961) -- (961)
Foreign currency translation
adjustment -- (4) (24) (11) (39)
--------- --------- --------- --------- ---------
Balance at June 30, 1996 1,000,000 155 1,610 4 1,769
Capitalization of retained earnings
(Note 17) -- 1,498 (1,498) -- --
Net income -- -- 1,034 -- 1,034
Dividends declared ($0.56 per share) -- -- (562) -- (562)
Foreign currency translation
adjustment -- 11 242 17 270
--------- --------- --------- --------- ---------
Balance at June 30, 1997 1,000,000 1,664 826 21 2,511
Net income (unaudited) -- -- 485 -- 485
Dividends declared (unaudited)
($0.06 per share) -- -- (55) -- (55)
Foreign currency translation
adjustment (unaudited) -- -- 27 (49) (22)
--------- --------- --------- --------- ---------
Balance at September 30, 1997
(unaudited) 1,000,000 $ 1,664 1,283 (28) 2,919
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(UNAUDITED)
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30
------------------------------- -------------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,115 845 1,034 287 485
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and other 96 134 163 40 66
Provision for deferred taxes (16) (17) 87 33 (54)
Equity in net loss (income) of
unconsolidated affiliate -- -- 73 -- (35)
CHANGES IN ASSETS AND LIABILITIES:
Trade receivables (832) (1,677) (672) 1,853 (3,464)
Due from related parties (35) (611) 139 340 (791)
Inventory (68) 661 (540) 613 402
Other current assets (232) 39 267 197 (882)
Trade payables (808) (407) 1,011 (973) 840
Due to related parties (20) 866 (956) (995) 1,416
Taxes payable 111 (88) (86) (5) 161
Other, net (302) 425 (273) (347) 249
------- ------- ------- ------- -------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (991) 170 247 1,043 (1,607)
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Purchase of fixed assets (222) (171) (195) (56) (20)
Sale of fixed assets 167 14 47 19 12
Investment in unconsolidated affiliate -- -- (264) -- --
------- ------- ------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (55) (157) (412) (37) (8)
------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Dividends paid (391) (961) (562) (124) (55)
Repayment of capital leases (43) (59) (71) (14) (42)
Change in bank overdraft (42) 1029 (314) 111 (1,034)
Change in discounting creditor 1,116 283 824 (982) 3,712
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 640 292 (123) (1,009) 2,581
------- ------- ------- ------- -------
Exchange rate changes 49 (30) 254 (76) (50)
------- ------- ------- ------- -------
NET (DECREASE) INCREASE IN CASH (357) 275 (34) (79) 916
Cash at beginning of period 404 47 322 322 288
------- ------- ------- ------- -------
CASH AT END OF PERIOD $ 47 322 288 243 1,204
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of European Micro
Plc which was incorporated in Great Britain in 1991. The consolidated
financial statements of European Micro Plc includes the results of
operations and financial position of its wholly owned subsidiaries. The
following companies results of operations and financial position have been
included in the consolidated financial statements based upon the relative
percentages below:
OWNERSHIP
COMPANIES 1995 1996 1997
--------- ---- ---- ----
European Micro Plc 100% 100% 100%
European Micro GmbH 100% 100% 100%
European Micro BV * 100% 100%
* Company began operations in January 1996 and ceased to trade in December
1996.
European Micro Plc operates in a single industry trading computer
components. European Micro Plc is an independent distributor of micro
computer products, including personal computers, memory modules, disc
drives and networking products, operating primarily in Western Europe. In
principle European Micro Plc purchases components from international
suppliers, including related parties, and sells them in local markets. The
parent company's principal operations are in Altrincham, England with the
subsidiaries operating in Holland and Germany.
The parent company holds a 50% interest in a joint venture company, Big
Blue Europe BV which commenced operations in January 1997. It has been
included in these consolidated financial statements under the equity method
of accounting. Big Blue Europe BV operates in the same industry as European
Micro Plc.
All consolidated companies have a June 30, fixed accounting period end.
2 ADJUSTMENTS AND RECLASSIFICATIONS TO STATUTORY BOOKS OF ACCOUNTS
European Micro Plc and the subsidiaries maintain their books of accounts
and prepare their statutory financial statements in their local currencies
and in accordance with local commercial practice and tax regulations
applicable in the countries where they are resident. The accompanying
consolidated financial statements are based on these statutory records with
adjustments and reclassifications for the purpose of fair presentation in
accordance with accounting principles generally accepted in the United
States.
F-7
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The major accounting policies followed in the preparation of the
consolidated financial statements referred to above are set out below:
a) REVENUE AND EXPENSE RECOGNITION
Revenues are recognised at the time the goods are shipped. Discount and
customer rebates are deducted from sales revenue when earned. Costs of
goods sold include material costs only. Selling, general and administrative
costs are charged to expense as incurred.
b) PRINCIPLES OF CONSOLIDATION
The consolidated results of European Micro Plc include the results of
operations of its wholly owned subsidiaries which it controls. The
principles of consolidation are as follows:
/bullet/ All investments in the subsidiaries are eliminated.
/bullet/ All significant intercompany balances and transactions have been
eliminated on consolidation.
Investments greater than 20%, in which the company exercises significant
influence, however does not control the entity, are accounted for under the
equity method.
c PRINCIPLES OF TRANSLATION OF THE FINANCIAL STATEMENTS
The subsidiaries record transactions in their local currencies which
represent their operating currencies. Transactions denominated in
currencies other than local currencies are recorded at the exchange rates
ruling at the date of the transactions. Assets and liabilities denominated
in currencies other than local currencies are converted into the local
currencies at the exchange rates ruling at balance sheet date. Resulting
exchange differences are recognised in the income for the period.
Financial statements of the subsidiaries have been translated into pounds
sterling the functional currency of the parent company. Accordingly,
balance sheet items are translated at the year end exchange rates while
statement of income items are translated at average rates during the year.
All foreign exchange adjustments resulting from translation of the
financial statements into pounds sterling are included in a separate
section of shareholders' equity titled `Cumulative foreign currency
translation adjustment'.
The consolidated financial statements have been translated from the parent
company functional currency, pounds sterling, into US dollars, the
reporting currency.
D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided to
write off the cost less the estimated residual value of tangible fixed
assets by equal instalments over their estimated useful economic lives as
follows:
Office equipment - 50% per annum on cost
Fixtures & Fittings - 15% per annum on cost
Motor vehicles - 25% per annum on cost
The costs of ordinary maintenance and repairs are charged to expense as
incurred.
When assets are otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts and resulting gain or loss is
reflected in net income.
F-8
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e) IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the US Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, requiring that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. The company adopted this standard in 1996.
Adoption of this standard did not have a material impact on its result of
operations or financial position.
f) INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using the weighted average cost method.
g) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry-forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognised in income in the
period that includes the enactment date.
h) RELATED PARTY TRANSACTIONS
For the purpose of the accompanying consolidated financial statements,
shareholders and all companies in which there is direct or indirect
ownership by the shareholders of the consolidated companies are considered
as related parties.
i) USE OF ESTIMATES
Management of the company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements. Actual results could differ from those estimates. Significant
estimates and assumptions include the amounts reflected as allowance for
doubtful receivables, allowance for obsolete inventories, amounts due to
customers under incentive programs, and deferred tax assets.
F-9
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j) EARNINGS PER COMMON SHARE (CONTINUED)
SFAS No. 128 simplifies the earnings per share ("EPS") calculations
required by Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution of securities
that could share in the earnings of an entity, similar to the fully diluted
EPS of APB Opinion No. 15. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted.
Basic earnings per share for each year is computed by dividing net income
by the weighted average number of shares of common stock outstanding during
the year, unless such inclusion is anti-dilutive. On December 20, 1996
European Micro Plc increased the share capital of the Company by
capitalizing retained earnings of $1,498,000 . The weighted average number
of shares has been retroactively adjusted to reflect the additional equity
capitalization as 1,000,000 for each period under review. The company has
only presented basic earnings per share due to the "simple" capital
structure. Diluted earnings per share is the same as basic.
4 INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of September 30, 1997 and for the
quarters ended September 30, 1996 and 1997 are unaudited and prepared on
the same basis as the audited consolidated financial statements included
herein. In the opinion of management, such interim consolidated financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the results for such periods. The
results of operations for the quarter ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year or
any other interim period.
5 NEW ACCOUNTING PRONOUNCEMENTS
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES
In June 1996, the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings. In 1996 the company adopted SFAS No. 125. The adoption
has not had a material effect on the company's financial position, results
of operation or liquidity.
F-10
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
5 NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
COMPREHENSIVE INCOME
SFAS No. 130 "Reporting Comprehensive Income" was issued in June 1997 and
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
It requires that all items that are required to be recognised under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. It requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position.
The company is currently reviewing the likely impact on the classification
of items included in shareholders' equity.
SEGMENT INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. In the initial year of application
comparative information for earlier years is to be restated.
It requires that companies disclose segment data based on how management
make decisions about allocating resources to segments and measuring their
performance. It also requires entity-wide disclosures about the products
and services an entity provides, the material countries in which it holds
assets and reports revenues and its major customers.
The company is currently reviewing the likely impact on the level of
disclosure currently provided in its consolidated financial statements.
F-11
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
6 TRADE RECEIVABLES, NET
Trade receivables consisted of receivables maturing within one year and are as
follows (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
------ ------- -------------
Total trade receivables $5,063 5,740 9,199
Less: Allowance for doubtful receivables -- (5) --
------ ----- -----
$5,063 5,735 9,199
====== ===== =====
Trade receivables include discounted trade receivables as follows (in
thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
------ ------ ------------
Discounted trade receivables (see Note 12) $1,749 2,779 7,418
Non discounted trade receivables 3,314 2,956 1,781
------ ----- -----
$5,063 5,735 9,199
====== ===== =====
F-12
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
7 INVENTORIES
Inventories comprises (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
------- -------- -------------
Finished goods and goods for resale $ 1,136 1,595 1,249
Less: Allowance for inventory
obsolescence (116) (35) (90)
------- ----- ------
$ 1,020 1,560 1,159
======= ===== =====
As of June 30, 1997 inventories were insured against theft or damage to the
extent of $1,560,000. The maximum value of stock insured under the company's
insurance cover in place at June 30, 1997 was $2,900,000.
The allowance for obsolescence is constituted as follows (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
1996 1997 1997
----- -------- ------------------
Beginning balance $ 27 116 35
Provision for obsolescence 245 220 65
Amounts written off (156) (301) (10)
----- ---- ---
Ending balance $ 116 35 90
===== ==== ===
F-13
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
8 OTHER CURRENT ASSETS
Other current assets comprised (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
---- ---- ------------
VAT receivable $232 -- 620
Other 83 37 127
---- ---- ----
$315 37 747
==== ==== ====
9 PROPERTY AND EQUIPMENT, NET
Property and equipment comprised (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
----- ----- -------------
Furniture and fixtures $ 94 136 142
Computers and office equipment 230 365 360
Vehicles and other 253 282 370
----- ----- -----
577 783 872
Less: accumulated depreciation (245) (394) (446)
----- ----- -----
NET BOOK VALUE $ 332 389 426
===== ===== =====
The charge for depreciation was as follows (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED JUNE 30 SEPTEMBER 30,
1995 1996 1997 1997
---- ---- ---- ------------------
Depreciation expense $100 133 167 52
==== ==== ==== ====
F-14
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
10 INVESTMENTS (in thousands)
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
---- ---- -------------
Investments in Big Blue Europe BV $-- 191 226
=== === ===
The equity share of (losses) income is based on the results of Big Blue Europe
BV since it commenced trading in January 1997 to June 30, 1997, and September
30, 1997. A summarised statement of earnings for Big Blue Europe BV for the
period is set out below (in thousands):
(UNAUDITED)
PERIOD ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
1997 1997
------------- ------------------
Net sales $ 465 1,400
Cost of goods sold (354) (1,137)
------ ------
Gross profit 111 263
Operating expenses (325) (154)
------ ------
(Loss) income before income taxes (214) 109
Income taxes (benefits) 68 (39)
------ ------
NET (LOSS) INCOME (146) 70
------ ------
Equity in net (loss) income of
unconsolidated affiliate $ (73) 35
====== ======
F-15
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
11 BANK OVERDRAFT
The bank overdraft was as follows (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
------ ----- -------------
Bank overdraft $1,348 1,034 --
====== ===== =====
The bank overdraft is secured by a mortgage debenture over the assets of the
company. Note, the collateral attaching to the discount creditor (Note 12) and
the hire purchase and capital leases (Note 16), take priority over the mortgage
debenture. At June 30, 1997 the bank overdraft of $1,034,000 was secured by the
mortgage debenture.
The bank overdraft facility is subject to review in July each year.
Interest is charged on the bank overdraft at 1.75% over the UK bank borrowing
rate which was 6% at June 30, 1997. Interest expense in relation to the bank
overdraft was as follows (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
---- ---- ---- ------------------
Bank overdraft interest expense $69 119 133 29
=== === === ===
F-16
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
12 DISCOUNT CREDITOR
The discount creditor balance was as follows (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
------ -------- -------------
Discount creditor $1,399 2,223 5,934
====== ====== ======
The discount creditor balance represents the finance obligation for various
trade receivable balances which have been discounted. The trade receivable
balances which have been discounted, and are included within trade receivables
are as follows (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
------ ------ -------------
Discounted trade receivable balances
(See Note 6) $1,749 2,779 7,418
====== ====== ======
Trade receivables can be financed up to a maximum of 80% of the value of the
trade receivables balance. The total capacity of the company to discount trade
receivable balances at June 30, 1997 amounted to $4,133,000 (September 30, 1997;
$6,062,000, unaudited) of which $2,223,000 was used (September 30, 1997;
$5,934,000, unaudited). Therefore the unused available facility at June 30, 1997
amounted to $1,910,000 (September 30, 1997; $128,000, unaudited).
The discount creditor balance is secured by a direct interest on the trade
receivable balances to which it relates.
The finance company which provides the discount creditor facility has full
recourse to the company with respect to any doubtful or unrecovered amounts.
Interest is charged at 1.5% above the bank borrowing rate, which was 6% at June
30, 1997, on the discount creditor balance. The discount creditor finance charge
was as follows (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED JUNE 30 SEPTEMBER 30,
1995 1996 1997 1997
---- ---- ---- ------------------
Discount creditor finance charge $73 24 149 69
=== === === ===
F-17
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
13 TRADE PAYABLES
At June 30, trade payables consisted principally of balances resulting from
purchase transactions.
14 TAXES ON INCOME
Taxes on income is only attributable to income from continuing operations and
consists of (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
----- ----- ----- ------------------
Current taxation $ 589 490 564 206
Deferred taxation (12) (17) 87 --
----- ----- ----- -----
$ 577 473 651 206
===== ===== ===== =====
The taxes on income represent the statutory rate of tax of 33% (September 30,
1997: 31%, unaudited) adjusted for permanent differences. The income tax
expense, which arises solely on continuing operations, is reconciled below (in
thousands):
(UNAUDITED)
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
------ ------ ------ -------------
Income before income taxes $1,692 1,318 1,685 691
====== ====== ====== =====
Expected tax charge @ 33% / 31% * 558 435 556 214
Tax on permanently disallowed items 19 38 95 (8)
------ ------ ------ -----
Taxes on income $ 577 473 651 206
====== ====== ====== =====
* Statutory tax rate changed for the quarter ended September 30, 1997.
F-18
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
14 TAXES ON INCOME (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1996 and
1997 are presented below (in thousands):
JUNE 30,
1996 1997
---- ----
DEFERRED TAX ASSETS:
Property and equipment, principally due to differences in
depreciation $12 --
Net operating loss carried forward 21 11
--- ---
Total deferred tax assets 33 11
--- ---
DEFERRED TAX LIABILITIES:
Property and equipment, principally due to differences in
depreciation -- (65)
--- ---
Total deferred tax liabilities -- (65)
--- ---
Net deferred tax assets (liabilities) $33 (54)
=== ===
F-19
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
15 OTHER CURRENT LIABILITIES
Other current liabilities consist of the following (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
---- ---- ------------
Accrued expenses $550 215 494
VAT payable -- 33 --
PAYE and NIC 54 63 65
Hire purchase and capital leases (see Note 16) 68 44 63
Others -- 21 22
---- ---- ----
$672 376 644
==== ==== ====
16 HIRE PURCHASE AND CAPITAL LEASES
Balances outstanding in relation to hire purchase and capital leases were as
follows (in thousands):
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996 1997 1997
---- ---- -------------
Amounts payable:
Within one year (*) $ 68 44 63
After one year 37 45 54
---- ---- ----
$105 89 117
==== ==== ====
(*) Included within other current liabilities (see Note 15)
Hire purchase and capital leases are secured by the asset to which they relate.
At June 30, 1997, assets, which were all motor vehicles were pledged as security
against the respective hire purchase or capital lease agreements. Information in
respect of assets held as security were as follows:
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1997 1997
-------- -------------
Cost $ 232 370
Less: accumulated depreciation (97) (170)
----- -----
NET BOOK VALUE $ 135 200
===== =====
F-20
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
16 HIRE PURCHASE AND CAPITAL LEASES (CONTINUED)
Hire purchase and capital lease agreements are generally for periods of three
years and they attract interest at a fixed rate of 7.5%.
The interest payment is integral within each monthly repayment. The interest
charge was as follows (in thousands):
(UNAUDITED)
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1996 1997 1997
---- ---- -------------
Hire purchase and capital lease interest $5 3 3
== == ==
The present value of the future minimum lease payments of the capital leases as
of June 30 1997, in aggregate, for each of the five succeeding years is as
follows (in thousands):
JUNE 30,
- --------
1998 $44
1999 44
2000 1
2001 -
2002 -
---
$89
===
17 COMMON STOCK
At June 30 1997, and September 30, 1997 the company's authorized common stock
consists of 1,001,000 shares with par value of (pound sterling)1 per share.
Outstanding common stock consists of 1,000,000 shares with par value of (pound
sterling)1 per share. The breakdown of outstanding common stock by shareholders
(controlling shareholders) is as follows:
AMOUNT %
------ -----
John B. Gallagher $832 50.0
Harold D. Shields $832 50.0
The liability of the members is limited to the par value of the shares.
Dividends are payable at the discretion of the board and the members of the
company.
All common shares carry equal voting rights.
F-21
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
18 COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
LEGAL PROCEEDINGS
The company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
company's consolidated financial position, results of operations, or liquidity.
LEASES
The company's lease agreements comprise:
OPERATING LEASES
The future minimum lease payments under non cancellable operating leases as of
June 30, 1997 in aggregate for each of the five succeeding years is as follows
(in thousands):
LAND
AND
JUNE 30, BUILDINGS
- -------- ---------
1998 $42
1999 -
2000 -
2001 -
2002 -
---
The operating leases expires in June 1998.
CAPITAL LEASES
The future minimum lease payments of capital leases are disclosed in Note 16.
F-22
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
19 FOREIGN EXCHANGE CONTRACTS
The company utilises derivative financial instruments in the form of forward
exchange contracts for the purpose of economic hedges of anticipated
transactions. In addition the company enters into economic hedges for the
purposes 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
recognised as cost of sales in the current period, generally consistent with the
period in which the gain or loss of the underlying transaction is recognised.
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.
F-23
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
19 FOREIGN EXCHANGE CONTRACTS (CONTINUED)
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
JUNE 30, 1998 FAIR VALUE
------------- ----------
FORWARD EXCHANGE
AGREEMENTS
JUNE 30, 1997
(Receive $US/Pay (pound sterling))
Contract amount $2,006 $2,006
Average contractual
exchange rate $1.66/(pound sterling)1
(Receive (pound sterling)/Pay DM)
Average contractual
exchange rate 430 450
(pound sterling)0.36/DM
JUNE 30, 1996
(Receive DM/Pay (pound sterling))
Contract amount 461 460
Average contractual 2.36DM/(pound sterling)1
exchange rate
(Receive $/Pay (pound sterling))
Contract amount 1,913 1,900
Average contractual $1.54/(pound sterling)1
exchange rate
F-24
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
20 FAIR VALUE OF FINANCIAL INSTRUMENTS
The company's financial instruments consist of cash and equivalents, trade
receivables, borrowings and trade payables and foreign exchange contracts. The
carrying amounts of cash and equivalents, trade receivables, borrowings and
trade payables approximate their fair values because of the short maturity (see
Note 19 for fair value of forward exchange contracts).
21 RELATED PARTY INFORMATION
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 Aregentina S.A. located in Buenosaires, 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.
RELATED PARTY TRANSACTIONS
Related party transactions are summarized as follows (in thousands):
(UNAUDITED)
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
------- ------- ------- ------------
SALES
American Micro Computer Center $ 323 306 66 5,836
Technology Express 22 104 (2) 3,504
Ameritech Argentina -- -- 90 --
Ameritech Exports 1 26 -- --
------- ------- ------- -------
$ 346 436 154 9,340
======= ======= ======= =======
PURCHASES
American Micro Computer Center $ 4,082 2,289 1,092 --
Technology Express 3,265 14,890 20,717 2,545
Ameritech Argentina -- -- -- --
Ameritech Exports 70 1,116 848 --
------- ------- ------- -------
$ 7,417 18,295 22,657 2,545
======= ======= ======= =======
F-25
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
21 RELATED PARTY INFORMATION (CONTINUED)
RELATED PARTY TRANSACTIONS (CONTINUED)
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
----- ---- ----- ------------------
OPERATING EXPENSES
MANAGEMENT FEES
American Micro Computer Center $ 56 50 60 13
Technology Express 56 50 60 12
----- ----- ----- -----
112 100 120 25
----- ----- ----- -----
CONSULTANCY FEES
Technology Express 32 37 16 --
----- ----- ----- -----
32 37 16 --
----- ----- ----- -----
RECHARGED CONSULTANCY FEES
American Micro Computer Center -- (14) (27) --
Technology Express -- (14) (27) --
Ameritech Argentina -- (8) (13) --
Ameritech Exports -- (7) (14) --
----- ----- ----- -----
-- (43) (81) --
----- ----- ----- -----
$ 144 94 55 25
===== ===== ===== =====
F-26
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
21 RELATED PARTY INFORMATION (CONTINUED)
DUE FROM/TO RELATED PARTIES
a) Due from related parties comprised the following balances (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
1996 1997 1997
----- ----- ------------------
American Micro Computer Center $ 259 240 1,315
Technology Express 15 -- --
Ameritech Argentina 274 329 22
Ameritech Exports 160 -- --
Big Blue Europe BV -- -- 23
----- ----- -----
$ 708 569 1,360
===== ===== =====
b) Due to related parties comprised of following balances (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
1996 1997 1997
------ ------ ------------------
American Micro Computer Center $ 90 -- --
Technology Express 535 188 1,604
Ameritech Argentina 281 -- --
Ameritech Exports 238 -- --
------ ------ ------
$1,144 188 1,604
====== ====== ======
NATURE OF RELATED PARTY RELATIONSHIPS
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) in the
company is a president of American Micro Computer Center and owns 33.3% of the
stock in that company.
F-27
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
21 RELATED PARTY INFORMATION (CONTINUED)
NATURE OF RELATED PARTY RELATIONSHIPS (CONTINUED)
TECHNOLOGY EXPRESS, INC.
Until 1996, Technology Express, Inc. was a full service authorized reseller of
computers and related products based in Nashville, Tennessee, selling primarily
to end-users. Technology Express, Inc. was sold to Inacomp Computers in 1996.
Concurrently with the sale, Mr. Shields founded a new computer company with the
name Technology Express. This new company is a distributor of computer products,
focusing primarily on governmental and international sales of computer products.
It 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 is president of Technology Express and
owns 100% of the outstanding shares of common stock of that company.
AMERITECH ARGENTINA SA
Ameritech Argentina SA 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 SA and owned 50% of the
outstanding shares of common stock each until its sale on August 1, 1997.
AMERITECH EXPORTS INC.
Ameritech Exports Inc. 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 Inc. and
owned 50% of the outstanding shares of common stock each until its sale on
August 1, 1997.
BIG BLUE EUROPE BV
Big Blue Europe BV is a distributor of new and used components to third party
maintenance companies, self-maintainers and computer dealers located in Europe.
The company owns 50% of the stock in Big Blue Europe BV. In addition Messrs
Shields and Gallagher are Directors of Big Blue Europe BV.
F-28
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
22 SEGMENTAL INFORMATION AND CONCENTRATIONS
The company's operations involve a single industry segment, distribution of
microcomputer equipment and software products. The company principally operates
in one geographical area being the UK and it exports product to other countries
mainly within Europe. A geographical analysis of the company's UK operating
revenues and export sales is set out below (in thousands):
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
------- ------ ------ ------------------
UK $ 8,414 11,876 21,050 7,731
Germany 13,749 11,305 8,282 2,716
Netherlands 5,520 8,230 4,653 658
Other European 4,109 6,879 10,163 2,732
Non EU* 2,072 2,058 2,507 10,270
------- ------- ------- -------
$33,864 40,348 46,655 24,107
======= ======= ======= =======
* Non EU relates principally to sales to the United States.
While these countries are considered politically stable, there is risk that
economic difficulties in any of these countries could adversely affect the
company's business.
Most of the company's sales are made in sterling. In some countries, certain
purchases and the resulting payables are in currencies (principally the US
dollar) which is different than the functional currency of European Micro Plc.
F-29
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
22 SEGMENTAL INFORMATION AND CONCENTRATIONS (CONTINUED)
The following table summarizes purchases from major suppliers in excess of 10%
for the period as a percentage of total purchases:
(UNAUDITED)
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
----- ----- ----- --------------
RELATED PARTY
Technology Express 12.3% 43.2% 51.1% 10.5%
THIRD PARTIES
Supplier A 24.1% 14.1% - -
B 18.7% - - -
C - - - 29.7%
D - - - 13.8%
E - - - 12.4%
F - - - 11.9%
The following table summarizes sales to major customers (sales in excess of 10%
for the period) as a percentage of total sales:
(UNAUDITED)
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
---- ---- ---- -------------
RELATED PARTY
American Micro Computer Center - - - 23.0%
Technology Express - - - 13.8%
THIRD PARTIES
Customer G - 10.2% - -
The company and it subsidiaries believe that their relationship with the above
customer's are good and has no reason to believe that its distribution
arrangement will not be a long-term relationship. Amounts outstanding at the end
of each year are as follows:
DEBTOR BALANCE OUTSTANDING (IN THOUSANDS):
JUNE 30,
1996
--------
Customer G $1,168
F-30
<PAGE>
<TABLE>
<CAPTION>
EUROPEAN MICRO PLC AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (CONTINUED)
23 SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
1995 1996 1997 1996 1997
----- ----- ----- ------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASHFLOW DISCLOSURES:
Interest paid $(150) (156) (290) (15) (105)
Taxes paid on income (478) (578) (584) (259) (64)
----- ----- ----- ----- -----
$(628) (734) (874) (274) (169)
===== ===== ===== ===== =====
</TABLE>
24 SUBSEQUENT EVENTS (UNAUDITED)
European Micro Holdings Inc. was incorporated on December 23, 1997. This company
has no operations.
Nor'easter Micro Inc. was established on December 26, 1997.
Management plans to exchange all of the shares of European Micro Holdings Inc.
for all of the shares of European Micro Plc and consolidate all subsidiaries
into European Micro Holdings Inc. European Micro Holdings Inc. and its
consolidated subsidiaries are referred to as "European Micro" or "the Company".
In November 1997 European Micro Plc incurred losses with regard to an inventory
theft. A claim has been submitted to the insurers amounting to $530,000.
F-31
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY EUROPEAN MICRO OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EUROPEAN MICRO SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
Summary................................................... 4
Risk Factors.............................................. 8
Use of Proceeds........................................... 17
Dividend Policy........................................... 18
Capitalization............................................ 19
Dilution.................................................. 20
Selected Consolidated Financial Data...................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 24
Business.................................................. 31
Management................................................ 37
Certain Relationships and Related Transactions ........... 44
Principal and Selling Shareholder......................... 48
Description of Capital Stock.............................. 50
Shares Eligible For Future Sale........................... 53
Underwriting.............................................. 54
Experts................................................... 55
Legal Matters............................................. 55
Additional Information.................................... 55
Index to Financial Statements.............................F-1
UNTIL ________, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED ____
SECURITIES, ____ WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS AN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD SUBSCRIPTIONS.
EUROPEAN MICRO HOLDINGS, INC.
1,100,000 SHARES OF
COMMON STOCK
----------------------
PROSPECTUS
---------------------
JANUARY ___, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee................... $3,245.00
NASD Fee . .......................................................... $1,500.00
Nasdaq National Market System Listing Fee............................. $7,500.00
Printing and Engraving Expenses....................................... $30,000.00
Accounting Fees and Expenses.......................................... $220,000.00
Legal Fees and Expenses............................................... $150,000.00
Blue Sky Qualification Fees and Expenses.............................. $30,000.00
Transfer Agent Fees and Expenses...................................... $5,000.00
Non-Accountable Expense Allowance..................................... $195,000.00
Miscellaneous......................................................... $10,000.00
----------
Total............................................................. $652,245.00
==========
</TABLE>
All amounts except the Securities and Exchange Commission Registration
Fee are estimated. No portion of the expenses associated with this Offering will
be borne by the Selling Shareholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the NRS provides, in effect, that any person made a
party to any action by reason of the fact that he is or was a director, officer,
employee or agent of European Micro may and, in certain cases, must be
indemnified by European Micro against, in the case of a non-derivative action,
judgments, fines, amounts paid in settlement and reasonable expenses (including
attorneys' fees) incurred by him as a result of such action, and in the case of
a derivative action, against expenses (including attorneys' fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of European Micro. This
indemnification does not apply, in a derivative action, to matters as to which
it is adjudged that the director, officer, employee or agent is liable to
European Micro, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case, he
is fairly and reasonably entitled to indemnify for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was lawful.
Section 78.037 of the NRS allows European Micro to eliminate or limit
the personal liability of a director to European Micro or to any of its
shareholders for monetary damage for a breach of fiduciary duty as a director,
except for: acts or omissions which involve intentional misconduct, fraud or
knowing violation of law; or (ii) the payment of distributions in violation of
NRS 78.300.
Article VI of European Micro's Articles of Incorporation provides that
European Micro shall indemnify any person (and the heirs, executors or
administrators of such person) who was or is a party or is threatened to be made
a party to, or is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director or officer of European
Micro or is or was serving at the request of European Micro as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, to the fullest extent permitted by Nevada Law. Each such indemnified
party shall have the right to be paid by European Micro for any expenses
incurred in connection with any such proceeding in advance of its final
disposition to the fullest extent authorized by Nevada Law. Article VI of
European Micro's Articles of Incorporation also provides that European Micro
may, by action of its Board of
II-1
<PAGE>
Directors, provide indemnification to such of the employees and agents of
European Micro to such extent and to such effect as the Board of Directors shall
determine to be appropriate and authorized by Nevada Law.
European Micro maintains an insurance policy that provides protection,
within the maximum liability limits of the policy and subject to a deductible
amount for each claim, to European Micro under its indemnification obligations
and to the directors and officers of European Micro with respect to certain
matters that are not covered by European Micro's indemnification obligations.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors, officers and controlling persons of European
Micro pursuant to the foregoing provisions, European Micro has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by European Micro of expenses incurred or paid by a director, officer or
controlling person of European Micro in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, European Micro will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Prospectus, the Underwriters have agreed to indemnify the directors, officers
and controlling persons of European Micro against certain civil liabilities that
may be incurred in connection with this Offering, including certain liabilities
under the Securities Act.
At present, there is no pending litigation or proceeding involving any
director or officer of European Micro as to which indemnification is being
sought, nor is European Micro aware of any threatened litigation that may result
in claims for indemnification by any director or officer.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company expects to issue an aggregate of 4,000,000 shares of Common
Stock to John B. Gallagher (2,000,000 shares) and Harry D. Shields (2,000,000
shares) in exchange for all of their shares of ordinary stock of European Micro
Plc pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended. No such commissions or other remuneration
will be paid in connection with the above-described issuance of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
Exhibit
NO. TITLE
1.01 Form of Underwriting Agreement*
3.01 Articles of Incorporation for European Micro Holdings, Inc.
3.02 Form of Bylaws
4.01 Form of Stock Certificate*
4.02 Form of 1998 Stock Incentive Plan
4.03 Form of 1998 Employee Stock Purchase Plan
II-2
<PAGE>
5.01 Form of Opinion of Kirkpatrick & Lockhart LLP regarding the
validity of the securities offered*
10.01 NatWest Credit Facility*
10.02 Hermes Credit Insurance*
10.03 Consignment Agreement with European Micro Computer GmbH,
dated January, 1996*
10.04 Distributor Agreement with WatchGuard Technologies, Inc.,
dated May 9, 1997*
10.05 Trusteed Shareholders' Cross-Purchase Agreement, dated
July 24, 1994*
10.06 Form of Shareholders' Cross-Purchase Agreement*
10.07 Form of Executive Employment Agreement between John
Gallagher and European Micro Holdings, Inc.
10.08 Form of Executive Employment Agreement between Harry Shields
and European Micro Holdings, Inc.
10.09 Form of Executive Employment Agreement between Laurence
Gilbert and European Micro Plc*
10.10 Contract of Employment between Bernadette Spofforth and
European Micro Plc, dated April 30, 1996*
10.11 Form of Subscription Agreement
10.12 Form of Administrative Services Contract*
23.01 Consent of KPMG
24.01 Power of Attorney (included as part of signature page)
99.01 Consent of Barrett Sutton, Director-Designee
- ---------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the utnderwriting agreements
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Miami, Florida on
January 16, 1998.
EUROPEAN MICRO HOLDINGS, INC.
By: /S/ JOHN B. GALLAGHER
---------------------------
John B.Gallagher, Co-Chairman and
Co-President (Principal Executive
Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John B. Gallagher, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement (including any and all
amendments, including post-effective amendments, effected pursuant to Rule 462),
and to file the same, with all exhibits thereto, and other documentation in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ HARRY D. SHIELDS Co-Chairman; Co-President (Principal
- ------------------------ Executive Officer); Director January 16, 1998
Harry D. Shields
/S/ JOHN B. GALLAGHER Co-Chairman; Co-President (Principal
- ------------------------ Executive Officer); Director January 16, 1998
John B. Gallagher
/S/ JAY NASH Chief Financial Officer and Controller
- ------------------------ (Principal Financial Officer and Controller) January 16, 1998
Jay Nash
/S/ LAURENCE GILBERT Director January 16, 1998
- ------------------------
Laurence Gilbert
/S/ BERNADETTE SPOFFORTH Director January 16, 1998
- ------------------------
Bernadette Spofforth
/S/ KYLE R. SAXON Director January 16, 1998
- ------------------------
Kyle R. Saxon
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NO. TITLE PAGE
<S> <C> <C>
1.01 Form of Underwriting Agreement*
3.01 Articles of Incorporation for European Micro Holdings, Inc.
3.02 Form of Bylaws
4.01 Form of Stock Certificate*
4.02 Form of 1998 Stock Incentive Plan
4.03 Form of 1998 Employee Stock Purchase Plan
5.01 Form of Opinion of Kirkpatrick & Lockhart LLP regarding the
validity of the securities offered*
10.01 NatWest Credit Facility*
10.02 Hermes Credit Insurance*
10.03 Consignment Agreement with European Micro Computer GmbH, dated
January, 1996*
10.04 Distributor Agreement with WatchGuard Technologies, Inc.,
dated May 9, 1997*
10.05 Trusteed Shareholders' Cross-Purchase Agreement, dated
July 24, 1994*
10.06 Form of Shareholders' Cross-Purchase Agreement*
10.07 Form of Executive Employment Agreement between John Gallagher
and European Micro Holdings, Inc.
10.08 Form of Executive Employment Agreement between Harry Shields
and European Micro Holdings, Inc.
10.09 Form of Executive Employment Agreement between Laurence
Gilbert and European Micro Plc*
10.10 Contract of Employment between Bernadette Spofforth and
European Micro Plc, dated April 30, 1996*
10.11 Form of Subscription Agreement
10.12 Form of Administrative Services Contract*
23.01 Consent of KMPG
24.01 Power of Attorney (included as part of signature page)
99.01 Consent of Barrett Sutton, Director-Designee
</TABLE>
* To be filed by amendment.
EXHIBIT 3.01
EXHIBIT 3.01
ARTICLES OF INCORPORATION
OF
EUROPEAN MICRO HOLDINGS, INC.
The undersigned, being the original incorporator herein named, for the
purpose of forming a corporation under the general corporation laws of the State
of Nevada, does make and file these Articles declaring and certifying that the
facts herein stated are true.
ARTICLE I
NAME
The name of the corporation (the "CORPORATION") is:
European Micro Holdings, Inc.
ARTICLE II
TERM
The duration of the Corporation shall be perpetual.
ARTICLE III
RESIDENT AGENT & REGISTERED OFFICE
The resident agent for service of process is CSC Services of Nevada, Inc.,
whose address is 502 East John Street, Carson City, Nevada 89706. The
Corporation may maintain offices for the transaction of any business at such
places within or without the State of Nevada as it may from time to time
determine. Corporate business of every kind and nature may be conducted, and
meetings of directors and shareholders held outside the State of Nevada with the
same effect as if within the State of Nevada.
ARTICLE IV
CAPITAL STOCK
(a) The amount of the total authorized capital stock of the Corporation is
twenty one million (21,000,000) shares, consisting of: (i) twenty million
(20,000,000) shares of Common Stock, par value $0.01 per share (the "COMMON
STOCK"); and (ii) one million (1,000,000) shares of Preferred Stock, par value
$0.01 per share (the "PREFERRED STOCK").
(b) The holders of the Corporation's Common Stock and Preferred Stock
shall vote as a single group on all matters except the following, which require
the affirmative vote of a majority of the holders of the outstanding shares of
Common Stock and a majority of the holders of the outstanding shares of
Preferred Stock: (i) any merger or consolidation of the Corporation with or into
any other corporation except in the case of a merger into the Corporation of a
subsidiary of the
<PAGE>
Corporation 90% or more of which is owned by the Corporation and which does not
require a vote of shareholders of either corporation pursuant to the laws of the
State of Nevada; (ii) any share exchange in which a corporation, person or
entity acquires the issued and outstanding shares of stock of the Corporation
pursuant to a vote of shareholders of the Corporation; (iii) any sale, lease,
exchange or other transfer of all, or substantially all, of the assets of the
Corporation to any corporation, person or entity; or (iv) any amendment to these
Articles of Incorporation.
(c) The Preferred Stock may be issued from time to time in one or more
classes or series with such voting rights, full or limited, or without voting
rights, and with such designations, preferences and relative, participating,
optional or special rights, and qualifications, limitations or restrictions as
are stated herein and as shall be stated and expressed in the resolution or
resolutions providing for the issue of such stock adopted by the Board of
Directors of the Corporation (the "BOARD OF DIRECTORS") in its sole discretion
as hereinafter prescribed.
ARTICLE V
BOARD OF DIRECTORS
(a) The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors. The Board of Directors shall initially be
comprised of two (2) members. The specific number of directors may from time to
time be increased or decreased by a vote of the shareholders representing not
less than two-thirds of the voting power of the issued and outstanding stock
entitled to voting power; provided, however, that the number of directors shall
in no event be less than two (2) or more than seven (7). The initial directors,
and their respective addresses, are:
John B. Gallagher 6073 N.W. 167th Street, Unit C-25
Miami, Florida 33015
Harry D. Shields 808 Third Avenue South
Nashville, Tennessee 37210
(b) Immediately prior to the closing of an initial public offering of the
Common Stock of the Corporation under the Securities Act of 1933, as amended,
and applicable state securities laws and thereafter, the number of directors
shall be increased to six (6) members. The directors shall be divided into three
classes as follows: (i) the term of office of Class I shall be until the 1998
annual meeting of shareholders and until their successors shall be elected and
have qualified and thereafter shall be for three years and until their
successors shall be elected and have qualified; (ii) the term of office of Class
II shall be until the 1999 annual meeting of shareholders and until their
successors shall be elected and have qualified and thereafter shall be for three
years and until their successors shall be elected and have qualified; and (iii)
the term of office of Class III shall be until the 2000 annual meeting of
shareholders and until their successors shall be elected and have qualified and
thereafter shall be for three years and until their successors shall be elected
and have qualified. The Board of Directors of the Corporation shall initially
designate the directors within each class, provided, however, that the number of
directors in each class shall be as nearly equal as possible. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes as determined by the Board of Directors so as to maintain the number of
directors in each class as nearly equal as possible. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office.
(c) The Board of Directors shall have the power to adopt, amend or repeal
the by-laws
2
<PAGE>
of the Corporation.
(d) There shall be no cumulative voting in the election of directors.
ARTICLE VI
DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNITY
(a) A director or officer of the Corporation shall not be personally
liable to the Corporation or its shareholders for damages for breach of
fiduciary duty as a director or officer, but this Article shall not eliminate or
limit the liability of a director or officer for: (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law; or (ii) the
payment of distributions in violation of NRS 78.300. If applicable Nevada law is
hereafter amended or interpreted to eliminate or limit further the liability of
a director or officer, the liability of all directors and officers shall be
eliminated or limited to the full extent then so permitted.
(b) Subject to Article VI(a) hereof, each officer and director who may be
made a party to, or threatened to be made a party to, any action, suit or
proceeding by reason of the fact that he or she is or was a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by Nevada law. The expenses of any officer or director incurred in
defending a civil or criminal action, suit or proceeding involving alleged acts
or omissions of such officer or director in his or her capacity as an officer or
director of the Corporation must be paid by the Corporation or through insurance
purchased and maintained by the Corporation or through other financial
arrangements made by the Corporation as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the officer or director to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he or she is
not entitled to be indemnified by the Corporation. The indemnification right
conferred by this Article shall be in addition to any rights conferred under
applicable Nevada law.
(c) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation to such
extent and to such effect as the Board of Directors shall determine to be
appropriate and authorized by Nevada law.
(d) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or loss
incurred by such person in any such capacity or arising out of his or her status
as such, whether or not the Corporation would have the power to indemnify him or
her against such liability under Nevada law.
(e) The rights and authority conferred in this Article shall not be
exclusive of any other right which any person may otherwise have or hereafter
acquire.
(f) Neither the amendment nor repeal of this Article, the adoption of any
provision of these Articles of Incorporation or the by-laws of the Corporation,
nor, to the fullest extent permitted by Nevada law, any modification of law,
shall eliminate or reduce the effect of this Article in respect of any acts or
omissions occurring prior to such amendment, repeal, adoption or modification.
3
<PAGE>
ARTICLE VII
AMENDMENT
Subject to Article VI hereof, the Corporation reserves the right to amend,
alter, change or repeal any provision contained in these Articles of
Incorporation in the manner provided by statute, and all rights conferred upon
the shareholders are granted subject to the foregoing reservation.
ARTICLE VIII
INCORPORATOR
The name and street address of the incorporator to these Articles of
Incorporation are:
NAME ADDRESS
---- -------
Robert C. White, Jr. Kirkpatrick & Lockhart LLP
Miami Center - Suite 2000
201 South Biscayne Boulevard
Miami, Florida 33131
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 16th day of December, 1997.
/s/ ROBERT C. WHITE, JR.
---------------------
Robert C. White, Jr.,
Incorporator
STATE OF FLORIDA )
)ss:
COUNTY OF DADE )
The foregoing instrument was acknowledged before me, this 16th day of
December, 1997, by Robert C. White, Jr. who is personally known to me.
My Commission Expires:
----------------------------------------
Signature of Notary Public
----------------------------------------
Printed Name of Notary Public
STATE OF FLORIDA AT LARGE
(SEAL)
4
EXHIBIT 3.02
EXHIBIT 3.02
FORM OF BY-LAWS
OF
EUROPEAN MICRO HOLDINGS, INC.
ARTICLE I.
OFFICES
SECTION 1.01. PRINCIPAL EXECUTIVE OFFICE. In addition to the office of the
corporation registered with the Secretary of State of Nevada, the corporation
may also have offices at such places both within and without the State of Nevada
as the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II.
SHAREHOLDERS
SECTION 2.01. ANNUAL MEETING. A meeting of shareholders shall be held
annually between January 1st and December 31st, inclusive, each year for the
purpose of electing directors, and for transacting any other business coming
before the meeting. If the day designated pursuant to Section 2.01 of this
Article for the annual meeting is a legal holiday in the State of Nevada, such
meeting shall be held on the next business day. If the election of directors is
not held on the day so determined for any annual meeting of the shareholders, or
at any adjournment thereof, the Board of Directors shall cause the election to
be held at a special meeting of the shareholders as soon thereafter as
convenient.
SECTION 2.02. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by law or by the Articles
of Incorporation, may be called by the Chairman of the Board, President or by
the Board of Directors, and shall be called by the President or Secretary at the
written request of a majority of the Board of Directors then in office. No
business shall be acted upon at a special meeting except as set forth in the
notice calling the meeting, unless one of the conditions for the holding of a
meeting without notice set forth in Section 2.05 shall be satisfied, in which
case any business may be transacted and the meeting shall be valid for all
purposes.
SECTION 2.03. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Nevada, unless otherwise prescribed
by law or by the Articles of Incorporation, as the place of meeting for any
annual meeting or for any special meeting of the shareholders. If no designation
is made, or if a special meeting is otherwise called, the place of meeting shall
be the principal business office of the corporation.
SECTION 2.04. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered to each
shareholder of record entitled to vote at such meeting not less than ten (10)
days nor more than sixty (60) days before the date of the meeting, either
personally or by first class mail, by or at the direction of the President, the
Secretary, or the officer or persons calling the meeting. The notice must be
signed by an executive officer of the corporation. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail, addressed to
the shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
1
<PAGE>
SECTION 2.05. WAIVER OF NOTICE OF MEETINGS OF SHAREHOLDERS. Any written
waiver of notice, signed by a shareholder entitled to notice, shall be deemed
equivalent to notice. Attendance of a shareholder at a meeting constitutes a
waiver of notice of such meeting, except when the shareholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the shareholders, need be specified in any written
waiver of notice.
SECTION 2.06. ADJOURNMENTS. Any meeting of shareholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such reconvened meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the reconvened meeting, the corporation may transact any business
which could have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the reconvened meeting, a notice of the reconvened meeting shall be
given to each shareholder of record entitled to vote at the meeting.
SECTION 2.07. DETERMINATION OF SHAREHOLDERS OF RECORD. The officer or
agent having charge of the stock transfer books for shares of the corporation
shall make, at least ten (10), and not more than sixty (60), days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, with the address of and the number and
class and series, if any, of shares held by each. Such list shall be kept on
file at the registered office of the corporation, at the principal place of
business of the corporation, or at the office of the transfer agent or registrar
of the corporation, for a period of ten (10) days prior to such meeting and
shall be subject to inspection by any shareholder at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
at any time during the meeting. The original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
SECTION 2.08. QUORUM OF SHAREHOLDERS.
(a) Unless otherwise provided in the Articles of Incorporation, a majority
of the shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders, but in no event shall a quorum
consist of less than one-third (1/3) of the shares entitled to vote at the
meeting. When a specified item of business is required to be voted on by a class
or series of stock, a majority of the shares of such class or series shall
constitute a quorum for the transaction of such items of business by that class
or series.
(b) If a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by law or by the Articles of Incorporation or by
these By-laws.
(c) After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
SECTION 2.09. VOTING OF SHARES.
(a) Each outstanding share, regardless of class, shall be entitled to one
vote on each matter submitted to a vote at a meeting of shareholders, except as
may be otherwise provided in the
2
<PAGE>
Articles of Incorporation. If the Articles of Incorporation provide for more or
less than one vote for any share, on any matter, each reference in these By-laws
to a majority or other proportion of shares shall refer to such majority or
other proportion of votes entitled to be cast.
(b) Treasury shares, shares of this corporation's own stock owned by
another corporation the majority of the voting stock of which is owned or
controlled by it, and shares of its own stock held by the corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
SECTION 2.10. PROXIES.
(a) A shareholder may vote either in person or by proxy executed in
writing by the shareholder or his duly authorized attorney-in-fact.
(b) At each election for directors, every shareholder entitled to vote at
such election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected at
that time and for whose election he has a right to vote.
SECTION 2.11. INFORMAL ACTION BY SHAREHOLDERS.
(a) Unless otherwise provided in the Articles of Incorporation, any action
required by law to be taken at any annual or special meeting of shareholders of
the corporation, or any action which may be taken at any annual or special
meeting of such shareholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. If any class of shares is entitled to vote thereon as a class, such
written consent shall be required of the holders of a majority of the shares of
each class of shares entitled to vote as a class thereon and of the total shares
entitled to vote thereon.
(b) Within ten (10) days after obtaining such authorization by written
consent, notice must be given to those shareholders who have not consented in
writing. The notice shall fairly summarize the material features of the
authorized action and, if the action is a merger, consolidation or sale or
exchange of assets for which dissenter's rights are provided by law, the notice
shall contain a clear statement of the right of dissenting shareholders to be
paid the fair value of their shares upon compliance with further provisions of
law regarding the rights of dissenting shareholders.
(c) Written consent or notice required by this Section 2.11 may by given
by personal delivery, mail telegram, cablegram, overnight mail service or
facsimile. If mailed, such notice or consent shall be deemed to be delivered
when deposited in the United States mail so addressed with first class postage
prepaid. If notice or consent be given by telegram, cablegram or facsimile, such
notice or consent shall be deemed to be delivered when the telegram or cablegram
is delivered to the telegraph or cablegraph company or when the facsimile is
acknowledged as having been received.
SECTION 2.12. NOTIFICATION OF NOMINATION OF DIRECTORS. Nominations for
election to the Board of Directors of the corporation at a meeting of
shareholders may be made by the Board of Directors or by any shareholder of the
corporation entitled to vote for the election of directors at such meeting who
complies with the notice procedures set forth in this Section 2.12. Such
nominations, other than those made by or on behalf of the Board of Directors,
may be made only if notice in writing is personally delivered to, or mailed by
first class United States mail, postage prepaid, and received by, the secretary
not less than 120 days nor more than 180 days prior to such meeting. Such notice
shall set forth (a) as to each proposed nominee (i) the name, age, business
address and, if known, residence address of each such nominee, (ii) the
principal occupation or
3
<PAGE>
employment of each such nominee, (iii) the number of shares, if any, of stock of
the corporation that are beneficially owned by each such nominee and (iv) any
other information concerning the nominee that must be disclosed in proxy
solicitations pursuant to the proxy rules of the Securities and Exchange
Commission if such person had been nominated, or was intended to be nominated,
by the Board of Directors (including such person's written consent to be named
as a nominee and to serve as a director if elected); and (b) as to the
shareholder giving the notice (i) the name and address, as it appears on the
corporation's books, of such shareholder, (ii) a representation that such
shareholder is a holder of record of shares of stock of the corporation entitled
to vote at the meeting and the class and number of shares of the corporation
which are beneficially owned by such shareholder, (iii) a representation that
such shareholder intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice and (iv) a description of
all arrangements or understandings between such shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such shareholder. The
corporation also may require any proposed nominee to furnish such other
information as may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting, and that the defective nomination shall be disregarded.
SECTION 2.13. NOTICE OF BUSINESS AT ANNUAL MEETING. At an annual meeting
of the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before the annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, if such business relates to the election of directors of the
corporation, the procedures in Section 2.11 must be complied with. If such
business relates to any other matter, the shareholder must have given timely
notice thereof in writing to the secretary. To be timely, a shareholder's notice
must be personally delivered to, or mailed by first class United States mail,
postage prepaid, and received by, the secretary not less than 120 days nor more
than 180 days prior to such meeting. A shareholder's notice to the secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and address of the shareholder proposing such
business as it appears on the corporation's books, (iii) a representation that
the shareholder is a holder of record of shares of stock of the corporation
entitled to vote at the meeting and the class and number of shares of the
corporation which are beneficially owned by the shareholder and (iv) any
material interest of the shareholder in such business. Notwithstanding anything
to the contrary contained herein, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 2.12
and except that any shareholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities and
Exchange Act of 1934, as amended.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.12, and if he should so
determine, he shall so declare to the meeting and the business not properly
brought before the meeting shall be disregarded.
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ARTICLE III.
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, the Board of Directors except as may be
otherwise provided by law or in the Articles of Incorporation.
SECTION 3.02. NUMBER AND TERM. The number of directors of the corporation
and the terms of office of such directors shall be as set forth in the Articles
of Incorporation.
SECTION 3.03. RESIGNATION. Any director may resign effective upon giving
written notice to the chairman of the Board of Directors, the president, the
secretary, or in the absence of all of them, any other officer, unless the
notice specifies a later time for effectiveness of such resignation. A majority
of the remaining directors, though less than a quorum, may appoint a successor
to take office when the resignation becomes effective, each director so
appointed to hold office during the remainder of the term of office of the
resigning director.
SECTION 3.04. REMOVAL. Unless the Articles of Incorporation otherwise
provide, at a meeting of shareholders called expressly for that purpose,
directors may be removed in the manner provided in this section. Any director or
the entire Board of Directors may be removed, with or without cause, by a vote
of the shareholders representing not less than two-thirds of the voting power of
the issued and outstanding stock entitled to voting power. No such removal shall
prejudice the contract rights, if any, of the person removed.
SECTION 3.05. ANNUAL MEETING. The Board of Directors may hold an annual
meeting at the same place as and following each annual meeting of shareholders
for the purpose of electing officers and the transaction of such other business
as may come before the meeting. If a majority of the directors is present at
such place and time, no prior notice of such meeting shall be required to be
given to the directors. The place and time of such meeting may also be fixed by
written consent of the directors.
SECTION 3.06. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall be determined
from time to time by the Board of Directors.
SECTION 3.07. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if any, the President, or any two
(2) directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meetings of the
Board of Directors called by them.
SECTION 3.08. NOTICE. Notice of any special meeting shall be given at
least two (2) days prior thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram, cablegram, or
facsimile or overnight mail service. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail so addressed with first
class postage prepaid. If notice be given by telegram, cablegram or facsimile,
such notice shall be deemed to be delivered when the telegram or cablegram is
delivered to the telegraph or cablegraph company or when the facsimile is
acknowledged as having been received. Any director may waive notice of any
meeting, either before, at or after such meeting. The attendance of a director
at a meeting shall constitute a waiver of notice of such meeting, except where a
director states at the beginning of the meeting any objection to the transaction
of business because the meeting is not lawfully called or convened.
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SECTION 3.09. QUORUM. A majority of the number of directors fixed by or in
the manner provided in these By-laws or in the absence of a By-law fixing or
providing for the number of directors, a majority of the number stated in the
Articles of Incorporation, shall constitute a quorum for the transaction of
business unless a greater number is required by the Articles of Incorporation.
SECTION 3.10. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the corporation and one or more of the corporation's directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of the corporation's
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(a) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors are less
than a quorum; or
(b) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(c) the contract or transaction is fair to the corporation as of the time
it is authorized, approved or ratified, by the Board, a committee thereof,
or the shareholders.
Interested directors may be counted in determining the presence of a
quorum at a meeting of the Board or of a committee which authorizes the contract
or transaction.
SECTION 3.11. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by the Articles of
Incorporation or these By-laws.
SECTION 3.12. VACANCIES. Any vacancy occurring in the Board of Directors
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the shareholders.
SECTION 3.13. COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors, or a stated salary as directors. No payment
shall preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
SECTION 3.14. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of its Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless he
votes against such action or abstains from voting in respect thereto because of
any asserted conflict of interest. To evidence his vote against any action, a
director may file his written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof, or forward such
dissent by registered or certified mail,
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return receipt requested, to the Secretary of the corporation immediately
following the adjournment of the meeting. Such right to dissent shall not apply
to a director who voted in favor of such action.
SECTION 3.15. INFORMAL ACTION BY THE BOARD. Unless otherwise provided by
the Articles of Incorporation, any action required by law or these By-laws to be
taken at a meeting of the directors of the corporation, or any action which may
be taken at a meeting of the directors or a committee thereof, may be taken
without a meeting, if a consent in writing, setting forth the action so to be
taken, signed by all of the directors, or all the members of the committee, as
the case may be, is filed in the minutes of the proceedings of the board or of
the committee. Such consent shall have the same effect as a unanimous vote.
SECTION 3.16. TELEPHONE MEETINGS. Except as may be otherwise restricted by
the Articles of Incorporation, members of the Board of Directors may participate
in a meeting of the Board by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
ARTICLE IV.
OFFICERS
SECTION 4.01. NUMBER. The officers of the corporation shall be
Co-Chairmen, Co-Presidents, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect a Chairman
of the Board, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers and such other officers, as the Board of Directors shall
deem appropriate. Two or more offices may be held by the same person.
SECTION 4.02. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the Board of Directors at its first meeting after
each annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as convenient.
Each officer shall hold office until his successor is duly elected and
qualified, or until his death, or resignation or removal.
SECTION 4.03. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board whenever in its judgment the best
interests of the corporation will be served thereby. Any such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
SECTION 4.04. VACANCIES. Any vacancy, however occurring, in any office may
be filled by the Board of Directors.
SECTION 4.05. DUTIES OF OFFICERS. A Co-Chairman, or if there shall not be
a Co-Chairman, a Co-President shall preside at all meetings of the Board of
Directors and of the shareholders. The Co-Chairmen and the Co-Presidents shall
be the chief executive officers of the corporation. Subject to the foregoing,
the officers of the corporation shall have such powers and duties as usually
pertain to their respective offices and such additional powers and duties
specifically conferred by law, by the Articles of Incorporation, by these
By-laws, or as may be assigned to them from time to time by the Board of
Directors.
SECTION 4.06. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors or a committee thereof and no officer
shall be prevented from receiving such salary by reason of the fact that he is
also a director of the corporation.
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SECTION 4.07. DELEGATION OF DUTIES. In the absence of or disability of any
officer of the corporation or for any other reason deemed sufficient by the
Board of Directors, the Board may delegate such officer's powers or duties to
any other officer or to any other director.
ARTICLE V.
EXECUTIVE AND OTHER COMMITTEES
SECTION 5.01. CREATION OF COMMITTEES. The Board of Directors, by
resolution passed by a majority of the full Board, may designate an Executive
Committee and one or more other committees. One or more of the directors of the
corporation shall serve at their election.
SECTION 5.02. EXECUTIVE COMMITTEE. The Executive Committee, if there shall
be one, shall consult with and advise the officers of the corporation in the
management of its business and shall have and may exercise to the extent
provided in the resolution of the Board of Directors creating such Executive
Committee such powers of the Board of Directors as can be lawfully delegated by
the Board.
SECTION 5.03. OTHER COMMITTEES. Such other committees shall have such
functions as can be lawfully delegated and may exercise the powers of the Board
of Directors to the extent provided in the resolution or resolutions creating
such committee or committees.
SECTION 5.04. MEETINGS OF COMMITTEES. Regular meetings of the Executive
Committee and other committees may be held without notice at such time and at
such place as shall from time to time be determined by the Executive Committee
or such other committees, and special meetings of the Executive Committee or
such other committees may be called by any member thereof upon two (2) days
notice to each of the other members of such committee, or on such shorter notice
as may be agreed to in writing by each of the other members of such committee,
given either personally or in the manner provided in Section 3.10 of Article III
of these By-laws (pertaining to notice for directors' meetings). Members of the
Executive Committee or any other committee shall be deemed present at a meeting
of such Committee if a conference telephone or similar communications equipment,
by means of which all persons participating in the meeting can hear each other
is used.
SECTION 5.05. VACANCIES ON COMMITTEES. Vacancies on the Executive
Committee or on such other committees shall be filled by the Board of Directors
at any regular or special meeting.
SECTION 5.06. QUORUM OF COMMITTEES. At all meetings of the Executive
Committee or such other committees, a majority of the committee's members then
in office shall constitute a quorum for the transaction of business.
SECTION 5.07. MANNER OF ACTING OF COMMITTEES. The acts of a majority of
the members of the Executive Committee or such other committees, present at any
meeting at which there is a quorum, shall be the act of such committee.
SECTION 5.08. MINUTES OF COMMITTEES. The Executive Committee, if there
shall be one, and such other committees shall keep regular minutes of their
proceedings and report to the Board of Directors when required.
SECTION 5.09. COMPENSATION. Members of the Executive Committee and such
other committees may be paid compensation in accordance with the provisions of
Section 3.14 of Article III.
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ARTICLE VI.
INDEMNIFICATION OF OFFICERS
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 6.01. INDEMNIFICATION. In addition to any other rights of
indemnification, including, without limitation, any rights set forth in the
Articles of Incorporation, the corporation shall, and does hereby, indemnify any
person who was, is, or becomes a party, or is threatened to be made a party to
any threatened, pending, or completed action, suit or proceeding:
(a) Whether civil, criminal, administrative, or investigative (other than
an action by, or in the right of, the corporation) by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding, including any appeal thereof, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in the manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) By or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless, and only to the extent that, the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
(c) To the extent that such director, officer, employee or agent of the
corporation has been, in whole or in part, successful on the merits or otherwise
in defense of any action, suit, or proceeding referred to in Section 6.01(a) or
6.01(b) of this Article, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees,
court costs and expenses incurred in the course of attending trials,
conferences, depositions, hearings and meetings) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 6.01(a) or 6.01(b) of this Article,
unless pursuant to a determination by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 6.01(a) or 6.01(b) of this Article. Such determination shall be made by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit, or proceeding or by the shareholders
by a majority vote of a quorum consisting of shareholders who were not parties
to such action, suit, or proceedings or, if such quorum of directors or
shareholders is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a
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written opinion or regardless of whether such quorum of directors is obtainable,
the directors, by majority vote, may submit the determination to the American
Arbitration Association.
SECTION 6.02. INTERIM EXPENSES. The corporation may, after a preliminary
determination following one of the procedures set forth in Section 6.01(d) of
this Article, pay expenses (including attorneys' fees, court costs and expenses
incurred in the course of attending trials, conferences, depositions, hearings
and meetings) incurred in defending a civil or criminal action, suit or
proceeding, in advance of the final disposition of such action, suit or
proceeding, provided that such preliminary determination is to the effect that
the director, officer, employee or agent has met the applicable standard of
conduct set forth in Section 6.01(a) and 6.01(b) of this Article, and, upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it be ultimately determined that he is
entitled to be indemnified by the corporation as authorized in this Article.
SECTION 6.03. ADDITIONAL INDEMNIFICATION. The corporation shall have the
power to make any other or further indemnification of an officer, director,
employee or agent, both as to action in his official capacity and as to action
in another capacity while holding such office except an indemnification against
gross negligence or willful misconduct, under the following circumstances:
(a) Pursuant to an agreement between the corporation and such officer,
director, employee or agent; or
(b) Pursuant to the vote of shareholders; or
(c) Pursuant to the vote of disinterested directors; or
(d) Pursuant to the written recommendation of independent legal counsel
when the Board of Directors submits determination to such counsel; or
(e) Pursuant to the written award of the American Arbitration Association
when the Board of Directors and person seeking indemnification submit the
determination to the American Arbitration Association.
SECTION 6.04. SURVIVAL OF INDEMNIFICATION. The corporation shall and does
hereby, indemnify any person, if the requirements of this Article have been met,
without affecting any other rights to which those indemnified may be entitled
under the Articles of Incorporation, these By-laws, agreement, vote of
shareholders or disinterested directors or recommendation of counsel or
otherwise, both as to actions in such person's official capacity and as to
actions in another capacity while holding such office, and such indemnity shall
continue as to a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the heirs, executors and administrators
of such a person.
SECTION 6.05. INSURANCE. The corporation may, if approved by the Board of
Directors or Executive Committee, purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article or applicable Nevada law.
SECTION 6.06. NOTIFICATION OF SHAREHOLDERS. If any expenses or other
amounts are paid by way of indemnification, otherwise than by court order or
action by the shareholders or by an insurance carrier pursuant to insurance
maintained by the corporation, the
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corporation shall, not later than the time of delivery to shareholders of
written notice of the next annual meeting of shareholders, unless such meeting
is held within three months from the date of such payment, and, in any event,
within fifteen months from the date of such payment, deliver either personally
or by mail to each shareholder of record at the time entitled to vote for the
election of directors a statement specifying the persons paid, the amounts paid,
and the nature and status at the time of such payment of the litigation or
threatened litigation. Such written notice may be contained in any document
distributed to shareholders generally and need not be mailed separately.
ARTICLE VII.
CERTIFICATES REPRESENTING SHARES
SECTION 7.01. CERTIFICATES. Every holder of shares in the corporation
shall be entitled to have a certificate or certificates, representing all shares
to which he is entitled. Such certificate or certificates shall be signed by the
President or a Vice President and the Secretary or an Assistant Secretary of the
corporation and may be sealed with the seal of the corporation or a facsimile
thereof. The certificates shall be numbered and entered into the books of the
corporation as they are issued.
SECTION 7.02. FACSIMILE SIGNATURES. The signatures of the President or
Vice President and the Secretary or Assistant Secretary may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar,
other than the corporation itself or an employee of the corporation. In the case
that any officer who signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the date of its issuance.
SECTION 7.03. TRANSFER OF SHARES. Transfers of shares of the corporation
shall be made upon its books by the holder of the shares in person or by his
lawfully constituted representative, upon surrender of the certificate
representing shares in person or by his lawfully constituted representative,
upon surrender of the certificate representing shares for cancellation. The
person in whose name shares stand on the books of the corporation shall be
deemed by the corporation to be the owner thereof for all purposes and the
corporation shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Nevada.
ARTICLE VIII.
DISTRIBUTIONS
The Board of Directors may from time to time declare, and the corporation
may pay, distributions on its outstanding shares of capital stock in the manner
and upon the terms and conditions provided by law and by the Articles of
Incorporation and these By-laws. Distributions may be paid in cash, in property,
or in the corporation's own shares, subject to the provisions of the Articles of
Incorporation and to law.
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ARTICLE IX.
FISCAL YEAR
The fiscal year of the corporation shall be the twelve month period
selected by the Board of Directors which shall be the taxable year of the
corporation for federal income tax purposes.
ARTICLE X.
SEAL
The corporate seal shall bear the name of the Corporation which shall be
set forth between two concentric circles, and inside of the inner circle the
words "SEAL" and the year of incorporation shall be set forth. An impression of
this seal appears on the margin hereof.
ARTICLE XI.
SHARES IN OTHER CORPORATIONS
Shares in other corporations held by this corporation shall be voted by
such officer or officers of this corporation as the Board of Directors shall
from time to time designate for the purpose or by a proxy thereunto duly
authorized by the Board.
ARTICLE XII.
AMENDMENTS
The power to adopt, alter, amend or repeal these By-laws shall be vested
in the Board of Directors.
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EXHIBIT 4.02
EXHIBIT 4.02
EUROPEAN MICRO HOLDINGS, INC.
FORM OF 1998 STOCK INCENTIVE PLAN
ARTICLE I.
PURPOSE AND ADOPTION OF THE PLAN
1.1. PURPOSE. The purpose of the European Micro Holdings, Inc. 1998 Stock
Incentive Plan (hereinafter referred to as the "PLAN") is to assist in
attracting and retaining highly competent key employees, non-employee directors
and consultants and to act as an incentive in motivating selected key employees,
non-employee directors and consultants of European Micro Holdings, Inc. and its
Subsidiaries (as defined below) to achieve long-term corporate objectives.
1.2. ADOPTION AND TERM. The Plan has been approved by the Board of
Directors (hereinafter referred to as the "BOARD") of European Micro Holdings,
Inc. (hereinafter referred to as the "COMPANY"), to be effective as of the
closing date of the initial public offering of equity securities by the Company
(the "EFFECTIVE DATE"), subject to the approval of the stockholders of the
Company. The Plan shall remain in effect until terminated by action of the
Board; PROVIDED, HOWEVER, that no Incentive Stock Option (as defined below) may
be granted hereunder after the tenth anniversary of the Effective Date and the
provisions of Articles VII and VIII with respect to performance-based awards to
"covered employees" under Section 162(m) of the Code (as defined below) shall
expire as of the fifth anniversary of the Effective Date.
ARTICLE II.
DEFINITIONS
For the purposes of this Plan, capitalized terms shall have the following
meanings:
2.1. AWARD means any grant to a Participant of one or a combination of
Non-Qualified Stock Options or Incentive Stock Options described in Article VI,
Stock Appreciation Rights described in Article VI, Restricted Shares described
in Article VII and Performance Awards described in Article VIII.
2.2. AWARD AGREEMENT means a written agreement between the Company and a
Participant or a written notice from the Company to a Participant specifically
setting forth the terms and conditions of an Award granted under the Plan.
2.3. AWARD PERIOD means, with respect to an Award, the period of time set
forth in the Award Agreement during which specified target performance goals
must be achieved or other conditions set forth in the Award Agreement must be
satisfied.
2.4. BENEFICIARY means an individual, trust or estate who or which, by a
written designation of the Participant filed with the Company or by operation of
law, succeeds to the rights and obligations of the Participant under the Plan
and an Award Agreement upon the Participant's death.
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2.5. BOARD means the Board of Directors of the Company.
2.6. CHANGE IN CONTROL means, and shall be deemed to have occurred upon
the occurrence of, any one of the following events:
(a) The acquisition in one or more transactions by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (a "PERSON") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of shares or other securities (as
defined in Section 3(a)(10) of the Exchange Act) representing 30% or more of
either (i) the Outstanding Common Stock or (ii) the Company Voting Securities;
provided, however, that a Change in Control as defined in this clause (a) shall
not be deemed to occur in connection with any acquisition by the Company, an
employee benefit plan of the Company or any Person who on the Effective Date is
a holder of Outstanding Common Stock or Company Voting Securities (a "CURRENT
STOCKHOLDER") so long as such acquisition does not result in any Person other
than the Company, such employee benefit plan or such Current Stockholder
beneficially owning shares or securities representing 30% or more of either the
Outstanding Common Stock or Company Voting Securities; or
(b) Any election has occurred of persons as directors of the Company
that causes two-thirds or more of the Board to consist of persons other than (i)
persons who were members of the Board on the Effective Date and (ii) persons who
were nominated by the Board for election as members of the Board at a time when
at least two-thirds of the Board consisted of persons who were members of the
Board on the Effective Date; PROVIDED, HOWEVER, that any person nominated for
election by the Board when at least two-thirds of the members of the Board are
persons described in subclause (i) or (ii) and persons who were themselves
previously nominated in accordance with this clause (b) shall, for this purpose,
be deemed to have been nominated by a Board composed of persons described in
subclause (ii); or
(c) Approval by the stockholders of the Company of a reorganization,
merger, consolidation or similar transaction (a "REORGANIZATION TRANSACTION"),
in each case, unless, immediately following such Reorganization Transaction,
more than 50% of, respectively, the outstanding shares of common stock (or
similar equity security) of the corporation or other entity resulting from or
surviving such Reorganization Transaction and the combined voting power of the
securities of such corporation or other entity entitled to vote generally in the
election of directors, is then beneficially owned, directly or indirectly, by
the individuals and entities who were the respective beneficial owners of the
Outstanding Common Stock and the Company Voting Securities immediately prior to
such Reorganization Transaction in substantially the same proportions as their
ownership of the Outstanding Common Stock and Company Voting Securities
immediately prior to such Reorganization Transaction; or
(d) Approval by the stockholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company to a corporation or
other entity, unless, with respect to such corporation or other entity,
immediately following such sale or other disposition more than 50% of,
respectively, the outstanding shares of common stock (or similar equity
security) of such corporation or other entity and the combined voting power of
the securities of such corporation or other entity entitled to vote generally in
the election of directors, is then beneficially owned, directly or indirectly,
by the individuals and entities who were the respective beneficial owners of the
Outstanding Common Stock and the Company Voting Securities immediately prior to
such
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sale or disposition in substantially the same proportions as their ownership of
the Outstanding Common Stock and Company Voting Securities immediately prior to
such sale or disposition.
2.7. CODE means the Internal Revenue Code of 1986, as amended. References
to a section of the Code include that section and any comparable section or
sections of any future legislation that amends, supplements or supersedes said
section.
2.8. COMMITTEE means the committee established in accordance with Section
3.1.
2.9. COMPANY means European Micro Holdings, Inc., a Nevada corporation,
and its successors.
2.10. COMMON STOCK means Common Stock of the Company, par value $.01 per
share.
2.11. COMPANY VOTING SECURITIES means the combined voting power of all
outstanding securities of the Company entitled to vote generally in the election
of directors of the Company.
2.12. DATE OF GRANT means the date designated by the Committee as the date
as of which it grants an Award, which shall not be earlier than the date on
which the Committee approves the granting of such Award.
2.13. EFFECTIVE DATE shall have the meaning given to such term in Section
1.2.
2.14. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
2.15. EXERCISE PRICE means, with respect to a Stock Appreciation Right,
the amount established by the Committee in the related Award Agreement as the
amount to be subtracted from the Fair Market Value on the date of exercise in
order to determine the amount of the payment to be made to the Participant, as
further described in Section 6.2(b).
2.16. FAIR MARKET VALUE means, as of any applicable date: (i) if the
Common Stock is listed on a national securities exchange or is authorized for
quotation on The Nasdaq National Market System ("NMS"), the closing price,
regular way, of the Common Stock on such exchange or NMS, as the case may be, on
such date or if no sale of the Common Stock shall have occurred on such date, on
the next preceding date on which there was such a reported sale; or (ii) if the
Common Stock is not listed for trading on a national securities exchange or
authorized for quotation on NMS, the closing bid price as reported by The Nasdaq
SmallCap Market on such date, or if no such price shall have been reported for
such date, on the next preceding date for which such price was so reported; or
(iii) if the Common Stock is not listed for trading on a national securities
exchange or authorized for quotation on NMS or The Nasdaq SmallCap Market (if
applicable), the last reported bid price published in the "pink sheets" or
displayed on the National Association of Securities Dealers, Inc. ("NASD")
Electronic Bulletin Board, as the case may be; or (iv) if the Common Stock is
not listed for trading on a national securities exchange, is not authorized for
quotation on NMS or The Nasdaq SmallCap Market and is not published in the "pink
sheets" or displayed on the NASD Electronic Bulletin Board, the fair market
value of the Common Stock as determined in good faith by the Committee.
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2.17. INCENTIVE STOCK OPTION means a stock option within the meaning of
Section 422 of the Code.
2.18. MERGER means any merger, reorganization, consolidation, share
exchange, transfer of assets or other transaction having similar effect
involving the Company.
2.19. NON-EMPLOYEE DIRECTOR means a member of the Board who (i) is not
currently an officer or otherwise employed by the Company or a parent or a
subsidiary of the Company, (ii) does not receive compensation directly or
indirectly from the Company or a parent or a subsidiary of the Company for
services rendered as a consultant or in any capacity other than as a director,
except for an amount for which disclosure would not be required pursuant to Item
404(a) of Regulation S-K, (iii) does not possess an interest in any other
transaction for which disclosure would be required pursuant to Item 404(a) of
Regulation S-K, and (iv) is not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of Regulation S-K.
2.20. NON-EMPLOYEE DIRECTOR OPTION means a stock option granted to a
Non-Employee Director in accordance with Section 6.1(a).
2.21. NON-QUALIFIED STOCK OPTION means a stock option which is not an
Incentive Stock Option.
2.22. OPTIONS means all Non-Qualified Stock Options and Incentive Stock
Options granted at any time under the Plan.
2.23. OUTSTANDING COMMON STOCK means, at any time, the issued and
outstanding shares of Common Stock.
2.24. PARTICIPANT means a person designated to receive an Award under the
Plan in accordance with Section 5.1.
2.25. PERFORMANCE AWARDS means Awards granted in accordance with Article
VIII.
2.26. PLAN means the European Micro Holdings, Inc. 1998 Stock Incentive
Plan as described herein, as the same may be amended from time to time.
2.27. PURCHASE PRICE, with respect to Options, shall have the meaning set
forth in Section 6.1(b).
2.28. RESTRICTED SHARES means Common Stock subject to restrictions imposed
in connection with Awards granted under Article VII.
2.29. RETIREMENT means early or normal retirement under a pension plan or
arrangement of the Company or one of its Subsidiaries in which the Participant
participates.
2.30. STOCK APPRECIATION RIGHTS means Awards granted in accordance with
Article VI.
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2.31. SUBSIDIARY means a subsidiary of the Company within the meaning of
Section 424(f) of the Code, including European Micro Plc and Nor'easter Micro,
Inc.
2.32. TERMINATION OF EMPLOYMENT means the voluntary or involuntary
termination of a Participant's employment with the Company or a Subsidiary for
any reason, including death, disability, retirement or as the result of the
divestiture of the Participant's employer or any similar transaction in which
the Participant's employer ceases to be the Company or one of its Subsidiaries.
Whether entering military or other government service shall constitute
Termination of Employment, or whether a Termination of Employment shall occur as
a result of disability, shall be determined in each case by the Committee in its
sole discretion. In the case of a consultant who is not an employee of the
Company or a Subsidiary, Termination of Employment shall mean voluntary or
involuntary termination of the consulting relationship for any reason.
ARTICLE III.
ADMINISTRATION
3.1. COMMITTEE. The Plan shall be administered by a committee of the Board
(the "COMMITTEE") comprised of at least two persons. The Committee shall have
exclusive and final authority in each determination, interpretation or other
action affecting the Plan and its Participants. The Committee shall have the
sole discretionary authority to interpret the Plan, to establish and modify
administrative rules for the Plan, to impose such conditions and restrictions on
Awards as it determines appropriate, and to take such steps in connection with
the Plan and Awards granted hereunder as it may deem necessary or advisable. The
Committee may, subject to compliance with applicable legal requirements, with
respect to Participants who are not subject to Section 16(b) of the Exchange
Act, delegate such of its powers and authority under the Plan as it deems
appropriate to designated officers or employees of the Company. In addition, the
Board may exercise any of the authority conferred upon the Committee hereunder.
In the event of any such delegation of authority or exercise of authority by the
Board, references in the Plan to the Committee shall be deemed to refer to the
delegate of the Committee or the Board, as the case may be.
ARTICLE IV.
SHARES
4.1. NUMBER OF SHARES ISSUABLE. The total number of shares initially
authorized to be issued under the Plan shall be 500,000 shares of Common Stock.
The number of shares available for issuance under the Plan shall be subject to
adjustment in accordance with Section 9.7. The shares to be offered under the
Plan shall be authorized and unissued shares of Common Stock, or issued shares
of Common Stock which will have been reacquired by the Company.
4.2. SHARES SUBJECT TO TERMINATED AWARDS. Shares of Common Stock covered
by any unexercised portions of terminated Options (including canceled Options)
granted under Article VI, shares of Common Stock forfeited as provided in
Section 7.2(a) and shares of Common Stock subject to any Award that are
otherwise surrendered by a Participant may be subject to new Awards under the
Plan. Shares of Common Stock subject to Options, or portions thereof, that have
been surrendered in connection with the exercise of Stock Appreciation Rights
shall not be available for subsequent Awards under the Plan, but shares of
Common Stock issued
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in payment of such Stock Appreciation Rights shall not be charged against the
number of shares of Common Stock available for the grant of Awards hereunder.
ARTICLE V.
PARTICIPATION
5.1. ELIGIBLE PARTICIPANTS. Participants in the Plan shall be such key
employees, non-employee directors and consultants of the Company and its
Subsidiaries, whether or not members of the Board, as the Committee, in its sole
discretion, may designate from time to time. The Committee's designation of a
Participant in any year shall not require the Committee to designate such person
to receive Awards in any other year. The designation of a Participant to receive
an Award under one portion of the Plan does not require the Committee to include
such Participant under other portions of the Plan. The Committee shall consider
such factors as it deems pertinent in selecting Participants and in determining
the types and amounts of their respective Awards. Subject to adjustment in
accordance with Section 9.7, during any fiscal year no Participant shall be
granted Awards in respect of more than 50,000 shares of Common Stock (whether
through grants of Options or Stock Appreciation Rights or other grants of Common
Stock or rights with respect thereto).
ARTICLE VI.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.1. OPTION AWARDS.
(a) GRANT OF OPTIONS. The Committee may grant, to such Participants
as the Committee may select, Options entitling the Participants to purchase
shares of Common Stock from the Company in such numbers, at such prices, and on
such terms and subject to such conditions, not inconsistent with the terms of
the Plan, as may be established by the Committee. The terms of any Option
granted under the Plan shall be set forth in an Award Agreement. In addition,
the Committee shall grant to each director who is a Non-Employee Director on the
Effective Date Non-Qualified Stock Options entitling such Non-Employee Director
to purchase 10,000 shares of Common Stock from the Company. The Committee shall
grant to each person who is elected, appointed or otherwise becomes a
Non-Employee Director after the Effective Date Non-Qualified Stock Options
entitling such Non-Employee Director to purchase 5,000 shares of Common Stock
from the Company. At the beginning of each year following the first anniversary
that such Non-Employee Director has served in such capacity, the Committee shall
grant such Non-Employee Director Non-Qualified Stock Options entitling such
Non-Employee Director to purchase 5,000 shares of Common Stock from the Company.
The Non-Qualified Stock Options granted to the initial Non-Employee Directors
shall have an exercise price equal to the price shares of the Common Stock are
sold in the initial public offering of equity securities by the Company on the
Effective Date. Non-Qualified Stock Options granted after the Effective Date
shall have an exercise price of not less than 100% of the Fair Market Value on
the Date of Grant. Except as provided in Sections 6.3(c) and 6.5, Non-Employee
Director Options shall not be exercisable prior to the first anniversary of the
Date of Grant, at which time they will be immediately exercisable, in whole or
in part, and shall remain exercisable until the tenth anniversary of the Date of
Grant.
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(b) PURCHASE PRICE OF OPTIONS. The Purchase Price of each share of
Common Stock which may be purchased upon exercise of any Option granted under
the Plan shall be determined by the Committee.
(c) DESIGNATION OF OPTIONS. Except as otherwise expressly provided
in the Plan, the Committee may designate, at the time of the grant of an Option,
such Option as an Incentive Stock Option or a Non-Qualified Stock Option;
PROVIDED, HOWEVER, that an Option may be designated as an Incentive Stock Option
only if the applicable Participant is an employee of the Company or a Subsidiary
on the Date of Grant.
(d) INCENTIVE STOCK OPTION SHARE LIMITATION. No Participant may be
granted Incentive Stock Options under the Plan (or any other plans of the
Company and its Subsidiaries) that would result in Incentive Stock Options to
purchase shares of Common Stock with an aggregate Fair Market Value (measured on
the Date of Grant) of more than $100,000 first becoming exercisable by such
Participant in any one calendar year.
(e) RIGHTS AS A STOCKHOLDER. A Participant or a transferee of an
Option pursuant to Section 9.4 shall have no rights as a stockholder with
respect to the shares of Common Stock covered by an Option until that
Participant or transferee shall have become the holder of record of any such
shares, and no adjustment shall be made with respect to any such shares of
Common Stock for dividends in cash or other property or distributions of other
rights on the Common Stock for which the record date is prior to the date on
which that Participant or transferee shall have become the holder of record of
any shares covered by such Option; PROVIDED, HOWEVER, that Participants are
entitled to share adjustments to reflect capital changes under Section 9.7.
6.2. STOCK APPRECIATION RIGHTS.
(a) STOCK APPRECIATION RIGHT AWARDS. The Committee is authorized to
grant to any Participant one or more Stock Appreciation Rights. Such Stock
Appreciation Rights may be granted either independent of or in tandem with
Options granted to the same Participant. Stock Appreciation Rights granted in
tandem with Options may be granted simultaneously with, or, in the case of
Non-Qualified Stock Options, subsequent to, the grant to such Participant of the
related Options; PROVIDED, HOWEVER, that: (i) any Option covering any share of
Common Stock shall expire and not be exercisable upon the exercise of any Stock
Appreciation Right with respect to the same share, (ii) any Stock Appreciation
Right covering any share of Common Stock shall expire and not be exercisable
upon the exercise of any Option with respect to the same share, and (iii) an
Option and a Stock Appreciation Right covering the same share of Common Stock
may not be exercised simultaneously. Upon exercise of a Stock Appreciation Right
with respect to a share of Common Stock, the Participant shall be entitled to
receive an amount equal to the excess, if any, of (A) the Fair Market Value of a
share of Common Stock on the date of exercise over (B) the Exercise Price of
such Stock Appreciation Right established in the Award Agreement, which amount
shall be payable as provided in Section 6.2(c).
(b) EXERCISE PRICE. The Exercise Price established for any Stock
Appreciation Right granted under this Plan shall be determined by the Committee,
but in the case of Stock Appreciation Rights granted in tandem with Options
shall not be less than the Purchase Price of the related Options. Upon exercise
of Stock Appreciation Rights, the number of shares issuable
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upon exercise under any related Options shall automatically be reduced by the
number of shares of Common Stock represented by such Options which are
surrendered as a result of the exercise of such Stock Appreciation Rights.
(c) PAYMENT OF INCREMENTAL VALUE. Any payment that may become due
from the Company by reason of a Participant's exercise of a Stock Appreciation
Right may be paid to the Participant as determined by the Committee (i) all in
cash, (ii) all in Common Stock, or (iii) in any combination of cash and Common
Stock. In the event that all or a portion of the payment is to be made in Common
Stock, the number of shares of Common Stock to be delivered in satisfaction of
such payment shall be determined by dividing the amount of such payment or
portion thereof by the Fair Market Value on the date of exercise . No fractional
share of Common Stock shall be issued to make any payment in respect of Stock
Appreciation Rights; if any fractional share would otherwise be issuable, the
combination of cash and Common Stock payable to a Participant shall be adjusted
as directed by the Committee to avoid the issuance of any fractional share.
6.3. TERMS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
(a) CONDITIONS ON EXERCISE. An Award Agreement with respect to
Options and/or Stock Appreciation Rights may contain such waiting periods,
exercise dates and restrictions on exercise (including, but not limited to,
periodic installments) as may be determined by the Committee at the time of
grant.
(b) DURATION OF OPTIONS AND STOCK APPRECIATION RIGHTS. Options and
Stock Appreciation Rights shall terminate after the first to occur of the
following events:
(i) Expiration of the Option or Stock Appreciation Right as
provided in the related Award Agreement; or
(ii) Termination of the Award as provided in Section 6.3(e),
following the applicable Participant's Termination of Employment; or
(iii) In the case of an Incentive Stock Option, ten years from
the Date of Grant; or
(iv) Solely in the case of a Stock Appreciation Right granted in
tandem with an Option, upon the expiration of the related Option.
(c) ACCELERATION OF EXERCISE TIME. The Committee, in its sole
discretion, shall have the right (but shall not in any case be obligated),
exercisable at any time after the Date of Grant, to permit the exercise of any
Option or Stock Appreciation Right prior to the time such Option or Stock
Appreciation Right would otherwise become exercisable under the terms of the
related Award Agreement.
(d) EXTENSION OF EXERCISE TIME. In addition to the extensions
permitted under Section 6.3(e) in the event of Termination of Employment, the
Committee, in its sole discretion, shall have the right (but shall not in any
case be obligated), exercisable on or at any time after the Date of Grant, to
permit the exercise of any Option or Stock Appreciation Right
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after its expiration date described in Section 6.3(e), subject, however, to the
limitations described in Sections 6.3(b)(i), (iii) and (iv).
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(e) EXERCISE OF OPTIONS OR STOCK APPRECIATION RIGHTS UPON
TERMINATION OF EMPLOYMENT.
(i) TERMINATION OF VESTED OPTIONS AND STOCK APPRECIATION RIGHTS
UPON TERMINATION OF EMPLOYMENT.
(A) TERMINATION. In the event of Termination of Employment
of a Participant other than by reason of death, disability or Retirement, the
right of the Participant to exercise any Option or Stock Appreciation Right
shall terminate on the date of such Termination of Employment, unless the
exercise period is extended by the Committee in accordance with Section 6.3(d).
(B) DISABILITY OR RETIREMENT. In the event of a
Participant's Termination of Employment by reason of disability or Retirement,
the right of the Participant to exercise any Option or Stock Appreciation Right
which he or she was entitled to exercise upon Termination of Employment (or
which became exercisable at a later date pursuant to Section 6.3(e)(ii)) shall
terminate one year after the date of such Termination of Employment, unless the
exercise period is extended by the Committee in accordance with Section 6.3(d).
In no event, however, may any Option or Stock Appreciation Right be exercised
later than the date of expiration of the Option determined pursuant to Section
6.3(b)(i), (iii) or (iv).
(C) DEATH. In the event of the death of a Participant while
employed by the Company or a Subsidiary or within any additional period of time
from the date of the Participant's Termination of Employment and prior to the
expiration of any Option or Stock Appreciation Right as provided pursuant to
Section 6.3(e)(i)(B) or Section 6.3(d) above, to the extent the right to
exercise the Option or Stock Appreciation Right was accrued as of the date of
such Termination of Employment and had not expired during such additional
period, the right of the Participant's Beneficiary to exercise the Option or
Stock Appreciation Right shall terminate one year after the date of the
Participant's death (but in no event more than one year from the date of the
Participant's Termination of Employment by reason of disability or Retirement),
unless the exercise period is extended by the Committee in accordance with
Section 6.3(d). In no event, however, may any Option or Stock Appreciation Right
be exercised later than the date of expiration of the Option determined pursuant
to Section 6.3(b)(i), (iii) or (iv).
(ii) TERMINATION OF UNVESTED OPTIONS OR STOCK APPRECIATION
RIGHTS UPON TERMINATION OF EMPLOYMENT. Subject to Section 6.3(c), to the extent
the right to exercise an Option or a Stock Appreciation Right, or any portion
thereof, has not accrued as of the date of Termination of Employment, such right
shall expire at the date of such Termination of Employment. Notwithstanding the
foregoing, the Committee, in its sole discretion and under such terms as it
deems appropriate, may permit, for a Participant who terminates employment by
reason of Retirement and who will continue to render significant services to the
Company or one of its Subsidiaries after his or her Termination of Employment,
the continued vesting of his or her Options and Stock Appreciation Rights during
the period in which that individual continues to render such services.
6.4. EXERCISE PROCEDURES. Each Option and Stock Appreciation Right granted
under the Plan shall be exercised by written notice to the Company which must be
received by the officer or employee of the Company designated in the Award
Agreement at or before the close of business on the expiration date of the
Award. The Purchase Price of shares purchased upon
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exercise of an Option granted under the Plan shall be paid in full in cash by
the Participant pursuant to the Award Agreement; PROVIDED, HOWEVER, that the
Committee may (but shall not be required to) permit payment to be made by
delivery to the Company of either (a) shares of Common Stock (which may include
Restricted Shares or shares otherwise issuable in connection with the exercise
of the Option, subject to such rules as the Committee deems appropriate) or (b)
any combination of cash and Common Stock or (c) such other consideration as the
Committee deems appropriate and in compliance with applicable law (including
payment in accordance with a cashless exercise program under which, if so
instructed by a Participant, shares of Common Stock may be issued directly to
the Participant's broker or dealer upon receipt of an irrevocable written notice
of exercise from the Participant). In the event that any shares of Common Stock
shall be transferred to the Company to satisfy all or any part of the Purchase
Price, the part of the Purchase Price deemed to have been satisfied by such
transfer of shares of Common Stock shall be equal to the product derived by
multiplying the Fair Market Value as of the date of exercise times the number of
shares of Common Stock transferred to the Company. The Participant may not
transfer to the Company in satisfaction of the Purchase Price any fractional
share of Common Stock. Any part of the Purchase Price paid in cash upon the
exercise of any Option shall be added to the general funds of the Company and
may be used for any proper corporate purpose. Unless the Committee shall
otherwise determine, any shares of Common Stock transferred to the Company as
payment of all or part of the Purchase Price upon the exercise of any Option
shall be held as treasury shares.
6.5. CHANGE IN CONTROL. Unless otherwise provided by the Committee in the
applicable Award Agreement, in the event of a Change in Control, all Options and
Stock Appreciation Rights outstanding on the date of such Change in Control
shall become immediately and fully exercisable. The provisions of this Section
6.5 shall not be applicable to any Options or Stock Appreciation Rights granted
to a Participant if any Change in Control results from such Participant's
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of Common Stock or Company Voting Securities.
ARTICLE VII.
RESTRICTED SHARES
7.1. RESTRICTED SHARE AWARDS. The Committee may grant to any Participant
an Award of such number of shares of Common Stock on such terms, conditions and
restrictions, whether based on performance standards, periods of service,
retention by the Participant of ownership of purchased or designated shares of
Common Stock or other criteria, as the Committee shall establish. With respect
to performance-based Awards of Restricted Shares intended to qualify for
deductibility under Section 162(m) of the Code, performance targets will include
specified levels of one or more of operating income, return or investment,
return on stockholders' equity, earnings before interest, taxes, depreciation
and amortization and/or earnings per share. The terms of any Restricted Share
Award granted under this Plan shall be set forth in an Award Agreement which
shall contain provisions determined by the Committee and not inconsistent with
this Plan.
(a) ISSUANCE OF RESTRICTED SHARES. As soon as practicable after the
Date of Grant of a Restricted Share Award by the Committee, the Company shall
cause to be transferred on the books of the Company or its agent, shares of
Common Stock, registered on behalf of the Participant, evidencing the Restricted
Shares covered by the Award, subject to forfeiture to the
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Company as of the Date of Grant if an Award Agreement with respect to the
Restricted Shares covered by the Award is not duly executed by the Participant
and timely returned to the Company. All shares of Common Stock covered by Awards
under this Article VII shall be subject to the restrictions, terms and
conditions contained in the Plan and the applicable Award Agreements entered
into by the appropriate Participants. Until the lapse or release of all
restrictions applicable to an Award of Restricted Shares the share certificates
representing such Restricted Shares may be held in custody by the Company, its
designee, or, if the certificates bear a restrictive legend, by the Participant.
Upon the lapse or release of all restrictions with respect to an Award as
described in Section 7.1(d), one or more share certificates, registered in the
name of the Participant, for an appropriate number of shares as provided in
Section 7.1(d), free of any restrictions set forth in the Plan and the related
Award Agreement (however subject to any restrictions that may be imposed by law)
shall be delivered to the Participant.
(b) STOCKHOLDER RIGHTS. Beginning on the Date of Grant of a
Restricted Share Award and subject to execution of the related Award Agreement
as provided in Section 7.1(a), and except as otherwise provided in such Award
Agreement, the Participant shall become a stockholder of the Company with
respect to all shares subject to the Award Agreement and shall have all of the
rights of a stockholder, including, but not limited to, the right to vote such
shares and the right to receive dividends; PROVIDED, HOWEVER, that any shares of
Common Stock distributed as a dividend or otherwise with respect to any
Restricted Shares as to which the restrictions have not yet lapsed, shall be
subject to the same restrictions as such Restricted Shares and held or
restricted as provided in Section 7.1(a).
(c) RESTRICTION ON TRANSFERABILITY. None of the Restricted Shares
may be assigned or transferred (other than by will or the laws of descent and
distribution or to an INTER VIVOS trust with respect to which the Participant is
treated as the owner under Sections 671 through 677 of the Code), pledged or
sold prior to the lapse of the restrictions applicable thereto.
(d) DELIVERY OF SHARES UPON VESTING. Upon expiration or earlier
termination of the forfeiture period without a forfeiture and the satisfaction
of or release from any other conditions prescribed by the Committee, or at such
earlier time as provided under the provisions of Section 7.3, the restrictions
applicable to the Restricted Shares shall lapse. As promptly as administratively
feasible thereafter, subject to the requirements of Section 9.5, the Company
shall deliver to the Participant or, in case of the Participant's death, to the
Participant's Beneficiary, one or more share certificates for the appropriate
number of shares of Common Stock, free of all such restrictions, except for any
restrictions that may be imposed by law.
7.2. TERMS OF RESTRICTED SHARES.
(a) FORFEITURE OF RESTRICTED SHARES. Subject to Sections 7.2(b) and
7.3, Restricted Shares shall be forfeited and returned to the Company and all
rights of the Participant with respect to such Restricted Shares shall terminate
unless the Participant continues in the service of the Company or a Subsidiary
as an employee until the expiration of the forfeiture period for such Restricted
Shares and satisfies any and all other conditions set forth in the Award
Agreement. The Committee shall determine the forfeiture period (which may, but
need not, lapse in installments) and any other terms and conditions applicable
with respect to any Restricted Share Award.
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(b) WAIVER OF FORFEITURE PERIOD. Notwithstanding anything contained
in this Article VII to the contrary, the Committee may, in its sole discretion,
waive the forfeiture period and any other conditions set forth in any Award
Agreement under appropriate circumstances (including the death, disability or
Retirement of the Participant or a material change in circumstances arising
after the date of an Award) and subject to such terms and conditions (including
forfeiture of a proportionate number of the Restricted Shares) as the Committee
shall deem appropriate.
7.3. CHANGE IN CONTROL. Unless otherwise provided by the Committee in the
applicable Award Agreement, in the event of a Change in Control, all
restrictions applicable to the Restricted Share Award shall terminate fully and
the Participant shall immediately have the right to the delivery of share
certificates for such shares in accordance with Section 7.1(d).
ARTICLE VIII.
PERFORMANCE AWARDS
8.1. PERFORMANCE AWARDS.
(a) AWARD PERIODS AND CALCULATIONS OF POTENTIAL INCENTIVE AMOUNTS.
The Committee may grant Performance Awards to Participants. A Performance Award
shall consist of the right to receive a payment (measured by the Fair Market
Value of a specified number of shares of Common Stock, increases in such Fair
Market Value during the Award Period and/or a fixed cash amount) contingent upon
the extent to which certain predetermined performance targets have been met
during an Award Period. Performance Awards may be made in conjunction with, or
in addition to, Restricted Share Awards made under Article VII. The Award Period
shall be two or more fiscal or calendar years as determined by the Committee.
The Committee, in its discretion and under such terms as it deems appropriate,
may permit newly eligible employees, such as those who are promoted or newly
hired, to receive Performance Awards after an Award Period has commenced.
(b) PERFORMANCE TARGETS. The performance targets may include such
goals related to the performance of the Company and/or the performance of a
Participant as may be established by the Committee in its discretion. In the
case of Performance Awards intended to qualify for deductibility under Section
162(m) of the Code, the targets will include specified levels of one or more of
operating income, return on investment, return on stockholders' equity, earnings
before interest, taxes, depreciation and amortization and/or earnings per share.
The performance targets established by the Committee may vary for different
Award Periods and need not be the same for each Participant receiving a
Performance Award in an Award Period. Except to the extent inconsistent with the
performance-based compensation exception under Section 162(m) of the Code, in
the case of Performance Awards granted to employees to whom such section is
applicable, the Committee, in its discretion, but only under extraordinary
circumstances as determined by the Committee, may change any prior determination
of performance targets for any Award Period at any time prior to the final
determination of the value of a related Performance Award when events or
transactions occur to cause such performance targets to be an inappropriate
measure of achievement.
(c) EARNING PERFORMANCE AWARDS. The Committee, on or as soon as
practicable after the Date of Grant, shall prescribe a formula to determine the
percentage of the
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applicable Performance Award to be earned based upon the degree of attainment of
performance targets.
(d) PAYMENT OF EARNED PERFORMANCE AWARDS. Payments of earned
Performance Awards shall be made in cash or shares of Common Stock or a
combination of cash and shares of Common Stock, in the discretion of the
Committee. The Committee, in its sole discretion, may provide such terms and
conditions with respect to the payment of earned Performance Awards as it may
deem desirable.
8.2. TERMS OF PERFORMANCE AWARDS.
(a) TERMINATION OF EMPLOYMENT. Unless otherwise provided below or in
Section 8.3, in the case of a Participant's Termination of Employment prior to
the end of an Award Period, the Participant will not have earned any Performance
Awards for that Award Period.
(b) RETIREMENT. If a Participant's Termination of Employment is
because of Retirement prior to the end of an Award Period, the Participant will
not be paid any Performance Award, unless the Committee, in its sole and
exclusive discretion, determines that an Award should be paid. In such a case,
the Participant shall be entitled to receive a pro-rata portion of his or her
Award as determined under subsection (d) of this Section 8.2.
(c) DEATH OR DISABILITY. If a Participant's Termination of
Employment is due to death or to disability (as determined in the sole and
exclusive discretion of the Committee) prior to the end of an Award Period, the
Participant or the Participant's personal representative shall be entitled to
receive a pro-rata share of his or her Award as determined under subsection (d)
of this Section 8.2.
(d) PRO-RATA PAYMENT. The amount of any payment to be made to a
Participant whose employment is terminated by Retirement, death or disability
(under the circumstances described in subsections (b) and (c)) will be the
amount determined by multiplying (i) the amount of the Performance Award that
would have been earned through the end of the Award Period had such employment
not been terminated by (ii) a fraction, the numerator of which is the number of
whole months such Participant was employed during the Award Period, and the
denominator of which is the total number of months of the Award Period. Any such
payment made to a Participant whose employment is terminated prior to the end of
an Award Period shall be made at the end of such Award Period, unless otherwise
determined by the Committee in its sole discretion. Any partial payment
previously made or credited to a deferred account for the benefit of a
Participant in accordance with Section 8.1(d) of the Plan shall be subtracted
from the amount otherwise determined as payable as provided in this Section
8.2(d).
(e) OTHER EVENTS. Notwithstanding anything to the contrary in this
Article VIII, the Committee may, in its sole and exclusive discretion, determine
to pay all or any portion of a Performance Award to a Participant who has
terminated employment prior to the end of an Award Period under certain
circumstances (including the death, disability or Retirement of the Participant
or a material change in circumstances arising after the Date of Grant), subject
to such terms and conditions as the Committee shall deem appropriate.
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8.3. CHANGE IN CONTROL. Unless otherwise provided by the Committee in the
applicable Award Agreement, in the event of a Change in Control, all Performance
Awards for all Award Periods shall immediately become fully payable to all
Participants and shall be paid to Participants within thirty (30) days after
such Change in Control.
ARTICLE IX.
TERMS APPLICABLE TO ALL AWARDS GRANTED UNDER THE PLAN
9.1. PLAN PROVISIONS CONTROL AWARD TERMS. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the Committee
have the power to grant any Award under the Plan the terms of which are contrary
to any of the provisions of the Plan. In the event any provision of any Award
granted under the Plan shall conflict with any term in the Plan as constituted
on the Date of Grant of such Award, the term in the Plan as constituted on the
Date of Grant of such Award shall control. Except as provided in Section 9.3 and
Section 9.7, the terms of any Award granted under the Plan may not be changed
after the Date of Grant of such Award so as to materially decrease the value of
the Award without the express written approval of the holder.
9.2. AWARD AGREEMENT. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement or the Participant shall have received and acknowledged notice of the
Award authorized by the Committee expressly granting the Award to such person
and containing provisions setting forth the terms of the Award.
9.3. MODIFICATION OF AWARD AFTER GRANT. No Award granted under the Plan to
a Participant may be modified (unless such modification does not materially
decrease the value of that Award) after its Date of Grant except by express
written agreement between the Company and such Participant, provided that any
such change (a) may not be inconsistent with the terms of the Plan, and (b)
shall be approved by the Committee.
9.4. LIMITATION ON TRANSFER. Except as provided in Section 7.1(c) in the
case of Restricted Shares, a Participant's rights and interest under the Plan
may not be assigned or transferred other than by will or the laws of descent and
distribution and, during the lifetime of a Participant, only the Participant
personally (or the Participant's personal representative) may exercise rights
under the Plan. The Participant's Beneficiary may exercise the Participant's
rights to the extent they are exercisable under the Plan following the death of
the Participant. Notwithstanding the foregoing, the Committee may grant
Non-Qualified Stock Options that are transferable, without payment of
consideration, to immediate family members of the Participant or to trusts or
partnerships for such family members, and the Committee may also amend
outstanding Non-Qualified Stock Options to provide for such transferability.
9.5. TAXES. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any amount payable and/or
shares issuable under such Participant's Award or with respect to any income
recognized upon a disqualifying disposition of shares received pursuant to the
exercise of an Incentive Stock Option, and the Company may defer payment of cash
or issuance of shares upon exercise or vesting of an Award unless indemnified to
its satisfaction
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against any liability for any such tax. The amount of such withholding or tax
payment shall be determined by the Committee and shall be payable by the
Participant at such time as the Committee determines in accordance with the
following rules:
(a) The Participant shall have the right to elect to meet his or her
withholding requirement (i) by having withheld from such Award at the
appropriate time that number of shares of Common Stock, rounded up to the next
whole share, the Fair Market Value of which is equal to the amount of
withholding taxes due, (ii) by direct payment to the Company in cash of the
amount of any taxes required to be withheld with respect to such Award or (iii)
by a combination of withholding such shares and paying cash.
(b) The Committee shall have the discretion as to any Award to cause
the Company to pay to tax authorities for the benefit of the applicable
Participant, or to reimburse such Participant for, the individual taxes which
are due on the grant, exercise or vesting of any Award or the lapse of any
restriction on any Award (whether by reason of such Participant's filing of an
election under Section 83(b) of the Code or otherwise), including, but not
limited to, Federal income tax, state income tax, local income tax and excise
tax under Section 4999 of the Code, as well as for any such taxes as may be
imposed upon such tax payment or reimbursement.
(c) In the case of Participants who are subject to Section 16 of the
Exchange Act, the Committee may impose such limitations and restrictions as it
deems necessary or appropriate with respect to the delivery or withholding of
shares of Common Stock to meet tax withholding obligations.
9.6. SURRENDER OF AWARDS. Any Award granted under the Plan may be
surrendered to the Company for cancellation on such terms as the Committee and
the Participant approve.
9.7. ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Awards, the Purchase Price or Exercise Price for such shares, the
number and kind of shares available for Awards subsequently granted under the
Plan and the maximum number of shares in respect of which Awards can be made to
any Participant in any calendar year shall be appropriately adjusted to reflect
any stock dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in capitalization with a similar substantive
effect upon the Plan or the Awards granted under the Plan. The Committee shall
have the power and sole discretion to determine the amount of the adjustment to
be made in each case.
(b) MERGER. After any Merger in which the Company is the surviving
corporation, each Participant shall, at no additional cost, be entitled upon any
exercise of an Option or receipt of any other Award to receive (subject to any
required action by stockholders), in lieu of the number of shares of Common
Stock receivable or exercisable pursuant to such Award prior to such Merger, the
number and class of shares or other securities to which such Participant would
have been entitled pursuant to the terms of the Merger if, at the time of the
Merger, such Participant had been the holder of record of a number of shares of
Common Stock equal to the number of shares of Common Stock receivable or
exercisable pursuant to such Award. Comparable rights shall accrue to each
Participant in the event of successive Mergers of the character described above.
In the event of a Merger in which the Company is not the surviving corporation,
the surviving, continuing, successor or purchasing corporation, as the case
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may be (the "ACQUIRING CORPORATION"), will either assume the Company's rights
and obligations under outstanding Award Agreements or substitute awards in
respect of the Acquiring Corporation's stock for outstanding Awards, PROVIDED,
HOWEVER, that if the Acquiring Corporation does not assume or substitute for
such outstanding Awards, the Board shall provide prior to the Merger that any
unexercisable and/or unvested portion of the outstanding Awards shall be
immediately exercisable and vested as of a date prior to such merger or
consolidation, as the Board so determines. The exercise and/or vesting of any
Award that was permissible solely by reason of this Section 9.7(b) shall be
conditioned upon the consummation of the Merger. Any Options which are neither
assumed by the Acquiring Corporation not exercised as of the date of the Merger
shall terminate effective as of the effective date of the Merger.
(c) OPTIONS TO PURCHASE SHARES OR STOCK OF ACQUIRED COMPANIES. After
any merger in which the Company or a Subsidiary shall be a surviving
corporation, the Committee may grant substituted options under the provisions of
the Plan, pursuant to Section 424 of the Code, replacing old options granted
under a plan of another party to the merger whose shares of stock subject to the
old options may no longer be issued following the merger. The manner of
application of the foregoing provisions to such options and any appropriate
adjustments shall be determined by the Committee in its sole discretion. Any
such adjustments may provide for the elimination of any fractional shares which
might otherwise become subject to any Options.
9.8. NO RIGHT TO EMPLOYMENT. No employee or other person shall have any
claim of right to be granted an Award under the Plan. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee any right to be
retained in the employ of the Company or any of its Subsidiaries.
9.9. AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Payments received by a
Participant pursuant to the provisions of the Plan shall not be included in the
determination of benefits under any pension, group insurance or other benefit
plan applicable to the Participant which is maintained by the Company or any of
its Subsidiaries, except as may be provided under the terms of such plans or
determined by the Board.
9.10. GOVERNING LAW. All determinations made and actions taken pursuant to
the Plan shall be governed by the laws of the State of Florida and construed in
accordance therewith.
9.11. NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Committee or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Committee.
9.12. CAPTIONS. The captions (i.e., all Section headings) used in the Plan
are for convenience only, do not constitute a part of the Plan, and shall not be
deemed to limit, characterize or affect in any way any provisions of the Plan,
and all provisions of the Plan shall be construed as if no captions had been
used in the Plan.
9.13. SEVERABILITY. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to
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the fullest extent permitted by law and (b) all other provisions of the Plan,
such Award and every other Award at any time granted under the Plan shall remain
in full force and effect.
9.14. AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power and authority to
amend the Plan at any time without the authorization or approval of the
Company's stockholders, unless the amendment (i) materially increases the
benefits accruing to Participants under the Plan, (ii) materially increases the
aggregate number of securities that may be issued under the Plan or (iii)
materially modifies the requirements as to eligibility for participation in the
Plan, but in each case only to the extent then required by the Code or
applicable law, or deemed necessary or advisable by the Board. No termination or
amendment of the Plan may, without the consent of the Participant to whom any
Award shall theretofore have been granted under the Plan, materially adversely
affect the right of such individual under such Award.
(b) TERMINATION. The Board shall have the right and the power to
terminate the Plan at any time. No Award shall be granted under the Plan after
the termination of the Plan, but the termination of the Plan shall not have any
other effect and any Award outstanding at the time of the termination of the
Plan may be exercised after termination of the Plan at any time prior to the
expiration date of such Award to the same extent such Award would have been
exercisable had the Plan not been terminated.
EXHIBIT 4.03
EXHIBIT 4.03
EUROPEAN MICRO HOLDINGS, INC.
FORM OF 1998 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I.
PURPOSE
1.1. PURPOSE. The European Micro Holdings, Inc. 1998 Employee Stock
Purchase Plan (the "PLAN") is intended to provide a method whereby employees of
European Micro Holdings, Inc. (the "COMPANY") and its subsidiaries will have an
opportunity to acquire a proprietary interest in the Company through the
purchase of shares of the Common Stock of the Company. It is the intention of
the Company that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "CODE"). The
provisions of the Plan shall be construed so as to comply in all respects with
the requirements of the Code applicable to employee stock purchase plans.
1.2. ADOPTION AND TERM. The Plan has been approved by the Board of
Directors (hereinafter referred to as the "BOARD") of the Company, to be
effective as of the closing date of the initial public offering of equity
securities by the Company (the "EFFECTIVE DATE"), subject to the approval of the
stockholders of the Company. The Plan shall remain in effect until terminated by
action of the Board.
ARTICLE II.
DEFINITIONS
For the purposes of this Plan, capitalized terms shall have the following
meanings:
2.1. ACCOUNT shall mean a bookkeeping account to which a Participant's
payroll deductions and certain cash dividends are credited in accordance with
Section 4.2.
2.2. ADJUSTMENT TRANSACTION shall have the meaning given to that term in
Section 10.4.
2.3. BASE PAY shall mean regular straight-time earnings excluding payments
for overtime, shift premium, bonuses and other special payments, commissions and
other marketing incentive payments.
2.4. BOARD shall mean the Board of Directors of the Company.
2.5. CLOSING DATE shall mean the date of closing of the initial public
offering of the Company's Common Stock.
2.6. COMMITTEE shall mean the committee described in Article IX.
2.7. COMMON STOCK shall mean the common stock, par value $.01 per share,
of the Company.
2.8. EMPLOYEE shall mean any person who is (i) employed on a full-time or
part-time basis by the Company or any of its subsidiaries, (ii) customarily
scheduled to work at the rate of
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300 or more hours per year and (iii) not a student enrolled at an educational
institution owned or maintained by the Company or any of its subsidiaries;
provided, however, that no person shall be excluded from participation in the
Plan who is required to be included pursuant to Section 423 of the Code.
2.9. FAIR MARKET VALUE shall mean, as of any applicable date: (i) if the
Common Stock is listed on a national securities exchange or is authorized for
quotation on The Nasdaq Stock Market's National Market ("NNM"), the closing
price, regular way, of the Common Stock on such exchange or NNM, as the case may
be, or if no such reported sale of the Common Stock shall have occurred on such
date, on the next preceding date on which there was such a reported sale; or
(ii) if the Common Stock is not listed for trading on a national securities
exchange or authorized for quotation on NNM, the closing bid price as reported
by The Nasdaq Stock Market or The Nasdaq SmallCap Market (if applicable), or if
no such prices shall have been so reported for such date, on the next preceding
date for which such prices were so reported; or (iii) if the Common Stock is not
listed for trading on a national securities exchange or authorized for quotation
on NNM, The Nasdaq Stock Market or The Nasdaq SmallCap Market (if applicable),
the last reported bid price published in the "pink sheets" or displayed on the
National Association of Securities Dealers, Inc. ("NASD") Electronic Bulletin
Board, as the case may be; or (iv) if the Common Stock is not listed for trading
on a national securities exchange, or is not authorized for quotation on NNM,
The Nasdaq Stock Market or The Nasdaq SmallCap Market, or is not published in
the "pink sheets" or displayed on the NASD Electronic Bulletin Board, the Fair
Market Value of the Common Stock as determined in good faith by the Committee.
2.10. MAXIMUM CONTRIBUTION shall mean the maximum amount of Base Pay which
each Employee may deduct for the purpose of purchasing shares of Common Stock
under the Plan. The Maximum Contribution, which shall be five percent (5%) or
such other percentage (in whole percentages) of Base Pay as may from time to
time be determined from time to time by the Committee on a uniform basis with
respect to all Participants; provided, however, that such maximum shall not
apply with respect to the first Offering Period and the first Offering Period
shall be disregarded in determining the Maximum Contribution for all subsequent
Offering Periods.
2.11. OFFERING COMMENCEMENT DATE shall mean each January 1, April 1, July
1 and October 1 during the term of the Plan; provided, however, that the
Offering Commencement Date with respect to the first Offering Period shall be
the Closing Date and the Offering Commencement Date with respect to the second
Offering Period shall be a date designated by the Committee.
2.12. OFFERING PERIOD shall mean each three-month period beginning on an
Offering Commencement Date; provided, however, that the first Offering Period
shall be the Closing Date and the second Offering Period shall be the period
beginning on the first Offering Commencement Date applicable thereto and ending
on such date as the Committee shall determine.
2.13. OFFERING TERMINATION DATE shall mean the last day of each Offering
Period.
2.14. OPTION shall mean an option to acquire shares of Common Stock deemed
to have been granted to a Participant as described in Section 5.2.
2.15. OPTION PRICE shall mean the purchase price of shares of Common Stock
subject to an Option as described in Section 5.3.
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2.16. PARTICIPANT shall mean an Employee who elects to participate in the
Plan in accordance with Article III.
ARTICLE III.
ELIGIBILITY AND PARTICIPATION
3.1. INITIAL ELIGIBILITY. Any Employee is eligible to participate in the
Plan for each Offering Period commencing after such Employee's first day of
employment with the Company or any of its subsidiaries.
3.2. RESTRICTIONS ON PARTICIPATION. Notwithstanding any provisions of the
Plan to the contrary, no Employee shall be permitted to participate in the Plan
or shall be deemed to have been granted an Option under the Plan:
(a) if, immediately after the grant of such Option, such Employee
would own stock, and/or hold outstanding Options to purchase stock, possessing
in the aggregate 5% or more of the total combined voting power or value of all
classes of stock of the Company (for purposes of this paragraph, the rules of
ss. 424(d) of the Code shall apply in determining stock ownership of any
Employee); or
(b) which permits his or her rights to purchase stock under all
employee stock purchase plans (as described in Section 423 of the Code) of the
Company to accrue at a rate which exceeds $25,000 in Fair Market Value of the
stock (determined at the time such Option is granted) for each calendar year in
which such Option is outstanding.
3.3. COMMENCEMENT OF PARTICIPATION. An eligible Employee may become a
Participant by completing an authorization for a payroll deduction on the form
provided by the Company and filing it with the Company on or before the Offering
Commencement Date for the applicable Offering Period; provided, however, that
for the first and second Offering Periods under the Plan, such authorization may
be filed on or before such date as is set by the Committee. Except in the case
of the first Offering Period, payroll deductions for a Participant, as elected
in accordance with Article IV, shall commence in the calendar month in which the
Offering Commencement Date for the applicable Offering Period occurs and shall
remain in effect throughout that Offering Period and each subsequent Offering
Period until modified or terminated as provided in Section 4.3 and Article VII.
With respect to the first Offering Period, a Participant shall pay the Option
Price by check or by such other means as the Committee may approve.
ARTICLE IV.
PAYROLL DEDUCTIONS
4.1. AMOUNT OF DEDUCTION. At the time a Participant files his or her
authorization for payroll deduction, he or she shall elect to have deductions
made from his or her Base Pay on each payday during the time he or she is a
Participant in an amount not in excess of the Maximum Contribution; provided,
however, that there shall be no payroll deductions with respect to the first
Offering Period.
4.2. PARTICIPANT'S ACCOUNT. All payroll deductions made for a Participant
shall be credited to his or her Account under the Plan. A Participant may not
make any separate cash payment into such Account. No interest shall accrue on
the amount of payroll deductions credited to a Participant's Account under the
Plan at any time. Any cash dividends paid with
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respect to shares of Common Stock that (i) have been purchased on behalf of a
Participant under the Plan and (ii) have not been delivered to such Participant
pursuant to Section 6.2 shall be credited to his or her Account under the Plan.
4.3. CHANGES IN PAYROLL DEDUCTIONS. A Participant may discontinue
participation in the Plan as provided in Article VII, but no other change can be
made during an Offering Period and, specifically, a Participant may not alter
the amount of Base Pay to be taken as a payroll deduction for that Offering
Period. A Participant may elect to change or terminate his or her payroll
deductions for a subsequent Offering Period by providing written notice to the
Committee on or before the Offering Commencement Date for such Offering Period.
ARTICLE V.
OFFERING PERIODS AND GRANTING OF OPTIONS
5.1. OFFERING PERIODS. Except as otherwise provided in this Plan or as
otherwise determined by the Committee, in each calendar year during the term of
the Plan there shall be four Offering Periods, beginning on each Offering
Commencement Date and ending on the next following Offering Termination Date.
5.2. NUMBER OF OPTION SHARES. Subject to Section 3.2, on the Offering
Commencement Date for each Offering Period, a Participant shall be deemed to
have been granted an Option to purchase the number of whole and fractional
shares of Common Stock as can be purchased at the Option Price with the amount
credited to such Participant's Account as of the Offering Termination Date with
respect to that Offering Period; provided, however, that if the number of shares
of Common Stock remaining available for issuance under the Plan, and, in the
case of the first Offering Period, the number of shares of Common Stock
available for purchase in such Offering Period, is less than the number of
shares to be purchased as of an Offering Termination Date, a pro rata allocation
of the available shares shall be made based upon the respective amounts then
credited to Participants' Accounts, and the cash balance credited to each such
Account shall be returned to the Participant whose Account has been so credited.
5.3. OPTION PRICE. The Option Price with respect to an Offering Period
shall be 85%, or such higher percentage (not in excess of 100%) as may be
established by the Committee prior to the Offering Commencement Date of such
Offering Period, of the lower of:
(a) the Fair Market Value of the Common Stock on the Offering
Commencement Date; or
(b) the Fair Market Value of the Common Stock on the Offering
Termination Date.
Notwithstanding the foregoing, in the case of the first Offering Period, the
Option Price shall equal the public offering price less the underwriting
discount and commissions in connection with the public offering of the Company's
Common Stock.
ARTICLE VI.
EXERCISE OF OPTION
6.1. AUTOMATIC EXERCISE. Unless a Participant gives written notice of
withdrawal from the Plan to the Company as provided in Article VII prior to the
Offering Termination Date of an Offering Period, the Option deemed to have been
granted to such Participant under
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Section 5.2 hereof will be deemed to have been exercised in full automatically
on the Offering Termination Date applicable to such Offering Period.
6.2. DELIVERY OF COMMON STOCK. Following the Offering Termination Date of
each Offering Period, the Company shall cause to be transferred on its stock
books shares of Common Stock, registered on behalf of each Participant,
evidencing the number of whole and fractional shares of Common Stock purchased
on behalf of each such Participant on each Offering Termination Date. Such
Participant shall be deemed to be a shareholder with respect to such shares for
all purposes and shall have all of the rights of a shareholder with respect to
such shares, including, but not limited to, the right to vote such shares and
the right to receive dividends paid with respect to such shares. Promptly after
receiving a written request from a Participant, the Company shall deliver to
such Participant stock certificate(s) representing all, but not less than all,
of the shares of Common Stock purchased on behalf of such Participant under the
Plan which have not been previously delivered to such Participant.
ARTICLE VII.
WITHDRAWAL
7.1. IN GENERAL. A Participant may withdraw payroll deductions and cash
dividends, if any, credited to his or her Account during an Offering Period at
any time prior to the Offering Termination Date of such Offering Period by
giving written notice to the Company. All of the payroll deductions and cash
dividends credited to a Participant's Account for such Offering Period, without
interest, will be paid to such Participant after receipt of his or her notice of
withdrawal, and no further payroll deductions will be made with respect to such
Participant during such Offering Period or any subsequent Offering Period unless
such Participant again commences participation in accordance with Section 3.3.
7.2. EFFECT ON SUBSEQUENT PARTICIPATION. A Participant who withdraws from
the Plan shall be eligible to participate again in the Plan beginning with the
first Offering Period which commences after the first anniversary of the date of
withdrawal.
7.3. TERMINATION OF EMPLOYMENT. Upon termination of the Participant's
employment for any reason other than death while in the employ of the Company,
the payroll deductions and cash dividends, if any, credited to such
Participant's Account for the Offering Period during which such termination
occurs will be returned to him or her, or, in the case of the death of such
Participant subsequent to the termination of his or her employment, to the
person or persons entitled thereto under Section 10.1.
7.4. TERMINATION OF EMPLOYMENT DUE TO DEATH. Upon termination of the
Participant's employment because of death, the Participant's beneficiary (as
defined in Section 10.1) shall have the right to elect, by written notice given
to the Company prior to the earlier of the Offering Termination Date for the
Offering Period during which the Participant died or the date which is 60 days
following the date of the Participant's death, either:
(a) to withdraw all of the payroll deductions and cash dividends, if
any, credited to the Participant's Account, or
(b) to exercise the Participant's Option on such Offering
Termination Date for the number of full shares of stock which the accumulated
payroll deductions and cash dividends, if any, credited to the Participant's
Account at the date of the Participant's death will purchase at the applicable
Option Price, and any excess in such Account will be returned to said
beneficiary, without interest.
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In the event that no such written notice of election shall be duly
received by the Company, the beneficiary shall automatically be deemed to have
elected, pursuant to paragraph (a), to withdraw the Participant's payroll
deductions and cash dividends, if any.
ARTICLE VIII.
STOCK
8.1. MAXIMUM SHARES. The maximum number of shares of Common Stock which
shall be issued under the Plan (subject to adjustment pursuant to Section 10.4)
during the term hereof shall be 50,000 shares. The Committee shall have the
authority and discretion to establish an annual limitation on the number of
shares of Common Stock issuable under the Plan; provided, however, that for the
first year of the Plan's operation, no more than __________ shares of Common
Stock shall be issuable under the Plan, plus such number of shares as are issued
in the first Offering Period. Such shares may be authorized but unissued shares
or treasury shares, as the Committee may determine. If an Option shall expire or
terminate without being exercised in full, any shares not purchased pursuant to
such Option shall again be available for granting Options hereunder.
8.2. PARTICIPANT'S INTEREST IN OPTION STOCK. The Participant will have no
interest in the shares of Common Stock covered by an Option deemed to have been
granted hereunder until such Option has been exercised under Section 6.1 or
Section 7.4(b).
8.3. REGISTERED OWNERSHIP OF COMMON STOCK. Shares of Common Stock to be
delivered to a Participant under the Plan will be registered in the name of the
Participant, or, if the Participant so directs by written notice to the Company
prior to the Offering Termination Date applicable thereto, in the names of the
Participant and one such other person as may be designated by the Participant,
as joint tenants with rights of survivorship or as tenants by the entireties, to
the extent permitted by applicable law.
8.4. RESTRICTIONS ON EXERCISE. The Board may, in its discretion, require
as conditions to the exercise of any Option that the shares of Common Stock
reserved for issuance upon the exercise of the Option shall have been duly
listed, upon official notice of issuance, on a stock exchange or NNM, and that
either:
(a) a Registration Statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
(b) the Participant shall have represented at the time of purchase,
in form and substance satisfactory to the Company, that it is his or her
intention to purchase the shares for investment and not for resale or
distribution.
ARTICLE IX.
ADMINISTRATION
9.1. APPOINTMENT OF COMMITTEE. The Board shall appoint a Committee to
administer the Plan, which shall consist of no fewer than two members of the
Board. No member of the Committee shall be eligible to purchase Common Stock
under the Plan.
9.2. AUTHORITY OF COMMITTEE. Subject to the express provisions of the
Plan, the Committee shall have plenary authority in its sole and absolute
discretion to interpret and construe any and all provisions of the Plan, to
adopt rules and regulations for administering the
6
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Plan, and to make all other determinations deemed necessary or advisable for
administering the Plan. The Committee's determination on the foregoing matters
shall be conclusive.
ARTICLE X.
MISCELLANEOUS
10.1. DESIGNATION OF BENEFICIARY. A Participant may file a written
designation of a beneficiary for purposes of the Plan. Such designation of
beneficiary may be changed by the Participant at any time by written notice to
the Company. In the event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
Participant's death, the beneficiary shall be the executor or administrator of
the estate of the Participant, of if no such executor or administrator has been
appointed (to the knowledge of the Company), the beneficiary shall be, in the
sole and absolute discretion of the Company, the spouse or any one or more
dependents of the Participant. No beneficiary shall, prior to the death of the
Participant by whom he or she has been designated, acquire any interest under
the Plan.
10.2. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's Account nor any rights with regard to the exercise of an Option or
to receive Common Stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company
may, in its sole discretion, treat such act as an election to withdraw funds in
accordance with Section 7.1.
10.3. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose and the
Company shall not be obligated to segregate such payroll deductions or any
Accounts.
10.4. EQUITABLE ADJUSTMENT. If, while any Options are outstanding, the
outstanding shares of Common Stock of the Company have increased, decreased,
changed into, or been exchanged for a different number or kind of shares or
securities of the Company or any other entity through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split or other
transaction (an "ADJUSTMENT TRANSACTION"), appropriate and proportionate
adjustments may be made by the Committee in the number and/or kind of shares
which are subject to purchase under outstanding Options, and/or the Option Price
applicable to such outstanding Options or the Committee, if it deems it
appropriate, may convert Options into the right to receive cash or other
property pursuant to the Adjustment Transaction. In addition, in any such event,
the number and/or kind of shares which may be offered for purchase under the
Plan may also be proportionately adjusted if deemed appropriate by the
Committee.
10.5. AMENDMENT AND TERMINATION. The Board shall have complete power and
authority to terminate or amend the Plan. No termination, modification, or
amendment of the Plan may, without the consent of a Participant then having an
unexercised Option under the Plan, adversely affect the rights of such
Participant with respect to such Option. The Plan shall terminate automatically
on the tenth (10th) anniversary of its effective date unless sooner terminated
by action of the Board.
10.6. EFFECTIVE DATE. The Plan shall become effective immediately prior to
the closing of the initial public offering of the Company's Common Stock but is
subject to the approval of the stockholders of the Company.
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<PAGE>
10.7. COSTS AND EXPENSES. No brokerage commissions or fees shall be
charged by the Company in connection with the purchase of shares of Common Stock
by Participants under the Plan. All costs and expenses incurred in administering
the Plan shall be borne by the Company. Any amounts credited to Accounts shall
constitute general assets of the Company and nothing in the Plan shall be
construed to create a trust or fiduciary relationship with respect to such
Accounts.
10.8. NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly,
create any right for the benefit of any Employee or class of Employees to
purchase any shares under the Plan, or create in any Employee or class of
Employees any right with respect to continuation of employment by the Company
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an Employee's employment at any time.
10.9. GOVERNING LAW. The law of the State of Florida, other than the
conflict of laws provisions of such law, will govern all matters relating to the
Plan.
8
EXHIBIT 10.07
EXHIBIT 10.07
FORM OF EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("AGREEMENT") is made in Miami,
Florida effective as of January 1, 1998, by and between European Micro Holdings,
Inc., a Nevada corporation (the "COMPANY"), and John B. Gallagher, an individual
residing in Broward County, Florida (the "EXECUTIVE"), who hereby agree as
hereinafter provided.
Section 1. DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below.
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"AGREEMENT" shall have the meaning set forth in the introductory paragraph
hereof.
"BASE COMPENSATION" shall have the meaning set forth in Section 5(a).
"BOARD OF DIRECTORS" means the incumbent directors of the Company as of
the point in time reference thereto is made in this Agreement.
"CAUSE" shall have the meaning set forth in Section 10(b).
"COLA ADJUSTMENT" means the cost of living adjustment, which shall
correspond to the percent rise in prices for the preceding year as measured by
the Consumer Price Index for all Urban Consumers (CPI-UC), All City Average, all
Items (base year 1982-1984 = 100) published by the United States Department of
Labor, Bureau of Labor Statistics (the "INDEX"). The COLA Adjustment shall be
determined by multiplying the amount or figure to be adjusted by a fraction, the
numerator of which is the Index published for the month in which occurs the date
of adjustment and the denominator of which is the Index published for the same
month of the preceding year.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.01 per share, of the
Company.
"COMPANY" shall have the meaning set forth in the introductory paragraph
of this Agreement, and shall include Subsidiaries where appropriate.
"COMPETITIVE BUSINESS" shall have the meaning set forth in Section 9(a).
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
9(c).
"DISABILITY" of the Executive means that, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties on a full time basis for six consecutive months, or for
an aggregate of nine months in any consecutive 12-month period, and a physician
selected by the Executive is of the opinion that (a) he is suffering from "total
disability" as defined in the Company's disability insurance program or policy
and (b) he will qualify for Social Security Disability Payments and (c) within
thirty (30) days after written notice thereof is given by the Company to the
Executive (which notice may be given at any time after the end of such six (6)
or twelve (12) month periods) the Executive shall not have returned to the
performance of his duties on a full-time basis. (If the Executive is prevented
from performing his duties because of Disability, upon request by the Company,
the Executive shall
<PAGE>
submit to an examination by a physician selected by the Company, at the
Company's expense, and the Executive shall also authorize his personal physician
to disclose to the selected physician all of the Executive's medical records).
"EMPLOYMENT COMMENCEMENT DATE" means January 1, 1998.
"EMPLOYMENT PERIOD" means that period commencing on the Employment
Commencement Date and ending on the Employment Termination Date.
"EMPLOYMENT TERMINATION DATE" means the date the Employment Period
terminates as provided in Section 10.
"EXECUTIVE" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"FISCAL YEAR" means the fiscal year of the Company ending June 30 or as
such fiscal year as may be amended by the Board of Directors.
"INCENTIVE BONUS COMPENSATION" shall have the meaning set forth in Section
5(b).
"NOTICE OF TERMINATION" shall have the meaning set forth in Section
10(a)(1).
"OFFERING" means any public offering of shares of Common Stock by the
Company or any holder thereof in accordance with the registration requirements
of the Act.
"REGISTRABLE SECURITIES" means any shares of Common Stock now or hereafter
held by the Executive other than Unrestricted Securities.
"REGISTRATION," "REGISTER" and like words mean compliance with all of the
laws, rules and regulations (federal, state and local), and provisions of
agreements and corporate documents pertaining to the public offering of
securities, including registration of any public offering of securities on any
form under the Act.
"RESTRICTED PERIOD" shall have the meaning set forth in Section 9(a).
"SCHEDULED EMPLOYMENT TERMINATION DATE" means the later of (a) the day
immediately preceding the fifth anniversary of the Employment Commencement Date
or (b) such date as is specified by either the Company or the Executive in a
Notice of Termination delivered for the purpose of fixing the scheduled
Employment Termination Date, provided the date so specified shall be at least
three (3) years after the date such Notice of Termination is so delivered.
"SUBSIDIARIES" means wholly owned subsidiaries of the Company.
"UNRESTRICTED SECURITIES" means Common Stock beneficially owned by the
Executive, if any, that can be transferred by the Executive without registration
under the Act.
Section 2. EMPLOYMENT AND TERM. The Company hereby employs the Executive,
and the Executive hereby accepts such employment by the Company, for the
purposes and upon the terms and conditions contained in this Agreement. The term
of such employment shall be for the Employment Period.
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Section 3. EMPLOYMENT CAPACITY AND DUTIES. The Executive shall be employed
throughout the Employment Period as the Co-Chairman of the Company. The
Executive shall have the duties and responsibilities incumbent with the position
of Co-Chairman of the Company. Accordingly, and not by way of limitation, as
Co-Chairman, the Executive shall preside over all meetings of the shareholders
of the Company and of the Board of Directors, superintend and manage the
business of the Company and coordinate and supervise the work of its other
officers and employ, direct, fix the compensation of, discipline and discharge
its personnel, employ agents, professional advisors and consultants and perform
all functions of a general manager of the Company's business. The Company agrees
that it will not, without the Executive's written consent, require the Executive
to be based anywhere other than Miami, Florida, except for required travel on
the Company's business to an extent substantially consistent with present travel
obligations.
Section 4. EXECUTIVE PERFORMANCE COVENANTS. The Executive accepts the
employment described in Section 3 and agrees to devote a significant amount of
his working time and efforts (except for absences due to illness and appropriate
vacations) to the business and affairs of the Company and the performance of the
aforesaid duties and responsibilities. However, nothing in this Agreement shall
preclude the Executive from devoting a reasonable amount of his time and efforts
to the business of American Surgical Supply Corp. of Florida d/b/a American
Micro Computer Center ("AMERICAN MICRO"), civic, community, charitable,
professional and trade association affairs and matters and such other activities
as may be disclosed to the Board of Directors.
Section 5. COMPENSATION. The Company shall pay to the Executive for his
services hereunder, the compensation hereinafter provided in this Section 5.
Such compensation shall be paid to the Executive at the time and in the manner
as provided below.
(a) BASE COMPENSATION. The Executive shall be paid "BASE
COMPENSATION" for each Fiscal Year at an annual rate of $175,000 in 26 bi-weekly
equal installments or such other basis as may be mutually agreed upon. The Base
Compensation (i) may be increased (but may not be decreased) at any time or from
time to time by action of the Board of Directors or any committee thereof, and
(ii) shall be increased by the COLA Adjustment annually as of the beginning of
each Fiscal Year, commencing with the Fiscal Year beginning June 30, 1998. The
Base Compensation shall be pro-rated for any Fiscal Year hereunder which is less
than a full Fiscal Year.
(b) INCENTIVE BONUS COMPENSATION. The Executive shall be eligible
for incentive bonus compensation for each Fiscal Year in an amount to be
determined by the Board of Directors or any committee thereof ("INCENTIVE BONUS
COMPENSATION").
Section 6. PAYMENT OF EXPENSES. The Company shall pay the Executive's
reasonable expenses incurred in providing services to the Company, including
expenses for travel, entertainment and similar items, in accordance with the
Company's expense policies as determined from time to time by the Board of
Directors. If there is a dispute as to the eligibility of an expense for payment
in accordance with the Company's expense policies, then such expense shall be
determined to be payable by the Company if approved by a majority of the Board
of Directors.
Section 7. EMPLOYEE BENEFITS, VACATIONS. During the Employment Period, the
Executive shall receive the benefits and enjoy the perquisites described below:
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(a) BENEFIT PLANS. The Executive shall be entitled to participate
in any perquisite, benefit or compensation plan (in addition to the compensation
provided for in Section 5) including any profit sharing plan and 401(k) plan,
medical insurance plan, life insurance plan, health and accident plan and
disability plan which are generally applicable to all salaried employees of the
Company (collectively referred to as the "BENEFIT PLANS"). All such Benefit
plans shall be maintained by the Company, or the Company shall maintain plans
providing substantially similar benefits; provided, however, that the Company
may make modifications in the Benefit Plans so long as such modifications (i)
are generally applicable to all salaried employees of the Company and (ii) do
not discriminate against the Executive or other highly-compensated employees of
the Company.
(b) VACATIONS. The Executive shall be entitled in each Fiscal Year
to a vacation of four weeks (20 working days), during which time his
compensation shall be paid in full, and such holidays and other nonworking days
as are consistent with the policies of the Company for executives generally.
Section 8. COMPANY LIFE INSURANCE; MEDICAL EXAMINATIONS. At any time
during the Employment Period, the Company may, in its discretion, apply for and
procure as owner and for its own benefit, insurance on the life of the
Executive, in such amounts and in such form or forms as the Company may
determine. The Executive shall have no right to any interest in any such policy
or policies, but he shall, at the request of the Company, submit to such medical
examinations, supply such information and execute such applications, instruments
and other documents as reasonably may be required by the insurance company or
companies to whom the Company has applied for such insurance.
If requested by the Company, the Executive shall submit to at least one
medical examination during each Fiscal year at such reasonable time and place
and by a physician or physicians determined and selected by the Company. All the
costs and expenses of said medical examination, including transportation of the
Executive to the place of examination and return, shall be paid by the Company.
The Executive shall be entitled to a copy of all reports and other
information provided to the Company in connection with any examination referred
to in this Section 8. Any failure to pass any such medical examination or to
meet any health criteria or medical standard shall not of itself be cause for
termination of the Employment Period by the Company.
Section 9. CERTAIN COMPANY PROTECTION PROVISIONS. The below provisions
apply for the protection of the Company.
(a) NONCOMPETITION. Except for Executive's participation in
American Micro and other activities disclosed to the Board of Directors, during
the Restricted Period (as hereinafter defined), the Executive shall not directly
or indirectly compete with the Company by owning, managing, controlling or
participating in the ownership, management or control of, or be employed or
engaged by or otherwise affiliated or associated with, any Competitive Business
in any location in which the Company is doing business as of the Employment
Termination Date. As used herein, the term "RESTRICTED PERIOD" means the
Employment Period and a period of two years thereafter and means the Employment
Period if the Company terminates the Executive without "cause" (as defined in
Section 10(b)) or the Executive terminates his employment for "good reason" (as
defined in Section 10(e)). As used herein, a "COMPETITIVE BUSINESS" is any other
corporation, partnership, proprietorship, firm, association or other business
entity which is engaged in any business from which the Company derives five
percent or more of its consolidated revenues during the twelve (12) months
preceding the Employment Termination
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<PAGE>
Date or in which the Company has invested five percent (5%) or more of its total
assets as of the time in question, provided, however, that ownership of not more
than five percent (5%) of the stock of any publicly traded company shall not be
deemed a violation of this provision.
(b) NON-INTERFERENCE. During the Restricted Period, the Executive
shall not induce or solicit any employee of the Company or any person doing
business with the Company to terminate his or her employment or business
relationship with the Company or otherwise interfere with any such relationship.
(c) CONFIDENTIALITY. The Executive agrees and acknowledges that, by
reason of the nature of his duties as an officer and employee, he will have or
may have access to and become informed of confidential and secret information
which is a competitive asset of the Company ("CONFIDENTIAL INFORMATION"),
including without limitation any lists of customers or suppliers, financial
statistics, research data or any other statistics and plans contained in profit
plans, capital plans, critical issue plans, strategic plans or marketing or
operation plans or other trade secrets of the Company and any of the foregoing
which belong to any person or company but to which the Executive has had access
by reason of his employment relationship with the Company. The Executive agrees
faithfully to keep in strict confidence, and not, either directly or indirectly,
to make known, divulge, reveal, furnish, make available or use (except for use
in the regular course of his employment duties) any such Confidential
Information. The Executive acknowledges that all manuals, instruction books,
price lists, information and records and other information and aids relating to
the Company's business, and any and all other documents containing Confidential
Information furnished to the Executive by the Company or otherwise acquired or
developed by the Executive, shall at all times be the property of the Company.
Upon termination of the Employment Period, the Executive shall return to the
Company any such property or documents which are in his possession, custody or
control, but his obligation of confidentiality shall survive such termination of
the Employment Period until and unless any such Confidential Information shall
have become, through no fault of the Executive, generally known to the trade.
The obligations of the Executive under this subsection are in addition to, and
not in limitation or preemption of, all other obligations of confidentiality
which the Executive may have to the Company under general legal or equitable
principles.
(d) REMEDIES. It is expressly agreed by the Executive and the
Company that these provisions are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. It is also agreed
that if any provision is found by a court having jurisdiction to be unreasonable
because of scope, area or time, then that provision shall be amended to
correspond in scope, area and time to that considered reasonable by a court and
as amended shall be enforced and the remaining provisions shall remain
effective. In the event of any breach of these 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.
Section 10. TERMINATION OF EMPLOYMENT.
(a) NOTICE OF TERMINATION; EMPLOYMENT TERMINATION DATE.
(1) Any termination of the Executive's employment by the
Company or the Executive shall be communicated by written Notice of Termination
to the other party
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<PAGE>
thereto. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated.
Furthermore, either the Executive or the Company may give a Notice of
Termination to the other party for the purpose of terminating this Agreement on
the Scheduled Employment Termination Date. Such Notice of Termination shall have
the effect of terminating this Agreement on the Scheduled Employment Termination
Date.
(2) "EMPLOYMENT TERMINATION DATE" shall mean the date on which
the Employment Period and the Executive's right and obligation to perform
employment services for the Company shall terminate effective upon the first to
occur of the following, it being understood that in no event may the Employment
Period be terminated other than as the result of one of the following events:
(A) If the Executive's employment is terminated for
Disability, the date which is thirty (30) days after
Notice of Termination is given (provided that the
Executive shall not have returned to the performance of
his duties on a full-time basis during such thirty (30)
days period);
(B) If the Executive's employment is terminated by the
Executive for Good Reason or otherwise by voluntary action
of the Executive (see Section 10(e)), the date specified
in the Notice of Termination, which date (except with the
written consent of the Company to the contrary) shall not
be more than sixty (60) days after the date that the
Notice of Termination is given;
(C) The death of the Executive;
(D) The Scheduled Employment Termination Date;
(E) If the Executive's employment is terminated by the Company
for Cause (see Section 10(b)(1)), the date on which a
Notice of Termination is given; provided that if within
thirty (30) days after any Notice of Termination is given
the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the
termination, the Employment Termination Date shall be the
date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order or
decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been
perfected); and
(F) If the Executive's employment is terminated by the Company
other than for Cause, Disability or death of the Executive
(see Section 10(f)), the date specified in the Notice of
Termination which date (except with the written consent of
the Executive to the contrary) shall not be more than
sixty (60) days after the date that the Notice of
Termination is given.
(b) TERMINATION FOR CAUSE:
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(1) The Company may terminate the Executive's employment and
the Employment Period for Cause. For the purposes of this Agreement, the Company
shall have "CAUSE" to terminate employment hereunder only (A) if termination
shall have been the result of an act or acts of willful misconduct materially
injurious to the Company, monetarily or otherwise, or (B) upon the willful and
continued failure by the Executive substantially to perform his duties with the
Company (other than any such failure resulting from incapacity due to mental or
physical illness) after a demand in writing for substantial performance is
delivered by the Board of Directors, which demand specifically identifies the
manner in which the Board believes that the Executive has not substantially
performed his duties, and such failure results in demonstrably material injury
to the Company. The Executive's employment shall in no event be considered to
have been terminated by the Company for Cause if such termination took place as
the result of (i) bad judgment or negligence, or (ii) any act or omission
without intent of gaining therefrom directly or indirectly a profit to which the
Executive was not legally entitled, or (iii) any act or omission believed in
good faith to have been in or not opposed to the interest of the Company, or
(iv) any act or omission in respect of which a determination is made that the
Executive met the applicable standard of conduct prescribed for indemnification
or reimbursement or payment of expenses under the Certificate of Incorporation
of the Company or the laws of the State of Nevada, in each case as in effect at
the time of such act or omission. The Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board of Directors at a meeting
of the Board of Directors called and held for the purpose (after not less than
thirty (30) days' written notice to the Executive and an opportunity for him
together with his counsel, to be heard before the Board of Directors, such
notice of meeting to indicate the specific termination provision of this
Agreement relied upon and specify in reasonable detail the facts and
circumstances claimed to provide a basis for termination under the provision so
indicated), finding that in the good faith opinion of the Board of Directors the
Executive was guilty of conduct set forth above in clauses (A) or (B) of the
second sentence of this paragraph and specifying the particulars thereof in
detail.
(2) If the Executive's employment shall be terminated for
Cause, the Company shall pay the Executive within ten (10) days of such
termination, his unpaid Base Compensation through the Employment Termination
Date at the rate in effect at the time Notice of Termination is given, plus (2)
any expenses incurred in accordance with Section 6 hereof.
(c) TERMINATION FOR DISABILITY. The Company may terminate the
Executive's employment because of the Disability of the Executive and thereafter
shall pay to the Executive (or his successors) (1) his unpaid Base Compensation
through the sixth full month following the Employment Termination Date at his
then effective Base Compensation rate; plus (2) any accrued but unpaid Incentive
Compensation plus (3) any expenses incurred in accordance with Section 6 hereof.
(d) TERMINATION UPON EXECUTIVE'S DEATH. In the event of the
Executive's death, the Company shall pay to the Executive's estate (1) any
unpaid amount of Base Compensation through the date of death at the then
effective Base Compensation rate plus (2) any accrued but unpaid Incentive
Compensation plus (3) any expenses incurred in accordance with Section 6 hereof.
All previously granted stock options, rights, warrants and awards shall fully
vest on the death of the Executive, except that the provisions of the Company's
Stock Incentive Plan and any other Benefit Plan shall control the benefits and
awards covered thereby.
(e) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE.
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(1) The Executive may terminate his employment for Good Reason
and receive the payments and benefits specified in Section 10(f) in the same
manner as if the Company had terminated his employment. For purposes of this
Agreement, "GOOD REASON" will exist if any one or more of the following occur:
(A) Failure by the Company to honor any of its obligations
under this Agreement, including, without limitation, its
obligations under Section 3 (EMPLOYMENT CAPACITY AND
DUTIES). Section 4 (EXECUTIVE PERFORMANCE COVENANTS).
Section 5 (COMPENSATION). Section 6 (REIMBURSEMENT OF
EXPENSES). Section 7 (EMPLOYEE BENEFITS, VACATIONS).
Section 13 (INDEMNIFICATION) and Section 15 (SUCCESSORS
AND ASSIGNS); or
(B) Any purported termination by the Company of the
Executive's employment that is not effected pursuant to
a Notice of Termination satisfying the requirements of
Section 10(a) above and, for purposes of this Agreement,
no such purported termination shall be effective.
(C) If there is a Change in Control of the Company (as
defined below) and the employment of the Executive is
concurrently or subsequently terminated (i) by the
Company without Cause, (ii) by service of a Notice of
Termination or (iii) by the resignation of the Employee
because he has reasonably determined in good faith that
his titles, authorities, responsibilities, salary, bonus
opportunities or benefits have been materially
diminished, or that a material adverse change in his
working conditions has occurred or the Company has
breached this Agreement. For the purpose of this
Agreement, a CHANGE IN CONTROL of the Company has
occurred when: (x) any person (defined for the purposes
of this Section 10 to mean any person within the meaning
of Section 13(d) of the Securities Exchange Act of 1934
(the "EXCHANGE ACT")), other than the Company, or an
employee benefit plan established by the Board of
Directors of the Company, acquires, directly or
indirectly, the beneficial ownership (determined under
Rule 13d-3 of the regulations promulgated by the
Securities and Exchange Commission under Section 13(d)
of the Exchange Act) of securities issued by the Company
having twenty percent (20%) or more of the voting power
of all of the voting securities issued by the Company in
the election of directors at the meeting of the holders
of voting securities to be held for such purpose; or (y)
a majority of the directors elected at any meeting of
the holders of voting securities of the Company are
persons who were not nominated for such election by the
Board of Directors of the Company or a duly constituted
committee of the Board of Directors of the Company
having authority in such matters; or (z) the Company
merges or consolidates with or transfers substantially
all of its assets to another person.
(2) The Executive shall have the right voluntarily to
terminate his employment other than for Good Reason prior to the Scheduled
Employment Termination Date,
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and if the Executive shall so terminate his employment, he shall be entitled
only to payment of the amounts which would be payable under Section 10(b)(2) had
he been terminated for Cause.
(f) COMPENSATION UPON TERMINATION OTHER THAN FOR CAUSE.
(1) If the Company shall terminate the Executive's employment
other than for Cause pursuant to Section 10(c) or (d), or if the Executive shall
terminate his employment for Good Reason pursuant to Section 10(e)(1) (but not a
termination voluntarily by the Executive other than for Good Reason under
Section 10(e)(2)), then the Company shall pay to the Executive the following
amounts:
(A) (1) His unpaid Base Compensation through the Employment
Termination Date at his then effective Base Compensation
Rate plus (2) any accrued but unpaid Incentive Bonus
Compensation plus (3) any expenses incurred in accordance
with Section 6 hereof.
(B) In addition, the Company shall pay to the Executive
promptly in a single lump sum in cash an amount equal to
the product of three (3), multiplied by one hundred
percent (100%) of the aggregate total amount which would
have been payable to Executive under Section 5 for the
entire Fiscal Year in which occurs the Employment
Termination Date as if his employment had not been
terminated (and without deduction or offset for any
amounts actually paid for such Fiscal Year on account of
Base Compensation or Incentive Bonus Compensation, under
Section 5, this Section 10 or otherwise), and assuming for
purposes of calculating (x) the Base Compensation, one
hundred percent (100%) of the amount thereof at the annual
rate payable for such Fiscal Year pursuant to Section 5(a)
and (y) the Incentive Bonus Compensation, the largest
amount thereof accrued for any of the two most recently
completed Fiscal Years.
(C) The Company shall also pay all legal fees and expenses
incurred as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or
disputing any such termination, in seeking to obtain or
enforce any right or benefit provided by this Agreement,
or in interpreting this Agreement). The Company agrees, in
the event the Executive desires to relocate within one
year after the Employment Termination Date, to pay for (or
reimburse) all reasonable moving expenses incurred
relating to a change of principal residence in connection
with such relocation and to indemnify the Executive in
connection with any loss he may sustain in the sale of his
primary residence.
(D) The Executive shall be under no obligation to seek other
employment and there shall be no offset against any
amounts due the Executive under this Agreement on account
of any remuneration attributable to any subsequent
employment that the Executive may obtain (any amounts due
under Section 10(f) are in the nature of severance
payments, or liquidated damages, or both, and are not in
the nature of a penalty).
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(2) Unless Executive is terminated for Cause, the Company
shall maintain in full force and effect, for the Executive's continued benefit
through the Scheduled Employment Termination Date, all active and retired
Benefit Plans and other benefit programs or arrangements in which he was
entitled to participate immediately prior to the Scheduled Employment
Termination Date (except as specified in Section 7(a) of this Agreement),
provided that continued participation is possible under the general terms and
provisions of such plans and programs. In the event that participation in any
such plan or program is barred, the Company shall arrange to provide him with
benefits substantially similar to those which he is entitled to receive under
such plans and programs.
(g) COMPENSATION UPON DISABILITY. During any period that the
Executive fails to perform his duties hereunder as a result of incapacity due to
physical or mental illness, he shall continue to receive his full Base
Compensation at the rate then in effect and his full Incentive Bonus
Compensation until this Agreement is terminated pursuant to Section 10(c)
hereof. Thereafter, his benefits shall be determined in accordance with the
Company's Benefit Plans.
Section 11. CERTAIN TAX MATTERS
(a) OPTIONAL RIGHT OF PARTIAL DISCLAIMER.
It is recognized that under certain circumstances:
(1) Payments or benefits provided to the Executive under this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement (including without limitation any stock option
plan) might give rise to an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, or any successor provision
thereof.
(2) It might be beneficial to the Executive to disclaim some
portion of the payment or benefit in order to avoid such "excess parachute
payment" and thereby avoid the imposition of an excise tax resulting therefrom.
(3) Under such circumstances it would not be to the
disadvantage of the Company to permit the Executive to disclaim any such payment
or benefit in order to avoid the "excess parachute payment" and the excise tax
resulting therefrom.
Accordingly, the Executive may, at the Executive's option, exercisable at
any time or from time to time, disclaim any entitlement to any portion of the
payment or benefits arising under this Agreement or otherwise pursuant to or by
reason of any other agreement, policy, plan, program or arrangement (including
without limitation any stock option plan) which would constitute "excess
parachute payments" and it shall be the Executive's choice as to which payments
or benefits shall be so surrendered, if and to the extent that the Executive
exercises such option, so as to avoid "excess parachute payments."
(b) ADDITIONAL PAYMENTS.
(1) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined (as hereafter provided)
that any payment or distribution to or for the Executive's benefit, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement (including without limitation any stock option
plan), or similar right (a "PAYMENT"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue
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Code of 1986 (or any successor provision thereto), or any interest or penalties
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereafter collectively referred to as the "EXCISE
TAX"), then the Executive shall be entitled to receive an additional payment or
payments (a "GROSS-UP PAYMENT") in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the lesser of (A)
the Excise Tax imposed upon the Payments or (B) the Excise Tax that would be
imposed upon all payments or benefits provided under this Agreement (including
any stock option agreement) if such payments or benefits (but only such payments
or benefits) constituted in their entirety "excess parachute payments" as such
term is defined in section 280G and 4999 of the Internal Revenue Code of 1986
(or any successor provisions thereto).
(2) Subject to the provisions of Section 11(b)(5), all
determinations required to be made under this Section 11(b), including whether
an Excise Tax is payable by the Executive, the amount of such Excise Tax,
whether a Gross-Up Payment is required, and the amount of such Gross-Up Payment,
shall be made by a nationally-recognized legal or accounting firm (the "FIRM")
selected by the Executive in the Executive's sole discretion. The Executive
agrees to direct the Firm to submit its determination and detailed supporting
calculations to both the Executive and the Company as promptly as practicable.
If the Firm determines that any Excise Tax is payable by the Executive and that
a Gross-Up Payment is required, the Company shall pay the Executive the required
Gross-Up Payment within ten business days after receipt of such determination
and calculations. If the Firm determines that no Excise Tax is payable by the
Executive, it shall, at the same time as it makes such determination, furnish
the Executive with an opinion that the Executive has substantial authority not
to report any Excise Tax on the Executive's federal income tax return. Any
determination by the Firm as to the amount of the Gross-Up Payment shall be
binding upon the Executive and the Company. As a result of the uncertainty in
the application of Section 4999 of the Internal Revenue Code of 1986 (or any
successor provision thereto) at the time of the initial determination by the
Firm hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made (an "UNDERPAYMENT"). In the event that
the Company exhausts its remedies pursuant to Section 11(b)(5) hereof and the
Executive thereafter is required to make a payment of any Excise Tax, the
Executive may direct the Firm to determine the amount of the Underpayment (if
any) that has occurred and to submit its determination and detailed supporting
calculations to both the Executive and the Company as promptly as possible. Any
such Underpayment shall be promptly paid by the Company to the Executive, or for
the Executive's benefit, within ten business days after receipt of such
determination and calculations.
(3) The Executive and the Company shall each provide the Firm
access to and copies of any books, records and documents in the possession of
the Company or the Executive, as the case may be, reasonably requested by the
Firm, and otherwise cooperate with the Firm in connection with the preparation
and issuance of the determination contemplated by Section 11(b)(2) hereof.
(4) The fees and expenses of the Firm for its services in
connection with the determinations and calculations contemplated by Section
11(b)(2) hereof shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within ten business days after receipt
from the Executive of a statement therefor and reasonable evidence of the
Executive's payment thereof.
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(5) The Executive agrees to notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be given
as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim. The Executive agrees to
further apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known by the
Executive). The Executive agrees not to pay such claim prior to the earlier of
(a) the expiration of the 30-calendar-day period following the date on which the
Executive gives such notice to the Company and (b) the date that any payment
with respect to such claim is due. If the Company notifies the Executive in
writing at least five business days prior to the expiration of such period that
it desires to contest such claim, the Executive agrees to:
provide the Company with any written records or documents in the
Executive's possession relating to such claim reasonably requested by the
Company;
a) Company shall reasonably request in writing from time to
time, including without limitation accepting legal
representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Company;
b) cooperate with the Company in good faith in order to
effectively contest such claim; and
c) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, from and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 11(b)(5), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 11(b)(5) and, at its
sole option, may pursue or FOREGO any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at the
Executive's own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the Executive's
taxable year with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(6) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 11(b)(5) hereof, the Executive
receives any refund with respect to
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<PAGE>
such claim, the Executive agrees (subject to the Company's complying with the
requirements of Section 11(b)(5) hereof) to promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the Executive's receipt of an amount
advanced by the Company pursuant to Section 11(b)(5) hereof, a determination is
made that the Executive is not entitled to any refund with respect to such claim
and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) calendar
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid pursuant to
this Section 11(b).
SECTION 12. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION.
(1) At any time after the date hereof, and subject to the
other provisions of this Section 12, the Executive shall have the right,
exercisable by making a written request to the Company, to demand that the
Company effect the Registration of any Registrable Securities in accordance with
the provisions of the Act. The Company shall then comply with Section 12(a)(2)
hereof. Any provision herein to the contrary notwithstanding, the right to
demand Registration pursuant to this Section 12 shall be limited to one
Registration demand per calendar year. A right to demand Registration hereunder
shall be deemed to have been exercised and all of the Company's demand
Registration obligations hereunder for such calendar year shall be deemed to be
fully satisfied when the registration statement filed on account of such
exercise has been declared effective by the Commission. If any other executive
of the Company exercises his or her right, if any, to demand that the Company
effect the Registration of any Registrable Securities, then the Executive shall
have the right to Register an equivalent number of Registrable Securities
without reducing the number of demand Registrations the Executive shall have in
any calendar year.
(2) Following receipt of a request pursuant to Section
12(a)(1) hereof, the Company shall (i) file within ninety (90) days thereafter a
registration statement on the appropriate form under the Act for the shares of
Common Stock that the Company has been requested to Register; (ii) if the
applicable Offering is pursuant to an underwriting agreement, enter into an
underwriting agreement in such form as said managing or sole underwriter shall
require (which must only contain terms and conditions customary for offerings of
equity securities of entities with market capitalizations that are approximately
equal to the Company's then current market capitalization and may contain
customary provisions requiring the Company and the Executive to indemnify and
provide contribution to the underwriter or underwriters of such Offering); and
(iii) use its reasonable best efforts to have such registration statement
declared effective as promptly as practicable and to remain effective for at
least one hundred eighty (180) days. Notwithstanding any other provision hereof,
the Executive acknowledges and agrees that there can be no guarantee or warranty
from or by the Company that any such registration statement will ever be
declared effective by the Commission, and that the Company makes no such
guarantee or warranty in this Agreement.
(b) PIGGY-BACK REGISTRATION. If the Company at any time proposes to
register any of its securities under the Act or pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), collectively referred to as
the "SECURITIES ACTS," whether or not for sale for its own account, it will each
such time give prompt written notice to the Executive of its intention to do so
(the "REGISTRATION NOTICE"). Upon the written request of the Executive, made
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<PAGE>
within fifteen (15) business days after the receipt of the Registration Notice,
the Company shall use its best efforts to effect the registration under the
Securities Acts of such amount of the Executive's Common Stock as the Executive
requests, by inclusion of the Executive's Common Stock in the registration
statement that relates to the securities which the Company proposes to register,
PROVIDED that if, at any time after giving the Registration Notice and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such securities, the Company may, at its election,
give written notice of such determination to the Executive (the "REFUSAL
NOTICE") and, thereupon, (i) in the case of a determination not to register,
shall be relieved of its obligation to register the Executive's Common Stock in
connection with such terminated registration (but not from its obligation to pay
the Registration Expenses in connection therewith), and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering the
Executive's Common Stock, for the same period as the delay in registering such
other securities.
(c) REGISTRATION EXPENSES. The Company shall pay all Registration
Expenses (as defined herein) in connection with each registration of the
Executive's Common Stock pursuant to this Section 12. For the purposes hereof,
the phrase "REGISTRATION EXPENSES" shall include all expenses incident to the
Company's performance of, or compliance with, this Section 12, including,
without limitation, (i) all registration, filing and NASD fees, (ii) all fees
and expenses of complying with securities or blue sky laws, (iii) all printing
expenses, (iv) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (v) the fees and disbursements of any one counsel and any one
accountant retained by the Executive, (vi) premiums and other costs of policies
of insurance against liabilities arising out of the public offering of the
Executive's Common Stock being registered if the Company desires such insurance,
and (vii) any fees and disbursements of underwriters customarily paid by issuers
or sellers of securities, but excluding underwriting discounts and commissions
and transfer taxes, if any.
(d) SURVIVAL. Notwithstanding anything to the contrary contained
herein, the provisions of this Section 12 shall survive the Employment
Termination Date for a period of two (2) years.
Section 13. INDEMNIFICATION. As an employee, officer and director of the
Company, the Executive shall be indemnified against all liabilities, damages,
fines, costs and expenses by the Company in accordance with the indemnification
provisions of the Company's Certificate of Incorporation as in effect on the
date hereof, and otherwise to the fullest extent to which employees, officers
and directors of a corporation organized under the laws of Nevada may be
indemnified pursuant to Sections 78.037(1) and 78.751, Nevada General
Corporation Law, as the same may be amended from time to time (or any subsequent
statute of similar tenor and effect), subject to the terms and conditions of
such statute.
Section 14. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Miami, Florida in accordance with the rules of the American Arbitration
Association then in effect; provided that all arbitration expenses shall be
borne by the Company. Notwithstanding the pendency of any dispute or controversy
concerning termination or the effects thereof, the Company will continue to pay
the Executive his
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<PAGE>
full compensation in effect immediately before any Notice of Termination giving
rise to the dispute was given (including, but not limited to, Base Salary and
Incentive Compensation) and continue him as a participant in all compensation,
benefit and insurance plans in which he was then participating, until the
dispute is finally resolved. Judgment may be entered on the arbitrators' award
in any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of his right to be paid until the
Employment Termination Date during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
Section 15. SUCCESSORS AND ASSIGNS. Except as hereinafter expressly
provided, the agreements, covenants, terms and provisions of this Agreement
shall bind the respective heirs, executors, administrators, successors and
assigns of the parties. Specifically, and not by way of limitation of the
foregoing, the Executive shall be bound by the terms and conditions of this
Agreement to any successor assignee of the Company's rights and obligations
hereunder as a result of any merger, consolidation or sale or lease of all or
substantially all of the Company's business and assets. If any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company fails,
concurrently with the effectiveness of any such succession, to agree in writing
in form and substance reasonably satisfactory to the Executive expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place, then the Executive shall have the right, effected by notice to such
successor not later than ninety (90) days after the effectiveness of such
succession, to terminate the Employment Period under Section 10(e) as though
such failure was an uncured breach by the Company of a material covenant or
agreement of the Company contained in this Agreement.
If the Executive should die while any amounts are payable to him
hereunder, or if by reason of his death payments are to be made to him
hereunder, then this Agreement shall inure to the benefit of and be enforceable
by the Executive's executors, administrators, heirs, distributees, devisees and
legatees and all amounts payable hereunder shall then be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there is no such designee, to his estate.
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as hereinbefore provided in this
Section 15. Without limiting the foregoing, the Executive's right to receive
payments hereunder shall not be assignable or transferable, whether by pledge,
creation of a security interest or otherwise, other than a transfer by his will
or by the laws of descent or distribution, and in the event of any attempted
assignment or transfer contrary to this paragraph the Company shall have no
liability to pay to the purported assignee or transferee any amount so attempted
to be assigned or transferred.
As used in this Agreement, the "COMPANY" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in the first
paragraph of this Section 15 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
Section 16. NOTICES. Any notice or other communication required or desired
to be given hereunder shall be in writing and shall be deemed sufficiently given
when personally delivered or when mailed by first class certified mail, return
receipt requested and postage prepaid, addressed to the parties at their
respective addresses set forth under their respective signatures below or such
other person or addresses as shall be given by notice of any party.
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<PAGE>
Section 17. WAIVER; REMEDIES CUMULATIVE. No waiver of any right or option
hereunder by any party shall operate as a waiver of any other right or option,
or the same right or option as respects any subsequent occasion for its
exercise, or of any legal remedy. No waiver by any party of any breach of this
Agreement or of any agreement or covenant contained herein shall be held to
constitute a waiver of any other breach or a continuation of the same breach.
All remedies provided by this Agreement are in addition to all other remedies by
it or the law provided.
Section 18. GOVERNING LAW; SEVERABILITY. This Agreement is made and is
expected to be performed in Florida, and the various terms, provisions,
covenants and agreements, and the performance thereof, shall be construed,
interpreted and enforced under and with reference to the laws of the State of
Florida, unless otherwise indicated herein. It is the intention of the Company
and the Executive to comply fully with all laws and matters of public policy
relating to employment agreements and restrictive covenants, and this Agreement
shall be construed consistently with such laws and public policy to the extent
possible. If and to the extent any one or more covenants, agreements, terms and
provisions of this Agreement or any portion or portions thereof shall be held
invalid or unenforceable by a court of competent jurisdiction, then such
covenants, agreements, terms and provisions (or portions thereof) shall be
deemed separable from the remaining covenants, agreements, terms and provisions
of this Agreement and such holding shall in no way affect the validity or
enforceability of any of the other covenants, agreements, terms and provisions
hereof.
Section 19. MISCELLANEOUS. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be modified, changed or amended except in a writing
signed by each of the parties hereto. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original hereof. The captions of
the several sections and subsections of this Agreement are not a part of the
context hereof, are inserted only for convenience in locating such sections and
subsections and shall be ignored in construing this Agreement.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, the Company and the Executive have executed multiple
counterparts of this Agreement.
Company: Executive:
EUROPEAN MICRO HOLDINGS, INC.
By:
--------------------------
Name: Harry D. Shields
Title: Co-Chairman
-----------------------------
Name: John B. Gallagher
Address:
--------------------
--------------------
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EXHIBIT 10.08
EXHIBIT 10.08
FORM OF EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("AGREEMENT") is made in Nashville,
Tennessee effective as of January 1, 1998, by and between European Micro
Holdings, Inc., a Nevada corporation (the "COMPANY"), and Harry D. Shields, an
individual residing in Nashville, Tennessee (the "EXECUTIVE"), who hereby agree
as hereinafter provided.
Section 1. DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below.
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"AGREEMENT" shall have the meaning set forth in the introductory paragraph
hereof.
"BASE COMPENSATION" shall have the meaning set forth in Section 5(a).
"BOARD OF DIRECTORS" means the incumbent directors of the Company as of
the point in time reference thereto is made in this Agreement.
"CAUSE" shall have the meaning set forth in Section 10(b).
"COLA ADJUSTMENT" means the cost of living adjustment, which shall
correspond to the percent rise in prices for the preceding year as measured by
the Consumer Price Index for all Urban Consumers (CPI-UC), All City Average, all
Items (base year 1982-1984 = 100) published by the United States Department of
Labor, Bureau of Labor Statistics (the "INDEX"). The COLA Adjustment shall be
determined by multiplying the amount or figure to be adjusted by a fraction, the
numerator of which is the Index published for the month in which occurs the date
of adjustment and the denominator of which is the Index published for the same
month of the preceding year.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.01 per share, of the
Company.
"COMPANY" shall have the meaning set forth in the introductory paragraph
of this Agreement, and shall include Subsidiaries where appropriate.
"COMPETITIVE BUSINESS" shall have the meaning set forth in Section 9(a).
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
9(c).
"DISABILITY" of the Executive means that, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties on a full time basis for six consecutive months, or for
an aggregate of nine months in any consecutive 12-month period, and a physician
selected by the Executive is of the opinion that (a) he is suffering from "total
disability" as defined in the Company's disability insurance program or policy
and (b) he will qualify for Social Security Disability Payments and (c) within
thirty (30) days after written notice thereof is given by the Company to the
Executive (which notice may be given at any time after the end of such six (6)
or twelve (12) month periods) the Executive shall not have returned to the
performance of his duties on a full-time basis. (If the Executive is prevented
from performing his duties because of Disability, upon request by the Company,
the Executive shall
<PAGE>
submit to an examination by a physician selected by the Company, at the
Company's expense, and the Executive shall also authorize his personal physician
to disclose to the selected physician all of the Executive's medical records).
"EMPLOYMENT COMMENCEMENT DATE" means January 1, 1998.
"EMPLOYMENT PERIOD" means that period commencing on the Employment
Commencement Date and ending on the Employment Termination Date.
"EMPLOYMENT TERMINATION DATE" means the date the Employment Period
terminates as provided in Section 10.
"EXECUTIVE" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"FISCAL YEAR" means the fiscal year of the Company ending June 30 or as
such fiscal year as may be amended by the Board of Directors.
"INCENTIVE BONUS COMPENSATION" shall have the meaning set forth in Section
5(b).
"NOTICE OF TERMINATION" shall have the meaning set forth in Section
10(a)(1).
"OFFERING" means any public offering of shares of Common Stock by the
Company or any holder thereof in accordance with the registration requirements
of the Act.
"REGISTRABLE SECURITIES" means any shares of Common Stock now or hereafter
held by the Executive other than Unrestricted Securities.
"REGISTRATION," "REGISTER" and like words mean compliance with all of the
laws, rules and regulations (federal, state and local), and provisions of
agreements and corporate documents pertaining to the public offering of
securities, including registration of any public offering of securities on any
form under the Act.
"RESTRICTED PERIOD" shall have the meaning set forth in Section 9(a).
"SCHEDULED EMPLOYMENT TERMINATION DATE" means the later of (a) the day
immediately preceding the fifth anniversary of the Employment Commencement Date
or (b) such date as is specified by either the Company or the Executive in a
Notice of Termination delivered for the purpose of fixing the scheduled
Employment Termination Date, provided the date so specified shall be at least
three (3) years after the date such Notice of Termination is so delivered.
"SUBSIDIARIES" means wholly owned subsidiaries of the Company.
"UNRESTRICTED SECURITIES" means Common Stock beneficially owned by the
Executive, if any, that can be transferred by the Executive without registration
under the Act.
Section 2. EMPLOYMENT AND TERM. The Company hereby employs the Executive,
and the Executive hereby accepts such employment by the Company, for the
purposes and upon the terms and conditions contained in this Agreement. The term
of such employment shall be for the Employment Period.
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Section 3. EMPLOYMENT CAPACITY AND DUTIES. The Executive shall be employed
throughout the Employment Period as the Co-Chairman of the Company. The
Executive shall have the duties and responsibilities incumbent with the position
of Co-Chairman of the Company. Accordingly, and not by way of limitation, as
Co-Chairman, the Executive shall preside over all meetings of the shareholders
of the Company and of the Board of Directors, superintend and manage the
business of the Company and coordinate and supervise the work of its other
officers and employ, direct, fix the compensation of, discipline and discharge
its personnel, employ agents, professional advisors and consultants and perform
all functions of a general manager of the Company's business. The Company agrees
that it will not, without the Executive's written consent, require the Executive
to be based anywhere other than Nashville, Tennessee, except for required travel
on the Company's business to an extent substantially consistent with present
travel obligations.
Section 4. EXECUTIVE PERFORMANCE COVENANTS. The Executive accepts the
employment described in Section 3 and agrees to devote a significant amount of
his working time and efforts (except for absences due to illness and appropriate
vacations) to the business and affairs of the Company and the performance of the
aforesaid duties and responsibilities. However, nothing in this Agreement shall
preclude the Executive from devoting a reasonable amount of his time and efforts
to the business of American Surgical Supply Corp. of Florida d/b/a American
Micro Computer Center ("AMERICAN MICRO"), civic, community, charitable,
professional and trade association affairs and matters and such other activities
as may be disclosed to the Board of Directors.
Section 5. COMPENSATION. The Company shall pay to the Executive for his
services hereunder, the compensation hereinafter provided in this Section 5.
Such compensation shall be paid to the Executive at the time and in the manner
as provided below.
(a) BASE COMPENSATION. The Executive shall be paid "BASE
COMPENSATION" for each Fiscal Year at an annual rate of $175,000 in 26 bi-weekly
equal installments or such other basis as may be mutually agreed upon. The Base
Compensation (i) may be increased (but may not be decreased) at any time or from
time to time by action of the Board of Directors or any committee thereof, and
(ii) shall be increased by the COLA Adjustment annually as of the beginning of
each Fiscal Year, commencing with the Fiscal Year beginning June 30, 1998. The
Base Compensation shall be pro-rated for any Fiscal Year hereunder which is less
than a full Fiscal Year.
(b) INCENTIVE BONUS COMPENSATION. The Executive shall be eligible
for incentive bonus compensation for each Fiscal Year in an amount to be
determined by the Board of Directors or any committee thereof ("INCENTIVE BONUS
COMPENSATION").
Section 6. PAYMENT OF EXPENSES. The Company shall pay the Executive's
reasonable expenses incurred in providing services to the Company, including
expenses for travel, entertainment and similar items, in accordance with the
Company's expense policies as determined from time to time by the Board of
Directors. If there is a dispute as to the eligibility of an expense for payment
in accordance with the Company's expense policies, then such expense shall be
determined to be payable by the Company if approved by a majority of the Board
of Directors.
Section 7. EMPLOYEE BENEFITS, VACATIONS. During the Employment Period, the
Executive shall receive the benefits and enjoy the perquisites described below:
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(a) BENEFIT PLANS. The Executive shall be entitled to participate
in any perquisite, benefit or compensation plan (in addition to the compensation
provided for in Section 5) including any profit sharing plan and 401(k) plan,
medical insurance plan, life insurance plan, health and accident plan and
disability plan which are generally applicable to all salaried employees of the
Company (collectively referred to as the "BENEFIT PLANS"). All such Benefit
plans shall be maintained by the Company, or the Company shall maintain plans
providing substantially similar benefits; provided, however, that the Company
may make modifications in the Benefit Plans so long as such modifications (i)
are generally applicable to all salaried employees of the Company and (ii) do
not discriminate against the Executive or other highly-compensated employees of
the Company.
(b) VACATIONS. The Executive shall be entitled in each Fiscal Year
to a vacation of four weeks (20 working days), during which time his
compensation shall be paid in full, and such holidays and other nonworking days
as are consistent with the policies of the Company for executives generally.
Section 8. COMPANY LIFE INSURANCE; MEDICAL EXAMINATIONS. At any time
during the Employment Period, the Company may, in its discretion, apply for and
procure as owner and for its own benefit, insurance on the life of the
Executive, in such amounts and in such form or forms as the Company may
determine. The Executive shall have no right to any interest in any such policy
or policies, but he shall, at the request of the Company, submit to such medical
examinations, supply such information and execute such applications, instruments
and other documents as reasonably may be required by the insurance company or
companies to whom the Company has applied for such insurance.
If requested by the Company, the Executive shall submit to at least one
medical examination during each Fiscal year at such reasonable time and place
and by a physician or physicians determined and selected by the Company. All the
costs and expenses of said medical examination, including transportation of the
Executive to the place of examination and return, shall be paid by the Company.
The Executive shall be entitled to a copy of all reports and other
information provided to the Company in connection with any examination referred
to in this Section 8. Any failure to pass any such medical examination or to
meet any health criteria or medical standard shall not of itself be cause for
termination of the Employment Period by the Company.
Section 9. CERTAIN COMPANY PROTECTION PROVISIONS. The below provisions
apply for the protection of the Company.
(a) NONCOMPETITION. Except for Executive's participation in
American Micro and other activities disclosed to the Board of Directors, during
the Restricted Period (as hereinafter defined), the Executive shall not directly
or indirectly compete with the Company by owning, managing, controlling or
participating in the ownership, management or control of, or be employed or
engaged by or otherwise affiliated or associated with, any Competitive Business
in any location in which the Company is doing business as of the Employment
Termination Date. As used herein, the term "RESTRICTED PERIOD" means the
Employment Period and a period of two years thereafter and means the Employment
Period if the Company terminates the Executive without "cause" (as defined in
Section 10(b)) or the Executive terminates his employment for "good reason" (as
defined in Section 10(e)). As used herein, a "COMPETITIVE BUSINESS" is any other
corporation, partnership, proprietorship, firm, association or other business
entity which is engaged in any business from which the Company derives five
percent or more of its consolidated revenues during the twelve (12) months
preceding the Employment Termination
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Date or in which the Company has invested five percent (5%) or more of its total
assets as of the time in question, provided, however, that ownership of not more
than five percent (5%) of the stock of any publicly traded company shall not be
deemed a violation of this provision.
(b) NON-INTERFERENCE. During the Restricted Period, the Executive
shall not induce or solicit any employee of the Company or any person doing
business with the Company to terminate his or her employment or business
relationship with the Company or otherwise interfere with any such relationship.
(c) CONFIDENTIALITY. The Executive agrees and acknowledges that, by
reason of the nature of his duties as an officer and employee, he will have or
may have access to and become informed of confidential and secret information
which is a competitive asset of the Company ("CONFIDENTIAL INFORMATION"),
including without limitation any lists of customers or suppliers, financial
statistics, research data or any other statistics and plans contained in profit
plans, capital plans, critical issue plans, strategic plans or marketing or
operation plans or other trade secrets of the Company and any of the foregoing
which belong to any person or company but to which the Executive has had access
by reason of his employment relationship with the Company. The Executive agrees
faithfully to keep in strict confidence, and not, either directly or indirectly,
to make known, divulge, reveal, furnish, make available or use (except for use
in the regular course of his employment duties) any such Confidential
Information. The Executive acknowledges that all manuals, instruction books,
price lists, information and records and other information and aids relating to
the Company's business, and any and all other documents containing Confidential
Information furnished to the Executive by the Company or otherwise acquired or
developed by the Executive, shall at all times be the property of the Company.
Upon termination of the Employment Period, the Executive shall return to the
Company any such property or documents which are in his possession, custody or
control, but his obligation of confidentiality shall survive such termination of
the Employment Period until and unless any such Confidential Information shall
have become, through no fault of the Executive, generally known to the trade.
The obligations of the Executive under this subsection are in addition to, and
not in limitation or preemption of, all other obligations of confidentiality
which the Executive may have to the Company under general legal or equitable
principles.
(d) REMEDIES. It is expressly agreed by the Executive and the
Company that these provisions are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. It is also agreed
that if any provision is found by a court having jurisdiction to be unreasonable
because of scope, area or time, then that provision shall be amended to
correspond in scope, area and time to that considered reasonable by a court and
as amended shall be enforced and the remaining provisions shall remain
effective. In the event of any breach of these 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.
Section 10. TERMINATION OF EMPLOYMENT.
(a) NOTICE OF TERMINATION; EMPLOYMENT TERMINATION DATE.
(1) Any termination of the Executive's employment by the
Company or the Executive shall be communicated by written Notice of Termination
to the other party
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thereto. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated.
Furthermore, either the Executive or the Company may give a Notice of
Termination to the other party for the purpose of terminating this Agreement on
the Scheduled Employment Termination Date. Such Notice of Termination shall have
the effect of terminating this Agreement on the Scheduled Employment Termination
Date.
(2) "EMPLOYMENT TERMINATION DATE" shall mean the date on which
the Employment Period and the Executive's right and obligation to perform
employment services for the Company shall terminate effective upon the first to
occur of the following, it being understood that in no event may the Employment
Period be terminated other than as the result of one of the following events:
(A) If the Executive's employment is terminated for
Disability, the date which is thirty (30) days after
Notice of Termination is given (provided that the
Executive shall not have returned to the performance of
his duties on a full-time basis during such thirty (30)
days period);
(B) If the Executive's employment is terminated by the
Executive for Good Reason or otherwise by voluntary action
of the Executive (see Section 10(e)), the date specified
in the Notice of Termination, which date (except with the
written consent of the Company to the contrary) shall not
be more than sixty (60) days after the date that the
Notice of Termination is given;
(C) The death of the Executive;
(D) The Scheduled Employment Termination Date;
(E) If the Executive's employment is terminated by the Company
for Cause (see Section 10(b)(1)), the date on which a
Notice of Termination is given; provided that if within
thirty (30) days after any Notice of Termination is given
the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the
termination, the Employment Termination Date shall be the
date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order or
decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been
perfected); and
(F) If the Executive's employment is terminated by the Company
other than for Cause, Disability or death of the Executive
(see Section 10(f)), the date specified in the Notice of
Termination which date (except with the written consent of
the Executive to the contrary) shall not be more than
sixty (60) days after the date that the Notice of
Termination is given.
(b) TERMINATION FOR CAUSE:
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(1) The Company may terminate the Executive's employment and
the Employment Period for Cause. For the purposes of this Agreement, the Company
shall have "CAUSE" to terminate employment hereunder only (A) if termination
shall have been the result of an act or acts of willful misconduct materially
injurious to the Company, monetarily or otherwise, or (B) upon the willful and
continued failure by the Executive substantially to perform his duties with the
Company (other than any such failure resulting from incapacity due to mental or
physical illness) after a demand in writing for substantial performance is
delivered by the Board of Directors, which demand specifically identifies the
manner in which the Board believes that the Executive has not substantially
performed his duties, and such failure results in demonstrably material injury
to the Company. The Executive's employment shall in no event be considered to
have been terminated by the Company for Cause if such termination took place as
the result of (i) bad judgment or negligence, or (ii) any act or omission
without intent of gaining therefrom directly or indirectly a profit to which the
Executive was not legally entitled, or (iii) any act or omission believed in
good faith to have been in or not opposed to the interest of the Company, or
(iv) any act or omission in respect of which a determination is made that the
Executive met the applicable standard of conduct prescribed for indemnification
or reimbursement or payment of expenses under the Certificate of Incorporation
of the Company or the laws of the State of Nevada, in each case as in effect at
the time of such act or omission. The Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board of Directors at a meeting
of the Board of Directors called and held for the purpose (after not less than
thirty (30) days' written notice to the Executive and an opportunity for him
together with his counsel, to be heard before the Board of Directors, such
notice of meeting to indicate the specific termination provision of this
Agreement relied upon and specify in reasonable detail the facts and
circumstances claimed to provide a basis for termination under the provision so
indicated), finding that in the good faith opinion of the Board of Directors the
Executive was guilty of conduct set forth above in clauses (A) or (B) of the
second sentence of this paragraph and specifying the particulars thereof in
detail.
(2) If the Executive's employment shall be terminated for
Cause, the Company shall pay the Executive within ten (10) days of such
termination, his unpaid Base Compensation through the Employment Termination
Date at the rate in effect at the time Notice of Termination is given, plus (2)
any expenses incurred in accordance with Section 6 hereof.
(c) TERMINATION FOR DISABILITY. The Company may terminate the
Executive's employment because of the Disability of the Executive and thereafter
shall pay to the Executive (or his successors) (1) his unpaid Base Compensation
through the sixth full month following the Employment Termination Date at his
then effective Base Compensation rate; plus (2) any accrued but unpaid Incentive
Compensation plus (3) any expenses incurred in accordance with Section 6 hereof.
(d) TERMINATION UPON EXECUTIVE'S DEATH. In the event of the
Executive's death, the Company shall pay to the Executive's estate (1) any
unpaid amount of Base Compensation through the date of death at the then
effective Base Compensation rate plus (2) any accrued but unpaid Incentive
Compensation plus (3) any expenses incurred in accordance with Section 6 hereof.
All previously granted stock options, rights, warrants and awards shall fully
vest on the death of the Executive, except that the provisions of the Company's
Stock Incentive Plan and any other Benefit Plan shall control the benefits and
awards covered thereby.
(e) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE.
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(1) The Executive may terminate his employment for Good Reason
and receive the payments and benefits specified in Section 10(f) in the same
manner as if the Company had terminated his employment. For purposes of this
Agreement, "GOOD REASON" will exist if any one or more of the following occur:
(A) Failure by the Company to honor any of its obligations
under this Agreement, including, without limitation, its
obligations under Section 3 (EMPLOYMENT CAPACITY AND
DUTIES). Section 4 (EXECUTIVE PERFORMANCE COVENANTS).
Section 5 (COMPENSATION). Section 6 (REIMBURSEMENT OF
EXPENSES). Section 7 (EMPLOYEE BENEFITS, VACATIONS).
Section 13 (INDEMNIFICATION) and Section 15 (SUCCESSORS
AND ASSIGNS); or
(B) Any purported termination by the Company of the
Executive's employment that is not effected pursuant to a
Notice of Termination satisfying the requirements of
Section 10(a) above and, for purposes of this Agreement,
no such purported termination shall be effective.
(C) If there is a Change in Control of the Company (as defined
below) and the employment of the Executive is concurrently
or subsequently terminated (i) by the Company without
Cause, (ii) by service of a Notice of Termination or (iii)
by the resignation of the Employee because he has
reasonably determined in good faith that his titles,
authorities, responsibilities, salary, bonus opportunities
or benefits have been materially diminished, or that a
material adverse change in his working conditions has
occurred or the Company has breached this Agreement. For
the purpose of this Agreement, a CHANGE IN CONTROL of the
Company has occurred when: (x) any person (defined for the
purposes of this Section 10 to mean any person within the
meaning of Section 13(d) of the Securities Exchange Act of
1934 (the "EXCHANGE ACT")), other than the Company, or an
employee benefit plan established by the Board of
Directors of the Company, acquires, directly or
indirectly, the beneficial ownership (determined under
Rule 13d-3 of the regulations promulgated by the
Securities and Exchange Commission under Section 13(d) of
the Exchange Act) of securities issued by the Company
having twenty percent (20%) or more of the voting power of
all of the voting securities issued by the Company in the
election of directors at the meeting of the holders of
voting securities to be held for such purpose; or (y) a
majority of the directors elected at any meeting of the
holders of voting securities of the Company are persons
who were not nominated for such election by the Board of
Directors of the Company or a duly constituted committee
of the Board of Directors of the Company having authority
in such matters; or (z) the Company merges or consolidates
with or transfers substantially all of its assets to
another person.
(2) The Executive shall have the right voluntarily to terminate
his employment other than for Good Reason prior to the Scheduled Employment
Termination Date,
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and if the Executive shall so terminate his employment, he shall be entitled
only to payment of the amounts which would be payable under Section 10(b)(2) had
he been terminated for Cause.
(f) COMPENSATION UPON TERMINATION OTHER THAN FOR CAUSE.
(1) If the Company shall terminate the Executive's employment
other than for Cause pursuant to Section 10(c) or (d), or if the Executive shall
terminate his employment for Good Reason pursuant to Section 10(e)(1) (but not a
termination voluntarily by the Executive other than for Good Reason under
Section 10(e)(2)), then the Company shall pay to the Executive the following
amounts:
(A) (1) His unpaid Base Compensation through the Employment
Termination Date at his then effective Base Compensation
Rate plus (2) any accrued but unpaid Incentive Bonus
Compensation plus (3) any expenses incurred in accordance
with Section 6 hereof.
(B) In addition, the Company shall pay to the Executive
promptly in a single lump sum in cash an amount equal to
the product of three (3), multiplied by one hundred
percent (100%) of the aggregate total amount which would
have been payable to Executive under Section 5 for the
entire Fiscal Year in which occurs the Employment
Termination Date as if his employment had not been
terminated (and without deduction or offset for any
amounts actually paid for such Fiscal Year on account of
Base Compensation or Incentive Bonus Compensation, under
Section 5, this Section 10 or otherwise), and assuming for
purposes of calculating (x) the Base Compensation, one
hundred percent (100%) of the amount thereof at the annual
rate payable for such Fiscal Year pursuant to Section 5(a)
and (y) the Incentive Bonus Compensation, the largest
amount thereof accrued for any of the two most recently
completed Fiscal Years.
(C) The Company shall also pay all legal fees and expenses
incurred as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or
disputing any such termination, in seeking to obtain or
enforce any right or benefit provided by this Agreement,
or in interpreting this Agreement). The Company agrees, in
the event the Executive desires to relocate within one
year after the Employment Termination Date, to pay for (or
reimburse) all reasonable moving expenses incurred
relating to a change of principal residence in connection
with such relocation and to indemnify the Executive in
connection with any loss he may sustain in the sale of his
primary residence.
(D) The Executive shall be under no obligation to seek other
employment and there shall be no offset against any
amounts due the Executive under this Agreement on account
of any remuneration attributable to any subsequent
employment that the Executive may obtain (any amounts due
under Section 10(f) are in the nature of severance
payments, or liquidated damages, or both, and are not in
the nature of a penalty).
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(2) Unless Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the Executive's continued benefit through
the Scheduled Employment Termination Date, all active and retired Benefit Plans
and other benefit programs or arrangements in which he was entitled to
participate immediately prior to the Scheduled Employment Termination Date
(except as specified in Section 7(a) of this Agreement), provided that continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in any such plan or program is
barred, the Company shall arrange to provide him with benefits substantially
similar to those which he is entitled to receive under such plans and programs.
(g) COMPENSATION UPON DISABILITY. During any period that the
Executive fails to perform his duties hereunder as a result of incapacity due to
physical or mental illness, he shall continue to receive his full Base
Compensation at the rate then in effect and his full Incentive Bonus
Compensation until this Agreement is terminated pursuant to Section 10(c)
hereof. Thereafter, his benefits shall be determined in accordance with the
Company's Benefit Plans.
Section 11. CERTAIN TAX MATTERS
(a) OPTIONAL RIGHT OF PARTIAL DISCLAIMER.
It is recognized that under certain circumstances:
(1) Payments or benefits provided to the Executive under this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement (including without limitation any stock option
plan) might give rise to an "excess parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, or any successor provision
thereof.
(2) It might be beneficial to the Executive to disclaim some
portion of the payment or benefit in order to avoid such "excess parachute
payment" and thereby avoid the imposition of an excise tax resulting therefrom.
(3) Under such circumstances it would not be to the
disadvantage of the Company to permit the Executive to disclaim any such payment
or benefit in order to avoid the "excess parachute payment" and the excise tax
resulting therefrom.
Accordingly, the Executive may, at the Executive's option, exercisable at
any time or from time to time, disclaim any entitlement to any portion of the
payment or benefits arising under this Agreement or otherwise pursuant to or by
reason of any other agreement, policy, plan, program or arrangement (including
without limitation any stock option plan) which would constitute "excess
parachute payments" and it shall be the Executive's choice as to which payments
or benefits shall be so surrendered, if and to the extent that the Executive
exercises such option, so as to avoid "excess parachute payments."
(b) ADDITIONAL PAYMENTS.
(1) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined (as hereafter provided) that any payment or
distribution to or for the Executive's benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan, program
or arrangement (including without limitation any stock option plan), or similar
right (a "PAYMENT"), would be subject to the excise tax imposed by Section 4999
of the Internal Revenue
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Code of 1986 (or any successor provision thereto), or any interest or penalties
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereafter collectively referred to as the "EXCISE
TAX"), then the Executive shall be entitled to receive an additional payment or
payments (a "GROSS-UP PAYMENT") in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the lesser of (A)
the Excise Tax imposed upon the Payments or (B) the Excise Tax that would be
imposed upon all payments or benefits provided under this Agreement (including
any stock option agreement) if such payments or benefits (but only such payments
or benefits) constituted in their entirety "excess parachute payments" as such
term is defined in section 280G and 4999 of the Internal Revenue Code of 1986
(or any successor provisions thereto).
(2) Subject to the provisions of Section 11(b)(5), all
determinations required to be made under this Section 11(b), including whether
an Excise Tax is payable by the Executive, the amount of such Excise Tax,
whether a Gross-Up Payment is required, and the amount of such Gross-Up Payment,
shall be made by a nationally-recognized legal or accounting firm (the "FIRM")
selected by the Executive in the Executive's sole discretion. The Executive
agrees to direct the Firm to submit its determination and detailed supporting
calculations to both the Executive and the Company as promptly as practicable.
If the Firm determines that any Excise Tax is payable by the Executive and that
a Gross-Up Payment is required, the Company shall pay the Executive the required
Gross-Up Payment within ten business days after receipt of such determination
and calculations. If the Firm determines that no Excise Tax is payable by the
Executive, it shall, at the same time as it makes such determination, furnish
the Executive with an opinion that the Executive has substantial authority not
to report any Excise Tax on the Executive's federal income tax return. Any
determination by the Firm as to the amount of the Gross-Up Payment shall be
binding upon the Executive and the Company. As a result of the uncertainty in
the application of Section 4999 of the Internal Revenue Code of 1986 (or any
successor provision thereto) at the time of the initial determination by the
Firm hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made (an "UNDERPAYMENT"). In the event that
the Company exhausts its remedies pursuant to Section 11(b)(5) hereof and the
Executive thereafter is required to make a payment of any Excise Tax, the
Executive may direct the Firm to determine the amount of the Underpayment (if
any) that has occurred and to submit its determination and detailed supporting
calculations to both the Executive and the Company as promptly as possible. Any
such Underpayment shall be promptly paid by the Company to the Executive, or for
the Executive's benefit, within ten business days after receipt of such
determination and calculations.
(3) The Executive and the Company shall each provide the Firm
access to and copies of any books, records and documents in the possession of
the Company or the Executive, as the case may be, reasonably requested by the
Firm, and otherwise cooperate with the Firm in connection with the preparation
and issuance of the determination contemplated by Section 11(b)(2) hereof.
(4) The fees and expenses of the Firm for its services in
connection with the determinations and calculations contemplated by Section
11(b)(2) hereof shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within ten business days after receipt
from the Executive of a statement therefor and reasonable evidence of the
Executive's payment thereof.
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(5) The Executive agrees to notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be given
as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim. The Executive agrees to
further apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known by the
Executive). The Executive agrees not to pay such claim prior to the earlier of
(a) the expiration of the 30-calendar-day period following the date on which the
Executive gives such notice to the Company and (b) the date that any payment
with respect to such claim is due. If the Company notifies the Executive in
writing at least five business days prior to the expiration of such period that
it desires to contest such claim, the Executive agrees to:
provide the Company with any written records or documents in the
Executive's possession relating to such claim reasonably requested by the
Company;
a) Company shall reasonably request in writing from time to
time, including without limitation accepting legal
representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Company;
b) cooperate with the Company in good faith in order to
effectively contest such claim; and
c) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, from and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 11(b)(5), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 11(b)(5) and, at its
sole option, may pursue or FOREGO any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at the
Executive's own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and provided further, however, that any extension of
the statute of limitations relating to payment of taxes for the Executive's
taxable year with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(6) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 11(b)(5) hereof, the Executive
receives any refund with respect to
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such claim, the Executive agrees (subject to the Company's complying with the
requirements of Section 11(b)(5) hereof) to promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the Executive's receipt of an amount
advanced by the Company pursuant to Section 11(b)(5) hereof, a determination is
made that the Executive is not entitled to any refund with respect to such claim
and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) calendar
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid pursuant to
this Section 11(b).
SECTION 12. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION.
(1) At any time after the date hereof, and subject to the other
provisions of this Section 12, the Executive shall have the right, exercisable
by making a written request to the Company, to demand that the Company effect
the Registration of any Registrable Securities in accordance with the provisions
of the Act. The Company shall then comply with Section 12(a)(2) hereof. Any
provision herein to the contrary notwithstanding, the right to demand
Registration pursuant to this Section 12 shall be limited to one Registration
demand per calendar year. A right to demand Registration hereunder shall be
deemed to have been exercised and all of the Company's demand Registration
obligations hereunder for such calendar year shall be deemed to be fully
satisfied when the registration statement filed on account of such exercise has
been declared effective by the Commission. If any other executive of the Company
exercises his or her right, if any, to demand that the Company effect the
Registration of any Registrable Securities, then the Executive shall have the
right to Register an equivalent number of Registrable Securities without
reducing the number demand of Registrations the Executive shall have in any
calendar year.
(2) Following receipt of a request pursuant to Section 12(a)(1)
hereof, the Company shall (i) file within ninety (90) days thereafter a
registration statement on the appropriate form under the Act for the shares of
Common Stock that the Company has been requested to Register; (ii) if the
applicable Offering is pursuant to an underwriting agreement, enter into an
underwriting agreement in such form as said managing or sole underwriter shall
require (which must only contain terms and conditions customary for offerings of
equity securities of entities with market capitalizations that are approximately
equal to the Company's then current market capitalization and may contain
customary provisions requiring the Company and the Executive to indemnify and
provide contribution to the underwriter or underwriters of such Offering); and
(iii) use its reasonable best efforts to have such registration statement
declared effective as promptly as practicable and to remain effective for at
least one hundred eighty (180) days. Notwithstanding any other provision hereof,
the Executive acknowledges and agrees that there can be no guarantee or warranty
from or by the Company that any such registration statement will ever be
declared effective by the Commission, and that the Company makes no such
guarantee or warranty in this Agreement.
(b) PIGGY-BACK REGISTRATION. If the Company at any time proposes to
register any of its securities under the Act or pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), collectively referred to as
the "SECURITIES ACTS," whether or not for sale for its own account, it will each
such time give prompt written notice to the Executive of its intention to do so
(the "REGISTRATION NOTICE"). Upon the written request of the Executive, made
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within fifteen (15) business days after the receipt of the Registration Notice,
the Company shall use its best efforts to effect the registration under the
Securities Acts of such amount of the Executive's Common Stock as the Executive
requests, by inclusion of the Executive's Common Stock in the registration
statement that relates to the securities which the Company proposes to register,
PROVIDED that if, at any time after giving the Registration Notice and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such securities, the Company may, at its election,
give written notice of such determination to the Executive (the "REFUSAL
NOTICE") and, thereupon, (i) in the case of a determination not to register,
shall be relieved of its obligation to register the Executive's Common Stock in
connection with such terminated registration (but not from its obligation to pay
the Registration Expenses in connection therewith), and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering the
Executive's Common Stock, for the same period as the delay in registering such
other securities.
(c) REGISTRATION EXPENSES. The Company shall pay all Registration
Expenses (as defined herein) in connection with each registration of the
Executive's Common Stock pursuant to this Section 12. For the purposes hereof,
the phrase "REGISTRATION EXPENSES" shall include all expenses incident to the
Company's performance of, or compliance with, this Section 12, including,
without limitation, (i) all registration, filing and NASD fees, (ii) all fees
and expenses of complying with securities or blue sky laws, (iii) all printing
expenses, (iv) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (v) the fees and disbursements of any one counsel and any one
accountant retained by the Executive, (vi) premiums and other costs of policies
of insurance against liabilities arising out of the public offering of the
Executive's Common Stock being registered if the Company desires such insurance,
and (vii) any fees and disbursements of underwriters customarily paid by issuers
or sellers of securities, but excluding underwriting discounts and commissions
and transfer taxes, if any.
(d) SURVIVAL. Notwithstanding anything to the contrary contained
herein, the provisions of this Section 12 shall survive the Employment
Termination Date for a period of two (2) years.
Section 13. INDEMNIFICATION. As an employee, officer and director of the
Company, the Executive shall be indemnified against all liabilities, damages,
fines, costs and expenses by the Company in accordance with the indemnification
provisions of the Company's Certificate of Incorporation as in effect on the
date hereof, and otherwise to the fullest extent to which employees, officers
and directors of a corporation organized under the laws of Nevada may be
indemnified pursuant to Sections 78.037(1) and 78.751, Nevada General
Corporation Law, as the same may be amended from time to time (or any subsequent
statute of similar tenor and effect), subject to the terms and conditions of
such statute.
Section 14. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Nashville, Tennessee in accordance with the rules of the American Arbitration
Association then in effect; provided that all arbitration expenses shall be
borne by the Company. Notwithstanding the pendency of any dispute or controversy
concerning termination or the effects thereof, the Company will continue to pay
the
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<PAGE>
Executive his full compensation in effect immediately before any Notice of
Termination giving rise to the dispute was given (including, but not limited to,
Base Salary and Incentive Compensation) and continue him as a participant in all
compensation, benefit and insurance plans in which he was then participating,
until the dispute is finally resolved. Judgment may be entered on the
arbitrators' award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Employment Termination Date during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
Section 15. SUCCESSORS AND ASSIGNS. Except as hereinafter expressly
provided, the agreements, covenants, terms and provisions of this Agreement
shall bind the respective heirs, executors, administrators, successors and
assigns of the parties. Specifically, and not by way of limitation of the
foregoing, the Executive shall be bound by the terms and conditions of this
Agreement to any successor assignee of the Company's rights and obligations
hereunder as a result of any merger, consolidation or sale or lease of all or
substantially all of the Company's business and assets. If any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company fails,
concurrently with the effectiveness of any such succession, to agree in writing
in form and substance reasonably satisfactory to the Executive expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place, then the Executive shall have the right, effected by notice to such
successor not later than ninety (90) days after the effectiveness of such
succession, to terminate the Employment Period under Section 10(e) as though
such failure was an uncured breach by the Company of a material covenant or
agreement of the Company contained in this Agreement.
If the Executive should die while any amounts are payable to him
hereunder, or if by reason of his death payments are to be made to him
hereunder, then this Agreement shall inure to the benefit of and be enforceable
by the Executive's executors, administrators, heirs, distributees, devisees and
legatees and all amounts payable hereunder shall then be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there is no such designee, to his estate.
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as hereinbefore provided in this
Section 15. Without limiting the foregoing, the Executive's right to receive
payments hereunder shall not be assignable or transferable, whether by pledge,
creation of a security interest or otherwise, other than a transfer by his will
or by the laws of descent or distribution, and in the event of any attempted
assignment or transfer contrary to this paragraph the Company shall have no
liability to pay to the purported assignee or transferee any amount so attempted
to be assigned or transferred.
As used in this Agreement, the "COMPANY" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in the first
paragraph of this Section 15 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
Section 16. NOTICES. Any notice or other communication required or desired
to be given hereunder shall be in writing and shall be deemed sufficiently given
when personally delivered or when mailed by first class certified mail, return
receipt requested and postage prepaid, addressed to the parties at their
respective addresses set forth under their respective signatures below or such
other person or addresses as shall be given by notice of any party.
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<PAGE>
Section 17. WAIVER; REMEDIES CUMULATIVE. No waiver of any right or option
hereunder by any party shall operate as a waiver of any other right or option,
or the same right or option as respects any subsequent occasion for its
exercise, or of any legal remedy. No waiver by any party of any breach of this
Agreement or of any agreement or covenant contained herein shall be held to
constitute a waiver of any other breach or a continuation of the same breach.
All remedies provided by this Agreement are in addition to all other remedies by
it or the law provided.
Section 18. GOVERNING LAW; SEVERABILITY. This Agreement is made and is
expected to be performed in Florida, and the various terms, provisions,
covenants and agreements, and the performance thereof, shall be construed,
interpreted and enforced under and with reference to the laws of the State of
Florida, unless otherwise indicated herein. It is the intention of the Company
and the Executive to comply fully with all laws and matters of public policy
relating to employment agreements and restrictive covenants, and this Agreement
shall be construed consistently with such laws and public policy to the extent
possible. If and to the extent any one or more covenants, agreements, terms and
provisions of this Agreement or any portion or portions thereof shall be held
invalid or unenforceable by a court of competent jurisdiction, then such
covenants, agreements, terms and provisions (or portions thereof) shall be
deemed separable from the remaining covenants, agreements, terms and provisions
of this Agreement and such holding shall in no way affect the validity or
enforceability of any of the other covenants, agreements, terms and provisions
hereof.
Section 19. MISCELLANEOUS. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be modified, changed or amended except in a writing
signed by each of the parties hereto. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original hereof. The captions of
the several sections and subsections of this Agreement are not a part of the
context hereof, are inserted only for convenience in locating such sections and
subsections and shall be ignored in construing this Agreement.
[SIGNATURES FOLLOW ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed multiple
counterparts of this Agreement.
Company: Executive:
EUROPEAN MICRO HOLDINGS, INC. Name: Harry D. Shields
Address:
By: --------------------
Name: John B. Gallagher
Title: Co-Chairman --------------------
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EXHIBIT 10.11
EXHIBIT 10.11
FORM OF SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, made as of the ____ day of February, 1998, by
and between John B. Gallagher, an individual ("GALLAGHER"), [the Gallagher
Family Trust (the "GALLAGHER TRUST")], Harry D. Shields, an individual
("SHIELDS"), [the Henry Daniel Shields 1997 Irrevocable Educational Trust (the
"SHIELDS TRUST")], and European Micro Holdings, Inc., a Nevada corporation
("EUROPEAN MICRO HOLDINGS").
WITNESSETH:
WHEREAS, Mr. Gallagher, the Gallagher Trust, Mr. Shields and the Shields
Trust own and control in the aggregate 1,000,000 ordinary shares of European
Micro Plc, a public limited company organized under the laws of the United
Kingdom ("EUROPEAN MICRO PLC"), representing one hundred percent (100%) of the
issued and outstanding ordinary shares of European Micro Plc; and
WHEREAS, Mr. Gallagher, the Gallagher Trust, Mr. Shields and the Shields
Trust desire to exchange all of their ordinary shares of European Micro Plc (the
"ORDINARY SHARES") on a tax-free basis under Section 351 of the Internal Revenue
Code of 1986, as amended, for 4,000,000 shares of common stock of European Micro
Holdings (the "COMMON SHARES") to be divided between such parties in the manner
provided herein.
NOW THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, and intending to be legally bound thereby, each of
Mr. Gallagher, the Gallagher Trust, Mr. Shields, the Shields Trust and European
Micro Holdings agree as follows:
1. Mr. Gallagher hereby transfers to European Micro Holdings his ________
Ordinary Shares. In exchange for such Ordinary Shares, European Micro Holdings
shall, upon the execution hereof, issue in the name of Mr. Gallagher _________
Common Shares and shall issue and deliver to Mr. Gallagher a stock certificate
evidencing such Common Shares.
2. The Gallagher Trust hereby transfers to European Micro Holdings his
________ Ordinary Shares. In exchange for such Ordinary Shares, European Micro
Holdings shall, upon the execution hereof, issue in the name of the Gallagher
Trust _________ Common Shares and shall issue and deliver to Mr. Gallagher a
stock certificate evidencing such Common Shares.
3. Mr. Shields hereby transfers to European Micro Holdings his ________
Ordinary Shares. In exchange for such Ordinary Shares, European Micro Holdings
shall, upon the execution hereof, issue in the name of Mr. Shields ________
Common Shares and shall issue and deliver to Mr. Shields a stock certificate
evidencing such Common Shares.
<PAGE>
4. The Shields Trust hereby transfers to European Micro Holdings his
________ Ordinary Shares. In exchange for such Ordinary Shares, European Micro
Holdings shall, upon the execution hereof, issue in the name of the Shields
Trust _________ Common Shares and shall issue and deliver to Mr. Gallagher a
stock certificate evidencing such Common Shares.
5. Each of Mr. Gallagher, the Gallagher Trust, Mr. Shields, the Shields
Trust and European Micro Holdings shall execute and deliver or cause to be
executed and delivered from time to time hereafter, upon request, all such
further documents and instruments, including stock powers, and shall do and
perform all such acts as may be reasonably necessary to give full effect to the
intent of this Agreement.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
ATTEST:
By: _____________________________ By: _________________________________
John B. Gallagher, individually
ATTEST: [GALLAGHER FAMILY TRUST]
By: _____________________________ By: _________________________________
John B. Gallagher, Director
ATTEST:
By: ______________________________ By: _________________________________
Harry D. Shields, individually
ATTEST: [HENRY DANIEL SHIELDS 1997 IRREVOCABLE
EDUCATIONAL TRUST]
By: ______________________________ By: THIRD NATIONAL BANK IN
NASHVILLE, as Trustee
By: ________________________________
ATTEST: EUROPEAN MICRO HOLDINGS, INC.
By: _____________________________ By: ________________________________
Name:
Title:
3
EXHIBIT 23.01
The Board of Directors
European Micro Plc:
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the Prospectus.
January 16, 1998
/s/ KPMG
-----------------------
Manchester, England
EXHIBIT 99.01
CONSENT OF BARRETT SUTTON, DIRECTOR-DESIGNEE
The undersigned, a designee for director of European Micro Holdings,
Inc., a Nevada corporation (the "COMPANY"), hereby consents to being named as a
director-designee in the Company's Registration Statement on Form S-1 relating
to the Company's initial public offering of its common stock, and in the
Prospectus contained therein proposed to be circulated in connection with such
offering and all amendments thereto.
Executed this 14th day of January, 1998.
/S/ BARRETT SUTTON
----------------------------
BARRETT SUTTON
