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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 31, 1997
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to ___________.
Commission file number 1-5441.
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-2048764
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9320 Telstar Avenue, El Monte, California 91731-2895
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 307-6000
Common Stock outstanding by class as of August 31, 1997
Common Stock 16,616,364 Shares
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
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MARSHALL INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's Omitted)
ASSETS
August 31, May 31,
1997 1997
(Unaudited) (Audited)
----------- ---------
Current Assets:
Cash $ 2,129 $ 1,687
Receivables - net 161,479 167,769
Inventories 286,916 284,419
Deferred income tax benefits 14,272 14,272
Prepaid expenses 941 904
-------- --------
Total Current Assets 465,737 469,051
-------- --------
Property, Plant and Equipment, net
of accumulated depreciation and
amortization of $46,310 at
August 31, 1997 and $44,988
at May 31, 1997 35,770 36,232
Note Receivable (Note 3) - 33,110
Equity investment (Note 3) 39,324 -
Other Assets - net 760 1,280
-------- --------
Total Assets $541,591 $539,673
-------- --------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable and accrued
expenses $ 114,774 $136,649
Income taxes payable 4,877 1,440
-------- --------
Total Current Liabilities 119,651 138,089
-------- --------
Long-term debt 55,000 50,000
Deferred Income Tax Liabilities 2,642 2,642
Shareholders' Investment 364,298 348,942
-------- --------
Total Liabilities and
Shareholders' Investment $541,591 $539,673
-------- ---------
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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MARSHALL INDUSTRIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(000's omitted except per share data)
THREE MONTHS ENDED
AUGUST 31,
1997 1996
---- ----
Net sales $324,423 $269,290
Cost of sales 273,702 222,428
-------- --------
Gross profit 50,721 46,862
Selling, general and
administrative expenses 33,953 31,791
-------- --------
Income from operations 16,768 15,071
Interest expense(income) - net 748 (137)
-------- --------
Income before income taxes 16,020 15,208
Provision for income taxes 6,760 6,425
-------- --------
Net income $ 9,260 $ 8,783
-------- --------
-------- --------
Net income per share $ .55 $ .51
-------- --------
-------- --------
Average number of shares outstanding 16,920 17,350
-------- --------
-------- --------
The accompanying notes are an integral part of these condensed consolidated
income statements.
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MARSHALL INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's omitted)
THREE MONTHS ENDED
AUGUST 31,
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 9,260 $ 8,783
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,116 2,250
Net (increase)decrease in
current assets and liabilities (14,682) 15,793
Interest on note receivable (172) (830)
Other operating activities --- (9)
-------- --------
Net cash (used in)provided by operating
activities (3,478) 25,987
Cash flows from investing activities:
Capital expenditures (1,080) (814)
Deferred software costs --- (83)
-------- --------
Net cash used for investing activities (1,080) (897)
Cash flows from financing activities:
Net borrowings under bank
lines of credit 5,000 ---
Repayments of other long-term debt --- (10,000)
Purchase of common stock --- (6,370)
-------- --------
Net cash provided by (used in) financing
activities 5,000 (16,370)
Net increase in cash 442 8,720
Cash at the beginning of the period 1,687 2,208
-------- --------
Cash at the end of the period $ 2,129 $10,928
-------- --------
-------- --------
Cash payments during the quarter
for the following:
Interest $ 883 $ 641
-------- --------
-------- --------
Income taxes $ 3,323 $ 2,808
-------- --------
-------- --------
The accompanying notes are an integral part of these condensed consolidated cash
flow statements.
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MARSHALL INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto in
the Company's annual report on Form 10-K for the year ended May 31, 1997.
In the opinion of the Company, the unaudited condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the Company's financial position as of
August 31, 1997 and the results of its operations and cash flows for the three
month periods ended August 31, 1997 and 1996.
NOTE 2: ACCOUNTING POLICIES
Reference is made to Note 1 of Notes to Consolidated Financial Statements in the
Company's annual report on Form 10-K for the summary of significant accounting
policies.
NOTE 3: INVESTMENT IN SONEPAR ELECTRONIQUE INTERNATIONAL
During the first quarter of fiscal 1998, the Company converted the note
receivable from Sonepar Electronique International plus accrued interest into a
minority equity interest of 16% in SEI's electronics distribution companies. In
connection with this conversion, the Company granted a stock option to SEI for a
period of two years to purchase 874,545 shares of the Company's stock at a price
of $34.5685 per share which is based on the average trading price of the
Company's stock for the 90 days preceding the conversion date. Based on a
preliminary allocation of the investment cost, goodwill of approximately $10
million was recorded as a result of this transaction. The Company has elected
to amortize this goodwill over a period of thirty years. During the first
quarter, the Company recorded a non-cash currency translation
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loss of $1.311 million on the equity investment with an offsetting charge
against shareholders' investment.
NOTE 4: JOINT VENTURE
As described in Note 8 to the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended May 31, 1997, the Company formed a
joint venture, known as Accord Contract Services LLC ("Accord"), with Wyle
Electronics ("Wyle"), another distributor of semiconductors and computer
products in August 1996. On or about August 6, 1997 Raab Karcher AG, an indirect
wholly-owned subsidiary of VEBA AG, consummated a tender offer for all or
substantially all of the common stock of Wyle. Under the terms of the Accord
Agreement, such a change in the ownership of Wyle allows the Company, at its
option, to terminate the joint venture and receive a termination fee. The
Company has elected to terminate the joint venture and received a termination
fee of $25.150 million on September 30, 1997, which will be recorded in the
Company's second quarter results of operations.
NOTE 5: ACQUISITION OF STERLING ELECTRONICS CORP.
On September 19, 1997, the Company announced that a definitive agreement was
entered into whereby the Company, through the merger of Sterling Electronics
Corporation ("Sterling") with a newly formed subsidiary of the Company, will
acquire all of the common stock of Sterling for $21 per share in cash. With
approximately 7.2 million shares outstanding and options covering approximately
1.1 million shares, the expected purchase price will be approximately $162
million. In addition, Sterling has approximately $55 million in debt, which
will be refinanced by the Company as part of the $325 million bank credit
facility as described elsewhere herein. Completion of the transaction is subject
to obtaining necessary regulatory approvals and Sterling shareholders' approval
and various other closing conditions. Assuming such approvals are obtained and
conditions satisfied, it is expected that the transaction will close before
December 31, 1997.
The Company intends to finance this acquisition with bank financing. It is
currently negotiating with its lending banks to complete this credit
facility, which is expected to be $325 million in the aggregate.
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MARSHALL INDUSTRIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
THREE MONTHS ENDED
AUGUST 31,
----------------
1997 1996
---- ----
Net sales 100.0% 100.0%
Cost of sales 84.4 82.6
------- -------
Gross profit 15.6 17.4
Selling, general and administrative expenses 10.5 11.8
------- -------
Income from operations 5.1 5.6
Interest expense(income) - net .2 (.1)
------- -------
Income before provision for income taxes 4.9 5.7
Provision for income taxes 2.0 2.4
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Net income 2.9% 3.3%
------- -------
------- -------
THREE MONTH PERIODS ENDED AUGUST 31, 1997 AND 1996
The Company's net sales increased by $55 million or 20% for the first quarter of
fiscal 1998 from the comparable period of a year ago. The increase was
primarily due to increases in the sales of mass storage and microprocessor
products. The sales of these products increased by $38.9 million for the first
quarter of fiscal 1998, as compared to last year. The addition of new suppliers
during the last several years contributed to most of the increase in the sales
of such products. There were also increases in the sales of most of the
Company's major products for the first quarter of fiscal 1998, as compared to
the comparable period for last year. These increases were, however, partially
offset by decreases in the net sales of memory products, "DRAMs" and "SRAMs".
The sales of these products decreased by $15.9 million for the first quarter of
fiscal 1998 as compared to fiscal 1997. The substantial market declines in unit
pricing during the periods reported accounted for the decrease in sales dollars
of such products.
The decrease in net margins as a percent of sales for the first quarter of
fiscal 1998, as compared to fiscal 1997, was primarily due to the increase in
the sales volume of mass storage products and microprocessors sold, which are
lower margin products. The decline
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in the margins on some of the Company's products, particularly DRAMs, also
contributed to the decrease in margins in fiscal 1998, as compared to fiscal
1997.
Selling, general, and administrative expenses ("SG&A") increased by $2.1 million
for the first quarter of fiscal 1998, as compared to fiscal 1997. Higher salary
costs of $.5 million from salary adjustments and increases in staffing, and an
increase of $.6 million to enhance and expand the Company's information
technology capabilities contributed to the increase in SG&A expenses for the
first quarter of fiscal 1998 from last year. In addition, the Company incurred
higher levels of operating costs to service the increase in sales volume. There
were also increased freight costs in the first quarter of fiscal 1998, as
compared to last year, caused by the United Parcel Service strike.
The increase in net interest expense for the first quarter of fiscal 1998, as
compared to fiscal 1997, was due primarily to increased levels of borrowings
resulting from increases in inventories which were needed to support the
Company's higher sales volumes. In addition, there was a decrease in interest
income recorded from the conversion of the note receivable from SEI, as
described in Note 3 to the accompanying condensed consolidated financial
statements.
The Company's sources of liquidity at August 31, 1997 consisted principally
of working capital of $346.1 million and unsecured bank lines of credit of
$70 million of which there were borrowings of $55 million outstanding at
August 31, 1997. As discussed in Note 5 to the accompanying condensed
consolidated financial statements, the Company intends to complete a
financing facility for the acquisition of Sterling. The Company believes
that its working capital, borrowing capabilities and additional funds
generated from operations should be sufficient to finance its anticipated
operating requirements.
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PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On September 15, 1997, the Company granted a stock option to SEI for a
period of two years to purchase 874,545 shares of the Company's common
stock at a price of $34.5685 per share. The option was granted to SEI as
part of the transaction pursuant to which the Company acquired a minority
equity interest of 16% in SEI's electronics distribution companies. (See
Notice 3 to the accompanying condensed consolidated financial statements
and Note 6 to the Consolidated Financial Statements in the Company's annual
report on Form 10-K for the year ended may 31, 1997.) The stock option was
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended,
as the stock option was granted to only one entity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of September 18, 1997, by
and among Marshall Industries, MI Holdings Nevada, Inc. and
Sterling Electronics Corporation. (Incorporated herein by
reference to exhibit 2.1 on Form 8-K event date September 18,
1997.)
10.1 Employment Agreement dated as of September 18, 1997 by and
between Marshall Industries and Ronald S. Spolane. (Incorporated
herein by reference to exhibit 10.1 on Form 8-K event date
September 18, 1997.)
10.2 Employment Agreement dated as of September 18, 1997 by and
between Marshall Industries and David S. Spolane. (Incorporated
herein by reference to exhibit 10.2 on Form 8-K event date
September 18, 1997.)
10.3 Shareholders Agreement with Sonepar Electronique International.
10.4 Marshall Industries Non-qualified Stock Option Grant.
27 Financial Data Schedule
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARSHALL INDUSTRIES
October 14, 1997 /s/ Henry W. Chin
---------------------------------
Henry W. Chin
Vice President, Finance and
Chief Financial Officer
(Mr. Chin is the principal
financial officer and is
duly authorized to sign for
the Company)
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EXHIBIT
10.3
SHAREHOLDERS AGREEMENT
BETWEEN:
- - SONEPAR ELECTRONIQUE INTERNATIONAL (SEI), a French limited liability
company with its registered office at 2, rue de la Tour des Dames (75009)
FRANCE, represented by Jose MENENDEZ, in this duly authorized by, a
Management Board Resolution passed on June 26th, 1997
and
- - SEI INVESTMENTS BV, a Dutch company having its registered office at 2,
Takkebisters BREDA (THE NETHERLANDS), represented by Piet VERGROESEN, in
this duly authorized by, a Shareholders Resolution passed on July 9th, 1997
and
- - MARSHALL INDUSTRIES (MI or MARSHALL), a California corporation having its
registered office at 9320 Telstar Avenue, El Monte, California 91731,
U.S.A., represented by Henry CHIN, in this duly authorized by, the Board
Minutes of August 25th, 1994
and
- - MARSHALL INDUSTRIES INVESTMENTS BV (Marshall Subsidiary), a Dutch company
having its registered office at C/O Holland Intertrust Corporation BV,
Koningslaan 34, 1075 AD Amsterdam (The Netherlands), represented
by Henry Chin.
Whereas
- SEI holds the entire issued capital of SEI Management BV which company
in its turn holds the entire issued share capital of SEI Investments
BV, both companies being private companies with limited liability,
established under the laws of the Netherlands.
- EUROTRONICS BV, a private company with limited liability, established
under the laws of the Netherlands (hereinafter "the Company") with
several subsidiaries as described per Appendix 1 is a wholly
controlled subsidiary of SEI Investments BV.
- SEI. SEI Management BV, SEI Investments BV, the Company and the
Company's subsidiaries form a group of companies ("group") as
defined in article 2:24(b) of the Dutch Civil Code (aforementioned
companies as such individually "Sonepar Group-company" and
collectively "Sonepar Group-companies).
- MI holds the entire issued capital of Marshall Subsidiary.
- In 1994, SEI and MI, hereafter referred to as "the Parties" agreed
to form a strategic alliance between them with the purpose to improve
operation of their electronic distribution businesses respectively
located for MI in the USA and for SEI in Europe and in particular to
serve the fast and strong globalization process in this industry.
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- In the meantime the parties have strengthened their links throughout:
a EDP common task forces and investigations
b Franchise mutual support
c I.T. development especially on Internet
d Inventory management skill exchanges
e Mutual participation at their Boards
f Regular meetings between their CEO's
g Joint Executive video-conference
- In the past three years each Party has led its own development in full
agreement and understanding of the other, such as further strategic
alliances with WYLE for MARSHALL or with JAKOB HATTELAND ELECTRONIC
for SEI.
- The Parties have agreed to achieve a capital association to be
implemented through the Company as their joint venture company, where
MARSHALL will hold a minority stake.
- The Parties hereto have accordingly resolved to enter into this
agreement (hereinafter : "this/the Agreement") on the terms
hereinafter set forth to establish further specific rules and rights
under which they want to bind their capital association, in complement
to the articles of association of the Company.
It is hereby agreed as follows:
Article 1 - EUROTRONICS B.V.
1.1 SEI, as the ultimate beneficiary of the Company, commits itself to cause
its group company SEI INVESTMENTS B.V.;
(a) to enter into an agreement with MARSHALL regarding the contribution to
be made by MARSHALL Subsidiary of its 99.5% shareholding in EUROTRONICS SAS,
a limited liability company established under the laws of France, having its
registered seat at 2, rue de la Tour des Dames (75009) PARIS (considered
after conversion by MARSHALL INDUSTRIES of its loan in EUROTRONICS SAS) in
the capital of the Company (the "Contribution") in consideration of the
BV-shares as defined hereunder issued to MARSHALL Subsidiary. The terms and
conditions of the Contribution shall be integrated in the deed of share issue
as referred to in Article 2 below.
(b) to adopt in its capacity of sole shareholder of the Company a
resolution:
(i) to issue 28,800 common shares with a par value of NLG 1,000 (in words
one thousand Dutch Guilders) each in the capital of the Company ("BV-Shares")
to MARSHALL Subsidiary, with the exclusion of any pre-emptive rights of SEI
INVESTMENTS BV or any other SONEPAR Group-company or third party:
(ii) to appoint Mr. Robert RODIN and Mr. Gordon MARSHALL to the Supervisory
Board of the Company as per the Completion Date (as defined in article 2 of
this Agreement), such appointment being made to give effect to the provisions
of article 3.1 of this Agreement.
1.2 A copy of the articles of association of the Company as presently in
force, the draft of the aforementioned shareholders resolution and the draft
of the notarial deed of share issue as referred to in article 2 below are
attached as Appendixes 2, 3 and 4 respectively.
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Article 2 - SHARE ISSUE EUROTRONICS BV
As soon as practicable after the formation of MARSHALL Subsidiary, or any
other date to be agreed to by MARSHALL, SEI and the Company (the "Completion
Date"), Marshall Subsidiary and the Company will appear before the Civil Law
Notary Frank E. ROOS, practising in Rotterdam, or his substitute to execute a
notarial deed whereby the Company shall issue new BV-shares to MARSHALL
Subsidiary (The Completion"). The BV-shares shall represent 16% of the total
issued share capital of the Company.
Article 3 - MANAGEMENT OF THE COMPANY
3.1 The management of the business and affairs of the Company will be
supervised by a Board of Supervisory Directors (Raad van Commissarissen)
("Supervisory Board") that the shareholders shall cause to be composed of a
minimum of five Supervisory Directors. Notwithstanding paragraph 7 of
Article 14 of the Articles of the Company during the term of this Agreement
the shareholders shall cause the Supervisory Board to be constituted as
follows:
a) two members of the Supervisory Board shall be appointed, dismissed and
suspended by the General Meeting upon binding nomination for appointment,
dismissal, or suspension by MARSHALL Subsidiary. The first two members to be
so nominated by MARSHALL Subsidiary will be Robert Rodin and Gordon Marshall.
b) all rights and provisions for members of the Supervisory Board granted to
existing members, excluding the Chairman of the Supervisory Board, shall
apply to the members nominated by Marshall Subsidiary.
c) each Party shall ensure that the General Meeting shall vote in favour of
the appointment of the candidates nominated in accordance with this clause as
members of the Supervisory Board.
d) each vacancy in the Supervisory Board by a member appointed pursuant to
paragraph (a) above shall upon request of either the Supervisory Board or the
General Meeting be filled by appointment by the General Meeting of a
candidate, nominated by MARSHALL Subsidiary.
3.2 The Shareholders will, in accordance with the articles, appoint the
single Managing Board member who will be entrusted as the Chief Executive
Officer of the Company with all powers to run the business subject to the
restricted operations requiring either Supervisory Board or Shareholders
prior consent.
Article 4 - VETO RIGHT
SEI and MI intend to give the representatives of MARSHALL Subsidiary
participating in the Supervisory Board of the Company a veto right with
regard to certain matters. Therefore, it has been provided in article 14,
paragraph 4 juncto paragraph 7 of the articles of association of the Company
that the unanimous approval of the Supervisory Board - of which pursuant to
the provisions of this agreement the nominees of MARSHALL Subsidiary are
members -will be required for resolutions relating to those matters set forth
in such Article 14. Thus, all matters described in paragraph 4 of article 14
of the Articles of Association of the Company that require the prior approval
of the Board of Supervisory Directors shall only be passed if such approval
is granted by the Board of Supervisory Board by a unanimous vote with the two
MARSHALL Subsidiary appointees to the Board voting in favour of such action.
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Article 5 - BASIC FINANCIAL INFORMATION
SEI or SEI Investments shall, or shall cause the Company, to provide to
MARSHALL reports on and copies of the audited yearly financial statements of
all the SEI Group companies and of both the quarterly and yearly combined non
audited statements by country.
Article 6 - RIGHT OF 1ST REFUSAL
6.1 The articles of the Company contain a right of first refusal provision
which states the Dutch corporate law procedures in this matter. However, the
parties' will goes beyond the Dutch corporate law constraints as far as right
of first refusal is concerned, as set forth in this Article 8.
6.2 The parties agree that if a shareholder wishes to transfer any or all
of its shares in the Company to a third party (where none of the conditions
set forth in paragraph 16 of Article 12 of the Articles of the Company apply
to such shareholder), that shareholder wishing to transfer its shares shall
waive its right under paragraph 8 of Article 12 of the Articles of the
Company to require that the price of the allotted shares be determined by the
experts and accordingly, the price of the allotted shares shall be the price
mentioned in paragraph 2 of Article 12 of the Articles of the Company.
6.3 The parties agree that if there are purchasers for shares being
offered, the parties shall cause the Board of Managing Directors to make the
allotment pursuant to paragraph 5 of Article 12 of the Articles of the
Company within seven days after all of the shareholders who have the right to
purchase have notified the Board of Managing Directors whether they exercise
their right of purchase rather than within seven days of the expiry of the
allotment term.
6.4 The parties agree that the transfer of shares to purchasers and
simultaneous payment of the purchase price as provided in paragraph 13 of
Article 12 of the Articles of the Company shall be made within seven days of
the expiry of the term within which the transferor could withdraw his offer
rather than within thirty days of such date. If any of the events set forth
in Paragraph 16 of Article 12 of the Articles of the Company occurs with
respect to any direct or indirect parent company of a shareholder, the
provisions of Article 12 of the Articles of the Company shall apply fully as
though such event occurred with respect to such shareholder, thereby giving
the other shareholders the right of first refusal described in such Article
12.
6.5 Where the application term of 180 days is reduced to 60 days if less
than a fourth of the nominal issued capital is offered as provided in
paragraph 4 of Article 12 of the Articles of the Company, there shall be a
minimum term of six months between each enforcement of such provision.
6.6 Where shares become available after initial allotment because a
shareholder fails to exercise its right of purchase pursuant to paragraph 11
of Article 12 of the Articles of the Company, and as a result, paragraphs 3
up to and including 7 of Article 12 of the Articles of the Company apply
mutatis mutandis with respect to the shares that have become available, a
determination of the price shall not take place again and the initial
application term period in which to respond with respect to such additional
shares that have become available shall be 30 days rather than 180 days.
6.7 Notwithstanding the right of first refusal provisions set forth in the
Articles of the Company, SEI Investments BV and MARSHALL Subsidiary shall be
entitled to sell and transfer its shares in the Company to any other company
or entity wholly controlled by it and the other party shall in applying the
preemptive right contained in the articles of association of the Company
fully cooperate in effecting such sale and transfer.
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Such sale and transfer would be on the conditions precedent that:
- - the transferee shall purchase and accept all shares held by the transferor.
- - the transferee accedes to this agreement, assumes from the transferor any
and all obligations arising in connection with this agreement; and
- - the transferor fully guarantees the timely complete and correct performance by
the transferee of any and all obligations arising in connection with this
agreement.
6.8 If the Company desires to sell any of its shares in the SEI-Group
companies listed in appendix 1 or any additional companies acquired in the
electronic business in Europe, it shall give written notice to MARSHALL of
its intention as described in article 12 of the articles of association of
the Company and Marshall shall have such right of first refusal as described
in said article except for the application term mentioned in Article 12.4
which will be reduced to 45 days in both cases.
6.9 No transfers of shares of intermediate holding companies of the
Company may be made by either party which circumvent the rights of first
refusal set forth in the Articles of the Company and this Shareholders
Agreement. In furtherance thereof: (a) at all times during which any company
or entity controlled by SEI is the owner of shares of the Company (including
but not limited to SEI Investments BV), one hundred percent (100%) of the
equity interest of such company or entity shall be owned by SEI or its direct
or indirect wholly-owned subsidiaries: and (b) at all times during which a
company or entity controlled by MI (including but not limited to MARSHALL
Subsidiary) is the owner of shares of the Company, one hundred percent (100%)
of the equity interest of such company or entity shall be owned by MARSHALL
or its direct or indirect wholly-owned subsidiaries.
Article 7 - BUYOUT PROPOSAL
At any time after two (2) years from the Completion Date, MARSHALL shall have
the option of making an offer to purchase the remaining shares of the Company
that it does not own from SEI INVESTMENTS BV or any SEI-Group company to
which such shares may have been transferred according to this Agreement. SEI
shall have up to six (6) months from the date of this offer to either accept
or reject the offer for and on behalf of such entity or entities. If the
offer is not accepted by SEI, then SEI must purchase the Company's shares
owned by MARSHALL Subsidiary or any of its affiliates to which such shares
may have been transferred according to this Agreement, at the price offered
by MARSHALL or cause such purchase to be made by the appropriate SEI-Group
company.
Article 8 - MARSHALL STOCK OPTION
Concurrently with Completion Date: (a) MARSHALL will grant SEI INVESTMENTS
B.V. an option to purchase MARSHALL common stock in the form evidenced in
Exhibit 5; and (b) SEI shall assign and transfer all of its right, title and
interest in and to the Registration Rights Agreement dated as of September
15, 1994 between MI and SEI to SEI INVESTMENTS BV and MI will execute all
necessary documents to affect the option under a Registration Rights
Agreement. Such Registration Rights Agreement shall not be assignable or
transferable by SEI Investments BV.
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Article 9 - GOOD FAITH
The parties hereto agree that they shall use their best efforts and take all
such steps as may reasonably be within their power, so as to cause the
Company to comply with and act in a manner specified by the provisions of
this Agreement: and so as to implement the provisions of this Agreement to
the full extent permitted by laws and shall cause its respective nominees as
members of the Supervisory Board of the Company to act accordingly. In
entering into this Agreement, the parties hereto recognise that it is
impracticable to make provisions for every contingency that may arise in the
course of performance hereof. Accordingly, the parties hereby declare it to
be their intention that this Agreement shall operate between them with
fairness and without detriment to the interests of either of them, and if in
the course of the performance of this Agreement unfairness to either party is
disclosed or anticipated then the parties hereto shall use their best efforts
to agree upon such action as may be necessary and equitable to remove the
cause or causes of the same.
Article 10 - EXCLUSIVITY / NON COMPETITION
Except through the Company, MARSHALL agrees that it shall not own or
establish a company or business based in Europe that competes with SEI-Group
companies in the electronics distribution business: provided however, that
MARSHALL may own or establish businesses to provide service, product and/or
logistical support in Europe due to customer or vendor requirements that SEI
cannot provide.
SEI agrees that it shall not own, invest in, conduct or otherwise be
associated with any electronics distribution business in Europe other than
through the Company. Except through MARSHALL, SEI agrees that it shall not
own or establish a company or business based in North America that competes
with MARSHALL in the electronics distribution business; provided however,
that SEI may own or establish business to provide service, product and/or
logistical support in North America due to customer or vendor requirements
that MARSHALL cannot provide.
Article 11 - TERMINATION OF AGREEMENT
This Agreement shall be terminated upon the occurrence of one of the
following events:
(i) a written agreement of MARSHALL and SEI
(ii) at such times as:
a. none of MARSHALL or any of its wholly-owned subsidiaries is a
shareholder of the Company or,
b. none of SEI or any of its wholly-owned subsidiaries is a shareholder of
the Company.
Article 12 - NOTICES
Any notice or other communication required or permitted to be given under
this Agreement shall be in writing and signed by or on behalf of the party
giving notice and shall be given either personally, by overnight courier
service, by facsimile transmission or by registered or certified mail, return
receipt requested, first-class postage prepaid, or by other means of written
communication, addressed to such other party at the address appearing below.
A notice to a party delivered other than by mail shall be deemed to have been
given at the time it is actually received by the part to whom notice is given.
All notices are to be sent as follows:
if to MARSHALL or MARSHALL Subsidiary: to the attention of Mr. Robert RODIN
c/o MARSHALL INDUSTRIES (MI), 9320 Telstar Avenue, El Monte, California
91731, U.S.A.
<PAGE>
With a copy to : D. Stephen Antion, O'Melveny & Myers, 400 South Hope Street,
Los Angeles, California 90071, U.S.A.,
If to SEI : to the attention of Monsieur Jose MENENDEZ c/o SONEPAR
ELECTRONIQUE INTERNATIONAL (SEI), 2. rue de la Tour des Dames (75009) FRANCE.
If to SEI INVESTMENTS BV : to the attention of Mr Jean FRIBOURG c/o SEI
INVESTMENTS BV, 2. Takkebisters BREDA (THE NETHERLANDS).
With a copy to : Mr Gerard PEN, Coopers & Lybrand, Marten Meesweg 25, PO Box
8800, 3009 AV Rotterdam, THE NETHERLANDS.
Article 13 - FURTHER ASSURANCES
The parties hereto shall execute any additional documents or amendments to
documents and shall take any further actions that may be necessary to carry
out the terms of this Agreement. If there is any conflict between any
provision of this Agreement and any such document, including those attached
in Exhibits hereto, the provisions of this Agreement shall prevail.
Article 14 - COUNTERPARTS
This Agreement may be executed in one or more counterparts, and when executed
by each of the parties signatory hereto, said counterparts shall constitute a
single valid agreement through each of the signatory parties may have
executed separate counterpart hereof.
Article 15 - SUCCESSORS
This Agreement is binding upon and shall insure to the benefit of the parties
hereto and to their respective successors, assigns, personal representatives,
heirs and legatees.
Article 16 - GOVERNING LAW
This agreement is made under and shall be construed pursuant to the laws of
the Netherlands.
Article 17 - INTEGRATION
17.1 This Agreement together with all appendixes as enunciated along the
above articles sets forth the entire understandings of the parties with
respect to the subject matter hereof and supersedes all prior or
contemporaneous agreements of the parties whether oral or written with
respect to the subject matter hereof.
The parties understand and agree that the subject matter hereof does not
relate to prior agreements solely between MARSHALL and SEI which relate to
matters other than corporate governance and action by shareholders of
Eurotronics BV.
17.2 In the event of any discrepancy, between the provisions of this
agreement and those of the articles of association of the Company, the former
shall prevail.
Article 18 - EUROTRONICS S.A.S.
Without MARSHALL's prior written consent, SEI will not, and will not permit
any of its affiliates, to liquidate or otherwise dispose of the shares of
EUROTRONICS SAS or any of the assets of EUROTRONICS SAS for at least 10 years
from the Completion Date, except that EUROTRONICS SAS may dispose of shares
of Bloomers Electronics Ltd. and/or SEI Electronics Purchasing GmbH.
<PAGE>
Article 19 - SUBSEQUENT SHAREHOLDERS AGREEMENT
If either shareholder offers its shares to the other shareholder pursuant to
any of the right of first refusal provisions of the Articles of Association
of the Company, as amended by this Shareholders Agreement, and the
shareholder(s) having the right of first refusal elects not to exercise their
right of first refusal, the transfer of the shares by the offering
shareholder to the third party (the "Transferee") shall be on the condition
precedent that the Transferee shall enter into an agreement (the "Subsequent
Shareholders Agreement" ) with the remaining shareholders(s) whereby the
Transferee agrees:
(a) to become a party to and be bound by Sections 6.2, 6.3, 6.4, 6.5, 6.7,
6.8, 6.9 and 6.10 of Article 6 of this Shareholders Agreement and Article 18
of this Shareholders Agreement, mutatis mutandis;
(b) that so long as MARSHALL subsidiary or any of its affiliates is a
shareholder of the Company, the transferee shall be bound by the provisions
of Section 3.1 of Article 3 of this Shareholders Agreement;
(c) to be bound by the provisions of Article 10 of this Shareholders
Agreement; provided, however that the part of the second sentence of the
second paragraph that reads "Except through its ownership in MARSHALL" shall be
deleted if it is SEI or its affiliate that is transferring the shares; and
(d) that any subsequent transferee to whom the Transferee transfers its
shares in accordance with the Articles of the Company and the Subsequent
Shareholders Agreement shall be bound by the Subsequent Shareholders
Agreement.
Article 20 - INVALID PARTS
If part of this Agreement or any right pursuant to this Agreement is invalid
or unenforceable, this shall not in any way affect the remaining terms or
rights. Parties shall replace the invalid or unenforceable part with valid
provisions containing the same purpose and goal as the replaced part.
Executed in Paris
On September 15, 1997
MARSHALL INDUSTRIES SONEPAR ELECTRONIQUE
INTERNATIONAL
/S/ HENRY CHIN /S/ JOSE MENENDEZ
- -------------------------- -------------------------------
Henry Chin Jose Menendez
Chief Financial Officer President du Directoire
MARSHALL INDUSTRIES INVESTMENTS BV SEI INVESTMENTS BV
/S/ HENRY CHIN /S/ PIET VERGROESEN
- -------------------------- -------------------------------
Henry Chin Piet Vergroesen
Solely authorized managing director Director
<PAGE>
LIST OF APPENDIXES
1. List of the direct subsidiaries of EUROTRONICS BV
2. Articles of Association of EUROTRONICS BV
3. Shareholders Resolution
4. Notarial Deed of Share Issue
5. SONEPAR ELECTRONIQUE INTERNATIONAL's option on
MARSHALL INDUSTRIES' shares
<PAGE>
MARSHALL INDUSTRIES
NONQUALIFIED STOCK OPTION GRANT
1. IDENTIFICATION
This Nonqualified Stock Option Grant (this "Option Grant") is made by and
between Marshall Industries, a California corporation ("Marshall"), and SEI
Investments BV, a Dutch limited liability company ("SEI"), as of September 15,
1997.
2. GRANT OF OPTION
Subject to the terms and conditions of this Option Grant, Marshall hereby grants
to SEI an option (the "Option") to purchase 874,545 shares of Marshall's
authorized and unissued Common Stock. The number of shares covered by the
Option shall not exceed five percent (5%) of the issued and outstanding common
stock of Marshall giving effect to the exercise of the Option. If the number of
shares covered by the Option at any time exceeds five percent (5%), the total
number of shares shall be reduced accordingly. The Option is a nonqualified
stock option.
3. TERM; EXERCISE
3.1. TERM
Subject to the terms and conditions of this Option Grant, the Option is
immediately exercisable. Unless previously exercised pursuant to this Article
3, the Option shall terminate at 5:00 p.m. Pacific time on, and shall not be
exercisable after September 15, 1999.
3.2 NOTICE OF EXERCISE
SEI shall exercise the Option by (i) notifying in writing the Secretary of
Marshall of SEI's election to exercise the Option and stating the number of
shares to be purchased and (ii) paying in full the purchase price as provided in
Section 3.3.
3.3 PAYMENT OF PURCHASE PRICE
The purchase price for any shares of Common Stock with respect to which SEI
exercises this Option shall be $34.5685 per share and shall be paid in full
promptly after SEI gives notice of exercise as provided in Section 3.2. The
purchase price shall be paid in cash or by wire transfer in United States
Dollars to an account designated by Marshall.
4. ISSUANCE OF SHARES
Promptly after Marshall's receipt of notification of exercise provided for in
Section 3.2 and SEI's payment in full of the purchase price, Marshall shall
deliver, or cause to be delivered, to SEI a certificate for the whole number of
shares with respect to which the Option is being exercised by
<PAGE>
SEI. Shares issued upon exercise of the Option shall be registered in the name
of SEI. If any law or regulation of the Securities and Exchange Commission or
of any other federal or state governmental body having jurisdiction shall
require Marshall or SEI to take any action prior to the issuance to SEI of the
shares of Common Stock of Marshall specified in the written notice of election
to exercise the Option, the date for the delivery of such shares shall be
postponed until the completion of such action.
5. ASSIGNMENT OR TRANSFER
This Option is not assignable or transferable.
6. NO RIGHTS AS SHAREHOLDER
SEI shall have no rights as a shareholder with respect to shares of the Common
Stock covered by this Option until the date of the issuance of a stock
certificate or stock certificates evidencing issuance of such shares upon SEI's
exercise of the Option. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate or stock certificates are issued, except as provided in Article 7.
7. MODIFICATION AND TERMINATION
7.1 If the number of issued and outstanding shares of Common Stock changes as
a result of a stock split, reverse stock split, stock dividend recapitalization,
or any other change in the capital structure of Marshall, the number of shares
subject to the Option and the price per share of the Option (but not the total
price thereof) shall be adjusted so that upon exercise of the Option, SEI will
receive the same number of shares it would have received had it been the holder
of all shares subject to its outstanding Option immediately before the effective
date of the change in the number of issued shares of Common Stock. The
adjustment shall not result in the issuance of fractional shares.
7.2. If Marshall liquidates, merges, reorganizes, or consolidates with any
other corporation in which Marshall is not the surviving corporation or Marshall
becomes a wholly-owned subsidiary of another corporation, any part of the Option
that has not yet been exercised shall be deemed cancelled unless the surviving
corporation in any such merger, reorganization or consolidation elects to assume
the Option or to issue substitute options in place thereof. If the Option is to
be cancelled in accordance with the foregoing, SEI shall have the right,
exercisable during the thirty (30)-day period ending on the thirtieth (30th) day
prior to such liquidation, merger or consolidation, to exercise SEI's Option, in
whole or in part.
7.3. The grant of the Option shall not affect in any way the right or power
of Marshall to make adjustments, reclassifications, reorganizations, or changes
in its capital structure, to merge, consolidate or dissolve; to change its
business structure; or to liquidate, sell or transfer all or any part of the
business or assets.
2
<PAGE>
8. COMPLIANCE WITH SECURITIES LAWS
SEI acknowledges that the shares to be delivered upon exercise of the Option
have not been registered under the Securities Act of 1933, as amended (the
"Act") nor does Marshall have any obligation to so register such shares.
Therefore, such shares are what is known as "lettered" or "restricted"
securities under the Act, and as a consequence, the shares cannot be transferred
in any manner without full compliance with all provisions of the Act. At the
time this Option is exercised, Marshall may require SEI to execute any documents
or take any action which may be then necessary to comply with the Act and the
rules and regulations adopted thereunder, or any other applicable federal or
state laws, including the request for, and enforcement of, letters of investment
intent and/or legal opinions from SEI's United States counsel that such transfer
complies with the Act, such requirements to be determined by Marshall in its
judgment as necessary to assure compliance with such laws. Marshall shall not
be obligated to issue any shares upon the exercise of this Option unless the
issuance, in the judgment of Marshall's Board of Directors, is in full
compliance with all applicable laws, governmental rules and regulations, any
undertaking of Marshall made under the Act, any state securities laws, and stock
exchange agreements of Marshall.
9. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of California.
10. INTEGRATION
This Option Grant constitutes the entire agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith, except for that certain
Registration Rights Agreement dated as of September 15, 1994 by and between
Marshall and Sonepar Electronique International ("Sonepar") which is being
transferred from Sonepar to SEI concurrently with the execution of this Option
Grant.
11. AMENDMENTS; WAIVERS
This Option Grant may be amended only by agreement in writing of the parties
hereto. No waiver of any provision nor consent to any exception to the terms of
this Stock Option shall be effective unless in writing and signed by the party
to be bound and then only to the specific purpose, extent and instance so
provided.
3
<PAGE>
IN WITNESS WHEREOF, this Nonqualified Stock Option Grant is executed by the
parties on the date below.
Executed on September 15, 1997
Marshall Industries SEI Investments BV
By: /s/ HENRY CHIN By: /s/ PIET VERGROESEN
------------------------- -------------------------
Henry Chin Piet Vergroesen
Chief Financial Officer Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARSHALL
INDUSTRIES QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 2,129
<SECURITIES> 0
<RECEIVABLES> 169,358
<ALLOWANCES> (7,879)
<INVENTORY> 286,916
<CURRENT-ASSETS> 465,737
<PP&E> 82,080
<DEPRECIATION> (46,310)
<TOTAL-ASSETS> 541,591
<CURRENT-LIABILITIES> 119,651
<BONDS> 0
0
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<COMMON> 16,616
<OTHER-SE> 347,682
<TOTAL-LIABILITY-AND-EQUITY> 541,591
<SALES> 324,423
<TOTAL-REVENUES> 324,423
<CGS> 273,702
<TOTAL-COSTS> 273,702
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 654
<INTEREST-EXPENSE> 748
<INCOME-PRETAX> 16,020
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