AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998
REGISTRATION NO. 333-44393
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------
EUROPEAN MICRO HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 5045 65-0803752
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
JOHN B. GALLAGHER
6073 N.W. 167TH STREET, UNIT C-25 6073 N.W. 167TH STREET, UNIT C-25
MIAMI, FLORIDA 33015 MIAMI, FLORIDA 33015
(305) 825-2458 (305) 825-2458
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
--------------
COPIES TO:
<TABLE>
<S> <C>
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
</TABLE>
--------------
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. [x]
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share................ 1,100,000 shares $ 10.00 $11,000,000 $3,245
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(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).
(2) Previously paid.
--------------
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.
================================================================================
<PAGE>
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.
SUBJECT TO COMPLETION, DATED MARCH 6, 1998
PROSPECTUS
[GRAPHIC OMITTED]
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 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 (THE "ESCROW AGENT") UNTIL THE TERMINATION DATE. IF ON
THE TERMINATION DATE AT LEAST $10,000,000 OF SECURITIES HAVE 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 HAVE BEEN PURCHASED FROM THE COMPANY.
<TABLE>
<CAPTION>
==========================================================================================
PRICE TO UNDERWRITING 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
==========================================================================================
</TABLE>
(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
$800,000. 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 worth of securities have been purchased from the Company.
---------------
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.
[GRAPHIC OMITTED]
THE DATE OF THIS PROSPECTUS IS MARCH , 1998.
<PAGE>
[ARTWORK TO COME]
--------------
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.
<PAGE>
PROSPECTUS SUMMARY
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, EUROPEAN MICRO PLC, A
PUBLIC LIMITED COMPANY ORGANIZED UNDER THE LAWS OF THE UNITED KINGDOM
("EUROPEAN MICRO UK"), AND NOR'EASTER MICRO, INC., A NEVADA CORPORATION
("NOR'EASTER") (COLLECTIVELY THE TWO WHOLLY-OWNED SUBSIDIARIES ARE REFERRED TO
AS THE "SUBSIDIARIES").
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE NUMBER OF SHARES
OUTSTANDING PRIOR TO THE OFFERING HAVE BEEN ADJUSTED TO GIVE RETROACTIVE EFFECT
TO THE SHARE EXCHANGE DISCUSSED IN "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
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 UK HAVE EXCHANGED THEIR SHARES OF EUROPEAN MICRO UK FOR
SHARES IN EUROPEAN MICRO HOLDINGS, INC. RESULTING IN EUROPEAN MICRO HOLDINGS,
INC. BECOMING THE PARENT CORPORATION OF EUROPEAN MICRO UK. 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
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%, 11.4% and 9.5% for
the fiscal years ended June 30, 1996, 1997 and the six-month period ended
3
<PAGE>
December 31, 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's 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 products
from a limited and select group of high quality manufacturers. The Company
believes that being a focused distributor enables it to respond more quickly to
customer requests and gives it greater availability of products, access to
products and improved pricing. The Company believes that as a focused
distributor it has been able to develop greater expertise in the products which
it sells. The Company places significant emphasis on market awareness and
planning and actively shares this knowledge with its customers in order to
further enhance trading relations. The Company strives to monitor and react
quickly to market trends, thus enabling its multilingual sales team to maintain
the highest levels of customer service.
European Micro Holdings, Inc. is the parent of Nor'easter and European
Micro UK. Nor'easter was formed on December 26, 1997, to serve as an
independent distributor of microcomputer products in the United States.
European Micro UK was organized under the laws of the United Kingdom in 1991
and became a public limited company in 1996, to serve as an independent
distributor to customers mainly in Western Europe and to related parties in the
United States.
European Micro UK is the parent of European Micro GmbH ("European Micro
Germany") (formerly known as European Micro Computer Center GmbH) and has a 50%
joint venture interest in Big Blue Europe, B.V. ("Big Blue Europe"). European
Micro Germany was formed in 1993 as a wholly owned subsidiary of European Micro
UK and it operates as a sales office in Dusseldorf, Germany. All products sold
by European Micro Germany are procured and shipped from the facilities of
European Micro UK. In January 1997, European Micro UK 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 relatively high margin parts after-market
industry. Big Blue Europe has no affiliation with International Business
Machines Corporation.
European Micro UK is also the parent of European Micro B.V. European Micro
B.V. was formed in 1995, commenced operations in January 1996 and ceased
operations in December 1996.
4
<PAGE>
The following organizational chart summarizes the relationships among
European Micro Holdings, Inc., Nor'easter, European Micro UK, European Micro
Germany and Big Blue Europe.
[GRAPHIC OMITTED]
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.
STRATEGY
European Micro's objective is 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 hopes to expand
into new 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 from 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 in which it operates with a
limited and select group of products from a limited and select group of high
quality manufacturers. The Company believes this strategy helps it achieve a
degree of strength within its chosen markets. The Company also believes that
this strategy will further enhance its relationships with both its suppliers
and customers. In addition, the Company
5
<PAGE>
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 more frequent 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 seek to acquire distribution
rights in other internet oriented products and to enhance its technical
capability by recruiting qualified personnel.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ...................... 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 UK, for expansion purposes,
including mergers and acquisitions, to fund
operations and provide working capital to
Nor'easter, to expand its sales and marketing
capabilities and for general corporate
purposes, including investor relations.
Proposed Nasdaq National Market Symbol ................... Common Stock: "EMCC"
</TABLE>
- ----------------
(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."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
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
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 six months ended December 31, 1996
and 1997 have been derived from unaudited consolidated financial statements of
the Company. In the opinion of 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 recurring nature. The
results of operations for interim periods are not necessarily indicative of
results that may be expected for the full year. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
---------------------------------------------------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales ............. $ 24,277 $ 29,235 $ 33,864 $ 40,348 $ 46,655 $ 19,659 $ 46,109
Income from
operations .......... 1,622 984 1,848 1,478 2,051 632 1,913
Net income ............ 1,064 524 1,115 845 1,034 371 1,154
Net income per
share ............... $ 0.27 $ 0.13 $ 0.28 $ 0.21 $ 0.26 $ 0.09 $ 0.29
Weighted average
common shares
outstanding ......... 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000
</TABLE>
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, AS ADJUSTED
----------------------------------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997 1997 1997(1)
-------- -------- --------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(2) ........... $ 196 $ 674 $1,736 $1,474 $1,976 $ 3,011 $ 2,511
Total assets ................. 1,927 3,928 5,873 7,857 8,844 16,191 15,691
Long-term debt, net of
current portion ............ 39 68 41 37 45 110 110
Shareholders' equity ......... $ 308 $ 843 $1,924 $1,769 $2,511 $ 3,634 $ 3,134
</TABLE>
- ----------------
(1) Takes into account the $500,000 cash dividend declared and paid to the
shareholders of record on February 9, 1998, but does not take into account
the receipt of any proceeds from the Offering. See "Dividend Policy."
(2) Total current assets less current liabilities.
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.
NO CONTRACTS OR DISTRIBUTION AGREEMENTS WITH SUPPLIERS
European Micro is an independent distributor of personal computers and
related products. With only one exception, the Company has not entered and does
not expect to enter into any long-term distribution arrangements with its
suppliers. Rather, the Company depends almost entirely on the availability of
product in the surplus or aftermarket. 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 condition 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.
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. 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. in Miami, Florida ("Ameritech
Exports") and Ameritech Argentina S.A. 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 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 territories and to take
advantage of quantity purchasing, financing and logistics of the other members
of the Group. 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.
8
<PAGE>
The following table describes the inter-Group sales and purchases for the
time periods specified:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
--------------------------- DECEMBER 31,
1995 1996 1997 1997
------ ------ --------- -------------
<S> <C> <C> <C> <C>
SALES TO GROUP MEMBERS
American Micro Computer Center ......... $323 $306 $66 $10,413
Technology Express ..................... 22 104 (2) 3,582
Ameritech Argentina .................... - - 90 -
Ameritech Exports ...................... 1 26 - -
---- ---- ----- -------
$346 $436 $154 $13,995
==== ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
($ IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
--------------------------------- DECEMBER 31,
1995 1996 1997 1997
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
PURCHASES FROM GROUP MEMBERS
American Micro Computer Center ......... $4,082 $ 2,289 $ 1,092 $ 325
Technology Express ..................... 3,265 14,890 20,717 2,937
Ameritech Argentina .................... - - - -
Ameritech Exports ...................... 70 1,116 848 -
------ ------- ------- ------
$7,417 $18,295 $22,657 $3,262
====== ======= ======= ======
</TABLE>
With the exception of the six-month period ended December 31, 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 were 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 is 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 will 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.
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 where, among other
things, the financial, economic, legal systems and infrastructures are less
developed, poses a greater degree of these and other risks than the Company's
current business operations in Western Europe and the United States. A material
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increase in the risks posed by these and other considerations 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 six-month period ended December 31, 1997, a
significant amount of European Micro's sales has 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 exchange contracts intended to reduce these risks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Currency Risk Management." 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.
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 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 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 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 would have a
material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON KEY PRODUCTS
For the fiscal year ended June 30, 1997, the five best selling products
accounted for 46.7% of its net sales. Accordingly, the inability of the Company
to obtain adequate supplies of products would have a material adverse effect on
the Company's business, financial condition and results of operations.
RELIANCE ON KEY CUSTOMERS
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. However,
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.
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RELIANCE ON KEY MARKETS
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.
CONTROL BY CURRENT SHAREHOLDERS
Upon completion of the Offering, the Selling Shareholders will
beneficially own approximately 68% 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. Moreover, two trusts (the "Trust Shareholders") created by the
Selling Shareholders together will beneficially own approximately 10% of the
outstanding shares of Common Stock. Pursuant to a Trusteed Shareholders
Cross-Purchase Agreement dated January 31, 1998 (the "Shareholders Agreement"),
the Selling Shareholders agreed 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. In the
event that the Selling Shareholders cannot agree on the manner in which to vote
their respective shares, then neither Selling Shareholder may vote his shares.
Pursuant to the Shareholders Agreement, the Trust Shareholders have agreed 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. In the event that the Trust Shareholders cannot
agree on the manner in which to vote their respective shares, then neither
Trust Shareholder may vote its shares. See "Principal and Selling
Shareholders--Shareholders Agreement."
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 the fiscal year ended 1995 to 9.5%
for the six-month period ended December 31, 1997, and operating margins have
declined from 5.5% for the fiscal year ended 1995 to 4.1% for the six-month
period ended December 31, 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 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."
LIMITED UNDERWRITING HISTORY
The Underwriter has not previously participated in any public offerings as
an underwriter. In evaluating an investment in the Company, prospective
investors in the Common Stock offered hereby should consider the Underwriter's
lack of experience as an underwriter of public offerings. There can be no
assurance that the Underwriter's limited experience will not adversely affect
the development of a trading market for, or liquidity of, the Company's
securities. Therefore, purchasers of the Common
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Stock offered hereby may suffer a lack of liquidity in their investment or a
material diminution of the value of their investment. See "Underwriting."
BEST EFFORTS OFFERING; ESCROW OF OFFERING PROCEEDS IN A NON-INTEREST BEARING
ACCOUNT PENDING CONSUMMATION OF THE OFFERING
There is no firm commitment on the part of the Underwriter to purchase any
or all of the Common Stock offered hereby. Rather, the Underwriter has agreed
to sell the Common Stock through licensed dealers on a "best efforts" basis.
Accordingly, there can be no assurance that any or all of the Common Stock
being offered hereby will be sold. Further, the proceeds of the Offering will
be deposited in escrow in a non-interest bearing account at Chase Manhattan
Bank and will be released only (i) at the option of the Company upon receipt
into the escrow account of proceeds from the sale of at least 700,000 shares of
Common Stock or (ii) upon receipt into the escrow account of the proceeds from
the sale of at least 1,000,000 shares of Common Stock. This account is not
insured by the Bank Insurance Fund or Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation or by any other governmental agency.
Unless the funds from this Offering are released from the escrow account within
sixty days of the date of this Prospectus (the "Offering Period"), the Offering
will terminate and all funds theretofore received from the sale of the Common
Stock will be promptly returned to the subscribers without deduction therefrom
or interest thereon. Moreover, during the Offering Period, subscribers will not
be entitled to a return of their subscriptions. Therefore, prospective
investors in the Common Stock should consider that any funds used by them to
purchase shares of Common Stock in the Offering could be held in escrow and be
unavailable for the entire duration of the Offering Period and, in the event
that 1,000,000 shares of Common Stock are not sold during the Offering Period,
such funds could be returned to them at the close of the Offering Period
without interest thereon.
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 by extending trade credit. 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
the higher of $2,900,000 or the carrying value of the inventory. On December
31, 1997, the maximum coverage was $8,900,000. 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
cancelled. There can be no assurance that such coverage will remain available
and, if available, at affordable rates. 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.
RISKS ASSOCIATED WITH 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
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business. No letters of intent or other documents regarding an 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 be
able to consummate any future acquisitions on satisfactory terms, if at all,
that adequate financing will be available on terms acceptable to the Company,
that any acquired operations will be successfully integrated or that such
operations will ultimately have a positive impact on the Company's business,
financial condition and results of operations.
TRADE RESTRICTIONS ON CROSS-BORDER SALES
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 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 sells products in the United States and
expects to continue to do so 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, cause
the Company to cease selling products in the United States. See
"Business--Sources of Supply."
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.
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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.
RISKS ASSOCIATED WITH HOLDING FOREIGN SUBSIDIARIES
All of the operations of European Micro Holdings, Inc. are and will be
conducted through its direct or indirect subsidiaries, some of which are formed
outside of the United States. 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,
management fees or otherwise. The applicable law in certain countries may limit
the ability of the Company's foreign Subsidiaries to pay dividends in the
absence of sufficient withholding taxes, distributable reserves or for other
reasons. None of European Micro Holdings, Inc.'s current Subsidiaries are
subject to any currency exchange controls. However, future exchange controls,
or the existence of such controls in other countries in which European Micro
Holdings, Inc. establishes or acquires subsidiaries, could limit or restrict
the ability of European Micro Holdings, Inc. to obtain loans, dividends,
intercompany advances, management fees or otherwise access the 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 FOR OBTAINING PRODUCTS IN BULK
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
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.
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RISK OF INDEBTEDNESS
The Company may incur substantial amounts of indebtedness in its
operations. In such event, European Micro would 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' business 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 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 range 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 business, financial condition and
results of operations due to, among other things, potential 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 changes in the product cycle of major
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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 Suppliers." 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.
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's Board of
Directors has been divided into three equal size classes serving staggered
three-year terms. See "Management--Directors." 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 together control approximately
68% (78% if the Shares of the Trust Shareholders are included although Messrs.
Gallagher and Shields do not have voting power with respect to the shares held
by the Trust Shareholders) 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 Bylaws, 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 and Selling Shareholders"
and "Description of Capital Stock--Anti-Takeover Effects of Provisions of the
Articles of Incorporation, Bylaws 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 create
the risk of an unauthorized
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payment by an employee or agent of the Company which would be in violation of
such laws, including the FCPA. Violations of the FCPA 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 dividends, if any, by European Micro
at some future time 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."
IMPACT OF THE EUROPEAN MONETARY UNION
European monetary union is scheduled to commence in 1999, when certain
European countries will adopt a single European currency called the "Euro."
Substantially all of the countries in which the Company currently conducts
business (except for the United States) will be affected by the European
monetary union and the Euro. The Company cannot predict the impact which the
European monetary union or the Euro will have on the Company. Either the
European monetary union or the Euro may have a material adverse affect on the
Company's business, financial condition or results of operations.
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.
QUALIFICATION AND MAINTENANCE CRITERIA FOR NASDAQ SECURITIES
The National Association of Securities Dealers, Inc. ("NASD"), which
administers the Nasdaq National Market (the exchange on which European Micro
proposes the Common Stock to trade), requires that in order for the Common
Stock to be included on this market, the Company must satisfy and maintain
certain financial criteria established by the NASD. The failure to satisfy or
maintain such criteria may result in the discontinuance of the inclusion of the
Common Stock on the Nasdaq National Market. In such event, trading of the
Common Stock may then continue to be conducted in the Nasdaq SmallCap Market.
This market generally contains shares of emerging growth companies. Shares
generally trade less frequently on the Nasdaq SmallCap Market than on the
Nasdaq National Market. As a result, investors may find it more difficult to
dispose of the Common Stock. In the event that the Company's Common Stock fails
to satisfy or maintain the minimum financial requirements for either the Nasdaq
National Market or the Nasdaq SmallCap Market, trading 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 "bulletin board") where 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
17
<PAGE>
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.
POTENTIAL VOLATILITY OF STOCK PRICE DUE TO NO PRIOR TRADING MARKET AND OTHER
FACTORS
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 Underwriter, 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, changes in
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 and the inability to source products on
favorable terms.
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 $8.13 per
share at an assumed initial public offering price of $10.00 per share. See
"Dilution."
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 ("Rule 144") 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. Except
for the 100,000 shares of Common Stock being sold by the Selling Shareholders
in this Offering, the Selling Shareholders and the Trust 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 and the Trust 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 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 any of their
18
<PAGE>
shares once per year. Moreover, either Selling Shareholder may include these
shares in certain other offerings by the Company. See "Description of Capital
Stock--Registration Rights."
The Company intends to file a registration statement covering all 550,000
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.
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 condition 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 700,000 or
1,000,000 shares of Common Stock offered by the Company, assuming a public
offering price of $10.00 per share, are estimated to be approximately
$5,640,000, and $8,400,000, respectively. The Company will not receive any
proceeds from the sale of shares by the Selling Shareholders. See "Principal
and Selling Shareholders."
<TABLE>
<CAPTION>
ALLOCATION OF PROCEEDS ALLOCATION OF PROCEEDS
(NET PROCEEDS OF (NET PROCEEDS OF
$5,640,000) $8,400,000)
------------------------- ------------------------
USE (IN ORDER OF PRIORITY) AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------------- ------------- --------- ------------- --------
<S> <C> <C> <C> <C>
Fund operations and provide working capital to
European Micro UK .............................. $3,140,000 56% $4,000,000 48%
For expansion purposes, including mergers and
acquisitions(1) ................................ $1,000,000 18% $2,400,000 28%
Fund operations and provide working capital to
Nor'easter ..................................... $1,000,000 18% $1,000,000 12%
Expand sales and marketing capabilities ......... $ 250,000 4% $ 500,000 6%
General corporate purposes, including investor
relations ...................................... $ 250,000 4% $ 500,000 6%
</TABLE>
- ----------------
(1) 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 of the net proceeds as described above, the Company
intends to invest the proceeds in money market or similar secure investments.
The Company has not, however, adopted specific investment guidelines to
implement this general policy.
19
<PAGE>
DIVIDEND POLICY
During the fiscal years ended June 30, 1996 and 1997, European Micro
declared and paid cash dividends of $961,000 or $0.24 per share and $562,000 or
$0.14 per share, respectively. The dividends per share were calculated based on
4,000,000 shares of Common Stock outstanding.
On February 9, 1998, European Micro declared and paid a cash dividend of
$500,000 or $0.125 per share of Common Stock. The effect of this cash dividend
reduced both the cash and retained earnings on the consolidated balance sheet
of European Micro by an aggregate of $500,000. In addition, the cash dividend
reduced 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. The declaration
and payment of dividends, if at all, by European Micro will be at the
discretion of the Board of Directors. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of December 31, 1997, and (ii) the pro forma capitalization of the
Company as of such date as adjusted to reflect the sale by the Company of
700,000 shares of Common Stock (i.e. the minimum amount of shares which could
be accepted by the Company) in the Offering at an assumed initial public
offering price of $10.00 per share after deducting estimated underwriting
commissions and estimated offering expenses and after giving effect to the
anticipated application of the net proceeds therefrom and after giving effect
to the impact of the $500,000 cash dividend declared and paid to the
shareholders of record on February 9, 1998.
<TABLE>
<CAPTION>
($ IN THOUSANDS)
DECEMBER 31, 1997
-----------------------------------------------
(UNAUDITED) AS PRO
ACTUAL ADJUSTED(1)(2) FORMA(2)(3)
------------- ---------------- ------------
<S> <C> <C> <C>
Long-term debt, net of current portion ...................... $ 110 $ 110 $ 110
Shareholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized, none issued on a proforma basis .............. -- -- --
Common Stock, par value $0.01 per share; 20,000,000 shares
authorized, 4,000,000 shares issued and outstanding. On a
pro forma basis, par value $0.01 per share; 20,000,000
shares authorized; 4,700,000 shares issued and outstanding 40 40 47
Additional paid-in capital ................................. 1,624 1,624 7,257
Retained earnings .......................................... 1,965 1,465 1,465
Cumulative foreign currency adjustment ..................... 5 5 5
------ ------ ------
Total shareholders' equity ................................ $3,634 $3,134 $8,774
------ ------ ------
Total capitalization ...................................... $3,744 $3,244 $8,884
====== ====== ======
</TABLE>
- ----------------
(1) Takes into account the $500,000 cash dividend declared and paid to the
shareholders of record on February 9, 1998, but does not take into account
the receipt of any proceeds from 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) Takes into account the $500,000 cash dividend declared and paid to the
shareholders of record on February 9, 1998, and assumes that $5,640,000 of
net proceeds were received by the Company in the Offering.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at December 31, 1997,
as adjusted for the $500,000 cash dividend which was distributed to the
shareholders on February 9, 1998, was $3,134,000 or $0.78 per share of Common
Stock assuming 4,000,000 shares outstanding. Pro forma net tangible book value
represents total tangible assets less total liabilities. All per share
calculations immediately after the Offering assume 4,700,000 shares of Common
Stock are outstanding. After giving effect to the sale of 700,000 shares of
Common Stock in the Offering (i.e. the minimum amount of 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 December 31, 1997
would have been $8,774,000 or $1.87 per share, representing an immediate $8.13
per share dilution to new investors purchasing shares at the initial public
offering price. The following table illustrates such per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ........................ $ 10.00
Pro forma net tangible book value per share before the Offering(1) .... $ 0.78
Increase per share attributable to new investors ...................... $ 1.09
------
Adjusted pro forma net tangible book value per share after the Offering $ 1.87
-------
Dilution per share to new investors(2) ................................. $ 8.13
=======
</TABLE>
- ----------------
(1) Takes into account the $500,000 cash dividend declared and paid to the
shareholders as recorded on February 9, 1998, but does not take into
account the receipt of any proceeds from 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 December 31,
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 700,000
shares in the Offering at an assumed initial public offering price of $10.00
per share), before deduction of underwriting commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- -------------------------------
PERCENT AFTER PERCENT AFTER AVERAGE PRICE
NUMBER OFFERING AMOUNT OFFERING PER SHARE
----------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) ......... 4,000,000 85% $1,664,000 19% $ 0.42
New shareholders ................. 700,000 15% $7,000,000 81% $ 10.00
--------- --- ---------- ----- -------
Total .......................... 4,700,000 100% $8,664,000 100.0%
========= === ========== =====
</TABLE>
- ----------------
(1) Includes John B. Gallagher, Harry D. Shields, Thomas H. Minkoff, Trustee of
the Gallagher Family Trust (the "Gallagher Family Trust") and Stuart S.
Southard and Robert H. True, Trustees of the 1997 Henry Daniel Shields
Irrevocable Education Trust (the "Shields Educational Trust").
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
($ IN THOUSANDS, EXCEPT 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 consolidated 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 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 six months ended
December 31, 1996 and 1997 have been derived from unaudited consolidated
financial statements of the Company. In the opinion of 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 recurring nature. The results of
operations for interim periods are not necessarily indicative of results that
may be expected for the full year. See "Index to Financial Statements."
<TABLE>
<CAPTION>
($ IN THOUSANDS)
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales to third parties ............................... $ 23,968 $ 28,293 $ 33,518 $ 39,912 $ 46,501
Net sales to related parties ............................. 309 942 346 436 154
---------- ---------- ---------- ---------- ----------
Total net sales .......................................... 24,277 29,235 33,864 40,348 46,655
---------- ---------- ---------- ---------- ----------
Cost of goods sold to third parties ...................... (20,951) (24,829) (28,687) (35,475) (41,163)
Cost of goods sold to related parties .................... (305) (932) (353) (417) (156)
---------- ---------- ---------- ---------- ----------
Cost of goods sold ....................................... (21,256) (25,761) (29,040) (35,892) (41,319)
---------- ---------- ---------- ---------- ----------
Gross Profit ............................................. 3,021 3,474 4,824 4,456 5,336
---------- ---------- ---------- ---------- ----------
Operating expenses ....................................... (1,313) (2,368) (2,832) (2,884) (3,230)
Operating expenses attributable to related parties ....... (80) (120) (144) (94) (55)
---------- ---------- ---------- ---------- ----------
Total operating expenses ................................. (1,393) (2,488) (2,976) (2,978) (3,285)
---------- ---------- ---------- ---------- ----------
Operating profit ......................................... 1,628 986 1,848 1,478 2,051
---------- ---------- ---------- ---------- ----------
Interest expense ......................................... (18) (30) (156) (160) (293)
Share of net (loss) income in unconsolidated affiliate ... -- -- -- -- (73)
---------- ---------- ---------- ---------- ----------
Income before income taxes ............................... 1,610 956 1,692 1,318 1,685
Taxes on income .......................................... (546) (432) (577) (473) (651)
---------- ---------- ---------- ---------- ----------
Net income ............................................... $ 1,064 $ 524 $ 1,115 $ 845 $ 1,034
========== ========== ========== ========== ==========
Net income per share ..................................... $ 0.27 $ 0.13 $ 0.28 $ 0.21 $ 0.26
Cash dividend per share .................................. $ 0.06 $ -- $ 0.10 $ 0.24 $ 0.14
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Net sales to third parties ............................... $ 19,593 $ 32,114
Net sales to related parties ............................. 66 13,995
---------- ----------
Total net sales .......................................... 19,659 46,109
---------- ----------
Cost of goods sold to third parties ...................... (17,338) (28,019)
Cost of goods sold to related parties .................... (66) (13,710)
---------- ----------
Cost of goods sold ....................................... (17,404) (41,729)
---------- ----------
Gross Profit ............................................. 2,255 4,380
---------- ----------
Operating expenses ....................................... (1,579) (2,423)
Operating expenses attributable to related parties ....... (44) (44)
---------- ----------
Total operating expenses ................................. (1,623) (2,467)
---------- ----------
Operating profit ......................................... 632 1,913
---------- ----------
Interest expense ......................................... (62) (223)
Share of net (loss) income in unconsolidated affiliate ... -- 21
---------- ----------
Income before income taxes ............................... 570 1,711
Taxes on income .......................................... (199) (557)
---------- ----------
Net income ............................................... $ 371 $ 1,154
========== ==========
Net income per share ..................................... $ 0.09 $ 0.29
Cash dividend per share .................................. $ 0.07 $ 0.01
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, AS ADJUSTED(1)
----------------------------------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997 1997 1997
-------- -------- --------- --------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(2) ...................... $ 196 $ 674 $1,736 $1,474 $1,976 $ 3,011 $ 2,511
Total assets ............................ 1,927 3,928 5,873 7,857 8,844 16,191 15,691
Long-term debt, net of current portion .. 39 68 41 37 45 110 110
Shareholders' equity .................... $ 308 $ 843 $1,924 $1,769 $2,511 $ 3,634 $ 3,134
</TABLE>
- ---------------
(1) Takes into account the $500,000 cash dividend declared and paid to the
shareholders of record on February 9, 1998, but does not take into account
the receipt of any proceeds from the Offering. See "Dividend Policy."
(2) Total current assets less current liabilities.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for each of the four quarters in the periods ended
June 30, 1996 and 1997. In the opinion of management, this information has been
prepared on the same basis as the audited consolidated financial statements
appearing elsewhere in this Prospectus, and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of this information in accordance with generally accepted
accounting principles. Such quarterly results are not necessarily indicative of
future results of operations and should be read in conjunction with the audited
consolidated financial statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
-------------------------------------------------------------
SEPTEMBER 30, DECEMBER 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 ......... $ 0.06 $ 0.07 $ 0.03 $ 0.05
</TABLE>
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
-------------------------------------------------------------
SEPTEMBER 30, DECEMBER 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) ......... $ 0.07 $ 0.02 $ 0.07 $ 0.10
</TABLE>
- ----------------
(1) The net sales for the three-month period ended June 30, 1996, increased due
primarily 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 period.
(2) Net income and net income per share for the three-month period ended
December 31, 1996, decreased primarily due to adverse fluctuations in the
exchange rates in Europe, particularly the pound sterling. The rapid
strengthening of the pound sterling 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 products for
resale directly from manufacturers. European Micro's ability to purchase
products for resale in these markets has enabled European Micro to 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
fiscal 1995 to $46.7 million in fiscal 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 substantially all of its operating income and
cash flow from European Micro UK. 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--Risk of Currency Fluctuations" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--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:
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
FISCAL YEARS ENDING JUNE 30, DECEMBER 31,
------------------------------------------ ---------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales to third parties .................... 99.0% 98.9% 99.7% 100.0% 69.6%
Net sales to related parties .................. 1.0% 1.1% 0.3% 0.0% 30.4%
----- ----- ----- ----- -----
Total net sales ............................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost of goods sold to third parties ........... (84.7%) (87.9%) (88.2%) (88.2%) (60.8%)
Cost of goods sold to related parties ......... ( 1.1%) ( 1.1%) ( 0.4%) ( 0.3%) (29.7%)
----- ----- ----- ----- -----
Total cost of goods sold ...................... (85.8%) (89.0%) (88.6%) (88.5%) (90.5%)
----- ----- ----- ----- -----
Gross profit .................................. 14.2% 11.0% 11.4% 11.5% 9.5%
Operating expenses ............................ ( 8.7%) ( 7.3%) ( 7.0%) ( 8.3%) ( 5.4%)
----- ----- ----- ----- -----
Operating profit .............................. 5.5% 3.7% 4.4% 3.2% 4.1%
Interest expense .............................. ( 0.5%) ( 0.4%) ( 0.6%) ( 0.3%) ( 0.4%)
Share of (loss) or income in the
unconsolidated affiliate .................... -- -- ( 0.2%) -- --
----- ----- ----- ----- -----
Income before income taxes .................... 5.0% 3.3% 3.6% 2.9% 3.7%
Provision for income taxes .................... ( 1.7%) ( 1.2%) ( 1.4%) ( 1.0%) ( 1.2%)
----- ----- ----- ----- -----
Net Income .................................... 3.3% 2.1% 2.2% 1.9% 2.5%
===== ===== ===== ===== =====
</TABLE>
24
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
TOTAL NET SALES. Total net sales increased $26.5 million, or 134.5%, from
$19.7 million in the six-month period ended December 31, 1996, to $46.1 million
in the six months ended December 31, 1997. This increase was attributable to
sales to related parties (accounting for approximately $14 million), the return
of some key personnel from temporary leave (accounting for approximately $4.0
million) and the development of the Premier Dealer Division. See "Business."
Net sales to related parties increased $13.9 million, from $66,000 in the
six-month period ended December 31, 1996, to $14.0 million in the comparable
period in 1997. This increase is attributable to opportunities in the United
States, caused by product shortages of certain computer peripherals in the U.S.
which did not exist in Europe in the prior comparable period.
Excluding net sales to related parties, net sales increased $12.5 million,
or 63.8%, from $19.6 million in the six-month period ended December 31, 1996,
to $32.1 million in the comparable period in 1997. This is largely attributable
to sales growth in connection with the return of some key personnel from leave
and establishment of the Premier Dealers Club. See "Business."
GROSS PROFIT. Gross profit increased $2.1 million, or 91.3%, from $2.3
million in the six-month period ended December 31, 1996, to $4.4 million in the
comparable period in 1997 due principally to greater sales in the period. Gross
profit excluding related party transactions increased to $4.1 million in the
six-month period ended December 31, 1997, from $2.3 million in the same period
of the prior year.
Gross margin decreased from 11.5% in the six-month period ended December
31, 1996, to 9.5% 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 increased from
11.5% in the six-month period ended December 31, 1996, to 12.8% in the
comparable period in 1997. The actual increase was attributable to higher than
usual margins caused by a large volume of higher margin peripheral sales in the
months of November and December 1997. The Company does not expect to maintain
this level of gross margin in future periods.
OPERATING EXPENSES. Operating expenses as a percentage of total net sales
decreased from 8.3% in the six-month period ended December 31, 1996, to 5.4% in
the comparable period in 1997. Operating expenses consist primarily of fixed
costs, such as 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. This is particularly relevant in respect of sales to related
parties which do not require any additional sales personnel. Excluding related
party transactions, operating expenses as a percentage of net sales decreased
from 8.3% in the six-month period ended December 31, 1996, to 7.7% in the
comparable period in 1997.
INTEREST EXPENSE. Interest expense increased by $161,000 from $62,000 in
the six-month period ended December 31, 1996, to $223,000 in the comparable
period in 1997. This was attributable to increased borrowings by European Micro
to fund the increased trading activity.
INCOME TAXES. Income taxes as a percentage of earnings before income taxes
decreased from 34.9% in the six-month period ended December 31, 1996, to 32.6%
in the comparable period in 1997. This decrease was attributable to a reduction
in the corporate tax rate in the United Kingdom in the six-month period ended
December 31, 1997.
INTEREST IN JOINT VENTURE. European Micro's share of income from Big Blue
Europe was $21,000 in the six-month period ended December 31, 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.
WAREHOUSE BREAK-IN. In November 1997, European Micro UK's warehouse was
broken into and approximately $503,000 of inventory was stolen. All inventory
was insured and the Company was
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reimbursed by its insurance company for the cost of the inventory less an
$8,000 standard deductible. In order to prevent any additional thefts, the
Company has implemented the following steps:
(1) The Company has relocated its warehouse facility to a more secure
location.
(2) The Company consulted with a security specialist and expended over
$40,000 in security measures, including direct radio communication
with law enforcement.
(3) The Company implemented new procedures regarding occupancy and the
opening and closing of the warehouse facility.
A receivable was established in the accounts as it was probable that the
claim would be settled. This claim has now been settled in full following
receipt of claim in February 1998.
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 fiscal 1996, to $46.7 million in fiscal 1997. Excluding net
sales to related parties, net sales increased $6.6 million, or 16.5%, from
$39.9 million in fiscal 1996, to $46.5 million in fiscal 1997. The increase in
net sales was attributable to the broadening of the product base as a
by-product of the new purchasing department (accounting for approximately $4.2
million) and the creation of the Premier Dealer Division (accounting for
approximately $2.4 million).
Net sales to related parties decreased $282,000 from $436,000 in fiscal
1996, to $154,000 in fiscal 1997. This did not have any material effect on the
Company's results of operations in the fiscal year ended June 30, 1997. See
"Risk Factors--Related Party Purchases and Sales."
GROSS PROFIT. Gross profit increased $0.8 million, or 17.8%, from $4.5
million in fiscal 1996, to $5.3 million in fiscal 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 fiscal 1996, to 11.4% in fiscal
1997. This was attributable to European Micro's product mix. The gross margins
were not materially affected by the related party transactions in fiscal 1997
and 1996, respectively. The Company does not expect to maintain this level of
gross margin in future periods.
OPERATING EXPENSES. Operating expenses as a percentage of total net sales
decreased from 7.4% in fiscal 1996, to 7.0% in fiscal 1997. Operating expenses
consist primarily of fixed costs, such as 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
fiscal 1996, to $293,000 in fiscal 1997. The increase was attributable to
increased borrowings by European Micro to fund the increased trading activity.
INCOME TAXES. Income taxes as a percentage of earnings before income taxes
increased from 35.9% in fiscal 1996, to 37.0% in fiscal 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 fiscal 1997. These losses are attributed to business
start-up costs. Big Blue Europe commenced operations in January 1997.
WAREHOUSE BREAK-IN. In January 1997, European Micro UK's warehouse was
broken into and approximately $155,000 of inventory was stolen. All inventory
was insured and the Company was
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reimbursed by its insurance company for the cost of the inventory less an
$8,000 standard deductible. In order to prevent any additional thefts, the
Company took several steps including the addition of steel bars on all roof
vents and skylights.
A receivable was established in the balance sheet as it was probable that
the claim would be settled. The claim was settled in full minus the deductible
upon receipt of the claim in May 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 fiscal 1995 to $40.3 million in fiscal 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 party transactions were not material in this
period.
GROSS PROFIT. Gross profit decreased $0.3 million, or 6.3%, from $4.8
million in fiscal 1995, to $4.5 million in fiscal 1996, due principally to
margin decreases in sales of computer memory. Related party transactions did
not have a material affect on gross profit in this period.
Gross margin decreased from 14.2% in fiscal 1995, to 11.0% in fiscal 1996,
due in large part to drastic worldwide computer memory price decreases. These
decreases in prices caused negative pressure on margins. Margins in fiscal 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 fiscal 1995, to 7.4% in fiscal 1996. Operating expenses
consist primarily of fixed costs, such as salaries, rents and rates.
Therefore, while net sales increased in the period there was not a
corresponding increase in the fixed cost base.
INTEREST EXPENSE. Interest expense increased $4,000, or 2.6%, from
$156,000 in fiscal 1995, to $160,000 in fiscal 1996. The increase was
attributable to increased borrowings by European Micro.
INCOME TAXES. Income taxes as a percentage of earnings before income taxes
increased from 34.1% in fiscal 1995, to 35.9% in fiscal 1996. This increase was
primarily attributed to the increase in disallowed travel and entertainment
expenditures for corporate 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
Short-term working capital requirements are funded by a combination of
overdraft facilities provided by National Westminster Bank Plc together with
accounts receivable financing provided by Lombard Natwest. Both of these
facilities are set and reviewed annually. Short-term obligations must be repaid
within one year. In both cases the amounts drawn down attract the same rate of
interest based on a markup over the bank borrowing rate in the United Kingdom.
The overdraft facility was $830,000 in fiscal 1997, and was increased to $2.0
million during the six-month period ended December 31, 1997. The accounts
receivable financing provides for draw-down of 80% of trade debtors.
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Long-term funding is supplied to the Company in the form of hire purchase
and capital lease agreements. Long-term obligations are due for repayment in
more than one year. These agreements are made through both Lloyds Bowmaker and
Natwest Vehicle Solutions, and are secured by vehicles owned by the Company.
The agreements are usually for 36 months from the date of purchase and are
typically for 80% of the purchase value of the vehicle. All but one of the
agreements are subject to variable rate interest. As of December 31, 1997, the
borrowings were $195,000, of which $110,000 was due after more than one year.
European Micro's typical principal need for additional working capital in
fiscal 1998 is expected to be for the purchase of additional inventory to
support growth and to take greater advantage of available cash discounts
offered by certain of European Micro's suppliers for early payment. European
Micro is seeking additional cash for this purpose through this Offering and its
existing bank credit lines, but there can be no assurance that financing will
be available on terms acceptable to European Micro. The unavailability of such
financing could adversely affect the growth of European Micro. See "Risk
Factors--Need for Additional Capital," "Risk Factors--Risk of Indebtedness" and
"Use of Proceeds."
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 due primarily 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 primarily 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
attributed to the purchase of fixed assets to amounting $195,000 which was
partially offset by disposals ($47,000) and the investment in an unconsolidated
affiliate, Big Blue Europe 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 laptop 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 for 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. While 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 adverse change in the bank
overdraft.
Exchange movements of $254,000 had a favorable effect on cash. This arises
as a result of the year end sterling to dollar exchange rate moving from
\P1:$1.5538 as of June 30, 1996, to \P1:$1.6643 as of June 30, 1997 and the
resulting effect on translating the balance of net assets as of June 30, 1996
together with the retained earnings for the year ended 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 to related parties
of $866,000, reductions in inventory of $661,000 and an increase in other
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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 1996 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 debtors the level of payables due to related parties was high, while
the payables to third parties were reduced.
Inventory value decreased by $611,000 in the fiscal year ended June 30,
1996. 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 on a monthly basis.
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. This amount
consisted of $171,000 (related to the purchase of fixed assets consisting
primarily of $100,000 of vehicles) which 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 receivables reflects the terms
needed to be offered to attract more 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 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.
SIX MONTHS ENDED DECEMBER 31, 1997. Cash used in operating activities
amounted to $1,269,000. Significant cash was used in the increase in trade
receivables amounting to $2,518,000 which was a result of the considerable
increase in business in the six months, including significant UK sales with
longer credit terms. In addition, there was also a considerable increase in
inventory of $3,751,000 which was
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the result of a large bulk delivery received prior to December 31, 1997. Further
cash was used following an increase in other current assets of $966,000. This
was due to the timing of payments for insurance, rents and rates and deferred
expenditure in respect of flotation costs to European Micro Holdings, Inc. The
cash used was partially offset by net income of $1,154,000 generated in the
six-month period ended December 31, 1997. In addition, cash was generated
through increases in amounts due to related parties of $2,670,000 as a result of
significant month end purchases. Further, cash was generated due to a reduction
in other current assets of $940,000, which was partially due to an increase in
the amount of Value Added Tax payable on net sales. Finally, cash was generated
through an increase in trade payables of $768,000, which was due to the higher
level of inventory.
Cash used in investing activities amounted to $64,000. This was primarily
due to the purchase and sale of vehicles.
Cash provided by financing activities amounted to $1,416,000. This was
mainly a result of increases in the level of the discounting creditor amounting
to $1,739,000, which was achieved through the increase in trade receivables.
This was partially offset by reductions in the bank overdraft amounting to
$204,000, the repayment of capital leases for the vehicles of $64,000 and cash
used of $55,000 in the payment of dividends.
The net increase in cash was $65,000 for the six-month period ended
December 31, 1997, after the impact of exchange rate changes amounting to
$18,000.
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. The Company has received informal assurances from the
companies manufacturing the computer applications used in its business
operations that such computer applications are Year 2000 compliant. Although
the Company believes that its computer applications will not be affected by the
Year 2000 problem, any failure or erroneous results produced thereby may have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company does not generally sell software products
and therefore the Company does not expect its products to be affected by the
Year 2000 problem.
The Company is evaluating the impact the Year 2000 problem will have on
its suppliers and customers, although the Company expects such evaluation to be
made informally through discussions with customers and suppliers. Moreover, the
Company has not developed a timetable for carrying out its evaluation. As of
the date of this Prospectus, the Company does not expect the cost of
remediating any Year 2000 problems to be material to the Company's business,
financial condition or results of operations. However, 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 and thereby reduce European
Micro's working capital requirements. European Micro's strategy to achieve this
goal is to effectively manage its inventory and to 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.
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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
UK is the United Kingdom Pound Sterling. European Micro UK translates into the
reporting currency by measuring assets and liabilities using the exchange rates
in effect at the balance sheet date and results of operations using the average
exchange rates prevailing during the period.
HEDGING AND CURRENCY MANAGEMENT ACTIVITIES. European Micro 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 sale and
purchase 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.
European Micro UK manages its currency exposure when transactions are
consummated in currency other than Pound Sterling. For example, in the quarter
ended June 30, 1997, purchases of inventory by European Micro UK, were in
United States dollars (50%), pound sterling (38%), Dutch guilders (9%) and
other (3%). The most significant currencies in which sales were made, other
than pound sterling (63%), were the German Mark (15%), the French franc (6%)
and the United States dollar (6%). Additionally, receivables are also
significantly spread out over several currencies. Lastly, if bank balances are
maintained in different currencies they would also be subject to currency
fluctuations.
The policy of the Company is not to hedge specifically against individual
daily transactions. Instead, the exposure to a currency is determined every two
to three days. This is done by comparing the bank account balances and account
receivables with accounts payable, all in the same currency which acts as a
"natural" hedge. Thereafter, to the extent that a bank balance and the accounts
receivable are not substantially offset by the accounts payable, there would be
a need to cover the residual balance with a forward currency contract. The
Company tends to concentrate its currency management into four
currencies--pound sterling, United States dollar, Dutch guilder and German
Mark. It normally deems the exposure in other currencies to be minimal.
However, when the Company buys products in other currencies, the Company may,
in conjunction with current market advice, enter into a forward currency
contract to cover current and some anticipated future purchases.
The currency instruments used by the Company are always forward currency
contracts with either fixed or optional take up dates. Moreover, in as much as
the need is to cover short-term receivables or payables (usually always less
than 45 days), these contracts are usually for periods that do not exceed more
than 60 days.
INTER-GROUP SALES
In order to achieve attractive prices from suppliers, a large quantity of
a product is needed to be firmly committed to. European Micro polls the other
members of the Group for informal commitments to help distribute that product.
Thereafter, European Micro, as a member of the Group, would obtain the product,
examine the product for damage and authenticity, and then supervise the
shipping to the
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other Group members. In that capacity, European Micro acts as a "purchasing
agent" for the other members of the Group. Such sales from European Micro
during fiscal 1997, were immaterial. Note however, that European Micro
benefited from similar low mark-up purchases from the Group to the extent of
over $22 million during that same period.
Later, when market conditions such as the strengthening of the United
States Dollar and an aggressive sales effort from a leading manufacturer
changed the emphasis to European Micro purchasing during the six-month period
ended December 31, 1997, sales from European Micro to related parties increased
to over $14 million. While the average margin on these sales was just over
1.8%, compared to an average margin of 12.8% to unrelated third parties during
the same period, it was sufficient to cover any associated costs. European
Micro was also able to enjoy the marginal benefits from the lower cost of the
remaining product it needed for its sales. See "Risk Factors--Related Party
Purchases and Sales."
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BUSINESS
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, and 9.5% for the
six-month period ended December 31, 1997. 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's 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 substantial knowledge in the products
which it sells. 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 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.
Recently, European Micro set up an Internet Services Division to address
the demand for internet oriented products. In 1997, the Company 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 seek to acquire distribution rights in other internet-oriented products and
to enhance its technical capability by recruiting qualified personnel.
European Micro Holdings, Inc. is the parent of Nor'easter and European
Micro UK. Nor'easter was formed on December 26, 1997, to serve as an
independent distributor of microcomputer products in the United States.
European Micro UK was organized under the laws of the United Kingdom in 1991
and became a public limited company in 1994, to serve as an independent
distributor of microcomputer products to customers mainly in Western Europe and
to related parties in the United States.
European Micro UK is the parent of European Micro Germany and has a 50%
joint venture interest in Big Blue Europe. European Micro Germany was formed in
1993 as a wholly owned subsidiary of European Micro UK and it operates as a
sales office in Dusseldorf, Germany. All products sold by European Micro
Germany are procured and shipped from the facilities of European Micro UK. In
January 1997, European Micro UK agreed with Big Blue Products to form Big Blue
Europe. Big Blue Europe is a computer parts distributor located near Amsterdam,
Holland. Selling primarily to
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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 higher margin parts after-market industry. Big Blue Europe has no
affiliation with International Business Machines Corporation.
European Micro UK is also the parent of European Micro B.V. European Micro
B.V. was formed in 1995, commenced operations in January 1996 and ceased
operations in December 1996.
The following organizational chart summarizes the relationships among
European Micro Holdings, Inc., Nor'easter, European Micro UK, European Micro
Germany and Big Blue Europe.
[GRAPHIC OMITTED]
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, and its telephone number is (305)
825-2458.
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
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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.
According to International Data Corporation ("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. 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, 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 hopes to expand
into new 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 assurance that any acquisitions can
be consummated on terms satisfactory to the Company. See "Risk Factors--Risks
Associated with Acquisitions." The Company expects to seek acquisition
candidates which have strong entrepreneurial management teams with experience
in the local markets and the potential to benefit from 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 in which it operates with a
limited and select group of products from a limited and select group of high
quality manufacturers. The Company believes this strategy helps it achieve a
degree of strength within its chosen markets. The Company also believes that
this strategy 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, 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
35
<PAGE>
manufactured by WatchGuard Technologies, Inc. throughout Europe. The Company
intends to seek to acquire distribution rights in other internet oriented
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 six months ended
December 31, 1997, the Company's product mix by category was storage products
(approximately 48%), networking (approximately 20%), memory (approximately
14%), system units (approximately 9%) and other (approximately 9%). For the six
months ended December 31, 1997, the five best selling products accounted for 67%
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 limited and select group of products from a limited and select group of high
quality manufacturers. As a result, the Company carries fewer individual
products from fewer manufacturers than the broadline distributors. The Company
believes that this policy enables it to better understand the products it sells
and the geographical areas in which it operates.
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 on trade credit. 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, 1996, one customer accounted for
approximately 10% of the Company's net sales. The loss of this customer would
not have a material adverse effect on the Company's business, financial
condition or results of operations. During the six months ended December 31,
1997, American Micro Computer Center accounted for 22.6% of net sales. For the
fiscal year ended June 30, 1997, no single customer accounted for more than
approximately 8.5% 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. See Note 22 of the Notes
to Consolidated Financial Statements.
36
<PAGE>
The Company's operations involve a single industry segment, the
distribution of microcomputer products. Historically, the Company has operated
in one geographic area--the United Kingdom--and has exported products from the
United Kingdom to other European countries and to related parties in the United
States. The following table sets forth the Company's net sales to third parties
for each of the last three fiscal years attributable to its geographic area and
the amount of export sales:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
COUNTRY 1995 % 1996 % 1997 %
- ------------------------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Austria ................. $ -- 0.0% $ 49 0.1% $ -- 0.0%
Belgium ................. 163 0.6 450 1.1 1,496 3.2
Germany ................. 13,749 40.6 11,305 28.0 8,282 17.7
Denmark ................. 1,269 3.7 977 2.4 1,402 3.0
Spain ................... 520 1.5 185 0.5 35 0.1
Finland ................. 274 0.8 157 0.4 696 1.5
France .................. 298 0.9 2,700 6.7 4,173 8.9
Great Britain ........... 8,414 24.8 11,876 29.4 21,050 45.1
Ireland ................. 147 0.4 126 0.3 642 1.4
Italy ................... 67 0.2 7 0.0 26 0.1
Luxembourg .............. 76 0.2 39 0.1 40 0.1
Netherlands ............. 5,520 16.3 8,230 20.4 4,653 10.0
Portugal ................ 567 1.7 507 1.3 71 0.2
Sweden .................. 219 0.7 1,246 3.1 1,582 3.4
Other ................... 2,581 7.6 2,494 6.2 2,507 5.3
------- ----- ------- ----- ------- -----
Total Net Sales ......... $33,864 100.0% $40,348 100.0% $46,655 100.0%
</TABLE>
SOURCES OF SUPPLY
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 products directly from manufacturers and generally
does not enter into any long-term or distribution agreements with its suppliers
(except for the Master Distribution Agreement with WatchGuard Technologies,
Inc.). In some cases suppliers are also customers. Whenever possible, products
are 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 cancelled 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.
37
<PAGE>
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 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 sells products in the United States and
expects to continue to do so 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--Trade Restrictions on
Cross-Border Sales."
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 English, German, Spanish, Italian, French
and Dutch 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 December 31, 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 of Financial Condition and Results of
Operations--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 competitors by providing a select number of products from a few name
brand manufacturers and maintaining a sufficient inventory of such products.
Furthermore, the Company believes that it enhances its competitive position by
providing responsible and responsive customer service through its sales
personnel.
38
<PAGE>
INTELLECTUAL PROPERTY
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 is
currently evaluating and will continue to evaluate the need to apply for
trademark protection in the United States and in other countries as the Company
expands. The following is a summary of the trademarks which the Company has
applied for and their current status:
<TABLE>
<CAPTION>
TRADEMARK CLASS(1) NO. APPLICANT DATE OF FILING COMMENTS
- ---------------------- ---------- --------- ----------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
European Micro 9 438689 European 12-23-96 Community Trademark
Micro UK application
European Micro Plc 9 2119204 European 12-20-96 U.K. Trademark
& Logo Micro UK granted
Premier Dealers Club 9 2152310 European 11-29-97 U.K. Trademark
& Logo Micro UK application
Premier Dealers Club 9 695072 European Pending Community Trademark
& Logo Micro UK application
</TABLE>
- ----------------
(1) Class 9 covers computer software, computer peripherals, parts and
accessories for all such goods.
EMPLOYEES
European Micro UK currently has twenty eight full-time employees in the
United Kingdom. European Micro Germany 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. European Micro Holdings, Inc. has two full-time and one part-time
employee in the United States. Of the total number of full-time employees,
twenty-four work in marketing and sales, eight work in warehousing and delivery
and nineteen 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.
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 UK 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:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET LEASE EXPIRATION
- --------------------------------------- ------------- -----------------
<S> <C> <C>
Manchester (warehouse)(1) .......... 8,000 2012
Manchester (offices)(1) ............ 4,400 2002
Germany(2) ......................... 1,360 2004
Netherlands(3) ..................... 18,000 2002
Miami, Florida(4) .................. 350 --
New Hampshire(5) ................... -- --
</TABLE>
- ----------------
(1) European Micro UK
(2) European Micro Germany
(3) Big Blue Europe 50% Joint Venture
(4) European Micro Holdings, Inc.
(5) Nor'easter
39
<PAGE>
The office in Germany 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 condition, results of operations or liquidity.
40
<PAGE>
MANAGEMENT
The executive officers and directors of European Micro and their ages as
of January 1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ----- ---------------------------------------
<S> <C> <C>
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, Controller,
Secretary and Treasurer
Laurence Gilbert 52 Director
Bernadette Spofforth 28 Director
Kyle R. Saxon 46 Director
Barrett Sutton 47 Director
</TABLE>
HARRY D. SHIELDS is co-founder of European Micro Holdings, Inc. and
European Micro UK 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 UK since it was
formed in 1991. He has served as President of Technology Express since 1986,
and was a Director of Ameritech Exports, a computer hardware and peripheral
distributor, from 1992 to 1997. Mr. Shields has a Bachelor of Arts from DePaul
University and a Masters of Science from the University of Tennessee.
JOHN B. GALLAGHER is co-founder of European Micro Holdings, Inc. and
European Micro UK 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 UK
since its was formed in 1991. He 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, Controller, Secretary and
Treasurer of European Micro Holdings, Inc. since January 1998. 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 Holdings, Inc.
since January 1998. Mr. Gilbert has been Managing Director of European Micro UK
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 January 1998. Ms. Spofforth has been Director of Sales of European Micro
UK since 1994 and served as Sales Manager of European Micro UK from 1991 to
1994. Ms. 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
January 1998. Mr. Saxon has also been a Director of European Micro UK since
March 1998. He had been a shareholder and vice president with the law firm of
Catlin, Saxon, Tuttle, and Evans, P.A. since 1988. Mr. Saxon has a Bachelor of
Arts and a Juris Doctorate both from the University of Florida.
BARRETT SUTTON has been a Director of European Micro Holdings, Inc. since
February 1998. Mr. Sutton has also been a Director of European Micro UK since
February 1998. Until December 31, 1997, he was an attorney, Executive
Vice-President and General Counsel for General Capital
41
<PAGE>
Corporation and Gen Cap America, Inc. since 1995. He practiced law with the
firm of White & Reasor from 1981 to 1994. Since January 1, 1998, Mr. Sutton has
been 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.
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 1998 annual meeting of shareholders, the term of the Class
II directors will expire at the 1999 annual meeting of shareholders and the
term of the Class III directors will expire at the 2000 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. See "Risk Factors--Control by
Current Shareholders." The staggered term for directors may affect the
shareholders' ability to effect a change of control of the Company.
Under Nevada law, any vacancy in the Board of Directors, including any
vacancies resulting from an increase in the number of directors, may 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,
Bylaws and Nevada Law." As of the date of this Prospectus, the name, class and
expiration date of the initial term of the directors are as follows:
<TABLE>
<CAPTION>
CLASS 1 CLASS II CLASS III
- --------------------------- ----------------------- ----------------------
<S> <C> <C>
(Terms expiring 1998) (Terms expiring 1999) (Terms expiring 2000)
Laurence Gilbert Barrett Sutton John B. Gallagher
Bernadette Spofforth Kyle R. Saxon Harry D. Shields
</TABLE>
INDEMNIFICATION AND LIMITED LIABILITY
Pursuant to indemnification agreements entered into with each of the
directors, the Company has agreed to indemnify each director, to the fullest
extent permitted by law, from and against any and all claims of any type
arising from or related to his past or future acts or omissions as a director
or officer of the Company and any of its subsidiaries. In addition, the Company
has agreed to advance all expenses of each director as they are incurred and in
advance of the final disposition of any claim.
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
42
<PAGE>
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
The Company has an Audit Committee, a Compensation Committee and a Stock
Option Committee. The functions of the Audit Committee, composed of Messrs.
Saxon, Sutton and Gilbert, are 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 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.
The Compensation Committee, composed of Messrs. Gallagher, Shields, Saxon
and Sutton, is responsible for making recommendations to the Board of Directors
regarding compensation arrangements for the Company's officers.
The Stock Option Committee, composed of Messrs. Saxon and Sutton, is
responsible for making recommendations to the Board of Directors regarding the
adoption of any employee benefit plans and administering 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." 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 (unless otherwise determined
by the Board of Directors or in the event of a change of control of the
Company) 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 has adopted the Incentive Plan, which will become
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-dilution 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
comprised of at least two persons (currently the
43
<PAGE>
Stock Option Committee) (the "Administrator"). The Incentive Plan empowers the
Administrator, among other things, to interpret the Incentive Plan, to
establish and modify administrative rules for the Incentive Plan, to impose
such conditions and restrictions on awards as it determines appropriate, and to
take such steps in connection with the Incentive Plan and awards granted
thereunder as it may deem necessary or advisable. Key employees, non-employee
directors and consultants of European Micro and its Subsidiaries ("Eligible
Employees"), as selected by the Administrator, may participate in the Incentive
Plan. Under the Incentive Plan, the following may be awarded: options,
including incentive stock options ("ISOs"), as defined in the Internal Revenue
Code of 1986, as amended (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 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 expected generally to be
the closing price for a share of Common Stock as reported on a national
securities exchange, as quoted on the Nasdaq National Market, or the closing
bid price as quoted by the Nasdaq Small Cap 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.
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 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.
Generally, the shares purchased upon exercise of an option granted under
the Incentive Plan must be paid in full in cash by the optionee. However, the
Administrator may permit payment to be made by delivering to the Company (i)
shares of Common Stock or (b) any combination of cash and Common Stock or (c)
such other consideration as the Administrator deems appropriate and in
compliance with applicable law (including payment in accordance with a cashless
exercise program under which, if so instructed by the optionee, shares of
Common Stock may be issued directly to the optionees broker or dealer upon
receipt of an irrevocable written notice of exercise from the optionee).
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 entitles the holder to receive
44
<PAGE>
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.
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 (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 the applicable
sections of the Code.)
PERFORMANCE SHARE AWARDS. The Administrator may, in its discretion, grant
Performance Share Awards to Eligible Employees based upon certain predetermined
performance targets as may be established by the Administrator in its
discretion. The amount of cash or shares of Common Stock or a combination of
cash and Common Stock that may be deliverable pursuant to these awards will be
based upon the degree of attainment over a specified period as may be
established by the Administrator. The Administrator may provide for full or
partial credit, prior to completion of a specified period or the attainment of
the performance achievement specified in the award in the event of the
participant's retirement prior to the completion of a specified period or in
such other circumstances as the Administrator may determine. In the event of
the participant's death or disability or a Change of Control (as defined in the
Incentive Plan), the participant or the participant's personal representative
will be entitled to receive a pro-rata share of his or her award.
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 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.
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
45
<PAGE>
(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) the acquisition in one or more transactions by any person of
beneficial ownership of shares or other securities representing 30% or more of
either the outstanding Common Stock or the Company's voting securities, except
that a change of control 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 immediately prior to the completion of this Offering is a holder of
Common Stock; or
(2) any election has occurred of persons as directors of the Company that
causes two-thirds or more of the Board of Directors to consist of persons other
than (i) persons who were members of the Board of Directors on the Termination
Date and (ii) persons who were nominated by the Board of Directors for election
as members of the Board of Directors at the time when at least two-thirds of
the Board of Directors consisted of persons who were members of the Board of
Directors on the Termination Date; or
(3) approval by the shareholders of the Company of a reorganization,
merger, consolidation or similar transaction unless, immediately following such
transaction, more than 50% of, respectively, the outstanding shares of Common
Stock of the entity resulting from or surviving the transaction and the
combined voting power of the securities of such entity entitled to vote
generally in the election of directors, is then beneficially owned by the
persons who were the respective beneficial owners of the outstanding Common
Stock immediately prior to the transaction in substantially the same
proportions as their ownership of outstanding Common Stock immediately prior to
the transaction; or
(4) approval by the shareholders 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 an entity, unless,
with respect to such entity, immediately following such sale or other
disposition more than 50% of, respectively, the outstanding shares of Common
Stock of such entity entitled to vote generally in the election of directors,
is then beneficially owned by the persons who were the respective beneficial
owners of the outstanding shares of Common Stock immediately prior to such sale
or disposition in substantially the same portions as their ownership of the
outstanding shares of Common Stock immediately prior to such sale or
disposition.
NON-EMPLOYEE DIRECTOR OPTIONS. 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. 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 (unless otherwise determined
by the Board of Directors or in the event of a change of control of the Company
as described above.)
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 stated
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
46
<PAGE>
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 has adopted 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 twelve 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. 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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides information
relating to compensation for the three most recently completed fiscal years for
European Micro's Co-Chairmen and its three other most highly compensated
executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- -------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ----------------------------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
John Gallagher(1) 1997 -- -- --
Co-Chairman, 1996 -- -- --
Co-President and
Director 1995 $ 4,388 -- --
Harry Shields(1) 1997 -- -- --
Co-Chairman, 1996 -- -- --
Co-President and
Director 1995 $ 4,388 -- --
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(4) 1997 $48,328 $248,902 $13,979
Director of Sales 1996 $28,433 $168,971 $10,509
1995 $26,641 $119,668 $ 8,348
</TABLE>
- ----------------
(1) During the three-year period ended June 30, 1997, and the six-month
period ended December 31, 1997, Messrs. Gallagher and Shields devoted a
part of their working time to the consolidated operations of European
Micro Plc. Such work consisted
47
<PAGE>
of the type of services generally performed by chief executive officers
of similar companies and included strategic planning, review and
approval of budgets and material contracts, negotiating bank financing
and establishing and maintaining business relationships. To compensate
Messrs. Gallagher and Shields for their work, the Company paid
management fees to American Micro Computer Center in the case of Mr.
Gallagher and to Technology Express in the case of Mr. Shields. This
amounted to $60,000, $50,000 and $56,000 for the work attributable to
Mr. Gallagher and to $60,000, $50,000 and $56,000 for services
attributable to Mr. Shields, in each case, for the fiscal years ended
1997, 1996 and 1995, respectively.
(2) Mr. Gilbert became Managing Director in November 1996. All other
compensation for fiscal years 1996 and 1995 was for consultancy fees
paid to Mr. Gilbert prior to his becoming an officer of the Company.
After the consummation of the Offering, the Company expects to grant
Mr. Gilbert options to purchase 25,000 shares of Common Stock at the
initial public offering price. Such options are expected to vest over
the course of six years.
(3) As of November 1996, Mr. Wager is no longer employed by the Company.
(4) After the consummation of the Offering, the Company expects to grant
Ms. Spofforth options to purchase 50,000 shares of Common Stock at the
initial public offering price. Such options are expected to vest over
the course of six years.
EMPLOYMENT AGREEMENTS
European Micro has entered into five-year employment agreements with each
of Messrs. Gallagher and Shields. Pursuant to the agreements, each executive is
employed as Co-Chairman of European Micro. These agreements are effective as of
January 1, 1998, and each provides for annual base salaries of $175,000, plus
annual cost of living adjustments and other increases to be determined at any
time or from time to time by the Board of Directors or any committee thereof.
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 (which means no less than 50% of his
working time); 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 then current fiscal year, including base salary and incentive
bonus compensation. For the purposes of the employment agreement, the amount of
incentive bonus compensation such executive would be entitled to receive in the
then 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."
European Micro Plc has entered into an employment agreement with Ms.
Bernadette Spofforth. Pursuant to the agreement, Ms. Spofforth is employed as
Sales Director of European Micro Plc. Ms. Spofforth's agreement was effective
April 30, 1996, will continue until terminated by either party delivering not
less than six months' written notice to the other party and provides for an
annual base salary of \P30,000 (approximately $48,000 assuming an exchange rate
of $1.60 to \P1.00) plus bonus.
48
<PAGE>
Ms. Spofforth is also entitled to the use of a Company owned vehicle under the
terms of her employment agreement. The Company expects to also enter into an
employment agreement with Mr. Laurence Gilbert.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1997, the Company had no
compensation committee. As of the date of this Prospectus, the Compensation
Committee is composed of Messrs. Gallagher, Shields, Saxon and Sutton. Each of
Messrs. Gallagher and Shields is a Co-Chairman, Co-President and Director of
the Company and Co-Chairman of each of the Subsidiaries.
49
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 31, 1998, European Micro Holdings, Inc. acquired one hundred
percent (100%) of the issued and outstanding shares of ordinary stock of
European Micro UK in consideration for the issuance of 4,000,000 newly issued
shares of Common Stock of European Micro Holdings, Inc. The 4,000,000 shares of
Common Stock of European Micro Holdings, Inc. has been issued to the
shareholders of European Micro UK on a pro rata basis in accordance with such
shareholder's respective ownership interests in European Micro UK. As a result
of the exchange, the Selling Shareholders and the Trust Shareholders together
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 the Selling
Shareholders and the Trust Shareholders after the closing of this Offering see
"Principal and Selling Shareholders."
The Company has agreed to grant options to purchase up to 25,000 shares of
Common Stock to Thomas H. Minkoff for consulting fees rendered to the Company.
The options will have an exercise price equal to 100% of the Offering price.
Mr. Minkoff is the Trustee of the Gallagher Family Trust and the first cousin
of John B. Gallagher, the Co-Chairman, Co-President, a director and one of the
Selling Shareholders. See "Principal and Selling Shareholders."
Since its formation in 1991, European Micro UK has belonged to the Group.
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 has paid certain management and
consulting fees to the other members of the Group. Inter-Group purchases and
sales are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
(UNAUDITED)
YEAR ENDED JUNE 30, SIX MONTHS ENDED
------------------------------------ DECEMBER 31,
1995 1996 1997 1997
--------- --------- ------------ -----------------
<S> <C> <C> <C> <C>
SALES TO GROUP MEMBERS
American Micro Computer Center ......... $ 323 $ 306 $ 66 $10,413
Technology Express. .................... 22 104 (2) 3,582
Ameritech Argentina .................... - - 90 -
Ameritech Exports ...................... 1 26 - -
------ ------- -------- -------
$ 346 $ 436 $ 154 $13,995
====== ======= ======== =======
PURCHASES FROM GROUP MEMBERS
American Micro Computer Center ......... $4,082 $ 2,289 $1,092 $ 325
Technology Express ..................... 3,265 14,890 20,717 2,937
Ameritech Argentina .................... - - - -
Ameritech Exports ...................... 70 1,116 848 -
------ ------- -------- -------
$7,417 $18,295 $22,657 $ 3,262
====== ======= ======== =======
</TABLE>
50
<PAGE>
The management and consulting fees paid by European Micro to other Group
members are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
-------------------------------- DECEMBER 31,
1995 1996 1997 1997
------ ----------- --------- -------------
<S> <C> <C> <C> <C>
American Micro Computer Center ......... $ 56 $ 50 $ 60 $18
Technology Express ..................... 56 50 60 16
---- ---- ----- ---
$112 $100 $ 120 $34
==== ==== ===== ===
CONSULTANCY FEES
Technology Express ..................... $ 32 $ 37 $ 16 $10
---- ---- ----- ---
$ 32 $ 37 $ 16 $10
==== ==== ===== ===
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 $44
==== ====== ===== ===
</TABLE>
Sales to and from Group members has resulted in the following accounts
receivable:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
JUNE 30, ENDED
------------------------ DECEMBER 31,
1995 1996 1997 1997
------ ------ ------ -------------
<S> <C> <C> <C> <C>
American Micro Computer Center ......... $97 $259 $240 $446
Technology Express ..................... -- 15 -- 8
Ameritech Argentina .................... -- 274 329 --
Ameritech Exports ...................... -- 160 -- --
--- ---- ---- ----
$97 $708 $569 $454
=== ==== ==== ====
</TABLE>
Accounts payable to Group members are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
JUNE 30, ENDED
--------------------------- DECEMBER 31,
1995 1996 1997 1997
------ --------- ------ -------------
<S> <C> <C> <C> <C>
American Micro Computer Center ......... $ 34 $ 90 $ -- $ --
Technology Express ..................... 242 535 188 2,858
Ameritech Argentina .................... -- 281 -- --
Ameritech Exports ...................... 2 238 -- --
---- ------ ---- ------
$278 $1,144 $188 $2,858
==== ====== ==== ======
</TABLE>
51
<PAGE>
The entities listed above are related to European Micro or its officers,
directors and principal shareholders 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 37% of the outstanding shares after the Offering
assuming that the Offering is fully subscribed) 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
Until 1996, Technology Express was a full service authorized reseller of
computers and related products based in Nashville, Tennessee, selling primarily
to end-users. Technology Express was sold to Inacom 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 31% of the outstanding shares after the
Offering assuming that the Offering is fully subscribed) of European Micro, is
President of Technology Express, and owns 100% of the outstanding shares of
common stock of that company.
AMERITECH ARGENTINA
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
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.
52
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to European Micro
with respect to the beneficial ownership of Common Stock as of March 1, 1998,
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>
OWNERSHIP OF COMMON NUMBER OF COMMON
SHARES PRIOR TO THIS SHARES TO BE SOLD IN OWNERSHIP OF COMMON SHARES
OFFERING OFFERING(1) AFTER THIS OFFERING
-------------------------- ---------------------- -------------------------
NAME OF OWNER NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
- --------------------------------- ----------- ------------ ---------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
John B. Gallagher(2) ............ 1,900,000 47.5% 50,000 1,850,000 37.0%
Harry D. Shields(3) ............. 1,602,696 40.0% 50,000 1,552,696 31.0%
Thomas H. Minkoff, Trustee
of the Gallagher Family
Trust(4) ...................... 100,000 2.5% - 100,000 2.0%
Stuart S. Southard and
Robert H. True, Trustees of
the 1997 Henry Daniel
Shields Irrevocable
Educational Trust(5) .......... 397,304 10% - 397,304 8.0%
Jay Nash(3) ..................... - - - - -
Laurence Gilbert(6) ............. - - - - -
Bernadette Spofforth(6) ......... - - - - -
Kyle Saxon(7) ................... - - - - -
Barrett Sutton(8) ............... - - - - -
All officers and directors
as a group(9) ................. 3,502,696 87.5% 100,000 3,402,696 68.0%
</TABLE>
- ----------------
(1) Assumes that the Offering will be fully subscribed and therefore a total of
$10,000,000 worth of Common Stock will be sold by the Company and
$1,000,000 worth of Common Stock will be sold by the Selling Shareholders.
(2) Business address is 6073 N.W. 167th Street, Unit C-25, Miami, Florida
33015.
(3) Business address is 808 Third Avenue South, Nashville, Tennessee 37210.
(4) Business address is 1635D Royal Palm Drive South, Gulfport, Florida 33707.
(5) Business address for Mr. Southard is 614 4th Avenue, Nashville, Tennessee
37210. Business address for Mr. True is First American Center, No. 2070,
315 Deaderick Street, Nashville, Tennessee 37278.
(6) Business address is 20-24 Church Street, Altrincham, Manchester, England
WA14 4DW.
(7) Business address is 1700 Alfred I. DuPont Building, 169 East Flagler
Street, Miami, Florida 33131-1298.
(8) Business address is NationsBank Plaza--Suite 1100, 414 Union Street,
Nashville, Tennessee 37219.
(9) Excludes Trust Shareholders because Messrs. Gallagher and Shields do not
have voting power over any of the shares held by the Trust Shareholders
and the Trust Shareholders are neither officers nor directors of the
Company.
SHAREHOLDERS AGREEMENT
Pursuant to the Shareholders Agreement, each Selling Shareholder agreed to
vote his Shares in concert on all matters submitted to a vote of shareholders
of the Company, including the election of all directors. In the event that
either Selling Shareholder cannot agree to vote his Shares in concert with the
other Selling Shareholder, neither Shareholders shall vote his Shares. See
"Risk Factors--Control by Current Shareholders." Pursuant to the Shareholder
Agreement, each Trust Shareholder agreed to vote its Shares in concert on all
matters submitted to a vote of the shareholders of the Company, specifically
including without limitation the election of all directors, so as to maintain
continuity in the
53
<PAGE>
management of the Company for the duration of this Agreement. In the event that
either Trust Shareholder cannot agree to vote its Shares in concert with the
other Trust Shareholder, neither Trust Shareholder shall vote its Shares.
In addition, in the event of the death of either Selling Shareholder, the
survivor will be entitled to purchase 1,000,000 of the shares of Common Stock
of the deceased shareholder at a predetermined price. Each Selling Shareholder
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 1,000,000 shares of the Company then held by such
shareholder.
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 shares 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
Each of the directors and officers have entered into Indemnification
Agreements in which the Company has agreed to indemnify each director and
officer, to the fullest extent permitted by law, from and against any and all
claims of any type arising from or related to his past or future acts or
omissions as a director or officer of the Company and any of its subsidiaries.
In addition, the Company has agreed to advance all expenses of each director
and officer as they are incurred and in advance of the final disposition of any
claim.
54
<PAGE>
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 directors
(the NRS 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.
REGISTRATION RIGHTS
In January 1998, each of Messrs. Gallagher and Shields was 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, to be entered into 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 Mr. Gallagher or Mr. 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 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 upon the exercise of options). The piggyback
registration rights will allow Messrs. Gallagher and Shields 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.
The registration rights granted to each of 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 divide the Company's
Board of Directors into three classes with staggered three-year terms. Pursuant
to Section 78.335 of the NRS, any director may
55
<PAGE>
be removed from office by the vote of shareholders representing two-thirds of
the outstanding shares of 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 not 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 a 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.
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 shareholder" (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 shareholder became an
interested shareholder, unless the combination or the purchase of shares made
by the interested shareholder on the interested shareholder'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
shareholder 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 shareholder is approved by the board of directors of the
corporation before the date such interested shareholder acquired such shares;
(ii) a combination is approved by the affirmative vote of the holders of stock
representing a majority of the outstanding voting power not beneficially owned
by the interested shareholder proposing the combination, or any affiliate or
associate of the interested shareholder proposing the combination, at a meeting
called for that purpose no earlier than three years after the interested
shareholder'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
shareholder, satisfies the fair value requirements of Section 78.441 of NRS.
Prior to the Share Exchange, the Board of Directors of the Company
approved the purchase of shares made by each of the Selling Shareholders.
Consequently, the Nevada Business Combination Law will not prohibit either
Messrs. Gallagher or Shields from engaging in a business combination with the
Company.
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.
56
<PAGE>
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 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.
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 and assuming all shares offered hereby
have been fully subscribed, 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, Shields
and the Trust Shareholders 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 Factors--Shares Eligible
for Future Sale."
Each of Messrs. Gallagher, Shields and the Trust Shareholders has 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, Shields and the Trust Shareholders 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
57
<PAGE>
remove these restrictions with respect to the Restricted Stock in its
discretion. See "Underwriting." Messrs. Gallagher, Shields and the Trust
Shareholders 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. The shares of Common
Stock held by Messrs. Gallagher, Shields and the Trust Shareholders 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 are 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 550,000
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.
58
<PAGE>
UNDERWRITING
Pursuant to the Underwriting Agreement, the Company has engaged the
Underwriter to use its best efforts to offer the Common Stock to the public,
subject to the terms and conditions of the Underwriting Agreement. The
Underwriter has agreed to sell the Common Stock through licensed dealers on a
"best efforts" basis, at a purchase price of $10.00 per share. The Underwriter
has made no commitment to purchase all or any part of the Common Stock offered
hereby, and there can be no assurance that any of the Common Stock will be
sold. The Underwriter has agreed to use its best efforts to find purchasers for
the Common Stock within a period of sixty days from the date of this Prospectus
(the "Offering Period"), subject to an extension by mutual written agreement
between the Company and the Underwriter. The Offering will terminate prior to
the expiration of the Offering Period if the collected proceeds of the Offering
equal or exceed $10,000,000 and may, or at the option of the Company, terminate
if, prior to the expiration of the Offering Period, the collected proceeds
equal or exceed $7,000,000.
All funds received by the Underwriter as subscriptions for the shares of
Common Stock will be promptly deposited in a non-interest bearing account with
the Escrow Agent, The Chase Manhattan Bank, pursuant to an Escrow Agreement
entered into among the Company, the Underwriter and the Escrow Agent. In the
event 700,000 shares of Common Stock are not sold within the Offering Period,
the funds will be refunded promptly to the Underwriter in full without
deduction therefrom or interest thereon and the Escrow Agent will notify
subscribers that such funds have been returned. If more than 700,000 but less
than 1,000,000 shares of Common Stock are subscribed for during the Offering
Period, the Company may, at its option, notify the Escrow Agent to release the
funds held by the Escrow Agent to the Company, the Company will deliver the
subscribed for shares of Common Stock to subscribers, and the Offering will
terminate. Upon receipt of funds by the Escrow Agent of the proceeds of the
sale of at least 1,000,000 shares offered hereby, the Escrow Agent will deliver
the proceeds of such sales to the Company and the shares subscribed for to the
subscribers.
The Underwriter has agreed that if at least 1,000,000 shares are
subscribed for within the Offering Period, the Underwriter will use its best
efforts to offer an additional 100,000 shares of Common Stock for the account
of the Selling Shareholders, the funds collected from the sale of which will be
subject to the Escrow Agreement as described above.
During the period of escrow, subscribers will not be entitled to a refund
of their subscriptions. The shares of Common Stock offered hereby will be sold
fully paid only. Common Stock certificates will be issued to purchasers only if
the proceeds from the sale of shares of Common Stock are released to the
Company as described above. Until such time as the funds have been released by
the Escrow Agent, such purchasers, if any, will be deemed subscribers and not
shareholders. The funds in escrow will not bear interest, will be held for the
benefit of those subscribers until released to the Company and will not be
subject to creditors of the Company or the expenses of this Offering.
The Underwriter is to receive a cash commission of eight percent (8%) of
the gross offering price per share sold, amounting (assuming an offering price
of $10.00 per share) to $560,000 if 700,000 shares of Common Stock are sold,
$800,000 if 1,000,000 shares of Common Stock are sold and $880,000 if 1,100,000
shares of Common Stock are sold. In addition, upon the sale of at least
1,000,000 shares of Common Stock, the Company has agreed to pay from the
proceeds of the Offering the reasonable expenses incurred by the Underwriter in
connection with the Offering, which expenses will be deemed reasonable if they
amount to $150,000 or less, up to a maximum of $225,000. The Company has
advanced to date an amount of $25,000 against the Underwriter's expenses. The
Underwriter's expenses in excess of the expenses paid by the Company will be
paid by the Underwriter. The Underwriter may elect not to proceed with the
Offering at any time, without penalty, if it believes that no favorable public
market exists for the sale of the Common Stock. If the Underwriter is otherwise
unable or unwilling to complete the Offering upon the terms and conditions of
the Underwriting Agreement, upon termination of the Offering Period, the
Company has agreed to reimburse the Underwriter for the expenses incurred to
such date of termination less $100,000 and less any expenses already advanced.
59
<PAGE>
The Underwriter initially proposes to offer the Common Stock offered
hereby to the public at the public offering price set forth on the cover of
this Prospectus, and the Underwriter may allow certain dealers, who are members
of the National Association of Securities Dealers, Inc. ("NASD"), concessions
of not in excess of $0.70 per share of Common Stock.
Officers and directors of the Company may introduce the Underwriter to
persons to consider this Offering and subscribe for shares of Common Stock
either through the Underwriter or through participating dealers. In this
connection, officers and directors will not receive any commissions or any
other compensation.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement and related documents, copies of which
are on file at the offices of the Underwriter, the Company and the Commission.
The public offering price of the Common Stock has been determined by arms'
length negotiation between the Company and the Underwriter and do not
necessarily bear any direct relationship to the Company's assets, earnings,
book value per share or other generally accepted criteria of value. Factors
considered in determining the offering price of the Common Stock included the
business in which the Company is engaged, estimates of the business potential
of the Company, the present state of the Company's development, the Company's
financial condition, an assessment of the Company's management, the general
condition of the securities markets and the demand for similar securities of
comparable companies, and other factors that the Underwriter and the Company
deemed relevant.
The Underwriter was incorporated on March 26, 1993 as Winthrop Financial
Services, Inc. Its corporate name was changed to Tarpon Scurry Investments,
Inc. on September 27, 1997. Since its incorporation, the Underwriter has not
participated in any initial public offerings of equity securities as an
underwriter, lead manager or co-manager. Prospective purchasers of Common Stock
should consider the lack of experience of the Underwriter in evaluating an
investment in the Company. See "Risk Factors--Limited Underwriting History."
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
60
<PAGE>
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.
61
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EUROPEAN MICRO PLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
---
EUROPEAN MICRO PLC
Independent Auditors' Report ..................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997
and (unaudited) December 31, 1997 .............................. F-3
Consolidated Statements of Earnings for the years ended
June 30, 1995, 1996 and 1997 and (unaudited) for
the six months ended December 31, 1997 ......................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 1995, 1996 and 1997 and (unaudited)
for the six months ended December 31, 1997 ..................... F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997 and (unaudited) for
the six months ended December 31, 1997 ......................... F-6
Notes to Consolidated Financial Statements ....................... F-7
</TABLE>
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.
KPMG
CHARTERED ACCOUNTANTS
REGISTERED AUDITORS
Manchester, England
6 March 1998
F-2
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ....................................................... $ 322 $ 288 $ 353
Trade receivables, net (Note 6) ............................ 3,314 2,956 3,300
Discounted trade receivables (Note 6) ...................... 1,749 2,779 4,953
Due from related parties (Note 21) ......................... 708 569 454
Inventories, net (Note 7) .................................. 1,020 1,560 5,311
Deferred tax asset (Note 14) ............................... 33 -- 9
Prepaid expenses ........................................... 64 75 236
Other current assets (Note 8) .............................. 315 37 842
------ ------ -------
TOTAL CURRENT ASSETS ...................................... 7,525 8,264 15,458
Property and equipment, net (Note 9) ....................... 332 389 521
Investments (Note 10) ...................................... -- 191 212
------ ------ -------
TOTAL ASSETS .............................................. $7,857 $8,844 $16,191
====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft (Note 11) ................................... 1,348 1,034 830
Discount creditor (Note 12 ) ............................... 1,399 2,223 3,962
Trade payables (Note 13) ................................... 1,027 2,038 2,806
Other current liabilities (Note 15) ........................ 672 376 1,316
Due to related parties (Note 21) ........................... 1,144 188 2,858
Income taxes payable (Note 14) ............................. 461 375 675
Deferred income taxes (Note 14) ............................ -- 54 --
------ ------ -------
TOTAL CURRENT LIABILITIES ................................. 6,051 6,288 12,447
Long term borrowings (Note 16) .............................. 37 45 110
------ ------ -------
TOTAL LIABILITIES ......................................... 6,088 6,333 12,557
------ ------ -------
Commitments & contingencies (Note 18) ....................... -- -- --
SHAREHOLDERS' EQUITY:
Preferred stock $0.01 par value: 1,000,000 shares authorized
at 1996 and 1997, no shares issued and outstanding
at 1996 and 1997 .........................................
Common stock $0.01 par value: 20,000,000 shares authorized
at, 1996 and 1997, shares issued and outstanding,
4,000,000 at 1996 and 1997, (Notes 3 and 17) ............. 40 40 40
Additional paid in capital ................................. 115 1,624 1,624
Retained earnings .......................................... 1,610 826 1,965
Cumulative foreign currency translation adjustment ......... 4 21 5
------ ------ -------
TOTAL SHAREHOLDERS' EQUITY ................................ 1,769 2,511 3,634
------ ------ -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $7,857 $8,844 $16,191
====== ====== =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------ ---------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SALES:
Net sales (Note 3) ............................. $ 33,518 $ 39,912 $ 46,501 $ 19,593 $ 32,114
Net sales to related parties (Note 21) ......... 346 436 154 66 13,995
--------- --------- --------- --------- ---------
Total net sales .............................. 33,864 40,348 46,655 19,659 46,109
--------- --------- --------- --------- ---------
COST OF GOODS SOLD:
Cost of goods sold ............................. (28,687) (35,475) (41,163) (17,338) (28,019)
Cost of goods sold to related parties .......... (353) (417) (156) (66) (13,710)
--------- --------- --------- --------- ---------
Cost of goods sold ........................... (29,040) (35,892) (41,319) (17,404) (41,729)
--------- --------- --------- --------- ---------
Gross profit .................................... 4,824 4,456 5,336 2,255 4,380
OPERATING EXPENSES:
Selling, general and administrative
expenses (Note 3) ............................ (2,832) (2,884) (3,230) (1,579) (2,423)
Expenses attributable to related
parties (Note 21) ............................ (144) (94) (55) (44) (44)
--------- --------- --------- --------- ---------
Total operating expenses ..................... (2,976) (2,978) (3,285) (1,623) (2,467)
--------- --------- --------- --------- ---------
Operating profit ................................ 1,848 1,478 2,051 632 1,913
Interest expense, net ........................... (156) (160) (293) (62) (223)
Equity in net (loss) income of
unconsolidated affiliate (Note 10) ........... -- -- (73) -- 21
--------- --------- --------- --------- ---------
Income before income taxes and
equity income ................................. 1,692 1,318 1,685 570 1,711
Taxes on income (Note 3 and 14) ................ (577) (473) (651) (199) (557)
--------- --------- --------- --------- ---------
Net income ...................................... $ 1,115 845 1,034 371 1,154
========= ========= ========= ========= =========
Net income per share - basic (Note 3) ........... $ 0.28 $ 0.21 $ 0.26 $ 0.09 $ 0.29
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
RETAINED FOREIGN
COMMON STOCK ADDITIONAL EARNINGS CURRENCY TOTAL
-------------------- PAID-IN (ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL LOSSES) ADJUSTMENT EQUITY
----------- -------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1994 ........... 4,000,000 $40 $ 119 $ 1,026 $ -- $1,185
Net income ....................... -- -- -- 1,115 -- 1,115
Dividends declared
($0.10 per share) .............. -- -- -- (391) -- (391)
Foreign currency translation
adjustment ..................... -- -- -- -- 15 15
--------- --- ------ -------- ----- ------
Balance at June 30, 1995 .......... 4,000,000 40 119 1,750 15 1,924
Net income ....................... -- -- -- 845 -- 845
Dividends declared
($0.24 per share) .............. -- -- -- (961) -- (961)
Foreign currency translation
adjustment ..................... -- -- (4) (24) (11) (39)
--------- --- -------- -------- ----- ------
Balance at June 30, 1996 .......... 4,000,000 40 115 1,610 4 1,769
Capitalisation of retained
earnings (Note 3(j)) ........... -- -- 1,498 (1,498) -- --
Net income ....................... -- -- -- 1,034 -- 1,034
Dividends declared
($0.14 per share) .............. -- -- -- (562) -- (562)
Foreign currency translation
adjustment ..................... -- -- 11 242 17 270
--------- --- ------- -------- ----- ------
Balance at June 30, 1997 .......... 4,000,000 40 1,624 826 21 2,511
Net income (unaudited) ........... -- -- -- 1,154 -- 1,154
Dividends declared (unaudited)
($0.01 per share) .............. -- -- -- (55) -- (55)
Foreign currency translation
adjustment (unaudited) ......... -- -- -- 40 (16) 24
--------- --- ------- -------- ----- ------
Balance at December 31, 1997
(unaudited) ..................... 4,000,000 $40 $1,624 $ 1,965 $ 5 $3,634
========= === ======= ======== ===== ======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------- -----------------------
1995 1996 1997 1996 1997
--------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ...................................... $1,115 $ 845 $1,034 $ 371 $ 1,154
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Depreciation and other ......................... 96 134 163 86 103
Provision for deferred taxes ................... (16) (17) 87 33 (63)
Equity in net loss (income) of
unconsolidated affiliate .................... -- -- 73 -- (21)
Changes in assets and liabilities
Trade receivables .............................. (832) (1,677) (672) 543 (2,518)
Due from related parties ....................... (35) (611) 139 (102) 115
Inventory ...................................... (68) 661 (540) (492) (3,751)
Other current assets ........................... (232) 39 267 (219) (966)
Trade payables ................................. (808) (407) 1,011 759 768
Due to related parties ......................... (20) 866 (956) (129) 2,670
Taxes payable .................................. 111 (88) (86) 89 300
Other net ...................................... (302) 425 (273) (368) 940
------ -------- ------ ------ --------
Net cash (used in) provided by
operating activities ....................... (991) 170 247 571 (1,269)
------ -------- ------ ------ --------
INVESTING ACTIVITIES:
Purchase of fixed assets ........................ (222) (171) (195) (102) (88)
Sale of fixed assets ............................ 167 14 47 7 24
Investment in unconsolidated affiliate .......... -- -- (264) -- --
------ -------- ------ ------ --------
Net cash used in investing activities ......... (55) (157) (412) (95) (64)
------ -------- ------ ------ --------
FINANCING ACTIVITIES:
Dividends paid .................................. (391) (961) (562) (299) (55)
Repayment of capital leases ..................... (43) (59) (71) (26) (64)
Change in bank overdraft ........................ (42) 1029 (314) (917) (204)
Change in discounting creditor .................. 1,116 283 824 748 1,739
------ -------- ------ ------ --------
Net cash provided by (used in)
financing activities ....................... 640 292 (123) (494) 1,416
------ -------- ------ ------ --------
Exchange rate changes ............................ 49 (30) 254 117 (18)
------ -------- ------ ------ --------
Net (decrease) increase in cash .................. (357) 275 (34) 99 65
Cash at beginning of period ...................... 404 47 322 322 288
------ -------- ------ ------ --------
Cash at end of period ............................ $ 47 $ 322 $ 288 $ 421 $ 353
====== ======== ====== ====== ========
</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
NOTE 1. DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of European
Micro Plc. European Micro Plc 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. European
Micro Plc and its subsidiaries are hereinafter referred to as "European Micro"
or "the Company". The following companies results of operations and financial
position have been included in the consolidated financial statements based upon
the relative percentages below:
<TABLE>
<CAPTION>
OWNERSHIP
-----------------------
COMPANIES 1995 1996 1997
- -------------------------------- ------ ------ -----
<S> <C> <C> <C>
European Micro Plc .......... 100% 100% 100%
European Micro GmbH ......... 100% 100% 100%
European Micro BV ........... * 100% 100%
</TABLE>
* Company began operations in January 1996 and ceased to trade in December
1996.
European Micro operates in a single industry trading computer components.
In principle the Company 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. Big Blue Europe BV commenced operations in January 1997. It has
been included in these consolidated financial statements under the equity
method of accounting: 50% of the net assets and results of its operations have
been included. Big Blue Europe BV operates in the same industry as the Company.
All consolidated companies have a June 30, fixed accounting period end.
NOTE 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.
NOTE 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 include the results of
operations of its wholly owned subsidiaries which it controls. The principles
of consolidation are as follows:
F-7
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
/bullet/ All investments in the subsidiaries are eliminated.
/bullet/ All significant intercompany balances and transactions have been
eliminated in 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.
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-8
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 financial statements in
conformity with generally accepted accounting principles in the United States.
Actual results could differ from those estimates. Significant estimates and
assumptions include the amounts reflected as allowance for doubtful receivable,
allowance for obsolete inventories, amounts due to customers under incentive
programs, and deferred tax assets.
J) EARNINGS PER COMMON SHARE AND SHARE CAPITAL REORGANIZATION
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 stockholders 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 15 December 1997, including interim periods; earlier application
is not permitted.
In December 1996 retained earnings amounting to $1,498,000 were
capitalized pursuant to the requirements to re-register the Company as a plc
company in the United Kingdom.
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.
F-9
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
On incorporation of European Micro Holdings Inc. in December 1997, 4,000,000
ordinary shares were issued with par value $0.01 per share. The 4,000,000 shares
were issued to the current shareholders of European Micro Plc in exchange for
the entire issued share capital of that company on 31 January 1998. The weighted
average number of shares used in calculating earnings per share has been
retroactively adjusted to reflect the issued and outstanding ordinary shares of
European Micro Holdings, Inc. as 4,000,000 shares for each period under review.
The company has only presented basic earnings per share as diluted earnings per
share is the same as basic due to the "simple" capital structure.
NOTE 4. INTERIM FINANCIAL INFORMATION
The financial statements as of December 31, 1997 and for the six months
ended December 31, 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 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
six months ended December 31, 1997 are not necessarily indicative of the
results to be expected for the full year or any other interim period.
NOTE 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 has adopted SFAS No. 125. The adoption has not had a material
effect on the Company's financial position, results of operation or liquidity.
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.
F-10
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. NEW ACCOUNTING PRONOUNCEMENTS--(CONTINUED)
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 financial statements.
NOTE 6. TRADE RECEIVABLES, NET
Trade receivables consisted of receivables maturing within one year and
are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
------------------------ DECEMBER 31,
1996 1997 1997
--------- ------------ -------------
<S> <C> <C> <C>
Total trade receivables .......................... $5,063 $5,740 $8,323
Less: Allowance for doubtful receivables ......... -- (5) (70)
------ -------- ------
$5,063 $5,735 $8,253
====== ======= ======
</TABLE>
Trade receivables include discounted trade receivables as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Discounted trade receivables (see Note 12) ......... $1,749 $2,779 $4,953
Non discounted trade receivables ................... 3,314 2,956 3,300
------ ------ ------
$5,063 $5,735 $8,253
====== ====== ======
</TABLE>
The allowance for doubtful trade receivables is constituted as follows (in
thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
JUNE 30, ENDED
--------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
Beginning balance .............. $ $ -- $ --
Provision for bad debt ......... -- 5 70
---- ---- ----
Ending balance ................. $ -- $ 5 $ 70
==== ==== ====
</TABLE>
F-11
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. INVENTORIES
Inventories comprises (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Finished goods and goods for resale ................ $1,136 $1,595 $5,494
Less: Allowance for inventory obsolescence ......... (116) (35) (183)
------ ------ ------
$1,020 $1,560 $5,311
====== ====== ======
</TABLE>
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. As of
December 31, 1997 the insured value of inventory was $8,900,000 (unaudited).
The allowance for obsolescence is constituted as follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
JUNE 30, ENDED
----------------- DECEMBER 31,
1996 1997 1997
------ -------- -------------
<S> <C> <C> <C>
Beginning balance .................. $ 27 $ 116 $ 35
Provision for obsolescence ......... 89 (81) 213
Amounts written off ................ -- -- (65)
---- ----- -----
Ending balance ..................... $116 $ 35 $ 183
==== ===== =====
</TABLE>
NOTE 8. OTHER CURRENT ASSETS
Other current assets comprised (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
VAT receivable .......................... $232 $ -- $ --
Insurance claim ......................... -- -- 503
Other ................................... 83 37 339
---- ---- ----
$315 $ 37 $842
==== ==== ====
</TABLE>
F-12
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. PROPERTY AND EQUIPMENT
Property and equipment comprised (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Furniture and fixtures ................. $ 94 $ 136 $ 173
Computers and office equipment ......... 230 365 390
Vehicles and other ..................... 253 282 364
------ ------ ------
577 783 927
Less: accumulated depreciation ......... (245) (394) (406)
------ ------ ------
Net book value ......................... $ 332 $ 389 $ 521
====== ====== ======
</TABLE>
The charge for depreciation in each of the three years ended June 30, was
as follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30 ENDED
------------------------ DECEMBER 31,
1995 1996 1997 1997
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Depreciation expense ......... $100 $133 $167 $103
==== ==== ==== ====
</TABLE>
NOTE 10. INVESTMENTS (in thousands)
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
Investments in Big Blue Europe BV ......... $ -- $191 $212
==== ==== ====
</TABLE>
During the year ended June 30, 1997 European Micro Plc purchased 50% of
the issued share capital in Big Blue Europe BV at a cost of $264,000.
<TABLE>
<CAPTION>
PERIOD ENDED (UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1997
------------- ------------
<S> <C> <C>
Cost of investment .......................................... $ 264 $191
Equity in net (loss) or income of unconsolidated affiliate... (73) 21
----- ----
At June 30, 1997 ............................................ $ 191 $212
===== ====
</TABLE>
F-13
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. INVESTMENTS (in thousands)--(CONTINUED)
The equity share of (loss) income is based on the results of Big Blue
Europe BV since it commenced trading in January 1997 to June 30, 1997, and
December 31, 1997. A summarised statement of earnings for Big Blue Europe BV
for the period is set out below:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
PERIOD ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
-------------- ------------
<S> <C> <C>
Net sales ....................................................... $ 465 $ 2,152
Cost of goods sold .............................................. (354) (1,673)
------ --------
Gross profit .................................................... 111 479
Operating expenses .............................................. (325) (400)
------ --------
Income before income taxes ...................................... (214) 79
Taxes on income ................................................. 68 (37)
------ --------
Net (loss) income ............................................... (146) 42
====== ========
Equity in net (loss) income of unconsolidated affiliate ......... $ (73) $ 21
====== ========
</TABLE>
NOTE 11. BANK OVERDRAFT
The bank overdraft was as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Bank overdraft ......... $1,348 $1,034 $830
====== ====== ====
</TABLE>
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 in each of the three years ended June 30, 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------ DECEMBER 31,
1995 1996 1997 1997
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Bank overdraft interest expense ......... $69 $119 $133 $60
=== ==== ==== ===
</TABLE>
F-14
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. DISCOUNT CREDITOR
The discount creditor balance was as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Discount creditor ......... $1,399 $2,223 $3,962
====== ====== ======
</TABLE>
The discount creditor balance represents the finance obligation to 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):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------------- DECEMBER 31,
1996 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Discounted trade receivable balances (See Note 6) ......... $1,749 $2,779 $4,953
====== ====== ======
</TABLE>
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 (December 31,
1997; $6,562,000, unaudited) of which $2,223,000 was used (December 31, 1997;
$3,962,000, unaudited). Therefore the unused available facility at June 30,
1997 amounted to $1,910,000 (December 31, 1997; $2,600,000, unaudited).
The discount creditor balance is secured by a direct interest on the trade
receivable balances to which it relates. The discount creditor facility is
reviewed annually in November of each year.
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 for each of the years in the three-year period ended June 30, 1997 was
as follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30 ENDED
------------------------ DECEMBER 31,
1995 1996 1997 1997
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Discount creditor finance charge ......... $73 $24 $149 $155
=== === ==== ====
</TABLE>
F-15
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. TRADE PAYABLES
At June 30, trade payables consisted principally of balances resulting
from purchase transactions.
NOTE 14. TAXES ON INCOME
Taxes on income is only attributable to income from continuing operations
and consists of (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
---------------------------- DECEMBER 31,
1995 1996 1997 1997
-------- -------- ------ -------------
<S> <C> <C> <C> <C>
Current taxation .......... $ 589 $ 490 $564 $494
Deferred taxation ......... (12) (17) 87 63
----- ----- ---- ----
$ 577 $ 473 $651 $557
===== ===== ==== ====
</TABLE>
The taxes on income represent the statutory rate of tax of 33% adjusted
for permanent differences. The income tax expense, which arises solely on
continuing operations, is reconciled below (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
--------------------------------- DECEMBER 31,
1995 1996 1997 1997
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Income before income taxes .................. $1,692 $1,318 $1,685 $1,711
====== ====== ====== ======
Expected tax charge @ 33%/31%* .............. 558 435 556 530
Tax on permanently disallowed items ......... 19 38 95 27
------ ------ ------ ------
Taxes on income ............................. $ 577 $ 473 $ 651 $ 557
====== ====== ====== ======
</TABLE>
* Statutory tax rate charged for the six months ended December 31, 1997.
F-16
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 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 are presented
below (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
JUNE 30, ENDED
----------------- DECEMBER 31,
1996 1997 1997
------ -------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Property and equipment, principally due to differences in
depreciation ........................................... $12 $ -- $ 2
Net operating loss carried forward ...................... 21 11 7
--- ----- ---
Total deferred tax assets ............................... 33 11 9
--- ----- ---
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) $ 9
=== ===== ===
</TABLE>
Net operating losses can be carried forward indefinitely.
There is no valuation allowance against the deferred tax assets.
NOTE 15. OTHER CURRENT LIABILITIES
Other asset liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
Accrued expenses ....................................... $550 $215 $ 574
VAT payable ............................................ -- 33 518
PAYE and NIC ........................................... 54 63 139
Hire purchase and capital leases (see Note 16) ......... 68 44 85
Others ................................................. -- 21 --
---- ---- ------
$672 $376 $1,316
==== ==== ======
</TABLE>
F-17
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. HIRE PURCHASE AND CAPITAL LEASES
Balances outstanding in relation to hire purchase and capital leases were
as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
Amounts payable:
Within one year (*) ......... $ 68 $44 $ 85
After one year .............. 37 45 110
---- --- ----
$105 $89 $195
==== === ====
</TABLE>
(*) 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:
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1997
---------- -------------
<S> <C> <C>
Cost ................................... $ 232 $ 319
Less: accumulated depreciation ......... (97) (53)
----- -----
Net book value ......................... $ 135 $ 266
===== =====
</TABLE>
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):
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED JUNE SIX MONTHS
30, ENDED
--------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
Hire purchase and capital lease interest ......... $5 $3 $8
== == ==
</TABLE>
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):
<TABLE>
<CAPTION>
JUNE 30
- ------------------
<S> <C>
1998 ........... $44
1999 ........... 44
2000 ........... 1
2001 ........... --
2002 ........... --
---
$89
===
</TABLE>
F-18
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17. COMMON STOCK
After adjusting for the share capitalization as disclosed in note 3(j) at
June 30 1997, and December 31, 1997 the Company's authorized common stock
consists of 20,000,000 shares with par value of $0.01 per share, and authorised
preferred stock consists of 1,000,000 shares with par value of $0.01 per share.
Outstanding common stock consists of 4,000,000 shares with par value of $0.01
per share. The breakdown of outstanding common stock by shareholders
(controlling shareholders) is as follows:
<TABLE>
<CAPTION>
AMOUNT %
-------- ---------
<S> <C> <C>
John B. Gallagher .......... $20 50.0
Harold D. Shields .......... $20 50.0
</TABLE>
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.
NOTE 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):
<TABLE>
<CAPTION>
LAND AND
JUNE 30, BUILDINGS
- ------------------ ----------
<S> <C>
1998 ........... $42
1999 ........... --
2000 ........... --
2001 ........... --
2002 ........... --
===
</TABLE>
The operating leases expire in June 1998.
F-19
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
CAPITAL LEASES
The future minimum lease payments of capital leases are disclosed in Note
16.
NOTE 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
sale and purchase 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.
The Company places all foreign exchange forward contracts with Global
Financial Markets, a division of the National Westminster Bank PLC, a leading
European bank.
EXCHANGE RATE SENSITIVITY
The table below summarises 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).
<TABLE>
<CAPTION>
EXPECTED
MATURITY OR
TRANSACTION
DATE
JUNE 30, 1998 FAIR VALUE
----------------- -----------
<S> <C> <C>
FORWARD EXCHANGE AGREEMENTS
June 30, 1997
(Receive $US/Pay Pound)
Contract amount (expired 8/26/97).......... $ 2,006 $2,006
Average contractual exchange rate ......... $ 1.66/Pound1
(Receive Pound/Pay DM)
Contract amount (expired 7/7/97)........... 430 450
Average contractual exchange rate ......... Pound0.36/DM
June 30, 1996
(Receive DM/Pay Pound)
Contract amount (expired 7/15/96).......... 461 460
Average contractual exchange rate ......... 2.36DM/Pound1
(Receive $/Pay Pound)
Contract amount (expired 7/15/96).......... 1,913 1,900
Average contractual exchange rate ......... $ 1.54/Pound1
</TABLE>
The fair value has been determined by applying the mid-price of the spread
on the buy or sell rates as appropriate, of the relevant foreign currency at
the balance sheet date. The mid-price used is that quoted by the Financial
Times.
F-20
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19. FOREIGN EXCHANGE CONTRACTS--(CONTINUED)
Income and losses in respect of the transaction foreign exchange
transactions were as follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
---------------------- DECEMBER 31,
1996 1997 1997
--------- ---------- -------------
<S> <C> <C> <C>
(Loss) income on foreign exchange transactions ......... $ (21) $ (157) $279
===== ====== ====
</TABLE>
NOTE 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).
NOTE 21. RELATED PARTY INFORMATION
RELATED PARTY TRANSACTIONS
European Micro Plc has belonged to a group of related companies called
Micro Computer Center Group (the "Group"). The Group is comprised of European
Micro Plc, Technology Express Inc. located in Nashville, Tennessee ("Technology
Express"), American Surgical Supply Corp. d/b/a American Micro Computer Center
in Miami, Florida ("American Micro Computer Center") and, until August 1, 1997,
Ameritech Exports Inc. located in Miami, Florida ("Ameritech Exports") and
Ameritech Argentina S.A. located in Buenos Aires, Argentina ("Ameritech
Argentina"). All members of the Group were owned and controlled by either of
the two primary shareholders of European Micro Plc, John B. Gallagher and/or
Harry D. Shields.
F-21
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21. RELATED PARTY INFORMATION--(CONTINUED)
RELATED PARTY TRANSACTIONS
Related party transactions are summarised as follows (in thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
---------------------------------------- DECEMBER 31,
1995 1996 1997 1997
--------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
SALES
American Micro Computer Center ......... $ 323 $ 306 $ 66 $10,413
Technology Express ..................... 22 104 (2) 3,582
Ameritech Argentina .................... -- -- 90 --
Ameritech Exports ...................... 1 26 -- --
------ ------ -------- -------
$ 346 $ 436 $ 154 $13,995
====== ====== ======== =======
PURCHASES
American Micro Computer Center ......... $4,082 $2,289 $1,092 $ 325
Technology Express ..................... 3,265 14,890 20,717 2,937
Ameritech Argentina .................... -- -- -- --
Ameritech Exports ...................... 70 1,116 848 --
------ ------ -------- -------
$7,417 $18,295 $22,657 $ 3,262
====== ======= ======== =======
OPERATING EXPENSES
CONSULTANCY FEES
American Micro Computer Center ......... $ 56 $ 50 $ 60 $ 18
Technology Express ..................... 56 50 60 16
------ ------- -------- -------
112 100 120 34
------ ------- -------- -------
MANAGEMENT FEES
Technology Express ..................... 32 37 16 10
------ ------- -------- -------
32 37 16 10
------ ------- -------- -------
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 $ 44
====== ======== ======== =======
</TABLE>
"Recharged consultancy fees" represent the consultancy fees charged by Mr
Gilbert to European Micro Plc, before he was appointed as a director of the
same, which have been recharged to the related companies on the basis of the
work completed by Mr Gilbert in respect of those related parties.
F-22
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21. RELATED PARTY INFORMATION--(CONTINUED)
DUE FROM/TO RELATED PARTIES
a) Due from related parties comprised the following balances (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
--------------- DECEMBER 31,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
American Micro Computer Center ......... $259 $240 $446
Technology Express ..................... 15 -- 8
Ameritech Argentina .................... 274 329 --
Ameritech Exports ...................... 160 -- --
---- ---- ----
$708 $569 $454
==== ==== ====
</TABLE>
b) Due to related parties comprised of following balances (in thousands):
<TABLE>
<CAPTION>
JUNE 30, (UNAUDITED)
------------------ DECEMBER 31,
1996 1997 1997
--------- ------ -------------
<S> <C> <C> <C>
American Micro Computer Center ......... $ 90 $ -- $ --
Technology Express ..................... 535 188 2,858
Ameritech Argentina .................... 281 -- --
Ameritech Exports ...................... 238 -- --
------ ---- ------
$1,144 $188 $2,858
====== ==== ======
</TABLE>
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.
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.
F-23
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21. RELATED PARTY INFORMATION--(CONTINUED)
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.
NOTE 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):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------------------- DECEMBER 31,
1995 1996 1997 1997
--------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
UK ..................... $ 8,414 $11,876 $21,050 $14,665
Germany ................ 13,749 11,305 8,282 6,047
Netherlands ............ 5,520 8,230 4,653 2,940
Other European ......... 4,109 6,879 10,163 6,438
United States .......... 585 436 154 13,995
Other non EU ........... 1,487 1,622 2,353 2,024
------- ------- ------- -------
$33,864 $40,348 $46,655 $46,109
======= ======= ======= =======
</TABLE>
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 payable are in currencies (principally the
US dollar) which is different than the functional currency of European Micro
Plc.
F-24
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 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:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------------ DECEMBER 31,
1995 1996 1997 1997
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
RELATED PARTY
Technology Express ......... 12.3% 43.2% 51.1% 4.4%
THIRD PARTIES
Supplier A ................. 24.1% 14.1% -- --
B ............ .......... 18.7% -- -- --
C ............ .......... -- -- -- 19.6%
D ............ .......... -- -- -- 18.0%
E ............ .......... -- -- -- 16.9%
F ............ .......... -- -- -- 16.6%
</TABLE>
The following table summarizes sales to major customers (sales in excess
of 10% for the period) as a percentage of total sales:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
---------------------------- DECEMBER 31,
1995 1996 1997 1997
------ ---------- ------ -------------
<S> <C> <C> <C> <C>
RELATED PARTY
American Micro Computer Center ......... -- -- -- 22.6%
THIRD PARTY
Customer G ............................. -- 10.2% -- --
</TABLE>
The Company and it subsidiaries believe that their relationship with the
above customers 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):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1997
---------- -------------
<S> <C> <C>
RELATED PARTY
American Micro Computer Centre ......... $446
THIRD PARTY
Customer G ............................. $1,168
</TABLE>
F-25
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 23. SUPPLEMENTAL CASH FLOW INFORMATION (in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------ ----------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid ..................... $ (150) $ (156) $ (290) $ (62) $ (223)
Taxes on paid income .............. (478) (578) (584) (110) (256)
------ ------ ------ ------ ------
$ (628) $ (734) $ (874) $ (172) $ (479)
====== ====== ====== ====== ======
</TABLE>
NOTE 24. SUBSEQUENT EVENTS (Unaudited)
In November 1997 European Micro Plc incurred losses with regard to an
inventory theft. A claim has been submitted to the insurers amounting to
$503,000. This amount is included as a receivable in other current assets at
December 31, 1997 (Note 8). The claim was settled in full, with the exception
of $8,000 policy excess, in February 1998.
In January 1998, prior to the signing of the Subscription Agreement
referred to below, Messrs. Gallagher and Shields transferred a number of their
shares into trust. The outstanding shares of European Micro Plc after the
transfers were held as follows:
<TABLE>
<CAPTION>
PERCENT
OWNERSHIP
----------
<S> <C>
Mr. Gallagher .................................................. 47.5%
Mr. Shields .................................................... 40.1%
Thomas H. Minkoff as Trustee of the Gallagher Trust ............ 2.5%
The Shields' Trustees as Trustees of the Shields Trust ......... 9.9%
</TABLE>
European Micro Holdings Inc. was incorporated on December 23, 1997 to act
as the holding company of European Micro Plc. This company has had no operations
to date other than investing in European Micro Plc. The investment was achieved
pursuant to the Subscription Agreement dated 31 January 1998 whereby each share
in European Micro Plc was exchanged for four shares in European Micro Holdings
Inc. The stock transfer forms were executed on various dates on or before March
5, 1998. As a result the entire outstanding share capital of European Micro Plc
is now owned by European Micro Holdings Inc. Following incorporation and its
investment in European Micro Plc, the balance sheet of European Micro Holdings
Inc. is as follows (in thousands):
<TABLE>
<S> <C>
INVESTMENTS:
European Micro Plc ..................................... $ 40
Nor'easter Micro Inc. (Refer below) .................... 10
-----
LESS: CREDITORS (amounting owing re Nor'easter) ......... (10)
-----
Net assets .............................................. 40
=====
EQUITY: SHARE CAPITAL ................................... $ 40
=====
</TABLE>
F-26
<PAGE>
EUROPEAN MICRO PLC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 24. SUBSEQUENT EVENTS--(CONTINUED)
Nor'easter Micro Inc. ("Nor'easter") was established on 26 December 1997
as a fellow subsidiary of European Micro Plc with entire outstanding share
capital being held by European Micro Holdings Inc. In addition Nor'easter holds
one share in European Micro Plc as a nominee shareholder. This company has had
no operations to date and as at the date of incorporation its balance sheet was
as follows (in thousands):
<TABLE>
<S> <C>
DEBTOR (amount due from European Micro Holdings Inc.) ......... $10
===
EQUITY: SHARE CAPITAL ......................................... $10
===
</TABLE>
Executive Employment Agreements were reached between Messrs. Gallagher and
Shields on 1 January 1998. The base compensation payable to each of the
executives is $175,000, per annum. Notice of termination of the agreement by
either party, without cause, is a maximum of 60 days. In January 1998, European
Micro Holdings Inc. adopted the 1998 Stock Incentive Plan ("the plan"). The
total number of shares initially authorized to be issued under the plan is
500,000 shares of common stock. The plan will be administered by a committee of
the Board ("the committee"). The committee may grant to such participants as
the committee may select options entitling the participants to purchase shares
of common stock for the company in such numbers, at such prices and on such
terms and subject to such conditions, consistent with the terms of the plan, as
may be established by the committee. The plan shall remain in effect until
terminated by an action of the Board.
In January 1998, European Micro Holdings Inc. adopted the 1998 Employee
Stock Purchase Plan ("the employee plan"). The purpose of the employee plan is
to provide a method whereby employees of European Micro Holdings Inc. and its
subsidiaries will have an opportunity to acquire a proprietary interest in
European Micro Holdings Inc. through the purchase of shares of common stock.
The Committee, as appointed by the Board will administer the employee plan. The
maximum number of shares of common stock which shall be issued under the
employee plan is 50,000. The options issued under the employee plan, to
eligible employees, will be exercisable at 85% of market value or such higher
percentage (not in excess of 100%) as may be established by the employee plan
committee. The employee plan shall remain in effect until terminated by an
action of the Board.
F-27
<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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus ................................... 1
Summary ...................................... 3
Risk Factors ................................. 8
Use of Proceeds .............................. 19
Dividend Policy .............................. 20
Capitalization ............................... 20
Dilution ..................................... 21
Selected Consolidated Financial Data ......... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 24
Business ..................................... 33
Management ................................... 41
Certain Relationships and Related
Transactions .............................. 50
Principal and Selling Shareholders ........... 53
Description of Capital Stock ................. 54
Shares Eligible For Future Sale .............. 57
Underwriting ................................. 59
Experts ...................................... 60
Legal Matters ................................ 60
Additional Information ....................... 60
Index to Financial Statements ................ F-1
</TABLE>
-----------------------------------
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. LOGO]
1,100,000 SHARES
OF
COMMON STOCK
PROSPECTUS
[TARPON SECURITY INVESTMENTS LOGO]
MARCH , 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>
<S> <C>
Securities and Exchange Commission Registration Fee ......... $ 3,245.00
NASD Fee .................................................... 1,500.00
Nasdaq National Market Listing Fee .......................... 30,000.00
Printing and Engraving Expenses ............................. 35,000.00
Accounting Fees and Expenses ................................ 260,000.00
Legal Fees and Expenses ..................................... 200,000.00
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 ............................................... 40,000.00
------------
Total ..................................................... $ 799,745.00
============
</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.
Pursuant to indemnification agreements entered into with each of the
directors and officers, the Company has agreed to indemnify each director and
officer, to the fullest extent permitted by law, from and against any and all
claims of any type arising from or related to his past or future acts or
omissions as a director or officer of the Company and any of its subsidiaries.
In addition, the Company has agreed to advance all expenses of each director
and officer as they are incurred and in advance of the final disposition of any
claim.
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
II-1
<PAGE>
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 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 1.01 to this
Prospectus, the Underwriter has 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
On January 31, 1998, the Company issued an aggregate of 4,000,000 shares
of Common Stock to John B. Gallagher (1,900,000 shares), Harry D. Shields
(1,602,696 shares), Thomas H. Minkoff, as Trustee of the Gallagher Family Trust
(100,000) and Stuart S. Southard and Robert H, True, Trustees of the 1997 Henry
Daniel Shields Irrevocable Educational Trust (397,304) in exchange for all of
their shares of ordinary stock of European Micro UK pursuant to an exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
No commissions or other remuneration will be paid in connection with the
above-described issuance of securities.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- ------- -----
<S> <C>
1.01 Form of Underwriting Agreement
3.01 Articles of Incorporation*
3.02 Bylaws
4.01 Form of Stock Certificate
4.02 1998 Stock Incentive Plan
4.03 1998 Employee Stock Purchase Plan
5.01 Form of Opinion of Kirkpatrick & Lockhart LLP regarding the validity of the
securities offered(1)
10.01 Form of Advice of Borrowing Terms with National Westminister Bank Plc
10.02 Invoice Discounting Agreement with Lombard Natwest Discounting Limited, dated
November 21, 1996
10.03 Commercial Credit Insurance, policy number 60322, with Hermes Kreditversicherungs-AG
dated August 1, 1995
10.04 Commercial Credit Insurance, policy number 82692, with Hermes Kreditversicherungs-AG
dated August 1, 1995
10.05 Consignment Agreement with European Micro Computer Germany, dated January 1996
10.06 Distributor Agreement with WatchGuard Technologies, Inc., dated November 5, 1997
10.07 Shareholders' Cross-Purchase Agreement by and between Jeffrey Gerard Alnwick, Marie
Alnwick, European Micro Plc and Big Blue Europe, B.V. dated August 21, 1997
10.08 Trusteed Shareholders Cross-Purchase Agreement by and between John B. Gallagher, Harry
D. Shields, Thomas H. Minkoff, Trustee of the Gallagher Family Trust, Robert H. True and
Stuart S. Southard, Trustees of the Henry Daniel Shields 1997 Irrevocable Educational Trust,
European Micro Holdings, Inc. and SunTrust Bank, Nashville, N.A., as Trustee dated
January 31, 1998
10.09 Executive Employment Agreement between John B. Gallagher and European Micro Holdings,
Inc. effective as of January 1, 1998
10.10 Executive Employment Agreement between Harry D. Shields and European Micro Holdings, Inc.
effective as of January 1, 1998
10.11 Form of Executive Employment Agreement between Laurence Gilbert and European Micro
UK
10.12 Contract of Employment between Bernadette Spofforth and European Micro UK, dated
April 30, 1996
10.13 Subscription Agreement by and between John B. Gallagher, Harry D. Shields, Thomas H.
Minkoff, Trustee of the Gallagher Family Trust, Robert H. True and Stuart S. Southard,
Trustees of the Henry Daniel Shields 1997 Irrevocable Educational Trust, European Micro
Holdings, Inc. effective as of January 31, 1998
10.14 Administrative Services Contract by and between European Micro Holdings, Inc. and
European Micro Plc effective as of January 1, 1998
10.15 Form of Escrow Agreement
10.16 Form of Indemnification Agreements with officers and directors
10.17 Form of Transfer Agent Agreement with Chase Mellon Shareholder Services, L.L.C.
23.01 Consent of KPMG
24.01 Power of Attorney*
</TABLE>
- ----------------
* Previously filed.
(1) To be filed by amendment
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, PROVIDED, that the registrant includes in the prospectus, by means
of a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements an information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations an registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
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 March 6, 1998.
EUROPEAN MICRO HOLDINGS, INC.
By: /s/ John B. Gallagher
-----------------------------------
John B. Gallagher
Co-Chairman and Co-President
(Principal Executive Officer)
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>
* Co-Chairman; Co-President March 6, 1996
- ------------------------------- (Principal Executive Officer);
Harry D. Shields
Director
/s/ John B. Gallagher Co-Chairman; Co-President March 6, 1998
- ------------------------------- (Principal Executive Officer);
John B. Gallagher
Director
* Chief Financial Officer March 6, 1998
- ------------------------------- and Controller
Jay Nash
* (Principal Financial Officer and Controller) March 6, 1998
- ------------------------------- Director
Laurence Gilbert
* Director March 6, 1998
- -------------------------------
Bernadette Spofforth
* Director March 6, 1998
- -------------------------------
Kyle R. Saxon
/s/ Barrett Sutton Director March 6, 1998
- -------------------------------
Barrett Sutton
*By /s/ John B. Gallagher
- -------------------------------
As Attorney-in-Fact
Pursuant to Powers of Attorney
previously filed
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
1.01 Form of Underwriting Agreement
3.02 Bylaws
4.01 Form of Stock Certificate
4.02 1998 Stock Incentive Plan
4.03 1998 Employee Stock Purchase Plan
10.01 Form of Advice of Borrowing Terms with National Westminister Bank Plc
10.02 Invoice Discounting Agreement with Lombard Natwest Discounting Limited,
dated November 21, 1996
10.03 Commercial Credit Insurance, policy number 60322, with Hermes
Kreditversicherungs-AG dated August 1, 1995
10.04 Commercial Credit Insurance, policy number 82692, with Hermes
Kreditversicherungs-AG dated August 1, 1995
10.05 Consignment Agreement with European Micro Computer Germany, dated
January 1996
10.06 Distributor Agreement with WatchGuard Technologies, Inc., dated November 5,
1997
10.07 Shareholders' Cross-Purchase Agreement by and between Jeffrey Gerard
Alnwick, Marie Alnwick, European Micro Plc and Big Blue Europe, B.V. dated
August 21, 1997
10.08 Trusteed Shareholders Cross-Purchase Agreement by and between John B.
Gallagher, Harry D. Shields, Thomas H. Minkoff, Trustee of the Gallagher
Family Trust, Robert H. True and Stuart S. Southard, Trustees of the Henry
Daniel Shields 1997 Irrevocable Educational Trust, European Micro Holdings,
Inc. and SunTrust Bank, Nashville, N.A., as Trustee dated January 31, 1998
10.09 Executive Employment Agreement between John B. Gallagher and European
Micro Holdings, Inc. effective as of January 1, 1998
10.10 Executive Employment Agreement between Harry D. Shields and European Micro
Holdings, Inc. effective as of January 1, 1998
10.11 Form of Executive Employment Agreement between Laurence Gilbert and
European Micro UK
10.12 Contract of Employment between Bernadette Spofforth and European Micro
UK, dated April 30, 1996
10.13 Subscription Agreement by and between John B. Gallagher, Harry D. Shields,
Thomas H. Minkoff, Trustee of the Gallagher Family Trust, Robert H. True and
Stuart S. Southard, Trustees of the Henry Daniel Shields 1997 Irrevocable
Educational Trust, European Micro Holdings, Inc. effective as of January 31,
1998
10.14 Administrative Services Contract by and between European Micro Holdings, Inc.
and European Micro Plc effective as of January 1, 1998
10.15 Form of Escrow Agreement
10.16 Form of Indemnification Agreements with officers and directors
10.17 Form of Transfer Agent Agreement with Chase Mellon Shareholder Services,
L.L.C.
23.01 Consent of KPMG
</TABLE>
EXHIBIT 1.01
1,100,000 Shares
EUROPEAN MICRO HOLDINGS, INC.
FORM OF UNDERWRITING AGREEMENT
Tarpon Scurry Investments, Inc.
501 First Avenue North, Suite 702
St. Petersburg, FL 33701
Dear Sirs:
European Micro Holdings, Inc., a Nevada corporation ("EMHI" or the
"COMPANY"), together with certain of its stockholders executing this Agreement
(the "SELLING STOCKHOLDERS"), propose to publicly offer and sell through Tarpon
Scurry Investments, Inc. ("YOU") certain shares (the "SHARES") at a public
offering price of $10 per Share (the "SELLING PRICE") of the Company's common
stock, par value $.01 per share ("COMMON STOCK"), of which 1,000,000 Shares are
to be provided by the Company and an additional 100,000 Shares are to be
provided by the Selling Stockholders (in the individual amounts listed beside
their names on the signature pages hereto) (the Company and the Selling
Stockholders are collectively referred to herein as the "SELLERS"). The Shares
shall be offered for sale by the Company and the Selling Stockholders on a "BEST
EFFORTS" basis.
The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you in connection with your acting as selling
agent for the Shares:
1. OFFERING AND SALE OF THE SHARES. Subject to all the terms and
conditions set forth herein, the Company and the Selling Stockholders hereby
appoint you as their exclusive agent, for a period (the "OFFERING PERIOD") of
the earlier of sixty days from the date hereof or a Closing Date (as defined
below). As exclusive agent, you agree to offer the Shares for sale for the
account of the Company and the Selling Stockholders on a "BEST EFFORTS" basis at
the Selling Price and the terms hereinafter set forth (the "OFFERING"). You
shall have no obligation to sell shares for the account of the Selling
Stockholders until at you have arranged for the sale of shares for the account
of the Company at an aggregate price of at least $10,000,000. You accept such
engagement upon the basis of the representations, warranties and agreements of
the Company and the Selling Stockholders herein contained and subject to all the
terms and conditions set forth herein.
2. SELLING AGENT'S COMPENSATION. At the Closing (as defined below), the
Company shall cause to be paid to you an agency fee equal to 8% of the proceeds
released to the Company on the Closing Date.
3. DELIVERY AND PAYMENT.
(a) ESCROW PROCEDURES. You and the Company shall enter into an
escrow agreement (the "ESCROW AGREEMENT") in substantially the form appended
hereto as Annex A with ______________ (the "ESCROW AGENT") pursuant to which you
will deposit subscription funds you receive on behalf of the Company for Shares
prior to the Closing Date with the Escrow Agent, to be released by the Escrow
Agent (i) if at such time the collected proceeds equal or exceed $10,000,000
<PAGE>
(the "Minimum Offering") or (ii) at the option of the Company if at such time
the collected proceeds equal or exceed $7,000,000.
(b) CLOSING DATE. Delivery by the Company and the Selling
Stockholders, if applicable, of the Shares to you, and payment of the purchase
price by certified or official bank check payable in next day funds to the
Company shall take place at the offices of your counsel, Holland & Knight, LLP
at 10:00 am. Eastern Time, on the third full business day following the date on
which you and the Company notify the Escrow Agent to release the Offering
proceeds held by the Escrow Agent (the "CLOSING DATE"), provided that the
conditions to release specified in the Escrow Agreement have then been
satisfied.
(c) REGISTRATION AND AVAILABILITY OF CERTIFICATES.
Certificates representing the Shares shall be registered in such names and shall
be in such denominations as you shall request at least three full business days
before the Closing Date.
(d) SELLING STOCKHOLDERS' SHARES. Certificates in transferable
form for the Shares which each of the Selling Stockholders agrees to sell
pursuant to this Agreement have been placed in custody with
_____________________ (the "CUSTODIAN") for delivery under this Agreement
pursuant to a Custody Agreement and Power of Attorney (the "CUSTODY AGREEMENT")
executed by each of the Selling Stockholders appointing _______________ and
______________ as agents and attorneys-in-fact (the "ATTORNEYS-IN-FACT"). Each
Selling Stockholder agrees that (i) the Shares represented by the certificates
held in custody pursuant to the Custody Agreement are subject to your interests
hereunder, and the interests of the Company and the other Selling Stockholders,
(ii) the arrangements made by the Selling Stockholders for such custody are,
except as specifically provided in the Custody Agreement, irrevocable, and (iii)
the obligations of the Selling Stockholders hereunder and under the Custody
Agreement shall not be terminated by any act of such Selling Stockholder or by
operation of law, whether by the death or incapacity of any Selling Stockholder
or the occurrence of any other event. If any Selling Stockholder shall die or be
incapacitated or if any other event shall occur before the delivery of the
Shares hereunder, certificates for the Shares of such Selling Stockholder shall
be delivered to you by the Attorneys-in-Fact in accordance with the terms and
conditions of this Agreement and the Custody Agreement as if such death or
incapacity or other event had not occurred, regardless of whether or not the
Attorneys-in-Fact or you shall have received notice of such death, incapacity or
other event. Each Attorney-in-Fact is authorized, on behalf of each of the
Selling Stockholders, to execute this Agreement and any other documents
necessary or desirable in connection with the sale of the Shares to be sold
hereunder by such Selling Stockholder, to make delivery of the certificates for
such Shares, to receive the proceeds of the sale of such Shares, to give
receipts for such proceeds, to pay therefrom any expenses to be borne by such
Selling Stockholder in connection with the sale and public offering of such
Shares, to distribute the balance thereof to such Selling Stockholder, and to
take such other action as may be necessary or desirable in connection with the
transactions contemplated by this Agreement. Each Attorney-in-Fact agrees to
perform his duties under the Custody Agreement.
4. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING.
(a) REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared in conformity with the requirements of the Securities Act of 1933 (the
"SECURITIES ACT"), and the published rules and regulations adopted by the
Securities and Exchange Commission (the "COMMISSION") thereunder (the "RULES"),
a registration statement on Form S-1 (No. 333-44393), including a prospectus
subject to completion relating to the Shares, and has filed with the
2
<PAGE>
Commission the registration statement and such amendments thereof as have been
required to the date of this Agreement. Copies of such registration statement
(including all amendments thereof) and of the related prospectus subject to
completion relating to the Shares have heretofore been delivered by the Company
to you. The term "REGISTRATION STATEMENT" as used in this Agreement means such
registration statement (including all financial schedules and exhibits), as
amended or supplemented at the time it becomes effective, or, if it becomes
effective prior to the execution of this Agreement, as supplemented or amended
prior to the execution of this Agreement. If it is contemplated, at the time
this Agreement is executed, that a post-effective amendment to the Registration
Statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "REGISTRATION STATEMENT" as used in this
Agreement means the registration statement as amended by such post-effective
amendment. The term "EFFECTIVE DATE" as used in this Agreement means the time
and date upon which the Commission shall declare the Registration Statement to
be effective. The term "PROSPECTUS" as used in this Agreement means the
prospectus in the form included in the Registration Statement or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Rules and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) of the Rules, the term
"PROSPECTUS" means the Prepricing Prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "PRELIMINARY PROSPECTUS" as used in this Agreement means
the prospectus subject to completion in the form included in the Registration
Statement at the time of the initial filing of the Registration Statement with
the Commission and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus. The Company will not file any amendment of
the Registration Statement or supplement to the Prospectus to which you shall
reasonably object after being furnished with a copy thereof.
(b) PUBLIC OFFERING. The Company understands that you propose
to make for the account of the Company and the Selling Stockholders a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date as you and the Company deem advisable. The Company
hereby confirms that you have been authorized to distribute or cause to be
distributed each Preliminary Prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments thereof or supplements thereto to you).
5. AGREEMENTS OF THE COMPANY. The Company agrees with you as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the Offering of the Shares may commence,
the Company will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing, when
the Registration Statement or such post-effective amendment has become
effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Preliminary
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in Section 5(f)
below, of any change in the Company's condition (financial or
3
<PAGE>
other), business, prospects, properties, net worth or results of operations, or
of the happening of any event, which makes any statement of a material fact made
in the Registration Statement or the Prospectus (as then amended or
supplemented) untrue or which requires the making of any additions to or changes
in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Securities Act
or the regulations thereunder to be stated therein or necessary in order to make
the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Securities Act or any other law. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such order
at the earliest possible time.
(c) The Company will furnish to you, without charge (i) two
signed copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the Registration Statement, and (ii) such number of conformed copies
of the Registration Statement as originally filed and of each amendment thereto,
but without exhibits, as you may request.
(d) The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which, after you shall
have received a copy of the document proposed to be filed, you shall reasonably
object.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Preliminary Prospectus. The Company
consents to the use, in accordance with the provisions of the Securities Act and
with the securities or Blue Sky laws of the jurisdictions in which the Shares
are offered by you and by dealers, prior to the date of the Prospectus, of each
Preliminary Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of your counsel a Prospectus is required by the Securities Act to be delivered
in connection with sales by you or any dealer, the Company will expeditiously
deliver to you and each dealer, without charge, as many copies of the Prospectus
(and of any amendment or supplement thereto) as you may request. The Company
consents to the use of the Prospectus (and of any amendment or supplement
thereto) in accordance with the provisions of the Securities Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by you and by all dealers to whom Shares may be sold, both in connection with
the offering and sale of the Shares and for such period of time thereafter as
the Prospectus is required by the Securities Act to be delivered in connection
with sales by you or any dealer. If during such period of time any event shall
occur that in the judgment of the Company or in the opinion of your counsel is
required to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Prospectus in order to comply with the
Securities Act or any other law, the Company will forthwith prepare and, subject
to the provisions of Section 5(d) above, file with the Commission an appropriate
supplement or amendment thereto and will expeditiously furnish to you and
dealers a reasonable number of copies thereof. In the event that the Company and
you agree that the Prospectus should be amended or supplemented, the Company, if
requested by you, will promptly
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issue a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(g) The Company will cooperate with you and with your counsel
in connection with the registration or qualification of the Shares for offering
and sale by you and by dealers under the securities or Blue Sky laws of such
jurisdictions as you may designate and will file such consents to service of
process or other documents necessary or appropriate in order to effect such
registration or qualification; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to service of process in
suits, other than those arising out of the offering or sale of the Shares, in
any jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the Effective Date and ending not later
than 15 months thereafter, as soon as practicable after the end of such period,
which consolidated earnings statement shall satisfy the provisions of Section
ll(a) of the Securities Act.
(i) During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission, and (ii) from time
to time such other information concerning the Company as you may request.
(j) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.
(k) If Rule 430A of the Securities Act is employed, the
Company will timely file the Prospectus pursuant to Rule 424(b) under the
Securities Act and will advise you of the time and manner of such filing.
(l) Except as provided in this Agreement, the Company will not
sell, contract to sell or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, for
a period of 180 days after the date of the Prospectus, without your prior
written consent, or grant any options or warrants to purchase Common Stock that
are exercisable within 180 days of the date of the Prospectus, without your
prior written consent. For the period beginning 180 days after the Closing Date
and ending one year from the Closing Date, the Company, and those officers,
directors and stockholders listed on Exhibit ___ hereto, will not sell or
dispose of any of the Company's 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.
(m) The Company has furnished or will furnish to you "LOCK-UP"
letters, in form and substance satisfactory to you, signed by each of its
current officers, directors and stockholders.
(n) Except as stated in this Agreement and in the Preliminary
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
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(o) The Company will use its best efforts to have the shares
of Common Stock which it agrees to sell under this Agreement listed, subject to
notice of issuance, on the (1) Boston Stock Exchange or (2) the Nasdaq National
Market on or before the Closing Date.
6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each of the Selling
Stockholders agrees with you as follows:
(a) Such Selling Stockholder will cooperate to the extent
necessary to cause the Registration Statement or any post-effective amendment
thereto to become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all Federal and other
taxes, if any on the transfer or sale of the Shares being sold by the Selling
Stockholder in this Offering.
(c) Such Selling Stockholder will do or perform all things
required to be done or performed by the Selling Stockholder prior to the Closing
Date to satisfy all conditions precedent to the delivery of the Shares pursuant
to this Agreement.
(d) Such Selling Stockholder has executed or will execute a
"LOCK-UP" letter as provided in Section 0 above and will not sell, contract to
sell or otherwise dispose of any Common Stock, except for the sale of Shares in
the Offering pursuant to this Agreement, prior to the expiration of 180 days
after the date of the Prospectus, without your prior written consent.
(e) Except as stated in this Agreement and in the Preliminary
Prospectus and the Prospectus, such Selling Stockholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 0 hereof, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or results of
operations or of any change in information relating to such Selling Stockholder
or the Company or any new information relating to the Company or relating to any
matter stated in the Prospectus or any amendment or supplement thereto which
comes to the attention of such Selling Stockholder that suggests that any
statement made in the Registration Statement or the Prospectus (as then amended
or supplemented, if amended or supplemented) is or may be untrue in any material
respect or that the Registration Statement or Prospectus (as then amended or
supplemented, if amended or supplemented) omits or may omit to state a material
fact or a fact necessary to be stated therein in order to make the statements
therein not misleading in any material respect, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented, if amended or
supplemented) in order to comply with the Securities Act or any other law.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you that:
(a) Each Preliminary Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the provisions of the
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Securities Act. The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus.
(b) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-1 under the Securities Act. The
Registration Statement in the form in which it became or becomes effective and
also in such form as it may be when any post-effective amendment thereto shall
become effective and the Prospectus and any supplement or amendment thereto when
filed with the Commission under Rule 424(b) under the Securities Act, complied
or will comply in all material respects with the provisions of the Securities
Act and will not at any such times contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, except that this representation
and warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information relating to you furnished to the Company in writing by you or on
your behalf through you expressly for use therein.
(c) All the outstanding shares of Common Stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; the Shares to be issued and
sold by the Company have been duly authorized and, when issued and delivered to
the purchasers thereof against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of any
preemptive or similar rights; and the capital stock of the Company conforms to
the description thereof in the Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Nevada with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole.
(e) All the Company's subsidiaries (collectively, the
"SUBSIDIARIES") are listed on Exhibit ___ hereto. Each Subsidiary is a
corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of such Subsidiary; all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly, or indirectly through one
of the other Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance.
(f) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that
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are required to be described in the Registration Statement or the Prospectus but
are not described as required, and there are no agreements, contracts,
indentures, leases or other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required by the
Securities Act.
(g) Neither the Company nor any of the Subsidiaries is in
violation of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, or in default in any
material respect in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any material agreement, indenture, lease or other instrument to which the
Company or any of the Subsidiaries is a party or by which any of them or any of
their respective properties may be bound.
(h) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i) requires
any consent, approval, authorization or other order of or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except such as may be required for the registration of
the Shares under the Securities Act and the Securities Exchange Act of 1934 (the
"EXCHANGE ACT") and compliance with the securities or Blue Sky laws of various
jurisdictions, all of which have been or will be effected in accordance with
this Agreement) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or (ii) conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, any agreement, indenture,
lease or other instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or any of their respective properties may be
bound, or violates or will violate any statute, law, regulation or filing or
judgment, injunction, order or decree applicable to the Company or any of the
Subsidiaries or any of their respective properties, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of them
may be bound or to which any of the property or assets of any of them is
subject.
(i) The accountants who have certified or shall certify the
financial statements included or incorporated by reference in the Registration
Statement and the Prospectus (or any amendment or supplement thereto) are
independent public accountants as required by the Securities Act.
(j) The financial statements, together with related schedules
and notes, included or incorporated by reference in the Registration Statement
and the Prospectus (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and the Subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data included
or incorporated by reference in the Registration Statement and the Prospectus
(and any amendment or
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<PAGE>
supplement thereto) are accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company and the
Subsidiaries.
(k) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
federal or state securities laws.
(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, net worth or results of operations of the Company and the Subsidiaries
taken as a whole.
(m) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the Prospectus
as being owned by it, free and clear of all liens, claims, security interests or
other encumbrances except such as are described in the Registration Statement
and the Prospectus or in a document filed as an exhibit to the Registration
Statement and all the property described in the Prospectus as being held under
lease by each of the Company and the Subsidiaries is held by it under valid,
subsisting and enforceable leases.
(n) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Preliminary Prospectus, the Prospectus or other materials, if any, permitted by
the Securities Act.
(o) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("PERMITS") as are necessary to own its respective properties and to
conduct its business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; the Company and each of
the Subsidiaries has fulfilled and performed all its material obligations with
respect to such Permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such Permit,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such Permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(p) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain
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accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(q) To the Company's knowledge, neither the Company nor any of
its Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(r) The Company and each of the Subsidiaries have filed all
tax returns required to be filed, which returns are complete and correct, and
neither the Company nor any Subsidiary is in default in the payment of any taxes
which were payable pursuant to said returns or any assessments with respect
thereto.
(s) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of the
Company because of the filing of the Registration Statement or consummation of
the transactions contemplated by this Agreement.
(t) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registration, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and the Company is not
aware of any claim to the contrary or any challenge by any other person to the
rights of the Company and the Subsidiaries with respect to the foregoing.
(u) The Company has complied with all provisions of Florida
Statutes, Section 517.075, relating to issuers doing business with Cuba.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder represents and warrants to you that:
(a) Such Selling Stockholder now has, and on the Closing Date
will have, valid and marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any lien, claim, security interest or other
encumbrance, including, without limitation, any restriction on transfer.
(b) Such Selling Stockholder now has, and on the Closing Date
will have, full legal right, power and authority, and any approval required by
law, to sell, assign transfer and deliver such Shares in the manner provided in
this Agreement, and upon delivery of and payment for such Shares hereunder, the
purchaser thereof will acquire valid and marketable title to such Shares free
and clear of any lien, claim, security interest, or other encumbrance.
(c) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of such Selling Stockholder
and are the valid and binding agreements of such Selling Stockholder enforceable
against such Selling Stockholder in accordance with their terms.
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(d) Neither the execution and delivery of this Agreement or
the Custody Agreement by or on behalf of such Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Securities Act and the Exchange Act or such as
may be required under state securities or Blue Sky laws governing the purchase
and distribution of the Shares) or conflicts or will conflict with or
constitutes or will constitute a breach of, or default under, or violates or
will violate, any agreement, indenture or other instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is or may be bound
or to which any of such Selling Stockholder's property or assets is subject, or
any statute, law, rule, regulation, ruling, judgment, injunction, order or
decree applicable to such Selling Stockholder or to any property or assets of
such Selling Stockholder.
(e) The Registration Statement and the Prospectus, insofar as
they relate to such Selling Stockholder, do not and will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(f) Such Selling Stockholder does not have any knowledge or
any reason to believe that the Registration Statement or the Prospectus (or any
amendment or supplement thereto) contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(g) The representations and warranties of such Selling
Stockholder in the Custody Agreement are, and on the Closing Date will be, true
and correct.
(h) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares, except for the lock-up arrangements
described in the Prospectus.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless you and
each person who controls you within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to you furnished in writing to the Company by you
or on your behalf through you expressly for use in connection therewith;
provided, however, that the indemnification obligation contained in this Section
9(b) with respect to any Preliminary Prospectus shall not inure to your benefit
(or to the benefit of any person controlling you) on account of any such loss,
claim, damage, liability or expense arising from your
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offering the Shares for sale to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the
Securities Act and the regulations thereunder, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact
contained in such Preliminary Prospectus was corrected in the Prospectus,
provided that the Company has delivered to you the Prospectus in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company or
any Selling Stockholder may otherwise have.
(b) Each Selling Stockholder, jointly and severally, agrees to
indemnify and hold harmless you and each person who controls you within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to you furnished
in writing to the Company by you or on your behalf through you expressly for use
in connection therewith; provided, however, that the indemnification obligation
contained in this Section 0 with respect to any Preliminary Prospectus shall not
inure to your benefit (or to the benefit of any person controlling you) on
account of any such loss, claim, damage, liability or expense arising from your
offering the Shares for sale to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the
Securities Act and the regulations thereunder, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact
contained in such Preliminary Prospectus was corrected in the Prospectus,
provided that the Company has delivered to you the Prospectus in requisite
quantity on a timely basis to permit such delivery or sending; and provided
further that the indemnification obligation contained in this Section 0 shall be
limited to the amount of proceeds received by the Selling Stockholders in the
Offering.
(c) If any action, suit or proceeding shall be brought against
you or any person controlling you in respect of which indemnity may be sought
against the Company or any Selling Stockholder, you or such controlling person
(the "INDEMNIFIED PARTIES") shall promptly notify the parties against whom
indemnification is being sought (the "INDEMNIFYING PARTIES"), and such
Indemnifying Parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. You or any such controlling
person shall have the right to employ separate counsel in any such action, suit
or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at your expense or at the expense of such
controlling person unless (i) the Indemnifying Parties have agreed in writing to
pay such fees and expenses, (ii) the Indemnifying Parties have failed to assume
the defense and employ counsel, or (iii) the named parties to any such action,
suit or proceeding (including any impleaded parties) include both you or such
controlling person and the Indemnifying Parties and you or such controlling
person shall have been advised by its counsel that representation of such
Indemnified Party and any Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Indemnifying Party
shall not have the right to assume the defense of such action, suit or
proceeding on behalf of you or such controlling
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person). It is understood, however, that the Indemnifying Parties shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for you and your
controlling persons not having actual or potential differing interests with you
or among themselves, which firm you shall designate in writing, and that all
such fees and expenses shall be reimbursed as they are incurred. The
Indemnifying Parties shall not be liable for any settlement of any such action,
suit or proceeding effected without their written consent, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the Indemnifying Parties agree to indemnify you
and hold you harmless, to the extent provided in the preceding Section 0, and
any such controlling person from and against any loss, claim, damage, liability
or expense by reason of such settlement or judgment.
(d) You agree to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement, each Selling
Stockholder, and any person who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, to the
same extent as the foregoing indemnity from the Company and the Selling
Stockholders to you, but only with respect to information relating to you
furnished in writing by you or on your behalf through you expressly for use in
the Registration Statement, the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, any Selling
Stockholder, or any such controlling person based on the Registration Statement,
the Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, and in respect of which indemnity may be sought against you pursuant to
this Section 0, you shall have the rights and duties given to the Company by
Section 0 above (except that if the Company shall have assumed the defense
thereof, you shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at your expense), and the Company, its directors, any such
officer, the Selling Stockholders, and any such controlling person shall have
the rights and duties given to you by Section 0 above. The foregoing indemnity
agreement shall be in addition to any liability which you may otherwise have.
(e) If the indemnification provided for in this Section 0 is
unavailable to an Indemnified Party under Sections 0 or 0 hereof in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
an Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and you on the other hand from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company and the Selling Stockholders on the one hand
and you on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Stockholders on the one hand and you on the other
shall be deemed to be in the same proportion as the total net proceeds from the
Offering (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by you, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Selling Stockholders on
the one hand and you on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue
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statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Stockholders on the one hand or by you on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(f) The Company, the Selling Stockholders and you agree that
it would not be just and equitable if contribution pursuant to this Section 0
were determined by a pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 0 above. The amount paid or payable by an Indemnified Party as a result
of the losses, claims, damages, liabilities and expenses referred to in Section
0 above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 0, you shall not be
required to contribute any amount in excess of the amount the Company receives
in connection with the Offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(g) No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any Indemnified Party
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for
which an Indemnified Party is entitled to indemnification or contribution under
this Section 0 shall be paid by the Indemnifying Party to the Indemnified Party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 0 and the
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by you or on your behalf or on behalf
of any person controlling you, the Company, its directors or officers or the
Selling Stockholders or any person controlling the Company, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. Any successor you may have or a successor to any person controlling
you, or to the Company, its directors or officers, or any person controlling the
Company, shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 0.
10. CONDITIONS OF YOUR OBLIGATIONS. Your several obligations hereunder
are subject to the following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the Offering of the Shares may commence,
the Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., Eastern Time, on the date hereof, or at such
later date and time as shall be consented to in writing by you, and all filings,
if any, required by Rules 424 and 430A under the Act shall have been timely
made; no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceeding for that purpose shall have been
instituted or, to your or the Company's knowledge, threatened by the Commission,
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and any request of the Commission for additional information (to be included in
the Registration Statement or the prospectus or otherwise) shall have been
complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement as set
forth in Section 0 hereof, there shall not have occurred (i) any change, or any
development involving a prospective change, in or affecting the condition
(financial or other), business, properties, net worth, or results of operations
of the Company or the Subsidiaries not contemplated by the Prospectus, which in
your opinion, would materially adversely affect the market for the Shares, or
(ii) any event or development relating to or involving the Company or any
officer or director of the Company or any Selling Stockholder which makes any
statement made in the Prospectus untrue or which, in the opinion of the Company
and its counsel or you and your counsel, requires the making of any addition to
or change in the Prospectus in order to state a material fact required by the
Act or any other law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the Prospectus
to reflect such event or development would, in your opinion materially adversely
affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Kirkpatrick & Lockhart, LLP counsel for the Company and the Selling
Stockholders, dated the Closing Date and addressed to you to the effect that:
(i) The Company is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of Nevada with full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole;
(ii) Each of the Subsidiaries is a corporation
duly organized and validly existing in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to
own, lease, and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto); and all the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned by the Company directly, or indirectly through
one of the other Subsidiaries, free and clear of any perfected security
interest, or, to the best knowledge of such counsel after reasonable inquiry,
any other security interest, lien, adverse claim, equity or other encumbrance;
(iii) The authorized and outstanding capital stock of
the Company is as set forth under the caption "CAPITALIZATION" in the
Prospectus; and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Prospectus under the caption "DESCRIPTION OF CAPITAL STOCK";
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be issued and sold by the
Company hereunder, have been duly authorized and validly issued, and are fully
paid and nonassessable;
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(v) The Shares to be issued and offered for sale by
the Company hereunder have been duly authorized and, when issued and delivered
to the purchasers thereof against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of any
preemptive, or to the best knowledge of such counsel after reasonable inquiry,
similar rights that entitle or will entitle any person to acquire any Shares
upon the issuance thereof by the Company;
(vi) The form of certificates for the Shares
conforms to the requirements of the Nevada [General Corporation Law];
(vii) The Registration Statement and all
post-effective amendments, if any, have become effective under the Act and, to
the best knowledge of such counsel after reasonable inquiry, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule 424(b)
has been made in accordance with Rule 424(b);
(viii) The Company has the full corporate power and
authority to enter into this Agreement and to issue, sell and deliver the Shares
to be sold by it as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally and by general equitable principles;
(ix) Neither the Company nor any of the
Subsidiaries is in violation of its respective certificate or articles of
incorporation or bylaws, or other organizational documents, or to the best
knowledge of such counsel after reasonable inquiry, is in default in the
performance of any material obligation, agreement or condition contained in any
bond, debenture, note or other evidence of indebtedness, except as may be
disclosed in the Prospectus;
(x) Neither the offer, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, the certificate or articles
of incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or any agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties is bound that is an exhibit to the
Registration Statement or is known to such counsel after reasonable inquiry,
except for such any agreement, indenture, lease or other instrument the breach
of, or default under, will not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company or any of the Subsidiaries, or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of the Subsidiaries, nor will any such action result in any
violation of any existing law, regulation, ruling (assuming compliance with all
applicable state securities and Blue Sky laws), judgment, injunction, order or
decree known to such counsel after reasonable inquiry, applicable to the
Company, the Subsidiaries or any of their respective properties;
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(xi) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the Act
and the Exchange Act or such as may be required under state securities or Blue
Sky laws governing the purchase and distribution of the Shares) for the valid
issuance and sale of the Shares as contemplated by this Agreement;
(xii) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act;
(xiii) To the best knowledge of such counsel after
reasonable inquiry, (A) other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectus (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement;
(xiv) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the Subsidiaries is in
violation of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries, except for such violations which would not have a
material adverse effect on the Company, the Subsidiaries or their respective
properties;
(xv) The statements in the Registration Statement
and Prospectus, insofar as they are descriptions of contracts, agreements or
other legal documents, or refer to statements of law or legal conclusions, are
accurate and present fairly the information required to be shown;
(xvi) This Agreement and the Custody Agreement have
each been duly executed and delivered by or on behalf of each of the Selling
Stockholders and are valid and binding agreements of each Selling Stockholder
enforceable against each Selling Stockholder in accordance with their terms;
(xvii) To the knowledge of such counsel, each Selling
Stockholder has full legal right, power and authorization, and any approval
required by law, to sell, assign, transfer and deliver good and marketable title
to the Shares which such Selling Stockholder has agreed to sell pursuant to this
Agreement;
(xviii) The execution and delivery of this Agreement
and the Custody Agreement by the Selling Stockholders and the consummation of
the transactions contemplated hereby and thereby will not conflict with,
violate, result in a breach of or constitute a default under the terms or
provisions of any agreement, indenture, mortgage or other instrument known to
such counsel to which any Selling Stockholder is a party or by which any of them
or any of their assets or property is bound, or any court order or decree or any
law, rule, or regulation applicable to any Selling Stockholder or to any of the
property or assets of any Selling Stockholder, which violation,
17
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breach or default would result in a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries taken as a whole;
(xix) Upon delivery of the Shares pursuant to this
Agreement and payment therefor as contemplated herein the purchasers thereof
will acquire good and marketable title to the Shares free and clear of any lien,
claim, security interest, or other encumbrance, restriction on transfer or other
defect in title; and
(xx) Although counsel has not undertaken, except
as otherwise indicated in their opinion, to determine independently, and does
not assume any responsibility for, the accuracy or completeness of the
statements in the Registration Statement, such counsel has participated in the
preparation of the Registration Statement and the Prospectus, including review
and discussion of the contents thereof, and nothing has come to the attention of
such counsel that has caused them to believe that the Registration Statement at
the time the Registration Statement became effective, or the Prospectus, as of
its date and as of the Closing Date contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that any amendment or
supplement to the Prospectus, as of its respective date, and as of the Closing
Date contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and the notes thereto and the schedules and other financial
and statistical data included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United States
or the State of Florida, provided that (1) each such local counsel is acceptable
to you, (2) such reliance is expressly authorized by each opinion so relied upon
and a copy of each such opinion is delivered to you and is, in form and
substance satisfactory to them and their counsel, and (3) counsel shall state in
their opinion that they believe that they and you are justified in relying
thereon. Counsel shall provide an opinion of, or shall give its opinion in
reliance upon, Nevada counsel as to the opinions contained in Sections 10(c)(i),
10(c)(iv) and 10(c)(viii) hereof.
(d) You shall have received letters addressed to you and dated
the date hereof and the Closing Date from KPMG Peat Marwick LLP, independent
certified public accountants, substantially in the forms heretofore approved by
you.
(e) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company from that set forth
or contemplated in the Registration Statement or the Prospectus (or any
amendment or Supplement thereto); (iii) there shall not have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in the Registration Statement and Prospectus (or any
amendment or supplement thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net
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worth or results of operations of the Company and the Subsidiaries taken as a
whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 10(e) and in Section
10(f) hereof.
(f) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(g) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of the Selling Stockholders to the effect set forth
in this Section 10(g) and in Section 10(h) hereof.
(h) The Selling Stockholders shall not have failed at or prior
to the Closing Date to have performed or complied with any of their agreements
herein contained and required to be performed or complied with by them hereunder
at or prior to the Closing Date.
(i) Prior to the Closing Date the shares of Common Stock which
the Company agrees to sell pursuant to this Agreement shall have been listed,
subject to notice of issuance, on the Boston Stock Exchange or the Nasdaq
National Market.
(j) The Sellers shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have requested.
Such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to you and your counsel.
Any certificate or document signed by any officer of the
Company or any Attorney-in-Fact or any Selling Stockholder and delivered to you
or to your counsel, shall be deemed a representation and warranty by the
Company, the Selling Stockholders or the particular Selling Stockholder, as the
case may be, to you as to the statements made therein.
11. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by them of
their obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Preliminary Prospectus, the Prospectus, and all amendments or supplements to any
of them, as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of
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certificates for the Shares, including any stamp taxes in connection with the
original issuance and sale of the Shares; (iv) the printing (or reproduction)
and delivery of this Agreement, the preliminary and supplemental Blue Sky
Memoranda and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Shares; (v) the listing of the
Shares on the Boston Stock Exchange or the Nasdaq National Market; (vi) up to
$30,000 of the costs and expenses of the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of the several
states as provided in Section 0 hereof (including the reasonable fees, expenses
and disbursements of your counsel relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification) ; (vii) the filing fees and
the fees and expenses of your counsel in connection with any filings required to
be made with the National Association of Securities Dealers, Inc.; (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company and the Selling Stockholders.
All expenses (including the reasonable fees and expenses of
legal counsel) less amounts advanced pursuant to Paragraph 6 of the Letter of
Intent dated September 30, 1997 between you and the Company, not otherwise paid
in advance, that are incurred by you in connection with the Offering shall be
paid at the Closing Date out of the gross proceeds of the Offering or, if the
Company elects to terminate its participation in the Offering, then on the date
of such termination. In the event that the Company continues its good faith
efforts to prepare and complete the Registration Statement and to have such
Registration Statement declared effective but you are unable or unwilling to
complete the Minimum Offering upon the terms (and subject to the conditions)
generally described herein (as such may be amended by mutual agreement of the
parties), then upon termination of the Offering Period, the Company shall
reimburse you for the expenses (less amounts advanced pursuant to Paragraph 6
hereof) incurred to such date in connection with the Offering, to the extent
that such expenses exceed $100,000. For purposes of this Section 11, the Company
shall reimburse the expenses that you incur in connection with the Offering as
provided in the preceding Section, and such expenses shall be deemed reasonable
if they amount to $150,000 (including the amounts advanced pursuant to Paragraph
6 hereof) or less. In no event shall the expenses to be reimbursed to you
exceed $225,000.
12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you by notifying the Company and the Selling Stockholders.
Any notice under this Section 12 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on your part to the
Company or any Selling Stockholder, by notice to the Company, if prior to the
Closing Date (i) trading in securities generally on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market shall have been
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suspended or materially limited, (ii) a general moratorium on commercial banking
activities in New York or Florida shall have been declared by either federal or
state authorities, or (iii) there shall have occurred any outbreak or escalation
of hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the Offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus. Notice of such termination may be given to the Company by telegram,
telecopy or telephone and shall be subsequently confirmed by letter.
14. INFORMATION FURNISHED BY YOU. The statements set forth in the last
Section on the cover page, the stabilization legend on the inside cover page,
and the statements in the ________ paragraph under the caption "UNDERWRITING" in
any Preliminary Prospectus and in the Prospectus, constitute the only
information furnished by you or on your behalf through you as such information
is referred to in Sections 0 and 0 hereof. [The _____ paragraph under the
caption "UNDERWRITING" will contain Tarpon Scurry's name and the amount of the
agency commission].
15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12 and
13 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered as follows:
(i) if to the Company, at the office of the Company at 6073 N.W. 167th
Street, Unit C-25, Miami, Florida 33015, Attention: John Gallagher, President;
with a copy to Clayton E. Parker, Kirkpatrick & Lockhart LLP, 201 South Biscayne
Boulevard, Suite 2000, Miami, Florida 33131; or
(ii) if to the Selling Stockholders, c/o John Gallagher at the address
for the Company with a copy to Clayton Parker, in each case as set forth in the
preceding clause; or
(iii) if to you: Tarpon Scurry Investments, Inc., 501 First Avenue
North, Suite 702, St. Petersburg, FL 33701 with a copy to D. Ronald Surbey,
Holland & Knight LLP, One East Broward Boulevard, Fort Lauderdale, Florida
33301.
This Agreement has been and is made solely for your benefit and the
benefit of the Company, its directors and officers, the Selling Stockholders,
and the other controlling persons referred to in Section 9 hereof and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser of any of the Shares in his status as
such purchaser.
16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the laws of the State of Florida applicable to
contracts made and to be performed within the State of Florida.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and you.
Very truly yours,
EUROPEAN MICRO HOLDINGS, INC.
By
------------------------------
John Gallagher
Chairman of the Board
Each of the Selling Stockholders
By
------------------------------
Attorney-in-Fact
By
------------------------------
Attorney-in-Fact
Confirmed as of the date first
above mentioned
TARPON SCURRY INVESTMENTS, INC.
- -------------------------------
By: Stephen Comeau, President
EXHIBIT 3.02
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.
<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
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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
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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
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in a 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.
11
<PAGE>
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.
12
<TABLE>
<S> <C>
COMMON STOCK COMMON STOCK
</TABLE>
NUMBER
SHARES
EUROPEAN MICRO HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 298786 104
This Certifies that
is the Registered Holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE, OF
EUROPEAN MICRO HOLDINGS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
<TABLE>
<S> <C>
CO-CHAIRMAN OF THE BOARD SECRETARY
</TABLE>
[SEAL]
COUNTERSIGNED AND REGISTERED
CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
EUROPEAN MICRO HOLDINGS, INC.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT
CHARGE A FULL STATEMENT OF: (A) THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES
AND LIMITATIONS APPLICABLE TO EACH CLASS OF CAPITAL STOCK AUTHORIZED TO BE
ISSUED; (B) THE VARIATIONS, IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED
FOR EACH SERIES AUTHORIZED TO BE ISSUED WITHIN EACH SUCH CLASS; AND (C) THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE SUCH VARIATIONS FOR SUBSEQUENT
SERIES.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- (Cust)___________Custodian (Minor)___________ under Uniform
Gifts to Minors Act (State)___________________
Additional abbreviations may also be used though not in the above list.
For Value Received_______________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
______________________________
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
_________________________ shares of the capital stock represented by the within
Certificate and does hereby irrevocably constitute and appoint__________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
DATED:_________________________ SIGNED:___________________________
SIGNED:___________________________
NOTICE: The signature(s) on this
assignment must conform in all
respects with the name as written upon
the face of the certificate.
IMPORTANT: SIGNATURE(S) MUST BE GUARANTEED BY A PARTICIPANT IN A RECOGNIZED
SIGNATURE GUARANTEE PROGRAM.
EXHIBIT 4.02
EUROPEAN MICRO HOLDINGS, INC.
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.
<PAGE>
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 immediately prior to 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
- 2 -
<PAGE>
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.
- 3 -
<PAGE>
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.
- 4 -
<PAGE>
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. In the
case of a Non-Employee Director, Termination of Employment shall mean voluntary
or involuntary termination, non-election, removal or other act which results in
such Non-Employee Director no longer serving in such capacity.
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
- 5 -
<PAGE>
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 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. As of the first day of the second annual term and each year
thereafter that such Non-Employee Director serves in the capacity as a
Non-Employee Director, 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), 6.3(e) or 6.5, Non-Employee Director Options shall not be
exercisable prior to the first anniversary of the Date
- 6 -
<PAGE>
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.
(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).
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<PAGE>
(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 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.
- 8 -
<PAGE>
(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 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).
(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
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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 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
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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 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.
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<PAGE>
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.
(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
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<PAGE>
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 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
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<PAGE>
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.
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
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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 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.
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<PAGE>
(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 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.
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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
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.
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EXHIBIT 4.03
EUROPEAN MICRO HOLDINGS, INC.
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 for a period not less
than one (1) year and (ii)
<PAGE>
customarily scheduled to work at the rate of 21 or more hours per week;
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.
2.16.PARTICIPANT shall mean an Employee who elects to participate in the
Plan in accordance with Article III.
2
<PAGE>
ARTICLE III.
ELIGIBILITY AND PARTICIPATION
3.1 INITIAL ELIGIBILITY. Any Employee is eligible to participate in the
Plan for each Offering Period.
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 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.
3
<PAGE>
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 Section 5.2 hereof will be deemed to have been
exercised in full automatically on the Offering Termination Date applicable to
such Offering Period.
4
<PAGE>
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.
5
<PAGE>
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 20,000 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
<PAGE>
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.
7
<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.
EXHIBIT 10.01
FORM OF
ADVICE OF BORROWING TERMS
29 August 1997
BORROWER(S) NAME European Micro PLC
ADDRESS 20-24 Church Street, Altrincham, Cheshire WA14 4DW
Subject to the Bank's rights below and subject to the Bank's rights under the
"General terms upon which the Bank makes facilities available", it is the Bank's
current intention that the facilities specified in this "Advice of Borrowing
Terms" should remain available until 30 September 1997 (currently being
reviewed).
FACILITY TYPE AND AMOUNT:
1. Overdraft (pound)500,000 + an excess of(pound)1,000,000 to
10 September 1997
2. Forex - (pound)400,000 net ((pound)2,000,000 gross)
3. Terminable Indemnity (pound)400,000
PURPOSE:
1. Working capital for occasional use
2. To cover foreign currency forward bookings
3. HMCE Duty Deferment Guarantee
REPAYMENT:
It is the Bank's current intention that the facilities should be reviewed by the
dates indicated herein. However, all amounts outstanding under the facilities
are repayable on demand, which may be made by the Bank at its sole discretion at
any time. The facilities may also, by notice, be withdrawn, reduced or made
subject to further conditions or otherwise varied.
INTEREST RATE:
1st Debit Interest Rate : 1.75% above Base Rate
2nd Debit Interest Rate (To cover the : 2.75% above Base Rate
agreed excess)
Payable : quarterly
Interest on any indebtedness from time to time in excess of the agreed
facilities will be charged at the interest rate detailed above. An excess fee
will be charged at the Bank's published rate
<PAGE>
from time to time (currently (pound)3.50 per day) for each day that your agreed
Overdraft limit is exceeded. The Bank is not obliged to allow (or continue to
allow) any excess borrowing.
All rates specified above are variable. If the interest rate specified above is
not linked to the Bank's Base Rate, interest will be charged initially at the
rate per annum specified above, which may vary from time to time at the Bank's
absolute discretion. Details of the current rates are available from the branch
or office where the facility is provided.
The Bank may alter the basis upon which interest is calculated (including the
size of the margin charged over the Bank's Base Rate or other published rate) on
facilities and/or the amount of any regular repayments of facilities which are
repayable on demand (or by notice), but it will give the customer one month's
notice before doing so.
OTHER FACILITIES:
Daytime Exposure Limit - (pound)500,000 - to enable payments to be sent
via Payment Manager
FEES:
TYPE AMOUNT DATE TO BE DEBITED
/bullet/ Terminable Indemnity 1.5% p.a. Quarterly in advance
/bullet/ Arrangement Fee (pound)2,000 Debited 27 August 1997
/bullet/ Letter of Credit 0.25% of the face When Letter of Credit issued
value to issue the
Letter of Credit
0.4% of the face
value to When the Letter of Credit
enable the Letter transferred.
of Credit to be
transferred
ACCOUNT CHARGES:
A quarterly charge for operating the Company's Current Account will be levied at
a rate of (pound)250 per quarter for the first 12 months. This is to be reviewed
thereafter in the light of activity levels.
All other supplementary, or specialised transmission services, will be charged
at the time they are used. Our booklet "Charges for Business Customers" lists
the most commonly used services available to business customers and confirms
when the charges will be taken. A copy is available from our Branches.
SECURITY:
<PAGE>
The Bank will rely on the required security detailed below for the discharge on
demand of all present and future liabilities (both actual and contingent) of the
Borrower to the Bank under the facility or facilities specified in this "Advice
of Borrowing Terms".
All assets charged to the Bank, or against which the Bank has provided finance,
are to be adequately insured, with a copy of the most recent Insurance Schedule
provided to the Bank.
From time to time the Bank may wish to revalue the security and the cost of any
valuations required by the Bank will be met by the Borrower. Further information
is included in the "General terms upon which the Bank makes facilities
available".
DATE EXECUTED TITLE OF SECURITY ASSET
12.11.1996 Legal Mortgage Debenture All fixed and floating assets
of the Company
CONDITIONS WHICH MUST BE SATISFIED BEFORE DOCUMENTARY CREDIT LINE
BECOMES AVAILABLE:
1. A cash sum of not less than 50% of the value of the Documentary Credit to be
deposited in an account "NatWest Bank re European Micro Plc" and these funds to
remain in this account pending full and final settlement of the Letter of Credit
when the liability to NatWest reverts to Nil.
OTHER CONDITIONS:
1. Submission of monthly management accounts within 21 days of the month end.
FACILITIES SUBJECT TO SEPARATE DOCUMENTATION:
/bullet/ Documentary Credit Line (Letter of Credit or L/C) 1,010,500
GENERAL TERMS:
Please note that all facilities specified in this "Advice of Borrowing Terms"
are made subject to the "General terms upon which the Bank makes facilities
available", except for those subject to separate facility letters/agreement
forms which do not expressly incorporate the General Terms. Please note that all
facilities are also subject to any terms which may be implied by English Law.
- ---------------------------------
P A BLOXHAM
Corporate Manager
For and on behalf of NATIONAL WESTMINSTER BANK PLC
<PAGE>
The Borrower confirms acceptance of the above terms and conditions pursuant to a
Resolution of the Board of Directors of European Micro PLC
- --------------------------
Dated
EXHIBIT 10.02
INVOICE DISCOUNTING AGREEMENT
AN AGREEMENT made the twenty first day of November 1996
BETWEEN
1. The person whose name and address is set out in the schedule hereto and
who is there described as the Vendor ("the Vendor") and
2. LOMBARD NATWEST DISCOUNTING LIMITED of Smith House Elmwood Avenue
Feltham Middlesex ("LND")
WHEREBY it is agreed as follows:
1. The Agreement shall commence on the date specified in the schedule and
shall continue until terminated by either party by not less than three months'
written prior notice.
2. (a) The Vendor shall sell with full title guarantee and LND shall
purchase free from all charges liens and other encumbrances and upon the terms
hereof all Receivables; subject to such exceptions as may from time to time be
specified by LND.
(b) The purchase of any Receivable shall be complete and the rights to
such Receivable shall vest in LND upon that Receivable coming into existence.
(c) "Receivables" means all the book debts, invoice debts, accounts
notes, bills, acceptances and/or other forms of obligation owned by or owing to
the Vendor which are in existence at the date of commencement of this Agreement
or which come into existence during the currency of this Agreement in respect of
contracts entered into by the Vendor for the sale of goods or the provision of
services in the ordinary course of business to customers in countries as set out
in the schedule, and which are payable in the United Kingdom in any of the
currencies specified in the schedule ("the Approved Currencies"), and shall also
include all the Vendor's rights under the contract concerned and in the goods
the subject matter of that contract. [However, the expression does not include a
sum payable in full in the United Kingdom prior to the despatch of the goods or
payable against documents under an irrevocable letter of credit confirmed by a
bank in the United Kingdom before despatch of the goods. For these purposes,
"despatch" is deemed to be made when the Vendor parts with possession of goods
in any way for the purpose of transmitting them to a customer.]
(d) The purchase price, which shall be payable as herein provided by LND
to the Vendor, for any Receivable purchased in accordance with Clause 2(a) shall
be the full amount payable by the Vendor's customer for the goods or services to
which the Receivable relates
<PAGE>
(together with any VAT, tax or other impost payable in respect thereof) as
notified by the Vendor to LND less:
(i) any discount commission or other allowances due or allowable to
the customer and shown on the relevant invoice; and
(ii) the Discounting Charge and shall be payable (subject as set out
below) in the currency in which the Receivable is expressed.
(e) All sales of Receivables made hereunder shall be absolute sales.
(f) "United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland, the Isle of Man and the Channel Islands.
3. Subject to the provisions of the Agreement and compliance by the Vendor
with Clause 9(b)(vi) LND shall remit (and at any time at the sole discretion of
LND it may remit) to the Vendor any part of the balance standing at the credit
of any of the Receivables Purchased Accounts up to the full amount thereof less
any amount which LND in its sole discretion requires as a retention. Any balance
which may stand at the debit of the Vendor on a Receivables Purchased Account
shall be payable by the Vendor to LND on demand. LND will notify the Vendor from
time to time of the basis on which it proposes to exercise its discretion under
the terms of this clause.
4. (a) Receivables Purchased Accounts will be maintained by LND in respect
of each of the Approved Currencies to which will be credited:
(i) the full purchase price (as defined in Clause 2(d) but ignoring
the Discounting Charge) of all Receivables payable in the
relevant currency advised to LND
(ii) any costs or expenses recovered by LND under Clause 13
(expressed in the relevant Approved Currency if actually
recovered in a different currency);
(iii) any amount paid by the Vendor to LND under this Agreement (but
shall not include any monies remitted to LND under Clause
9(b)(viii)) expressed in the relevant Approved Currency if
actually recovered in a different currency;
and to which will be debited (so far as the same relate to
Receivables denominated in the Approved Currency concerned):
(iv) all payments made to the Vendor by LND under the terms of this
Agreement; the full value of all credit notes issued by the
Vendor;
<PAGE>
(vi) the amount of any Receivables which LND gives notice to the
Vendor to repurchase under Clause 15;
(vii) the amount of any sum payable by the Vendor under Clauses 6,
11 (b)(i), 11(b)(ii) and 13;
(viii) the amount of any payment cost damage or liability made or
sustained by LND arising directly or indirectly in consequence
of any breach of warranty or undertaking by the Vendor or of
steps reasonably taken by LND to mitigate such payment cost or
damage or liability;
(ix) a Discounting Charge which will be calculated at the rate
specified in the schedule each day on the net daily balance
standing at the debit of the Memorandum Discounting Statement
referable to the relevant Approved Currency and will be
recovered by deduction from the next payment by LND to the
Vendor in respect of sums payable in the relevant Approved
Currency;
(x) a Commission Charge in accordance with Clause 5 which will be
debited on the last working day of each month and recovered by
deduction as set out in paragraph (ix) above.
(b) Memorandum Discounting Statements in respect of each of the Approved
Currencies will be maintained by LND for the purpose of calculating Discounting
Charges to which shall be credited:
(i) all payments received in respect of customer payments in the
relevant currency as described in Clause 9(b)(viii);
(ii) any payments received in the relevant currency direct by LND in
respect of the Receivables purchased under this Agreement;
(iii) any amount paid by the Vendor to LND in the relevant currency;
(iv) any amount that falls to be credited to the relevant
Receivables Purchased Account at Clause 4(a)(ii)above;
(v) any amount paid in the relevant currency by any other person to
LND under Clause 11(b);
and to which will be debited (so far as the same relate to
Receivables denominated in the Approved Currency concerned
(vi) all payments made to the Vendor by LND under the terms of this
Agreement;
<PAGE>
(vii) the amount of any sum payable by the Vendor to LND under
Clauses 11(b)(i), 11(b)(ii) and 13;
(viii) the amount of any sum payable under Clause 4(a)(viii) above;
(ix) the amount of any cheque or other instrument credited under
Clauses 4(b)(i); 4(b)(ii); 4(b)(iii); 4(b)(iv); and 4(b)(v)
above where such cheque or instrument is dishonoured;
(x) a Discounting Charge as described at Clause 4(a)(ix) above;
(xi) a Commission Charge as described at Clause 4(a)(x) above.
(c) At the end of each month LND will send to the Vendor copies of each
of the Receivables Purchased Accounts and each of the Memorandum Discounting
Statements.
5. LND shall be entitled to charge the Vendor a commission which shall be
calculated as being the percentage specified in the Schedule hereto of the gross
amount of Receivables sold to LND in each month. All such commission charges
shall be subject to applicable Value Added Tax at the prevailing rate.
6. Where any Receivable purchased by LND remains unpaid whether wholly or
in part after payment thereof has become due or where at any time the customer
disputes liability for payment or asserts any right of lien retention or setoff
the Vendor shall on demand pay to LND the full amount or the whole of the unpaid
amount of that Receivable.
7. (a) The Vendor shall at its own expense and if so requested by LND
execute a separate assignment in writing to LND of any Receivable sold to LND in
accordance with this Agreement and of any rights which the Vendor may have in
relation thereto.
(b) If in relation to any Receivable it is not possible for LND to take
a separate assignment of the Receivable as set out in sub-clause (a) of this
Clause 7, the Vendor will continue to hold such Receivable in trust for LND and
any payments received in respect thereof will be immediately paid to LND.
8. (a) The Vendor shall not grant any fixed or floating charge over any
existing or future Receivables of the Vendor and shall procure the exclusion of
such Receivables from any charge in which they would otherwise be comprised.
(b) The Vendor shall not assign charge or in any way dispose of the
benefit of this Agreement without the express consent in writing of LND.
<PAGE>
(c) During the currency of this Agreement the Vendor or if applicable
its parent subsidiary or associated company shall not enter into any agreement
for the charging or discounting of its Receivables without the express consent
of LND.
9. (a) The Vendor hereby warrants to LND that in relation to each
Receivable sold hereunder by the Vendor to LND and so that this warranty shall
be deemed to be repeated on each occasion on which the Vendor makes an advice of
Receivables to LND:
(i) the goods have been duly delivered or the services duly
provided;
(ii) no other person has an interest in or any charge lien or other
encumbrance on the Receivable to which the advice relates;
(iii) the Receivable is an existing and bona fide obligation of the
Vendor's customer arising out of the sale of goods or the
provision of services by the Vendor in the ordinary course of
its business;
(iv) the Vendor is not then in breach of any of its obligations to
the customer and the customer will accept the goods sold or the
services provided and the invoices therefor (or if the customer
is bankrupt or in liquidation the customer's trustee in
bankruptcy or liquidator will accept a proof of debt for the
unpaid balance of the invoiced price) without any dispute or
claim whatsoever (whether justifiable or not) including
disputes as to price, terms, quantity, or quality, set-offs or
counter-claim or claims of release from liability or inability
to pay because of any act of God or public enemy or war or
because of the requirements of law (whether in the United
Kingdom or elsewhere) or of rules orders or regulations having
the force of law;
(v) the customer is not a subsidiary, co subsidiary, parent or
associated company of the Vendor or under the same director or
shareholder control as the Vendor;
(vi) the customer has obtained all the authorities necessary under
the regulations in force in the country to which the goods are
despatched or services rendered, or from which payment is to be
made, in order to pay the Receivables in accordance with the
contract or invoice;
(vii) the contract with the customer specifies the nature and
quantity of the goods or services and the terms and currency of
payment;
(viii) the customer's authority to import the goods or receive the
services and to pay for them is not subject to conditions as to
the export of other goods from any country or as to payment for
such other goods when so exported;
<PAGE>
(ix) the goods or services are to be or have been exported to or
rendered in and payment is to be made from the customer's
country of residence; and
(x) the contract for the sale of goods or provision of services
between the Vendor and its customer shall be expressed to be
governed and construed in accordance with English law, and such
choice of law is in all respects valid and binding on the
customer.
(b) The Vendor hereby undertakes with LND so that this undertaking shall
continue throughout the term of this Agreement:
(i) promptly to perform all further or continuing obligations of
whatsoever nature of the Vendor to the customer arising out of
the sale of goods or the provision of services as a result of
which any Receivable comes into existence;
(ii) on request by LND to give notice to the Vendor's customers or
to such of them as LND shall direct that the right to the
Receivables specified in such notice (which may include
Receivables which have not yet come into existence) has been
assigned to LND such notice to be in such form as LND shall
require;
(iii) to disclose to LND any change or prospective change in the
constitution or control of the Vendor and any other fact or
matter known to the Vendor which is material to be known by a
purchaser of the Receivables;
(iv) in respect of every Receivable (but only after delivery of the
relevant goods or the provision of the relevant services) to
complete and deliver to LND an advice form supplied for such
purpose by LND signed by an authorised official. The Vendor
shall also remit any such other documents in support of each
Receivable as LND may require;
(v) that all entries relating to the sale of any Receivable by the
Vendor to LND are duly recorded in the books of the Vendor and
to ensure that all accounts maintained in the books or records
of the Vendor in the names of its customers bear a conspicuous
notation that they have been assigned to LND;
(vi) in relation to each of the Approved Currencies to send to LND
by the day of each month specified in the Schedule and in a
manner approved by LND and made up to the last day of the
preceding month:
(a) an aged analysis of the Receivables sold to LND which remain
outstanding at that date such analysis being aged on the basis
specified in the
<PAGE>
Schedule by invoice date and identifying those accounts which are either
disputed or in solicitors' hands;
(b) a copy of the Sales Ledger Account relating to the
Receivables purchased by LND under this Agreement;
(vii) to allow LND and its authorised agents at regular intervals
determined by LND and at such other times as LND shall
decide to visit the premises of the Vendor to inspect check
and verify all books records accounts orders and
correspondence and any other papers of the Vendor that LND
may require. The Vendor at the request of LND will supply
LND with statements of its financial position and results of
its operations certified by the Vendor's auditors;
(viii) the Vendor as trustee for LND will hold and keep separate
from any other monies of the Vendor all remittances received
by it in payment of any Receivable which has been sold to
LND. The Vendor will immediately pay all remittances
endorsed where required:
(a) direct to the account of LND at the bankers of LND, or
(b) into a trust account in the name of LND.
10. The Vendor hereby irrevocably:
(a) authorises LND to endorse the name of the Vendor on any and all
cheques or other forms of remittance received where such endorsement is required
to effect collection or to perfect LND's title as a holder in due course or for
any other reason;
(b) appoints LND the attorney of the Vendor to execute in the name and
on behalf of the Vendor any assignment requested under Clause 7.
11. (a) On purchase by LND of any Receivable then any title, property,
right or interest of the Vendor in the goods to which such Receivable relates
(including all such goods that may be rejected or returned by the customers of
the Vendor), all the Vendor's rights as unpaid Vendor and all other rights of
the Vendor under the contract or contracts pursuant to which the Receivable
comes into existence (whether such rights be created by contract, statute or
other rule of law) shall be deemed to be assigned and transferred to LND
absolutely whether or not the goods shall have been delivered by the Vendor at
the time of the said purchase.
(b) Any goods recovered by or on behalf of the Vendor in pursuance of
the exercise of any rights referred to in subclause (a) of this Clause shall be
treated as returned goods and all returned goods shall be promptly notified to
LND and shall be set aside marked with LND's name and held for LND's account as
owner. LND shall (in addition to and without prejudice to any other rights it
may have) have the right to take possession of and to sell or cause to be sold
<PAGE>
without notice any returned goods at such prices to such purchasers and upon
such terms and conditions as it may deem advisable and in the event of any such
sale the Vendor shall pay to LND on demand (and without asserting any right of
set-off):
(i) the difference between the amount of the Receivable relating
to such goods and the amount received by LND on any such
sales; and
(ii) any costs and expenses (including legal fees) incurred by LND
in relation to any such repossession and sale.
(c) On purchase by LND of any Receivable then without prejudice to the
generality of the provisions of sub-clause (a) of this Clause, there shall vest
in LND the benefit of all guarantees, indemnities, insurances and securities
given to or held by the Vendor in respect of such Receivable or of goods or
services to which it relates.
12. LND shall not be liable to the Vendor for the amount of any discount,
commission or allowance wrongly claimed or deducted by the customer in respect
of any Receivable unless and until such amount has been received by LND.
13. On or after the making of a request by LND under Clause 9(b)(ii) LND
shall have the sole right of collecting and enforcing payment of Receivables
(other than those re-assigned after payment of the repurchase price) in whatever
manner it may in its absolute discretion decide, whether or not the Vendor has
been debited with the amount of the Receivables and the Vendor shall co-operate
to procure such collection and enforcement. The conduct of any proceedings shall
be with LND who may (where necessary in the name of the Vendor) institute,
compromise, settle abandon or in any manner whatsoever conduct such proceedings
upon such terms as LND in its sole discretion shall decide and the Vendor shall
be bound by all acts of LND under this Clause. The Vendor shall be responsible
for and shall forthwith on demand pay all costs charges and expenses of
whatsoever nature incurred by LND under this Clause.
14. LND shall be entitled to debit the relevant Receivables Purchased
Accounts and Memorandum Discounting Statements with and/or set-off against any
monies payable to the Vendor any sums payable by the Vendor in the relevant
currency to LND whether for debt or liquidated or unliquidated damages and
whether payable presently or contingently.
15. (a) Should the Vendor at any time commit any breach of this Agreement
or become insolvent or pass a resolution for member's voluntary winding up or
call any meeting of creditors or should the Vendor's income or assets or any
part thereof be seized under any execution of legal process or under distress
for rent then LND may determine this Agreement forthwith by written notice
delivered or posted to the Vendor at the address of the Vendor stated in the
Schedule or at the Vendor's Registered Office or at any other address at which
the Vendor carries on business. At any time after the termination of the
Agreement pursuant to this Clause LND shall be entitled by notice to require the
Vendor to repurchase at face value so much of any receivable purchased by LND as
then remains outstanding but so that LND shall remain legal and beneficial owner
of the Receivable until the repurchase price has been paid;
<PAGE>
(b) At any time after giving notice as set out above, LND shall be
entitled (but not obliged) to combine and consolidate the Receivables Purchased
Accounts and (separately) the Memorandum Discounting Statements relating to
Receivables denominated in different currencies and, in so doing, shall convert
the sums concerned into sterling. Further, any payment made by the Vendor to LND
in respect of the repurchase of a Receivable shall be made in sterling converted
at the date of actual payment (if LND shall not then have exercised its right to
combine accounts set out above) or at the date on which such combination took
place.
16. "Insolvency" means, in the case of an individual or partnership firm
the commencement of the bankruptcy of the individual or firm and in the case of
a company the commencement of winding up of the company by reason of inability
to pay its debts as they fall due or in either such case the appointment of a
Receiver of any part of the income or assets of the individual firm or company
or the making of an arrangement or composition with creditors whichever event
first occurs.
17. All conversions from one currency to another required in connection
herewith (whether for the purposes of accounting or payment) shall be made at
the prevailing spot rate for the purchase of the second currency with the first,
as at 11 a.m. on the date of conversion, as quoted by National Westminster Bank
plc.
18. LND's rights under this Agreement shall not be affected by the grant of
any time or indulgence to the Vendor or to any customer or any failure to
exercise or delay in exercising any right or option available against the Vendor
any customer or any other person nor by any step taken by LND
19. The terms set out in this Agreement represent the whole of the terms
agreed between LND and the Vendor to the exclusion of any prior or
contemporaneous statements on the part of LND whether expressed or implied and
whether oral or in writing.
20. The Vendor will bring the terms of this Agreement to the attention of
its auditors for the time being, and authorises LND to disclose to its auditors
for the time being such information relating to this Agreement and its operation
as its auditors shall from time to time request.
21. This Agreement and any purchase of a Receivable pursuant to it shall be
construed in accordance with and governed by English Law.
IN WITNESS whereof the Vendor and LND have executed these presents as a
deed in the manner hereafter appearing.
<PAGE>
THE SCHEDULE
1. NAME LND REGISTERED OFFICE OF THE VENDOR:
European Micro Plc
Market Court
20-24 Church Street
Altrincham
Cheshire
WA14 4DW Registered Number 2663964 England.
2. COMMENCEMENT DATE: 25th November 1996.
3 COMMISSION RATE: 0.07% subject to a minimum commission charge of
(pound)15,000 per annum.
4. DISCOUNTING CHARGE RATE:
1.75% over National Westminster Bank PlcBase Rate in respect of pounds
sterling.
1.75% over cost of funds in respect of other approved currencies.
5. VENDOR'S TERMS OF SALE: 30 days.
6. DAY OF MONTH RETURNS ARE DUE BY: 15th of the month following.
7. BASIS ON WHICH ANALYSIS OF RECEIVABLES IS TO BE AGED: From invoice date,
separately identifying outstanding amounts by Customer, showing customer
balances as follows:- total, up to 30 days old, 31 - 60 days old, 61 - 90 days
old, 90 days plus old, plus a summary ageing of the totals of each of these
categories.
8. SPECIAL CONDITIONS PRIOR TO COMMENCEMENT:
(a) That the paid up share capital of the Vendor be increased to a minimum
of (pound)1,000,000 as evidenced by a copy of the completed Return of Allotment
form sent to Companies House, together with a letter from the Vendor's auditors
confirming that all formalities concerning the capital increase have been
completed.
(b) That LND receive from National Westminster Bank Plc, as the holders of
a debenture, a Letter of Waiver in a form satisfactory to LND which will allow
LND to purchase the Vendor's Receivables.
(c) That LND receive written confirmation from National Westminster Bank
Plc that residual overdraft and forward exchange facilities of at least
(pound)500,000 and (pound)400,000 respectively operational post commencement of
the Invoice Discounting facility will be provided.
<PAGE>
(d) That LND are to take a fixed charge over the Vendor's Book Debts in
support of the Invoice Discounting Agreement and that costs of (pound)250 plus
VAT are to be taken by LND at commencement.
9. OTHER CONDITIONS:
(a) That sales to associated companies, both those existing at present or
in the future, potential contra customers (to be ledgered by the Vendor
separately), pro-forma and cash sales are to be excluded from the Invoice
Discounting Agreement.
(b) That LND receive copies of the management accounts of the Vendor on a
quarterly basis within six weeks of each relevant quarter end commencing with
the Vendor's quarter ending 30th June 1996.
(c) That the net worth of the Vendor will not reduce below
(pound)1,050,000 in the Vendor's financial year ending 31st December 1996. It is
the expectation of LND that the net worth of the Vendor will not be reduced
below (pound)1,175,000 as a result of dividend payments in the Vendor's
financial year to 31st December 1997.
(d) The standard requirement for copy invoices and credit notes is waived
by LND subject to the provision by the Vendor of Invoice and credit note
listings in a format acceptable to LND.
(e) That the Vendor obtain suitable Loss of Book Debt Records insurance
with the interest of LND noted thereon or alternatively supply LND with written
confirmation that duplicate records of the sales ledger are maintained and taken
off-site each night.
(f) That the sales ledger ageing reports supplied by the Vendor to LND as
at each month end are to show the total balance outstanding for each customer
and a final total for all accounts suitable for LND's requirements.
(g) That the Vendor assign the credit insurance policies in favour of LND
in respect of both domestic and export debts. LND are to monitor the
satisfactory administration of the policies by the Vendor at audit.
(h) That given that the Vendor requires currency funding the Vendor is to
maintain separate sales ledgers as follows:
(a) Domestic Sterling (b) Export Sterling
(c) Export Deutschemarks (d) Export US Dollars
(e) Export Dutch Guilders (f) Exclusions.
(i) That LND will provide the vendor with LND's FacFlow service free of
charge.
10. COUNTRIES: All countries.
<PAGE>
11. APPROVED CURRENCIES: Pound Sterling, Deutschemarks, US Dollars, Dutch
Guilders.
The COMMON SEAL of
EUROPEAN MICRO PLC was affixed to this
Deed in the presence of:
Director /s/ Bernadette Spofforth
** Director/Secretary /s/ Laurence Gilbert
THE COMMON SEAL OF LOMBARD
NATWEST DISCOUNTING LIMITED was
affixed to this Deed in the presence of:
Director /s/ Lombard Natwest
Authorised Signatory /s/ Lombard Natwest
** Delete as applicable
EXHIBIT 10.03
Hermes
Kreditversicherungs-AG
Commercial Credit Insurance
Standard Policy
Insured Insurance Policy
No., 60322
European Micro plc Commencement of Insurance
Market Court
20-24 Church Street 1st August 1995
Altringham
Cheshire, WA14 4DW Cessation of Insurance
31st July 1998
Hermes Kreditversicherungs-AG will indemnify the Insured for LOSSES OF ACCOUNTS
RECEIVABLE IN CONNECTION WITH SUPPLIES AND SERVICES which occur as a result of
any of his insured customers becoming insolvent during the term of this
contract.
Insurance cover shall be granted in accordance with the provisions of this
insurance policy and the enclosed General Conditions of Commercial Credit
Insurance - Standard Policy - and the Additional Agreements and the information
supplied in the Questionnaire.
After the lapse of the insurance period, the insurance contract shall be tacitly
extended from year to year unless it is terminated by registered letter by
either of the two contracting parties, the period of notice being two months.
Hermes Kreditversicherungs-AG Hamburg
1st August 1997
/s/ Hermes /s/ Hamburg
Enclosures: General Conditions of
Commercial Credit Insurance - Standard Policy
GCI - Commercial Credits-Standard
<PAGE>
<TABLE>
<CAPTION>
PAGE 2
<S> <C>
Commercial Credit Insurance Insurance Policy No. 60322
Standard Policy
1. Discretionary Limit: GBP 30,000
(ss. 2 GCI)
2. Premium: 0.13% of the annual turnover with insured customers
(ss.4 GCI) excluding valued added tax
Supply of Information for Premium In the first month of each insurance year the whole
Calculation: turnover expected for the current insurance year
(ss. 4 GCI) and that achieved with the insured customers in the
previous insurance year shall be notified to the
Insurer.
Determination of the Premium: The premium will be invoiced at the beginning of
the 1st, 4th, 7th and 10th month of the insurance
year on the basis of one fourth of the expected
turnover. At the end of the insurance year, the
premium will be calculated on the basis of the
balance between the turnover actually effected in
the insurance year and the turnover the premium
calculation was based on.
3. Minimum Premium: GBP 20,000
4. Credit Rating Fees: 50% of all credit limit applications are free of
(ss.4 GCI) charge. For any further customer, the Insured
shall pay a credit rating fee of GBP 50 per
customer and insurance year.
5. Retention: 15% for specified customers 15% for unspecified
(ss.3 GCI) customers
6. Provisional Loss Calculation: One month after the occurrence of the event insured
(ss.9 GCI) against.
With effect from 01st August 1997 subsection 13 of the Insurance Policy
should have been deemed to have had the following wording:
7. Maximum Liability: Thirty times the annual premium paid for that
(ss. 10 GCI) insurance year
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE 3
<S> <C>
Commercial Credit Insurance Insurance Policy No. 60322
Standard Policy
8. Countries: Andora, Austria, Australia, Belgium, Canada, Canary
(ss. 2 GCI) Islands, Denmark, Federal Republic of Germany,
Finland, France, Great Britain and Northern
Ireland, Greece, Iceland, Republic of Ireland,
Italy, Japan, Liechtenstein, Luxembourg, Malta,
Monaco, Netherlands, New Zealand, Norway, San
Marino, Portugal, Spain, Sweden, Switzerland, USA,
Poland
9. Retention of Title: Applicable to debtors in the Federal Republic of
(ss.1 GCI) Germany
10. Contract Currency: GBP
(ss. 12 GCI)
11. Official Middle Rate of the Foreign Frankfurt am Main/Germany
Exchange Market: (ss.12 GCI)
12. Agreed Agencies are: Dun & Bradstreet
(Clause: Unspecified Insurance)
13. Discretionary Limit/ Credit Assessment GBP 30,000
Procedure (Clause: Unspecified Insurance)
14. Threshold GBP 750
(Clause: Threshold)
15. Protracted Default: 6 months after due date
(Clause: Protracted Default)
</TABLE>
Hermes Hamburg
Kreditversicherungs - AG 18th August 1997
/s/ Hermes /s/ Hamburg
<PAGE>
PAGE 4
Hermes
Kreditversicherungs-AG
Insurance Policy No. 60322
Commercial Credit Insurance
Standard Policy
Additional Agreements
NOTES
TO ss. 11 GCI
There shall also be insolvency pursuant to ss. 7 GCI in an order of executions
has been made or if such an order had been rejected by the court for
insufficient assets Gesamtvollstreckungsordnung).
TO ss. 11 GCI
The Insured, with the consent of the Insurer, has assigned his claims payment of
an indemnification to:
Lombard Natwest Discounting Ltd.
Alexandra House
Lawnswood Park
Redvers Close
Leeds
LS16 6QY
Sort Code: 60-08-46
Account: 84209143
CLAUSES
NO. I THRESHOLD
The Insurer shall be liable to indemnify only if upon the occurrence of the
event insured against the total amount of insured accounts receivable from a
customer is in excess of GBP 750.
NO. II UNSPECIFIED INSURANCE COVER
1. Accounts receivable from a customer shall be insured up to the amount of
GBP 30,000 per customer without any further specifications after the
customer has been checked by the Insured provided
<PAGE>
PAGE 5
1.1 the Insured has no knowledge of any facts or circumstances which do not
justify the granting of a credit, and
1.2 the Insured, within the last 12 months preceding the granting of the
new credit, has not received any notification from the Insurer to the
effect that a sum insured is rejected, and
1.3 the credit granted is definitely justified by a written commercial
information agency report which must not be older than 12 months. The
agreed agencies are stated in the insurance policy.
Such an agency report shall not be required if the customer, within the
preceding 12 months, has twice taken delivery of goods or has had services
rendered for him and has duly paid for these within 1 month after the due
date, without any reminder being necessary. In the case of credits
exceeding GBP 10,000 the customer must have twice taken delivery of goods
or made use of services, each time in the minimum value of GBP 5,000.
Neither an agency report nor a positive payment record shall be required
for credits up to a total amount of GBP 2,500.
NO. III PROTRACTED DEFAULT AS EVENT INSURED AGAINST
1. ss. 7 GCI shall be extended so that the event insured against shall also
have occurred as regards customers domiciled in Andorra, Australia,
Austria, Belgium, Canada, Canary Islands, Denmark, Federal Republic of
Germany, Finland, France, Great Britain and Northern Ireland, Greece,
Iceland, Republic of Ireland, Italy, Japan, Liechtenstein, Luxembourg,
Malta, Monaco, Netherlands, New Zealand, Norway, Portugal, San Marino,
Spain, Sweden, Switzerland and the USA if the insured account receivable
has not been paid six months after its due date.
This event insured against shall not apply for accounts receivable which already
exist
/bullet/ when this clause comes into force or
/bullet/ when a customer is included in the insurance during the period of
validity of the policy.
2. The event insured against shall be deemed to have occurred on the date in
which six months have elapsed after the due date of the account receivable.
3. The indemnification pursuant to ss. 9 No. 1 GCI will be the percentage
covered of the account receivable insured at the time the event insured
against as defined above occurred.
4. The Insured shall be obliged to inform the Insurer in writing of the
non-payment of his account receivable three months after its due date
(notification of non-payment) notwithstanding his obligations pursuant to
ss. 5 No. 2 GCI, stating what measures he has taken or intends to take to
collect his account receivable.
<PAGE>
PAGE 6
5. Upon receipt of the notification of protracted default the Insurer will be
entitled to initiate - on behalf of the Insured - the collection of all
accounts receivable due. The Insurer shall be exempted from any liability
in connection with such collection in so far as this is legally
permissible.
The notification of protracted default shall be required only for accounts
receivable from customers for whom a sum insured has been fixed.
6. The Insured
/bullet/ shall comply with all instructions given by the Insurer
/bullet/ shall upon inquiry provide information about the customer and
the accounts receivable and shall at the Insurer's request
submit all documents that are necessary for the collection,
/bullet/ shall refrain from carrying out any collection measures on
his own and shall negotiate with the customer only with the
Insurer's consent,
/bullet/ shall immediately notify the Insurer of all payments made by the
customer or third parties as regards the account receivable placed
for collection or of its settlement or reduction in any other way.
The same obligations shall also apply after transfer of the accounts receivable,
claims and other rights in accordance with ss. 9 GCI.
NO. IV PREMIUM REFUND
If no indemnification is payable during any one insurance year, the Insurer
shall grant the Insured a refund of 10% on the premium paid for that insurance
year.
The date on which the insolvency is established according to ss. 7 GCI shall
denote the insurance year to which the losses are attributable.
If the insurance is terminated, there will be no refund for nonpayment of an
indemnification in the last insurance year.
NO. V COMBINED MAXIMUM LIABILITY
The maximum liability in accordance with ss. 10 GCI will be increased by the
maximum liability which has not been used under policy no. 82692.
NO. VI INSURANCE COVER FOR ACCOUNTS RECEIVABLE FROM CUSTOMERS
DOMICILED IN POLAND
The insurance cover will also include accounts receivable arising from goods
supplied and services rendered to customers domiciled in any of the above
mentioned countries.
In this connection, the following modifications of the insurance policy and the
additional agreements shall apply:
<PAGE>
PAGE 7
1. The retention shall be 35%.
2. Accounts receivable shall only be insured if maximum credit period does not
exceed 60 days.
3. Any agreements regarding unspecified insurance cover shall be ineffective.
NO. VII CREDIT ASSESSMENT BY HERMES-KREDIT SERVICE GMBH & CO. KG
The Insured submits all applications for sums insured to the Insurer who
provides insurance cover in accordance with the General Conditions of Insurance.
During the term of the insurance policy the Insured agrees to exclusively
entrust Hermes-Kredit Service GmbH & Co. KG with the credit rating and
monitoring of the customers for whom insurance cover has been applied for. To
simplify matters, he herewith irrevocably authorizes the Insurer to instruct
Hermes-Kredit Service GmbH & Co. KG to check and monitor the customers on his
behalf and for his account.
Hermes-Kredit Service GmbH & Co. KG will directly and exclusively notify the
Insurer of the result of its investigations.
The Insured shall share in the rating and monitoring costs by paying a credit
rating fee per customer and insurance year that is stated in the insurance
policy.
If and when the Insured notifies the Insurer of any circumstances that are
material to the customer's solvency which he is obliged to do pursuant to the
provisions of the insurance contract or legal regulations - the Insurer may
inform Hermes-Kredit Service GmbH & Co. KG accordingly.
Credit rating fees will be invoiced exclusively by Hermes-Kredit Service GmbH &
Co. KG and will be payable immediately after receipt of the invoice.
In addition, the Final Provisions of the General Conditions of Credit Insurance
shall apply accordingly as far as the provisions are applicable with regard to
the contents.
HERMES HAMBURG
KREDITVERSICHERUNGS-AG 01ST AUGUST 1997
/S/ HERMES /S/ HAMBURG
- ---------------------- --------------------------
EXHIBIT 10.04
HERMES
KREDITVERSICHERUNGS-AG
NON-COMMITAL TRANSLATION
Note: Only the German original shall be legally binding
COMMERCIAL CREDIT INSURANCE
Insured Insurance Policy No. 82692
EUROPEAN MICR COMPUTER CENTRE
GMBH
OTTO-BRENNER-STR. 8A Commencement of Insurance
1st August, 1995
47877 WILLICH Cessation of Insurance
31st July 1997
Hermes Kreditversicherungs-AG provides to the Insured, on the basis of the
information he supplied for the submission of an offer and his application.
INSURANCE COVER AGAINST LOSSES AS A RESULT OF THE INSOLVENCY of the customers
stated in the confirmation of credit.
In this connection, the provisions of this Policy, the enclosed General
Conditions of Commercial Credit Insurance and the Additional Agreements shall
apply.
After the lapse of the insurance period the insurance policy shall be tacitly
extended from year to year unless it is terminated by registered letter prior to
this date by either of the two contracting parties, the period of notice being 2
months.
The premiums, plus insurance tax set out, shall be payable in accordance with
separate invoices.
Hermes Hamburg
Kreditversicherungs-AG 29th November, 1996
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COMMERCIAL CREDIT INSURANCE Page 2
Insurance Policy No. 82692
The Insured may at any time, at his own expense, request copies of the
declarations he has made with respect to the insurance policy.
COMMERCIAL CREDIT Insurance Policy No. 82692
INSURANCE
1. Discretionary Limit: DEM 50,000
(ss.3 No.1 GCI)
2. Premium: 1,4000 %o per month/domestic
(ss.6 GCI) 1,9600 %o per month/foreign
Down-Payment: DEM 10,000 per insurance year
(ss. 6 No. 3 GCI)
Guaranteed Minimum Premium: DEM 12,000 per insurance year
(ss. 6 No. 3 GCI)
3. Credit Rating Fees: DEM 70 for specified domestic
(Clause: Credit Assessment) customers
DEM 125 for specified foreign
customers per customer and
insurance year
Per "Application for Credit Limit DEM 20
Unspecified Insurance Cover"
(list 002):
4. Submission of By the 20th day of the following month
Notification for Premium
Calculation
(ss. 6 No. 2 GCI)
5. Retention: 25% for specified customers
(ss. 5 GCI) 35% for unspecified customers
for list 002 for customers checked
by the Insurer within the
Unspecified Insurance Cover: 30% for unspecified customers
6. Maximum Credit Period: 3 months
(ss. 7 No. 1 GCI)
7. Maximum Liability for 30 times the annual premium
one insurance year:
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COMMERCIAL CREDIT INSURANCE Page 3
Insurance Policy No. 82692
COMMERCIAL CREDIT INSURANCE Insurance Policy No. 82692
(ss. 12 GCI)
8. Franchise: DEM 1,000
(Clause: Franchise)
Hermes Hamburg
Kreditversicherungs-AG 29th November 1996
<PAGE>
COMMERCIAL CREDIT INSURANCE Page 4
Insurance Policy No. 82692
Additional Agreements
Notes regarding the GCI
To ss. 1 GCI
Accounts receivable arising from services rendered shall not include accounts
receivable as a result of the letting and leasing of real estate.
To ss. 6 GCI
ss. 6 No. 2 items 2 - 4 and No. 3 item 1 shall be replaced by the following
clauses:
1. The premium shall be calculated on the basis of the turnovers made in each
individual month.
2. For the premium calculation the Insurer shall be notified of the turnovers
made in each individual month with the customers that are included in the
insurance, plus the value added tax, by the day of the following month
which is stated in the insurance policy (notification of turnover).
3. The timely and correct notification of the turnover shall be a prerequisite
of insurance cover.
4. If insurance cover is cancelled pursuant to ss. 8 No. 6 GCI, the turnovers
made after that date shall no longer be included in the monthly
notification for the premium calculation.
To ss. 6 GCI/Premium Refund
If no indemnification is payable during any one insurance year, the Insurer
shall grant the Insured a refund of 10.0 % on the premium paid for that
insurance year.
The date on which the insolvency is established according to ss. 9 GCI shall
denote the insurance year to which the losses are attributable.
There shall be an advance pro-rata premium refund which shall be deductible in
each case from the monthly premium payable. If the Insurer has to pay an
indemnification during an insurance year which exceeds the presumptive refund
the Insured is entitled to during that insurance year, or if payment of such
indemnification is expected, the pro-rata refund for the remaining months shall
be cancelled. Refund amounts which have already been deducted shall be
subtracted from the indemnification payable by the Insurer.
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COMMERCIAL CREDIT INSURANCE Page 5
Insurance Policy No. 82692
If the insurance is terminated, there will be no refund for nonpayment of an
indemnification in the last insurance year.
To ss. 9 GCI
There shall also be insolvency pursuant to ss. 9 GCI if an order of execution
has been made or if such an order has been rejected by the court for
insufficient assets (Gesamtvollstreckungsordnung).
Insolvency shall have occurred on the day of the court order.
To ss. 13 GCI
The Insured has assigned his claims to payment of an
indemnification to
LOMBARD NATWEST DISCOUNTING LTD.
ALEXANDRA HOUSE
LEEDS
SORT CODE 60-08-46
ACCOUNT 84209143
CLAUSES
Retention of Title
1. According to ss. 2 No. 4 GCI, accounts receivable as a result of goods
supplied shall only be insured if and in so far as the Insured has validly
arranged for retention of title in its simple form and its extensions (i.e.
including clauses regarding further processing, current accounts/ balances
and the assignment of future accounts receivable).
2. Deviations from, or restrictions of, such retentions of title affecting the
Insured - in particular as a result of adverse conditions of purchase on
the part of the customer - shall allow insurance cover only if the Insurer
has been notified thereof and if the latter has confirmed the insurance
cover in writing.
Insurance of Existing Accounts Receivable
If insurance cover starts after the commencement of the contract, it shall
include accounts receivable which upon receipt of the application for a sum
insured by the Insurer are not older than 1 month.
If any so far uninsured accounts receivable which were below the minimum level
for notification of accounts receivable exceed that level, and if the Insurer is
notified thereof within one month, insurance cover shall include accounts
receivable which on the date the application for inclusion in the insurance is
received by the Insurer are not older than 2 months.
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COMMERCIAL CREDIT INSURANCE Page 6
Insurance Policy No. 82692
If accounts receivable which have previously been globally covered as
"unspecified accounts receivable" exceed the level fixed for such accounts
receivable, and if the Insurer is notified thereof within one month, insurance
cover shall continue to exist within the scope of a sum insured.
Unspecified Insurance Cover (Commercial Information Agency/Bank
Reports, Credit Cards)
Accounts receivable from customers for whom no sums insured have been fixed
shall be subject to obligatory insurance. They shall be insured up to DM 50,000
per customer without any further specifications, provided the following
conditions are fulfilled:
1. The Insured shall have no knowledge of any facts or circumstances which do
not justify the granting of a credit.
Neither shall the Insured, within the last 12 months preceding the granting
of the new credit, have received notification from the Insurer to the
effect that a sum insured is rejected.
2. The credit granted must be definitely justified by a written commercial
information agency report or by the confirmation of credit of the Insurer.
Neither agency report nor confirmation of credit must be older than 12
months. Printouts of computer aided credit reports as a result of on-line
connections are also considered to be written reports.
Such an agency report or a confirmation of credit shall not be required for
credits in the total amount of
2.1 up to DEM 2,000
2.2 up to DEM 10,000 if the credits are definitely justified by a written
bank report which must not be older than 12 months or if the customer
is in possession of a valid Eurocheque or credit card whose card
number has been registered, or if the customer within the preceding
12 months has at least twice taken delivery of goods or has had
services rendered for him and has duly paid for these within the
maximum credit period.
2.3 up to DEM 30,000 if the customer within the preceding 12 months has
at least twice taken delivery of goods or as had services rendered
for him in the total amount of DEM 6,000 and has duly paid for these
within the maximum credit period.
2.4. up to DM 50,000 if the customer within the preceding 12 months has at
least twice taken delivery of goods or has had services rendered for
him in the total amount of DM 20,000 and has duly paid for these
within the maximum credit period.
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COMMERCIAL CREDIT INSURANCE Page 7
Insurance Policy No. 82692
The agreed agencies shall be Be/symbol/rgel, Creditreform, Dun & Bradstreet
and Schimmelpfeng.
The agreed credit card companies shall be American Express, Diners Club,
Eurocard and Visa.
3. With the monthly notification the Insured shall inform the Insurer of the
total balance of the insured unspecified accounts receivable for the
calculation of the premium. The Insured shall keep the documents on which
the calculation of the total amount was based for a period of 12 months,
during which time they may be inspected by the Insurer.
4. If, in the case of an insured unspecified account receivable, the maximum
credit period is exceeded, accounts receivable resulting from new
deliveries shall only be included in the insurance if no account receivable
is older than the maximum credit period.
If the maximum credit period is exceeded in the case of insured unspecified
accounts receivable, no notification is required.
In the case of insured unspecified accounts receivable the obligation to notify
the Insurer in accordance with ss. 8 No. 2 paragraph 2 GCI shall not apply.
5. In any loss arising in connection with an insured unspecified account
receivable the Insured shall participate with the share stated in the
insurance policy.
The retention fixed in the confirmation of credit "for customers checked by
the Insurer within the Unspecified Insurance Cover" shall apply to the
customer concerned for more than 12 months if he is checked according to
item 2.1 - 2.4 subsequently.
Finance Bills
If in the case of an insured account receivable arising from the supply of goods
or services the Insured - upon receipt of a cheque or other financial document -
issues a finance bill which the customer accepts, cover shall apply to the claim
resulting from the bill of exchange which the drawer has against the drawee
provided that the cheque or other financial document is honoured.
The maximum credit period fixed for a customer shall be inclusive of the term of
the bill of exchange.
If the finance bill arises from the supply of goods, a further prerequisite of
insurance cover shall be that the retention of title agreed upon for the supply
of the goods does not expire before the bill of exchange is honoured by the
customer.
Combined Maximum Liability
<PAGE>
COMMERCIAL CREDIT INSURANCE Page 8
Insurance Policy No. 82692
The maximum liability in accordance with ss. 12 GCI will be increased by the
maximum liability which has not been used under insurance contract No. 60322.
Franchise
The Insurer shall be liable to indemnify only if upon the occurrence of the
event insured against the total amount of insured accounts receivable from a
customer is in excess of the individual first loss stated in the insurance
policy.
Notification Limit in the Event of Maximum Credit Periods being Exceeded
The Insurer will not invoke the termination of the insurance cover for accounts
receivable from specified customers as a result of future supplies and services
according to ss. 7 No. 2 G I for not having been notified of a maximum credit
period which has been exceeded according to ss. 7 No 3 GCI provided that the
account receivable which was the cause of the maximum credit period being
exceeded does not exceed DM 5,000.
Inclusion of Foreign Accounts Receivable
The Insured shall be obliged to apply for insurance cover also in respect of all
customers who are domiciled in the following countries:
Andorra, Australia, Austria, Belgium, Canada, Canary Islands, Denmark, Finland,
France (with French-Guayana, Guadeloupe, Martinique and Reunion), Great Britain,
Greece, Ireland, Iceland, Italy, Japan, Liechtenstein, Luxembourg, Malta,
Monaco, Netherlands, New Zealand, Norway, Portugal, San Marino, Spain, Sweden,
Switzerland, USA.
This provision shall also apply to the "unspecified insurance cover" of
customers if and in so far as an agreement has been made to this effect.
The contract currency shall be the "Deutsche Mark". It shall apply to sums
insured, premium payments and indemnifications.
To determine the account receivable invoice amounts which are expressed in other
currencies shall be converted into the contract currency at the official middle
rate of exchange used by the Frankfurt Foreign Exchange Market on the day on
which the delivery or service was effected. For the calculation of the
indemnification the official middle rate of exchange used by the Frankfurt
Foreign Exchange Market on the day on which the event insured against occurred
shall be applicable. However, this rate must not be higher than the rate that
was applicable on the date on which the delivery or service was effected.
Note regarding ss. 2 GCI/Retention of Title:
ss. 2 No. 4 GCI shall not apply to accounts receivable from customers who are
domiciled abroad.
<PAGE>
COMMERCIAL CREDIT INSURANCE Page 9
Insurance Policy No. 82692
Insurance Cover before Invoicing
Insurance cover for accounts receivable from the customers who are included in
the insurance shall be provided already as from the date of delivery or the date
on which the service has been completely rendered provided that the invoices for
these accounts receivable are made out within 5 working days and the other
provisions of ss. 2 No. 1 GCI have been complied with.
Credit assessment by Hermes-Kredit Service GmbH & Co. KG
The Insured submits all applications for sums insured to the Insurer who
provides insurance cover in accordance with the General Conditions of Insurance.
During the term of the insurance policy the Insured agrees to exclusively
entrust Hermes-Kredit Service GmbH & Co. KG with the credit rating and
monitoring of the customers for whom insurance cover has been applied for. To
simplify matters he herewith irrevocably authorizes the Insurer to instruct
Hermes-Kredit Service GmbH & Co. KG to check and monitor the customers on his
behalf and for his account.
Hermes-Kredit Service GmbH & Co. KG will directly and exclusively notify the
Insurer of the result of its investigations.
The Insured shall share in the rating and monitoring costs by paying a credit
rating fee per customer and insurance year that is stated in the insurance
policy.
If and when the Insured notifies the Insurer of any circumstances that are
material to the customer's solvency - which he is obliged to do pursuant to the
provisions of the insurance contract or legal regulations - the Insurer may
inform Hermes-Kredit Service GmbH & Co. KG accordingly.
Credit rating fees are subject to value-added tax. They will be invoiced
exclusively by Hermes-Kredit Service GmbH & Co. KG and will be payable
immediately after receipt of the invoice.
In addition, in so far as applicable, the Final Provisions of the General
Conditions of Credit Insurance shall apply accordingly.
/s/ Hermes /s/ Hamburg
Kreditversicherungs-AG 29. November 1996
EXHIBIT 10.05
CONSIGNMENT AGREEMENT
January 1996
between
European Micro plc, Market Court, 20-24 Church Street, Altrincham, Cheshire WA14
4DW, England, represented by its Managing Director Nils Wager,
("Principal")
European Micro Computer Centre GmbH, Otto-Brenner-Strasse 8a, Gewerbegebiet
Munchheide 11, 47877 Willich, Germany, represented by its Managing Director Nils
Wager,
("Agent")
1.
SUBJECT OF THE AGREEMENT
(1) The principal shall deliver computers and computer accessories for sale on
commission.
(2) The agent shall sell the goods in its own name, but for the account of the
principal.
(3) Ownership of the goods shall not be conveyed to the agent.
(4) The agent receives no right of sole distributorship with regard to the
principal.
2.
INSURANCE, SHIPPING
(1) The principal shall insure the goods against fire, theft, and damage by
third parties.
(2) The costs of shipping the goods by the principal to the agent or by the
principal to any consumers shall be borne by the principal.
3.
OBLIGATION WITH REGARD TO INSTRUCTIONS AND PRICING
(1) The agent shall follow the instructions of the principal in the sale of
the goods.
<PAGE>
(2) The agent shall abide by the prices designated by the principal.
(3) If the agent wishes to sell below the designated prices, then he must
obtain prior permission from the principal.
4.
PAYMENT CONDITIONS
(1) The agent may only sell goods on credit or by allowing other payment
arrangements to the extent that the principal has expressly agreed with
regard to the consumer and the amount of the credit concerned. If the agent
sells on credit contrary to the foregoing, then the agent is personally
liable to the principal.
(2) In all cases in which the agent is not paid immediately on delivery of the
goods, the agent must maintain a reservation of title in the goods with the
consumer until complete payment.
5.
NOTIFICATION OF COMPLETED TRANSACTIONS
The agent shall immediately notify the principal of any concluded transaction,
assign the claims from any concluded transaction to the principal, and shall
transfer to the principal payments received immediately after receipt of the
money, less commission as regulated in 6.
6.
COMMISSION
(1) The agent shall receive for each completed transaction a commission of:
- 4.5 per cent of the net sales price up to a yearly
turnover of up to DM 10 million
- 4.0 per cent of the net sales price for yearly turnover
above DM 10 million
(2) Except for these provisions, the agent shall not be compensated for any
other expenses.
7.
LIABILITY FOR CONSIGNED GOODS
The agent is liable for loss of and damage to the consigned goods under his
custody, unless the loss or damage is attributable to circumstances that could
not be avoided by the care of a prudent businessman.
8.
CONSUMERS' COMPENSATION CLAIMS
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<PAGE>
(1) If a customer of the agent asserts a warranty or compensation claim, the
agent must notify the principal immediately.
(2) The principal shall indemnify the agent for any valid claims to the extent
the agent is not liable for the defects under 7.
9.
DURATION, TERMINATION
(1) The consignment relationship is valid until 31 December 1996. It
automatically renews itself for twelve months if termination with six
months' notice is given.
(2) In the event of termination, the agent has no settlement claim against the
principal.
10.
VENUE, APPLICABLE LAW
(1) Venue for all dispute arising from this agreement is Manchester.
(2) English law shall apply to this agreement exclusively.
European Micro Plc European Micro Computer
Centre GmbH
/s/ Nils Wager
/s/ Nils Wager
3
EXHIBIT 10.6
EXHIBIT 10.06
WATCHGUARD TECHNOLOGIES, INC.
DISTRIBUTOR AGREEMENT
This Agreement is made and entered into effective as of November 5, 1997 (the
"effective Date), by and between WatchGuard Technologies, Inc., a Delaware
corporation ("WGT"), and European Micro ("Distributor"). WGT and Distributor
agree as follows:
Section 1. Definitions
"Add-On Software Modules" means those computer software programs that (a)
provide additional functionality and may be integrated with the existing
Hardware and other Software, (b) may be legally exported to the Territory
without any export license and (c) WGT elects to include in Exhibit A at a
mutually agreed discount percentage.
"Distributor Cost" means the purchase price payable by Distributor for each
Product at the discount from WGT's then current WatchGuard Price List, as such
discount is set forth in Exhibit A.
"Documentation" means any and all manuals, user guides, end-user license
agreement, limited hardware warranty, on-line help files, on-line menus and
other in program printed text regarding the Product prepared by or for WGT in
connection with the Product.
"Gross Purchases" means the gross purchase price Distributor pays WGT for the
Product, excluding any taxes or pass through charges and net of any credits or
returns.
"Guaranteed Minimum Purchases" means the guaranteed minimum purchase amounts set
forth in Exhibit A.
"Hardware" means the hardware identified on Exhibit A, together with any Updates
to such hardware. WGT reserves the right to add to or delete hardware from
Exhibit A and to modify the hardware during the Term.
"Product" means the combination of Hardware, Software and Documentation together
as part of the same product package (including any Add-On Software Modules and
any Updates thereto), in all cases carrying the "WatchGuard" Trademark.
"Quarter" means any period of three (3) consecutive calendar months that begins
on January 1, April 1, July 1 or October 1, during the Term.
"Software" means the computer programs identified on Exhibit A, in object code
only, together with any Updates to such programs. WGT reserves the right to add
or delete Software from Exhibit A and to modify the Software during the Term.
<PAGE>
"Term" means the period of time determined in accordance with Section 5.
"Territory" means the geographic area described in Exhibit A.
"Trademarks" means the trademarks and trade names of WGT identified in Exhibit
A.
"Update" means any minor modification, minor upgrade or minor enhancement of the
Product (excluding any new version of the Product) that WGT publishes and elects
to make available to Distributor via BBS, FTP site or other reasonable means.
WGT is not obligated to make or release any update.
Section 2. Relationship of the Parties
2.1 Appointment. Subject to and in accordance with the provisions of this
Agreement, WGT hereby appoints Distributor, and Distributor hereby accepts
WGT's appointment, as a nonexclusive distributor of the Product to
resellers in the Territory during the Term, as long as Distributor makes
the Guaranteed Minimum Purchases pursuant to Section 4.
2.2 License Grant. Subject to the terms and conditions of this Agreement, WGT
grants to Distributor a nontransferable license to do the following in the
Territory during the Term:
(a) market and distribute the Product to resellers;
(b) demonstrate the Product to potential resellers;
(c) use the Product internally for the sole purpose of providing this product
support specified in paragraph 4.1(c);
(d) use and display the Trademarks in connection with marketing and
distributing the Product in the Territory pursuant to paragraphs (a) and
(b) above.
2.3 No Exclusivity. Distributor's appointment and the rights granted hereunder
are nonexclusive. WGT may, at its sole option, appoint other distributors
of the Product in the Territory at any time during the Term and expressly
reserves the right to license the Product directly or indirectly to
end-users, third party original equipment manufacturers or other hardware
bundlers, value-added resellers or other resellers for sublicense or resale
in the Territory.
Section 3. Compensation
3.1 Support services. As full compensation for the support services described
in Exhibit C and provided during the Term, Distributor will pay WGT the
Support Fee set forth in Exhibit A. Payment of the Support Fee is due and
payable upon execution of this Agreement by wire transfer of immediately
payable funds to the bank and account set forth in paragraph 3.4, and then
annually by invoice from WGT on the anniversary of the execution of the
Agreement.
2
<PAGE>
3.2 Price. Distributor will pay WGT for each Product Distributor orders an
amount equal to WGT's then current WatchGuard Price List in effect on the
date of receipt by WGT of Distributor's order, subject to the applicable
discount set forth in Exhibit A. WGT may, from time to time, change its
WatchGuard Price List, provided that any such change will not be effective
under this Agreement unless and until the expiration of forty-five (45)
days after WGT gives Distributor written notices of the change.
3.3 Guaranteed Minimum Purchases. During the Term, Distributor will make Gross
Purchases in an amount at least equal to the cumulative Guaranteed Minimum
Purchase amounts through committed orders placed pursuant to paragraph 3.5
and calling for shipment on or before the dates set forth in Exhibit A.
3.4 Invoices. WGT will issue invoices for the Products ordered by Distributor
and all other amounts payable to WGT under this Agreement. Distributor will
pay WGT the full amount invoiced within thirty (30) days after the date of
WGT's invoice, unless provided otherwise on the applicable invoice, in the
lawful money of the United States of America to WGT by wire transfer of
immediately available funds to WGT's bank account number 1141139, at the
Commerce Bank of Washington, 601 Union Street, Suite 3600, Seattle, WA
98101, ABA routing number 125008013.
3.5 Orders. Distributor will place orders for the Product from WGT by
completing, signing and submitting to WGT a written order for the same, in
a form acceptable to WGT, via facsimile, mail or other means. Distributor
shall submit such order at least thirty (30) days in advance of the
delivery date set forth in each order. All orders will be subject to
acceptance by WGT through written acceptance or shipment of the Product
subject to the order.
Section 4. General Obligations of the Parties.
4.1 Obligations of Distributor. Distributor will use its best efforts
aggressively to develop sales of the Product in the Territory. In
furtherance thereof, Distributor will:
(a) keep on hand a reasonable inventory of the Product sufficient to allow for
prompt delivery of the Product to resellers;
(b) establish a program to market the Product, including, but not limited to,
participating regularly in local and regional trade shows, conventions or
like events in the Territory, and conducting regular local promotional and
other marketing efforts for the Product;
(c) provide quality product support to resellers, including, but not limited
to, providing appropriate installation and application advice and prompt
follow-up service and advice to resellers of the Product upon request;
(d) provide a support center to resellers, including, but not limited to, a
hotline service to answer reseller questions and to receive and track
complaints and any reports of claimed errors in the Product;
3
<PAGE>
(e) provide quality product technical and sales training to resellers;
(f) respond promptly to sales leads or referrals furnished by WGT or by other
distributors or dealers of WGT;
(g) have a designated number of employees attend such technical and sales
training programs as set forth in Exhibit C;
(h) maintain and furnish periodically, as WGT may reasonably request, complete
and accurate records of each sale or other distribution of each Product
sold or distributed by Distributor (e.g., showing the date of sale, Zip
code of the customer, the Product serial number and the applicable Product
license key(s)) under this Agreement;
(i) promptly advise WGT of each complaint that Distributor may receive or
becomes aware of concerning the Product or any portion thereof (including,
but not limited to, warranty claims). Distributor will promptly investigate
all such complaints and will give immediate attention to and use its best
efforts to promptly, courteously and equitably respond to, adjust and
settle (without incurring any obligation or liability on behalf of WGT) all
complaints received by Distributor from any customer, potential customer or
anyone else arising out of or in connection with Distributor's sale of any
Product, or the performance of any services. In handling any complaints,
Distributor will use its best efforts to maintain and promote good public
relations for WGT;
(j) secure and maintain, in the name of WGT, any and all registrations,
permits, licenses, approvals and other governmental actions required to
import, handle, market, sell, demonstrate, use and distribute the Product
in the Territory, provide to WGT quarterly progress reports on such action,
and provide WGT copies of all registrations, permits, licenses, approvals,
certificates, correspondence and other documentation related to such
action;
(k) hire, train, coordinate and maintain a qualified staff of sufficient size
and with a level and mix of capabilities as are reasonably necessary to
accomplish the goals contemplated under this Agreement;
(l) avoid deceptive, misleading or unethical conduct which are or might be
detrimental to WGT or its Product, and refrain from making any
representation, warranty or guarantee to any reseller with respect to
specifications, features or capabilities of the Product that is
inconsistent with the literature distributed by WGT or this Agreement;
(m) conduct its business in a manner under its own control, provided that
Distributor will at all times comply with all applicable laws and
regulations and will not engage in, or permit its employees or agents to
engage in, any activities or practices which could reflect negatively upon
the reputation or prospects of WGT or the Product or expose WGT to any
liability of any nature whatsoever; and
4.2 Obligations of WGT, WGT will:
4
<PAGE>
(a) provide Distributor with sixty (60) days advance notice in the event that
it discontinues production of any Product;
(b) provide Distributor with the training and product support services
described in Exhibit C; and
(c) furnish Distributor with such demonstration Product, promotional
literature, data, information and other items as WGT deems appropriate for
Distributor's promotion, marketing and sale of the Product. WGT will use
such items only for the purpose of performing its obligations under this
Agreement.
4.3 Forecasts. Distributor's forecast of Product purchases for the Term is set
forth on Exhibit D. At least fifteen (15) days before the beginning of each
Quarter during the Term, Distributor will furnish WGT with a rolling
revised forecast of Product orders for the remainder of the Term.
Section 5. Term and Termination.
5.1 Term. The Term will commence on the Effective Date of this Agreement and
will remain in effect, unless sooner terminated under paragraphs 5.2, 5.3,
or 5.4, until the termination date specified in Exhibit A.
The Term will automatically renew for successive additional periods of one (1)
year each, provided that: (a) Distributor has made all Guaranteed Minimum
Purchases and has complied with the marketing requirements under paragraph
4.1(b); (b) the parties have agreed in writing upon the Guaranteed Minimum
Purchase amounts and Product price discounts for the next subsequent one (1)
year renewal period; (c) neither party provided the other party with notice of
such party's intention not to renew this Agreement at least thirty (30) days
prior to any year's Expiration Date; and (d) neither party provided the other
party with such notice as may be required pursuant to paragraphs 5.2, 5.3 or
5.4.
5.2 Termination by WGT. Upon the occurrence of any of the following, WGT may
terminate the Term by giving Distributor written notice of such termination
for:
(a) any failure of Distributor to comply with the marketing requirements under
paragraph 4.1(b);
(b) any material change in the general management, ownership or control of
Distributor, including without limitation the sale, transfer or
relinquishment by Distributor of any substantial interest in the ownership
of the business to be carried on by Distributor under this Agreement,
unless such change is approved in advance and in writing by an officer of
WGT;
(c) any assignment or attempted assignment of this Agreement by Distributor
without the prior written consent of WGT;
(d) any solicitation by Distributor for the sale of the Product to resellers
located outside the Territory;
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(e) the insolvency of Distributor, the filing of a petition in bankruptcy by or
against Distributor, the appointment of a receiver for Distributor or
Distributor's property, the execution of an assignment by Distributor of
all or substantially all of its assets for the benefit of its creditors, or
the conviction of Distributor or any principal or manager of Distributor
for any crime tending to adversely affect the ownership or operation of
Distributor's business;
(f) any failure by Distributor to perform any of its other obligations under
this Agreement where such failure continues for thirty (30) days after
written notice thereof by WGT to Distributor; or
(g) WGT giving Distributor ninety (90) days' advance written notice of
termination at any time after the expiration of the Initial Term.
5.3 Failure to Make Guaranteed Minimum Purchases. Upon any failure by
Distributor to make Gross Purchases in sufficient amounts to meet or exceed
the applicable cumulative Guaranteed Minimum Purchases, WGT may, at its
sole option and effective upon notice to Distributor, terminate this
Agreement. Distributor shall pay WGT fifty percent (50%) of the unpaid
balance of cumulative Guaranteed Minimum Purchase amounts as liquidated
damages. The parties acknowledge and agree that it would be difficult or
impossible to calculate WGT's actual damages arising from Distributor's
failure to timely pay all of the Guaranteed Minimum Purchases. Therefore,
the parties have agreed upon the above payment of liquidated damages in
lieu of WGT's claim for actual damages from such breach.
5.4 Termination by Distributor. Upon the occurrence of any of the following,
Distributor may terminate the Term by giving WGT written notice of such
termination;
(a) the insolvency of WGT, the filing of a petition by or against WGT, the
appointment of a receiver for WGT or WGT's property, or the execution of an
assignment by WGT of all or substantially all of its assets for the benefit
of its creditors;
(b) any failure by WGT to perform any of its obligations under this Agreement
where such failure continues for thirty (30) days after written notice
thereof by Distributor to WGT; or
(c) for convenience whether or not extended beyond the Initial Term, provided
Distributor gives WGT thirty (30) days' advance written notice and, within
such thirty (30) day period, Distributor pays to WGT a lump-sum payment
equal to fifty (50%) of the unpaid balance of cumulative Guaranteed Minimum
Purchase amounts.
5.5 Effect of Termination. Any termination pursuant to paragraphs 5.2, 5.3, or
5.4 will be without prejudice to any other right or remedy afforded to
either party under this Agreement or any applicable law (e.g., in the case
of any breach or default by the other party), and will not affect any
rights or obligations which have arisen prior to the date of such
termination. In the event of termination, Distributor will:
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(a) immediately cease to demonstrate, market, sublicense and distribute the
Product in the Territory;
(b) cease use of all Trademarks of WGT;
(c) return to WGT within twenty (20) days following the expiration or
termination of the Term, any and all (i) demonstration Product provided to
Distributor; (ii) Products not already paid for in full by Distributor; and
(iii) promotional literature, data, information and other items received by
Distributor under this Agreement; and
(d) furnish WGT with such information relating to the marketing, sale or
distribution of the Product in the Territory as WGT may reasonably request
(including, but not limited to, information as to calls or the status of
any negotiations for the sale of the Product, or any sales or service
records).
Upon the expiration or termination of the Term, the license granted under
Section 2 of this Agreement will terminate. Any end-user licenses of the
Software granted under the terms of this Agreement will survive the end of the
Term in accordance with the terms of the applicable end-user license agreement.
5.6 Acknowledgment. Any expiration or termination of the Term will be final and
absolute. Except as expressly set forth in paragraphs 5.3 and 5.5(c),
Distributor waives any right, either express or implied by applicable law
or otherwise, to the renewal of this Agreement or to any damages or
compensation for any expiration or termination of the Term in accordance
with this Section 5. Each of the parties have considered the possibility of
such expiration or termination and the possibility of loss and damage
resulting therefrom in making expenditures pursuant to the performance of
this Agreement. It is the express intent and agreement of the parties that
neither will be liable to the other for damages, except as expressly set
forth in paragraphs 5.3 and 5.5(c), or otherwise by reason of the
expiration or termination of the Term as provided for herein.
6.0 Force Majeure. Neither party will be liable for, or be considered to be in
breach of or default under this Agreement on account of, any delay or
failure to perform as required by this Agreement (other than for payment
under Section 3), as a result of any cause or condition beyond such party's
reasonable control.
7.0 Entire Agreement. This Agreement is subject to the provisions of WGT's
Standard Distributor Terms attached hereto as Exhibit B and by this
reference incorporated into and as part of this Agreement. This Agreement
is also subject to any additional terms or licenses executed by WGT and
Distributor and attached as Exhibits, including any Special Terms and
Conditions specified in Exhibit A. This Agreement sets forth the entire
agreement, and supersedes any and all prior agreements, among the parties
related to the Product. WGT will not be bound by, and specifically objects
to, any term, condition, or other provision that is different from or in
addition to the provisions of this Agreement (whether or not it would
materially alter this Agreement) and that is proffered by Distributor or
otherwise appears in any order, receipt, acceptance, confirmation,
correspondence, or otherwise, unless WGT specifically agrees to such
provision in a written instrument signed by WGT. No
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modifications of any of the provisions of this Agreement will be valid
unless set forth in a written instrument signed by both parties. Any remedy
by WGT set forth in this Agreement is in addition to any other remedy
afforded to WGT under any other contract, by law, or otherwise.
IN WITNESS THEREOF, the parties have executed this Agreement as of the date
first above written.
Distributor: WatchGuard Technologies, Inc.
By: /s/ LAURENCE GILBERT By: /s/ WATCHGUARD
------------------------- ------------------------------
Title: MANAGING DIRECTOR Title: VP/SALES
Date Signed: NOVEMBER 5, 1997 Date Signed: NOVEMBER 3, 1997
Address: 20/24 Church Street Required Signature:
Altrincham, Cheshire
WA14 4DW, ENGLAND By:
-------------------------------
Title: Executive Vice-President Sales
Date Signed:
---------------------
Address: 316 Occidental Avenue South
Suite 300
Seattle, Washington 98104
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FULL SERVICE MASTER DISTRIBUTOR SCHEDULE
EXHIBIT A
PRODUCTS:
Distributor will be entitled to order the following products (which includes
hardware and software) at the following discounts of WGT's then current
WatchGuard Price List:
- -------------------------------------------------------------------------------
DISCOUNT FROM WGT'S
PRODUCT THEN CURRENT
WATCHGUARD PRICE LIST
- -------------------------------------------------------------------------------
WatchGuard Security System 40% plus additional
10% on the remaining
undiscounted amount, i.e., 46%
- ------------------------------------------------------------------------------
EXCHANGE FEE: $10 per CD
SUPPORT FEE: $25,000 per year
CUMULATIVE
GUARANTEED
MINIMUM
PURCHASES
DATE OF ORDER (U.S. DOLLARS)
- -------------------------------------------------- ---------------------------
Upon contract signing $100,000.00
1st subsequent Quarter-end, Sept. 30, 1997 $100,000.00
2nd subsequent Quarter-end, Dec. 31, 1997 $167,000.00
3rd subsequent Quarter-end, Mar. 31, 1997 $234,000.00
4th subsequent Quarter-end, Jun 30, 1997 $300,000.00
TERMINATION DATE: September 30, 1997
TRADEMARKS:
/bullet/ WatchGuard(TM)
/bullet/ WatchGuard(TM) Technologies
/bullet/ WatchGuard(TM) SchoolMate
/bullet/ Firebox(TM)
TERRITORY:
/bullet/ Europe
SPECIAL TERMS AND CONDITIONS
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These Special Terms and Conditions are part of the Distributor Agreement between
WatchGuard Technologies, Inc. ("WGT") and Distributor (collectively, the
"Agreement"). Terms that are defined in the Distributor Agreement will have the
same meaning when used in these Special Terms and Conditions.
Section A.1 By joint agreement between WGT and Distributor, Distributor may
engage in end user sales in the Territory.
If it is agreed that Distributor may engage in end user sales, Distributor may
distribute, license and sell up to 20% of the Product purchased from WGT
directly to end-users in the Territory. Further, Distributor agrees that high
end-users satisfaction is a condition of its continued authorization by WGT. To
ensure high end-user satisfaction, Distributor shall: (a) provide quality first
level support to its end-user customers; (b) promptly report to WGT all
suspected and actual problems with any WGT product; (c) assist WGT in tracing
WGT Products to particular end users to distribute critical WGT Product
information, locate WGT Products for safety reasons, or to be discover
unauthorized marketing or infringing acts; (d) avoid deceptive, misleading or
unethical conduct which are or might be detrimental to WGT or its WGT product;
and (e) refrain from marking any representation, warranty or guarantee to end
users with respect to the specifications, features or capabilities of the WGT
Product that is inconsistent with the literature distributed by WGT or this
Agreement.
Section A.2 Distributor is legally organized under the jurisdiction of a country
belonging to the European Union.
If Distributor is organized under the jurisdiction of the country belonging to
the European Union, the following clause is hereby appended to Section 1(c) of
the Standard Distributor Terms:
"PROVIDED HOWEVER, the foregoing restriction is not intended to
preclude Distributor from fulfilling, and Distributor may fulfill,
unsolicited orders for Product received from outside the Territory but
within the European Union (and Distributor shall provide WGT written
notice of any such Sales);"
Section A.3 As a Full Service Master Distributor, Distributor agrees to sign up
a minimum of 10 new WatchGuard resellers in the Territory within the Initial
Term of the Agreement.
- -------------------------------------------- ---------------------------------
Distributor: WatchGuard Technologies, Inc.:
By: /s/ LAURENCE GILBERT By: /s/ WATCHGUARD
-------------------------- -----------------------------
Title: MANAGING DIRECTOR Title: SENIOR VICE PRESIDENT/SALES
Date Signed: NOVEMBER 5, 1997 Date Signed: NOVEMBER 3, 1997
-------------------------------------------- ---------------------------------
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STANDARD DISTRIBUTOR TERMS
EXHIBIT B
These Standard Distributor Terms are part of the Distributor Agreement between
WatchGuard Technologies, Inc. ("WGT") and Distributor (collectively, the
"Agreement"). Terms that are defined in the Distributor Agreement will have the
same meaning when used in these Standard Distributor Terms.
1. Reservation of Rights. The Software is licensed, not sold, to Distributor.
PARAGRAPH 2.2 LICENSE GRANT of the Distributor Agreement sets forth the
entirety of Distributor's rights to use, market, distribute, demonstrate
and otherwise deal with the Product. All rights in and to the Product not
expressly granted to Distributor under this Agreement are hereby expressly
reserved to WGT without restriction. Without limiting the generality of the
foregoing, Distributor will comply with the following:
(a) Distributor will distribute the Product to resellers only pursuant to a
reseller agreement that substantially conforms to the term of this
Agreement;
(b) Distributor will not market, demonstrate or distribute the Product outside
the Territory and Distributor will not supply the Product to any reseller
that Distributor knows or has reason to know (i) intends to distribute the
Product outside the Territory or (ii) intends to use or install the Product
outside the Territory;
(c) Distributor will market, sell and distribute the Product only in its
original, unopened package as received from WGT under the terms of the
end-user license agreement and limited hardware warranty, as applicable,
originally included in the Product package;
(d) Distributor will not modify or make copies of the Product or translate or
port the Software into any other computer or human language;
(e) Distributor will not disassemble, reverse engineer, decompile or repackage
all or any component of the Product or otherwise attempt to discover any
portion of the source code or trade secrets related to the Product;
(f) Distributor will not remove, alter, distort, cover or modify any notice of
copyright, trademark or other proprietary right appearing in or on any item
included with the Product or its packaging; and
(g) Distributor will not register, attempt to register or assist anyone else to
register, directly or indirectly, the Trademarks or any copyright or other
proprietary rights associated with the Product in the Territory or
elsewhere other than in the name of WGT, without WGT's prior written
consent.
2. Protection Against Unauthorized Use. Distributor will promptly notify WGT
of any unauthorized use of the Product or the Trademarks which comes to
Distributor's attention. In
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the event of any such unauthorized use by Distributor's employees, agents
or representatives, Distributor will use its best efforts to terminate such
unauthorized use and to retrieve any copy of the Product in the possession
or control of the person or entity engaging in such unauthorized use.
Distributor will immediately notify WGT of any legal proceeding initiated
by Distributor in connection with such unauthorized use. WGT may, at its
option and expense, participate in any proceeding and, in such event,
Distributor will provide such authority, information and assistance related
to such proceeding as WGT may reasonably request to protect WGT's
interests.
3. Use of Trademarks. WGT reserves all rights in and to the Trademarks and all
other trademarks and trade names used by WGT in connection with the
Products, but WGT grants to Distributor the nonexclusive right to use and
display the Trademarks during the Term to promote and identify the Product
in the Territory in connection with this Agreement. Distributor will comply
with the trademark guidelines and procedures established by WGT in
Distributor's use of the Trademarks including without limitation use of the
trademark and copyright symbols as specified by WGT from time to time. When
using the Trademarks, Distributor will include a statement acknowledging
that the Trademarks are owned by WGT. Distributor hereby acknowledges that
the goodwill associated with its use of the Trademarks inures solely and
exclusively to WGT and that Distributor does not acquire any rights in the
Trademarks as a result of such use. Distributor will not use the Trademarks
or any confusingly similar name, marks, logos, designs or artwork as part
of Distributor's name, trade name, trademark or artwork without WGT's prior
written consent.
4. Independent Contractor. Distributor is an independent contractor, not an
employee, agent or franchisee of WGT. Distributor will not represent or
hold itself out as an employee, agent or franchisee of WGT. Distributor
does not have any authority to, and will not, create or assume any license,
warranty or other obligation, express or implied, on behalf of WGT. This
Agreement will not be interpreted or construed as creating or evidencing
any association, joint venture or partnership between the parties or as
imposing any partnership or franchisor obligation or liability on either
party.
5. Delivery. WGT will deliver all Products ordered by Distributor F.O.B.
carrier at WGT's shipping location as determined by WGT from time to time,
on or before the delivery date set forth in each accepted order.
Distributor will pay or reimburse WGT for all shipping charges, premiums
for freight insurance, inspection fees, duties, import and export fees,
assessments, transportation and other costs incurred by WGT to transport
the Product to the shipping destination.
6. Resale. Distributor represents that all Products acquired under this
Agreement are acquired solely for demonstration, licensing or sale (as
applicable) and distribution to resellers or end-users in the Territory
without intervening use by Distributor. Distributor acknowledges that the
prices set forth in this Agreement have been established in reliance upon
such representation and that different prices may apply to any Products
acquired for any other purpose. Upon WGT's request, Distributor will
furnish WGT evidence of such resale (including but not limited to
satisfactory evidence of exemption from retail sales, use or similar taxes
that may otherwise apply to transactions under this Agreement).
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<PAGE>
7. Software Update Exchange. Once each Quarter during the Term of this
Agreement, Distributor shall have the right to exchange any prior version
of the Software then in Distributor's inventory for an equivalent quantity
of Software containing Updates, subject to Distributor paying WGT an
"Exchange Fee" set forth in Exhibit A, for each copy of the Software
exchanged hereunder. WGT will invoice Distributor for and Distributor shall
pay all Exchange Fees as provided in Exhibit A. WGT will deliver all such
exchanged Software Updates in accordance with paragraph 5. Distributor
shall return to WGT the copies of the prior versions of the Software
exchanged under this paragraph 7 at Distributor's expense.
8. Records; Audit. During the Term and for twenty-four (24) months thereafter,
Distributor will keep and maintain accurate accounts and records regarding
the Products sold and Product license keys delivered to resellers and
end-users under this Agreement. Upon WGT's request, Distributor will
provide access to such records for examination, reproduction, and audit by
WGT or its representatives. Any such audit will be conducted at such times
and in such a manner so as not to unreasonably interfere with Distributor's
normal operations. If any such audit discloses that Distributor is
deficient in its compliance with the terms and conditions of this
Agreement, Distributor will immediately pay to WGT any deficiency, plus
interest at the rate of one and one-half percent (1.5%) per month running
from the date originally due until the date paid. Acceptance of any payment
by WGT will be without prejudice to WGT's rights to an audit under this
paragraph 8 or any other rights or remedies afforded to WGT under any other
provision of this Agreement or applicable law.
9. Taxes. The Guaranteed Minimum Purchases and other amounts specified in this
Agreement do not include sales, use or value added taxes, customs fees,
duties or other governmental taxes or charges. Distributor will pay all
such taxes and charges. In the event Distributor is required under any
applicable law to withhold any taxes or duties from the amounts specified
under this Agreement, payment of the amounts specified under this Agreement
will be net of such withholding taxes or duties. Distributor will pay the
amount of all such withholding taxes and duties and supply WGT with
information concerning the amount and type of tax withheld and any
certificates concerning payments of such withholding taxes.
10. Interest. Any amount not paid when due will be subject to finance charges
at the rate of one and one-half percent (1.5%) per month or the maximum
rate permitted by applicable law; whichever is less, determined and
compounded on a daily basis from the date due until the date paid. Payment
of such finance charges will not excuse or cure Distributor's breach or
default for late payment. If WGT retains a collection agency, attorney or
other person or entity to collect overdue payments, all collection costs,
including but not limited to reasonable attorney's fees, will be payable by
Distributor.
11. Confidentiality. Any information received by Distributor in performance of
this Agreement relating to the business affairs, customers, markets,
finances, methods, Product, technology, trade secrets or proprietary rights
of WGT will be treated as confidential and proprietary information of WGT.
Distributor will not disclose such information, unless the information is
in the public domain at the time of disclosure through no fault of
Distributor or WGT consents to the disclosure in writing. Distributor will
disclose such information only to its
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<PAGE>
employees whose duties justify their need to know such information and who
have agreed to copy with Distributor's confidentiality obligations
hereunder.
12. Ownership. The Product involves valuable patent, copyright, trade secret,
trade name, trademark and other proprietary rights of WGT. No title to or
ownership of such proprietary rights is transferred to Distributor under
this Agreement or by use of any trademark, copyright or other proprietary
right. WGT reserves all of its copyright, trade secret and other
proprietary rights in the Product. Distributor will not infringe, violate
or contest and will take appropriate steps and precautions for the
protection of, such proprietary rights.
13. Implementation. Distributor will take at WGT's expense, all action during
or after the Term that is reasonably requested by WGT for the
implementation of the ownership provisions of this Agreement or to
evidence, perfect or protect WGT's ownership of this Product and the
proprietary rights associated with ownership of the Product (including,
without limitation, the execution, acknowledgment and delivery of
instruments of conveyance, patent, copyright, trademark or other
proprietary rights registration applications or other documents.)
14. Warranty; Returns. WGT will permit Distributor and end-users purchasing
through resellers to return any defective Product in accordance with the
limited warranty contained in the applicable end-user license agreement or
limited hardware warranty, as applicable, provided that the Distributor and
end-user have compiled with the applicable warranty terms and conditions.
In order to receive the remedy provided for hereunder, Distributor shall
deliver to WGT a sample of the Product which Distributor finds to be
defective in workmanship or materials, or damaged in shipment prior to
Distributor assuming the risk of loss or damage , along with a written
explanation of the alleged defect within thirty (30) days from the later of
Distributor's initial receipt of such Product from WGT or from the delivery
of such Product to an end-user. In the event WGT verifies a defect reported
by Distributor and such defect affects more than one (1) Product, then at
WGT's option, Distributor shall either certify destruction of all defective
Products or return all Products which it alleges are defective to WGT.
Distributor, reseller or the end user will be responsible for
transportation charges for such Product units sent to WGT's facilities for
service. Provided that WGT is able to verify the presence of the reported
defect in such units, transportation charges, via a mode of transportation
chosen by WGT, shall be borne by WGT to return the Product units from WGT's
location to the Distributor, reseller or the end-user's location. Upon
verification of a defect in one or more Products returned in accordance
with the foregoing, or upon Distributor's certification that it has
destroyed any defective Product in compliance with WGT's instructions, WGT
will, at its option, either issue a credit to Distributor in the amount of
the purchase price paid or payable for such Product by Distributor or
replace the defective Product with an identical (non-defective) Product.
Such remedy will be exclusive and in full satisfaction of Distributor's
claims hereunder. WGT does not warrant that the Products are free form all
bugs, errors, defects, design flaws or omissions. The warranties in this
Agreement apply only to the latest version of each Product made available
by WGT to Distributor. Such warranties will not apply to any Product which
WGT determines has been subject to misuse, neglect, improper installation,
repair, alteration or damage by Distributor, reseller or an end-user or any
other individual or entity, or modification by any such individual or
entity except with the prior express authorization of WGT. WGT's
obligations
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<PAGE>
under this paragraph will not apply to the extent arising out of any use or
combination of the Product with any other products, goods, services or
other items furnished by Distributor or anyone other than WGT, or to any
modification or change of the Product not made by WGT. The foregoing
warranties and rights may be asserted by Distributor only and not by
Distributor's resellers.
15. Infringement. WGT will defend and indemnify Distributor against any
judicial proceeding based upon infringement of any U.S. patent or US.
copyright by the Product to the extent that such proceeding arises from or
in connection with a component of the Product manufactured or developed by
WGT and not any third party, provided that Distributor notifies WGT of such
proceeding promptly after Distributor receives notice thereof, WGT has
control over the defense and settlement of the proceeding, Distributor
provides such assistance in the defense and settlement of the proceeding as
WGT may reasonably request, and Distributor complies with any settlement or
court order made in connection with such proceeding (e.g., as to the future
use of any infringing Product). WGT's obligations under this paragraph will
not apply to any infringement to the extent arising out of any use or
combination of the Product with any other products, goods, services or
other items furnished by Distributor or anyone other than WGT or to any
modification or change of the Product not made by WGT.
16. Disclaimer and Release. THE WARRANTIES OF WGT AND THE REMEDIES OF
DISTRIBUTOR SET FORTH IN PARGRAPHS 14 AND 15 ARE EXCLUSIVE AND IN
SUBSTITUTION FOR, AND DISTRIBUTOR HEREBY WAIVES, RELEASES AND DISCLAIMS.
ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF WGT AND ALL OTHER
RIGHTS, REMEDIES AND CLAIMS OF DISTRIBUTOR, EXPRESS OR IMPLIED, ARISING BY
LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT, DEFICIENCY OR NONCONFORMITY
IN ANY PRODUCT OR OTHER ITEM FURNISHED BY OR ON BEHALF OF WGT UNDER THIS
AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; IMPLIED WARRANTY
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USEAGE OF TRADE;
ANY OBLIGATION, LIABLITY, RIGHT, REMEDY OR CLAIM IN TORT (INCLUDING
NEGLIGENCE, WHETHER ACTIVE, PASSIVE OR IMPUTED), PRODUCT LIABLITY, STRICKT
LIABILITY OR OTHER THEORY; AND CLAIM OF INFRINGEMENT.
17. Representations. Distributor will be solely responsible for any
representations or warranties Distributor may make to any reseller with
respect to the Product or any products, goods, services or other items
provided by Distributor. Except to the extent inconsistent with paragraph
15, Distributor releases and will defend, indemnify and hold harmless WGT
and its officers, directors, employees, agents and representatives from any
and all claims, losses, damages, liens, liabilities, costs and expenses
(including, but not limited, reasonable attorneys' fees) incurred or
asserted by any reseller or otherwise arising out of or in connection with
(a) any misrepresentation, negligent or tortious act or omission, or breach
of or default under this Agreement by Distributor or by anyone else acting
for or on behalf of Distributor in connection with the promotion,
distribution or other dealings with respect to the Product; (b) any
reseller or end-user's use of the Product or any products or services of
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<PAGE>
Distributor; or (c) any representations and warranties made by Distributor
that are inconsistent with or in addition to the warranties made in WGT's
end-user license agreement or limited hardware warranty, as applicable,
accompanying each copy of the Product.
18. Limitations of Liability. EXCEPT AS PROVIDED IN PARAGRAPH 15, WGT'S
LIABILITY(WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE WHETHER
ACTIVE, PASSIVE, IMPUTED), PRODUCT LIABILITY, STRICT LIABILITY OR OTHER
THEORY) UNDER THIS AGREEMENT OR WITH REGARD TO ANY PRODUCT OR OTHER ITEMS
FURNISHED UNDER THIS AGREEMENT WILL IN NO EVENT EXCEED THE COMPENSATION
PAID TO WGT CONCERNING SUCH PRODUCT UNDER THIS AGREEMENT.
19. Consequential Damages. IN NO EVENT WILL WGT BE LIABLE, WHETHER IN CONTRACT,
WARRANTY, TORT (INCLUDING NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED),
PRODUCT LIABILITY, STRICT LIABILITY OR OTHER THEORY), TO DISTRIBUTOR OR TO
ANY RESELLER OF DISTRIBUTOR, END-USER OR OTHER PERSON OR ENTITY FOR COST OF
COVER OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
(INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFIT, BUSINESS OR DATA)
ARISING OUT OF ITS PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT OR THE
USE OF, INABIILTY TO USE OR RESULTS OF USE OF THE PRODUCT.
20. Compliance with Laws. In performing this Agreement, Distributor will comply
with all applicable laws, regulations and other requirements, now or
hereafter in effect, of government authorities having jurisdiction.
21. Export. Without limiting anything else herein, Distributor will not export
or re-export, directly or indirectly, the WGT Product to any country to
which export or re-export of such items is prohibited by the U.S. Export
Administration Act, regulations of the U.S. Department of Commerce and
other export controls of the U.S., as they may be amended without first
obtaining an appropriate written authorization from the U.S. Office of
Export Licensing or its successor. At the time of execution of this
Agreement, Distributor is prohibited from exporting or re-exporting ,
directly or indirectly, the WGT Product to the following countries: Cuba,
Libya, North Korea, Iran, Iraq, Ruwanda, Sudan, Syria and the Federal
Republic of Yugoslavia (Serbia and Montenegro). Notwithstanding the
foregoing list, Distributor is not relieved from its obligations to comply
with the foregoing export control laws, as such laws may be amended from
time to time. Distributor shall also comply with all other foreign or local
governmental export and import control laws, regulations and rules.
22. Government Approvals. Distributor will obtain at its expense all licenses,
permits and other governmental approvals; will provide all notices; and
will pay all duties, taxes and other charges required for the license,
export, re-export and import of the Product distributed by the Distributor;
the license of the Software distributed by Distributor; and the
implementation of this Agreement.
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23. Nonwaiver. The failure of either party to insist upon or enforce strict
performance of any of the provisions of this Agreement or to exercise any
rights or remedies under this Agreement will not be construed as a waiver
or relinquishment to any extent of such party's right to assert or rely
upon any such provisions, rights or remedies in that or any other instance;
rather, the same will be and remain in full force and effect.
24. Assignment. Distributor will not assign all or any part of this Agreement
or any of its rights under this Agreement without the prior written consent
of WGT. Subject to the foregoing, this Agreement will be fully binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
25. Survival. Paragraphs 1, 2, 3, 13 through 23 and all accrued obligations to
pay, together with all other provisions of this Agreement which may
reasonably be interpreted or construed as surviving the expiration or
termination of the Term, will survive the expiration or termination of the
Term.
26. Notices. Any notice or other communication under this Agreement given by
either party to the other will be in writing and delivered either (a) in
person or by first-class, registered or certified mail or a recognized
overnight delivery service, return receipt requested, postage prepaid or
(b) by facsimile and then acknowledged as received by return facsimile by
the intended recipient. Notices will be deemed received only upon actual
receipt. Notices will be directed to the intended recipient at the address
specified below its signature on the signature page of this Agreement.
Either party may change its address by giving the other party notice of
such change in accordance with this paragraph.
27. No Conflict. Distributor represents and warrants to WGT that Distributor is
free to enter into and perform this Agreement without thereby being in
breach of or default under the terms of any other contract, commitment or
understanding.
28. Interpretation. The English language of this Agreement will govern any
interpretation of or dispute regarding the terms of this Agreement.
Paragraph captions are for convenience of reference and do not alter or
limit the terms of this Agreement. The parties hereto have expressly
required that the present Agreement and its Exhibits be drawn up on the
English language. / Les parties aux presentes ont expressement exige que la
presente conventions et se Annexes solent redigees en la langue anglaise.
29. Governing Law; Venue. This Agreement will be governed by and interpreted in
accordance with the local laws of the State of Washington, U.S.A., without
regard to its conflicts of law provisions and not including the provisions
of the 1980 U.N. Convention in Contracts for the International Sale of
Goods. Distributor irrevocably consents, and submits to the jurisdiction of
the Federal and State courts of and located in King County, in the State of
Washington, U.S.A. Distributor will not commence or prosecute any suit,
claim, or proceeding arising under this Agreement other than in the courts
identified in the preceding sentence. Any remedy of WGT set forth in this
Agreement is in addition to any other remedy afforded to WGT under this
Agreement, any other contract, by law or otherwise.
17
<PAGE>
SUPPORT SERVICES AND PROCEDURES
EXHIBIT C
SUPPORT SERVICES:
WGT will provide the following training and product support programs to
Distributor:
A. Training.
Promptly after execution of this Agreement, WGT will conduct a one day technical
and sales training program for three (3) of Distributor's employees. Such
training will be held at Distributor's facilities. Distributor will be
responsible for all costs and expenses incurred by Distributor's personnel in
attending, receiving or securing training provided by WGT.
B. Product Support Services.
WGT will provide the following product support services to Distributor for the
Term of the Agreement:
1. Telephone Support. Reasonable telephone and electronic mail support for the
Software will be available in response to a request from Distributor during
WGT's normal business hours (6:00 a.m. to 5:00 p.m., Monday through Friday,
Pacific Standard Time), excluding holidays that WGT recognizes. Only
Distributor's designated, approved personnel will communicate with WGT's
customer support specialists.
2. Submitting a Service Request. To submit a request for service, Distributor
has two service options:
(a) over the phone, the Distributor will dial WGT's service number as supplied
to Distributor by WGT. When a support specialist answers the phone,
Distributor will be prepared to discuss the problem with the support
specialist.
(b) via electronic mail as supplied to Distributor by WGT, whereby a service
request can be submitted to WGT's electronic mail system.
In order to submit a service request, either telephonically or electronically,
Distributor will employ the following procedures:
(a) provide a clear description that fully explains what the problem is, and
when the problem occurs;
(b) provide a diagnostic trace, sample code or file of the failure symptom that
has been recorded on the user's system; and
(c) describe the steps taken to resolve the problem.
18
<PAGE>
3. Priority. WGT will respond to problems with the Software in accordance with
the following priority schedule:
Priority One ("P-1") is reserved for critical and severe Software problems which
cause the Software to fail or act in a manner which causes the Software to be
unusable.
Priority Two ("P-2") is reserved for Software problems which cause a major
component of the Software to become unusable but the overall Software continues
to function.
Priority Three ("P-3") is reserved for Software problems which cause minimal
disruption to normal operations of the Software and can be avoided with a simple
work-around process.
Priority Four ("P-4") is reserved for all other problems of lesser severity.
4. Response Time: Upon receipt of a service request, a WGT customer support
specialist will contact Distributor's designated, approved personnel within
the following response times to discuss the problem:
"P-1" - respond within two (2) hours (subject to WGT's normal business hours) of
receipt of a P-1 problem and use all commercially reasonable and diligent
efforts to create a fix or work-around as soon as practicable considering the
nature of the problem.
"P-2" - respond within four (4) hours (subject to WGT's normal business hours)
of receipt of a P-2 problem and use all commercially reasonable and diligent
efforts to create a fix or work-around as soon as practicable considering the
nature of the problem.
"P-3" - respond within twenty-four (24) hours (subject to WGT's normal business
hours) of receipt of a P-3 problem and use all commercially reasonable efforts
to create a fix or work-around which may be included in the next Update.
"P-4" - respond within five (5) business days (subject to WGT's normal business
hours) of receipt of a P-4 problem and target a fix in a future Update.
WGT will make any corrections available to Distributor via BBS, FTP site or
other reasonable means.
19
<PAGE>
DISTRIBUTOR'S FORECAST
EXHIBIT D
Quarter 1: ____________, 19__ through ____________, 19__ $__________
Quarter 2: ____________, 19__ through ____________, 19__ $__________
Quarter 3: ____________, 19__ through ____________, 19__ $__________
Quarter 4: ____________, 19__ through ____________, 19__ $__________
20
EXHIBIT 10.7
EXHIBIT 10.07
SHAREHOLDERS' CROSS-PURCHASE AGREEMENT
THIS AGREEMENT, made this 21st day of August, 1997, by and between JEFFREY
GERARD ALNWICK, MARIE ALNWICK, and EUROPEAN MICRO PLC (each being a
"Shareholder" and collectively the "Shareholders"), AND BIG BLUE EUROPE B.V., a
company registered under the laws of the Netherlands, with its principal place
of business at Havenstraat 11, 1948 NP Beverwijk, The Netherlands (the
"Company").
WHEREAS, the Shareholders are presently active in the management of the
Company and own the following interests in it:
SHAREHOLDER NAME NUMBER OF SHARES PERCENTAGE OF TOTAL SHARES
---------------- ---------------- --------------------------
Jeffrey Gerard Alnwick 132,500 25%
Marie Alnwick 132,500 25%
European Micro PLC 265,000 50%
and,
WHEREAS, the Shareholders believe it to be in their best interests and in
the best interest of the Company to provide for continuity and harmony in
management, and,
WHEREAS, it is the Shareholders' desire to place certain restrictions on
the sale, transfer or encumbrance of shares of the company, and to provide for
the purchase by the remaining Shareholder of a deceased Shareholder's shares, to
provide for the purchase of a withdrawing Shareholder's shares.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the receipt and sufficiency of which is acknowledged, the
parties agree as follows:
1. VALUATION OF SHARES.
Unless altered as herein provided, for the purpose of determining the
purchase price to be paid for the shares of a Shareholder, the fair market value
of each share shall be, as of the date of this Agreement, Two and No/100 Dollars
U.S. dollars (U.S. $2.00).
The Shareholders shall redetermine the value of the shares within sixty
(60) days following the end of each calendar year. Such redetermination shall be
recorded in the form of Exhibit "A" attached hereto, with an executed original
to be provided to each Shareholder. If the Shareholders fail to make the
required annual redetermination of value for a particular year, the last
previously recorded value shall control.
<PAGE>
2. RESTRICTION ON SALE.
No Shareholder shall sell, transfer, or assign his, her or its shares of
the Company to any person, firm or corporation without first receiving the
written consent of the other Shareholders, unless the Shareholder desiring to
make the sale, transfer, or assignments (hereinafter referred to as the
"Seller") shall have first complied with the Offer to Sell provisions as
hereinafter described and such Offer to Sell shall not have been accepted. Any
attempt to sell, transfer, or assign shares in contravention of the terms of
this Agreement shall be of no force or effect.
(a) OFFER TO SELL. The term "Offer to Sell" means a bona fide,
written offer to sell, transfer or assign shares owned by a Shareholder. The
written offer shall state all pertinent details regarding the proposed sale,
transfer or assignment including the price and terms, shall identify the
prospective purchaser, transferee or assignee desiring to obtain an interest in
the shares, and shall state the number of shares involved.
(b) NOTICE TO COMPANY AND SHAREHOLDERS. A copy of the
Offer to Sell shall be given to the other Shareholders and to the
Trustee.
(c) ACCEPTANCE OF OFFER. Within thirty (30) days after the receipt of
such Offer to Sell, the other Shareholders may, at their option, elect to
purchase all of the shares involved in the proposed sale, transfer or
assignment, with each Shareholder having a right to purchase his, her or its
proportionate number of shares. As an example, if there is an Offer to Sell
sixty shares, and there are three other Shareholders, each shall have a right to
purchase twenty shares. If one or more of the other Shareholders do not wish to
purchase their entire proportionate number of shares, the remaining shares shall
be divided equally among all other Shareholders who wish to purchase them. The
other Shareholders shall exercise their election to purchase by giving written
notice thereof to the Seller and the Trustee. The notice shall specify a date
for the closing of the purchase which shall not be more than sixty (60) days
after the date of giving such notice.
(d) PURCHASE PRICE. The purchase price for the shares of the Company
owned by the Seller shall be the higher of i) the present value (as of the date
of the election by the other Shareholders to purchase) of the price contained in
the Offer To Sell, or ii) the price as set forth in Paragraph 1 above.
(e) CLOSING OF PURCHASE. If the other Shareholders elect to purchase
all of the shares as provided in paragraph (c) above, then the closing of the
purchase shall take place within 90 days after the date the written notice is
received by the Seller as provided in Paragraph (c) above, at the principal
office of the Company (or at such other location agreed to by the Shareholders)
and the purchase price shall be paid by the payment of twenty percent (20%) in
cash at closing and by delivery of promissory notes for the balance payable in
eighteen (18) equal monthly installments of principal and interest commencing
one month after the closing. The promissory notes shall bear interest at the
rate of ten percent (10%) per annum from the date of closing and shall be in the
form of Exhibit "B" hereto. The indebtedness evidenced by the
2
<PAGE>
said promissory notes shall be secured by a lien against the shares being
purchased, with said lien to terminate at such time as the said promissory notes
are paid in full. Such shares shall be held by the Trustee until such time as
the promissory notes are paid in full.
(f) RELEASE FROM RESTRICTION. If the Offer to Sell is not accepted by
the other Shareholders, the Seller may make a bona fide sale, transfer or
assignment as provided in the Offer to Sell. If the Seller shall fail to make
such sale, transfer or assignment within thirty (30) days following the
expiration of the time provided above for the election of the other
Shareholders, such shares shall again become subject to all the restrictions of
this Agreement.
(g) TERMINATION OF EMPLOYMENT. If Jeffrey Gerard Alnwick or Marie
Alnwick shall cease to be a Director of the Company for any reason, they shall
be deemed to have presented an Offer to Sell to the Company as provided in this
Paragraph 2, at a per share price to be determined in accordance with Paragraph
1 above. If either John Bartholomew Gallagher or Harry Daniel Shields shall
cease to be a Director of the Company for any reason, European Micro PLC shall
be deemed to have presented an Offer to Sell to the Company as provided in this
Paragraph 2, at a per share price to be determined in accordance with Paragraph
1 above. If such offer shall not be accepted as to all of the shares then owned
by said terminating Shareholder, the terminating Shareholder shall be free to
retain any portion of the shares not so purchased by the other Shareholders.
3. RESTRICTION ON ENCUMBRANCE.
No Shareholder shall encumber or pledge the shares of the Company without
the prior written consent of the other Shareholders.
4. ENDORSEMENT OF SHARE CERTIFICATES.
(a) The shares of the Company authorized and issued to the
Shareholders shall be endorsed with the following:
NOTICE IS HEREBY GIVEN that the sale, assignment, transfer, pledge,
or other disposition of the shares represented by this certificate
are subject to a certain restrictive agreement dated August , 1997
between the Shareholders and the Company, a copy of which agreement
is on file in the office of the Managing Director of the Company.
(b) The parties hereto agree that, so long as this Agreement is in
effect, all shares of the Company to be issued hereafter shall be subject to
this Agreement and have endorsed thereon the appropriate notice contained in
Paragraph (a) above.
(c) No additional shares of the Company shall be issued without the
consent of all of the Shareholders hereto.
3
<PAGE>
(d) The certificates so endorsed shall be delivered to the Trustee to
be held by it or its successor subject to the terms and conditions of this
Agreement.
5. Debts/Losses:
The Shareholders agree that to the extent either of them suffers any loss
in relation to loans made or credit given to the Company or guarantees or
security given for the benefit of the Company, they shall make contributions one
to the other to equalize, on a pro-rate basis, the amount of the losses among
the Shareholders, based upon the percentage of shares of the Company then owned
by each Shareholder. The Shareholders also agree that to the extent that the
Company, in its ordinary course of business, becomes indebted to any
Shareholder, or to any company owned or controlled by a Shareholder upon
liquidation of the Company or upon the Company ceasing to do business, each
Shareholder shall make contributions to the other Shareholders, or to any
company owned or controlled by a Shareholder if such indebtedness is to a
company owned or controlled by a Shareholder, as is necessary to equalize the
amount of debt the Company has with regard to all Shareholders, or to any
company owned or controlled by a Shareholder, as applicable, based upon the
percentage of shares of the Company then owned by each Shareholder.
6. Notices.
Any and all notices, designations, consents, offers, acceptances, or any
other communication provided for herein shall be given in writing by certified
or registered mail, which- shall be addressed (in case of any Shareholder) to
the following addressees until such time as a different address has been
designated in writing sent to the other parties:
Jeffrey Gerard Alnwick
Marie Alnwick
586 New York Avenue
Huntington, New York 1 1743
European Micro PLC
20-24 Church Street
Aitrincharn, Cheshire
WA14 40W
England
Attention: Managing Director
7. TERMINATION OF AGREEMENT.
This Agreement shall terminate upon:
(a) The written agreement of all of the Shareholders;
(b) The bankruptcy, receivership, or dissolution of the Company;
4
<PAGE>
(c) The death or dissolution of all Shareholders within a period of 30
days.
8. AMENDMENT OF AGREEMENT.
This Agreement may be altered, amended, or modified at any time by written
agreement signed by all of the Shareholders.
9. AGREEMENT TO BE BOUND
This Agreement shall be binding not only upon the parties hereto but also
upon their heirs, personal representatives, successors and assigns, and the
parties hereto agree for themselves and their heirs, personal representatives,
successors and assigns to execute any instruments in writing which may be
necessary or proper in carrying out the purposes of this Agreement.
10. MISCELLANEOUS PROVISIONS.
This Agreement shall be governed by the laws of the State of Florida, USA
or, where necessary, by the laws of the Netherlands, and contains the entire
agreement of the parties hereto. The headings used throughout this Agreement are
for convenience only and have no significance in the interpretation of the body
of this Agreement and the parties hereto agree that they are to be disregarded
in construing the provisions of this Agreement. All references made herein to
plural or singular or to masculine or feminine or neuter gender shall be deemed
interchangeable as the context requires.
11. TERMS.
The term " personal representative" shall include the terms " executor"
and " executrix"; the term "Articles of Incorporation" shall include the 'term
"Articles of Association"; the term "Shareholders" shall include the term
"Stockholders"; and the term "Company" shall include the term "Corporation."
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officers the Shareholders have hereunto set their hands and
seals the day and year first above written, and the Trustee has caused this
Agreement to be signed by its duly authorized officer.
COMPANY
BIG BLUE EUROPE B.V. (SEAL)
By: /s/ BAS LEEVWERKE
---------------------------
BAS LEEVWERKE, Managing
Director
5
<PAGE>
SHAREHOLDERS
Witnesses:
- -----------------------
Name:
/s/ JEFFREY GERARD ALNWICK
- ----------------------- --------------------------
Name: JEFFREY GERARD ALNWICK, Shareholder
- -----------------------
Name:
/s/ MARIE ALNWICK
- ----------------------- -----------------
Name: MARIE ALNWICK, Shareholder
EUROPEAN MICRO PLC
- -----------------------
Name:
/s/ LAURENCE GILBERT
- ----------------------- --------------------
Name: LAURENCE GILBERT, Managing Director
6
<PAGE>
EXHIBIT "A"
To: Big Blue Europe BV
Havenstraat II,
1948 NP Beverwijk
The Netherlands
Attention: Bas Leevwerke
SHARE VALUATION
FOR
BIG BLUE EUROPE B.V.
The undersigned shareholders of Big Blue Europe B.V. mutually agree on
this _____ day _______________, 19___, that for the purposes of the Trusteed
Shareholders' Cross-Purchase Agreement dated August ____, 1997, each share of
Big Blue Europe B.V. has a value of U.S. $______________.
EUROPEAN MICRO PLC
By:
- -------------------------- -------------------------
JEFFREY GERARD ALNWICK -----------, Managing Director
- -------------------------
MARIE ALNWICK
7
<PAGE>
Exhibit "B"
PROMISSORY NOTE
U.S. $______________ _______________, 199_
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
________________________ the principal sum of _______________ and /100 U.S.
Dollars (U.S. $_________________ ), together with interest from ______________,
19__ at the rate of ten (10%) per cent per annum until maturity, said principal
and interest being payable as follows:
Principal and interest in the sum of U.S. $_________ shall be due and
payable on , 19_ and on the 1st day of each succeeding month
thereafter, until paid in full.
This note is prepayable in whole or in part without penalty.
If this note or any installment of principal or interest as set forth
above be not promptly and fully paid within 15 days of the date it is due, then,
at the option of the holder, this note shall be accelerated without notice to
the maker, and the then unpaid principal balance and accrued interest shall
become due and payable forthwith and said unpaid principal balance and accrued
interest shall bear interest at the hereafter specified deferred rate.
The maker waives demand, protest, and notice of maturity, non-payment or
protest and all requirements necessary to hold him liable as maker.
The maker further agrees to pay all costs of collection, including a
reasonable attorney's fee in case the principal of this note or any payment on
the principal or any interest thereon is not paid at the respective maturity
thereof, or in case it becomes necessary to protect the security hereof, whether
suit be brought or not.
Deferred principal and interest payments shall bear interest at the rate
of 12 per cent per annum from their respective maturities until paid.
This note is to be construed and enforced according to the laws of the
State of Florida, USA.
------------------------
8
EXHIBIT 10.8
EXHIBIT 10.08
TRUSTEED SHAREHOLDERS CROSS-PURCHASE AGREEMENT
THIS TRUSTEED SHAREHOLDER CROSS PURCHASE AGREEMENT is made this 31st day
of January, 1998, by and among JOHN B. GALLAGHER, HARRY D. SHIELDS, (each being
a "SHAREHOLDER" and collectively the "SHAREHOLDERS"), GALLAGHER FAMILY TRUST
("GALLAGHER TRUST"), HENRY DANIEL SHIELDS 1997 IRREVOCABLE EDUCATIONAL TRUST
("SHIELDS TRUST") (each of the Trusts are collectively referred to as the
"TRUSTS"), EUROPEAN MICRO HOLDINGS, INC., a Nevada corporation (the "COMPANY")
and SUNTRUST BANK, NASHVILLE, N. A. As Trustee (the "TRUSTEE") with its
principal place of business at 424 Church Street, Nashville, Tennessee 37219.
(the "AGREEMENT").
WHEREAS, the Shareholders are presently active in the management of the
Company and own the following interests in it:
SHAREHOLDER NAME NUMBER OF SHARES PERCENTAGE OF TOTAL SHARES
---------------- ---------------- --------------------------
John B. Gallagher 1,900,000 47.5%
Harry D. Shields 1,602,696 40.1%
Gallagher Trust 100,000 2.5%
Shields Trust 397,304 9.9%
WHEREAS, the Shareholders and the Trusts believe it to be in their best
interests and in the best interest of the Company to provide for continuity and
harmony in management, and,
WHEREAS, it is in the Shareholders and the Trusts best interests to vote
any and all beneficially held common shares of the Company (the "SHARES") in
concert, to provide for restrictions on the sale of Shares, to provide for the
purchasing of certain of the shares of a deceased Shareholder, and to provide
funds necessary for the purchase of such Shares.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the receipt and sufficiency of which is acknowledged, the
parties agree as follows:
1. AGREEMENT. The Shareholders, Trusts, Company and Trustee agree to be
bound and to comply with all the terms and conditions of this Agreement as set
forth herein.
2. DEPOSIT OF SHARE CERTIFICATES WITH THE TRUSTEE. Upon the execution of
this Agreement, each of the Shareholders and the Trusts shall deposit with the
Trustee, all certificates representing Shares of the Company owned by them. In
addition, each of the Shareholders shall execute stock powers in blank with
respect to all Shares of the Company owned by each Shareholder and deliver such
stock powers to the Trustee.
<PAGE>
3. RESTRICTION ON ENCUMBRANCE. No Shareholder or Trust shall encumber or
pledge his or its Shares of the Company without the prior written consent of all
the Shareholders.
2
<PAGE>
4. VOTING OF SHARES.
(a) VOTING OF SHARES BY THE SHAREHOLDERS. Each Shareholder agrees to
vote his Shares in concert on all matters submitted to a vote of shareholders of
the Company, specifically including without limitation the election of all
directors, so as to maintain continuity in the management of the Company for the
duration of this Agreement. In the event that either Shareholder cannot agree to
vote his Shares in concert with the other Shareholder, neither Shareholder shall
vote his Shares.
(b) VOTING OF SHARES BY THE TRUSTS. Each Trust agrees to vote its
Shares in concert on all matters submitted to a vote of the shareholders of the
Company, specifically including without limitation the election of all
directors, so as to maintain continuity in the management of the Company for the
duration of this Agreement. In the event that either Trust cannot agree to vote
its Shares in concert with the other Trust, neither Trust shall vote its Shares.
5. RESTRICTIONS ON SALE. No Shareholder or Trust shall sell, transfer, or
assign his or its Shares of the Company to any person, firm or corporation
without first receiving the written consent of the other Shareholder or
Shareholders, as the case may be, unless the Shareholder or Trust desiring to
make the sale, transfer, or assignment (hereinafter referred to as the "SELLER")
shall have first complied with the Offer to Sell provisions as hereinafter
described and such Offer to Sell shall not have been accepted. Any attempt to
sell, transfer, or assign Shares in contravention of the terms of this Agreement
shall be void and of no force or effect.
(a) OFFER TO SELL. The term "Offer to Sell" means a bona fide, written
offer to sell, transfer or assign Shares owned by a Shareholder or Trust. The
written offer shall state all pertinent details regarding the proposed sale,
transfer or assignment including the price and terms, shall identify the
prospective purchaser, transferee or assignee desiring to obtain an interest in
the Shares, and shall state the number of Shares involved.
(b) NOTICE TO COMPANY, SHAREHOLDERS AND TRUSTS. A copy of the Offer to
Sell shall be given to the Company, other Shareholder(s) and Trusts, and to the
Trustee.
(c) VOLUNTARY TRANSFER OF SHAREHOLDER SHARES.
(i) GALLAGHER SALE OF SHARES. In the event that John B. Gallagher
receives an Offer to Sell Shares owned by him, then such Shares shall be first
offered to Harry D. Shields. Within thirty (30) days after receipt of such Offer
to sell, Harry D. Shields may at his option elect to purchase all of the Shares
proposed to be sold as set forth in the Offer to Sell and shall exercise his
option to purchase by giving written notice to John B. Gallagher and the
Trustee. The notice shall specify a date for the closing of the purchase and
shall not be more than sixty (60) days after the date of giving such notice.
Payment terms shall be in accordance with paragraph (e). If John B. Gallagher's
Offer to Sell is not accepted by Harry D. Shields, John B. Gallagher may make a
bona fide sale, transfer or assignment as provided in the Offer to Sell. If John
B. Gallagher shall fail to make such sale, transfer or assignment within thirty
(30)
3
<PAGE>
days following the expiration of the time provided above for the election
of Harry D. Shields, such Shares shall again become subject to all the
restrictions of this Agreement.
(ii) SHIELDS SALE OF SHARES. In the event that Harry D. Shields
receives an Offer to Sell Shares owned by him, then such Shares shall be first
offered to John B. Gallagher. Within thirty (30) days after receipt of such
Offer to sell, John B. Gallagher may at his option elect to purchase all of the
Shares proposed to be sold as set forth in the Offer to Sell and shall exercise
his option to purchase by giving written notice to Harry D. Shields and the
Trustee. The notice shall specify a date for the closing of the purchase which
shall not be more than sixty (60) days after the date of giving such notice.
Payment terms shall be in accordance with paragraph (e). If Harry D. Shields's
Offer to Sell is not accepted by John B. Gallagher, Harry D. Shields may make a
bona fide sale, transfer or assignment as provided in the Offer to Sell. If
Harry D. Shields shall fail to make such sale, transfer or assignment within
thirty (30) days following the expiration of the time provided above for the
election of John B. Gallagher, such Shares shall again become subject to all the
restrictions of this Agreement.
(d) TRANSFER OF TRUST SHARES.
(i) SHARES HELD BY THE GALLAGHER TRUST.
(1) GALLAGHER OPTION TO PURCHASE THE GALLAGHER TRUST SHARES.
In the event that the Gallagher Trust receives an Offer to Sell Shares owned by
it, then such Shares shall be first offered to John B. Gallagher. Within thirty
(30) days after receipt of such Offer to sell, John B. Gallagher may at his
option elect to purchase all of the Shares proposed to be sold as set forth in
the Offer to Sell. John B. Gallagher shall exercise his option to purchase by
giving written notice to the Gallagher Trust and the Trustee. The notice shall
specify a date for the closing of the purchase which shall not be more than
sixty (60) days after the date of giving such notice.
(2) SHIELDS OPTION TO PURCHASE THE GALLAGHER TRUST SHARES. In
the event John B. Gallagher declines to exercise his option to purchase the
Shares of the Gallagher Trust which are subject to the Offer to Sell, then the
Gallagher Trust shall offer such Shares to Harry D. Shields for the same
purchase price as set forth in the Offer to Sell. Within thirty (30) days after
the receipt of such Offer to Sell, Harry D. Shields may at his option elect to
purchase all of the Shares proposed to be sold in the Offer to Sell. Harry D.
Shields shall exercise his option to purchase by giving written notice to the
Gallagher Trust and the Trustee. The notice shall specify a date for the closing
of the purchase which shall not be more than sixty (60) days after the date of
giving such notice.
(3) BONA FIDE SALE, TRANSFER OR ASSIGNMENT. If the Offer to
Sell is neither accepted by John B. Gallagher nor Harry D. Shields, the
Gallagher Trust may make a bona fide sale, transfer or assignment as provided in
the Offer to Sell provided, however, if the Gallagher Trust shall fail to make
such sale, transfer or assignment within thirty (30) days following the
expiration of the time provided above for the election by Harry D. Shields, all
such Shares shall again become subject to all of the restrictions of this
Agreement.
4
<PAGE>
(ii) SHARES HELD BY THE SHIELDS TRUST.
(1) SHIELDS OPTION TO PURCHASE THE SHIELDS TRUST SHARES In the
event that the Shields Trust receives an Offer to sell any Shares owned by it,
then such Shares shall be first offered to Harry D. Shields. Within thirty (30)
days after receipt of such Offer to sell, Harry D. Shields may at his option
elect to purchase all of the Shares proposed to be sold as set forth in the
Offer to Sell. Harry D. Shields shall exercise his option to purchase by giving
written notice to the Shields Trust and the Trustee. The notice shall specify a
date for the closing of the purchase which shall not be more than sixty (60)
days after the date of giving such notice.
(2) GALLAGHER OPTION TO PURCHASE THE SHIELDS TRUST SHARES. In
the event Harry D. Shields declines to exercise his option to purchase the
Shares of the Shields Trust which are subject to the Offer to Sell, then the
Shields Trust shall offer such Shares to John B. Gallagher for the same purchase
price as set forth in the Offer to Sell. Within thirty (30) days after the
receipt of such Offer to Sell, John B. Gallagher may at his option elect to
purchase all of the Shares proposed to be sold in the Offer to Sell. John B.
Gallagher shall exercise his option to purchase by giving written notice to the
Shields Trust and the Trustee. The notice shall specify a date for the closing
of the purchase which shall not be more than sixty (60) days after the date of
giving such notice.
(3) BONA FIDE SALE, TRANSFER OR Assignment. If the Offer to
Sell is neither accepted by Harry D. Shields nor John B. Gallagher, the Shields
Trust may make a bona fide sales transfer or assignment as provided in the Offer
to Sell provided, however, if the Shields Trust shall fail to make such sale,
transfer or assignment within thirty (30) days following the expiration of the
time provided above for the election by John B. Gallagher, all such Shares shall
again become subject to all of the restrictions of this Agreement.
(e) CLOSING OF PURCHASE. If any Shareholder elects to purchase
Shares under the provisions of paragraphs (a)-(d), then the closing of the
purchase shall take place within sixty (60) days after acceptance of the Offer
to Sell at the principal office of the Company (or at such other location agreed
to by the Shareholders) and the purchase price shall be paid by the payment of
twenty percent (20%) in cash at closing and by delivery of a promissory note for
the balance payable in twelve (12) equal monthly installments of principal and
interest commencing one month after the closing. The promissory note shall bear
interest at the rate of ten percent (10%) per annum from the date of closing and
shall be in the form of EXHIBIT A ("EXHIBIT A") hereto. The indebtedness
evidenced by the said promissory note shall be secured by a lien against the
Shares being purchased, with said lien to terminate at such time as the said
promissory note is paid in full. Such Shares shall be held by the Trustee until
such time as the promissory note is paid in full.
5
<PAGE>
(f) PURCHASE AND SALE OF SHARES UPON DEATH OF A SHAREHOLDER. The
following terms and conditions shall govern in the event of the death of a
Shareholder:
(i) Upon the death of John B. Gallagher, Harry D. Shields shall
purchase and the personal representative of John B. Gallagher shall sell to
Harry D. Shields, one million (1,000,000) Shares for a purchase price of Two
Million Dollars (US$2,000,000).
(ii) Upon the death of Harry D. Shields, John B. Gallagher shall
purchase and the personal representative of Harry D. Shields shall sell to John
B. Gallagher, one million (1,000,000) Shares for a purchase price of Two Million
Dollars (US$2,000,000).
6. TRUSTEE DUTIES ON DEATH OF A SHAREHOLDER. The Trustee accepts and
agrees to safeguard the certificates of Shares, all insurance policies purchased
for purposes of this Agreement, an original copy of this Agreement and any
amendments thereto, and any other policies or documents which hereafter may be
incorporated into this Agreement.
Upon the death of a Shareholder, the Trustee shall:
(a) Collect the proceeds of the policies insuring the deceased
Shareholder. The Trustee shall not be obligated to commence any action to
recover proceeds unless it is indemnified in advance by the remaining
Shareholder;
(b) (b) Give notice of the amount of proceeds received to the surviving
Shareholder and to the personal representative of the deceased Shareholder;
(c) Upon receipt of the insurance proceeds and the qualification of the
personal representative, pay to such personal representative the Purchase Price
of Two Million Dollars ($2,000,000). Any remaining proceeds under a policy shall
be paid to the surviving Shareholder who purchased and paid the premiums on such
policy;
(d) At the time the personal representative of the deceased Shareholder
is paid the insurance proceeds under paragraph (c) above, the Trustee shall
lawfully transfer to the surviving Shareholder a valid Company stock certificate
representing one million (1,000,000) Shares previously owned by the deceased
Shareholder.
(e) The Trustee shall deliver all remaining Shares to each of the
respective parties to this Agreement (including the personal representative of
the deceased Shareholder) and this Agreement shall terminate.
7. LIFE INSURANCE.
6
<PAGE>
(a) For purposes of this Agreement, life insurance has been purchased
in the amount of Two Million Dollars ($2,000,000) and is owned by each
Shareholder on the life of the other Shareholder as is reflected in the life
insurance schedule attached hereto as EXHIBIT B ("EXHIBIT B"). Exhibit B shall
be amended and updated from time to time as is needed to accurately reflect the
insurance coverage in effect. Each Shareholder shall designate the Trustee as
beneficiary of all policies and such policies shall be held by the Trustee for
purposes of this Agreement. This Agreement shall extend to and include any
additional policies procured hereunder and they shall be set forth on such
Exhibit B.
(b) Each Shareholder shall be individually be responsible for payment
of the premiums on the policies owned by him. The Trustee shall be under no
obligation to make any premium payments on any such life insurance policies. If
a Shareholder should fail to pay his portion of any premium within twenty five
(25) days after the due date, the Shareholder on whom the policy is issued may
pay such premium. The Trustee shall promptly notify the Shareholders of the
receipt of any notice of non-payment, termination, cancellation or modification
of any insurance policies, but in no event shall the Trustee be held liable if
an insurance policy lapses.
8. TRUSTEE'S COMPENSATION AND SUCCESSION.
(a) The Trustee shall be paid an annual fee while this Agreement is in
force. The Trustee reserves the right to adjust the annual fee, but no such
adjustment shall become effective sooner than one year after notice has been
given to all parties to this Agreement but the Trustee shall have the right to
change an extraordinary fee based upon the current fee schedule upon the death
of one of the insured parties and upon the voluntary transfer of Shareholder's
share based upon this Agreement. All Trustee fees shall be paid by the
Shareholders.
(b) By mutual written agreement, the Shareholders may remove the
Trustee and appoint a successor corporate trustee ("CORPORATE TRUSTEE") by
giving written notice to the Trustee.
(c) In the event the Trustee resigns or is removed, it shall deliver to
the successor Corporate Trustee all share certificates, policies, and documents
held in its possession, but no Trustee's resignation shall be effective until
thirty (30) days after the Shareholders receive written notice thereof.
9. ENDORSEMENT OF SHARE CERTIFICATES. The Shares of stock of the Company
authorized and issued to the Shareholders and Trusts shall be endorsed with the
following:
(a) "NOTICE IS HEREBY GIVEN THAT THE SALE, ASSIGNMENT, TRANSFER,
PLEDGE, OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A SHAREHOLDERS AGREEMENT DATED JANUARY 31, 1998 MADE BY AND AMONG THE
SHAREHOLDERS, CERTAIN TRUSTS AND THE COMPANY, A COPY OF WHICH AGREEMENT IS ON
FILE IN THE OFFICE OF THE COMPANY."
7
<PAGE>
(b) The endorsement referenced in paragraph (a) above is deemed to
refer to this Agreement and any amendments thereto.
(c) The certificates so endorsed shall be delivered to the Trustee to
be held by it or its successor subject to the terms and conditions of this
Agreement.
10. DEBT/LOSSES. The Shareholders agree that to the extent either of them
suffers any loss in relation to loans or credit given to the Company or
guarantees on security given for the benefit of the Company, they shall make
contributions, one to the other, to equalize on a pro-rata basis the losses
among the Shareholders. The Shareholders also agree that to the extent that the
Company, in its ordinary course of business, becomes indebted to any
Shareholder, to American Surgical Supply Corp. of Florida, d/b/a American Micro
Computer Center (partially owned by John B. Gallagher) or Technology Express,
Inc. (owned by Harry D. Shields) upon liquidation of the Company or upon the
Company ceasing to do business, each Shareholder shall make contributions to the
other Shareholder, to American Surgical Supply Corp. of Florida d/b/a American
Micro Computer Center, or to Technology Express, Inc. as is necessary to
equalize the amount of debt the Company has with regard to a Shareholder,
American Surgical Supply Corp. of Florida, d/b/a American Micro Computer Center,
or Technology Express, Inc.
11. NOTICES. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided for herein shall be given in
writing by certified mail, which shall be addressed to the following addressees
until such time as a different address has been designated in writing sent to
the other parties:
IF TO JOHN B. GALLAGHER: IF TO HARRY D. SHIELDS:
John B. Gallagher Harry D. Shields
American Micro Computer Technology Express, Inc.
Center 808 Third Avenue, South
6073 NW 167th Street, Unit Nashville, Tennessee 37210
C-25
Miami, Florida 33015
IF TO THE TRUSTEE: IF TO SHIELDS TRUST:
SunTrust Bank,Nashville, Robert H. True, Co-Trustee
N.A. Summit Financial Group
P.O. Box 305110 First American Center
Nashville, Tennessee Suite 2070
37230-5110 315 Deaderck Street
Attn: Pam Utley, V.P. and Nashville, Tennessee 37238
Trust Officer
IF TO GALLAGHER TRUST:
c/o Thomas H. Minkoff, as Trustee
1635 D Royal Palm Drive South
Gulfport, Florida 33707
12. TERMINATION OF AGREEMENT. This Agreement shall terminate upon:
8
<PAGE>
(a) The written agreement of all of the Shareholders;
(b) The bankruptcy, receivership, or dissolution of the Company;
(c) The death of a Shareholder and the completion of the purchase and
sale set forth in Sections 5 and 6 hereof.
13. AMENDMENT OF AGREEMENT. This Agreement may be altered, amended, or
modified at any time by written agreement signed by all of the Shareholders and
the Trustees of the Trusts.
14. AGREEMENT TO BE BOUND. This Agreement shall be binding not only upon
the parties hereto but also upon their heirs, personal representatives,
trustees, successors and assigns, and the parties hereto agree for themselves
and their heirs, personal representatives, trustees, successors and assigns to
execute any instruments in writing which may be necessary or proper in carrying
out the purposes of this Agreement.
15. SPECIFIC PERFORMANCE. If any party is required and fails to give
notice, sell Shares, transfer Shares, close a sale or take any other action set
forth pursuant to this Agreement and, in such event, if the failure continues
for thirty (30) days after written notice of such default is provided to the
defaulting party by any Shareholder, any Shareholder of the Company may then
initiate and maintain a proceeding to compel the specific performance of this
Agreement by the defaulting party, and the successful party or parties shall be
entitled to all court costs, including reasonable trial and appellate attorney's
fees incurred in such proceeding.
16. MISCELLANEOUS PROVISIONS. This Agreement shall be governed by the laws
of the State of Florida, USA and contains the entire agreement of the parties
hereto. The headings used throughout this Agreement are for convenience only and
have no significance in the interpretation of the body of this Agreement and the
parties hereto agree that they are to be disregarded in construing the
provisions of this Agreement. All references made herein to plural or singular
or to masculine or feminine or neuter gender shall be deemed interchangeable as
the context requires.
17. TERMS. The term "personal representative" shall include the terms
"executor" and "executrix"; the term "Articles of Incorporation" shall include
the term "Articles of Association"; the term "Shareholders" shall include the
term "Stockholders"; and the term "Company" shall include the term
"Corporation."
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officers, the Shareholders have hereunto set their hands and
seals the day and year first above written, and the Trustee has caused this
Agreement to be signed by its duly authorized officer.
EUROPEAN MICRO HOLDINGS, INC. SHAREHOLDERS
(SEAL)
By: /s/ JOHN B. GALLAGHER By: /s/ JOHN B. GALLAGHER
--------------------- ---------------------
JOHN B. GALLAGHER, JOHN B. GALLAGHER,
Co-Chairman individually
By: /s/ HARRY D. SHIELDS By: /s/ HARRY D. SHIELDS
-------------------- -----------------------
HARRY D. SHIELDS, Co-Chairman HARRY D. SHIELDS, individually
GALLAGHER FAMILY TRUST
By: /s/ THOMAS H. MINKOFF
---------------------
THOMAS H. MINKOFF, Trustee
HENRY DANIEL SHIELDS 1997 SUNTRUST BANK, NASHVILLE, N. A.
IRREVOCABLE EDUCATIONAL TRUST AS TRUSTEE
AGREEMENT
By: /s/ PAMELA UTLEY
----------------------
By: /s/ ROBERT H. TRUE PAMELA UTLEY, Vice President
---------------------- and Trust Officer
ROBERT H. TRUE, Co-Trustee
By: /s/ STUART S. SOUTHARD
----------------------
STUART S. SOUTHARD, Co-Trustee
10
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
U.S. $______________ _______________, 199_
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
________________________ ____ the principal sum of _______________ and /100 U.S.
Dollars (U.S. $_________________ ), together with interest from ______________,
19___ at the rate of ten per cent (10%) simple interest per annum until
maturity, said principal and interest being payable as follows:
Principal and interest in the sum of $__________shall be due and
payable on _____________, 19_ and on the 1st day of each succeeding
month thereafter, until paid in full.
This note is prepayable in whole or in part without penalty.
If this note or any installment of principal or interest as set forth
above be not promptly and fully paid within 15 days of the date it is due, then,
at the option of the holder, this note shall be accelerated without notice to
the maker, and the then unpaid principal balance and accrued interest shall
become due and payable forthwith and said unpaid principal balance and accrued
interest shall bear interest at the hereafter specified deferred rate.
The maker waives demand, protest, and notice of maturity, non-payment or
protest and all requirements necessary to hold him liable as maker.
The maker further agrees to pay all costs of collection, including a
reasonable attorney's fee in case the principal of this note or any payment on
the principal or any interest thereon is not paid at the respective maturity
thereof, or in case it becomes necessary to protect the security hereof, whether
suit be brought or not.
Any past due principal and interest payments shall bear interest at the
rate of 18 per cent per annum from their respective maturities until paid.
This note is to be construed and enforced according to the laws of the
State of Florida, USA.
--------------------------------
<PAGE>
EXHIBIT "B"
LIFE INSURANCE SCHEDULE
OWNER- BENEFICIARY INSURER POLICY FACE
SHAREHOLDER NUMBER AMOUNT
INSURED
- ----------- -------------- -------------------- ------------ -------------
John B. Third National General American No. 3287949 US $ 500,000
Gallagher Bank in Lincoln Benefit Life No. 559635 US $1,000,000
on the Nashville Phoenix Home Life No. 11121616 US 500,000
life of -------------
Harry D. US $2,000,000
Shields
- -------------------------------------------------------------------------------
Harry D. Third National General American No. 3287948 US $ 500,000
Shields on Bank in Lincoln Benefit Life No. 559634 US $1,000,000
the life of Nashville Phoenix Home Life No. 11121582 US $ 500,000
life of -------------
John US $2,000,000
Gallagher
EXHIBIT 10.09
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.
-2-
<PAGE>
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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<PAGE>
(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
-4-
<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
-5-
<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 Terminate 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 Terminate 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 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
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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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 sand 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 this 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 addressed 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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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: /s/ HARRY D. SHIELDS
--------------------
Name: Harry D. Shields /s/ JOHN B. GALLAGHER
Title: Co-Chairman -------------------
Name: John B. Gallagher
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EXHIBIT 10.10
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 Technology Express, Inc. ("TECHNOLOGY EXPRESS"), 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:
(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
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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 Technology
Express 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 Date or in which the Company has invested
five percent (5%) or more of its total assets as of the
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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 thereto. For purposes of this Agreement, a "NOTICE OF TERMINATION"
shall mean a notice which
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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 Terminate 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 Terminate 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 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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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 sand 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 this 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 addressed 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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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: /s/ JOHN B. GALLAGHER
-----------------
Name: John B. Gallagher
Title: Co-Chairman /s/ HARRY D. SHIELDS
------------------
Name: Harry D. Shields
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EXHIBIT 10.11
FORM OF AGREEMENT
THIS AGREEMENT is made the ____ day of ________ 199___
BETWEEN:
(1) EUROPEAN MICRO PLC (registered number 2663964) having its registered
office at Market Court, 20-24 Church Street, Altrincham, Cheshire WA14
4DW (the "COMPANY")
(2) LAURENCE GILBERT of __________________________________ (the
"EXECUTIVE")
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1. In this Agreement the following words and expressions shall
have the following meanings:
"the Board" means the Board of Directors of the Company
and includes any committee of the Board duly
convened by it
"the Commencement Date" means the ______ day of 199__
"EM Group Company" means the Company and any Company which is a
subsidiary or affiliate of the Company
"the Employment" means the employment established by this
Agreement
"Intellectual Property" means (i) every invention discovery design
or improvement (ii) every work in which
copyright may subsist, and (iii) moral
rights as defined by s 77 and s 80 of the
Copyright Design and Patents Act 1988.
"the Termination Date" means the termination date of the Employment
under this Agreement howsoever terminated.
1.2. The headings in this Agreement shall not affect its
interpretation or construction.
1.3. Any reference in this Agreement to any statutory provision
includes any statutory modification or re-enactment of it or
the provision referred to.
2. EMPLOYMENT
The Company shall employ the Executive and the Executive agrees to act as
Managing Director of the Company on the terms set out in this Agreement.
3. FREEDOM TO TAKE UP THE APPOINTMENT
The Executive warrants that by virtue of entering into this Agreement he will
not be in breach of any express or implied terms of any contract or of any other
obligation binding upon him.
4. PERIOD
The Executive's Employment shall commence with effect from the Commencement Date
and shall (subject as hereinafter provided) be for an initial fixed term of one
(1) year and shall continue thereafter until terminated by either party giving
to the other not less than six (6) months' written notice to expire on or any
time after the expiry date for the initial fixed term.
5. DUTIES OF THE APPOINTMENT
5.1. The Executive shall faithfully and diligently perform those
duties of his appointment and exercise such powers consistent
with them which are from time to time assigned to or vested in
him and shall use his best endeavours to promote the interests
of the Company and any EM Group Company for which he is
required to perform duties.
5.2. The Executive shall (without further remuneration) if and for
so long as the Executive is so required by the Company:
(i) carry out the duties of his appointment on behalf of
any EM Group Company
(ii) act as a director of any EM Group Company or hold any
other appointment or office as nominee or
representative of the Company or any EM Group Company
(iii) carry out such duties and the duties attendant on any
such appointment as if they were duties to be
performed by him on behalf of the Company.
6. OBEDIENCE AND REPORTING
The Executive shall obey all lawful and reasonable directions of the Board and
at all times keep the Board promptly and fully informed (in writing if so
requested) of his conduct of the business or affairs of the Company and any EM
Group Company and provide such explanations as the Board may require.
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7. DEVOTION TO DUTIES
7.1. The Executive shall during the term of this Employment devote the whole
of his time, attention and abilities to the business and affairs of the
Company unless prevented by ill health from so doing and shall not
during the Employment either on his own account or as the employer of
others or otherwise be engaged or concerned in any business other than
that of the Company or any EM Group Company or accept any other
engagement or public office except with the prior consent in writing of
the Company but the Executive may nevertheless be or become a minority
holder of any securities which are quoted on a recognized investment
exchange.
7.2. The Executive shall not be prevented from having any shareholding in a
company which exists at the date of this Contract.
7.3. The Executive will be allowed to become a Shareholder in a company
which does not directly or indirectly compete with the Company or any
EM Group Company provided that consent is first obtained from the
Company in writing such consent not to be unreasonably withheld.
8. COMPLIANCE/DEALINGS IN "SECURITIES"
The Executive shall during his Employment and for twelve (12) months after the
termination of his Employment comply and shall procure that his minor children
shall comply with all applicable rules of law, any recognized investment
exchange regulations including the "Model Code for Securities Transactions by
Directors of Listed Companies' issued by the International Stock Exchange of the
United Kingdom and the Republic of Ireland Limited and any Company policy issued
in relation to dealings in shares, debentures or other securities of the Company
and any EM Group Company or any unpublished price sensitive information
affecting the securities of any other company.
9. PLACE OF WORK
9.1. The Executive shall initially work at the offices of the
Company at Market Court, 20-24 Church Street, Altrincham,
Cheshire WA14 4DW but the Executive shall if required to do so
work in such place or places within a twenty (20) mile radius
of Altrincham as the Board may reasonably require for the
proper performance of his duties hereunder.
9.2. The Executive shall not be required (except for travel on the
business of the Company or any EM Group Company) to reside in
other parts of the world.
10. HOURS OF WORK
There are no normal fixed working hours for the Employment. The Executive is
expected to work at such times as the efficient and conscientious discharge of
his duties hereunder requires.
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11. REMUNERATION
11.1. During the Employment the Executive shall receive as
remuneration a basic salary at the rate of ________ per annum
to be paid by equal monthly installments on the last day of
each calendar month. Any increase in remuneration shall be
notified in writing to the Executive and the details thereof
shall be entered in the table in Schedule 1 to the Company's
signed copy of this Agreement and initialed by an officer of
the Company.
11.2. The remuneration shall unless otherwise by agreed in writing
by the Company be inclusive of any fees or other remuneration
which the Executive would otherwise be entitled to receive
from the Company or any EM Group Company in connection with
the performance of the duties delegated to him under this
Agreement (subject to Clause 11.3 hereof).
11.3. During the Employment the Executive will also receive a bonus
calculated in accordance with Schedule 3.
12. CAR
12.1. The Company shall make available to the Executive for his use
in performing his duties (and shall replace from time to time
as necessary) a motor vehicle in keeping with the Executive's
position. The Company shall maintain service tax and
comprehensively insure the car as appropriate and shall bear
all running expenses of the car including fuel consumed during
private use of the car. The Executive shall ensure that he has
at all times a current valid license to drive private motor
cars.
12.2. Immediately upon the termination of the Employment howsoever
arising, the Executive shall return the car and its keys to
the Company at its principal place of business (or any other
place nominated by the Company for its return).
13. EXPENSES
In addition to his basic salary hereunder the Executive shall be reimbursed the
amount of all reasonable traveling, hotel, entertainment and other expenses
properly and necessarily incurred and defrayed by him in the discharge of his
duties hereunder (including "professional fees"). The Executive shall produce to
the Company at its request all supporting vouchers and documents in respect of
such expenses. The Company will also pay any telephone expenses incurred by the
Executive in relation to this Contract of Employment upon production of
supporting bills in respect of such expenses.
14. PENSION AND OTHER BENEFITS
No pension contributions shall be paid by the Company on behalf of the
Executive. The Executive will however be entitled to private health insurance
for the benefit of himself and his two daughters during the term of this
Agreement.
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15. HOLIDAYS
15.1. The Executive shall be entitled (in addition to normal bank
and other public holidays) to twenty (20) days paid holiday in
each calendar year at such times as shall be convenient to the
Company and such additional holidays as the Board shall
approve.
15.2. The Executive shall not be entitled to carry forward any
unused holiday entitlement from one holiday year to the next
without the written consent of the Company.
16. SICKNESS OR INJURY
16.1. The Executive agrees that at any time during the course of the
Employment he shall at the request of the Company submit
himself to a medical examination by a registered medical
practitioner nominated by the Company. The purpose of such
medical examination shall be to determine whether there are
any matters which might impair the Executive's ability to
perform his duties under this Agreement and accordingly the
Executive shall give such authority as is required for the
Company's nominated doctor to disclose to the Company the
findings. All expenses associated with obtaining the report
will be borne by the Company.
16.2. In the event that the Executive is unable to perform his
duties under this Agreement by reason of sickness or injury
for a period of seven (7) days or more, the Executive shall if
required to do so by the Company provide the Company with a
medical certificate in respect of the whole period of the
absence. Immediately following his return from any period of
absence the Executive shall complete a self-certification form
detailing the reason for the absence.
16.3. During the Executive's first ten (10) weeks of absence he will
receive ninety percent (90%) of his average weekly earnings
calculated by taking the total of his earnings over the
previous twelve months and dividing the same by fifty two
(52). At the end of such ten (10) week period any further
payment will only be made to the Executive at the discretion
of the Board.
16.4. The Company shall have the right to deduct from the
remuneration paid to the Executive any statutory sick pay or
other social security benefits which he is entitled to claim
in consequence of sickness or accident or payable to him under
any scheme for the time being in force of which by virtue of
his employment by the Company he is a non-contributory member.
16.5. In the event that the Executive is incapable of performing his
duties by reason of injury sustained wholly or partially as a
result of actionable negligence or breach of any statutory
duty on the part of any third party all payments made to the
Executive by the Company by way of remuneration shall to the
extent that compensation is recoverable from that third party
constitute loans by the Company to the Executive
(notwithstanding that as an interim measure income tax has
been
5
<PAGE>
deducted from payments as if they were emoluments of
employment) and shall be repaid when and to the extent that
the Executive recovers compensation for loss of earnings from
that third party by action or otherwise.
16.6. The Company will maintain on behalf of the Executive the
permanent health insurance scheme currently in place during
the term of this Agreement.
17. CONFIDENTIALITY
The Executive shall not, either during the Employment, otherwise than in the
proper course of his duties, or thereafter, without the consent in writing of
the Company being first obtained, use directly or indirectly, divulge to any
person, firm or company and shall during the continuance of the Employment use
his best endeavours to prevent the publication, disclosure or non-authorized use
of any confidential information of the Company or any EM Group Company or any of
its or their secrets, dealings or transactions whatsoever which may have come or
may come to his knowledge during his Employment or previously or otherwise and
which include but are not limited to the following matters:
(i) the working of any manufacturing process or invention
or any other methods, formulae, technical data and
know-how used by or which relate to the business of
the Company or any EM Group Company;
(ii) lists of customers and potential customers or of
suppliers and potential suppliers to the Company and
any EM Group Company and any other information
collected by the Company and any EM Group Company in
relation to those customers or suppliers;
(iii) the dealings or transactions or other business
affairs of the Company or any EM Group Company and
its or their finances or management accounts.
The restriction shall cease to apply to information or knowledge which may
(otherwise than by reason of the default of the Executive ) become available to
the public generally without requiring a significant expenditure of labour,
skill or money.
18. INTELLECTUAL PROPERTY
18.1. The Executive shall forthwith communicate to the Company in
confidence all intellectual property which the Executive may
make or originate either solely or jointly with another or
others during the Employment (hereinafter referred to as
"Intellectual Property").
18.2. In the case of such Intellectual Property as is made or
originated hereunder wholly or substantially in the course of
his normal duties or in the course of duties specifically
assigned to him and which relate to the affairs of the Company
or any EM Group Company the following subclauses of this
clause shall apply.
6
<PAGE>
18.3. Such Intellectual Property (or in the case of the Intellectual
Property made or originated by the Executive jointly with
another or others to the full extent of the Executive's
interest therein so far as the law allows) shall be and become
the exclusive property of the Company and shall not be
disclosed to any other person, firm or company without the
consent of the Company being previously obtained which if
given may be subject to conditions. The provisions of this
subclause shall not entitle the Executive to any compensation
beyond the salary hereinafter mentioned except that in the
case of any invention on which a British Patent has been
granted or assigned to the Company and the Company has derived
outstanding benefit from such patent, the Executive may be
entitled by virtue of s 40 of the Patents Act 1977.
18.4. The Executive shall if and when required by the Company and at
the expense of the Company do and/or combine with others in
doing all acts and sign and execute all applications and other
documents (including Powers of Attorney in favour of nominees
of the Company) necessary or incidental to obtaining,
maintaining or extending patent or other forms of protection
for such Intellectual Property in the UK and in any other part
of the world or for transferring to or vesting in the Company
or its nominees the Executive's entire right, title and
interest to and in such Intellectual Property or to and in any
application, patent or other form of protection to copyright
as the case may be including the right to file applications in
the name of the Company or its nominees for patent or other
forms of protection or for registration of copyright in any
country claiming priority from the date of filing of any
application or other date from which priority may run in any
other country.
18.5. The provisions of this clause shall remain in full force and
effect notwithstanding that after the Executive has made or
originated any such Intellectual Property the Employment may
have ceased or been determined for any reason whatsoever with
the intention that the same shall bind the heirs of an/or
assigns of the Executive.
19. COPYRIGHT
The Executive shall promptly disclose to the Company all works in which
copyright or design rights may exist which the Executive may make or originate
either solely or jointly with others during the Employment. Any such copyright
works or designs created by him in the normal course of his Employment or in the
course of carrying out duties specifically assigned to him which relate to the
affairs of the Company shall be the property of the Company whether or not the
work was made by direction of the Company or was intended for the Company and
the copyright in it and the rights in any design shall belong to the Company and
to the extent that such copyright or design rights are not otherwise vested in
the Company the Executive hereby assigns the same to the Company.
7
<PAGE>
20. POST-TERMINATION OBLIGATIONS
20.1. The Executive shall not during the period of six (6) months
after termination of the Employment solicit or endeavour to
entice away from or discourage from being employed by the
Company or any EM Group Company any employee or director
employed by the Company or any EM Group Company and who to his
knowledge was an employee thereof at the date of such
termination or whom to his knowledge has at that date agreed
to be engaged as an employee of the Company or any EM Group
Company and with whom the Executive has dealt or had contact
in the normal course of his duties.
20.2. The Executive shall not for a period of six (6) months after
the termination of the Employment (without the previous
consent in writing of the Company) and whether on his own
account or for any other person, firm or company directly in
connection with any business similar to or in competition with
the business of the Company solicit or endeavour to entice
away from the Company any person, firm or company (a) who or
which in the twelve (12) months prior to the end of his
Employment shall have been a customer of or in the habit of
dealing with the Company and (b) with whom or which the
Executive had personal dealings in the course of his
employment in the twelve (12) months prior to the end of his
Employment.
20.3. The Executive shall not for a period of six (6) months after
the termination of his Employment (without the previous
consent in writing of the Company) and whether on his own
account or for any other person, firm or company directly or
indirectly in connection with any business similar to or in
competition with the business of the Company do any business
with, accept orders from, or have any business dealings with
any person, firm or company (a) who or which in the twelve
(12) months prior to the end of his Employment was a customer
of the Company and (b) with whom or which the Executive had
personal dealings in the course of his Employment in the
twelve (12) months prior to the end of his Employment.
20.4. The Executive shall not for a period of six (6) months after
the termination of his Employment and within the United
Kingdom (without the previous consent in writing of the
Company) directly or indirectly be engaged concerned or
interested (whether as principal, servant, agent, consultant
or otherwise) in any trade or business which is in competition
with any trade or business being carried on by the Company at
the end of the Employment or during a period of twelve (12)
months prior to the end of his Employment and with which the
Executive was concerned in the course of his Employment,
provided always that during such six (6) month period the
Company will pay the Executive a further six (6) month salary
and bonus even though his Employment has been terminated but
only in circumstances where no summary termination has
occurred in accordance with Clause 22 of this Agreement and
the Executive is not in breach of the covenants contained in
Clause 20. Bonuses will be calculated by dividing the previous
12 months bonus total by 12.
8
<PAGE>
20.5. The Executive shall not at any time after the Termination Date
represent himself as being employed by or connected with the
Company or any EM Group Company.
20.6. The Executive acknowledges:
(i) that each of the foregoing subclauses of this clause
constitutes an entirely separate and independent
restriction on him; and
(ii) while at the date of this Agreement the duration,
extent and application of each of the restrictions
are considered by the parties no greater than is
necessary for the protection of the interests of the
Company and any EM Group Company and reasonable in
all the circumstances it is acknowledged that
restrictions of such a nature may become invalid
because of changing circumstances and accordingly if
any of the restrictions shall be adjudged to be void
or ineffective for whatever reason but would be
adjudged to be valid and effective if part of the
wording thereof were deleted or the periods thereof
reduced or the area thereof reduced in scope they
shall apply with such modifications as may be
necessary to make them valid and effective.
21. DELIVERY OF DOCUMENTS AND PROPERTY
The Executive shall upon request at any time and in any event upon the
termination of the Executive's Employment immediately deliver up to the Company
or its authorized representative all keys, security passes, credit cards, plans,
statistics, documents, records, papers, magnetic disks, tapes or other software
storage media and all property of whatsoever nature which may be in his
possession or control or relate in any way to the business affairs of the
Company or any EM Group Company and the Executive shall not, without the written
consent of the Company, retain any copies thereof.
22. REMEDIES
It is expressly agreed by the Executive and the Company that the provisions of
Sections 17, 18, 19, 20 and 21 are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. In the event any
breach of the aforementioned provisions by the Executive, the parties recognize
and acknowledge that a remedy at law will be inadequate and the Company may
suffer irreparable injury. The Executive acknowledges that the services to be
rendered by him are of a character giving them peculiar value, the loss of which
cannot be adequately compensated for in damages; accordingly the Executive
consents to injunctive and other appropriate equitable relief upon the
institution of proceedings therefor by the Company in order to protect the
Company's rights. Such relief shall be in addition to any other relief to which
the Company may be entitled at law or in equity.
9
<PAGE>
23. SUMMARY TERMINATION
In any of the following cases the Company may terminate the Executive's
Employment by written notice taking effect on the date of its service in which
case the Executive shall not be entitled to any further payment from the Company
except such sums as shall then have accrued due;
(i) if the Executive shall be guilty of any gross
misconduct or any repeated breach of any of the terms
of this Agreement;
(ii) if the Executive shall be convicted of a criminal
offense (except for a road traffic offense or an
offense not involving a custodial sentence);
(iii) if the Executive be adjudged bankrupt or makes any
composition or enters into any deed of arrangement
with his creditors;
(iv) if the Executive is prohibited by law from being or
acting as a director;
(v) if the Executive shall become of unsound mind or
become a patient under the Mental Health Act 1983;
(vi) if the Executive resigns as a director of the Company
otherwise than at the request of the Company
24. NO RIGHT TO WORK
24.1. The Company shall be under no obligation to provide any work
for the Executive during any period of notice either given by
the Company or the Executive to terminate the Executive's
Employment under this Agreement. The Company may at any time
during the said period suspend the Executive from his
Employment or exclude him from any premises of the Company.
Provided that during such period the Executive shall continue
to receive salary and all other contractual benefits including
a months bonus figure (calculated by dividing the previous
total bonus payment over the preceding twelve (12) month
period by twelve (12).
24.2. If the Contract is terminated by notice in accordance with
Clause 4 then the period referred to in Clause 20.1 to 20.4
shall start to run from the date of such notice. This proviso
will not apply should the Contract be terminated in accordance
with Clause 23.
25. SHORT NOTICE
If the Executive shall at any time become or be unable properly to perform his
duties hereunder by reason of ill health accident or otherwise for a period or
periods aggregating at least one hundred eighty (180) days in any period of
twelve (12) consecutive calendar months the Company may by not less than three
(3) month's notice in writing determine this Agreement.
10
<PAGE>
26. RESIGNATION OF OFFICE
Upon the termination of the Employment the Executive shall at any time or from
time to time thereafter upon the request of the Company resign without claim for
compensation from all offices held by him in the Company and any EM Group
Company and should he fail to do so the Company is hereby irrevocably authorized
to appoint some person in his name and on his behalf to sign and execute all
documents or things necessary or requisite to give effect thereto.
27. RETIREMENT
The Employment shall automatically terminate on the Executive reaching his 65th
birthday.
28. PRIOR RIGHTS
The termination of the Employment shall be without prejudice to any right that
the Company may have in respect of any breach by the Executive of any of the
provisions of this Agreement which may have occurred prior to such
determination.
29. NOTICES
Any notice given under this Agreement shall be deemed to have been duly given if
dispatched by either party hereto by registered post addressed to the other
party in the case of the Company to its registered office for the time being and
in the case of the Executive to his last known address and such notice shall be
deemed to have been given on the day on which in the ordinary course of post it
would be delivered.
30. PRIOR AGREEMENTS
This Agreement is in substitution for all previous contracts of employment
express or implied between the Company or EM Group Company and the Executive
which shall be deemed to have been terminated by mutual consent as from the
Commencement Date.
31. FIXED TERM
Pursuant to Section 196 of the Employment Rights Act 1996 the Executive hereby
agrees that no rights shall arise under Sections 94 and 135 respectively of that
Act in relation to this Agreement if the term of the Executive's Employment
under it expires without being renewed.
32. DISCIPLINARY AND GRIEVANCE PROCEDURE
There are no fixed rules for the resolution of grievance or disciplinary
problems. In the event of the Executive being dissatisfied with any decision
taken against him, or have any grievance relating to the Employment, he should
apply in the first instance to the Chairman of the Board who will either propose
a solution or refer the matter to the Board for a final decision.
11
<PAGE>
33. THE COMPANY'S STAFF HANDBOOK
The terms of the Company's standard terms and conditions and employment policies
and procedures which are set out in the Company's staff handbook shall be the
terms of the Executive Employment save to the extent that they are inconsistent
with this Agreement.
34. RECONSTRUCTION OR AMALGAMATION
If before the termination of this Agreement the Employment shall be determined
by reason of the liquidation of the Company for the purposes of reconstruction
or amalgamation and the Executive shall be offered employment with any concern
or undertaking resulting from such reconstruction or amalgamation on terms and
conditions no less favorable than the terms of this Agreement then the Executive
shall have no claim against the Company in respect of the determination of the
Employment.
35. EMPLOYMENT RIGHTS ACT 1996
Schedule 2 to this Agreement sets out the particulars of employment not
contained in the Agreement that must be given to the Executive in accordance
with the terms of the said Employment Right Act 1996.
36. ATTORNEY'S FEE
In the event that any party hereto shall file suit to enforce any of the terms
of this Agreement or to recover damages or seek injunctive relief, the
prevailing party shall be entitled to recover reasonable attorney's fees and
costs incurred in such proceedings.
12
<PAGE>
SCHEDULE 1
TABLE OF SALARY INCREASES
Date of
Current commencement
salary Increase of new salary New salary Signed
13
<PAGE>
SCHEDULE 2
EMPLOYMENT RIGHTS ACT 1996
The following information is given to supplement the information given in the
Agreement in order to comply with the requirements of section 1 of the
Employment Rights Act of 1996.
1. The Executive's job title is Managing Director.
2. The Executive's continuous period of employment with the Company
commenced on 1st January 1996 and is not continuous with any previous
period of employment with any other employer.
3. There are no collective agreements in force which affect the terms and
conditions of the Executive's employment.
SCHEDULE 3
Subject to a minimum of a monthly guarantee of _______ per month the bonus paid
to the Executive shall be calculated as follows:
14
<PAGE>
Signed by )
Director and by )
Secretary )
for and on behalf of the )
Company )
Signed by the Executive )
15
EXHIBIT 10.12
THIS AGREEMENT is made the 30th day of April 1996
B E T W E E N :
(1) EUROPEAN MICRO PLC (registered number 2663964) having its registered office
at Market Court, 20-24 Church Street, Altrincham, Cheshire WA14 4DW ("the
Company")
(2) BERNADETTE SPOFFORTH of 2 Parkgate, Bradgate Road, Bowdon, Cheshire ("the
Executive")
IT IS AGREED as follows:
1. Definitions and interpretation
1.1 In this Agreement the following words and expressions shall have the
following meanings:
'the Board' means the board of directors of the Company and includes
any committee of the Board duly convened by it
'the Commencement means the Date'
'Shareholders means any company owned or controlled by Harry Shields
or John Gallagher (who are by way of identification currently sitting
on the Board)
'EM Group Company' means any company which for the time being is a
subsidiary undertaking of the Company or which is partly owned by the
Company
'the Employment' means the employment established by this Agreement
'the Termination means the termination date of the Employment Date'
under this Agreement howsoever terminated.
'Intellectual means (i) every invention discovery design or Property'
improvement (ii) every work in which copyright may subsist, and (iii)
moral rights as defined by s 77 and s 80 of the Copyright Design and
Patents Act 1988.
1.2 The headings in this Agreement shall not affect its interpretation or
construction.
1.3 Any reference to this Agreement to any statutory provision includes
any statutory modification or re-enactment of it or the provision referred to
<PAGE>
2. EMPLOYMENT
The Company shall employ the Executive and the Executive agrees to act as
Director of the Company on the terms set out in this Agreement.
3. FREEDOM TO TAKE UP THE APPOINTMENT
The Executive warrants that by virtue of entering into this Agreement she will
not be in breach of any express or implied terms of any contract or of any other
obligation binding upon her.
4. PERIOD
The Executive's Employment shall commence with effect from the Commencement Date
and shall (subject as hereinafter provided) be for an initial fixed term of one
year ending on 30th April 1997 and shall continue thereafter until terminated by
either party giving to the other not less than 6 months' written notice to
expire on or any time after the expiry date for the initial fixed term.
5. DUTIES OF THE APPOINTMENT
5.1 The Executive shall faithfully and diligently perform those duties of
her appointment and exercise such powers consistent with them which
are from time to time assigned to or vested in her and shall use her
best endeavours to promote the interests of the Company and any EM
Group Company for which she is required to perform duties.
5.2 The Executive shall (without further remuneration) if and for so long
as the Executive is so required by the Company:
(i) carry out the duties of her appointment on behalf of any EM
Group Company;
(ii) act as a director of any EM Group Company or hold any other
appointment or office as nominee or representative of the
Company or any EM Group Company;
(iii) carry out such duties and the duties attendant on any such
appointment as if they were duties to be performed by her on
behalf of the Company
6. OBEDIENCE AND REPORTING
The Executive shall obey all lawful and reasonable directions of the board and
at all times keep the Board promptly and fully informed (in writing if so
requested) of her conduct of the business or affairs of the Company and any EM
Group Company and provide such explanations as the Board may require.
<PAGE>
7. DEVOTION TO DUTIES
7.1 The Executive shall during the term of this Employment devote the
whole of her time attention and abilities to the business and affairs
of the Company unless prevented by ill health from so doing and shall
not during the Employment either on her own account or as the
employer of others or otherwise be engaged or concerned in any
business other than that of the Company or any EM Group Company or
accept any other engagement or public office except with the prior
consent in writing of the Company but the Executive may nevertheless
be or become a minority holder of any securities which are quoted on
a recognized investment exchange
7.2 The Executive will be allowed to become a Shareholder in a company
which does not directly or indirectly compete with the Company or any
EM Group Company or any of the Shareholders Group provided that
consent is first obtained from the Company in writing such consent
not to be unreasonably withheld
8. COMPLIANCE/DEALINGS IN 'SECURITIES'
The Executive shall during her employment and for 12 months after the
termination of his employment comply with all applicable rules of law any
recognised investment exchange regulations [including the 'Model Code for
Securities Transactions by Directors of Listed Companies' issued by the
International Stock Exchange of the United Kingdom and the Republic of Ireland
Limited] and any Company policy issued in relation to dealings in shares
debentures or other securities of the Company and any EM Group Company or any
unpublished price sensitive information affecting the securities of any other
company.
9. PLACE OF WORK
9.1 The Executive shall initially work at the offices of the Company at
Market Court, 20-24 Church Street, Altrincham, Cheshire WA14 4DW but
the Executive shall if required to do so work in such place or places
within a 20 mile radius of Altrincham as the Board may reasonably
require for the proper performance of her duties hereunder
9.2 The Executive shall not be required (except for travel on the
business of the Company or any EM Group Company) to reside in other
parts of the world.
10 HOURS OF WORK
There are no normal fixed working hours for the Employment. The Executive is
expected to work at such times as the efficient and conscientious discharge of
her duties hereunder requires.
11 REMUNERATION
<PAGE>
11.1 During the Employment the Executive shall receive as remuneration a
basic salary at the rate of (pound)30,000 per annum to be paid by
equal monthly instalments on the last day of each calendar month.
11.2 The remuneration shall unless otherwise agreed in writing by the
Company be inclusive of any fees or other remuneration which the
Executive would otherwise be entitled to receive from the Company in
connection with the performance of the duties delegated to her under
this Agreement
11.3 During the employment the Executive will also receive a bonus
calculated in accordance with Schedule 3 attached
12 EXPENSES
In addition to her basic salary hereunder the Executive shall be reimbursed the
amount of all reasonable travelling, hotel, entertainment and other expenses
properly and necessarily incurred and defrayed by her in the discharge of her
duties hereunder (including "professional fees"). The Executive shall produce to
the Company at its request all supporting vouchers and documents in respect of
such expenses. The Company will also pay any telephone expenses incurred by the
Executive in relation to this Contract of Employment upon production of
supporting bills in respect of such expenses.
13 PENSION AND OTHER BENEFITS
No pension contributions shall be paid by the Company on behalf of the Executive
14 COMPANY CAR
14.1 The Company shall make available to the Executive for use in the
performance of her duties a car in accordance with the Employer's car
policy
14.2 The Company will pay for all petrol used by the Executive only whilst
on the Company's business
14.3 The Executive may use the car for private purposes
14.4 The Company shall maintain service tax and comprehensively insure the
car as appropriate
15 HOLIDAYS
15.1 The Executive shall be entitled (in addition to normal bank and other
public holidays) to 20 days paid holiday in each calendar year at
such times as shall be
<PAGE>
convenient to the Company and such additional holidays as the Board
shall approve
15.2 The Executive shall not be entitled to carry forward any unused
holiday entitlement from one holiday year to the next without the
written consent of the Company but the Executive shall be entitled to
be paid for days which are unused
16 SICKNESS OR INJURY
16.1 The Executive agrees that at any time during the course of the
Employment she shall at the request of the Company submit herself to
a medical examination by a registered medical practitioner nominated
by the Company. The purpose of such medical examination shall be to
determine whether there are any matters which might impair the
Executive's ability to perform her duties under this Agreement and
accordingly the Executive shall give such authority as is required
for the Company's nominated doctor to disclose to the Company the
findings. All expenses associated with obtaining the report will be
borne by the Company.
16.2 In the event that the Executive is unable to perform her duties under
this Agreement by reason of sickness or injury for a period of seven
days or more the Executive shall if required to do so by the Company
provide the Company with a medical certificate in respect of the
whole period of the absence. Immediately following her return from
any period of absence the Executive shall complete a
self-certification form detailing the reason for the absence
16.3 During the Executive's first ten weeks of absence she will receive
90% of her average weekly earnings calculated by taking the total of
her earnings over the previous twelve months and dividing the same by
fifty two. At the end of such ten week period no further payment will
be made to the Executive
16.4 The Company shall have the right to deduct from the remuneration paid
to the Executive any statutory sick pay or other social security
benefits which she is entitled to claim in consequence of sickness or
accident or payable to her under any scheme for the time being in
force of which by virtue of her employment by the Company she is a
non-contributory member.
16.5 In the event that the Executive is incapable of performing her duties
by reason of injury sustained wholly or partially as a result of
actionable negligence or breach of any statutory duty on the part of
any third party all payments made to the Executive by the Company by
way of remuneration shall to the extent that compensation is
recoverable from that third party constitute loans by the Company to
the Executive (notwithstanding that as an interim measure income tax
has been deducted from payments as if they were emoluments of
employment) and shall be repaid when and to the extent that the
Executive recovers compensation for loss of earnings from that third
party by action or otherwise.
<PAGE>
17 CONFIDENTIALITY
The Executive shall not, either during the Employment, otherwise than in the
proper course of her duties, or thereafter, without the consent in writing of
the Company being first obtained, divulge to any person firm or company and
shall during the continuance of the Employment use her best endeavours to
prevent the publication or disclosure of any confidential information of the
Company and any EM Group Company or any of its or their secrets, dealings or
transactions whatsoever which may have come or may come to her knowledge during
her employment or otherwise and which include but are not limited to the
following matters:
(i)the working of any manufacturing process or invention or any other
methods formulae technical data and know how used by or which relate
to the business of the Company;
(ii)Lists of customers and potential customers of or suppliers and
potential suppliers to the Company and any EM Group Company and any
other information collected by the Company and any EM Group Company
in relation to those customers or suppliers;
(iii)the dealings or transactions or other business affairs of the Company
or any EM Group Company and its or their finances or management
accounts
The restriction shall cease to apply to information or knowledge which may
(otherwise than by reason of the default of the Executive) become available to
the public generally without requiring a significant expenditure of labour skill
or money
18 INTELLECTUAL PROPERTY
18.1 The Executive shall forthwith communicate to the Company in
confidence all Intellectual Property which the Executive may make or
originate either solely or jointly with another or others during the
Employment
18.2 In the case of such Intellectual Property as is made or originated
hereunder wholly or substantially in the course of her normal duties
or in the course of duties specifically assigned to her and which
relate to the affairs of the Company or any EM Group Company the
following subclauses of this clause shall apply
18.3 Such Intellectual Property (or in the case of Intellectual Property
made or originated by the Executive jointly with another or others to
the full extent of the Executive's interest therein so far as the law
allows) shall be and become the exclusive property of the Company and
shall not be disclosed to any other person, firm or company without
the consent of the Company being previously obtained which if given
may be subject to conditions. The provisions of this subclause shall
not entitle the Executive to any compensation beyond the salary
hereinafter
<PAGE>
mentioned except that in the case of any invention on which a British
Patent has been granted or assigned to the Company and the Company
has derived outstanding benefit from such patent, the Executive may
be entitled by virtue of s 40 of the Patents Act 1977 to claim
additional compensation. The provisions of this clause shall not
restrict the Executive's rights under s 39 to s 43 of the Patents Act
1977.
18.4 The Executive shall if and when required by the Company and at the
expense of the Company do and/or combine with others in doing all
acts and sign and execute all applications and other documents
(including Powers of Attorney in favour of nominees of the Company)
necessary or incidental to obtaining maintaining or extending patent
or other forms of protection for such Intellectual Property in the UK
and in any other part of the world or for transferring to or vesting
in the Company or its nominees the Executive's entire right title and
interest to and in such Intellectual Property or to and in any
application, patent or other form of protection to copyright as the
case may be including the right to file applications in the name of
the Company or its nominees for patent or other forms of protection
or for registration of copyright in any country claiming priority
from the date of filing of any application or other date from which
priority may run in any other country.
18.5 The provisions of this clause shall remain in full force and effect
notwithstanding that after the Executive has made or originated any
such Intellectual Property the Employment may have ceased or been
determined for any reason whatsoever with the intention that the same
shall bind the heirs of an/or assigns of the Executive.
19 COPYRIGHT
The Executive shall promptly disclose to the Company all works in which
copyright or design rights may exist which the Executive may make or originate
either solely or jointly with others during the Employment. Any such copyright
works or designs created by her in the normal course of her employment or in the
course of carrying out duties specifically assigned to her which relate to the
affairs of the Company shall be the property of the Company whether or not the
work was made by direction of the Company or was intended for the Company and
the copyright in it and the rights in any design shall belong to the Company and
the copyright in it and the rights in any design shall belong to the Company and
to the extent that such copyright or design rights are not otherwise vested in
the Company the Executive hereby assigns the same to the Company.
20 POST-TERMINATION OBLIGATIONS
20.1 The Executive shall not during the period of 6 months after
termination of the Employment solicit or endeavour to entice away
from or discourage from being employed by the Company or any EM Group
Company any employee or Director employed by the Company or any EM
Group Company and who to her
<PAGE>
knowledge was an employee thereof at the date of such termination or
whom to her knowledge has at that date agreed to be engaged as an
employee of the Company or any EM Group Company and with whom the
Executive has dealt or had contact in the normal course of her duties
20.2 The Executive shall not for a period of 6 months after the
termination of her employment (without the previous consent in
writing of the Company) and whether on her own account or for any
other person, firm or company directly in connection with any
business similar to or in competition with the business of the
Company solicit or endeavour to entice away from the Company any
person, firm or company (a) who or which in the 12 months prior to
the end of her employment shall have been a customer of or in the
habit of dealing with the Company - (b) with whom or which the
Executive had personal dealings in the course of her employment in
the 12 months prior to the end of her employment
20.3 The Executive shall not for a period of 6 months after the
termination of her employment (without the previous consent in
writing of the Company ) and whether on her own account or for any
other person, firm or company directly or indirectly in connection
with any business similar to or in competition with the business of
the Company do any business with, accept orders from, or have any
business dealings with any person, firm or company (a) who or which
in the 12 months prior to the end of her employment was a customer of
the Company and (b) with whom or which the Executive had personal
dealings in the course of her employment in the 12 months prior to
the end of her employment
20.4 The Executive shall not for a period of 6 months after the
termination of her employment and within the United Kingdom (without
the previous consent in writing of the Company) directly or
indirectly be engaged concerned or interested (whether as principal,
servant, agent, consultant or otherwise) in any trade or business
which is in competition with any trade or business being carried on
by the Company at the end of the Executive's employment or during a
period of 12 months prior to the end of her employment and with which
the Executive was concerned in the course of her employment
20.5 During the period of 6 months referred to in the preceding Clauses
20.1 to 20.4 the Company will pay the Executive her basic salary and
bonuses over the same 6 month period calculated by dividing the
previous 12 month bonus total by 2. This clause shall not apply where
this Contract has been terminated summarily in accordance with Clause
22.
20.6 The Executive shall not at any time after the Termination Date
represent herself as being employed by or connected with the Company
or any other EM Group Company
20.7 The Executive acknowledges:
<PAGE>
(i) that each of the foregoing subclauses of this clause constitutes
an entirely separate and independent restriction on her; and
(ii) while at the date of this Agreement the duration, extent and
application of each of the restrictions are considered by the
parties no greater than is necessary for the protection of the
interests of the Company and any EM Group Company and reasonable
in all the circumstances it is acknowledged that restrictions of
such a nature may become invalid because of changing
circumstances and accordingly if any of the restrictions shall
be adjudged to be void or ineffective for whatever reason but
would be adjudged to be valid and effective if part of the
wording thereof were deleted or the periods thereof reduced or
the area thereof reduced in scope they shall apply with such
modifications as may be necessary to make them valid and
effective
21 DELIVERY OF DOCUMENTS AND PROPERTY
The Executive shall upon request at any time and in any event upon the
termination of the Executive's employment immediately deliver up to the Company
or its authorised representative all keys, security passes, credit cards, plans,
statistics, documents, records, papers, magnetic disks, tapes or other software
storage media and all property of whatsoever nature which may be in her
possession or control or relate in any way to the business affairs of the
Company and any EM Group Company and the Executive shall not, without the
written consent of the Company, retain any copies thereof.
22 SUMMARY TERMINATION
In any of the following cases the Company may terminate the Executive's
Employment by written notice taking effect on the date of its service in which
case the Executive shall not be entitled to any further payment from the Company
except such sums as shall then have accrued due;
(i) if the Executive shall be guilty of any gross misconduct or any
repeated breach of any of the terms of this Agreement;
(ii) if the Executive shall be convicted of a criminal offence
(except for a road traffic offence or an offence not involving a
custodial sentence);
(iii) if the Executive be adjudged bankrupt or makes any composition
or enters into any deed of arrangement with her creditors;
(iv) if the Executive is prohibited by law from being or acting as a
officer;
<PAGE>
(v) if the Executive shall become of unsound mind or become a
patient under the Mental Health Act 1983;
(vi) if the Executive resigns as an Officer of the Company otherwise
than at the request of the Company
23 NO RIGHT TO WORK
23.1 The Company shall be under no obligation to provide any work for the
Executive during any period of notice either given by the Company or
the Executive to terminate the Executive's employment under this
Agreement. The Company may at any time during the said period suspend
the Executive from her employment or exclude her from any premises of
the Company. Provided that during such period the Executive shall
continue to receive salary and all other contractual benefits
including a monthly bonus figure (calculated by dividing the previous
total bonus payments over the preceding 12 month period by 12).
23.2 If the Contract is terminated by notice in accordance with Clause 4
then the period referred to in Clause 20.1 to 20.5 shall start to run
from the date of such notice. This proviso will not apply should the
Contract be terminated in accordance with Clause 22.
24 SHORT NOTICE
If the Executive shall at any time become or be unable properly to perform her
duties hereunder by reason of ill health accident or otherwise for a period or
periods aggregating at least 180 days in any period of 12 consecutive calendar
months the Company may by not less than three month's notice in writing
determine this Agreement.
25 RESIGNATION OF OFFICE
Upon the termination of the Employment howsoever arising the Executive shall at
any time or from time to time thereafter upon the request of the Company resign
without claim for compensation from all offices held by her in the Company and
any EM Group Company and should he fail to do so the Company is hereby
irrevocably authorised to appoint some person in her name and on her behalf to
sign and execute all documents or things necessary or requisite to give effect
thereto.
26 RETIREMENT
The Employment shall automatically terminate on the Executive reaching her 60th
birthday.
27 PRIOR RIGHTS
<PAGE>
The termination of the Employment shall be without prejudice to any right that
the Company may have in respect of any breach by the Executive of any of the
provisions of this Agreement which may have occurred prior to such
determination.
28 NOTICES
Any notice given under this Agreement shall be deemed to have been duly given if
despatched by either party hereto by registered post addressed to the other
party in the case of the Company to is registered office for the time being and
in the case of the Executive to her last known address and such notice shall be
deemed to have been given on the day on which in the ordinary course of post it
would be delivered.
29 PRIOR AGREEMENTS
This Agreement is in substitution for all previous contracts of employment
express or implied between the Company or any EM Group Company and the Executive
which shall be deemed to have been terminated by mutual consent as from the
Commencement Date.
30 FIXED TERM
Pursuant to s 142 (1) and (2) of the Employment Protection (Consolidation) Act
1978 the Executive hereby agrees that no rights shall arise under ss 54 and 81
respectively of that Act in relation to this Agreement if the term of the
Executive's Employment under it expires without being renewed
31 DISCIPLINARY AND GRIEVANCE PROCEDURE
There are no fixed rules for the resolution of grievance or disciplinary
problems. In the event of the Executive being dissatisfied with any decision
taken against her, or have any grievance relating to the Employment, she should
apply in the first instance to the Managing Director who will either propose a
solution or refer the matter to the Board for a final decision.
32 THE COMPANY'S STAFF HANDBOOK
The terms of the Company's standard terms and conditions and employment policies
and procedures which are set out in the Company's staff handbook shall be terms
of the Executive's employment save to the extent that they are inconsistent with
this Agreement.
33 RECONSTRUCTION OR AMALGAMATION
If before the termination of this Agreement the Employment shall be determined
by reason of the liquidation of the Company for the purposes of reconstruction
or amalgamation and the Executive shall be offered employment with any concern
or undertaking resulting from such reconstruction or amalgamation on terms and
conditions no less favourable than the terms of this
<PAGE>
Agreement then the Executive shall have no claim against the Company in respect
of the determination of the Employment.
34 EMPLOYMENT PROTECTION (CONSOLIDATION) ACT 1978
Schedule 2 to this Agreement sets out the particulars of employment not
contained in the Agreement that must be given to the Executive in accordance
with the terms of the Employment Protection (Consolidation) Act 1978
<PAGE>
SCHEDULE 1
Table of salary increases
Current Increase Date of New salary Signed
salary commencement
of new salary
<PAGE>
SCHEDULE 2
Section 1 Employment Protection (Consolidation) Act 1978
The following information is given to supplemental the information given in the
Agreement in order to comply with the requirements of section 1 of the
Employment Protection (Consolidation) Act 1978
1. The Executive's job title is Sales Director
2. The Executive's continuous period of employment with the Company commenced
on 1st December 1991 and is not continuous with any previous period of
employment with any other employer
3. There are no collective agreements in force which affect the terms and
conditions of the Executive's employment
<PAGE>
SCHEDULE 3
Bonus Calculation
SALES CATEGORY PAYABLE ON GROSS PROFIT THRESHOLD (IF APPLICABLE)
- -------------- ----------------------- -------------------------
B. Spofforth 10% None
Em plc sales (exc.BS sales) 4.5% (pound)75,000
EM GmbH sales 2.5% (pound)20,000
EM BV sales 2.5% (pound)15,000
SALES CATEGORY is the gross profit area on which that percentage and threshold
applies.
GROSS PROFIT is the difference between purchase and selling price of goods sold,
after deduction of transport costs, duty, administration fees payable to US
companies and financing charges based on credit terms. All credit notes will be
deducted from the monthly gross profit.
THRESHOLD is the gross profit that must be made in each Sales Category BEFORE
the bonus is calculated. Each category will be treated individually for purposes
of the bonus calculation.
<PAGE>
IN WITNESS whereof the parties hereto have executed this Agreement as a Deed the
day and year first before written
Signed by )
Director and by ) /s/ HARRY D. SHIELDS
Secretary ) ----------------
for and on behalf of the )
Company in the presence of: )
Signed by the Executive )
and delivered as a Deed ) /s/ BERNADETTE SPOFFORTH
in the presence of: ) --------------------
EXHIBIT 10.13
EXHIBIT 10.13
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, effective as of the 31st day of January,
1998, by and between Mr. John B. Gallagher ("Gallagher"), Mr. Harry D. Shields
("SHIELDS"), Stuart S. Southard and Robert H. True as Trustees (the "SHIELDS'
TRUSTEES") of the Henry Daniel Shields 1997 Irrevocable Educational Trust
created for the benefit of the children of Henry Daniel Shields (the "SHIELDS'
TRUST"), Thomas H. Minkoff ("MINKOFF") as Trustee of that certain trust created
pursuant to the 1998 Irrevocable Trust Agreement created for the benefit of the
children of John B. Gallagher (the "GALLAGHER TRUST"), and European Micro
Holdings, Inc., a Nevada corporation ("HOLDINGS").
WITNESSETH:
WHEREAS, Gallagher, the Gallagher Trust, 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, Gallagher, the Gallagher Trust, 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 (the "COMMON
SHARES") of Holdings 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
Gallagher, the Gallagher Trust, Shields, the Shields Trust and Holdings hereby
agree as follows:
1. Gallagher hereby transfers to Holdings his 475,000 Ordinary Shares. In
exchange for such Ordinary Shares, Holdings shall, upon the execution hereof,
issue in the name of Gallagher 1,900,000 Common Shares and shall issue and
deliver to Gallagher a stock certificate evidencing such Common Shares.
2. The Gallagher Trust hereby transfers to Holdings its 25,000 Ordinary
Shares. In exchange for such Ordinary Shares, Holdings shall, upon the execution
hereof, issue in the name of the Gallagher Trust 100,000 Common Shares and shall
issue and deliver to Minkoff a stock certificate evidencing such Common Shares.
3. Shields hereby transfers to Holdings his 400,674 Ordinary Shares. In
exchange for such Ordinary Shares, Holdings shall, upon the execution hereof,
issue in the name of Shields 1,602,696 Common Shares and shall issue and deliver
to Shields a stock certificate evidencing such Common Shares.
<PAGE>
4. The Shields Trust hereby transfers to European Micro Holdings its
99,326 Ordinary Shares. In exchange for such Ordinary Shares, European Micro
Holdings shall, upon the execution hereof, issue in the name of the Shields
Trust 397,304 Common Shares and shall issue and deliver to the Shields' Trustees
the a stock certificate evidencing such Common Shares.
5. Each of Gallagher, the Gallagher Trust, Shields, the Shields Trust and
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:
/s/ JOHN B. GALLAGHER
---------------------
John B. Gallagher, individually
- ------------------------
ATTEST: THE GALLAGHER TRUST
/s/ THOMAS H. MINKOFF
- --------------------------- ---------------------
Thomas A. Minkoff, as Trustee of
that certain trust created
pursuant to the 1998 Irrevocable
Trust Agreement for the benefit
of the children of John B.
Gallagher
ATTEST:
/s/ HARRY D. SHIELDS
--------------------
Harry D. Shields, individually
- ---------------------------
ATTEST: THE SHIELDS TRUST
/s/ STUART S. SOUTHARD
- ---------------------------- ----------------------
Stuart S. Southard, as
Co-Trustee of the Henry Daniel
Shields 1997 Irrevocable
Educational Trust
/s/ ROBERT H. TRUE
-----------------------
Robert H. True, as Co-Trustee of
the Henry Daniel Shields 1997
Irrevocable Educational Trust
ATTEST: EUROPEAN MICRO HOLDINGS, INC.
By: /s/ JOHN B. GALLAGHER
- --------------------------- -------------------------
Name: John B. Gallagher
Title: Co-Chairman
3
EXHIBIT 10.14
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("AGREEMENT"), effective as of
January 1, 1998, by and between EUROPEAN MICRO HOLDINGS, INC., a Nevada
corporation ("NEVADA"), and EUROPEAN MICRO PLC, a United Kingdom corporation
("UK").
NOW, in consideration of the mutual covenants and agreements of the parties
herein contained and intending to be legally bound, the parties hereto hereby
agree as follows:
ARTICLE 1
SERVICES TO BE PROVIDED
1.1 Upon the terms and conditions described herein, Nevada shall provide to
UK the following administrative services:
(a) MANAGEMENT INFORMATION AND TELECOMMUNICATION SERVICES. To the extent
permitted by the licensing agreements entered into from time to time by
Nevada, at the request of UK, Nevada shall process reports and
calculations of UK on the computer systems of Nevada, shall provide UK
with access to other programs provided by the computer system of
Nevada, and shall provide Nevada with sufficient telecommunication
services to permit Nevada to maintain and operate its telephone system;
(b) PERSONNEL. Nevada shall recommend and administer benefit programs and
salaries for the employees of UK, and shall recommend and administer
policies and guidelines it deems appropriate for the management of
employees of UK;
(c) INSURANCE. Nevada shall recommend insurance policies and coverages on
behalf of UK, and shall assist UK in the negotiation and administration
of claims with insurance carriers on behalf of UK; and
(d) LEGAL COUNSELING. Nevada shall provide or make available general legal
counseling for UK, including management of litigation in which UK is
involved, but only to the extent that to do so would not, in the
judgment of Nevada, reasonably be expected to create a conflict of
interest under applicable legal ethical guidelines. Nevada shall
determine whether, in its judgment, engagement by UK of outside counsel
is appropriate and if it so determines, shall engage, direct and review
such outside counsel and shall make recommendations to UK as to the
settlement of any litigation.
1.2 The fee for the services provided by Nevada described in Section 1.1
for any fiscal year shall be the Aggregate Cost of such service. As used in this
Agreement, the "AGGREGATE COST" of any service for any fiscal year is the cost
to Nevada that is allocated in accordance with the internal budgeting procedures
of Nevada for such year to the particular service provided to UK. The overall
cost for that year of a provided service shall first be determined generally and
without regard to whether such service is provided to UK, Nevada and its
affiliates or to any other party. A fraction representing the relationship
between the reasonably expected demand for
<PAGE>
such service by UK for that fiscal year and the reasonably expected demand for
such service by all parties, including, without limitation, UK and Nevada, shall
be multiplied times the overall cost yielding the "Aggregate Cost". The parties
agree that the Aggregate Cost of any service is their good faith determination
of the fair market value of such service. The parties agree that in the event
that any tax or assessment (other than any such on income) is required to be
paid as a result of the provision of services hereunder, UK shall be solely
responsible for the payment of such tax or assessment.
1.3 Nevada undertakes to provide the services required hereunder with the
same degree of care and diligence, and using the same procedures and policies,
it uses in providing such services for its own operations. In providing services
hereunder, Nevada, and its employees, officers, agents, directors and
shareholders, shall not be liable to UK for errors and omissions hereunder
except to the extent that such errors and omissions resulted from a violation of
its covenant in the immediately preceding sentence. Nothing in this Agreement
independently enables or permits Nevada to make executive or operational
decisions on behalf of UK.
ARTICLE 2
PAYMENT OF COMPENSATION
2.1 Promptly after the end of each fiscal quarter, Nevada shall calculate
all amounts due and payable hereunder for such calendar quarter and shall issue
an invoice to UK. UK shall pay the amount required to be paid hereunder within
thirty (30) calendar days after receipt of such invoice.
2.2 Nevada shall keep, at its usual place of business, books and records
relating to the payments to be made hereunder containing such true entries as
may be necessary or proper to ascertain the amount of payments to be made to
Nevada hereunder. At the request and expense of UK, Nevada shall produce, during
normal business hours, said books and records and make them available for
inspection by duly authorized agents of UK, shall permit such agents to make
copies thereof, and shall give such information as may be necessary or proper to
enable the amount of payment due hereunder to be ascertained and verified.
ARTICLE 3
TERM OF AGREEMENT AND TERMINATION
3.1 TERM. This Agreement shall become effective as of the date first above
written, and shall be effective until terminated by Nevada or UK.
3.2. TERMINATION FOR CAUSE. Notwithstanding the provisions related to the
term of the Agreement, in the event that a party hereto shall commit a material
breach under this Agreement, as amended from time to time, and such breach is
not remedied within a period of sixty (60) days after receiving written notice
of such default from the other party; then the other party (the "NON-DEFAULTING
PARTY") may terminate this Agreement without additional liability on ten (10)
days advance written notice. The foregoing rights of termination shall be in
addition to and not in substitution for any other remedies that may be available
to the Non-Defaulting Party, and any exercise of such rights shall not relieve
the Defaulting Party from any obligations accrued prior to the date of
termination or any liability or damages to the other party for breach of the
provision or provisions giving rise to the termination.
2
<PAGE>
ARTICLE 4
GENERAL PROVISIONS
4.1 OTHER SERVICES. Nothing in this Agreement shall be construed to
prohibit Nevada from undertaking to provide additional services to UK not
described in this Agreement on terms and conditions (including the fees
therefor) satisfactory to each of UK and Nevada.
4.2 INDEPENDENT PARTIES. Nothing in this Agreement shall be construed as
creating a partnership or a joint venture between Nevada and UK, or making
either party an agent or employee of the other party, but in all of its
operations hereunder Nevada shall be an independent contractor for UK. No
employee of Nevada who renders any service hereunder shall be considered,
construed or deemed to be an employee of UK as a result thereof.
4.3 LIMITATION OF LIABILITY. Notwithstanding any other provision of this
Agreement, in no event shall any party be liable to any other party for special,
incidental, punitive, exemplary, indirect or consequential damages whether
arising under contract, tort (including negligence), warranty, strict liability,
or other form of action. The parties to this agreement are the only intended
beneficiaries hereof. There are no third-party beneficiaries of this Agreement
and nothing herein should be so construed.
4.4 AGREEMENT TO TAKE NECESSARY AND DESIRABLE ACTIONS. The parties hereto
each agree to execute and deliver such other documents, certificates, agreements
and other writings and to take such other actions as may be reasonable or
desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.
4.5 GOVERNING LAW, JURISDICTION, INJUNCTIVE RELIEF. The construction and
performance of this Agreement, and of all agreements and documents relating to
it, shall be governed by the laws of, and the jurisdiction for any and all
litigation and other proceedings, whether legal or equitable, brought pursuant
to or in connection with this Agreement shall be, Florida, U.S.A. The parties
consent to the personal jurisdiction of the state and federal courts of such
state. Either party may bring an action in Florida or another relevant
jurisdiction to obtain injunctive or similar relief for any actual or threatened
failure of a party to comply with the provisions hereof.
4.6 SEVERABILITY. In the event any provision hereof is held by a court of
competent jurisdiction to violate any applicable law, it shall be deemed null
and void to the extent thereof, without affecting the remaining provisions of
this Agreement.
4.7 ASSIGNMENT. This Agreement may not be assigned by either party to any
third party(ies) except as otherwise provided herein. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties'
successors and assigns. Any attempted or purported assignment in violation of
this Agreement shall be deemed null and void AB INITIO.
4.8 ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the parties hereto with respect to the subject matter of
this Agreement, and supersedes any other agreement or understanding, written or
verbal, that the parties hereto may have had.
4.9 WAIVER. The failure of either party to enforce at any time, or for any
period of time, any provision of this Agreement shall not be construed as a
waiver of such provision or of the right of such party thereafter to enforce
such provision. Unless otherwise expressly provided
3
<PAGE>
herein, if the consent of a party is expressly required under this Agreement,
that consent may be granted or denied in the sole discretion of the party whose
consent is required.
4.10 AMENDMENT OR MODIFICATION. No amendment or modification of this
Agreement, in whole or in part, shall be binding upon the parties unless the
same shall be in writing and executed by the appropriate officers of each party.
4.11 CAPTIONS. The caption headings in this Agreement are for purposes of
reference only and are not intended and shall not be construed to have any
substantive effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their representatives thereunto duly authorized.
EUROPEAN MICRO HOLDINGS, INC.
By: /s/ JOHN B. GALLAGHER
Name:JOHN B. GALLAGHER
Title:CO-CHAIRMAN
EUROPEAN MICRO PLC
By: /s/LAURENCE GILBERT
Name:LAURENCE GILBERT
Title: MANAGING DIRECTOR
4
EXHIBIT 10.15
FORM OF
ESCROW AGREEMENT
ESCROW AGREEMENT made as of this _____ day of _______________, 199_, by
and between European Micro Holdings, Inc., a corporation having a place of
business at 6073 N.W. 167th Street, Unit C-25, Miami, Florida 33015 ("A"), and
THE CHASE MANHATTAN BANK, having a place of business at 1211 Sixth Avenue, New
York, New York 10036 (the "Escrow Agent").
WITNESSETH:
WHEREAS, the parties hereto desire to enter into this Escrow Agreement
on the terms and conditions hereinafter set forth.
NOW, THEREFORE in consideration of the premises herein contained, the
parties hereto agree as follows:
1. ESCROW AGENT'S DUTIES. The Escrow Agent shall hold all of the
property held by it in accordance with this Agreement pursuant to the terms
hereof (said property being hereinafter sometimes collectively referred to as
the "Property").
2. PROPERTY TO BE UNINVESTED. All Property delivered to the Escrow
Agent by A or B pursuant to the terms of this Agreement shall be held in a
separate non-interest-bearing account called the "A Escrow Account."
3. DISBURSEMENTS.
(a) The Escrow Agent shall hold the Property until directed in
writing by A (the "Notice") to disburse same, or a portion thereof, at which
time the Property, or any such portion, shall be disbursed by the Escrow Agent
in the manner described in the Notice.
(b) Disbursements of any of the Property in accordance with
paragraph 3(a) shall relieve the Escrow Agent of any liability or responsibility
whatsoever in connection with serving as Escrow Agent with respect to such
Property.
4. RIGHTS, DUTIES AND RESPONSIBILITIES OF ESCROW AGENT.
(a) The Escrow Agent shall have the right to act in reliance upon
any document, instrument, or signature believed by it to be genuine and to
assume that any person purporting to give any notice in accordance with this
Agreement or in connection with any transaction to which this Agreement relates
has been duly authorized to do so. The Escrow Agent shall not be obligated to
make any inquiry as to the authority, capacity, existence or identity of any
person purporting to give any such notice;
<PAGE>
(b) If the Escrow Agent is uncertain as to its duties or rights
hereunder or shall receive a notice from any of the other parties hereto with
respect to the Property that, in the Escrow Agent's sole opinion, is in conflict
with any of the terms hereof, it may refrain from taking any action until
otherwise directed by either (a) all of the other parties hereto, or (b) an
order of a court of competent jurisdiction;
(c) The Escrow Agent shall have no duties or responsibilities except
for those expressly set forth in this Agreement, may consult with counsel and be
fully protected with respect to any action taken or omitted to be taken on the
advice of counsel, and shall have no liability hereunder except for willful
misconduct.
5. INDEMNIFICATION. A hereby indemnifies, defends, and holds harmless
the Escrow Agent from any and all liability of any kind, including costs and
expenses of litigation and attorneys' fees incurred by the Escrow Agent in
connection with this Agreement or in enforcing this indemnification, arising
from its activities pursuant to this Agreement unless such liability arises from
willful misconduct by the Escrow Agent.
6. COMPENSATION. For serving hereunder, the Escrow Agent shall be paid
pursuant to the terms of the fee schedule attached hereto as Exhibit A.
7. NOTICES. Any notice pursuant hereto shall be deemed effectively
given only if it is in writing and is delivered. Any delivery hereunder is
effective only if made by (a) hand, or (b) certified mail, return receipt
requested, addressed to the other parties hereto at the addresses set forth in
paragraph 8, or at such other address as any party hereto may hereafter specify
to the other parties hereto pursuant to this Paragraph. Delivery shall be deemed
complete on the date of receipt of the notice.
8. ADDRESSES. All notices required to be given in connection with this
Agreement shall be addressed as follows:
A: European Micro Holdings, Inc.
6073 N.W. 167th Street, Unit C-25
Miami, Florida 33015
Attention: John B. Gallagher, Co-Chairman
(305) 825-2458 (telephone)
(305) 825-7774 (telecopier)
Escrow Agent: Chase Manhattan Bank
1211 Sixth Avenue, 34th Floor
New York, New York 10036
Attention: Mr. William Ponce, Trust Officer
(212) 789-4108 (telephone)
(212) 596-3742 (telecopier)
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<PAGE>
9. RESIGNATION. The Escrow Agent may resign on thirty days' notice, in
which event A shall give the Escrow Agent notice of the entity to whom the
Property shall be transferred. If during such 30-day period the Escrow Agent
receives no such notice, the Escrow Agent shall, after notice to A, transfer the
Property to a court of competent jurisdiction.
10. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and to their respective heirs, successors, and
assigns.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, written and oral, of the
parties in connection herewith.
12. GOVERNING LAW. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
------------------------------------
A
CHASE MANHATTAN BANK
By:
--------------------------------
,Vice President
3
<PAGE>
EXHIBIT/SCHEDULE A
FEE SCHEDULE
For services to be rendered by The Chase Manhattan Bank, as Escrow
Agent, European Micro Holdings, Inc. agrees to pay the following fees to The
Chase Manhattan Bank:
Inception Fee: $5,000
Annual Custodial Fee (after first year): $1,000
$50 per transaction charge
------------------------------------
A
CHASE MANHATTAN BANK
By:
--------------------------------
,Vice President
Date:
----------------
EXHIBIT 10.16
EXHIBIT 10.16
FORM OF
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "AGREEMENT") between European Micro
Holdings, Inc., a Nevada corporation (the "COMPANY"), and ___________, (the
"INDEMNITEE"), is effective as of _________________, 1998.
In consideration of the Indemnitee's past and future services and to
benefit the Company, the Company and the Indemnitee agree as follows:
1. DEFINITIONS.
a) "CLAIM" means any threatened, pending or completed action, suit
or proceeding, liability, claim, damage, judgment, cost or expense (including
attorneys' fees, expenses, bonds and costs of investigation) or any inquiry or
investigation that the Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
b) "INDEPENDENT COUNSEL" means a law firm or member of a law firm
that has not within the last five years represented the Company or the
Indemnitee in a matter material to either or in a matter material to any other
party to the action, suit or proceeding giving rise to the Indemnitee's claim
for indemnification under this Agreement. Independent Counsel shall not include
any member of a law firm who would have a conflict of interest under applicable
standards of professional conduct in representing the Company or the Indemnitee
in an action hereunder. Such Independent Counsel shall be chosen by the
Indemnitee and approved by the Board of Directors of the Company (the "BOARD OF
DIRECTORS") which approval shall not be unreasonably withheld.
<PAGE>
c) "REVIEWING PARTY" means (1) the Board of Directors of the Company
by a majority vote of a quorum consisting of directors who were not parties to
the action, suit, or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
Independent Counsel in a written opinion, or (3) by the stockholders of the
Company.
2. INDEMNITY. Subject to Sections 8 and 9 hereof, the Company agrees to
indemnify and hold the Indemnitee harmless, to the fullest extent permitted by
law, including, but not limited to, the extent and in the manner herein
provided, from and against any and all Claims of any type arising from or
related to his past or future acts or omissions as a director or officer of the
Company and/or its subsidiaries (which term shall mean any entities of which the
Company owns directly, or through any such subsidiaries, at least 50% of the
voting stock (hereinafter referred to as "SUBSIDIARIES")). This indemnity shall
extend to all matters except to the extent applicable law prohibits
ndemnification.
3. JUDGMENTS. Subject to Sections 8 and 9 hereof, the Company agrees to
promptly pay on behalf of the Indemnitee any and all judgments against the
Indemnitee for damages arising from acts or omissions as a director or officer
of the Company and/or its Subsidiaries when any such judgment becomes final and
subject to execution against the Indemnitee, to the full extent allowable under
applicable law.
4. APPEAL BONDS. Subject to Sections 8 and 9 hereof, the Company shall
pay the cost of, provide collateral for and cause to be timely and duly filed in
Court, appellate bonds to prevent execution of judgment against the Indemnitee
during the pendency of appeals as the Indemnitee may reasonably initiate, to the
full extent allowable under applicable law.
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5. COST OF DEFENSE. Subject to Sections 8 and 9 hereof, the Company shall
promptly pay the reasonable cost of the defense of the Indemnitee against any
and all Claims against him arising from the Indemnitee's past or future acts or
omissions as a director or officer of the Company and/or its Subsidiaries when
statements for legal services are delivered to the Company or the Indemnitee
(including any required retainer amounts), to the full extent allowable under
applicable law.
6. FINES, COSTS, FEES. Subject to Sections 8 and 9 hereof, the Company
shall promptly pay on the Indemnitee's behalf any fines, court costs, legal fees
or other charges assessed against him related to any Claim where allegations
against the Indemnitee arise from his acts or omissions as a director or officer
of the Company and/or its Subsidiaries, to the full extent allowable under
applicable law.
7. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by the Indemnitee in
connection with defending a Claim shall be paid by the Company as they are
incurred and in advance of the final disposition of such Claim within twenty
(20) days of receipt of an undertaking by the Indemnitee, in substantially the
same form as Exhibit "A" hereto, to repay such amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the Company. If the Company fails to advance any amounts required
to be advanced under this Section 7 within twenty (20) days after receipt of an
undertaking by the Indemnitee, the Indemnity may at any time thereafter bring
suit against the Company for specific performance or to recover the unpaid
amount. If successful in whole or in part, the Indemnitee shall also be entitled
to be paid the expense of prosecuting such claim.
8. GENERAL RIGHT TO INDEMNIFICATION. Upon written demand by the
Indemnitee for indemnification under the terms of this Agreement (unless
otherwise ordered by a
3
<PAGE>
court or advanced pursuant to Section 7 hereof or advanced pursuant to
applicable law, as the same may be amended from time to time (but, in the case
of any such amendment with reference to events occurring prior to the effect
date thereof, only to the extent that such amendment permits the Company to
provide broader indemnification rights than such law permitted the Company to
provide prior to such amendment)), the Indemnitee shall be entitled to such
indemnification unless the Reviewing Party determines within thirty (30) days of
receiving Indemnitee's written demand that the Indemnitee would not be permitted
to be indemnified under applicable law. The Indemnitee and its counsel shall be
given an opportunity to be heard and to present evidence on the Indemnitee's
behalf before the Reviewing Party. If the Reviewing Party determines that the
Indemnitee is not entitled to indemnification, the Reviewing Party shall provide
the Indemnitee, concurrently with its determination, a detailed written
explanation setting forth its reasons. The failure to provide the Indemnitee
with a detailed written explanation shall entitle the Indemnitee to a
presumption that the Indemnitee has met the applicable standard of conduct and
that the unfavorable determination was wrongful in any subsequent suit brought
by either the Indemnity or the Company to determine whether the Indemnitee is
entitled to indemnification.
9. RIGHT OF INDEMNITEE TO BRING SUIT.
a) If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that the Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law, the
Indemnitee shall have the right to bring suit seeking an initial determination
by the court or challenging any such determination by the Reviewing Party or any
aspect thereof (and the Indemnitee shall be entitled to any presumption
specified in Section 8 hereof), and the Company hereby consents to service of
process and to
4
<PAGE>
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and the Indemnitee.
b) In any action brought by the Indemnitee to enforce a right to
indemnification hereunder, or by the Company to recover payments by the Company
of expenses incurred by the Indemnitee in connection with a Claim in advance of
its final disposition, the burden of proving that the Indemnitee is not entitled
to be indemnified under this Agreement or otherwise shall be on the Company.
Neither the failure of the Company or the Reviewing Party to have made a
determination prior to the commencement of such action that indemnification of
the Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth under applicable law, nor an actual
determination by the Company or the Reviewing Party that the Indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
Indemnitee has not met the applicable standard of conduct or, in the case of
such an action brought by the Indemnitee, be a defense to the Claim.
c) The Company shall pay all expenses (including attorneys' fees)
actually and reasonably incurred by the Indemnitee in connection with such
judicial determination, whether or not the Indemnitee prevails in such
proceeding.
10. INSURANCE. If a loss, payment or expense contemplated by this
Agreement is paid by the Company and is also covered by collectible insurance,
the Indemnitee shall cooperate with the Company to effect collection of all
available insurance and through assignment, reimbursement to the Company or
otherwise exercise all reasonable efforts to cause applicable insurance benefits
to be paid to or on behalf of the Company, thus reducing the Company's payments
under this Agreement.
5
<PAGE>
11. LAW, CONSTRUCTION, ARBITRATION. This Agreement is to be liberally
construed to provide the Indemnitee with the broadest indemnity permitted by
applicable law and ambiguities in the terms of this Agreement, if any, choice of
law, or construction of laws are to be resolved in the Indemnitee's favor. The
Indemnitee shall be entitled to the benefits of all changes in law, whether
effected by statute, regulation, rule, judicial decision or otherwise, which in
any way expand his right to be indemnified by the Company or to have the Company
advance his expenses. The law of the State of Nevada shall apply.
12. OTHER MEANS OF INDEMNITY. The Company acknowledges that the benefits
to the Indemnitee of this Agreement are not exclusive and that the Indemnitee
retains all rights of indemnity or repayment from the Company that are available
to him by applicable law, other agreements, the Articles of Incorporation and
By-Laws of the Company and/or its Subsidiaries or by vote of the Board of
Directors or stockholders of the Company.
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company to bring suit to
enforce such rights.
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against the
Indemnitee to the extent the Indemnitee has otherwise actually received payment
(under any insurance policy or otherwise).
15. TERM. This Agreement shall remain in full force and effect until
terminated by the mutual consent of the parties in writing. Termination of the
Indemnitee's status as a director
6
<PAGE>
or officer of the Company and/or its Subsidiaries does not terminate this
Agreement. This Agreement inures to the benefit of the Indemnitee, his estate,
heirs, and the personal representative (executor/administrator) of his estate.
16. GOOD FAITH. If any dispute arises under this Agreement or any attack
is made by anyone related to the enforcement of this Agreement, it shall be
conclusively presumed that the Indemnitee acted in good faith in executing this
Agreement and for the best interest of the Company. The Company acknowledges
that it is fully informed of all decisions and votes made by the Indemnitee in
the past and recognizes its right to keep itself informed in the future.
17. DEFENSE. If any claim is threatened or commenced against the
Indemnitee other than by or on behalf of the Company, he shall notify the
Company in writing. His failure to do so or to do so promptly, however, shall
not diminish his rights under this Agreement except to the extent the Company
demonstrates by clear and convincing evidence that his failure caused it actual
damage. The Company may assume the defense of the claim, but only if it pays all
costs and expenses of defense, acknowledges to the Indemnitee in writing that it
is obligated to indemnify him with respect to the claim, and permits him to
select defense counsel. Any counsel the Indemnitee selects shall be reasonably
satisfactory to the Company. If the Company assumes the defense, the Indemnitee
shall cooperate with the Company in that defense if it pays his costs and
expenses of doing so. The Company shall not settle any claim in any manner which
would impose a penalty, liability or limitation on the Indemnitee unless the
Indemnitee first consents to the settlement in writing. He shall not withhold
his consent unreasonably.
18. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions (including portions of any paragraph of this Agreement
containing an invalid, illegal or
7
<PAGE>
unenforceable provision) shall not be impaired. To the extent practicable, any
invalid, illegal or unenforceable provision of this Agreement shall be deemed
modified as necessary to comply with all applicable laws.
19. AMENDMENTS AND WAIVERS. No amendment of this Agreement shall be
binding unless the amendment is in writing and executed by both parties. Waiver,
if any, of a provision of this Agreement shall not constitute waiver of any
other provision.
20. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be duly executed and signed effective as of the date first set
forth above.
EUROPEAN MICRO HOLDINGS, INC.
By:
------------------------
AGREED TO AND ACCEPTED BY
INDEMNITEE:
By:
------------------------
8
EXHIBIT 10.17
FORM OF TRANSFER AGENT AGREEMENT
TRANSFER AGENT AGREEMENT, dated ____________________ between EUROPEAN
MICRO HOLDINGS, INC., a Nevada corporation ("Client") and ChaseMellon
Shareholder Services, L.L.C., a New Jersey limited liability company
("ChaseMellon").
1. APPOINTMENT. Client appoints ChaseMellon as its transfer agent,
registrar and dividend disbursing agent and ChaseMellon accepts such appointment
in accordance with the following terms and conditions for all authorized shares
of each class of stock listed in Schedule A hereto (the "Shares").
2. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue for a term of three years. Unless either party gives written
notice of termination of this Agreement at least 60 days prior to the end of the
three-year term, or any successive three-year term, this Agreement shall
automatically renew for an additional three-year term.
In the event this Agreement is terminated by Client, Client's notice
must include a certified resolution of the Board of Directors of Client to such
effect, instructions as to the disposition of records, as well as any additional
documentation reasonably requested by ChaseMellon. Except as otherwise expressly
provided in this Agreement, the respective rights and duties of Client and
ChaseMellon under this Agreement shall cease upon termination of the
appointment.
3. DUTIES OF CHASEMELLON. ChaseMellon will provide all necessary
operational, administrative and management services for Client in the
performance of the stock transfer, registrar, dividend disbursing, and other
related services listed in Schedule B hereto.
4. THE SHARES. Client represents, warrants and covenants to ChaseMellon
that:
(a) the Shares issued and outstanding on the date hereof have been
duly authorized, validly issued and are fully paid and are non-assessable; and
any Shares to be issued hereunder, when issued, shall have been duly authorized,
validly issued and fully paid and will be non-assessable;
(b) the Shares issued and outstanding on the date hereof have been
duly registered under the Securities Act of 1933, as amended, and such
registration has become effective, or are exempt from such registration; and
have been duly registered under the Securities Exchange Act of 1934, as amended,
or are exempt from such registration;
(c) any Shares to be issued hereunder, when issued shall have been
duly registered under the Securities Act of 1933, as amended, and such
registration shall have become effective or shall be exempt from such
registration; and shall have been duly registered under the Securities Exchange
Act of 1934, as amended, or shall be exempt from such registration;
<PAGE>
(d) Client has paid or caused to be paid all taxes, if any, which
were payable upon or in respect of the original issuance of the Shares issued
and outstanding on the date hereof; and
(e) The execution and delivery of this Agreement, and the issuance
and any subsequent transfer of the Shares hereunder, do not and will not
conflict with, violate, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under the charter or the by-laws of
Client, and law or regulation, any order to decree of any court or public
authority having jurisdiction or any mortgage, indenture, contract, agreement or
undertaking to which Client is a party or by which it is bound and this
Agreement is enforceable against Client in accordance with its terms, except as
may be limited by bankruptcy, insolvency, moratorium, reorganization and other
similar laws affecting the enforcement of creditors' rights generally.
Client agrees to provide the documentation and notifications listed
in Schedule C hereto.
5. COMPENSATION, EXPENSES, SCOPE OF AGENCY AND INDEMNIFICATION. Client
shall compensate ChaseMellon for its services hereunder in accordance with the
fee schedule agreed to by the parties. Such fees shall be adjusted annually by
the annual percentage of change in the latest Consumer Price Index of All Urban
Consumers (CPI-U) for the Northeast region, 1982-84=100, as published by the
U.S. Department of Labor, Bureau of Labor Statistics. Client shall reimburse
ChaseMellon for all reasonable expenses, disbursements or advances incurred by
it in accordance herewith. All amounts owed to ChaseMellon hereunder are due
upon receipt of the invoice. Delinquent payments are subject to a late payment
charge of one and one half percent (1.5%) per month commencing forty-five (45)
days from the invoice date. Client agrees to reimburse ChaseMellon for any
attorney's fees and any other costs associated with collecting delinquent
payments.
ChaseMellon may rely and shall be protected in acting or refraining
from acting upon any Client communication authorized by this Agreement; upon any
communication from any predecessor Transfer Agency or co-Transfer Agent or from
any Registrar (other than ChaseMellon), predecessor Registrar or co-Registrar;
and upon any other written instruction, notice, request, direction, consent,
report, certificate, or other instrument, paper or document believed by
ChaseMellon to be genuine. ChaseMellon is authorized to refuse to make any
transfer it deems improper. In the absence of gross negligence or intentional
misconduct on its part, ChaseMellon shall not be liable for any action taken,
suffered, or omitted by it or for any error of judgment made by it in the
performance of its duties under this Agreement.
ChaseMellon may consult with counsel (including internal counsel) whose
advice shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
Client shall indemnify ChaseMellon for, and hold it harmless against,
any loss, liability, claim or expense ("Loss") arising out of or in connection
with its duties under this Agreement, including the costs and expenses of
defending itself against any Loss, unless such Loss shall have been determined
by a court of competent jurisdiction to be a result of ChaseMellon's gross
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<PAGE>
negligence or international misconduct. In no case will ChaseMellon be liable
for special, indirect, incidental or consequential loss or damages of any kind
whatsoever (including but not limited to lost profits), even if ChaseMellon has
been advised of the possibility of such damages. Any liability of ChaseMellon
will be limited to the amount of fees paid by Client hereunder.
The obligations of Client under this section shall survive the
termination of this Agreement.
6. NOTICES. All notices, demands and other communications shall be in
writing and sent or delivered to the addresses indicated on the signature page
hereof.
7. MISCELLANEOUS. This Agreement may not be amended or modified in any
manner except by a written agreement signed by both ChaseMellon and Client.
This Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of New York, without reference to the
choice of law doctrine of such state.
ChaseMellon is acting solely as agent for Client under this Agreement
and owes no duties hereunder to any other person. ChaseMellon undertakes to
perform the duties and only the duties that are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against ChaseMellon.
ChaseMellon may suspend transfers and/or terminate upon thirty (30)
days prior written notice if (1) Client fails to pay fees hereunder or (2) any
proceeding in bankruptcy, reorganization, receivership or insolvency is
commenced by or against the Client, Client shall become insolvent, or shall
cease paying its obligations as they become due or makes any assignment for the
benefit of its creditors.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of Client and ChaseMellon.
ChaseMellon shall not be liable for any failure or delays arising out
of conditions beyond its reasonable control including, but not limited to, work
stoppages, fires, civil disobedience, riots, rebellions, storms, electrical,
mechanical, computer or communications facilities failures, acts of God or
similar occurrences.
The Schedules hereto are an integral part of this Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the day and year above written.
EUROPEAN MICRO HOLDINGS, INC.
By :_________________________________
Name: _________________________________
Title: _________________________________
Address: _________________________________
Attn: _________________________________
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: __________________________________
Name: Jack A. Livingston
Title: Vice President
Address: 4 Station Square, Pittsburgh, PA 15219
Attn: Relationship Management
4
<PAGE>
SCHEDULE A
CHASEMELLON
SHAREHOLDER SERVICES
STOCK SUBJECT TO THE AGREEMENT
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
ISSUED AND RESERVED FOR
OUTSTANDING FUTURE ISSUANCE
NUMBER OF (INCLUDING UNDER EXISTING
CLASS OF STOCK AUTHORIZED SHARES TREASURY SHARES) AGREEMENTS
- ------------------ ------------------ ------------------ ------------------
<PAGE>
SCHEDULE B
CHASEMELLON
SHAREHOLDER SERVICES
SERVICES TO BE PROVIDED
ACCOUNT MAINTENANCE FUNCTIONS
/bullet/ Opening new accounts
/bullet/ Posting debits and credits
/bullet/ Maintaining certificate history
/bullet/ Placing and releasing stop transfer notation
/bullet/ Consolidating accounts
/bullet/ Coding accounts requiring special handling (e.g. "bad address,"
"do not mail," "VIP," etc.)
/bullet/ Processing address changes
/bullet/ Responding to shareholder correspondence
/bullet/ Providing a general 800 phone number for shareholder inquiries
/bullet/ Obtaining and posting Taxpayer Identification Number certifications
pursuant to IDTCA regulations
/bullet/ Maintaining closed accounts for the purpose of research and tax
reporting
/bullet/ Purging closed accounts that meet selective criteria
/bullet/ providing unlimited on-line access to shareholder records
/bullet/ Training on system access
CERTIFICATE ISSUANCE FUNCTIONS
/bullet/ Qualifying under the rules of the NYSE and AMEX to act in the dual
capacity as transfer agent and registrar
/bullet/ Maintaining mail and window facilities for the receipt of transfer
requests
/bullet/ Maintaining and securing unissued certificate inventory and
supporting documents
/bullet/ Examining issuance or transfer requests to ensure that proper
authority is being exercised
/bullet/ Verifying (to the extent possible) that surrendered certificates are
genuine and have not been altered
/bullet/ Verifying that original issuances are properly authorized and have
necessary regulatory approval
/bullet/ Verifying that Shares issued equal the amount surrendered
/bullet/ Verifying that no stop orders are held against the surrendered
certificates
/bullet/ Issuing and registering new certificates
/bullet/ Recording canceled and issued certificates by registration,
certificate number and Shares
/bullet/ Canceling surrendered certificates and storing for two years
/bullet/ Delivering completed transfers
/bullet/ Processing restricted and legal transfers upon presentment of
appropriate supporting documentation
/bullet/ Preparing Daily Transfer or Management Summary Journals
<PAGE>
/bullet/ Replacing lost, destroyed or stolen certificates provided that
ChaseMellon is in receipt of (a) evidence acceptable to it of the
loss, theft or destruction, and (b) a surety bond acceptable to
ChaseMellon sufficient to indemnify and save it and Client harmless
(charge imposed on shareholder)
PROXY AND ANNUAL MEETING FUNCTIONS
/bullet/ Identifyin broken/nominee account requirements to determine amount
of sets of material needed
/bullet/ Preparing and mailing proxy material and Annual Report
/bullet/ Suppressing the mailing of multiple Annual Reports to households
requesting it
/bullet/ Tabulating proxies (both scanner and manual) returned by
shareholders
/bullet/ Identifying shareholders who will attend the Annual Meeting
/bullet/ Providing Inspector(s) of Election for the Annual Meeting
/bullet/ Supporting efforts of any proxy solicitor
/bullet/ Preparing list of record date holders
/bullet/ Preparing report of final vote
/bullet/ Providing remote access to proxy tabulation system
/bullet/ Maintaining an automated link with DTC and ADP to receive
transmissions of broker votes
/bullet/ Processing omnibus proxies for respondent banks
DIVIDEND DISBURSEMENT FUNCTIONS
/bullet/ Preparing and mailing checks
/bullet/ Reconciling checks
/bullet/ Preparing payment register in list or microfiche form
/bullet/ Withholding and filing taxes for non-resident aliens and others
/bullet/ Filing federal tax information returns
/bullet/ Processing "B" and "C" Notices received from the IRS
/bullet/ Mailing required statements (Form 1099) to registered holders
/bullet/ Maintaining stop files and issuing replacement checks
/bullet/ Maintaining payment orders and addresses
/bullet/ Maintaining records to support escheat filings
OTHER SERVICES
/bullet/ Preparing shareholder listings and labels
/bullet/ Preparing analytical reports
/bullet/ Mailing quarterly or periodic reports
/bullet/ Locating lost shareholders through Shareholder Asset Recovery
program ("SHARP")
/bullet/
(If requested, the following services are subject to additional
fees):
/bullet/ Filing escheat reports through Escheat Management Option
<PAGE>
FEE SCHEDULE
CHASE MELLON
SHAREHOLDER SERVICES
EUROPEAN MICRO HOLDINGS, INC.
INITIAL TERM OF AGREEMENT: THREE (3) YEARS
---------------
FEE NOT SUBJECT TO INCREASE: TWO (2) YEARS
(DURING INITIAL TERM ONLY) ---------------
SERVICE FEES
FLAT MONTHLY FEE $ 750.00
PLUS $.50 PER CHECK IF DIVIDENDS ARE INITIATED
The above fee will be charged for all services listed in Schedule B and will be
subject to the following allowances:
Number of open accounts maintained 1,000
Number of options/restricted items processed 25
Number of quarterly report mailings 4
Number of other mailings per year (one 1
enclosure)
Number of certificates and credits posted 300
Number of enclosures - annual meeting mailing 4
Number of lists, labels, reports, analyses 10
Number of Inspectors of Election 1
Number of respondent bank omnibus proxies 10
To the extent the above allowances are exceeded, the following fees will apply:
For each account maintained (per year) $4.50
For each option or restricted item $10.00
processed
For each certificate issued $1.50
Mailings See Attached
Lists/Labels/Analyses See Attached
For each additional Inspector of Election $250.00
For each respondent bank omnibus proxy $100.00
<PAGE>
CHASE MELLON
SHAREHOLDER SERVICES
EXPENSES AND OTHER CHARGE
FEES AND OUT OF POCKET EXPENSES. All charges and fees, out of pocket
costs, expenses and disbursements of ChaseMellon are due and payable by Client
upon receipt of an invoice from ChaseMellon. Client shall pay for postage by
mail date.
The cost of stationary and supplies, such as transfer sheets,
dividend checks, etc., together with any disbursement for telephone, postage,
mail insurance, travel for annual meeting, link-up charges for ADP/IECA, tape
charges for DTC, etc. are billed in addition to the above fees.
For companies who participate in the Direct Registration System
(DRS), ChaseMellon will provide a "sell" feature for liquidation of book-entry
shares held on behalf of a shareholder. Upon receipt of a sell request by the
registered shareholder, The Chase Manhattan Bank or Mellon Bank, N.A. will
process the request and remit the proceeds to the shareholder in the form of a
check (less the appropriate fees). The charge for each such sale is $15.00 plus
$0.12 per share.
INITIAL FEE. A fee of $3,000.00 will be imposed for any additional
activities associated with the acceptance of appointments involving initial
public offerings (IPO's), secondary offerings or closings. The initial fee will
cover the issuance of up to 200 certificates. Certificates issued over this
threshold will be billed at $1.50 each.
TERMINATION FEE. In the event Client terminates prior to the termination
of the initial term of this Agreement, the Client shall pay ChaseMellon a fee of
one dollar ($1.00) per registered shareholder account then maintained for the
Client on ChaseMellon's records, subject to a minimum fee of two thousand five
hundred dollars ($2,500.00). This fee, subject to change upon written
notification to the Client by ChaseMellon, is separate from any other amounts
payable by the Client to ChaseMellon incidental to such termination, such as,
the cost to produce and ship records, reports and unused certificate stock to a
successor agent. It is also separate from any other fees for services under this
Agreement, which would be accrued and payable by the Client to ChaseMellon prior
to such termination. ChaseMellon may withhold the Client's records, reports and
unused certificate stock from a successor agent pending the Client's payment in
full of its fees and expenses owed under this Agreement.
CONVERSION. There is usually no charge for converting the Client's files
to ChaseMellon's system with the exception of outstanding check history from the
current agent's file. A review of the current rules and formats will be made to
determine if any situation exists
<PAGE>
which will require extraordinary effort to complete the conversion. Any charge
will be discussed with the Client prior to work commencing.
INTEREST. In the event Client shall default in the payment of any such
charges, such defaulted sums shall bear interest or finance charges at the
maximum applicable legal rate and all costs and expenses of effecting collection
of any said sums, including a reasonable attorney's fee, shall be paid by
Client.
LEGAL, TECHNOLOGICAL EXPENSES. Certain legal expenses may be incurred in
resolving matters not anticipated in the normal course of business. This may
result in a separate charge to cover our expenses in resolving such matters;
provided that any legal expenses charged to the Client shall be reasonable.
In the event any Federal regulation and/or state or local law are
enacted which require ChaseMellon to make any technological improvements and/or
modifications to our current system, Client shall reimburse ChaseMellon, on a
pro rata basis proportionate to the Client's registered shareholder base, for
the costs associated with making such required technological improvements and/or
modifications.
OTHER SERVICES. Fees for any services not specified, such as maintaining
mail lists, storing canceled certificates after the initial two year period,
escheating unclaimed property to the states, stock splits, exchanges, tenders,
solicitation mailings and coding of dividend reinvestment and ACH accounts,
etc., will be based on ChaseMellon's standard fees at the time of the request
or, if no standard fees have been established, an appraisal of the work to be
performed.
<PAGE>
CHASEMELLON SHAREHOLDER SERVICES
LISTS/LABELS/ANALYSES
FEE SCHEDULE
LISTS
Per name listed 0.35
LABELS
Per label printed .035
ANALYSES
Per name passed on data base .01
Per name listed in report .035
(MINIMUM charge for each of the above services will be based on 1,000 names
listed or passed on data base or labels printed.)
OUT-OF-POCKET EXPENSES
Any expenses of this nature, which include but are not limited to telephone,
facsimile transmissions, postage, insurance, messenger, stationery, etc., will
be billed in addition to the above stated fees.
<PAGE>
CHASE MELLON SHAREHOLDER SERVICES
MAILING SERVICES
FEE SCHEDULE
ADDRESSING
Addressing mailing medium (per name) .035
AFFIXING
Affixing labels (per label) .035
INSERTING
Inserting Enclosures (Machine)
u Enclosure (per piece) .040
2nd Enclosure (per piece) 0.25
3rd Enclosure (per piece) 0.20
4th Enclosure (per piece) .015
Inserting Enclosures (Manual)
Charge will be determined based on analysis of work to be performed.
(MINIMUM charge for each of the above mailing services will be based on 1,000
names, labels or pieces.)
OUT OF POCKET EXPENSES
Any expenses of this nature, which include but are not limited to telephone,
facsimile transmissions, postage, insurance, messenger, stationery, etc., will
be billed in addition to the above stated fees.
<PAGE>
SCHEDULE C
CHASEMELLON
SHAREHOLDER SERVICES
DOCUMENTS AND NOTIFICATIONS TO BE DELIVERED TO CHASEMELLON
UPON EXECUTION OF THIS AGREEMENT
Client shall provide ChaseMellon with the following:
1. An adequate supply of Share certificates.
2. A copy of the resolutions adopted by the Board of Directors of Client
appointing ChaseMellon as Transfer Agent and/or Registrar and Dividend
Disbursing Agent, as the case may be, duly certified by the Secretary or
Assistant Secretary of Client under the corporate seal.
3. A Copy of the Certificate of Incorporation of Client, and all amendments
thereto, certified by the Secretary of State of the state of incorporation.
4. A copy of the By-laws of Client as amended to date, duly certified by the
Secretary of Client under the corporate seal.
5. A certificate of the Secretary or an Assistant Secretary of Client, under its
corporate seal, stating that:
a) this Agreement has been executed and delivered pursuant to the
authority of Client's Board of Directors;
b) the attached specimen Share certificate(s) are in substantially the
form submitted to and approved by Client's Board of Directors for current use
and the attached specimen Share certificates for each Class of Stock with issued
and outstanding Shares are in the form previously submitted to and approved by
Client's Board of Directors for past use;
c) the attached list of existing agreements pursuant to which Shares have
been reserved for future issuance specifying the number of reserved Shares
subject to each such existing agreement and the substantive provisions thereof,
is true and complete, or no Shares have been reserved for future issuance.
d) each shareholder list provided is true and complete (such certification
may state that it is based upon the certification of the predecessor Transfer
Agent or predecessor Registrar that prepared the list) or no Shares are
outstanding;
<PAGE>
e) the name of each stock exchange upon which any of the Shares are listed
and the number and identity of the Shares so listed;
f) the name and address of each co-Transfer Agent, Registrar (other than
ChaseMellon) or co-Registrar for any of the Shares and the extent of its
appointment, or there are no co-Transfer Agents, Registrars (other than
ChaseMellon) or co-Registrars for any of the Shares; and
g) the officer(s) of Client, who executed this Agreement as well as any
certificates or papers delivered to ChaseMellon pursuant to this Agreement, were
validly elected to, and the incumbents of, the offices they purported to hold at
the time of such execution and delivery, and that their signatures on all
documentation are genuine; and upon which is subscribed a certificate of an
officer of client, other than the officer executing the certificate of the
Secretary, stating that the person who executed the certificate of the Secretary
was validly elected to, and is the Secretary or an Assistant Secretary of Client
and that his signature on the certificate is genuine.
6. A shareholder list, preferably in machine readable format, certified as true
and complete by the person preparing the list, for the issued and outstanding
Shares, setting forth as to each holder, his/her name and address, tax
identification number certified by the shareholder pursuant to requirements of
the Internal Revenue Code and applicable regulations, the number of Shares held,
the Share certificate numbers and the existence of any stop orders or other
transfer restrictions.
7. Opinion of counsel for Client, addressed to ChaseMellon, to the effect that:
a) the Shares issued and outstanding on the date hereof have been duly
authorized, validly issued and are fully paid and are non-assessable; and any
Shares to be issued hereunder, when issued, shall have been duly authorized,
validly issued and fully paid and will be non-assessable;
b) the Shares issued and outstanding on the date hereof have been duly
registered under the Securities Act of 1933, as amended, and such registration
has become effective, or are exempt from such registration; and have been duly
registered under the Securities Exchange Act of 1934, as amended, or are exempt
from such registration;
c) Client has paid or caused to be paid all taxes, if any, which were
payable upon or in respect of the original issuance of the Shares issued and
outstanding on the date hereof; and
d) the execution and delivery of this Agreement and the issuance of the
Shares do not and will not conflict with, violate, or result in a breach of, the
terms, conditions or provisions of, or constitute a default under, the charter
or the by-laws of client, any law or regulation, any order or decree of any
court or public authority having jurisdiction, or any mortgage, indenture,
contract, agreement or undertaking to which client is a party or by which it is
bound and this Agreement is enforceable against Client in accordance with its
terms, except as limited by
<PAGE>
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting the enforcement of creditors' rights generally
8. A completed Internal Revenue Service Form 2678.
<PAGE>
NOTIFICATION OF CHANGES
1. Any change in the name of Client, amendment of its certificate of
incorporation or its by-laws;
2. Any change in the title of a Class of Stock from that set forth in Column 1
of Schedule A;
3. Any change in the Number of Authorized Shares form that set forth in Column 2
of Schedule A;
4. Any change in existing agreements or any entry into new agreements changing
the Number of Authorized Shares Reserved for Future Issuance Under Existing
Agreements from that listed in Column 4 of Schedule A hereto;
5. Any change in the number of outstanding Shares subject to stop orders or
other transfer limitations;
6. The listing or delisting of any Shares on any stock exchange;
7. The appointment after the date hereof of any co-Transfer Agent, Registrar
(other than ChaseMellon) or any co-registrar for any of the Shares;
8. The merger of Client into, or the consolidation of Client with, or the sale
or other transfer of the assets of Client substantially as an entirety to,
another person; or the merger or consolidation of another person into or with
Client; and
9. Any other change in the affairs of Client of which ChaseMellon must have
knowledge to perform properly its duties under this Agreement.
[KPMG LETTERHEAD]
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.
6 March 1998
KPMG
Manchester, England
