SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement [] Confidential, for Use of
the Commission
Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SED International Holdings, Inc.
(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
SED INTERNATIONAL HOLDINGS, INC.
4916 NORTH ROYAL ATLANTA DRIVE
TUCKER, GEORGIA 30085
Dear SED International Holdings, Inc. Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
to be held at the executive offices of SED International Holdings, Inc.
(the "Company"), 4916 North Royal Atlanta Drive, Tucker, Georgia, on
Tuesday, November 10, 1998, at 12:00 p.m., local time, for the following
purposes:
(i) To elect two Class I directors for terms to expire at the 2001
Annual Meeting of Stockholders;
(ii) To change the state of incorporation of the Company from Delaware
to Georgia;
(iii)To approve an amendment to the Company's 1997 Stock Option Plan
to increase the number of shares available for issuance by
200,000; and
(iv) To transact such other business as may properly come before the
meeting or any adjournments thereof.
During the meeting we will review the results of the fiscal year ended
June 30, 1998, and report on significant aspects of our operations during
the first quarter of fiscal 1999.
We would appreciate your completing, signing, dating and returning to
the Company the enclosed proxy card in the envelope provided at your
earliest convenience. If you decide to attend the meeting, you may, of
course, revoke your proxy and vote your own shares.
Sincerely,
/s/ GERALD DIAMOND
Gerald Diamond,
Chairman of the Board and
Chief Executive Officer
October 5, 1998
<PAGE>
SED INTERNATIONAL HOLDINGS, INC.
4916 NORTH ROYAL ATLANTA DRIVE
TUCKER, GEORGIA 30085
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of SED International Holdings, Inc.
(the "Company") will be held at the executive offices of the Company, 4916
North Royal Atlanta Drive, Tucker, Georgia, on Tuesday, November 10, 1998,
at 12:00 p.m., local time, for the following purposes:
(i) To elect two Class I directors for terms to expire at the 2001
Annual Meeting of Stockholders;
(ii) To change the state of incorporation of the Company from Delaware
to Georgia;
(iii)To approve an amendment to the Company's 1997 Stock Option Plan
to increase the number of shares available for issuance by
200,000; and
(iv) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed September 14, 1998, as the record
date for the determination of stockholders entitled to notice of and to
vote at the meeting.
IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
SO THAT YOUR SHARES WILL BE REPRESENTED.
By Order of the Board of Directors,
/s/ LARRY G. AYERS
Larry G. Ayers,
Secretary
October 5, 1998
<PAGE>
SED INTERNATIONAL HOLDINGS, INC.
4916 NORTH ROYAL ATLANTA DRIVE
TUCKER, GEORGIA 30085
PROXY STATEMENT
This Proxy Statement is furnished by and on behalf of the Board of
Directors (the "Board") of SED International Holdings, Inc. (the "Company")
in connection with the solicitation of proxies for use at the 1998 Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be
held at 12:00 p.m., local time, Tuesday, November 10, 1998, at the
Company's executive offices, 4916 North Royal Atlanta Drive, Tucker,
Georgia 30085, and at any adjournments thereof. The Notice of Annual
Meeting of Stockholders, this Proxy Statement, and the form of proxy will
be first mailed on or about October 5, 1998, to the stockholders of the
Company (the "Stockholders") of record on the Record Date (as defined
below).
THE BOARD OF DIRECTORS URGES YOU TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PRE-PAID
ENVELOPE.
SHARES ENTITLED TO VOTE
Each valid proxy given pursuant to this solicitation that is received
in time for the Annual Meeting and not revoked will be voted with respect
to all shares represented by it and will be voted in accordance with the
instructions, if any, given in the proxy. If instructions are not given in
the proxy, it will be voted (i) FOR the election as directors of the
nominees listed in this Proxy Statement, (ii) FOR the reincorporation of
the Company from Delaware to Georgia, (iii) FOR the increase of 200,000
shares of Common Stock eligible to be issued under the Company's 1997 Stock
Option Plan, and (iv) in accordance with the best judgment of the proxy
holders on any other matter that may properly come before the meeting. The
submission of a signed proxy will not affect a Stockholder's right to
attend and to vote in person at the Annual Meeting. Stockholders who
execute a proxy may revoke it at any time before it is voted by filing a
written revocation with the Secretary of the Company at the following
address: SED International Holdings, Inc., 4916 North Royal Atlanta Drive,
Tucker, Georgia 30085, Attn: Larry G. Ayers, Secretary; executing a proxy
bearing a later date; or attending and voting in person at the Annual
Meeting.
Only Stockholders of record as of the close of business on September
14, 1998 (the "Record Date"), will be entitled to vote at the Annual
Meeting. As of the close of business on the Record Date, there were
9,613,603 shares of Common Stock outstanding. Each share of Common Stock
is entitled to one vote on all matters presented for Stockholder vote.
According to the Amended and Restated By-laws of the Company (the
"By-laws"), the holders of a majority of the shares of Common Stock
outstanding and entitled to be voted at the Annual Meeting must be present
in person or be represented by proxy to constitute a quorum and
<PAGE>
to act upon proposed business. If a quorum is not present or represented
by proxy at the Annual Meeting, the meeting will be adjourned and the
Company will be subjected to additional expense. If a quorum is present or
represented by proxy at the Annual Meeting, the By-laws provide that the
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and entitled to vote at the
Annual Meeting will decide the corporate action taken unless a different
vote is required by Delaware law, the Certificate of Incorporation or the
By-laws. Delaware law and the By-laws specify that directors shall be
elected by the holders of a plurality of the shares of Common Stock present
in person or represented by proxy at the Annual Meeting.
Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of
business at the Annual Meeting. With respect to the election of directors,
abstentions and broker non-votes will have the effect of votes to withhold
a vote for all nominees.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board currently consists of six members. The Board is divided
into three classes of directors, designated Class I, Class II and Class
III, with each class having two members. The term of the Class I directors
expires at the Annual Meeting. The terms of the Class II and Class III
directors expire at the 1999 and 2000 Annual Meetings of Stockholders,
respectively. Stockholders annually elect directors of one of the three
classes for three-year terms, to serve until their successors have been
duly elected and qualified or until their earlier death, resignation or
removal. At the Annual Meeting, the Stockholders will elect two directors
to serve as Class I directors. The Board has nominated Stewart I. Aaron
and Mark Diamond, who are both currently Class I directors, for
election as Class I directors to serve until the Annual Meeting of
Stockholders in 2001 and until their successors have been duly elected and
qualified or until their earlier death, resignation or removal.
Each nominee has consented to serve as a director of the Company if
elected. If at the time of the Annual Meeting either nominee is unable or
declines to serve as a director, the discretionary authority provided in
the enclosed proxy card will be exercised to vote for a substitute
candidate designated by the Board. The Board has no reason to believe that
either of the nominees will be unable or will decline to serve as a
director.
The Board recommends that the Stockholders vote FOR the election of
the nominees named above as directors of the Company for Class I.
<PAGE>
NOMINEES FOR DIRECTOR - CLASS I - TERM TO EXPIRE IN 2001
Nominee Age Positions, Offices and Other Information
Stewart I. Aaron 58 Mr. Aaron has been a director of the Company
since November 1994. Mr. Aaron has served as
President of LABS, Inc., a silk plant
manufacturer based in Atlanta, Georgia, for
over 20 years.
Mark Diamond 33 Mr. Diamond has been a director of the
Company since October 1996. Mr. Diamond has
been employed by SED International, Inc., a
wholly-owned subsidiary of the Company ("SED
International"), on a full-time basis in the
Sales Department since January 1987. In
February 1991, Mr. Diamond was elected Vice
President - Sales of SED International; in
May 1993, he was elected Executive Vice
President - Marketing of SED International;
and in February 1994, he was elected
Executive Vice President - Sales of SED
International. Mr. Diamond has served as
Executive Vice President of the Company since
June 1995, and in August 1995, was elected
Executive Vice President of SED
International. Mark Diamond is the son of
Gerald Diamond and Jean Diamond and the
brother-in-law of Brian Paterson.
DIRECTORS CONTINUING IN OFFICE - CLASS II - TERM TO EXPIRE IN 1999
Name Age Positions, Offices and Other Information
Ray D. Risner 53 Mr. Risner has been a director of the Company
since November 1994 and has served as
President and Chief Operating Officer of the
Company since May 1995. Prior to his
appointment to the aforementioned positions,
Mr. Risner served as Executive Vice President
- Administration of the Company from February
1995 to May 1995. Mr. Risner has served as
President and Chief Operating Officer of SED
International since May 1995. Mr. Risner
served as Vice Chairman of RJM Group, Inc., a
private investment advisory firm, from 1989
to 1994. From 1987 to 1989, he served as
Vice President, Financial Administration of
RJR Nabisco, Inc. Mr. Risner is also a
trustee and Vice Chairman of The National
Faculty and a member of the Board of American
Red Cross Chapter, Atlanta, Georgia.
<PAGE>
Cary Rosenthal 58 Mr. Rosenthal has been a director of the
Company since 1992. Mr. Rosenthal served as
President and Chief Executive Officer of
Phoenix Communications, Inc., a commercial
printing firm, from 1977 until its sale to
Master Graphics, Inc. in December 1997. He
has served as President and Chief Executive
Officer of Phoenix Communications, a division
of Master Graphics, Inc., since December 1997
and as a director of Master Graphics, Inc.
since May 1998.
DIRECTORS CONTINUING IN OFFICE - CLASS III - TERM TO EXPIRE IN 2000
Name Age Positions, Offices and Other Information
Gerald Diamond 60 Mr. Diamond has been a director of the
Company or its predecessor, Southern
Electronics Distributors, Inc., a Georgia
corporation (the "Predecessor"), since 1980.
Mr. Diamond currently serves as Chairman of
the Board and Chief Executive Officer of the
Company and SED International. He was
elected President and Chairman of the Board
of the Company and Chief Executive Officer
and Chairman of the Board of SED
International in June 1986, and he has served
in two or more capacities as Chairman of the
Board, Chief Executive Officer and President
of the Company and SED International from
that time until May 1995. Mr. Diamond was a
founder of the Predecessor and served as its
President and Treasurer from July 1980
through July 1986. Mr. Diamond has been in
the electronics-related business for over 35
years. Mr. Diamond is the father of Mark
Diamond, the husband of Jean Diamond and the
father-in-law of Brian Paterson.
Joel Cohen 59 Mr. Cohen has served as Vice President of
Marketing for Queen Carpet Corporation since
1973. Queen Carpet Corporation is the
fifth-largest manufacturer of commercial and
residential carpet in the United States. Mr.
Cohen has been in the textile-related
business for over 35 years.
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board held nine meetings during the fiscal year ended June 30,
1998 ("Fiscal 1998"). No director attended less than 75% of the aggregate
number of meetings of the Board and of any committee on which he served.
The Board has no standing nominating committee.
Messrs. Aaron, Cohen and Rosenthal constituted the Company's Audit
Committee during Fiscal 1998. The responsibilities of the Audit Committee
include, in addition to such other duties as the Board may specify: (i)
making recommendations to the Board with respect to the selection of
independent auditors and their fees and duties; (ii) conferring with and
receiving reports from the Company's independent auditors; (iii)
authorizing any special or supplemental activities of the Company's
independent auditors and considering the effect of such activities on their
independence; and (iv) reviewing internal auditing procedures and the
adequacy of internal controls and monitoring compliance with such controls.
The Audit Committee held one meeting during Fiscal 1998.
On August 26, 1998, the Board established a Compensation Committee
comprised of Messrs. Aaron, Cohen, Gerald Diamond and Rosenthal. The
Compensation Committee is responsible for setting annual and long-term
performance goals for the Chief Executive Officer, evaluating his
performance against these goals, and recommending his salary, bonus and
long-term incentives. The Compensation Committee reviews the performance
of all of the other executive officers of the Company and recommends to the
Board the amount and form of all compensation of executive officers of the
Company. Gerald Diamond, Chief Executive Officer of the Company, does not
participate in evaluating his own performance (see "Executive Compensation
- -Executive Compensation Components" and "-Employment Agreements").
During Fiscal 1998, Messrs. Aaron, Cohen and Rosenthal each received
aggregate cash compensation of $5,000 for attendance at regular Board
meetings. This compensation was not contingent on the number of regular
Board meetings attended. No other cash remuneration was paid to directors
during Fiscal 1998. The Company also pays ordinary and necessary travel
expenses for non-management directors to attend Board and any committee
meetings.
As additional compensation for serving as directors of the Company in
Fiscal 1998, Messrs. Aaron, Cohen and Rosenthal each received a
non-qualified stock option to purchase up to 10,000 shares of Common Stock
having an exercise price of $15.25 per share and vesting immediately upon
grant pursuant to the Company's 1995 Formula Stock Option Plan. Directors
who are salaried employees of the Company or any of its subsidiaries do not
receive fees for their services as directors.
OWNERSHIP OF SHARES
The following table sets forth certain information as of September 14,
1998, regarding the number of shares of Common Stock beneficially owned by
each director and director nominee of the Company, each Named Executive
Officer (as defined under "Executive Compensation -
<PAGE>
Compensation Tables"), all directors and executive officers of the Company
as a group, and all persons known to the Company to beneficially own more
than five percent of the outstanding shares of Common Stock. All shares of
Common Stock shown in the table reflect sole voting and investment power
except as otherwise noted.
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Owner of Class
SED Associates (1) . . . . . . . . . . . . 146,850 (2) 1.5%
Gerald Diamond (1) . . . . . . . . . . . . 587,245 (3) 6.1%
Stewart I. Aaron . . . . . . . . . . . . . 40,000 (4) *
Joel Cohen . . . . . . . . . . . . . . . . 10,000 (4) *
Mark Diamond . . . . . . . . . . . . . . . 86,382 (5) *
Ray D. Risner. . . . . . . . . . . . . . . 23,982 *
Cary Rosenthal . . . . . . . . . . . . . . 52,250 (6) *
Jean Diamond . . . . . . . . . . . . . . . 50,000 (7) *
Brian D. Paterson. . . . . . . . . . . . . 20,800 (8) *
FMR Corp (9) . . . . . . . . . . . . . . . 1,000,000 (9) 10.4%
Ryback Management Corporation (10) . . . . 1,046,000 (10) 10.9%
All current directors and executive
officers as a group (10 persons) . . . . . 1,099,780 (11) 11.4%
* Represents less than one percent of the outstanding Common Stock.
(1) 4916 North Royal Atlanta Drive, Tucker, Georgia 30085.
(2) SED Associates is a general partnership of which Gerald Diamond is the
managing partner. As managing partner, Mr. Diamond has sole voting and
investment power with respect to the Common Stock owned by SED
Associates. Therefore, Mr. Diamond is deemed the indirect beneficial
owner of the shares of Common Stock owned of record by SED Associates.
<PAGE>
(3) The shares indicated include 583,333 shares subject to options
exercisable within 60 days and 3,912 shares held of record by Gerald
Diamond as trustee for the benefit of his grandchildren. The shares
indicated do not include 50,000 shares subject to options exercisable
within 60 days by Jean Diamond, the wife of Mr. Diamond, as to which
he disclaims beneficial ownership. The shares indicated also do not
include the shares owned of record by SED Associates of which Mr.
Diamond is deemed the indirect beneficial owner as described in
footnote (2) above.
(4) All of the shares indicated are subject to options exercisable within
60 days.
(5) The shares indicated include 10,000 shares of restricted stock that
will vest on October 14, 1999, 76,250 shares subject to options
exercisable within 60 days, and 132 shares held of record by Mark
Diamond as trustee of a trust for the benefit of his sister, Julie
Diamond Paterson.
(6) The shares indicated include 51,500 shares subject to options
exercisable within 60 days.
(7) All of the shares indicated are subject to options exercisable within
60 days. The shares indicated do not include 583,333 shares subject
to options exercisable within 60 days by Gerald Diamond, the husband
of Ms. Diamond, and 3,912 shares held of record by Mr. Diamond as
trustee for the benefit of their grandchildren, as to which Ms.
Diamond disclaims beneficial ownership. The shares indicated also do
not include the shares owned of record by SED Associates of which Mr.
Diamond is deemed the indirect beneficial owner as described in
footnote (2).
(8) All of the shares indicated are subject to options exercisable within
60 days. The shares indicated do not include 132 shares held of
record by Mark Diamond as trustee of a trust for the benefit of his
sister, Julie Diamond Paterson.
(9) All of the shares indicated are deemed beneficially owned by Fidelity
Management & Research Company, a wholly-owned subsidiary of FMR Corp.,
as a result of its serving as investment adviser to Fidelity
Low-Priced Stock Fund, the owner of the 1,000,000 shares. FMR Corp.'s
address is 82 Devonshire Street, Boston, Massachusetts 02109.
(10) All the shares indicated are deemed beneficially owned by Ryback
Management Corporation as a result of its serving as investment
adviser to Lindner Growth Fund, the owner of 1,000,000 shares, and
Lindner Bulwark Fund, the owner of 46,000 shares. Ryback Management
Corporation's address is 7711 Carondelet Avenue, Suite 700, St. Louis,
Missouri 63105.
(11) The shares indicated include 893,883 shares subject to options
exercisable within 60 days, 20,000 shares of restricted stock that
will vest on October 14, 1999, and 146,850 shares
<PAGE>
owned of record by SED Associates of which Gerald Diamond is deemed
the indirect beneficial owner as described in footnote (2).
EXECUTIVE COMPENSATION
Executive Compensation Report
The Board established a standing Compensation Committee on August 26,
1998 (see "Information Concerning Board of Directors" above). Prior to
August 26, 1998, Gerald Diamond, Chairman of the Board and Chief Executive
Officer of the Company, recommended to the Board (or in some cases a
committee thereof as discussed below) for its approval the non-base salary
compensation to be paid to executive officers of the Company, excluding
himself, subject to any applicable employment agreements with those
persons. Messrs. Aaron and Rosenthal currently serve as the members of the
committees administering the Company's 1986 Stock Option Plan, 1991
Stock Option Plan, 1988 Restricted Stock Award Plan, 1995 Formula Stock
Option Plan, and 1997 Stock Option Plan (collectively, the "Plans") and as
such, with the exception of the Company's 1995 Formula Stock Option Plan,
reviewed and acted upon Mr. Diamond's recommendations with respect
to stock option grants and restricted stock awards under those plans.
Messrs. Mark Diamond and Cohen serve as the members of the committee
administering the Company's 401(k) Plan (the "401(k) Plan") available to
all eligible employees of the Company and SED International, including
executive officers. Accordingly, this Executive Compensation Report for
Fiscal 1998 is submitted over the names of all of the members of the Board.
It is expected that the Compensation Committee will continue to follow the
criteria in this report for Fiscal 1998 in carrying out its duties and
responsibilities.
Executive Compensation Philosophy. The Company's executive
compensation program is designed to help it identify and retain outstanding
executives in the microcomputer and cellular telephone wholesale
distribution industry. The Company believes this focus will enable it to
hire and retain the best executive talent and help it meet its long-range
objectives. Key elements of this philosophy include the following:
[BULLET] Appeal to executives who are motivated to position the Company as
a leader in selected markets.
[BULLET] Align the financial interests of the executives with those of the
Stockholders.
[BULLET] Reward above-average returns to Stockholders.
[BULLET] Provide compensation opportunities that are within the range of
those provided by microcomputer and cellular telephone wholesale
distribution companies of similar sizes.
<PAGE>
As a result of the emphasis on linking executive compensation to
individual and corporate performance, the Company's executives may be paid
more or less than executives of the Company's competitors.
The Board anticipates that the design of policies regarding executive
compensation will evolve as the Company grows. As a baseline, the Board
supports the concept that stock ownership by management and stock-related
compensation arrangements are beneficial in enhancing Stockholder value and
aligning interests among management, the Board and the Stockholders.
Executive Compensation Components. There are two components to the
Company's executive compensation program: annual cash compensation (which
includes base salary and annual cash bonuses) and long-term incentive
compensation.
Base Salary. In Fiscal 1998, the initial base salary for Gerald
Diamond and Jean Diamond was set by an employment agreement between these
persons and SED International, with the base salary for the other Named
Executive Officers set by the Board.
Bonuses. Prior to August 26, 1998, Gerald Diamond recommended to the
Board annual cash bonuses for the Company's executive officers (excluding
himself). The Board considered his recommendation and awarded bonuses
based on that recommendation and on the Board's own subjective evaluation
of the executive's individual leadership and performance in his or her area
of responsibility and on the net earnings and return on equity of the
Company for the fiscal year for which the bonus was to be awarded.
Although the Board gave the foregoing factors relatively equal weight in
its deliberations, its ultimate determination was subjective and was not
based on any particular stated individual or Company performance
objectives.
Gerald Diamond has an employment agreement that provides for an annual
bonus in an amount directly related to the Company's Pretax Adjusted Annual
Income (as defined below) (see "Executive Compensation Executive-
Compensation Report CEO Compensation" and "Executive Compensation-
Employment Agreements").
Long-Term Incentives. The long-term incentive compensation program
currently consists of stock grant and option plans pursuant to which the
Company may grant executives and other key employees of the Company and its
subsidiaries restricted shares of Common Stock and options to purchase
Common Stock. Restricted shares of Common Stock granted to key employees
are in the nature of a bonus without payment of any consideration by the
recipient. The restricted shares become vested at the time or times
specified by the committee administering the plan under which the stock
grants are made. Prior to vesting, however, recipients of awards have all
other rights of a Stockholder, including the right to vote the shares and
to receive any dividends declared and paid on the Common Stock so awarded.
Generally, the exercise price of options granted under a stock option plan
is equal to the fair market value of the underlying shares on the date of
grant. Options are exercisable in installments ranging from 20% to 33.3%
per year and expire ten years from the date of grant. The Board believes
that the stock grant and option plans promote greater interest in
<PAGE>
the welfare of the Company by retaining executives and key employees and
allowing them to share in the Company's success.
CEO Compensation. Gerald Diamond's employment agreement with SED
International presently expires on July 1, 2005. The agreement, however,
is subject to automatic one-year extensions following the end of each year
of employment, unless either SED International or Mr. Diamond gives notice
within a specified period prior to the end of the year that the employment
agreement will not be extended beyond its then-current term.
The employment agreement provides for an annual base salary of
$482,410 (as of Fiscal 1998), increased annually in an amount based upon
increases in the Consumer Price Index. Under the terms of the employment
agreement, in addition to annual base salary, Mr. Diamond is eligible
to receive annual cash bonuses equal to five percent of the Company's
Pretax Adjusted Annual Income, which means with respect to a given year
(A) the sum of earnings before taxes and minority interests of the Company
as reported on its audited consolidated statement of operations for such
fiscal year, excluding, in all cases, (i) any nonrecurring income and
nonrecurring costs or expenses, which income, costs or expenses are
extraordinary in the reasonable opinion of the Board, all as
calculated in accordance with generally accepted accounting principles
consistently applied, (ii) any interest income or expense, and (iii)
additional amortization or depreciation or increase in the costs
of goods sold resulting from any asset revaluations or goodwill, less (B)
$6,000,000 in each fiscal year commencing in fiscal 1994 and thereafter
unless SED International and Mr. Diamond agree upon a different amount.
Mr. Diamond's employment agreement also provides him with an
automobile allowance, disability insurance coverage and a benefit payable
to his surviving spouse, if any, upon his death. Mr. Diamond's employment
agreement includes a covenant not to compete with SED International
or the Company for a period of two years following termination of his
employment with SED International and the Company.
The Board's philosophy in establishing the base salary and performance
bonus structure reflected in Mr. Diamond's employment agreement was to
consider the pay to CEOs of similarly-sized companies in the microcomputer
and cellular telephone wholesale distribution industry as a guide and to
provide an incentive to Mr. Diamond to remain with the Company and to
continue to grow the business of the Company. The Board intends to
evaluate Mr. Diamond's compensation package during fiscal 1999 based on the
factors described above and Mr. Diamond's duties and responsibilities with
respect to management of the Company. Any new compensation package that
the Board may propose will be subject to the re-negotiation of Mr.
Diamond's current employment agreement.
Mr. Diamond also is eligible to receive additional compensation under
the Company's long-term incentive compensation program described above.
The Board believes that such compensation aligns the financial interests of
the CEO with those of the Stockholders and with the Company's financial
performance.
<PAGE>
Other Compensation Plans. The Company and SED International maintain
two broad-based employee benefit plans in which the executive officers are
permitted to participate on the same terms as other employees. These are:
(i) the 401(k) Plan and (ii) the Company's Savings Plan and Trust
(the "Savings Plan"). Pursuant to both plans, the Company and SED
International will match 25% of the amount of contributions of each
participant up to ten percent of the participant's compensation.
The Company and SED International may also elect in any year to make an
additional contribution to either of the plans for that year, which
additional contribution shall in no event exceed 15% of all participants'
compensation for the Company's and SED International's taxable year.
Neither plan provides for investments in Common Stock.
Limitations on the Deductibility of Compensation. Pursuant to the
1993 Omnibus Budget Reconciliation Act, a portion of annual compensation
payable after 1993 to any of the Company's Named Executive Officers would
not be deductible by the Company for federal income tax purposes
to the extent such officer's overall compensation exceeds $1 million.
Qualifying performance-based incentive compensation, however, would be both
deductible and excluded for purposes of calculating the $1 million base.
It has been determined that no portion of anticipated compensation payable
to any executive officer in Fiscal 1998 would be non-deductible. The Board
will continue to address this issue when formulating compensation
arrangements for executive officers.
SUBMITTED BY THE BOARD OF DIRECTORS
OF SED INTERNATIONAL HOLDINGS, INC.
Stewart I. Aaron
Joel Cohen
Gerald Diamond
Mark Diamond
Ray D. Risner
Cary Rosenthal
This Executive Compensation Report shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement in any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934 (together, the "Acts"), except to the
extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Compensation Committee Interlocks and Insider Participation
The Board established a standing Compensation Committee on August 26,
1998 (see "Information Concerning Board of Directors" above). Prior to
August 26, 1998 the Board acted collectively to determine all forms of
compensation for Fiscal 1998 other than base salaries for Gerald Diamond
and Jean Diamond, which were governed by employment agreements, and stock
options and stock grants, which were granted by members of the Board's
stock option committees (see "Executive Compensation-Executive
Compensation Report" above). Consequently, relation-
<PAGE>
ships that Securities Exchange Commission ("Commission") regulations would
otherwise require to be described only with respect to compensation
committee members are instead described with respect to all members of the
Board.
In July 1984, the Predecessor leased its office and warehouse facility
from Royal Park Company ("Royal Park"), a general partnership whose initial
partners included members of SED Associates, a Georgia general partnership,
and whose partners currently include Gerald Diamond and Mark Diamond.
Royal Park financed the construction of the facility primarily through the
proceeds of an $800,000 industrial revenue bond. The facility's lease term
mirrored the 15-year bond repayment period expiring on October 1, 1999, or
at such earlier time as the bond was prepaid in full, and included an
option to renew for five additional years. The lease also provided the
Company with a right of first refusal to purchase the facility in the event
Royal Park proposed to sell the facility during the lease term. Royal
Park prepaid all amounts owing under the industrial revenue bond in
December 1990, at which time the lease, by its terms, terminated.
Effective as of January 1, 1991, Royal Park and the Company entered into a
new lease for the office and warehouse facility expiring October 1, 1999,
having substantially the same terms as the original lease, including a
right of first refusal. The new lease, however, does not provide for a
renewal option. Rental payments for Fiscal 1998 equaled $176,363. The
Company believes that the original lease was, and the new lease is, on
terms no less favorable than those that could be obtained from unaffiliated
parties.
Except for Gerald Diamond, who serves as Chairman of the Board and
Chief Executive Officer of the Company and SED International; Ray D.
Risner, who serves as President and Chief Operating Officer of the Company
and SED International; and Mark Diamond, who serves as Executive Vice
President of the Company and SED International, none of the other members
of the Board are or have been officers or employees of the Company.
Compensation Tables
This section of the Proxy Statement discloses the compensation awarded
or paid to, or earned by, the Company's Chief Executive Officer and the
four other most highly compensated executive officers of the Company
earning over $100,000 in salary and bonus for Fiscal 1998 (together, these
persons are sometimes referred to as the "Named Executive Officers"). The
Company did not award any stock appreciation rights ("SARs") during Fiscal
1998.
<PAGE>
<TABLE>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards Payments
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options LTIP Compen-
Name and Salary Bonus sation Award(s) /SARS Payments sation
Principal Position Year ($) ($) ($) ($)(1) (#) ($) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Diamond 1998 482,410 0 0 0 80,000 0 2,500
Chairman of the 1997 471,992 459,222 0 0 200,000 0 2,375
Board, Ch ief 1996 386,810 0 0 0 0 0 1,607
Executive Officer
andDirector of the
Company and SED
International
Ray D. Risner 1998 140,163 0 0 0 20,000 0 1,752
President, Chief 1997 140,060 0 0 0 0 0 1,749
Operating Officer and 1996 121,549 40,000 0 0 0 0 1,398
Director of the
Company and SED
International
Mark Diamond 1998 220,897 0 0 0 20,000 0 2,358
Executive Vice 1997 140,710 80,000 0 0 20,000 0 2,660
President and Director 1996 134,009 72,800 0 0 20,000 0 1,800
of the Company and
SED International
Jean Diamond 1998 185,861 0 0 0 20,000 0 2,455
Vice President 1997 175,887 0 0 0 0 0 2,228
of SED International 1996 167,511 60,000 0 0 0 0 2,391
Brian D. Paterson 1998 170,983 0 0 0 20,000 0 2,137
Senior Vice 1997 136,061 11,475 0 0 40,000 0 1,844
President-Purchasing 1996 107,870 26,925 0 0 20,000 0 1,929
and Marketing of
the Company and
SED International
</TABLE>
(1) Of the Named Executive Officers, only Mark Diamond held restricted
stock previously granted pursuant to the Company's 1988 Restricted
Stock Plan at June 30, 1998, the dollar value of which was $81,250.
The dollar value of the restricted stock was determined by multiplying
the number of restricted shares held at June 30, 1998, by the closing
sales price of the Common Stock as reported by the Nasdaq National
Market ("Nasdaq") on that date. The only restricted stock held by
Named Executive Officers that vested in Fiscal 1998 consisted of
30,000 shares held by Ray D. Risner. Dividends, if any, are accrued
on restricted stock.
(2) The amounts indicated relate to contributions made by the Company
pursuant to the 401(k) Plan and the Savings Plan for the benefit of
each Named Executive Officer.
<PAGE>
<TABLE>
Option Grants in Fiscal 1998
Individual Grants Potential Realizable
Value
Percent of at Assumed Annual Rates
Total of Stock Price
Number of Options Appreciation
Securities Granted to for Option Term
Underlying Employees
Options in Fiscal Exercise Expiration 5% 10%
Name Granted(1) Year Price Date ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Gerald Diamond 80,000 25.1% $12.625 November 24, 2007 $402,420 $1,609,680
Mark Diamond 20,000 6.3% $12.625 November 24, 2007 $158,795 $ 635,180
Ray D Risner 20,000 6.3% $12.625 November 24, 2007 $158,795 $ 635,180
Jean Diamond 20,000 6.3% $12.625 November 24, 2007 $158,795 $ 635,180
Brian D. Paterson 20,000 6.3% $12.625 November 24, 2007 $158,795 $ 635,180
</TABLE>
(1) Represents grants of options on November 24, 1997. Such options vest
in 20% increments commencing on the first anniversary of the date of
grant and on each anniversary thereafter. In the event of a change in
control (as defined in the applicable stock option agreement), these
options become immediately exercisable.
Options Exercises in Fiscal 1998 and Values at June 30, 1998
This table presents information regarding options exercised for shares
of Common Stock during the fiscal year ended June 30, 1998, and the number
and value of unexercised options held at June 30, 1998. There were no SARs
outstanding during Fiscal 1998. The value of unexercised in-the-money
options at fiscal year-end was calculated based on the closing sales price
of the Common Stock reported by Nasdaq on that date.
<PAGE>
<TABLE>
Aggregated Option Exercises in Fiscal 1998 and 1998 Fiscal Year-End Option Value
Number of Value of
Securities Underlying Unexercised
Shares Unexercised In The Money
Acquired Value Options Options At
On Exercise Realized At Fiscal Year End(#) Fiscal Year-End($)(1)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Gerald Diamond 0 0 516,667 213,333 1,497,417 83,333
Ray D. Risner 26,000 259,365 0 24,000 -- 12,500
Mark Diamond 20,000 136,263 68,250 48,000 157,574 26,940
Jean Diamond 0 0 50,000 20,000 118,750 --
Brian D. Paterson 19,200 104,960 2,133 62,667 4,893 23,947
</TABLE>
(1) Value of Unexercised, In-The-Money Options at June 30, 1998, is
calculated as follows: [(Per Share Closing Sales Price on June 30,
1998) - (Per Share Exercise Price)] x Number of Shares Subject to
Unexercised Options. Per Share Closing Sales Price as reported by
Nasdaq on June 30, 1998, was $8.125.
Employment Agreements
SED International has employment agreements with Gerald Diamond and
Jean Diamond. The employment agreement with Gerald Diamond is described
under "Executive Compensation - Executive Compensation Report - CEO
Compensation." The employment agreement with Ms. Diamond provides for an
employment term identical to that provided by Mr. Diamond's employment
agreement and is otherwise substantially similar to Mr. Diamond's
employment agreement, except that Ms. Diamond's employment agreement (i)
provides for an annual base salary of $185,861 (as of Fiscal 1998),
increased annually in an amount equal to the greater of five percent of her
then-current salary or an amount based upon increases in the Consumer Price
Index, and (ii) does not provide for an annual bonus, an automobile
allowance or a benefit payable to her surviving spouse, if any, upon her
death.
Each of the foregoing employment agreements provides that if a Change
of Control (as such term is defined below) occurs while the employee is
employed by SED International, and if the employee's employment is
terminated involuntarily, or voluntarily by the employee upon the
occurrence of certain events, the employee may notify SED International and
request a cash payment in an amount equal to all annual salary, bonuses and
other benefits owing to the employee from the date of termination through
the remainder of the term of the employee's employment agreement,
except that if the term remaining in the employment agreement is less than
12 months, the employee shall receive such amounts on an annualized basis.
<PAGE>
Under each of the foregoing employment agreements, a Change of Control
is deemed to have occurred when (i) any individual or entity becomes the
beneficial owner of securities of the Company or SED International
representing 30% or more of the combined voting power of the Company's or
SED International's then-outstanding securities entitled to vote generally
in the election of directors; (ii) the Company's Continuing Directors (a
term defined to include directors as of the date of execution of the
employment agreements and their duly approved successors) fail to
constitute at least a majority of the members of the Board; (iii) all or
substantially all of the assets of the Company or SED International are
sold or otherwise transferred without the approval of the Continuing
Directors; or (iv) with respect to Mr. Diamond only, Mr. Diamond shall no
longer be a member of the Board of the Company or SED International, unless
(x) Mr. Diamond shall have declared in writing his desire to resign such
positions or that he no longer wishes to serve as a director, (y) Mr.
Diamond shall have died or become disabled during the term of the
employment agreement, or (z) Mr. Diamond's employment shall have been
terminated for Cause (as the term "Cause" is defined in Mr. Diamond's
employment agreement).
<PAGE>
FIVE-YEAR PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total
stockholder return on the Company's Common Stock with the Nasdaq Stock
Market (U.S.) Index and the average performance of a group consisting of
the Company's peer corporations on a line-of-business basis. The companies
comprising the peer issuers group are AmeriQuest Technologies, Inc.; Arrow
Electronics, Inc.; Avnet, Inc.; Liuski International, Inc.; Marshall
Industries; Merisel, Inc.; Savoir Technology Group Inc. (formerly known as
Western Micro Technology); Tech Data Corporation and United Stationers,
Inc. This graph assumes that $100 was invested on June 30, 1993, in the
Company's Common Stock and in the other indices and that all dividends were
reinvested. The peer corporations were weighted on a market capitalization
basis at the time of each reported data point. The stock price performance
shown below is not necessarily indicative of future price performance.
[FIVE-YEAR GRAPH GOES HERE]
<TABLE>
Base
Period Return Return Return Return Return
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
SED International Holdings, Inc................. 100.00 38.46 30.77 38.46 79.23 50.00
Peer Group Index................................ 100.00 98.10 128.58 125.74 160.76 167.02
Nasdaq National Market
(US) Index...................................... 100.00 100.96 134.77 173.03 210.38 277.69
</TABLE>
<PAGE>
CERTAIN TRANSACTIONS
See the section entitled "Executive Compensation-Compensation
Committee Interlocks and Insider Participation" for a discussion of certain
transactions and arrangements among the Company and its affiliates.
PROPOSAL 2 - CHANGING THE STATE OF INCORPORATION OF SED
INTERNATIONAL HOLDINGS, INC. FROM DELAWARE TO GEORGIA
The Board of Directors has proposed that the Company be reincorporated
in Georgia by merging (the "Merger") into SED Merger Corp., a Georgia
corporation and wholly-owned subsidiary of the Company ("SMC"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement") between the
Company and SMC. As the surviving corporation in the Merger, SMC will
succeed to all the business, properties, assets and liabilities of the
Company, and upon the effectiveness of the Merger will change its name to
"SED International Holdings, Inc." ("New SED"). The Stockholders
of the Company will automatically become stockholders of New SED. After
the Merger, the rights of the Company's stockholders will be governed by
the Georgia Business Corporation Code (the "GBCC") and Georgia law, rather
than by the Delaware General Corporation Law (the "DGCL") and
Delaware law. In connection with the Merger, the Articles of Incorporation
and Bylaws of SMC will become the Articles of Incorporation and Bylaws of
New SED. Similarly, if the Stockholders approve Proposal 2, then the
Company's Board of Directors also would cause SED International, the
Company's wholly owned operating subsidiary, to reincorporate from Delaware
to Georgia in a manner substantially similar to that described above for
the Company.
IN CONNECTION WITH THE APPROVAL OF THE MERGER, STOCKHOLDERS OF
THE COMPANY WILL NOT HAVE DISSENTERS' RIGHTS OF APPRAISAL UNDER
SECTION 262 OF THE DGCL.
Principal Reason for Reincorporation
The State of Delaware requires a Delaware corporation to pay an annual
franchise tax based on either (i) the number of shares of capital stock
authorized in its Certificate of Incorporation or (ii) the assumed par
value of its authorized shares of capital stock. The minimum franchise tax
is $30 and the maximum franchise tax is $150,000. Based on Delaware's
annual franchise tax formula, the Company is required to pay the maximum
$150,000 per year.
Instead of a franchise tax like Delaware's, the State of Georgia
requires a Georgia corporation to pay a net worth tax. Net worth consists
of total capital stock issued (including treasury stock), paid in capital,
and retained earnings. The minimum tax is $10 and the maximum tax is
$5,000, which is reached when a corporation's net worth exceeds $22
million. The Company's net worth
<PAGE>
currently exceeds this threshold and, therefore, the Company's net worth
tax as a Georgia corporation would be $5,000 per year. As a result, the
Company would save an aggregate of approximately $145,000 annually in
franchise taxes by changing the state of incorporation from Delaware to
Georgia assuming no change in the number of authorized shares of each of
these companies. Reincorporation in Georgia also will further the Company's
and SED International's identification with the State of Georgia in which
their headquarters and a substantial percentage of their employees
are located. The Company and SED International have no significant
business operations in Delaware.
Merger Agreement
The following is a summary of certain provisions of the Merger
Agreement and certain related matters. The form of the Merger Agreement is
attached to this Proxy Statement as Exhibit A.
The Merger. At the time a certificate of merger is filed with the
Secretary of State of Delaware and the Secretary of State of Georgia (which
is expected to be as soon as practicable after the Annual Meeting), the
Company will be merged with and into SMC, the Company's legal
existence as a Delaware corporation will cease and the Company will become
a Georgia corporation. Although SMC is technically the surviving
corporation in the Merger, SMC is a "shell" corporation with no assets or
liabilities, and thus the practical effect of the Merger will be the
reincorporation of the Company in Georgia. The Merger will not result in
any change in the name, business, management, location of the Company's
principal executive offices or other facilities, assets, liabilities, net
worth or accounting practices. All of the directors, officers and
employees of the Company will, upon consummation of the Merger, become
officers, directors and employees of New SED, and the Merger will have no
effect on the number of shares of Common Stock held by each Stockholder of
the Company.
Conversion of Shares. Upon the effective time of the Merger, each
outstanding share of the Company's Common Stock will automatically be
converted into one share of common stock of SMC, $.01 par value per share,
as the surviving corporation in the Merger ("New SED Common Stock").
New SED Common Stock will be entitled to the same rights, powers,
qualifications, limitations and restrictions as the presently outstanding
Common Stock, although some differences will arise as a result of the
application of Georgia law (see "Proposal 2-Changing the State of
Incorporation of SED International Holdings, Inc. from Delaware to Georgia
- -Comparison of Stockholders' Rights"). Following the Merger, the Common
Stock will continue to trade in the same manner as before, and
still under the symbol "SECX" on The Nasdaq Stock Market.
Exchange of Stock Certificates. As of the effective time of the
Merger, each outstanding certificate representing shares of Common Stock
will be deemed to represent an identical number of shares of New SED Common
Stock. It will not be necessary for Stockholders of the Company
to exchange their existing stock certificates to reflect their ownership of
New SED Common Stock. For those Stockholders who wish to receive new stock
certificates issued by New SED, the Company
<PAGE>
will arrange for National City Bank, the Company's transfer agent, to
exchange certificates representing shares of Common Stock for certificates
representing an equal number of shares of New SED Common Stock. Rights
previously issued by the Company to its Stockholders pursuant to the
Company's Rights Plan will continue in full force and effect following the
Merger as they existed prior to the Merger. COMPANY STOCKHOLDERS WHO WISH
TO EXCHANGE THEIR CERTIFICATES SHOULD CONTACT MARLAYNA MILLER, NATIONAL
CITY BANK, AT (216) 575-9611.
Condition to the Reincorporation. The Merger is subject only to the
approval of the Stockholders of the Company.
Termination; Amendment. The Merger Agreement may be terminated or
abandoned by the Board of Directors of the Company or SMC at any time prior
to the filing of the appropriate certificate of merger with the Secretaries
of State of Georgia and Delaware. The Board of Directors or officers of
the Company and SMC may jointly amend, modify and supplement the Merger
Agreement in such manner as they may deem appropriate at any time before
approval of the Merger Agreement by the Company's Stockholders. Any
amendment, modification or supplement to the Merger Agreement after its
approval by the Company's Stockholders but prior to the effective time
of the Merger will require the approval of the Company's Stockholders
unless the amendment, modification or supplement to the Merger Agreement
does not alter or change (i) the amount or kind of shares to be received
under the Merger Agreement in exchange for shares of Company Common
Stock, (ii) any term of the Articles of Incorporation of New SED as
provided for in the Merger Agreement, or (iii) any of the terms and
conditions of the Merger Agreement in a manner that would adversely affect
the holders of Common Stock.
Other Changes Affecting Stockholders
Differences between Delaware and Georgia law will result in certain
changes affecting Stockholders as a result of the reincorporation of the
Company in Georgia. For a discussion of certain significant differences
between Delaware and Georgia law relevant to the Merger, see
"Proposal 2 Changing the State of Incorporation of SED International
Holdings, Inc. from Delaware to Georgia Comparison of Stockholders'
Rights."
The Articles of Incorporation and Bylaws of New SED after the Merger
will be substantially similar to the Certificate of Incorporation, as
amended, of the Company (the "Certificate of Incorporation") and the
By-laws, as amended, of the Company (the "By-laws of the Company") in
all material respects except for changes necessary to conform to Georgia
law, the addition of a provision requiring advance notification of
shareholders proposals (see " Advance Notification of Shareholder
Proposals" below), an increase in the percentage of shares required to call
a special meeting of shareholders from 50% to 100% (see "Special Meetings"
below), and an increase in the percentage of shares required to take
shareholder action without a meeting from a majority of the
shares entitled to be voted at a meeting of shareholders to all of the
shares entitled to be voted at a meeting of shareholders (see " Shareholder
Action Without Meeting" below). A copy of the
<PAGE>
Articles of Incorporation of SMC, which will become the Articles of
Incorporation of New SED, is attached to this Proxy Statement as Exhibit B.
A copy of the Bylaws of SMC, which will become the Bylaws of New SED, is
attached to this Proxy Statement as Exhibit C.
Federal Income Tax Consequences of the Reincorporation
The following is a summary of the material Federal income tax
consequences of the Merger to the Company and its Stockholders.
The merger of the Company with and into SMC, as described above, will
constitute a tax-free reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code").
As a result, for Federal income tax purposes:
(i) Neither the Company nor its Stockholders will recognize any gain
or loss by reason of the conversion of Common Stock into New SED Common
Stock.
(ii) The shares of New SED Common Stock issued as a result of the
Merger in the hands of a Stockholder will have an aggregate basis for
computing gain or loss equal to the aggregate basis of shares of Common
Stock held by the Stockholder.
(iii) The holding period of the shares of New SED Common Stock issued
as a result of the Merger in the hands of a Stockholder will include the
period during which the Stockholder held the shares of Common Stock prior
to the Merger, provided that the shares of Common Stock were held
as a capital asset on the date of conversion.
Advance Notification of Shareholder Proposals
The present Certificate of Incorporation and By-laws of the Company do
not specifically address the requirement that Stockholders provide advance
notification of proposals relating to business to be conducted at a meeting
of the Stockholders. The Articles of Incorporation and Bylaws of New SED
provide that a shareholder must give advance notice of any proposal
relating to business to be conducted at a meeting. To be timely, a
shareholder's notice must be received by the Secretary of New SED at the
principal executive offices of New SED not fewer than 120 calendar days
prior to the first anniversary of the date that the Company's (or New
SED's, as applicable) proxy statement was released to shareholders in
connection with the preceding year's annual meeting of shareholders.
However, if no annual meeting of shareholders were held in the previous
year or if the date of the annual meeting of shareholders has been changed
by more than 30 calendar days from the date contemplated at the time of the
previous year's proxy statement, the notice must be received
no later than the later of (i) 150 days prior to the date of the
contemplated annual meeting or (ii) the date which is 10 calendar days
after the date of the first public announcement or other notification
to the shareholders of the date of the contemplated annual meeting.
<PAGE>
A shareholder's notice to the Secretary must set forth for each matter
proposed to be brought before the annual meeting (i) a brief discussion of
the business desired to be brought before the annual meeting and the
reasons for conducting the business at the annual meeting; (ii) the name
and address, as they appear on the corporation's books, of the shareholder
proposing such business; (iii) the class and number of shares of the
corporation which are beneficially owned by such shareholder; (iv) the
dates upon which the shareholder acquired such shares; (v) documentary
support for any claim of beneficial ownership; (vi) any material interest
of such shareholder in such business; (vii) a statement in support of the
matter and any other information required by Rule 14a-8 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(viii) as to each person whom the shareholder proposes to nominate for
election or reelection as director all information relating to such person
that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act. In addition, if the
shareholder intends to solicit proxies from the shareholders of the
corporation, such shareholder must notify the corporation of this intent in
accordance with Exchange Act Rules 14a-8 and 14a-4(c)(2)(i).
The advance notification requirements of the Bylaws of New SED are
intended to further an orderly procedure for the notification to the Board
of business that is to be presented at shareholders' meetings. This will
enable the Board to plan these meetings and also, to the extent it deems it
necessary or desirable, to inform the shareholders, prior to a
shareholders' meeting, of any new business that will be presented at the
meeting. The Board also will be able to make a recommendation or statement
of its position to enable the shareholders to better determine whether
they desire to attend in person the meeting or to grant a proxy as to the
disposition of any such business. The proposed provision does not give the
Board any power to approve or disapprove the business that shareholders
desire to be conducted at the meeting, but it does provide for a more
orderly procedure for conducting the meeting.
The proposed procedure may limit to some degree the ability of
shareholders to initiate discussion at a shareholders' meeting. It will
also preclude the conducting of business at a particular meeting if the
proper notice procedures have not been followed. This also will have the
effect of discouraging belated attempts by third parties to begin
ill-considered, disruptive discussions at a shareholders' meeting. Nothing
in the proposed procedure precludes discussion by any shareholder of any
business properly brought before a shareholders' meeting.
Special Meetings
Under the present By-laws, a special meeting of shareholders may be
called by the Board of Directors or at the written request of the holders
of at least 50% of the total number of shares of stock then outstanding and
entitled to vote stating the specific purpose or purposes thereof. The
Bylaws of New SED provide that a special meeting of shareholders may be
called by the Board of Directors or at the written request of the holders
of 100% of the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting. This increase in the
percentage of shares required to call a special meeting will limit the
ability of shareholders to call special meetings of
<PAGE>
shareholders. The increase will have the effect of discouraging
ill-considered special meetings that could be disruptive to the operation
of the Company's business.
Shareholder Action Without Meeting
Under the present By-laws, any action that may be taken at a meeting
of stockholders may be taken by written consent of the minimum number of
votes that would be necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voted. The Articles
of Incorporation of New SED require a written consent action to be signed
by the holders of all of the shares that would be entitled to vote at a
meeting of shareholders. As a result of this increase, all of the
shareholders would be assured of an opportunity to consider actions to be
taken by other shareholders of the corporation.
Comparison of Stockholders' Rights
If the Merger is consummated, holders of shares of Common Stock will
become holders of New SED Common Stock, which will result in their rights
as Stockholders being governed by Georgia law. The following summary
compares certain rights of the Company's Stockholders under
the DGCL and the Certificate of Incorporation and By-laws of the Company
with their rights under the GBCC and the Articles of Incorporation and
Bylaws of New SED. The following summary does not purport to be a complete
statement of the rights of the Company's Stockholders under the GBCC
and the Articles of Incorporation and Bylaws of New SED as compared with
their rights under the DGCL and the Certificate of Incorporation and
By-laws of the Company. This summary is qualified in its entirety by the
Articles of Incorporation and Bylaws of New SED, the Certificate of
Incorporation and By-laws of the Company, the GBCC and the DGCL, to which
the Stockholders are referred.
Corporate Case Law. It is generally recognized that Delaware has the
most extensive and well-defined body of corporate case law in the United
States. Because many corporations are incorporated in Delaware, the
Delaware judiciary has acquired considerable expertise in dealing with
corporate issues and a substantial number of decisions have been rendered
construing Delaware law and establishing public policies for Delaware
corporations. This extensive body of case law can often provide greater
predictability with respect to the legal affairs of a company. However,
this wealth of case law may sometimes be a liability when the opinions are
either conflicting or unclear. In many cases Delaware courts have adopted
multi-factor tests that allow judges considerable discretion and reduce the
predictability of Delaware law. This is offset to some extent by the
greater experience of Delaware judges and the priority given to corporate
law disputes in the Delaware Chancery Court.
Although Georgia courts have also rendered many decisions in the area
of corporate law, these cases are not litigated as frequently in Georgia as
they are in Delaware. However, the GBCC has codified many of the legal
doctrines established in Delaware cases and has established safe
harbors to provide corporations with additional legal certainty.
<PAGE>
Amendments to Certificate of Incorporation or Articles of
Incorporation. Delaware permits a corporation to amend its certificate of
incorporation so long as the amended certificate of incorporation contains
only provisions that could be lawfully and properly included in an original
certificate of incorporation filed at the time the amendment is filed.
Unless otherwise provided in the certificate of incorporation, amendments
must be adopted by the board of directors and approved by the holders of a
majority of the outstanding shares of stock entitled to vote thereon and by
the holders of a majority of the outstanding shares of stock entitled to
vote as a class with respect to the amendment. Class voting is required
when a proposed amendment would increase or decrease the number or par
value of the authorized shares of a class or adversely affect the powers,
preferences or special rights of the shares of a class.
Georgia imposes similar requirements to amend a corporation's articles
of incorporation, except that the board of directors may amend the articles
of incorporation without obtaining shareholder approval to: (i) extend the
corporation's duration if it were incorporated at a time the GBCC required
limited duration; (ii) delete the names and addresses of the initial
directors, initial registered agent, registered office or incorporator;
(iii) delete the mailing address of the initial principal office of the
corporation if an annual registration is on file with the Georgia Secretary
of State; (iv) change each issued or each issued and unissued authorized
share of an outstanding class of stock into a greater number of whole
shares if the corporation has only shares of that class outstanding; (v)
change or eliminate the par value of each issued and unissued share of an
outstanding class if the corporation has only shares of that class
outstanding; or (vi) change the corporate name.
Amendments to Bylaws. Under the DGCL, the power to adopt, amend or
repeal bylaws rests with those stockholders entitled to vote on such
matters, except that a corporation's certificate of incorporation may
additionally confer such power upon the directors. Conferring the power to
adopt, amend or repeal bylaws upon the directors does not limit the
stockholders' power to adopt, amend or repeal bylaws.
The GBCC permits a corporation's board of directors to amend, repeal
or adopt bylaws, unless (i) the articles of incorporation reserve this
power exclusively to the shareholders in whole or in part or (ii) the
shareholders, in amending or repealing a particular bylaw, expressly
reserve the power to amend or repeal that particular bylaw. A Georgia
corporation's shareholders may amend or repeal the corporation's bylaws
even though the bylaws may also be amended or repealed by the board of
directors. The board of directors may not amend a corporation's bylaws to
increase shareholder quorum or voting requirements.
Dividends and Distributions. Delaware remains with a group of states
that have not yet abandoned legal capital rules - reliance on notions of
permanent "capital" and "surplus." A Delaware corporation may only pay
dividends out of surplus, or if no surplus exists, out of net profits for
the fiscal year in which the dividend is declared and/or for the preceding
fiscal year. While these restrictions do not normally affect day to day
operations, they can impact major capital changes.
<PAGE>
Georgia has eliminated the legal capital rules. A Georgia corporation
may pay dividends or make other distributions with respect to its shares if
after the dividend or distribution the corporation has the ability to pay
its debts as they become due and has net assets in excess of all senior
claims upon dissolution.
Directors' Rights to Indemnification. The DGCL authorizes Delaware
corporations to indemnify directors and officers in derivative actions, but
only for actions taken in good faith in a manner reasonably believed to be
in the best interests of the corporation. A director who is found
liable may only be indemnified by a court after a determination that the
director is fairly and reasonably entitled to indemnification,
notwithstanding the finding of liability. Directors who are successful in
defending actions are entitled to mandatory indemnification. Directors are
entitled to partial indemnification when they are successful on some counts
but not on others.
Georgia permits shareholder-authorized indemnification in derivative
suits, even including cases when directors are held liable, up to the
limits permitted by its exculpatory statute, which generally follows the
Delaware pattern. Otherwise, indemnification by the corporation in
derivative actions is limited to cases when, if acting in an official
capacity, the director believed that the director's actions were in the
best interests of the corporation, and if not acting in an official
capacity, the director had no reason to believe that the director's actions
were opposed to the best interests of the corporation. Directors are not
entitled to partial indemnification when they are successful on
some counts but not on others.
Conflicting Interest Transactions. The DGCL states that contracts and
transactions between a Delaware corporation and one or more of its
directors or officers, or organizations in which they serve in such
capacities or have a financial interest, will not be void or voidable
solely because of that relationship or because the director or officer is
present at or participates in a board or committee meeting authorizing the
contract or transaction if: (i) the material facts of the relationship or
interest and as to the contract or transaction are disclosed or known to
the board or a committee of the board and the board or a committee of the
board in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors (even if the
disinterested directors are less than a quorum); or (ii) the material facts
as to the relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon and
the contract or transaction is specifically approved in good faith by the
stockholders; or (iii) the contract or transaction is fair to the
corporation as of the time that it is authorized by the board, a committee
of the board or the stockholders.
The GBCC states that a director's conflicting interest transaction may
not be enjoined, set aside or give rise to an award of damages or other
sanctions, in an action by a shareholder or by or in the right of the
corporation, on the ground of an interest in the transaction of such
director or any person with whom such director has a personal, economic or
other association, if: (i) the transaction receives the affirmative vote of
a majority (but not less than two) of the disinterested directors on
the Board or a committee thereof after such directors are made aware of the
nature and effect of the conflicting interest; (ii) a majority of the votes
entitled to be cast by shares, other than shares beneficially owned or the
voting of which is controlled by the director(s) having the conflicting
<PAGE>
interest, were cast in favor of the transaction after (A) notice to the
shareholders describing the conflicting interest transaction, (B)
disclosure by such director, prior to the shareholder vote, to the
Secretary of the Company, of the number and identity of the persons holding
or controlling the vote of all shares that to the knowledge of the director
are beneficially owned (or the voting of which is controlled) by such
director or by a related person of the director, or both, and (C)
disclosure to the shareholders of the nature and effect of the director's
conflicting interest to the extent it was not known by them; or (iii) the
transaction, judged in the circumstances at the time of commitment, is
established to have been fair to the corporation. Similar provisions of
the GBCC also apply to officers' conflicting interest transactions.
Appraisal Rights. Under the DGCL, stockholders entitled to vote on a
merger or consolidation have the right to serve upon the corporation a
written demand for appraisal of their shares when the stockholders receive
any form of consideration for their shares other than (i) shares of the
surviving corporation, (ii) shares of any other corporation listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
stockholders, or (iii) cash (or stock and cash) in lieu of fractional
shares or any combination thereof. Whenever the merger involves a takeout
of minority stockholders, Delaware courts will closely scrutinize both the
procedure and the substance of the transaction, requiring the board to
establish its entire fairness. No appraised rights are granted in the
event of a sale of all or substantially all assets or in the event of an
amendment of the certificate of incorporation that affects rights of a
class, thus leaving open the possibility of a direct judicial challenge to
the action itself.
The GBCC grants shareholders the right to dissent and receive payment
of the fair value of their shares in the event of: (i) amendments to the
articles of incorporation that materially and adversely affect their right
or interests as shareholders; (ii) sales of all or substantially all of the
corporation's assets (unless the sale is pursuant to a court order and the
proceeds are distributed to the shareholders within one year after the
sale); or (iii) mergers or share exchanges on which the shareholders are
entitled to vote. This right is not available when the affected shares are
listed on a national securities exchange (including Nasdaq National Market
securities listed on The Nasdaq Stock Market) or held of record by more
than 2,000 shareholders unless (i) the articles of incorporation or a
resolution of the board of directors approving the transaction provides
otherwise or (ii) in a plan of merger or share exchange, the holders of the
shares are required to accept anything other than shares of the surviving
corporation or another publicly-held corporation listed on a national
securities exchange (including Nasdaq National Market securities listed on
The Nasdaq Stock Market) or held of record by more than 2,000 shareholders,
except for cash in lieu of fractional shares. Shareholders entitled to
appraisal rights subsequently will receive cash from the corporation
equal to the value of their shares as established by negotiation with the
corporation or by judicial appraisal. Georgia law clearly makes appraisal
the exclusive remedy of unhappy shareholders, and precludes direct
challenges to the transaction after the transaction has been consummated.
Vote Required for Certain Transactions. Under Delaware law, a merger,
consolidation or sale of all or substantially all of a corporation's assets
generally must be approved by the stockholders of each constituent
corporation by the affirmative vote of the holders of a majority of the
outstanding
<PAGE>
shares entitled to vote on the transaction. Delaware law is
extraordinarily unclear on what is considered a sale of substantially all
of a corporation's assets. This may restrict board power to dispose of
significant divisions without a shareholder vote.
In Georgia, a merger or share exchange must be approved by the
affirmative vote of (i) a majority of all votes entitled to be cast on the
plan for the transaction by all shares entitled to vote on the plan, voting
as a single group, and (ii) a majority of the votes entitled to be cast by
the holders of shares of each voting group entitled to vote separately on
the plan as a group under the corporation's articles of incorporation. The
sale of substantially all of the assets of a Georgia corporation must be
approved by the affirmative vote of a majority of all the votes entitled to
be cast on the matter, regardless of voting groups. Georgia law is clearer
than Delaware law on what constitutes a sale of substantially all of a
corporation's assets. The GBCC does not require an examination of whether
the sale is in the usual and ordinary course of business, and provides a
safe harbor that no sale of two-thirds or less of all assets requires
shareholder approval.
Stockholder Approval of the Merger
Approval of the Merger to change the Company's state of incorporation
from Delaware to Georgia requires the affirmative vote of at least a
majority of the outstanding shares of Common Stock of the Company entitled
to be voted at the Annual Meeting on this Proposal 2.
The Board of Directors recommends that you vote FOR the Merger.
PROPOSAL 3 - AMENDMENT OF THE 1997 STOCK OPTION PLAN
The Board of Directors of the Company has approved, and recommends
that the Stockholders of the Company approve, an amendment to the 1997
Stock Option Plan to increase the number of shares authorized for issuance
under the 1997 Stock Option plan from 350,000 to 550,000. The Board
believes that the additional 200,000 shares will enable the Company to
continue the purpose of the 1997 Stock Option Plan, which is to further the
growth and development of the Company by encouraging employees, directors
and consultants of the Company to obtain a proprietary interest in the
Company. The Company intends that the 1997 Stock Option Plan will provide
such persons with an added incentive to continue in the employ of the
Company, or to continue to serve as a director or consultant, as
applicable, and will stimulate their efforts in promoting the growth,
efficiency and profitability of the Company. The Company believes the 1997
Stock Option Plan affords the Company a means of attracting to its service
persons of outstanding quality.
Introduction
The Company's 1997 Stock Option Plan provides for grants of Incentive
Stock Options ("ISOs") and Non-Qualified Stock Options ("NQSOs"), as well
as for awards of Restricted Stock (NQSOs, ISOs and awards of Restricted
Stock are referred to collectively as "Stock Rights"). The 1997 Stock
Option Plan presently provides that Stock Rights with respect to a maximum
of 350,000
<PAGE>
shares of Common Stock may be granted to employees, directors and
consultants of the Company. The form of the proposed amendment to the 1997
Stock Option Plan is attached to this Proxy Statement as Exhibit D.
The following description of the 1997 Stock Option Plan is qualified
in its entirety by reference to the applicable provisions of the 1997 Stock
Option Plan and agreements related to the 1997 Stock Option Plan. The 1997
Stock Option Plan is not subject to the Employee Retirement Income Security
Act of 1974 nor is it qualified under Section 401(a) of the Code.
Administration
The 1997 Stock Option Plan is administered by a committee appointed by
the Board (the "Committee"), the members of which serve at the pleasure of
the Board. The members of the Committee must be "non-employee directors"
within the meaning of Rule 16b-3 promulgated by the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as well
as "outside directors" within the meaning of Section 162(m) of the IRC and
the regulations promulgated thereunder. The Committee has full authority
in its sole discretion to (i) determine and designate the employees to whom
Stock Rights will be granted, the manner in and conditions under which
Options are exercisable, the manner and conditions under which shares of
Restricted Stock shall vest, and the time or times at which Stock Rights
shall be granted; (ii) determine whether an Option will constitute an ISO
or a NQSO; and (iii) to interpret the provisions of, and prescribe,
amend and rescind any rules and regulations relating to, the 1997 Stock
Option Plan. Members of the Committee will be indemnified by the Company
against actual or threatened litigation so long as they act in good faith
and in a manner they reasonably believe to be in the best interests of the
Company.
Eligibility
Pursuant to the 1997 Stock Option Plan, employees, directors and
consultants of the Company and its subsidiaries are eligible for
consideration for the granting of Stock Rights by the Committee. As of
September 14, 1998, approximately 200 people were eligible to participate
in the 1997 Stock Option Plan.
Shares Available
The 1997 Stock Option Plan currently provides that the Committee may
grant Stock Rights with respect to a maximum aggregate of 350,000 shares of
Common Stock. Shares underlying any Stock Rights granted under the 1997
Stock Option Plan that expire or terminate without having been
fully exercised or vested may be added to the Common Stock otherwise
available for grants of Stock Rights under the 1997 Stock Option Plan. As
of September 14, 1998, the fair market value of the Common Stock was $5.44
per share.
<PAGE>
Terms of Options
Grant of Options. Options granted under the 1997 Stock Option Plan
represent rights to purchase shares of Common Stock of the Company within a
fixed period of time and at a specified price per share (the "Option
Price"). The Committee is authorized in its sole discretion to grant to
employees either ISOs or NQSOs or both for the purchase of Common Stock.
Directors and consultants of the Company and its subsidiaries who are not
otherwise employees of the Company or its subsidiaries are not eligible to
receive grants of ISOs.
Option Price. The Option Price of each share of Common Stock subject
to an Option is the fair market value of the Common Stock as of the date of
grant (or 110% of the fair market value of Common Stock as of the date of
grant in the case of ISOs granted to optionees who own more than ten
percent of the total combined voting power of all classes of outstanding
stock of the Company or one of its subsidiaries).
Term and Exercise of Options. Each Option granted under the 1997
Stock Option Plan may be exercised on such dates, during such periods, and
for such number of shares as determined by the Committee. The term of any
Option is determined by the Committee, but the term may not exceed
ten years from the date of grant (or five years in the case of ISOs granted
to optionees who own more than ten percent of the total combined voting
power of all classes of outstanding stock of the Company or one of its
subsidiaries).
Options are exercisable in cumulative increments of 20% per year,
unless otherwise specified by the Committee. Upon the exercise of an
Option, payment must be made in full in cash, in shares of Common Stock
already owned by the optionee (which shares will be valued for such purpose
on the basis of their fair market value on the date of exercise), by
instructing the Company to retain shares of Common Stock upon the exercise
of the Option with a fair market value equal to the Option Price, or in a
combination of the above. Payment must equal the Option Price of the
shares subject to the Option being exercised multiplied by the number of
shares being purchased.
Transfers; Termination of Employment. Options granted under the 1997
Stock Option Plan are nontransferable and nonassignable except at death.
Upon the termination of an optionee's employment with the Company
(including its subsidiaries) for any reason other than termination by
the Company without Cause (as defined in the 1997 Stock Option Plan),
Disability (as defined in the 1997 Stock Option Plan) or death, any Option
or unexercised portion thereof is generally not exercisable after the last
day of employment (or immediately upon notice of termination if the
Company terminates the optionee's employment for Cause). Upon termination
of an optionee's employment with the Company (including its subsidiaries)
by the Company (or by any of its subsidiaries) without Cause, any Option or
unexercised portion thereof is generally not exercisable after three months
after the last day of employment. Upon the termination of an optionee's
employment with the Company (including its subsidiaries) due to Disability
or death, any Option or unexercised portion thereof is generally not
exercisable after one year after the termination of employment due to such
Disability or death. In the event of the death or Disability of the
optionee, all options become immediately exercisable for the full number of
shares.
<PAGE>
Change of Control. In the event of a Change in Control of the Company
(as defined in the 1997 Stock Option Plan), all Options become immediately
exercisable for the full number of shares.
Restricted Stock Awards
The Committee may grant Restricted Stock to grantees in its
discretion. Restricted Stock grants vest in cumulative increments of 20%
per year, unless otherwise specified by the Committee. The Committee may
impose such other restrictions on the Restricted Stock as it deems
appropriate. For each grant of Restricted Stock, the Committee designates a
period of time (the "Restriction Period") at the end of which the grantee
must have satisfied the restrictions imposed upon the Restricted Stock. If
for any reasons the restrictions imposed upon the Restricted Stock are not
satisfied at the end of the Restriction Period, any Restricted Stock
subject to the unsatisfied restrictions is forfeited by the grantee and
reacquired by the Company. Furthermore, in the event that the grantee
ceases employment with the Company for any reason other than the death or
Disability of the grantee, the grantee forfeits any Restricted Stock
subject to an unsatisfied restriction. Upon the death or Disability of the
grantee or in the event of a Change in Control of the Company, all
grants of Restricted Stock become fully vested.
Adjustments
In the event of changes in the number of outstanding shares of Common
Stock by reason of stock dividends, splits or recapitalizations,
appropriate and equitable adjustments are made by the Committee to the
number and kind of shares subject to outstanding Stock Rights and to the
number and kind of shares remaining available for issuance pursuant to
Stock Rights to be granted under the 1997 Stock Option Plan.
Additionally, in the event that the Company is involved in a merger,
consolidation or acquisition of the stock or assets of the Company which
does not result in a Change in Control of the Company, the Committee may,
effective as of the date it determines and subject to any further
conditions, restrictions or limitations that it deems appropriate,
accelerate all Stock Rights then outstanding so that they may become
immediately exercisable or vested in full.
Termination and Amendment
The 1997 Stock Option Plan will terminate on the later of (i) the
complete exercise or lapse of the last outstanding Stock Right, or (ii) ten
years after the Effective Date, subject to its earlier termination by the
Board at any time. The Board may amend the 1997 Stock Option Plan at any
time, provided that (i) no amendment would affect, in any way, the rights
of optionees or grantees who have outstanding options or grants without the
consent of such optionees or grantees, and (ii) no amendment may be
effected without the approval of the holders of the majority of the
outstanding shares of Common Stock of the Company if the change would cause
the 1997 Stock Option Plan to fail to qualify as an "Incentive Stock Option
Plan" pursuant to Section 422 of the IRC or such Stockholder approval as is
otherwise required under applicable law.
<PAGE>
Federal Income Tax Consequences
General. The following is a brief summary of the federal income tax
consequences under the Code (as in effect on the date hereof) of the
receipt or exercise of Stock rights under the 1997 Stock Option Plan to a
United States taxpayer. This summary is intended for general information
only and it may not be applicable in all circumstances because of the
particular status of a taxpayer. Each interested party should consult his
or her tax advisor as to the specific tax consequences to such
party, including the application and effect of these and other federal,
state, local and foreign tax laws.
Incentive Stock Options. An option holder has no tax consequences
upon issuance or, generally, upon exercise of, an ISO. An option holder
will recognize income when he sells or exchanges the shares acquired upon
exercise of an ISO. This income will be taxed at the applicable
capital gains rate if the sale or exchange occurs after the expiration of
the requisite holding periods. Generally, the requisite holding periods
expire two years after the date of grant of the ISO and one year after the
date of acquisition of the Common Stock pursuant to the exercise of the
ISO.
If an option holder disposes of the Common Stock acquired pursuant to
exercise of an ISO before the expiration of the requisite holding periods,
the option holder will recognize compensation income in an amount equal to
the difference between the option price and the lesser of (i) the fair
market value of the shares on the date of exercise and (ii) the price at
which the shares are sold. This amount will be taxed at ordinary income
rates. If the sale price of the shares is greater than the fair
market value on the date of exercise, the difference will be recognized as
gain by the option holder and taxed at the applicable capital gains rate.
If the sale price of the shares is less than the option price, the option
holder will recognize a capital loss equal to the excess of the option
price over the sale price.
For these purposes, the use of shares acquired upon exercise of an ISO
to pay the option price of another option (whether or not it is an ISO)
will be considered a disposition of the shares. If this disposition occurs
before the expiration of the requisite holding periods, the option holder
will have the same tax consequences as are described in the preceding
paragraph. If the option holder transfers any such shares after holding
them for the requisite holding periods or transfers shares acquired
pursuant to exercise of a NQSO or on the open market, he generally will not
recognize any income upon the exercise. Whether or not the transferred
shares were acquired pursuant to an ISO and regardless of how long the
option holder has held such shares, the basis of the new shares received
pursuant to the exercise will be computed in two steps. In the first step,
a number of new shares equal to the number of old shares tendered (in
payment of the option's exercise) will be considered exchanged under IRC
Paragraph 1036 and the rulings thereunder; these new shares will receive
the same holding period and the same basis as the option holder had in the
old tendered shares, if any, plus the amount included in income from the
deemed sale of the old shares and the amount of cash or other nonstock
consideration paid for the new shares, if any. In the second step, the
number of new shares received by the option holder in excess of the old
tendered shares will receive a basis of zero, and the option holder's
holding period with respect to such shares will commence upon
exercise.
<PAGE>
If the aggregate fair market value of shares of the Common Stock
subject to ISO's which first become exercisable by an option holder in any
one calendar year exceeds $100,000, the excess shares will have the tax
consequences described below with respect to the exercise of NQSO's.
Finally, except to the extent that an option holder has recognized
income with respect to the exercise of an ISO (as described in the
preceding paragraphs), the amount by which the fair market value of a share
of the Common Stock at the time of exercise of the ISO exceeds the option
price will be included in determining an option holder's alternative
minimum taxable income, and may cause the option holder to incur an
alternative minimum tax liability in the year of exercise.
There are no tax consequences to the Company upon issuance or,
generally, upon exercise of an ISO. However, to the extent that an option
holder recognizes ordinary income upon exercise, as described above, the
Company generally will have a deduction in the same amount.
Nonqualified Stock Options. Neither the Company nor the option holder
has income tax consequences from the issuance of NQSO's. Generally, in the
tax year when an option holder exercises NQSO's, the option holder
recognizes ordinary income in the amount by which the fair market value of
the shares at the time of exercise exceeds the option price for such
shares. The Company generally will have a deduction in the same amount as
the ordinary income recognized by the option holder in the Company's tax
year in which or with which the option holder's tax year (of exercise)
ends.
If an option holder exercises a NQSO by paying the option price with
previously acquired Common Stock, the option holder will recognize income
(relative to the new shares he is receiving) in two steps. In the first
step, a number of new shares equivalent to the number of old shares
tendered (in payment of the NQSO exercised) is considered to have been
exchanged in accordance with IRC Paragraph 1036 and the rulings thereunder,
and no gain or loss is recognized. In the second step, with respect to the
number of new shares acquired in excess of the number of old shares
tendered, the option holder will recognize income on those new shares equal
to their fair market value less any nonstock consideration tendered.
The new shares equal to the number of the old shares tendered will
receive the same basis as the option holder had in the old shares and the
option holder's holding period with respect to the tendered old shares will
apply to those new shares. The excess new shares received will have a
basis equal to the amount of income recognized by the option holder by
exercise, increased by any nonstock consideration tendered. Their holding
period will commence upon exercise of the Option.
Restricted Stock. A holder of restricted stock will recognize income
upon its receipt, but generally only to the extent that it is not subject
to a substantial risk of forfeiture. If the restricted stock is subject to
restrictions that lapse in increments over a period of time, so that the
holder becomes vested in a portion of the shares as the restrictions lapse,
the holder will recognize income in any tax year only with respect to the
shares that become nonforfeitable during that year. The income recognized
will be equal to the fair market value of those shares, determined as of
the time that the restrictions on those shares lapse. That income
generally will be taxable at ordinary income
<PAGE>
tax rates. The Company generally will be entitled to a deduction in an
amount equal to the amount of ordinary income recognized by the holder of
the restricted stock.
A holder of restricted stock may elect instead to recognize ordinary
income for the taxable year in which he receives an award of restricted
stock in an amount equal to the fair market value of all shares of
restricted stock awarded to him (even if the shares are subject to
forfeiture). That income will be taxable at ordinary income tax rates. At
the time of disposition of the shares, a holder who has made such an
election will recognize gain in an amount equal to the difference between
the sales price and the fair market value of the shares at the time of the
award. Such gain will be taxable at the applicable capital gains rate.
Any such election must be made within 30 days after the transfer
of the restricted stock to the holder. The Company will generally be
entitled to a deduction in an amount equal to the amount of ordinary income
recognized by the holder at the time of his election.
Limitation on Company Deductions. No federal income tax deduction is
allowed for compensation paid to a Named Executive Officer in any taxable
year of the Company beginning on or after January 1, 1994, to the extent
that such compensation exceeds $1,000,000 (see "Executive Compensation
Executive Compensation Report Limitations on the Deductibility of
Compen-sation"). For this purpose, the term "compensation" generally
includes amounts includable in gross income as a result of the exercise of
stock options or stock appreciation rights, or the receipt of restricted
stock. This deduction limitation does not apply to compensation that is
(a) commission-based compensation, (b) performance-based compensation, (c)
compensation which would not be includable in an employee's gross income,
and (d) compensation payable under a written binding contract in existence
on February 17, 1993, and not materially modified thereafter.
ERISA
The 1997 Stock Option Plan is not intended to be an employee benefit
plan subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
Vote Required
Approval of the proposed amendment to the 1997 Stock Option Plan
requires the affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock of the Company entitled to be voted at
the Annual Meeting.
The Board of Directors recommends a vote FOR the Amendment of the
1997 Stock Option Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and Stockholders beneficially owning more than ten
percent of all outstanding Common Stock ("Reporting Persons") to file
certain reports ("Section 16 Reports") with respect to their beneficial
<PAGE>
ownership of the Company's equity securities. Based solely on a review of
the Section 16 Reports furnished to the Company by its Reporting Persons
and, where applicable, written representations by Reporting Persons that no
Form 5 was required, the Reporting Persons have complied with all
applicable Section 16(a) filing requirements during and with respect to
Fiscal 1998.
INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP served as the Company's independent
auditors for Fiscal 1998 and the Board has reappointed this firm for fiscal
1999. A representative of Deloitte & Touche LLP is expected to attend the
Annual Meeting to respond to questions from Stockholders and to make a
statement if he or she so desires.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
Assuming approval of Proposal 2 regarding the reincorporation of the
Company from Delaware to Georgia, any Stockholder of the Company wishing to
submit a proposal for action at the Company's 1999 Annual Meeting of
Stockholders must provide a written copy of the proposal to the management
of the Company at its principal executive offices not later than June 7,
1999, and must otherwise comply with the rules and regulations of the
Commission applicable to Stockholder proposals.
ANNUAL REPORT
The Company's 1998 Annual Report to Stockholders, which includes
financial statements, is being mailed to the Company's Stockholders with
this Proxy Statement. The Annual Report is not part of the proxy
soliciting material.
OTHER MATTERS
The Board does not know of any other matters to be presented at the
Annual Meeting for action by Stockholders. If any other matters requiring
a vote of the Stockholders arise at the Annual Meeting or any adjournment
thereof, however, it is intended that votes will be cast pursuant to the
proxies with respect to such matters in accordance with the best judgment
of the persons acting under the proxies.
The Company will pay the cost of soliciting proxies in the
accompanying form. In addition to solicitation by mail, certain officers
and regular employees of the Company may solicit the return of proxies by
telephone, telegram or personal interview. The Company may request brokers
and others to forward proxies and soliciting materials to the beneficial
owners of Common Stock, and will reimburse them for their reasonable
expenses in so doing.
<PAGE>
A list of Stockholders entitled to be present and vote at the Annual
Meeting will be available during the Annual Meeting for inspection by
Stockholders who are present.
If you cannot be present in person, you are requested to complete,
sign, date and return the enclosed proxy promptly. An envelope has been
provided for your convenience. No postage is required if mailed in the
United States.
By Order of the Board of Directors,
/s/ LARRY G. AYERS
Larry G. Ayers,
Secretary
October 5, 1998
Tucker, Georgia
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
SED INTERNATIONAL HOLDINGS, INC.
WITH AND INTO
SED MERGER CORP.
THIS AGREEMENT AND PLAN OF MERGER (this "Plan") is by and between SED
International Holdings, Inc., a Delaware corporation (the "Merging
Corporation"), and SED Merger Corp., a Georgia corporation (the "Georgia
Corporation" or the "Surviving Corporation") (the Merging Corporation and
the Surviving Corporation are hereinafter collectively referred to
as the "Constituent Corporations").
BACKGROUND STATEMENT
The Merging Corporation owns 100% of the issued and outstanding
capital stock of the Georgia Corporation. The Board of Directors of each
of the Constituent Corporations has determined that it is in the best
interests of such corporation and its stockholders that the Merging
Corporation merge with and into the Georgia Corporation for the primary
purpose of changing the state of incorporation of the Merging Corporation
from Delaware to Georgia.
PLAN AND AGREEMENT
In consideration of the premises and pursuant to the terms and
conditions hereinafter set forth, the parties to this Plan agree that, in
accordance with the terms of this Plan and the applicable statutes of the
States of Delaware and Georgia, the Constituent Corporations shall
make appropriate filings with the Secretaries of State of the States of
Delaware and Georgia, the Merging Corporation shall be merged with and into
the Georgia Corporation, and the terms and conditions of such merger (the
"Merger") and the mode of carrying the Merger into effect shall
be as follows:
1. The Merger and Surviving Corporation. At the Effective Time
(as hereinafter defined) of the Merger, the Merging Corporation shall
be merged with and into the Georgia Corporation which shall be the
Surviving Corporation after the Merger and which shall continue to
exist as a corporation created and governed by the laws of the State
of Georgia under the name of "SED International Holdings, Inc."
2. Effective Time of the Merger. The Merger shall be effective
upon filing of a Certificate of Merger with the Secretaries of State
of the States of Georgia and Delaware (the "Effective Time").
3. Effect of Merger. At the Effective Time, the Merging
Corporation shall merge with and into the Georgia Corporation, and the
separate existence of the Merging
<PAGE>
Corporation shall cease. Without limiting any provisions of
applicable law of the State of Georgia or the State of Delaware,
including, without limitation, Georgia Business Corporation Code Sec.
14-2-1106 and Delaware General Corporation Law Sec. 259, at the
Effective Time: title to all real estate and other property owned by
each of the Constituent Corporations shall be vested in the Surviving
Corporation without reversion or impairment; the Surviving Corporation
shall have all liabilities of each of the Constituent Corporations;
any proceeding pending against either of the Constituent Corporations
may be continued as if the Merger did not occur or the Surviving
Corporation may be substituted in the proceeding for the Merging
Corporation; and the shares and other securities of the Merging
Corporation that are to be converted into shares and other securities
of the Surviving Corporation shall be so converted and the former
holders of such shares and other securities are to be entitled only to
the rights provided in this Plan.
4. Manner and Basis of Converting Shares and Other Securities.
The manner and basis of converting shares and other securities of the
Merging Corporation shall be as follows:
(a) Shares of the Merging Corporation. At the Effective
Time, each issued and outstanding share of the common stock of
the Merging Corporation ("Merging Corporation Common Stock")
shall thereupon be converted into one share of the common stock
of the Surviving Corporation ("Surviving Corporation Common
Shares").
(b) Merging Corporation Share Certificates. Following the
Effective Time, the holders of Merging Corporation Common Stock
may surrender to the surviving Corporation's transfer agent
certificates representing the same, along with a duly executed
letter of transmittal in a form to be provided by the Surviving
Corporation's transfer agent. Upon surrender of the certificates
representing Merging Corporation Common Stock, the Surviving
Corporation shall deliver to the holder of Merging Corporation
Common Stock share certificates of the Surviving Corporation in
the name of such holder, representing the Surviving Corporation
Common Shares and shareholder rights for which such holder's
Merging Corporation Common Stock shall have been converted as
described above.
(c) Deemed Surviving Corporation Shareholders. At the
Effective Time, the stockholders of the Merging Corporation shall
thereupon be deemed to be shareholders of the Surviving
Corporation to the extent of the number of Surviving Corporation
Common Shares to which they are entitled pursuant to this Plan,
whether or not certificates for Merging Corporation Common Stock
are surrendered as provided in this Plan. Until surrendered as
provided above, each certificate representing Merging Corporation
Common Stock shall be deemed, for
<PAGE>
all corporate purposes (including without limitation the payment
of any dividends), to evidence ownership of the number of
Surviving Corporation Common Shares and shareholder rights which
the holder of such certificate has become entitled to receive
pursuant to this Plan.
(d) Other securities of the Merging Corporation. At the
Effective Time, the holders of option, stock grant, warrant,
rights or other securities agreements representing the right to
acquire, upon exercise, conversion, or similar event, Merging
Corporation Common Stock shall thereupon be deemed to represent
the right to so acquire the same number of Surviving Corporation
Common Shares and rights to which such agreements represented,
whether or not such agreements are surrendered for like
agreements of the Surviving Corporation.
5. Articles of Incorporation. The Articles of Incorporation of
the Georgia Corporation shall be the Articles of Incorporation of the
Surviving Corporation, except that Article I thereof shall be amended
to read in its entirety as follows:
ARTICLE I.
The name of the corporation is:
SED International Holdings, Inc.
6. Bylaws. The Bylaws of the Georgia Corporation as in effect
at the Effective Time shall continue to be the Bylaws of the Surviving
Corporation until amended as provided in said Bylaws, except that the
name of the Surviving Corporation shall be "SED International
Holdings, Inc."
7. Directors and Officers. The persons who are the directors
and officers of the Merging Corporation as of the Effective Time shall
be the directors and officers of the Surviving Corporation until
changed in accordance with the Bylaws of the Surviving Corporation and
applicable law. Directors of the Surviving Corporation shall serve in
the classes in which they served as directors of the Merging
Corporation.
8. Amendment; Termination and Abandonment. This Plan may be
supplemented or amended in any manner at any time and from time to
time prior to the Effective Time by the mutual consent of the Georgia
Corporation and the Merging Corporation without any action by the
stockholders of the Georgia Corporation or the Merging Corporation;
provided that any amendment, modification or supplement to this Plan
after its approval by the stockholders of the Merging Corporation but
prior to the Effective time shall require the approval of the
stockholders of the Merging Corporation unless the amendment,
modification or supplement to this Plan does not alter or change (i)
the
<PAGE>
amount or kind of shares to be received thereunder in exchange for
shares of Merging Corporation Common Stock, (ii) any term of the
Articles of Incorporation of the Surviving Corporation as provided for
in this Plan, or (iii) any of the terms and conditions of this Plan in
a manner that would adversely affect the holders of Merging
Corporation Common Stock. This Plan may be terminated and the Merger
abandoned at any time prior to the filing of articles or a certificate
of merger with the Secretaries of State of the States of Georgia and
Delaware by action taken by the respective Boards of Directors of the
Constituent Corporations.
9. Further Assurances. If at any time the Surviving Corporation
shall consider or be advised that any further assignments or
assurances or any other things are necessary or desirable to vest in
the Surviving Corporation, in accordance with the terms of this Plan,
the title of any property or rights of the Merging Corporation, or
otherwise to carry out this Plan or the Merger, the last acting
officers and directors of the Merging Corporation or the corresponding
officers and directors of the Surviving Corporation shall and will
execute and make all such proper assignments and assurances and do all
things necessary or proper to vest title in such property or rights in
the Surviving Corporation, or otherwise to carry out this Plan or the
Merger.
10. Counterparts. This Plan may be executed in multiple
counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Plan or its terms to produce
or account for more than one of such counterparts.
DULY EXECUTED and delivered by a duly authorized officer of each of
the Constituent Corporations on ________________, 1998.
THE MERGING CORPORATION: SED INTERNATIONAL HOLDINGS, INC.
By:
Name:
Title:
THE SURVIVING CORPORATION: SED MERGER CORP.
By:
Name:
Title:
<PAGE>
EXHIBIT B
ARTICLES OF INCORPORATION
OF
SED MERGER CORP.
I.
CORPORATE NAME
The name of the corporation is:
SED MERGER CORP.
II.
AUTHORIZED SHARES
The corporation is authorized to issue two classes of shares to be
designated respectively "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is one
hundred million one hundred twenty-nine thousand five hundred (100,129,500)
shares. The number of shares of Common Stock authorized is one hundred
million (100,000,000) shares, and the par value of each share is $.01. The
number of shares of Preferred Stock authorized is one hundred twenty-nine
thousand five hundred shares (129,500), and the par value of each share is
$1.00.
Authority is hereby expressly granted to the board of directors from
time to time to issue the Preferred Stock as Preferred Stock of one or more
series and in connection with the creation of any such series to fix by the
resolution or resolutions providing for the issue of shares thereof the
designation, powers, preferences and relative, participating, optional or
other special rights of such series, and the qualifications, limitations or
restrictions thereof. Such authority of the board of directors with respect
to each such series shall include, but not be limited to, the determination
of the following:
(a) the distinctive designation of, and the number of shares
comprising, such series, which number may be increased (except where
otherwise provided by the board of directors in creating such series)
or decreased (but not below the number of shares thereof then
outstanding) from time to time by like action of the board of
directors;
(b) the dividend rate or amount for such series, the conditions
and dates upon which such dividends shall be payable, the relation
which such
<PAGE>
dividends shall bear to the dividends payable on any other class or
classes or any other series of any class or classes of stock, and
whether such dividends shall be cumulative, and if so, from which date
or dates for such series;
(c) whether or not the shares of such series shall be subject to
redemption by the corporation and the times, prices, and other terms
and conditions of such redemption;
(d) whether or not the shares of such series shall be subject to
the operation of a sinking fund or purchase fund to be applied to the
redemption or purchase of such shares and if such a fund be
established, the amount thereof and the terms and provisions relative
to the application thereof;
(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or
classes of stock of the corporation and if provision be made for
conversion or exchange, the times, prices, rates, adjustments, and
other terms and conditions of such conversion or exchange;
(f) whether or not the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and if they
are to have such additional voting rights, the extent thereof;
(g) the rights of the shares of such series in the event of any
liquidation, dissolution or winding up of the corporation or upon any
distribution of its assets; and
(h) any other powers, preferences, and relative, participating,
optional, or other special rights of the shares of such series, and
the qualifications, limitations, or restrictions thereof, to the full
extent now or hereinafter permitted by law and not inconsistent with
the provisions hereof.
All shares of any one series of Preferred Stock shall be identical in
all respects except as to the dates from which dividends thereon may be
cumulative. All series of the Preferred Stock shall rank equally and be
identical in all respects except as otherwise provided
in the resolution or resolutions providing for the issue of any series of
Preferred Stock.
Whenever dividends upon the Preferred Stock at the time outstanding,
to the extent of the preference to which such stock is entitled, shall have
been paid in full or declared and set apart for payment for all past
dividend periods, and after the provisions for any sinking or purchase fund
or funds for any series of Preferred Stock shall have been complied with,
the board of directors may declare and pay dividends on the Common Stock,
payable in cash, stock, or otherwise, and the holders of shares of
Preferred Stock shall not be entitled to share therein, subject to the
provisions of the resolution or resolutions creating any series of
Preferred Stock.
<PAGE>
In the event of any liquidation, dissolution, or winding up of the
corporation or upon the distribution of the assets of the corporation
remaining, after the payment to the holders of the Preferred Stock of the
full preferential amounts to which they shall be entitled as provided in
the resolution or resolutions creating any series thereof, shall be divided
and distributed among the holders of the Common Stock ratably, except as
may otherwise be provided in any such resolution or resolutions.
Neither the merger or consolidation of the corporation with another
corporation nor the sale or lease of all or substantially all the assets of
the corporation shall be deemed to be a liquidation, dissolution, or
winding up of the corporation or a distribution of its assets.
III.
INITIAL REGISTERED OFFICE AND AGENT
The street address and county of the initial registered office of the
corporation is 4916 North Royal Atlanta Drive, Tucker, Georgia 30085. The
initial registered agent at such office shall be Harvey R. Linder.
IV.
INCORPORATOR
The name and address of the incorporator are as follows:
Harvey R. Linder, Esq.
c/o SED International Holdings, Inc.
4916 North Royal Atlanta Drive
Tucker, Georgia 30085
V.
INITIAL PRINCIPAL OFFICE
The mailing address of the initial principal office of the corporation
is 4916 North Royal Atlanta Drive, Tucker, Georgia 30085.
<PAGE>
VI.
INITIAL DIRECTORS
The board of directors shall be divided into three classes, designated
as Class I, Class II and Class III. Each class shall consist, as nearly as
may be possible, of one-third of the total number of directors constituting
the entire board of directors. The term of office of one class of
directors shall expire each year. At each annual meeting of shareholders,
the directors of one class shall be elected to hold office for a term
expiring at the third annual meeting following the election and until a
successor shall have been duly elected and qualified. During the intervals
between annual meetings of shareholders, any vacancy occurring in the board
of directors caused by resignation, removal, death or other incapacity, and
any newly created directorships resulting from an increase in the number of
directors may be filled by a majority vote of the directors then in office,
whether or not a quorum. Each director chosen to fill a vacancy shall hold
office for the unexpired term in respect of which such vacancy occurred.
When the number of directors is changed, any newly created directorships or
any decrease in directorships shall be so apportioned among the classes as
to make all classes as nearly equal in number as possible. The
shareholders may, at any meeting called for the purpose or by unanimous
written consent of the shareholders in lieu of a meeting, remove any
director from office, but only for cause, and may elect his successor.
The initial board of directors of the corporation shall consist of six
members, and the name, address and initial term of office of each member is
set forth below:
Class I directors to hold office until the 2001 Annual Meeting of
Shareholders:
Stewart I. Aaron
7585-D Ponce de Leon Circle
Doraville, Georgia 30340-3162
Mark Diamond
4916 North Royal Atlanta Drive
Tucker, Georgia 30085
Class II directors to hold office until the 1999 Annual Meeting of
Shareholders:
Ray D. Risner
4916 North Royal Atlanta Drive
Tucker, Georgia 30085
Cary Rosenthal
5664 New Peachtree Road
Atlanta, Georgia 30341
<PAGE>
Class III directors to hold office until the 2000 Annual Meeting of
Shareholders:
Gerald Diamond
4916 North Royal Atlanta Drive
Tucker, Georgia 30085
Joel Cohen
P.O. Box 1527
Dalton, Georgia 30720
Notwithstanding any other provisions of the Articles of Incorporation
or the Bylaws (and notwithstanding the fact that a lesser percentage for
separate class votes for certain actions may be permitted by law, by the
Articles of Incorporation or by the Bylaws), the affirmative vote of the
holders of not less than 80% of the votes entitled to be cast by the
holders of all then outstanding shares of voting stock, voting together as
a single class, will be required to amend or repeal any provision of the
Articles of Incorporation or the Bylaws to the extent that such action is
inconsistent with the purpose of this Article VI; provided, however,
that the provisions of this paragraph shall not apply to amendments to the
Bylaws or Articles of Incorporation that are recommended by not less than
75% of the members of the board of directors.
VII.
LIMITATIONS ON DIRECTOR LIABILITY
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for any action taken,
or any failure to take any action, as a director, except for liability (i)
for any appropriation, in violation of his duties, of any business
opportunity of the corporation; (ii) for acts or omissions which involve
intentional misconduct or a knowing violation of the law; (iii) for the
types of liability set forth in Section 14-2-832 of the Georgia Business
Corporation Code; or (iv) for any transaction from which the director
received an improper personal benefit. If the Georgia Business Corporation
Code is amended after the effective date of this Article to authorize
corporate action further limiting the personal liability of directors, then
the liability of a director of the corporation shall be limited to the
fullest extent permitted by the Georgia Business Corporation Code, as
so amended. Any repeal or modification of the foregoing paragraph by the
shareholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification.
<PAGE>
VIII.
ACTION WITHOUT MEETING
Any action required or permitted to be taken at a shareholders meeting
may be taken without a meeting of the shareholders only if the action is
evidenced by one or more written consents describing the action taken,
signed by the holders of not less than 100% of the shares that would be
entitled to vote at a meeting of shareholders. No written consent signed
under this provision shall be valid unless the consenting shareholder has
been furnished the same material that, under the Georgia Business
Corporation Code, would have been required to be sent to shareholders in a
notice of a meeting at which the proposed action would have been
submitted to the shareholders for action, or it contains an express waiver
of the rights to receive such material.
Notwithstanding any other provisions of the Articles of Incorporation
or the Bylaws (and notwithstanding the fact that a lesser percentage for
separate class votes for certain actions may be permitted by law, by the
Articles of Incorporation or by the Bylaws), the affirmative vote of the
holders of not less than 80% of the votes entitled to be cast by the
holders of all then outstanding shares of voting stock, voting together as
a single class, will be required to amend or repeal any provision of the
Articles of Incorporation or the Bylaws to the extent that such action is
inconsistent with the purpose of this Article VIII; provided, however,
that the provisions of this paragraph shall not apply to amendments to the
Bylaws or Articles of Incorporation that are recommended by not less than
75% of the members of the board of directors.
IX.
ADVANCE NOTIFICATION OF SHAREHOLDER PROPOSALS
The annual meeting of the shareholders of the corporation shall be
held each year for the purposes of electing directors and of transacting
such other business as properly may be brought before the meeting. To be
properly brought before the meeting, business must be brought (i) by or at
the direction of the board of directors or (ii) by any shareholder of the
corporation entitled to vote at the meeting who complies with the
procedures set forth in this Article IX; provided, in each case, that such
business proposed to be conducted is, under the law, an appropriate subject
for shareholder action.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must give timely notice thereof in writing to
the Secretary of the corporation. To be timely, a shareholder's notice
must be received by the Secretary at the principal executive offices
of the corporation not fewer than 120 calendar days prior to the first
anniversary of the date that the corporation's proxy statement (or, in the
event the stockholders of SED International Holdings, Inc., a Delaware
corporation (the "Predecessor Corporation") approve the merger of
the Predecessor Corporation with and into the corporation at the 1998
Annual Meeting of Stockholders of the Predecessor Corporation, then the
Predecessor Corporation's proxy
<PAGE>
statement) was released to shareholders in connection with the preceding
year's annual meeting of shareholders. However, if no annual meeting of
shareholders of either the corporation or the Predecessor Corporation, as
the case may be, were held in the previous year or if the date of the
annual meeting of shareholders of such corporation has been changed by more
than 30 calendar days from the date contemplated at the time of the
previous year's proxy statement of such corporation, the notice shall be
received by the Secretary at the principal executive offices of the
corporation no later than the later of (i) 150 days prior to the date of
the contemplated annual meeting or (ii) the date which is 10 calendar days
after the date of the first public announcement or other notification to
the shareholders of the date of the contemplated annual meeting.
Such shareholder's notice to the Secretary shall set forth as to each
matter such 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 for conducting such business at the annual meeting;
(ii) the name and address, as they appear on the corporation's books, of
the shareholder proposing such business; (iii) the class and number of
shares of the corporation which are beneficially owned by such shareholder;
(iv) the dates upon which the shareholder acquired such shares; (v)
documentary support for any claim of beneficial ownership; (vi) any
material interest of such shareholder in such business; (vii) a statement
in support of the matter and any other information required by Securities
and Exchange Commission Rule 14a-8, as may be amended; and (viii) as to
each person whom the shareholder proposes to nominate for election
or reelection as director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected, and
evidence satisfactory to the corporation that such nominee has no interests
that would limit his or her ability to fulfill his or her duties of
office).
In addition, if the shareholder intends to solicit proxies from the
shareholders of the corporation, such shareholder shall notify the
corporation of this intent in accordance with Securities and Exchange
Commission Rules 14a-8 and 14a-4(c)(2)(i), as such rules may be
amended.
Notwithstanding any other provisions of the Articles of Incorporation
or the Bylaws (and notwithstanding the fact that a lesser percentage for
separate class votes for certain actions may be permitted by law, by the
Articles of Incorporation or by the Bylaws), the affirmative vote of the
holders of not less than 80% of the votes entitled to be cast by the
holders of all then outstanding shares of voting stock, voting together as
a single class, will be required to amend or repeal any provision of the
Articles of Incorporation or the Bylaws to the extent that such action is
inconsistent with the purpose of this Article IX; provided, however,
that the provisions of this paragraph shall not apply to amendments to the
Bylaws or Articles of Incorporation that are recommended by not less than
75% of the members of the board of directors.
X.
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative including any proceeding brought by or in the right of the
corporation (hereinafter a "proceeding"), by reason of the fact he or she,
or a person of whom he or she is a legal representative, is or was a
director or officer of the corporation or a designated officer of an
operating division or subsidiary of the corporation, or who, while a
director or officer of the corporation, is or was serving at the request of
the corporation as a director or officer of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise, shall be indemnified and held harmless by the corporation
to the fullest extent authorized by the Georgia Business Corporation Code,
as the same exists or may hereafter be amended (but in the case of any such
amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than the Georgia Business
Corporation Code permitted the corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid
or to be paid in settlement) actually and reasonably incurred or suffered
by such director or officer in connection with any such proceeding. Such
indemnification shall continue as to a director or officer who has ceased
to be a director or officer, as applicable, and shall inure to the benefit
of the heirs, executors and administrators of the director or officer.
Except with respect to proceedings to enforce rights to indemnification by
a director or officer, the corporation shall indemnify any such director or
officer in connection with a proceeding (or part thereof) initiated by such
director or officer only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation. The right to
indemnification conferred in this Article shall be a contract right.
The corporation shall pay for or reimburse the actual and reasonable
expenses incurred by a director or officer who is a party to a proceeding
in advance of final disposition of the proceeding if the director or
officer furnishes the corporation: (i) a written affirmation of his
or her good faith belief that he or she has met the standard of conduct set
forth in Georgia Business Corporation Code Section 14-2-851(a); and (ii) a
written undertaking, executed personally or on his or her behalf, to repay
any advances if it is ultimately determined that he or she is not entitled
to indemnification for such expenses under this Article or otherwise. The
undertaking must be an unlimited general obligation of the director or
officer but need not be secured and may be accepted without reference to
director's financial ability to make repayment.
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation as of the 29th day of September, 1998.
/s/ Harvey R. Linder
Harvey R. Linder, Incorporator
<PAGE>
EXHIBIT C
BYLAWS
OF
SED MERGER CORP.
ARTICLE I
SHAREHOLDERS
SECTION 1.1. Annual Meetings. The annual meeting of the shareholders
of the corporation shall be held each year for the purposes of electing
directors and of transacting such other business as properly may be brought
before the meeting.
To be properly brought before the meeting, business must be brought
(i) by or at the direction of the board of directors or (ii) by any
shareholder of the corporation entitled to vote at the meeting who complies
with the procedures set forth in this Section 1.1; provided, in each
case, that such business proposed to be conducted is, under the law, an
appropriate subject for shareholder action.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must give timely notice thereof in writing to
the Secretary of the corporation. To be timely, a shareholder's notice
must be received by the Secretary at the principal executive offices
of the corporation not fewer than 120 calendar days prior to the first
anniversary of the date that the corporation's proxy statement (or, in the
event the stockholders of SED International Holdings, Inc., a Delaware
corporation (the "Predecessor Corporation") approve the merger of
the Predecessor Corporation with and into the corporation at the 1998
Annual Meeting of Stockholders of the Predecessor Corporation, then the
Predecessor Corporation's proxy statement) was released to shareholders in
connection with the preceding year's annual meeting of shareholders.
However, if no annual meeting of shareholders of either the corporation or
the Predecessor Corporation, as the case may be, were held in the previous
year or if the date of the annual meeting of shareholders of such
corporation has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement of such
corporation, the notice shall be received by the Secretary at the principal
executive offices of the corporation no later than the later of (i) 150
days prior to the date of the contemplated annual meeting or (ii) the date
which is 10 calendar days after the date of the first public announcement
or other notification to the shareholders of the date of the contemplated
annual meeting.
Such shareholder's notice to the Secretary shall set forth as to each
matter such 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 for conducting such business at the annual meeting;
(ii) the name and address, as they appear on the corporation's books, of
the
<PAGE>
shareholder proposing such business; (iii) the class and number of shares
of the corporation which are beneficially owned by such shareholder; (iv)
the dates upon which the shareholder acquired such shares; (v) documentary
support for any claim of beneficial ownership; (vi) any material interest
of such shareholder in such business; (vii) a statement in support of the
matter and any other information required by Securities and Exchange
Commission Rule 14a-8, as may be amended; and (viii) as to each person whom
the shareholder proposes to nominate for election or reelection as director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected, and evidence satisfactory to the
corporation that such nominee has no interests that would limit his or her
ability to fulfill his or her duties of office).
In addition, if the shareholder intends to solicit proxies from the
shareholders of the corporation, such shareholder shall notify the
corporation of this intent in accordance with Securities and Exchange
Commission Rules 14a-8 and 14a-4(c)(2)(i), as such rules may be
amended.
SECTION 1.2. Special Meetings. The corporation shall hold a special
meeting of shareholders on call of the board of directors or, upon delivery
to the corporation's chief executive officer of a signed and dated written
request setting out the purpose or purposes for the meeting, on call of the
holders of 100% of the votes entitled to be cast on any issue proposed to
be considered at the proposed special meeting. Only business within the
purpose or purposes described in the notice of special meeting required by
Section 1.4 below may be conducted at a special meeting of the
shareholders. Meetings of the shareholders may be held at any time without
notice when all the shareholders entitled to vote thereat are present in
person or by proxy.
SECTION 1.3. Date, Time and Place of Meetings. All meetings of
shareholders shall be held on such date and at such time and place, within
or without the State of Georgia, as may be fixed from time to time by the
board of directors. The date, time and place of all meetings shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof. If no designation is made, the place of the meeting shall be the
principal business office of the corporation.
SECTION 1.4. Notice of Meetings. The chief executive officer or his
designee shall deliver, either personally or by first-class mail, a written
notice of the place, day, and time of all meetings of the shareholders not
less than ten (10) nor more than sixty (60) days before the meeting date to
each shareholder of record entitled to vote at such meeting. Written
notice is effective when mailed, if mailed with first-class postage prepaid
and correctly addressed to the shareholder's address shown in the
corporation's current record of shareholders. In the case of a special
meeting, the purpose or purposes for which the meeting is called shall be
included in the notice of the special meeting.
<PAGE>
SECTION 1.5. Record Date. The board of directors, in order to
determine the shareholders entitled to notice of or to vote at any meeting
of the shareholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise
any rights in respect of any change, conversion or exchange of stock, or
for the purpose of any other lawful action, shall fix in advance a record
date that may not be more than seventy (70) days before the meeting or
action requiring a determination of shareholders. Only such shareholders
as shall be shareholders of record on the date fixed shall be entitled to
such notice of or to vote at such meeting or any adjournment thereof, or to
receive payment of any such dividend or other distribution or allotment of
any rights, or to exercise any such rights in respect of stock, or to take
any such other lawful action, as the case may be, notwithstanding any
transfer of any stock on the books of the corporation after any such record
date fixed as aforesaid. The record date shall apply to any adjournment of
the meeting except that the board of directors shall fix a new record date
for the adjourned meeting if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
SECTION 1.6. Shareholders' List for Meeting. After fixing a record
date for a meeting, the corporation shall prepare an alphabetical list of
the names of all shareholders of record who are entitled to notice of the
shareholders' meeting. The list shall be arranged by voting group (and
within each voting group by class or series of shares) and show the address
of and number of shares held by each shareholder. The corporation shall
make the shareholders' list available for inspection by any shareholder,
his agent, or his attorney at the time and place of the meeting.
SECTION 1.7. Quorum. Subject to any express provision of law or the
articles of incorporation, a majority of the votes entitled to be cast by
all shares voting together as a group shall constitute a quorum for the
transaction of business at all meetings of the shareholders. Whenever a
class of shares or series of shares is entitled to vote as a separate
voting group on a matter, a majority of the votes entitled to be cast by
each voting group so entitled shall constitute a quorum for purposes of
action on any matter requiring such separate voting. Once a share is
represented, either in person or by proxy, for any purpose at a
meeting other than solely to object to holding a meeting or transacting
business at the meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of that meeting unless a
new record date is set for the adjourned meeting.
SECTION 1.8. Adjournment of Meetings. The holders of a majority of
the voting shares represented at a meeting, or the chairman of the board or
the president, whether or not a quorum is present, shall have the power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified. If after the
adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting.
<PAGE>
SECTION 1.9. Vote Required. When a quorum exists, action on a matter
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes
cast opposing the action, unless the articles of incorporation, a bylaw
authorized by the articles of incorporation or express provision of law
requires a greater number of affirmative votes. Unless otherwise provided
in the articles of incorporation, directors are elected by a plurality of
the votes cast by the shares entitled to vote in the election at a meeting
at which a quorum is present. Shareholders do not have the right to
cumulate their votes unless the articles of incorporation so provide.
SECTION 1.10. Voting Entitlement of Shares. Unless otherwise
provided in the articles of incorporation, each shareholder, at every
meeting of the shareholders, shall be entitled to cast one vote, either in
person or by written proxy, for each share standing in his or her name on
the books of the corporation as of the record date. A shareholder may vote
his shares in person or by proxy. An appointment of proxy is effective
when received by the President of the corporation or other officer or agent
authorized to tabulate votes and is valid for eleven (11) months unless a
longer period is expressly provided in the appointment of proxy form. An
appointment of proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is
coupled with an interest.
SECTION 1.11. Action by Shareholders Without a Meeting. Any action
required or permitted to be taken at a shareholders' meeting may be taken
without a meeting if the action is taken by all the shareholders who
otherwise would be entitled to notice of and to vote at a meeting of
shareholders on the action. The action must be evidenced by one or more
written consents describing the action taken, signed by shareholders
entitled to take action without a meeting and delivered to the corporation
for inclusion in the minutes or for filing with the corporate records. No
written consent shall be valid unless the consenting shareholder has
been furnished the same material that would have been required to be sent
to the shareholders in a notice of a meeting at which the proposed action
would have been submitted to the shareholders for action, including notice
of any applicable dissenters' right, or the written consent contains an
express waiver of the right to receive the material otherwise required to
be furnished. Written notice, together with the materials that would have
been required to be sent in a notice of meeting, shall be given within ten
(10) days after the proper taking of the corporate action without a meeting
to all persons who otherwise would have been entitled to notice of and to
vote at a meeting of shareholders on the action.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.1. General Powers. Subject to the articles of
incorporation, bylaws approved by the shareholders and any lawful agreement
between the shareholders, all corporate
<PAGE>
powers shall be exercised by or under the authority of, and the business
and affairs of the corporation managed under the direction of, the board of
directors.
SECTION 2.2. Number and Tenure. The initial board of directors shall
be such as may be determined by the incorporator(s) unless the initial
directors are named in the articles of incorporation, and thereafter the
number of directors shall be such as may be determined from time to time by
the shareholders or by the board of directors, but in no event shall the
number be less than the minimum authorized under the laws of the State of
Georgia. No decrease in the number or minimum number of directors, through
amendment of the articles of incorporation or of the bylaws or otherwise,
shall have the effect of shortening the term of any incumbent director.
Directors shall be elected at the annual meeting of shareholders to serve
terms as provided in the articles of incorporation; provided, however, that
despite the expiration of a director's term he or she shall continue to
serve until a successor is elected and qualified or until there is a
decrease in the number of directors.
SECTION 2.3. Qualifications of Directors. Directors shall be natural
persons who have attained the age of 18 years but need not be residents of
the State of Georgia or shareholders of the corporation.
SECTION 2.4. Vacancy on the Board. Unless the articles of
incorporation provide otherwise, if a vacancy occurs on the board of
directors, including a vacancy resulting from an increase in the number of
directors, the vacancy may be filled by the shareholders, board of
directors, or, if the directors remaining in office constitute fewer than a
quorum of the Board, by the affirmative vote of a majority of all directors
remaining in office. If the vacant office was held by a director elected
by a voting group of shareholders, only the holders of shares of
that voting group or the remaining directors elected by that voting group
are entitled to vote to fill the vacancy.
SECTION 2.5. Committees. The board of directors may, by resolution,
designate from among its members one or more committees, each committee to
consist of one or more directors, except that committees appointed to take
action with respect to indemnification of directors, directors' conflicting
interest transactions or derivative proceedings shall consist of two or
more directors qualified to serve pursuant to the Georgia Business
Corporation Code. Any such committee, to the extent specified by the board
of directors, articles of incorporation or bylaws, shall have and may
exercise all of the authority of the board of directors in the management
of the business affairs of the corporation, except that it may not (1)
approve action that the Georgia Business Corporation Code requires to be
approved by shareholders, (2) fill vacancies on the board of directors or
any of its committees, (3) amend the articles of incorporation, (4) adopt,
amend, or repeal bylaws or (5) approve a plan of merger not requiring
shareholder approval. The creation of, delegation of authority to or
action by a committee does not alone constitute compliance by a director
with the standards of conduct described in Georgia Business Corporation
Code Section 14-2-830.
<PAGE>
SECTION 2.6. Meetings. The board of directors shall meet annually,
without notice, immediately following and at the same place as the annual
meeting of shareholders. Regular meetings of the board of directors or any
committee may be held between annual meetings without notice at such time
and at such place, within or without the State of Georgia, as from
time to time shall be determined by the board. Meetings other than regular
meetings may be called at any time by the president or the chairman of the
board and must be called by the president or by the secretary or an
assistant secretary upon the request of any director.
Notice of each meeting, other than a regular meeting (unless required
by the board of directors), shall be given to each director by mailing the
same to each director at his residence or business address at least two
days before the meeting or by delivering the same to him personally or by
telephone or facsimile at least one day before the meeting unless, in case
of exigency, the chairman of the board, the president or the secretary
shall prescribe a shorter notice to be given personally or by telephone,
facsimile, telegraph, cable or wireless to all or any one or more of the
directors at their respective residences or places of business.
SECTION 2.7. Quorum and Voting. At all meetings of the board of
directors or any committee thereof, a majority of the number of directors
prescribed, or if no number is prescribed, a majority of the number in
office immediately before the meeting begins, shall constitute a quorum for
the transaction of business. The affirmative vote of a majority of the
directors present at any meeting at which there is a quorum at the time of
such act shall be the act of the Board or of the committee, except as might
be otherwise specifically provided by statute or by the articles of
incorporation or bylaws.
SECTION 2.8. Action Without Meeting. Unless the articles of
incorporation or bylaws provide otherwise, any action required or permitted
to be taken at any meeting of the board of directors or any committee
thereof may be taken without a meeting if the action is taken by all
members of the Board or committee, as the case may be. The action must be
evidenced by one or more written consents describing the action taken,
signed by each director, and filed with the minutes of the proceedings of
the Board or committee or filed with the corporate records.
SECTION 2.9. Remote Participation in a Meeting. Unless otherwise
restricted by the articles of incorporation or the bylaws, any meeting of
the board of directors may be conducted by the use of any means of
communication by which all directors participating may simultaneously hear
each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
SECTION 2.10. Compensation of Directors. The board of directors may
fix the compensation of the directors for their services as directors,
including, but not limited to, fees for attendance at all meetings of the
board or any committee of the board. Directors shall in any event be paid
their traveling expenses for attendance at all meetings of the board or any
committee of the board. No provision of these bylaws shall be construed to
preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
<PAGE>
ARTICLE III
NOTICES
SECTION 3.1. Notice. Whenever, under the provisions of the articles
of incorporation or of these bylaws or by law, notice is required to be
given to any director or shareholder, it shall not be construed to require
personal notice, but such notice may be given in writing, by mail, or by
telegram, telex or facsimile transmission and such notice shall be deemed
to be effective, unless otherwise provided herein, when received, or when
delivered, properly addressed, to the addressee's last known principal
place of business or residence, or five days after the same shall be
deposited in the United States mail if mailed with first-class postage
prepaid and correctly addressed or on the date shown on the return receipt,
if sent by registered or certified mail, and the receipt is signed by or on
behalf of the addressee. Notice to any director or shareholder may also be
oral if oral notice is reasonable under the circumstances. If these forms
of personal notice are impractical, notice may be communicated
by a newspaper of general circulation in the area where published, or by
radio, television, or other form of public broadcast communication.
SECTION 3.2. Waiver of Notice. Whenever any notice is required to be
given under provisions of the articles of incorporation or of these bylaws
or by law, a waiver thereof, signed by the person entitled to notice and
delivered to the corporation for inclusion in the minutes or filing with
the corporate records, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting and of all objections
to the place or time of the meeting or the manner in which it has been
called or convened, except when the person attends a meeting for the
express purpose of stating, at the beginning of the meeting, any such
objection and, in the case of a director, does not thereafter vote for or
assent to action taken at the meeting. Neither the business to be
transacted at nor the purpose of any regular or special meeting of
the shareholders, directors or a committee of directors need be specified
in any written waiver of notice; provided, however, that any waiver of
notice of a meeting of shareholders required with respect to a plan of
merger or a plan of consolidation shall be effective only upon
compliance with Section 14-2-706(c) of the Georgia Business Corporation
Code or successor provisions.
ARTICLE IV
OFFICERS
SECTION 4.1. Titles and Election. The officers of the corporation
shall be president, a secretary and a treasurer, who shall initially be
elected as soon as convenient by the board of directors and thereafter, in
the absence of earlier resignations or removals, shall be elected at
the first meeting of the board following any annual shareholders' meeting,
each of whom shall hold office at the pleasure of the board except as may
otherwise be approved by the board or executive
<PAGE>
committee, or until his earlier resignation, removal under these bylaws or
other termination of his employment. Any person may hold more than one
office if the duties can be consistently performed by the same person, and
to the extent permitted by the laws of the State of Georgia.
The board of directors, in its discretion, may also at any time elect
or appoint a chairman of the board of directors, who shall be a director,
and one or more vice presidents, assistant secretaries and assistant
treasurers and such other officers as it may deem advisable, each of whom
shall hold office at the pleasure of the board, except as may otherwise be
approved by the board or executive committee, or until his earlier
resignation, removal or other termination of employment, and shall have
such authority and shall perform such duties as be prescribed or determined
from time to time by the board or in case of officers other than
the chairman of the board, if not so prescribed or determined by the board,
the president or the then senior executive officer may prescribe or
determine. The board of directors may require any officer or other
employee or agent to give bond for the faithful performance of his
duties in such form and with such sureties as the board may require.
SECTION 4.2. Duties. Subject to such extension, limitations, and
other provisions as the board of directors or the bylaws may from time to
time prescribe or determine, the following officers shall have the
following powers and duties:
(a) Chairman of the Board. The chairman of the board may be
designated the chief executive officer of the corporation and, when
present, shall preside at all meetings of the shareholders and of the board
of directors, shall be charged with general supervision of the
management and policy of the corporation, and shall have such other powers
and perform such other duties as the board of directors may prescribe from
time to time.
(b) President. Subject to the board of directors and the
provisions of these bylaws, the president shall be the chief executive
officer of the corporation, shall exercise the powers and authority and
perform all of the duties commonly incident to his office, shall in the
absence of the chairman of the board preside at all meetings of the
shareholders and of the board of directors if he is a director, and shall
perform such other duties as the board of directors or the executive
committee shall specify from time to time. The president or a vice
president, unless some other person is thereunto specifically authorized by
the board of directors or executive committee, shall sign all bonds,
debentures, promissory notes, deeds and contracts of the corporation.
(c) Vice President. The vice president or vice presidents shall
perform such duties as may be assigned to them from time to time by the
board of directors or by the chief executive officer if the board does not
do so. In the absence or disability of the president, the vice presidents
in order of seniority may, unless otherwise determined by the board,
exercise the powers and perform the duties pertaining to the office of
president, except that if one or more executive vice presidents has been
elected or appointed, the person holding such office in order of seniority
shall exercise the powers and perform the duties of the office of
president.
<PAGE>
(d) Secretary. The secretary or in his absence an assistant
secretary shall keep the minutes of all meetings of shareholders and of the
board of directors, give and serve all notices, attend to such
correspondence as may be assigned to him, keep in safe custody the
seal of the corporation, and affix such seal to all such instruments
properly executed as may require it, and shall have such other duties and
powers as may be prescribed or determined from time to time by the board of
directors or by the chief executive officer if the board does
not do so.
(e) Treasurer. The treasurer, subject to the order of the board
of directors, shall have the care and custody of the moneys, funds,
valuable papers and documents of the corporation (other than his own bond,
if any, which shall be in the custody of the chief executive officer), and
shall have, under the supervision of the board of directors, all the
powers and duties commonly incident to his office. He shall deposit all
funds of the corporation in such bank or banks, trust company or trust
companies, or with such firm or firms doing a banking business as may be
designated by the board of directors or by the chief executive officer if
the board does not do so. He may endorse for deposit or collection all
checks, notes, and similar instruments payable to the corporation or to its
order. He shall keep accurate books of account of the corporation's
transactions, which shall be the property of the corporation, and together
with all property of the corporation in his possession, shall be
subject at all times to the inspection and control of the board of
directors. The treasurer shall be subject in every way to the order of the
board of directors, and shall render to the board of directors and/or the
chief executive officer of the corporation, whenever they may require it,
an account of all his transactions and of the financial condition of the
corporation. In addition to the foregoing, the treasurer shall have such
duties as may be prescribed or determined from time to time by the board of
directors or by the chief executive officer if the board does not do
so.
SECTION 4.3. Delegation of Authority. The board of directors or the
executive committee may at any time delegate the powers and duties of any
officer for the time being to any other officer, director or employee.
SECTION 4.4. Compensation. The compensation of the chairman of the
board, the president, all vice presidents, the secretary and the treasurer
shall be fixed by the board of directors or a committee thereof, and the
fact that any officer is a director shall not preclude him from receiving
compensation or from voting upon the resolution providing the same.
ARTICLE V
RESIGNATIONS, VACANCIES AND REMOVALS
SECTION 5.1. Resignations. Any director or officer may resign at any
time by giving written notice thereof to the board of directors, the chief
executive officer or the secretary. Any such resignation shall take effect
at the time specified therein or, if the time be not specified,
<PAGE>
upon receipt thereof; and unless otherwise specified therein, the
acceptance of any resignation shall not be necessary to make it effective.
SECTION 5.2. Vacancies. (a) Directors. Subject to the provisions of
the articles of incorporation, when the office of any director becomes
vacant or unfilled, whether by reason of death, resignation, removal,
increase in the authorized number of directors or otherwise,
such vacancy or vacancies may be filled by the remaining director or
directors, although less than a quorum. Any director so elected by the
board shall serve until the election and qualification of his successor or
until his earlier resignation or removal as provided in these
bylaws. The directors may also reduce their authorized number by the
number of vacancies in the board, provided such reduction does not reduce
the board to less than the minimum authorized by the laws of the State of
Georgia.
(b) Officers. The board of directors may at any time or from
time to time fill any vacancy among the officers of the corporation.
SECTION 5.3. Removals. (a) Directors. Except as may otherwise be
prohibited or restricted under the laws of the State of Georgia or the
articles of incorporation of the corporation, the shareholders may, at any
meeting called for the purpose or by consent of the shareholders in lieu of
a meeting, remove any director from office, with or without cause, and
may elect his successor. Except as may otherwise be prohibited or
restricted under the laws of the State of Georgia, the board of directors
at any meeting called for the purpose by vote of a majority of the then
total authorized number of directors may remove from office for cause
any director and may elect his successor, and by similar vote may remove
from office without cause any director elected by the board, and may elect
his successor.
(b) Officers. Subject to the provisions of any validly existing
agreement, the board of directors may at any meeting remove from office any
officer, with or without cause, and may elect or appoint a successor;
provided that if action is to be taken to remove the chief executive
officer or president, the notice of meeting or waiver of notice thereof
shall state that one of the purposes thereof is to consider and take action
on his removal.
ARTICLE VI
CAPITAL STOCK
SECTION 6.1. Share Certificates. Unless the articles of
incorporation or these bylaws provide otherwise, the board of directors may
authorize the issue of some or all of the shares of any or all of its
classes or series with or without certificates. Unless the Georgia
Business Corporation Code provides otherwise, there shall be no differences
in the rights and obligations of shareholders based on whether or not their
shares are represented by certificates.
<PAGE>
In the event that the board of directors authorizes shares with
certificates, each certificate representing shares of stock of the
corporation shall be in such form as shall be approved by the board of
directors and shall set forth upon the face thereof the name of the
corporation and that it is organized under the laws of the State of
Georgia, the name of the person to whom the certificate is issued, and the
number and class of shares and the designation of the series, if any, the
certificate represents. The board of directors may designate any one or
more officers to sign each share certificate, either manually or by
facsimile. In the absence of such designation, each share certificate must
be signed by the chief executive officer, president or a vice president and
the secretary or an assistant secretary. If the person who signed a share
certificate, either manually or in facsimile, no longer holds
office when the certificate is issued, the certificate is nevertheless
valid.
SECTION 6.2. Record of Shareholders. The corporation or an agent
designated by the board of directors shall maintain a record of the
corporation's shareholders in a form that permits preparation of a list of
names and addresses of all shareholders, in alphabetical order by class or
shares showing the number and class of shares held by each shareholder.
SECTION 6.3. Lost Certificates. In the event that a share
certificate is lost, stolen or destroyed, the board of directors may direct
that a new certificate be issued in place of such certificate. When
authorizing the issue of a new certificate, the board of directors may
require such proof of loss as it may deem appropriate as a condition
precedent to the issuance thereof, including a requirement that the owner
of such lost, stolen or destroyed certificate, or his or her legal
representative, advertise the same in such manner as the Board shall
require and/or that he or she give the corporation a bond in such sum as
the Board may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
SECTION 6.4. Transfers of Shares.
(a) Transfers of shares of the capital stock of the corporation
shall be made only upon the books of the corporation by the registered
holder thereof, or by his or her duly authorized attorney, or with a
transfer clerk or transfer agent appointed as provided in Section
6.5 hereof, and, in the case of a share represented by certificate, on
surrender of the certificate or certificates for such shares properly
endorsed and the payment of all taxes thereon.
(b) The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, to vote as such owner, and for all other purposes, and shall not
be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
law.
SECTION 6.5. Transfer Agents and Registrars. The board of directors
may establish such other regulations as it deems appropriate governing the
issue, transfer, conversion and registration of stock certificates,
including appointment of transfer agents, clerks or registrars.
<PAGE>
ARTICLE VII
INDEMNIFICATION AND INSURANCE
SECTION 7.1. Indemnification of Officers, Employees and Agents. The
corporation may indemnify and advance expenses to an officer, in-house
legal counsel, employee or agent who is not a director to the extent
permitted by the articles of incorporation, the bylaws or by law.
SECTION 7.2. Insurance. The corporation may purchase and maintain
insurance, at its expense, on behalf of an individual who is or was a
director, officer, employee or agent of the corporation or who, while a
director, officer, employee or agent of the corporation, is or was serving
at the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, against
liability asserted against or incurred by him or her in any such capacity
or arising from his or her status as a director, officer, employee or
agent, whether or not the corporation would have power to indemnify him or
her against the same liability under this Article.
SECTION 7.3. Indemnification of Directors. The corporation shall
indemnify directors to the full extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Seal. The corporation may have a seal, which shall be
in such form as the board of directors may from time to time determine. In
the event that the use of the seal is at any time inconvenient, the
signature of an officer of the corporation, followed by the word
"Seal" enclosed in parenthesis, shall be deemed the seal of the
corporation.
SECTION 8.2. Amendment of Bylaws. These bylaws may be amended or
repealed and new bylaws may be adopted by the board of directors at any
regular or special meeting of the board of directors unless the articles of
incorporation or the Georgia Business Corporation Code reserve this power
exclusively to the shareholders in whole or in part or the shareholders, in
amending or repealing the particular bylaw, provide expressly that the
board of directors may not amend or repeal that bylaw.
Unless the shareholders have fixed a greater quorum or voting
requirement, these bylaws also may be altered, amended or repealed and new
bylaws may be adopted by a majority vote of all shares voted at any annual
or special meeting of the shareholders. A bylaw limiting the authority of
the board of directors or establishing staggered terms for directors may
only be adopted, amended or repealed by the shareholders. Except as
provided in Sections 14-2-1113 and -1133 of the Georgia Business
Corporation Code, a bylaw that fixes a greater quorum or voting requirement
for shareholders may be adopted, amended or repealed only by the
shareholders. A bylaw that fixes a greater quorum or voting requirement
for the board of
<PAGE>
directors may be adopted only by the affirmative vote of holders of a
majority of the shares entitled to be cast or by a majority of the entire
board of directors.
Notwithstanding any other provisions of the articles of incorporation
or the bylaws (and notwithstanding the fact that a lesser percentage for
separate class votes for certain actions may be permitted by law, by the
articles of incorporation or by the bylaws), the affirmative vote of
the holders of not less than 80% of the votes entitled to be cast by the
holders of all then outstanding shares of voting stock, voting together as
a single class, will be required to amend or repeal any provision of the
articles of incorporation or the bylaws to the extent that such
action is inconsistent with the purpose of Sections 1.1, 1.2, 1.11 and 2.8;
provided, however, that the provisions of this paragraph shall not apply to
amendments to the bylaws or articles of incorporation that are recommended
by not less than 75% of the members of the board of directors.
SECTION 8.3. Powers of Attorney. The board of directors or a
committee of the board may authorize one or more of the officers of the
corporation to execute powers of attorney delegating to named
representatives or agents power to represent or act on behalf of
the corporation, with or without power of substitution. In the absence of
any action by the board or a committee of the board, the chief executive
officer or the president, any vice president, the secretary or the
treasurer of the corporation may execute for and on behalf of
the corporation waivers of notice of shareholders' meetings and proxies for
such meetings in any company in which the corporation may hold voting
securities.
<PAGE>
EXHIBIT D
FIRST AMENDMENT TO
SED INTERNATIONAL HOLDINGS, INC.
1997 STOCK OPTION PLAN
This First Amendment, made on the ___ day of __________, 1998, by SED
International Holdings, Inc., a company organized and operating under the
laws of the Sate of Delaware (the "Company");
W I T N E S S E T H:
WHEREAS, the Board of Directors and stockholders of the Company
adopted the Company's 1997 Stock Option Plan (the "Plan");
WHEREAS, the Board of Directors of the Company has authorized and
reserved for issuance an additional 200,000 shares of Common Stock, subject
to stockholder approval; and
WHEREAS, the Board of Directors desires to amend the Plan to reflect
the issuance of additional Common Stock under the Plan:
NOW, THEREFORE, the Company hereby amends the Plan effective
immediately, by deleting Plan Article 4 in its entirety and inserting in
lieu thereof the following new Plan Article 4:
"ARTICLE 4
Stock
The stock subject to the Stock Rights and other provisions of the
Plan shall be authorized but unissued or reacquired shares of Common
Stock. Subject to readjustment in accordance with the provisions of
Article 8, the total number of shares of Common Stock which may be
granted to, or for which Options may be granted to, persons
participating in the Plan shall not exceed in the aggregate 550,000
shares of Common Stock, subject to adjustment as provided herein.
Notwithstanding the foregoing, shares of Common Stock allocable to the
unexercised portion of any expired or terminated Option or shares of
Restricted Stock returned to the Company by forfeiture again may
become subject to Stock Rights under the Plan."
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this First Amendment.
The Company shall submit this First Amendment to its stockholders for
approval at the
<PAGE>
1998 Annual Meeting of Stockholders. Unless stockholder approval is
obtained, both this First Amendment and all outstanding Options granted
after the date hereof in excess of the authorized Options available for
issuance under the Plan as in effect prior to this First Amendment, if any,
shall be rendered immediately void and of no effect.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed and attested as of the day and year set forth above.
SED INTERNATIONAL HOLDINGS, INC.
By:
Gerald Diamond,
Chairman and Chief Executive Officer
ATTEST:
By:
Larry G. Ayers,
Secretary
<PAGE>
[ATTACHMENT -- PROXY CARD]
SED INTERNATIONAL HOLDINGS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated October 5, 1998,
and does hereby appoint Gerald Diamond and Larry G. Ayers, and either of
them, with full power of substitution as proxy or proxies of the
undersigned, to represent the undersigned and vote all shares of SED
International Holdings, Inc. Common Stock which the undersigned would be
entitled to vote if personally present at the Annual Meeting of
Stockholders of SED International Holdings, Inc., to be held at the
principal executive offices of the Company, 4916 N. Royal Atlanta Drive,
Tucker, Georgia, at 12:00 p.m., local time, on November 10, 1998, and at
any and all adjournment(s) thereof:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED NOMINEES
AND PROPOSALS.
1. Proposal 1:
The election as directors of the two nominees listed below to serve
for a three-year term expiring at the 2001 Annual Meeting of
Stockholders and until their respective successors are elected and
qualified.
[ ] FOR ALL nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the all nominees listed below.
contrary below)
STEWART I. AARON AND MARK DIAMOND
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
IF NO DIRECTION IS MADE TO WITHHOLD AUTHORITY TO VOTE FOR ANY
NOMINEE, THIS PROXY CARD WILL BE VOTED "FOR" EACH OF THE NOMINEES.
2. Proposal 2:
To change the state of incorporation of the Company from Delaware
to Georgia.
[ ] For [ ] Against [ ] Abstain
3. Proposal 3:
To amend the Company's 1997 Stock Option Plan to increase the
number of shares available for issuance by 200,000.
[ ] For [ ] Against [ ] Abstain
(Continued, and to be signed and dated on the reverse side)
<PAGE>
(Continued from the other side)
4. In their discretion, the proxies are authorized to vote upon such
other business as properly may come before the Annual Meeting and any
adjournments thereof. This proxy may be revoked at any time prior to
the voting thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY
IF NO DIRECTION IS MADE, THIS PROXY CARD WILL BE VOTED "FOR"
PROPOSALS 2 AND 3 LISTED ON THE REVERSE SIDE OF THIS PROXY CARD. If any
other business is properly presented at the Annual Meeting, this proxy card
will be voted by the proxies in their discretion. At the present time,
the Board of Directors knows of no other business to be presented to a vote
of the stockholders at the Annual Meeting.
______________________________
Signature
______________________________
Signature, if shares held jointly
Date:___________________, 1998
Please sign exactly as your name appears
hereon. When shares are held jointly,
both holders should sign. When signing
as attorney, executor, administrator,
trustee, custodian or guardian, please
give your full title. If the holder is
a corporation or partnership the full
corporate or partnership name should
be signed by a duly authorized officer
or Partner, respectively.
<PAGE>
