SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________ to ____________
Commission file number 0-16345
SED INTERNATIONAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 22-271544
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4916 North Royal Atlanta Drive, Atlanta, Georgia 30085
(Address of principal executive offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
COMMON STOCK PURCHASE RIGHTS
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant was approximately $20.6 million as of September 24,
1999 based upon the last sale price of the Common Stock as reported on
the Nasdaq National Market on that day.
There were 7,016,453 shares of Common Stock, $.01 par value,
outstanding at September 24, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates information by reference from the Registrant's
definitive proxy statement for the 1999 annual meeting of shareholders
scheduled to be held on November 9, 1999, which proxy statement will
be filed no later than 120 days after the close of the Registrant's
fiscal year ended June 30, 1999.
<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business
SED International Holdings, Inc., a Georgia corporation, and
its wholly owned operating subsidiary, SED International, Inc., a
Georgia corporation ("SED International"), were incorporated in 1986
to take over the operations of the business of the Registrant's
predecessor, Southern Electronics Distributors, Inc., which was
engaged in the wholesale distribution of consumer electronics
products. In fiscal 1999, the Registrant, formerly a Delaware
corporation, reincorporated as a Georgia corporation. As used herein,
the term "Registrant" or the "Company" means SED International
Holdings, Inc. and its subsidiaries, including SED International,
unless the context otherwise indicates.
The Registrant is an international distributor of
microcomputer products, including processors, printers and other
peripherals and wireless products throughout the United States and
Latin America. The Registrant offers to an active base of over 13,000
reseller customers a broad inventory of more than 3,500 products from
approximately 100 vendors (direct and indirect), including such market
leaders as Hewlett-Packard, Intel, Maxtor, Western Digital, Samsung,
Creative Labs, Acer and Epson, through a dedicated and highly
motivated sales force. The Registrant distributes products in the
United States from its strategically located warehouses in Atlanta,
Georgia; Miami, Florida; City of Industry, California and Harrisburg,
Pennsylvania. The Registrant services Latin America through its
wholly-owned subsidiaries SED International do Brasil Ltda. in Sao
Paulo, Brazil; SED International de Colombia Ltda. in Bogota Colombia
and Intermaco S.R.L. in Buenos Aires, Argentina. The Registrant's net
sales decreased to $707.6 million in fiscal 1999 from $892.6 million
in fiscal 1998, and the Registrant had a net loss of
$37.9 million in fiscal 1999 compared to a net loss of $0.3 million in
fiscal 1998.
The Registrant also distributes wireless telephone products
in the United States and to Latin America. The Registrant is a direct
distributor of wireless telephone products for Audiovox, and an
indirect distributor for other leading wireless telephone product
vendors such as Motorola, Nokia, and Ericsson. In fiscal 1999, the
Registrant's net sales of microcomputer products generated
approximately 86.6% of the Registrant's total net sales and wireless
telephone products represented the remaining 13.4%.
(b) Financial Information about Industry Segments
The Registrant operates in only one business segment.
<PAGE>
(c) Narrative Description of Business
Products and Vendors
The Registrant offers its customers a broad inventory of
more than 3,500 products from approximately 100 vendors (direct and
indirect), including such market leaders as Hewlett-Packard, Intel,
Maxtor, Western Digital, Samsung, Creative Labs, Acer and Epson. The
Registrant is a direct distributor of wireless telephone products for
Audiovox, and an indirect distributor for other leading wireless
telephone product vendors such as Motorola, Nokia and Ericsson.
Microcomputer related products, which include mass storage products,
printers and other imaging products, microprocessing and memory chips,
monitors, modems, networking products, notebook and personal computers
and accessories, accounted for $612.8 million or 86.6% of the
Registrant's net sales for fiscal 1999, $785.5 million or 88.0% of net
sales in fiscal 1998, and $588.2 million or 91.0% of net sales in
fiscal 1997. Approximately $94.7 million or 13.4% of the Registrant's
net sales for fiscal 1999, $107.1 million or 12.0% of net sales for
fiscal 1998, and $58.2 million or 9.0% of net sales for fiscal 1997
consisted of wireless telephone products such as handheld cellular
telephones and accessories. The Registrant continually evaluates its
product mix and inventory levels and maintains flexibility by
adjusting its product offerings based on demand. The Registrant's
vendors generally warrant the products distributed by the Registrant
and allow the return of defective products.
Generally, the Registrant's authorized distributor
agreements with its microcomputer and wireless telephone products
vendors permit the Registrant to sell these vendors' products in the
United States and in designated countries in Latin America. The
Registrant will continue to seek to expand the geographical scope of
its distributor arrangements, which may include acquiring or
partnering with companies that already have the distribution rights of
a particular vendor in a specified country.
As a distributor, the Registrant incurs the risk that the
value of its inventory will be affected by industry-wide forces. Rapid
technological change is commonplace in the microcomputer and wireless
industries and can quickly diminish the marketability of certain
items, whose functionality and demand decline with the appearance of
new products. These changes, coupled with price reductions by vendors,
may cause rapid obsolescence of inventory and corresponding valuation
reductions in that inventory. Accordingly, the Registrant seeks
provisions in its vendor agreements common to industry practice which
provide price protections or credits for declines in inventory value
and the right to return unsold inventory. No assurance can be given,
however, that the Registrant can negotiate such provisions in each of
its contracts or that such industry practice will continue.
The Registrant purchases goods from approximately 100
vendors (direct and indirect) and has negotiated favorable terms from
certain vendors by purchasing a substantial volume of those vendors'
products. In fiscal 1999, products purchased from Hewlett-Packard
accounted for 21% of the Registrant's total purchases.
Hewlett-Packard has not renewed the Registrant's U.S. direct sourcing
relationship for Hewlett-Packard products for fiscal 2000. The Registrant
has, however, established relationships with other distributors from
which it sources Hewlett-Packard products under the Registrant's
Virtual Vendor Model program. The
<PAGE>
Registrant remains an authorized direct distributor of Hewlett-Packard
products for export into Latin America and for "in-country" purchases
through the Registrant's Latin American subsidiaries. The loss of
Hewlett-Packard as a virtual vendor could materially adversely affect
the financial condition of the Registrant. The percentage of goods
purchased during fiscal 1998 by the Registrant from Hewlett-Packard
and Seagate was 19.1% and 11.1%, respectively. During fiscal 1999,
the Registrant and Seagate no longer operated under a direct
distribution agreement.
There can be no assurance that the Registrant will be able
to maintain its existing vendor relationships or secure additional
vendors as needed. The Registrant's vendor relationships typically are
non-exclusive and subject to annual renewal, terminable by either
party on short notice, and contain territorial restrictions that limit
the countries in which the Registrant is permitted to distribute the
products. The loss of a major vendor, the deterioration of the
Registrant's relationship with a major vendor, the loss or
deterioration of vendor support for certain Registrant-provided
services, the decline in demand for a particular vendor's product, or
the failure of the Registrant to establish good relationships with
major new vendors or other Virtual Vendor Model distributors could
have a material adverse effect on the Registrant's business, financial
condition and results of operations.
Product orders typically are processed and shipped from the
Registrant's distribution facilities on the same day an order is
received or, in the case of orders received after 6:00 p.m., on the
next business day. The Registrant relies almost entirely on
arrangements with independent shipping companies for the delivery of
its products to United States customers. Products distributed to the
Latin American markets are delivered to the foreign purchasers or
their agents or representatives at the Registrant's Sao Paulo, Brazil;
Bogota, Colombia and Buenos Aires, Argentina facilities. Generally,
the Registrant's inventory level of products has been adequate to
permit the Registrant to be responsive to its customers' purchase
requirements. From time to time, however, the Registrant experiences
temporary shortages of certain products as its vendors experience
increased demand or manufacturing difficulties with respect to their
products, resulting in smaller allocations of such products to the
Registrant.
Sales and Marketing
The Registrant's sales are generated by a telemarketing
sales force, which consisted of approximately 162 persons at June 30,
1999 in sales offices located in Atlanta, Georgia; Miami, Florida;
Carlsbad, California; City of Industry, California; Sao Paulo, Brazil;
Bogota, Colombia and Buenos Aires, Argentina. Of the total number of
salespersons at June 30, 1999, 67 persons focused on sales to
customers for export to Latin America and on sales in Brazil, Colombia
and Argentina, substantially all of whom are fluent in Spanish or
Portuguese. The Registrant's Atlanta sales office maintains a separate
telemarketing sales force for the sale of wireless telephone products
to retailers and wireless telephone carriers and their authorized
agents located throughout the United States and Latin America.
Members of the sales staff are trained through intensive
in-house sales training programs, along with vendor-sponsored product
seminars. This training allows sales personnel to provide customers
with product information and to use their marketing expertise to
answer customers' questions about important new product
considerations, such as compatibility and capability,
<PAGE>
while offering advice on which products meet specific performance and
price criteria. The Registrant's salespeople are able to analyze
quickly the Registrant's extensive inventory through a sophisticated
management information system and recommend the most appropriate
cost-effective systems and hardware for each customer--whether a
full-line retailer or an industry-specific reseller.
The domestic sales force is organized in teams generally
consisting of two to four people. The Registrant believes that teams
provide superior customer service because customers can contact one of
several people. Moreover, the long-term nature of the Registrant's
customer relationships is better served by teams that increase the
depth of the relationship and improve the consistency of service. It
has been the Registrant's experience that the team approach results in
superior customer service and better employee morale.
Compensation incentives are provided to the Registrant's
salespeople, thus encouraging them to increase their product knowledge
and to establish long-term relationships with existing and new
customers. Customers can telephone their salespersons using a
toll-free number provided by the Registrant. Salespeople initiate
calls to introduce the Registrant's existing customers to new products
and to solicit orders. In addition, salespeople seek to develop new
customer relationships by using targeted mailing lists, vendor leads
and telephone directories of various cities.
The telemarketing salespersons are supported by a variety of
marketing programs. For example, the Registrant regularly sponsors
shows for its resellers where it demonstrates new product offerings
and discusses industry developments. Also, the Registrant's in-house
marketing staff prepares catalogs that list available microcomputer
and wireless telephone products and routinely produces marketing
materials and advertisements. In addition, the in-house marketing
staff publishes other direct mail pieces promoting specials and new
products, which can be ordered directly through salespeople or through
the Registrant's Internet web page providing 24-hour access to on-line
order entry. The Registrant's web page provides customers secured
access to place orders and review product specifications at times that
are convenient to them. Customers also can determine inventory
availability and pricing on a real-time basis and in the near future
verify the status of previously placed orders through hyperlinks to
certain independent shipping companies.
The Registrant prides itself on being service oriented and
has a number of on-going value-added services intended to benefit both
the Registrant's vendors and reseller customers. For example, the
Registrant is committed to training its salespeople to be technically
knowledgeable about the products they sell. This core competency
supplements the sophisticated technical support and configuration
services also provided by the Registrant. Salespeople who are
knowledgeable about the products they sell often can assist in the
configuration of microcomputer systems according to specifications
given by the resellers. The Registrant believes that its salesperson's
ability to listen to a reseller's needs and recommend a cost-efficient
solution strengthens the relationship between the salesperson and his
or her reseller and promotes customer loyalty to a vendor's products.
In addition, the Registrant provides such other value-added services
as new product demonstrations and technical education programs for
resellers, order fulfillment and electronic ordering, and
informational assistance through the Registrant's web page.
<PAGE>
Management continually evaluates the Registrant's product
mix and the needs of its customers in order to minimize inventory
obsolescence and carrying costs. The Registrant's rapid delivery terms
are available to all of its customers, and the Registrant seeks to
pass through its shipping and handling costs to its customers. The
Registrant offers various credit terms including open account, prepay,
credit card and COD to qualifying customers. The Registrant closely
monitors customers' creditworthiness through its on-line computer
system, which contains detailed information on each customer's payment
history and other relevant information. In addition, the Registrant
participates in national and international credit associations that
exchange credit rating information on customers. The Registrant
establishes reserves for estimated credit losses in the normal course
of business.
Customers
The Registrant serves an active, nonexclusive customer base
of over 13,000 resellers of microcomputer and wireless telephone
products. Resellers include value-added resellers, corporate resellers
and retailers. The Registrant believes the multi-billion dollar
microcomputer and wireless telephone wholesale distribution industries
serve customers primarily on a nonexclusive basis, which provides the
Registrant with significant growth opportunities. During fiscal 1999,
no single customer accounted for more than 3.0% of the net sales of
the Registrant. The Registrant believes that most of its customers
rely on distributors as their principal source of microcomputer and
wireless telephone products.
Competition
The microcomputer and wireless telephone distribution
industries are highly competitive, both in the United States and in
Latin America. Competition in these industries is typically
characterized by pricing pressures, product availability and potential
obsolescence, speed and accuracy of delivery, effectiveness of sales
and marketing programs, credit availability, ability to tailor
specific solutions to customer needs, quality of product lines
and services, and availability of technical support and product
information. Additionally, the Registrant's ability to compete
favorably is principally dependent upon its ability to control
inventory and other operating costs, react timely and appropriately to
short-and long-term trends, price its products competitively,
increase its net sales and maintain economies of scale. In the early
1990s, the United States microcomputer industry moved toward open
sourcing pursuant to which vendors authorized multiple distributors to
sell to resellers on equal terms rather than relying on exclusive
relationships. As a result, the competitive environment has become
more intense, leading to accelerating industry consolidation and
declining gross margins.
The Registrant's competitors include regional, national and
international microcomputer and wireless distributors, many of which
have substantially greater technical, financial and other resources
than the Registrant, as well as vendors that sell directly to
resellers and large resellers that sell to other resellers. Major
competitors include Ingram Micro, Inc., Merisel, Inc. and Tech
Data Corporation in the United States, and CHS Electronics, Inc. in
Latin America.
<PAGE>
Seasonality
The Registrant's sales currently are not subject to material
seasonal fluctuations although no assurance can be given that seasonal
fluctuations will not develop, especially during the holiday season in
the United States and Latin America. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Data; Seasonality."
Employees
As of June 30, 1999, the Registrant had 462 full-time
employees, 162 of whom were engaged in telemarketing and sales, 173 in
administration and 127 in shipping. The Registrant also utilized 18
part-time employees at such date. Management believes the
Registrant's relations with its employees are good and the Registrant
has never experienced a strike or work stoppage. There is no
collective bargaining agreement covering any of the Registrant's
employees.
Financial Information about Foreign and Domestic Operations and
Export Sales
For the fiscal year ended June 30, 1997, approximately 45% of
the Registrant's net sales were to customers for export principally
into Latin America. These customers historically have been serviced
through the Registrant's Miami, Florida warehouse facility with sales
denominated in U.S. dollars. During the fiscal year ended June 30,
1998, the Registrant began selling directly to customers in Brazil and
Colombia through the Registrant's facilities in Sao Paulo, Brazil and
Bogota, Colombia. During the fiscal year ended June 30, 1999, the
Registrant also began selling directly to customers in Argentina.
Sales are denominated in the respective local currencies of
these countries. Approximately 41% of the Registrant's net sales in
the fiscal year ended June 30, 1998 consisted of sales to customers
for export principally into Latin America and direct sales to
customers in Brazil and Colombia. Approximately 38% of the
Registrant's net sales in fiscal year ended June 30, 1999 consisted
of sales to customers for export principally into Latin
America and direct sales to customers in Brazil, Colombia and
Argentina. See also note 9 to the consolidated financial statements
of the Registrant for certain additional information concerning
the Registrant's domestic and foreign operations.
Item 2. PROPERTIES
The Registrant maintains its executive offices at 4916 North
Royal Atlanta Drive in Atlanta, Georgia, where 72 of its sales
employees are also located. The Registrant leases its
executive, administrative and sales office from Diamond Chip Group,
L.L.C., a Georgia limited liability company comprised of certain
minority shareholders of the Registrant, previously doing business as
Royal Park Company, a Georgia general partnership. The lease commenced
in April 1999 and expires in September 2006. It supercedes prior
leases originally entered into in 1984 between the Registrant's
predecessor and Royal Park Company. The facility consists
of approximately 30,000 square feet, with an annual rental of
approximately $176,000 through September 1999, increasing to
approximately $253,000 effective October 1, 1999, with
<PAGE>
annual increases of three percent through September 30, 2006. The
Registrant has a right of first refusal to purchase the facility
should it be offered for sale. The Registrant believes that the lease
is on terms no less favorable than those available from unaffiliated
parties.
The Registrant maintains warehouse facilities in Atlanta,
Georgia; City of Industry, California; Miami, Florida; Harrisburg,
Pennsylvania; Sao Paulo, Brazil; Bogota, Colombia and Buenos Aires,
Argentina. The Registrant's distribution facility in Atlanta, Georgia
consists of approximately 100,000 square feet subject to a lease
expiring January 31, 2000. Rental payments for this facility are
approximately $282,000 per annum. The Registrant believes there is
sufficient additional warehouse and sales office space available for
lease at reasonable prices near its principal facility in the event
the Registrant's growth plans so require.
The Registrant leases its sales and distribution facility in
Miami, Florida under a lease expiring March 31, 2001. This facility
consists of approximately 31,200 square feet at a monthly rental of
approximately $17,000. On July 24, 1996, the Registrant executed an
amendment to this lease which increased the leased space by
approximately 30,000 square feet (the "Expansion Space"). The monthly
rent for the Expansion Space is approximately $17,000 and the lease
term pertaining thereto expires on March 31, 2001.
On April 1, 1997, the Registrant began leasing an
approximately 50,000 square foot facility in City of Industry,
California. The City of Industry facility serves as a distribution
center for the Registrant. Payments under the lease will total
approximately $18,000 for each of the first 36 months of the lease and
will then increase to $20,000 per month thereafter. Pursuant to
its terms, the lease will expire on March 31, 2002 unless the
Registrant elects to exercise its option to renew the lease for one
additional five-year period.
On April 1, 1998, the Registrant began leasing an
approximately 102,000 square foot distribution facility in Harrisburg,
Pennsylvania. Payments for the lease will total approximately
$33,000 for each of the 24 months during the period beginning April 1,
1998 and ending March 31, 2000, approximately $34,000 for each of the
12 months during the period beginning April 1, 2000 and ending March
31, 2001, approximately $35,000 for each of the 12 months during the
period beginning April 1, 2001 and ending March 31, 2002 and
approximately $36,000 for each of the 12 months beginning April 1,
2002 and ending March 31, 2003. The average amount of payments for
the lease for each of the 60 months during the period beginning April
1, 1998 and ending March 31, 2003 will be approximately $33,000.
Effective December 1, 1998, the Registrant began subleasing
approximately 50,000 square feet of this facility for approximately
$18,000 per month for each of the 16 months during the period
beginning December 1, 1998 and ending March 31, 2000, and
approximately $18,500 for each of the 21 months beginning April 1,
2000 and ending December 31, 2001. The sub-lessee has an option to
extend its sublease to January 31, 2003.
On January 1, 1999 the Registrant began leasing an
approximately 35,000 square foot facility in Sao Paulo, Brazil,
replacing an approximately 12,900 square foot distribution facility
in Tambore, Brazil and an approximately 4,300 square foot
administrative center and sales office in Sao Paulo, Brazil, both of
which the Registrant had leased since December 1, 1997. The new
Sao Paulo facility serves as a sales office, administrative office
and distribution center for SED International do Brasil Ltda., a
wholly owned subsidiary of the Registrant. Monthly payments
<PAGE>
for the lease were approximately $8,500 per month in January and
February 1999 and increased to approximately $17,000 per month
effective March 1, 1999. The lease will expire on January 31,
2003.
On December 1, 1997, the Registrant began leasing an
approximately 18,000 square foot administrative center and sales
office in Bogota, Colombia. The Bogota center serves as a sales
office and distribution facility for SED International de Colombia
Ltda., a wholly owned subsidiary of the Registrant. Monthly payments
for the lease totaled approximately $4,000 for the first month of the
lease, after which the rent increased to approximately $6,000 for each
of the remaining 34 months of the lease. Pursuant to its terms, the
lease will expire on November 30, 2000 unless the Registrant elects to
exercise its option to renew the lease for an additional three-year
period.
On November 1, 1998, the Registrant assumed the lease
obligations for several small facilities in Buenos Aires, Argentina.
These facilities consist of various spaces in the Galeria
business complex and are utilized for sales offices, administrative
offices and warehouses by Intermaco S.R.L., a wholly owned subsidiary
of the Registrant. Aggregate space is approximately 5,500 square
feet. Payments total approximately $71,000 annually. The leases
expire at various dates between November 1, 2000 and April 1, 2002.
Additionally, the Registrant rents space in a bonded warehouse in
Buenos Aires, Argentina on a month-to-month basis at an average cost
of $4,500 per month.
Item 3. LEGAL PROCEEDINGS
The Registrant is involved in litigation relating to claims
arising out of its operations in the normal course of business. The
Registrant is not currently engaged in any legal proceedings that
are expected, individually or in the aggregate, to have a material
adverse effect on the Registrant.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not appliable.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The following table sets forth the high and low sales
prices for Registrant's common stock as reported for each quarter of
fiscal 1999 and 1998 as reported by the Nasdaq National Market
("Nasdaq"). The quotations are inter-dealer prices without retail
mark-ups, mark-downs or commissions and may not represent actual
transactions.
Sales Price
-------------------
High Low
----- ------
Fiscal year 1999
First $ 9.25 $ 3.75
Second 6.00 3.31
Third 5.50 2.44
Fourth 3.78 2.06
Fiscal year 1998
First $ 20.00 $ 12.88
Second 19.75 8.75
Third 13.94 10.31
Fourth 13.13 8.00
There were 7,016,453 shares of common stock outstanding and
approximately 5,000 beneficial owners of common stock of the Company
(including individual participants in securities position listings) as
of September 24, 1999.
The Registrant has never declared or paid cash dividends on
its common stock. The Registrant currently intends to retain earnings
to finance the growth and development of its business and does not
anticipate paying cash dividends in the foreseeable future. Future
policy with respect to payment of dividends on the common stock will
be determined by the Board of Directors based upon conditions then
existing, including the Registrant's earnings and financial
condition, capital requirements and other relevant factors. SED
International, the earnings of which would be the primary source of
any dividend payments, and the Registrant are parties to a
revolving credit agreement which contains certain financial covenants
that may impact the Registrant's ability to pay dividends should it
choose to do so. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital
Resources."
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
FIVE YEAR FINANCIAL SUMMARY
Year ended June 30,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net Sales $707,750,000 $892,629,000 $646,336,000 $468,298,000 $398,753,000
Cost of sales, including buying
and occupancy expenses 676,342,000 848,090,000 607,437,000 438,837,000 370,548,000
------------ ------------ ------------ ------------ ------------
Gross profit 31,228,000 44,539,000 38,899,000 29,461,000 28,205,000
Selling, general and
administrative expenses 54,426,000 40,309,000 23,941,000 19,493,000 19,104,000
Impairment charges 15,386,000
Start-up expenses 1,400,000
------------ ------------ ------------ ------------ ------------
Operating income (loss) (38,584,000) 2,830,000 14,958,000 9,968,000 9,101,000
Interest expense-net 731,000 2,728,000 2,128,000 902,000 688,000
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes (39,315,000) 102,000 12,830,000 9,066,000 8,413,000
Income taxes (benefit) (1,407,000) 357,000 4,925,000 3,516,000 3,191,000
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $(37,908,000) $ (255,000) $ 7,905,000 $ 5,550,000 $ 5,222,000
============ ============ ============= ============ ============
Net earnings (loss) per common share
Basic $(4.36) $(.03) $1.10 $.77 $.75
============ ============ ============= ============ ============
Diluted $(4.36) $(.03) $1.04 $.76 $.74
============ ============ ============= ============ ============
Weighted average number
of shares outstanding
Basic 8,698,000 9,602,000 7,138,000 7,190,000 6,964,000
============ ============ ============= ============ ============
Diluted 8,698,000 9,602,000 7,634,000 7,280,000 7,069,000
============ ============ ============= ============ ============
At June 30,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------- ------------ ------------
Balance sheet data:
Working capital $ 45,193,000 $107,741,000 $ 79,350,000 $ 40,496,000 $ 41,355,000
Total assets 141,090,000 266,565,000 197,329,000 131,305,000 87,375,000
Long-term obligations
less current portion 8,500,000 31,000,000 56,000,000 10,610,000 11,500,000
Shareholders' equity 52,810,000 106,275,000 48,896,000 41,650,000 34,633,000
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes
thereto and the Selected Consolidated Financial Data included
elsewhere herein. Historical operating results are not necessarily
indicative of trends in operating results for any future period.
Overview
The Company is an international distributor of microcomputer
products, including personal computers, printers and other peripherals
and networking products throughout the United States and Latin
America. The Company has recently transformed itself from a
regional United States distributor into an international distributor
with leading brand name vendor lines, a nationwide presence in the
United States and a leadership position in Latin America. In fiscal
1999, the Company's net sales to customers in the United States
represented approximately 62.3% of total net sales. Net sales for
export principally into Latin America and in-county net sales, in
Brazil, Colombia and Argentina represented approximately 37.7% of
total net sales for fiscal 1999. Net sales of microcomputer products
generated approximately 86.6% of total net sales and wireless
telephone products represented the remaining 13.4% for fiscal 1999.
For the Company's domestic operations, all purchases and
sales are denominated in United States dollars. For the Company's
operations in Brazil, Colombia and Argentina, in-country
transactions are conducted in the respective local currencies of these
three locations while import purchases are denominated in United
States dollars.
The Company incurred an operating loss of $37.9 million in
fiscal 1999. This loss resulted primarily from two negative trends:
(1) a decision by one of the Company's largest vendors to reduce the
number of distributors, including SED, thereby diminishing sales and
gross profit, and (2) the sharp reductions in our Miami business,
which cut export activity to approximately half of its prior level of
sales primarily due to economic instability in the Latin American
region. Other factors contributing to the year's financial results
included a devaluation loss in Brazil and excess overhead costs in the
U.S. As a result of certain of these trends and events, the loss for
fiscal 1999 included impairment charges of $15.4 million for the
write-down of certain long-lived assets (see note 3 to the
consolidated financial statements.)
During fiscal 2000, the Company expects to experience a
continuation of its highly competitive and difficult business
environment. Evidence of this competitive and difficult
business environment includes the following trends: (1) reduction in
direct vendor relationships as the number of distributors is reduced,
(2) difficulties in receiving vendor incentive support as a
result of vendor profitability problems and (3) difficulties in
pricing channels as the remaining distributors reduce prices in order
to retain market share. This environment could continue to
adversely impact the Company's operating performance.
<PAGE>
Results of Operations
The following table sets forth, for the periods presented,
the percentage of net sales represented by certain items in the
Company's Consolidated Statements of Earnings:
<TABLE>
Year Ended June 30,
------------------------------------
1999 1998 1997
----- ----- ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy expenses 95.6 95.0 94.0
Gross profit 4.4 5.0 6.0
Selling, general and administrative expenses 7.7 4.5 3.7
Impairment charges 2.2
Start-up expenses 0.2
Operating income (loss) (5.5) 0.3 2.3
Interest expense, net 0.1 0.3 0.3
Earnings (loss) before income taxes (5.6) 2.0
Income taxes (benefit) (.2) 0.8
Net earnings (loss) (5.4)% 0.0% 1.2%
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net sales decreased 20.7%, or $185.0 million, to $707.6
million in fiscal 1999 compared to $892.6 million in fiscal 1998.
Information concerning the Company's domestic and foreign sales
is summarized below:
<TABLE>
Year Ended
June 30, Change
--------------------- -------------------------
1999 1998 Amount Percent
------ ------ -------- -------
<S> <C> <C> <C> <C>
United States:
Domestic $440.5 $528.2 $ (87.7) 16.6%
Export 191.6 341.9 (150.3) 44.0%
Latin America 82.9 24.6 58.3 237.0%
Elimination ( 7.4) (2.1) (5.3) N/A
------ ------ ------- -------
Consolidated $707.6 $892.6 $(185.0) 20.7%
====== ====== ======= =======
</TABLE>
The overall decline resulted from a decrease in United
States domestic net sales, a decline in net sales to customers for
export principally to Latin America and a net increase in in-country
net sales for Brazil (Magna Distribuidora Ltda. acquired in December
1997 and now operating as SED International do Brasil Ltda.), Colombia
(commenced operations in May 1998 and operating as SED International
de Colombia Ltda.) and Argentina (Intermaco S.R.L. acquired in
November 1998).
<PAGE>
The decrease in sales in the United States was primarily due
to lower sales of mass storage products resulting from the loss of a
key vendor. Sales of microcomputer products represented approximately
86.6% of the Company's net sales in fiscal 1999 compared to 88.0% for
fiscal 1998. Sales of wireless telephone products accounted for
approximately 13.4% of the Company's net sales in fiscal 1999 compared
to 12.0% for fiscal 1998.
Gross profit decreased $13.3 million to $31.2 million in
fiscal 1999, compared to $44.5 million in fiscal 1998. Gross profit
for fiscal 1999 was impacted by $7.5 million of inventory
markdowns for slow moving inventory. Overall, total gross profit
dollars have declined with sales. Gross profit as a percentage of net
sales decreased to 4.4% in fiscal 1999 from 5.0% in fiscal 1998. The
change in gross profit as a percentage of sales was due principally to
a combination of lower sales and the change in the mix of products
sold. Overall, the Company continues to experience pricing pressure
in selling products.
Selling, general and administrative expenses (excluding
$15.4 million of impairment charges for fiscal 1999) increased 35.0%
to $54.4 million, compared to $40.3 million in fiscal 1998. These
expenses as a percentage of net sales increased to 7.7% in 1999
compared to 4.5% in fiscal 1998. The dollar increase in these expenses
is primarily due to increased provisions for accounts receivable
losses in fiscal 1999 and the inclusion of operations of Latin
American affiliates.
Net interest expense was $0.7 million in fiscal 1999
compared to interest expense of $2.7 million in fiscal 1998. This net
change resulted primarily from a reduction in working capital
requirements in fiscal 1999.
Income tax benefit was $1.4 million in fiscal 1999 compared
to an income tax expense of $0.4 million in fiscal 1998. The
effective tax rate (benefit) for fiscal 1999 was significantly
reduced as a result of an increase in the valuation allowance. At
June 30, 1999, the Company has gross net operating loss carryforwards
for U.S. federal and state income tax purposes of approximately $23.7
million expiring at various dates through 2019. At June 30, 1999, the
Company has gross net operating loss carryforwards for foreign income
tax purposes of approximately $5.2 million and $1.0 million in Brazil
and Colombia, respectively. The carryforwards in Brazil do not
expire, subject to certain limitations. The carryforwards in
Colombia expire at various dates through 2004. At June 30, 1999, the
Company has recorded a valuation allowance for principally all
deferred tax assets as there is no assurance these assets will
be realized.
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Net sales increased 38.1%, or $246.3 million, to $892.6
million in fiscal 1998 compared to $646.3 million in fiscal 1997. This
growth resulted from an increase in United States net sales, net
sales to customers for export principally into Latin America, and net
sales in-country for Brazil and Colombia. Net sales in the United
States increased approximately 48.5%, or $172.6 million, to $528.2
million in fiscal 1998 compared to $355.6 million in fiscal 1997,
primarily due to increased sales of printer and mass storage products.
Net sales for export and in-country sales in Brazil and Colombia
increased 25.3%, or $73.7 million, to $364.4 million in fiscal 1998
compared to $290.7 million in fiscal 1997, primarily due to the
December 1997 acquisition of Magna Distribuidora Ltda. in Brazil.
Sales of microcomputer products represented approximately
88.0% of the Company's fiscal 1998 net sales compared to 91.0% for
fiscal 1997. Sales of wireless telephone products accounted for
approximately 12.0% of the Company's fiscal 1998 net sales compared to
9.0% for fiscal 1997.
Gross profit increased 14.4%, or $5.6 million, to $44.5
million in fiscal 1998 compared to $38.9 million in fiscal 1997. Gross
profit as a percentage of net sales decreased to 5.0% in fiscal
1998 from 6.0% in fiscal 1997. The dollar increase in gross profit
relates directly to the increase in net sales. The decrease in the
gross profit percentage was primarily due to lower pricing of hard
disc drives, the fourth quarter write-down of certain inventory,
including disc drives, and competitive pricing in general.
Selling, general and administrative expenses (excluding $1.4
million of start-up expenses) increased 68.6%, or $16.4 million, to
$40.3 million in fiscal 1998, compared to $23.9 million in fiscal
1997. These expenses as a percentage of net sales increased to
4.5% in fiscal 1998 compared to 3.7% in fiscal 1997. The dollar
increase in these expenses was primarily due to increased salaries and
commissions for salespeople, new and expanded sales and distribution
facilities, and expenses of operations in Latin America. Additionally,
the Company incurred significantly higher expenses for uncollectible
customer accounts in the fourth quarter.
As a result of a transaction with Globelle, Inc.
("Globelle"), in June 1997, the Company acquired the distribution
rights for certain significant vendor lines in the United States and
subsequently hired 36 experienced salespeople formerly with Globelle.
Because the Globelle transaction was not an acquisition of a going
business concern, a transition period followed the close of that
transaction during which the newly-hired sales people became
acclimated to the Company's policies, procedures and product
offerings, and the inventory of new product lines became stocked at
the Company's warehouses. As a result of this transaction, the
Company incurred $1.4 million of start-up expenses during the fiscal
quarter ended September 30, 1997 reflecting costs associated with the
hiring of new sales people, opening new sales offices and other
transition expenses.
Net interest expense increased 28.2%, or $0.6 million, to
$2.7 million in fiscal 1998 compared to $2.1 in fiscal 1997. Interest
expense as a percentage of net sales was 0.3% both in fiscal 1998 and
in fiscal 1997. The increase in interest expense was primarily due to
borrowing costs associated with funding increased levels of working
capital.
<PAGE>
Income tax expense was recorded at an effective annual rate
of 350.0% in fiscal 1998 compared to 38.4% in fiscal 1997. The
increase in the effective rate in fiscal 1998 relates
primarily to non-deductible goodwill amortization expense and
valuation allowances on foreign losses.
Quarterly Data; Seasonality
The following table sets forth certain unaudited quarterly
historical consolidated financial data for each of the Company's last
eight fiscal quarters ended June 30, 1999. This unaudited quarterly
information has been prepared on the same basis as the annual
information presented elsewhere herein and, in the Company's opinion,
includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the selected
quarterly information. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere herein. The operating results for any quarter shown are not
necessarily indicative of results for any future period.
<TABLE>
Quarter Ended (in thousands, except per share data
Septem- Decem- Septem- Decem-
ber 30, ber 31, March 31, June 30, ber 30, ber 31, March 31, June 30,
1997 1997 1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $214,032 $215,772 $243,281 $219,544 $217,013 $171,235 $157,674 $161,648
Gross profit 11,607 13,188 13,521 6,233 11,225 11,220 (1,584) 10,367
Operating income (loss) 3,433 4,958 3,892 (9,543) 1,101 (561) (39,949) 825
Net earnings (loss) 1,409 2,641 1,919 (6,244) 342 (273) (38,859) 882
Earnings (loss) per share:
Basic .20 .26 .18 (.59) .03 (.03) (4.51) .13
Diluted .18 .25 .18 (.59) .03 (.03) (4.51) .13
</TABLE>
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from
the funding of working capital needs, including inventories and trade
accounts receivable. Historically, the Company has financed its
liquidity needs largely through internally generated funds, borrowings
under its credit agreement and vendor lines of credit. The Company
derives all of its operating income and cash flow from its
subsidiaries and relies on payments from its subsidiaries to generate
the funds necessary to meet its obligations. As the Company pursues
its growth strategy and acquisition opportunities both in the United
States and in Latin America, management believes that exchange
controls in certain countries may limit the ability of the Company's
present and future subsidiaries in those countries to make payments to
the Company.
Operating activities provided $45.5 million, used $23.3
million and used $29.0 million of cash in fiscal 1999, 1998 and 1997,
respectively. The source of cash in fiscal 1999 resulted
<PAGE>
primarily from decreases of $86.5 million in inventory and $17.6
million in accounts receivable partially offset by a $53.6 million
decrease in accounts payable. The use of cash in fiscal 1998 resulted
primarily from increases of $33.3 million in accounts receivable and
$25.2 million in inventory partially offset by a $29.6 million
increase in accounts payable. The use of cash in fiscal 1997 resulted
primarily from increases of $12.5 million in accounts receivable and
$40.3 million in inventory partially offset by net earnings of $7.9
million and a $12.6 million increase in accounts payable.
Investing activities used $6.8 million, $6.3 million and
$15.5 million of cash in fiscal 1999, 1998 and 1997, respectively.
The significant use of cash in fiscal 1999 was primarily for the
purchase of Intermaco S.R.L. for $4.3 million. The remaining use of
cash in fiscal 1999 was primarily due to the purchase of computer
equipment and software. The Company used $0.7 million in fiscal 1998
to purchase SED International do Brasil Ltda. The significant use of
cash in fiscal 1997 was primarily for the purchase of certain
distribution rights and equipment from Globelle for $13.0 million. The
Company paid $0.9 million in fiscal 1998 for additional distribution
rights benefited from the Globelle transaction. The remaining use of
cash in fiscal 1998, as well as the use of cash in fiscal 1997, was
primarily due to the upgrade of the Company's computer and telephone
systems as well as the expansion of warehouse and other facilities in
each year.
Financing activities used $37.3 million of cash in fiscal
1999 and provided $31.6 million and $44.6 million of cash in fiscal
1998 and 1997, respectively. The net cash used in financing activities
in fiscal 1999 primarily related to net borrowings of $22.5 million
under the Company's credit agreement and the repurchase of 3,946,250
shares of common stock for approximately $14.8 million in open market
and privately negotiated transactions under a stock buy-back
program previously authorized by the Board of Directors. In fiscal
1998, the Company received $54.4 million, net of expenses, from a
public stock offering of 3,000,000 shares of its common
stock. The net proceeds from this stock offering were used to reduce
indebtedness under the Company's credit agreement. Additional
financing activities in fiscal 1998 relate to the exercise
of stock options for $1.6 million and net borrowings of $25.0 million
under the Company's credit agreement. In fiscal 1997, the Company
repurchased 200,000 shares of common stock for approximately $1.3
million in an open market transaction under a stock buy-back program
previously authorized by the Board of Directors. Net borrowings under
the Company's credit agreement in fiscal 1997 were $45.4 million.
The Company's credit agreement with Wachovia Bank N.A.
("Wachovia"), as amended in August 1999, provides for a line of credit
of up to $50.0 million. At June 30, 1999, the Company had borrowings
of $8.5 million under this facility. Maximum borrowings under the
credit agreement are generally based on eligible accounts receivable
and inventory (as defined in the credit agreement) less a $15.0
million reserve. The $15.0 million reserve can be drawn upon, if
necessary, to finance obligations to Finova Capital Corporation, which
finances the Company's purchases from certain vendors. If this
amended agreement had been in place at June 30, 1999, available
borrowings under this agreement, based on collateral limitations,
would have been $40.0 million at that date ($15.0 million of which
would only have been available to finance obligations due to Finova,
if necessary).
<PAGE>
The Wachovia credit agreement is secured by accounts
receivable and inventory and requires maintenance of certain minimum
working capital and other financial ratios and has certain
dividend restrictions. The Company may borrow at the prime rate
offered by Wachovia (8.0% at June 30, 1999) or the Company may fix the
interest rate for periods of 30 to 180 days under various interest
rate options. The credit agreement requires a commitment fee of .25%
of the unused commitment and expires in August 2001. Average
borrowings, maximum borrowings and the weighted average interest rate
for fiscal 1999 were $7.2 million, $32.0 million and 8.12%,
respectively. Average borrowings, maximum borrowings and the weighted
average interest rate for fiscal 1998 were $33.9 million, $80.0
million and 7.87%, respectively. At June 30, 1999 the Company was
not initially in compliance with certain covenants; such covenants
were retroactively amended by the bank effective June 30, 1999 to
permit the Company to be in compliance.
Management believes that the credit agreement together with
vendor lines of credit and internally generated funds, will be
sufficient to satisfy its working capital needs during fiscal
2000.
Inflation and Price Levels
Inflation has not had a significant impact on the Company's
business because of the typically decreasing costs of products sold by
the Company. The Company also receives vendor price protection for a
significant portion of its inventory. In the event a vendor reduces
its prices for goods purchased by the Company prior to the Company's
sale of such goods, the Company generally has been able either to
receive a credit from the vendor for the price differential or to
return the goods to the vendor for a credit against the purchase
price. As the Company pursues its growth strategy to acquire
businesses and assets in foreign countries, the Company may operate in
certain countries that have experienced high rates of inflation and
hyperinflation. At this time, management does not expect that
inflation will have a material impact on the Company's business
in the immediate future.
Year 2000
The Company has evaluated its major computer software and
operating systems to determine their respective date sensitivity in
light of the possible inability of certain computer programs to
handle dates beyond the year 1999 (the "Year 2000 Issue"). The
Company's plans for dealing with the Year 2000 Issue have included the
following phases: inventorying affected technology and
assessing potential impact of the Year 2000 Issue; determining the
need for software and operating system upgrades and replacements;
implementing and testing newly installed software and operating
systems; and developing contingency plans. Many of the Company's
hardware, software and operating systems have already been updated to
the latest versions available.
The Company relies on third-party suppliers for many
systems, products and services including telecommunications and data
center support. The Company may be adversely impacted if these
suppliers have not made the necessary changes to their own
systems and products in a timely manner.
<PAGE>
The cost to the Company of software and hardware remediation
was approximately $200,000 during fiscal 1999 and is estimated to be
$50,000 during fiscal 2000. The total cost of updating the Company's
software and operating systems is currently estimated at approximately
$500,000.
Potential risk factors for the Company relating to the Year
2000 Issue may include loss of order processing and order shipment
capabilities, the potential inability to effectively manage
distribution center inventory, and potential complications with
telephone or email communications. The Company currently believes that
the majority of its mission critical systems pose a low risk to the
Company's overall operational abilities, due to the fact that the
Company has updated most of its software and operating systems to
recent versions. Furthermore, the Company has taken measures to ensure
that its systems that pose a potentially higher risk to the Company's
overall operational abilities have been updated.
The Company believes that it is taking the appropriate
measures to develop contingency plans that address the likely worst
case scenarios relating to the Year 2000 Issue. Although the
Company believes that the measures it is currently undertaking and
intends to undertake will adequately address the Year 2000 issue, it
has developed alternative plans should potential complications arise.
Though essential to the operation of the Company's business, the
software and operating systems that the Company currently utilizes may
be supplemented by manual processing and shipment of orders.
Forward-Looking Statements
The matters discussed herein and in the Letter to
Shareholders accompanying this Annual Report on Form 10-K contain
certain forward-looking statements that represent the Company's
expectations or beliefs, including, but not limited to, statements
concerning future revenues and future business plans and
non-historical Year 2000 information. When used by or on behalf of the
Company, the words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "intend," "plan" and similar expressions are
intended to identify forward-looking statements. These statements by
their nature involve substantial risks and uncertainties, certain of
which are beyond the Company's control. The Company cautions that
various factors, including the factors described under the captions
"Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's
Registration Statement on Form S-3 (SEC File No. 333-35069) as well as
general economic conditions and industry trends, foreign currency
fluctuations, the level of acquisition opportunities available to
the Company and the Company's ability to negotiate the terms of such
acquisitions on a favorable basis, a dependence upon and/or loss of
key vendors or customers, the transition to indirect distribution
relationships for some products, the loss of strategic product
shipping relationships, customer demand, product availability,
competition (including pricing and availability), concentrations of
credit risks, distribution efficiencies, capacity constraints and
technological difficulties could cause actual results or outcomes to
differ materially from those expressed in any forward-looking
statements of the Company made by or on behalf of the Company. The
Company undertakes no obligation to update any forward-looking
statement.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors
SED International Holdings, Inc.
We have audited the accompanying consolidated balance sheets
of SED International Holdings, Inc. and subsidiaries as of June 30,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the
period ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position of
SED International Holdings, Inc. and subsidiaries as of June 30, 1999
and 1998 and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1999 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
September 22, 1999
<PAGE>
<TABLE>
SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,266,000 $ 2,693,000
Trade accounts receivable, less allowance for doubtful
accounts of $3,253,000 (1999) and $2,362,000 (1998) 58,085,000 86,298,000
Inventories 57,092,000 141,196,000
Refundable income taxes 3,801,000 3,489,000
Deferred income taxes 290,000 1,827,000
Other current assets 2,439,000 1,528,000
------------ ------------
Total current assets 124,973,000 237,031,000
Property and equipment net 6,994,000 9,490,000
Intangibles-net 9,123,000 20,044,000
------------ ------------
Total assets $141,090,000 $266,565,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 72,375,000 $122,959,000
Accrued and other current liabilities 7,405,000 6,331,000
Total current liabilities 79,780,000 129,290,000
Revolving bank debt 8,500,000 31,000,000
Commitments (Note 6)
Shareholders' equity:
Preferred stock, $1.00 par value;
129,500 shares authorized, none issued
Common stock, $.01 par value;
100,000,000 shares authorized, 11,158,311 (1999) and
10,862,211 (1998) shares issued, 6,866,453 (1999) and
10,516,603 (1998) shares outstanding 112,000 108,000
Additional paid-in capital 71,712,000 70,659,000
Retained earnings 932,000 38,840,000
Accumulated other comprehensive loss (984,000) (119,000)
Treasury stock, 4,291,858 (1999) and 345,608 (1998) shares, at cost (17,764,000) (2,937,000)
Prepaid compensation stock awards (1,198,000) (276,000)
------------ ------------
Total shareholders' equity 52,810,000 106,275,000
------------ ------------
Total liabilities and shareholders' equity $141,090,000 $266,565,000
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
-----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $707,570,000 $892,629,000 $646,336,000
Cost of sales, including buying and
occupancy expenses 676,342,000 848,090,000 607,437,000
------------ ------------ ------------
Gross profit 31,228,000 44,539,000 38,899,000
Selling, general and administrative expenses 54,426,000 40,309,000 23,941,000
Impairment charges 15,386,000
Start-up expenses 1,400,000
------------ ------------ ------------
Operating income (loss) (38,584,000) 2,830,000 14,958,000
Interest expense net 731,000 2,728,000 2,128,000
------------ ------------ ------------
Earnings (loss) before income taxes (39,315,000) 102,000 12,830,000
Income taxes (benefit) (1,407,000) 357,000 4,925,000
------------ ------------ ------------
Net earnings (loss) $(37,908,000) $ (255,000) $ 7,905,000
============ ============ ============
Net earnings (loss) per common share:
Basic $(4.36) $(.03) $1.10
Diluted $(4.36) $(.03) $1.04
Weighted average number of shares outstanding:
Basic 8,698,000 9,602,000 7,183,000
Diluted 8,698,000 9,602,000 7,634,000
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Prepaid
Other Compens-
Common Stock Additional Compre- ation Total
Par Paid-In Retained hensive Treasury Stock Stock holder's
Shares Value Capital Earnings Loss Shares Cost Awards Equity
---------- -------- ----------- ----------- --------- ------- ----------- --------- ---------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JUNE 30,
1996 7,444,712 $ 74,000 $12,204,000 $31,190,000 $(999,999) 125,590 $(1,390,000) $(428,000) $41,650,000
Amortiz-
ation of
stock
awards 122,000 122,000
Stock
awards
cancelled (5,000) (28,000) 28,000
Stock
options
exercised 83,074 1,000 396,000 397,000
Tax benefit
of stock
awards and
options 147,000 147,000
Treasury
stock
purchased 200,000 (1,325,000) (1,325,000)
Net earnings
and com-
prehensive
income 7,905,000 7,905,000
---------- -------- ----------- ----------- --------- ------- ----------- --------- -----------
BALANCE,
JUNE 30,
1997 7,522,786 75,000 12,719,000 39,095,000 325,590 (2,715,000) (278,000) 48,896,000
Stock
awards
issued to
employees 16,600 199,000 (199,000)
Amortiz-
ation of
stock
awards 108,000 108,000
Stock
awards
cancelled (11,900) (93,000) 93,000
Stock
options
exercised 255,006 2,000 1.576,000 1,578,000
Tax benefit
of stock
awards and
options 818,000 818,000
Sale of
common
stock, net
of offering
costs of
$955,000 3,000,000 30,000 54,395,000 54,425,000
Treasury
stock
purchased 20,018 (222,000) (222,000)
Issuance of
common
stock for
business
acquired 79,719 1,000 1,045,000 1,046,000
Net loss (255,000) (255,000)
Transla-
tion
adjust-
ments (119,000) (119,000)
Compre-
hensive
loss (374,000)
---------- -------- ----------- ----------- --------- ------- ----------- --------- -----------
BALANCE,
JUNE 30,
1998 10,862,211 108,000 70,659,000 38,840,000 $(119,000) 345,608 (2,937,000) (276,000) 106,275,000
Stock
awards
issued to
employees 305,000 4,000 1,118,000 (1,122,000)
Amortiz-
ation of
stock
awards 132,000 132,000
Stock
awards
cancelled (9,300) (68,000) 68,000
Stock
options
exercised 400 3,000 3,000
Treasury
stock
purchased 3,946,250 (14,827,000) (14,827,000)
Net loss (37,908,000) (37,908,000)
Transla-
tion
adjust-
ments (865,000) (865,000)
Compre-
hensive
loss (38,773,000)
---------- -------- ----------- ----------- --------- ------- ----------- --------- -----------
BALANCE,
JUNE 30,
1999 11,158,311 $112,000 $71,712,000 $ 932,000 $(984,000) 4,291,858 $(17,764,000) $(1,198,000) $52,810,000
========== ======== =========== =========== ========= ========= ============ =========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
---------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities:
Net earnings (loss) $(37,908,000) $ (255,000) $ 7,905,000
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Impairment charges for long-lived assets 15,386,000
Depreciation and amortization 3,206,000 2,847,000 1,731,000
Compensation stock awards 132,000 108,000 122,000
Provision for losses on accounts receivable 13,622,000 6,073,000 1,391,000
Changes in assets and liabilities, net of effects of
acquired business in fiscal 1999 and 1998:
Trade accounts receivable 17,639,000 (33,254,000) (12,515,000)
Inventories 86,489,000 (25,248,000) (40,312,000)
Refundable income taxes (312,000) (3,489,000)
Deferred income taxes 1,823,000 (604,000) 7,000
Other current assets (865,000) (129,000) (692,000)
Trade accounts payable (53,582,000) 29,611,000 12,562,000
Income taxes payable (695,000)
Accrued and other current liabilities (92,000) 1,063,000 1,521,000
------------ ------------ ------------
Net cash provided by (used in)
operating activities 45,538,000 (23,277,000) (28,975,000)
------------ ------------ ------------
Investing Activities:
Purchase of equipment (2,470,000) (4,767,000) (3,521,000)
Purchase of businesses, net of cash acquired (4,306,000) (659,000)
Purchase of distribution rights (867,000) (11,992,000)
------------ ------------ ------------
Net cash used in investing activities (6,776,000) (6,293,000) (15,513,000)
------------ ------------ ------------
Financing Activities:
Net proceeds from (payments of) revolving bank debt (22,500,000) (25,000,000) 45,390,000
Net proceeds from issuance of common stock 3,000 56,003,000 397,000
Tax benefit from stock awards and options 818,000 147,000
Purchase of treasury stock (14,827,000) (222,000) (1,325,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities (37,324,000) 31,599,000 44,609,000
------------ ------------ ------------
Effect of exchange rate changes on cash (865,000) (119,000)
------------ ------------ ------------
Increase in cash and cash equivalents 573,000 1,910,000 121,000
Cash and Cash Equivalents
Beginning of year 2,693,000 783,000 662,000
------------ ------------ ------------
End of year $ 3,266,000 $ 2,693,000 $ 783,000
============ ============ ============
Supplemental Disclosures of
Cash Flow Information-
Cash paid during the year for:
Interest $ 956,000 $ 2,765,000 $ 2,167,000
Income taxes 316,000 3,545,000 5,257,000
Liabilities assumed in acquisitions 4,163,000 6,183,000
</TABLE>
See notes to consolidated financial statements
<PAGE>
SED INTERNATIONAL HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the years ended June 30, 1999, 1998 and 1997
1. Summary Of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements
include the accounts of SED International Holdings, Inc. and its
wholly-owned subsidiaries, SED International, Inc. (formerly
Southern Electronics Distributors, Inc.), SED International do Brasil
(formerly SED Magna Distribuidora Ltda.), SED Magna (Miami), Inc., SED
International de Colombia Ltda., and Intermaco S.R.L. (collectively
the "Company"). All intercompany accounts and transactions have
been eliminated.
Description of Business--The Company is an international wholesale
distributor of microcomputers, computer peripheral products and
wireless telephone products, serving value-added resellers and
dealers.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash Equivalents--Cash equivalents are short-term investments purchased
with a maturity of three months or less.
Inventories--Inventories are stated at the lower of cost (first-in,
first-out method) or market and include in-transit inventory of
$10,313,000 at June 30, 1999 and $26,171,000 at June 30, 1998.
Property and Equipment--Property and equipment are recorded at cost.
Depreciation is computed principally by the straight-line method over
the estimated useful lives, three to seven years, of the related
assets or the lease term, whichever is shorter.
Intangible Assets--Intangible assets consist primarily of goodwill and
distribution rights. Goodwill represents the excess of the cost of
acquired businesses over the fair value of net identifiable assets
acquired and is amortized using the straight-line method principally
over 30 years. Distribution rights have been amortized using the
straight-line method over 25 to 30 years.
Impairment--The Company periodically reviews property and equipment and
intangible assets for impairment based on judgments as to the future
undiscounted cash flows from related operations. An impaired asset is
written down to its estimated fair market value based on the
information available; estimated fair market value is generally
measured by discounting estimated future cash flows.
<PAGE>
Foreign Currency Translation--The assets and liabilities of foreign
operations are translated at the exchange rates in effect at the
balance sheet date, with related translation gains or losses reported
as a separate component of shareholders' equity. The results of
foreign operations are translated at the weighted average exchange
rates for the year. Gains or losses resulting from foreign currency
transactions are included in the statement of earnings.
Earnings Per Common Share--Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed
using the weighted-average number of common shares and dilutive
potential common shares outstanding. Dilutive potential common shares
are additional common shares assumed to be exercised.
The Company's diluted EPS differs from basic EPS solely from the
effect of dilutive stock options and restricted stock awards. For the
years ended June 30, 1999, 1998 and 1997 options for approximately
1,678,000, 1,602,000 and 53,000 common shares, respectively, were
excluded from the diluted EPS calculation due to their antidilutive
effect.
Recently Issued Accounting Pronouncements--In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This
statement requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a
hedge transaction and, if so, the type of the hedge transaction. The
ineffective portion of all hedge transactions will be recognized in
the current-period earnings. SFAS 133, as now amended, is effective
for fiscal years beginning after June 15, 2000. The Company has not
yet fully evaluated the impact of this new standard.
Effective for the year ended June 30, 1999 (fiscal 1999) the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in the Company's consolidated
financial statements. Comprehensive income is defined as the change
in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources. The Company's balance of other comprehensive income is
comprised exclusively of changes in the net cumulative translation
adjustment.
Effective for the year ended June 30, 1999, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information". The segment information presented herein is in
accordance with this new disclosure standard and closely aligns with
geographic information presented by the Company in previous years.
Fair Value of Financial Instruments--Financial instruments that are
subject to fair value disclosure requirements are carried in the
consolidated financial statements at amounts that approximate fair
value.
<PAGE>
2. Acquisitions
Business--In November 1998, the Company acquired Intermaco S.R.L.
("Intermaco"), a Buenos Aires based distributor of Hewlett-Packard
products and other computer peripherals in Argentina, for
approximately $4,417,000 in cash. The Company is required to pay
additional amounts (either in cash or in Company common stock at the
Company's option) to the sellers of Intermaco based on a multiple of
Intermaco's net earnings, as defined, for the two succeeding twelve
month periods commencing November 1, 1998. If paid, such amounts will
be recorded as additional goodwill.
In December 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of Magna Distribuidora Ltda., a
Brazilian distributor of microcomputers and related products
("Magna"), for approximately $1,802,000, consisting of 79,719
shares of common stock valued at $1,045,000 and cash of $757,000. The
Company is required to pay additional amounts to the sellers of Magna
based on a multiple of Magna's net earnings, as defined, for the two
succeeding twelve month periods commencing December 1997. If paid,
such amounts will be recorded as additional goodwill. No additional
amount was paid based on results for the initial 12 month period.
These acquisitions have been accounted for using the purchase method
of accounting. The allocation of purchase price for Intermaco
(November 1998) and Magna (December 1997) resulted in $2,495,000 and
$758,000 of goodwill, respectively. As discussed in note 3, the
Company recorded an impairment charge for the remaining goodwill
related to Magna during the third quarter of fiscal 1999.
The operating results of the acquired businesses are included in the
Company's consolidated statements of earnings from their respective
acquisition dates. The pro forma impact of business acquisitions on
operations for fiscal 1999, 1998 and 1997 was not material.
Distribution Rights--On June 30, 1997, as a result of a transaction
with Globelle, a wholesale distributor of microcomputers and related
products, the Company acquired certain domestic distribution rights
(principally for certain Hewlett-Packard products) and equipment for
$12,992,000 in cash. The Company paid Globelle an additional $867,000
in fiscal 1998 for certain other domestic distribution rights. These
rights were considered impaired and written down during the year ended
June 30, 1999, as discussed in note 3.
<PAGE>
3. Long-Term Assets
Long-term assets are comprised of the following:
June 30,
---------------------------
1999 1998
----------- -----------
Property and equipment:
Furniture and equipment $10,709,000 $13,427,000
Leasehold improvements 1,617,000 1,660,000
Other 207,000 150,000
----------- -----------
12,533,000 15,237,000
Less accumulated depreciation 5 ,539,000 5,747,000
----------- -----------
$ 6,994,000 $ 9,490,000
=========== ===========
Intangibles:
Distribution rights $ 226,000 $12,859,000
Goodwill 9,853,000 8,003,000
Non-compete agreements 500,000
----------- -----------
10,072,000 21,362,000
Less accumulated amortization 955,000 1,318,000
----------- -----------
$ 9,123,000 $20,044,000
=========== ===========
Amortization expense of intangibles was $888,000, $749,000 and
$338,000 in the years ended June 30, 1999, 1998 and 1997,
respectively.
The Company recorded impairment charges aggregating $15,386,000 during
the year ended June 30, 1999 for the following:
[BULLET] As a result of declining U.S. sales, the Company reviewed
the intangible assets related to distribution rights
acquired in June 1997 from Globelle for possible impairment.
This evaluation resulted in a $11,994,000 writedown of these
rights to their estimated fair value (based on estimated
future associated cash flows).
[BULLET] In response to the poor operating performance realized at
SED Magna Distribuidora Ltda. in Brazil since its December
1997 acquisition and risks inherent in its future
operations, the Company recorded an impairment charge of
$738,000 for the write-off of the goodwill related to this
entity (as this goodwill does not appear to be recoverable).
[BULLET] Property and equipment was reviewed and written down by
$2,654,000 primarily for computer equipment and capitalized
software costs.
4. Revolving Bank Debt
The Company's credit agreement with Wachovia Bank N.A. ("Wachovia"),
as amended in August 1999, provides for a line of credit of up to
$50.0 million. At June 30, 1999, the Company had borrowings of $8.5
million under this facility. Maximum borrowings under the credit
agreement are generally based on eligible accounts receivable and
inventory (as defined in the credit agreement) less a $15.0 million
reserve. The $15.0 million reserve can be drawn upon, if necessary,
to finance obligations to Finova Capital Corporation, which
finances the Company's purchases from certain vendors. If this
amended agreement had been in place at June 30, 1999,
<PAGE>
available borrowings under this agreement, based on collateral
limitations, would have been $40.0 million at that date ($15.0 million
of which would only have been available to finance obligations
due to Finova, if necessary).
The Wachovia credit agreement is secured by accounts receivable and
inventory and requires maintenance of certain minimum working capital
and other financial ratios and has certain dividend restrictions. The
Company may borrow at the prime rate offered by Wachovia (8.0% at
June 30, 1999) or the Company may fix the interest rate for periods of
30 to 180 days under various interest rate options. The credit
agreement requires a commitment fee of .25% of the unused commitment
and expires in August 2001. Average borrowings, maximum borrowings
and the weighted average interest rate for fiscal 1999 were $7.2
million, $32.0 million and 8.12%, respectively. Average borrowings,
maximum borrowings and the weighted average interest rate for fiscal
1998 were $33.9 million, $80.0 million and 7.87%, respectively. At
June 30, 1999 the Company was not initially in compliance with certain
covenants; such covenants were retroactively amended by the bank
effective June 30, 1999 to permit the Company to be in compliance.
The carrying value of revolving bank debt at June 30, 1999
approximates its fair value based on interest rates that are believed
to be available to the Company for debt with similar provisions.
5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income
tax purposes. The tax effects of significant items comprising the
Company's current deferred tax assets are as follows:
June 30,
----------------------------
1999 1998
----------- ----------
U.S. federal and state operating
loss carryforwards $ 9,240,000
Foreign operating loss carryforwards 2,046,000 $ 166,000
Reserves not currently deductible 1,819,000 1,317,000
Inventory valuation 418,000 683,000
Other 170,000 (10,000)
Valuation allowance (13,403,000) (329,000)
----------- -----------
$ 290,000 $ 1,827,000
=========== ===========
At June 30, 1999, the Company has gross net operating loss
carryforwards for U.S. federal and state income tax purposes of
approximately $23.7 million expiring at various dates through 2019.
At June 30, 1999, the Company has gross net operating loss
carryforwards for foreign income tax purposes of approximately $5.2
million and $1.0 million in Brazil and Colombia, respectively.
The carryforwards in Brazil do not expire, subject to certain
limitations. The carryforwards in Colombia expire at various dates
through 2004. At June 30, 1999, the Company has recorded a
valuation allowance for principally all deferred tax assets as there
is no assurance these assets will be realized.
<PAGE>
Components of income tax expense (benefit) are as follows:
<TABLE>
Year Ended June 30,
-----------------------------------------------
1999 1998 1997
----------- --------- ----------
<S> <C> <C> <C>
Current:
Federal $(2,795,000) $ 914,000 $4,380,000
State (252,000) 47,000 538,000
Foreign 128,000
----------- --------- ----------
(2,919,000) 961,000 4,918,000
----------- --------- ----------
Deferred:
Federal 1,203,000 (552,000) 6,000
State 313,000 (52,000) 1,000
Foreign (4,000)
----------- --------- ----------
1,512,000 (604,000) 7,000
----------- --------- ----------
$(1,407,000) $ 357,000 $4,925,000
============ ========= ==========
</TABLE>
Income tax benefits relating to the exercise of employee stock awards
and options reduce taxes currently payable and are credited to
additional paid-in capital. Such amounts approximated
$818,000 and $9,700 for fiscal 1998 and 1997, respectively.
The Company's effective tax rates differ from statutory rates as
follows:
<TABLE>
Year Ended June 30,
-----------------------------------------
1999 1998 1997
------ ---- ----
<S> <C> <C> <C>
Statutory federal rate (benefit) (34.0)% 34.0% 34.2%
State income taxes net of
federal income tax benefit 0.1 28.4 3.3
Non-deductible goodwill
amortization 1.0 82.4 1.9
Valuation allowance 24.7 163.7 --
Other 4.6 41.5 (1.0)
---- ----- ----
(3.6)% 350.0% 38.4%
==== ===== ====
</TABLE>
6. Lease Obligations
SED International leases its main office facility under an operating
lease with an entity owned by certain minority shareholders of the
Company. The lease currently provides for an annual rent of
$176,000 through September 1999, increasing to approximately $253,000
effective October 1999, with annual increases of three percent through
September 2006.
The Company leases additional distribution center and sales office
space under operating leases. Rent expense under all operating leases
for the years ended June 30, 1999, 1998 and 1997 was $2,573,000,
$2,090,000 and $949,000, respectively.
<PAGE>
As of June 30, 1999, future minimum rental commitments under
noncancelable operating leases are:
Year Ending June 30,
2000 $1,900,000
2001 1,703,000
2002 1,183,000
2003 555,000
2004 283,000
2005 and thereafter 667,000
----------
$6,291,000
==========
7. Shareholders' Equity
Common Stock--In October 1997 the Company issued 3,000,000 shares of
its common stock for proceeds of $54,395,000, net of offering costs of
$955,000. During fiscal years 1999, 1998 and 1997, the Company
repurchased 3,946,250, 20,018 and 200,000 shares, respectively, of its
common stock in open market and private transactions for $14,827,000,
$222,000 and $1,325,000, respectively.
Stock Options--The Company maintains stock option plans under which
1,796,146 shares of common stock have been reserved at June 30, 1999
for outstanding and future incentive and nonqualified stock option
grants and stock grants to officers and key employees. Incentive stock
options must be granted at not less than the fair market value of the
common stock at the date of grant and expire 10 years from the date of
grant. Nonqualified stock options may be granted at a price of not
less than 85% of the fair market value of the common stock at the date
of grant and expire 10 years from the date of grant. Options granted
under the plans are exercisable in installments ranging from 10% to
50% per year. Upon the occurrence of a "change of control" (as
defined), all outstanding options become immediately exercisable.
<PAGE>
Stock option activity and related information under these plans is as
follows:
<TABLE>
Weighted
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Shares under options June 30, 1996 1,195,600 $5.24
Granted 401,200 8.21
Exercised (83,074) 8.21
Canceled (85,940) 6.77
---------
Shares under options June 30, 1997 1,427,786 6.02
Granted 318,700 13.94
Exercised (193,506) 5.70
Canceled (32,945) 8.46
---------
Shares under options June 30, 1998 1,520,035 7.66
Granted 225,550 4.10
Exercised (400) 7.50
Canceled (178,350) 4.89
---------
Shares under options June 30, 1999 1,566,835 4.87
=========
Exercisable at June 30: 1997 903,396 5.30
1998 932,039 5.72
1999 848,615 4.96
</TABLE>
Additionally, since 1992, the Board of Directors has granted
nonqualified options to purchase 183,000 shares of common stock to
certain directors of the Company at an exercise price from
$5.00 to $15.25 (fair market value of the Company's common stock
at date of grant). Options to purchase 10,000 shares of common
stock by a director were canceled during fiscal 1997. Options to
purchase 61,500 shares of common stock were exercised by certain
directors at a weighted average price of $7.73 during fiscal 1998. At
June 30, 1999, 111,500 options granted to directors of the
Company were outstanding and exercisable at a weighted average
exercise price of $5.05; such options expire 10 years from the date of
grant.
The following table summarizes information pertaining to all options
outstanding and exercisable at June 30, 1999:
<TABLE>
Outstanding Options Exercisable Options
-------------------------------------------- -------------------------
Weighted
Average Weighted
Remaining Average Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.56-$4.56 175,150 3.89 $3.88
4.89- 5.06 1,503,185 1.99 5.00 848,615 $4.96
</TABLE>
In July 1999, the Company's directors approved a broadly-based stock
benefit plan under which non-qualified stock options and awards for up
to an aggregate of 1,400,000 shares of common stock may be issued.
Stock options for the purchase of 988,000 shares of the Company's
stock at a price
<PAGE>
of $2.94 per share and stock awards for 150,000 shares were issued in
July 1999. The information described previously in this note does not
include the effect of stock options and awards issued subsequent to
June 30, 1999 under this plan.
Fair Value--The weighted average fair value of options granted in
fiscal 1999, 1998 and 1997 was $2.52, $3.61 and $4.45, respectively,
using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 58.4% 55.5% 49.2%
Risk free interest rate 5.1% 5.9% 6.3%
Expected life, in years 6.6 6.8 7.6
</TABLE>
Had compensation cost for grants under the Company's stock option
plans in fiscal 1999, 1998 and 1997 been determined based on the fair
value at the date of grant consistent with the method of
SFAS 123, the Company's pro forma net earnings (loss) and net earnings
(loss) per share would have been as follows:
<TABLE>
Year Ended June 30,
---------------------------------------------------
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Pro forma net
earnings (loss) $(39,027,000) $(1,075,000) $7,446,000
Pro forma net
earnings (loss)
per common share:
Basic (4.49) (.11) 1.04
Diluted (4.49) (.11) .98
</TABLE>
Restricted Stock--In 1988, the Company's directors established a
restricted stock plan which permits the granting of restricted stock
awards to officers, key employees and directors. The individual awards
vest generally after three to ten years. At June 30, 1999, 5,000
shares of common stock are reserved for issuance under this plan.
Restricted stock activity is as follows:
<TABLE>
Year Ended June 30,
-----------------------------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Shares of restricted stock
beginning of year 67,200 92,500 97,500
Issued 280,000 16,600
Vested (30,000)
Canceled (9,300) (11,900) (5,000)
------- ------- ------
Shares of restricted stock
end of year 337,900 67,200 92,500
======= ======= ======
</TABLE>
The value of restricted stock awards is determined using the market
price of the Company's common stock on the grant date and is amortized
over the vesting period. The unamortized portion of such awards is
deducted from stockholders' equity.
Stockholder Rights Agreement--In October 1996, the Company adopted a
stockholder rights agreement under which one common stock purchase
right is presently attached to and trades with each outstanding share
of the Company's common stock. The rights become exercisable and
<PAGE>
transferable apart from the common stock ten days after a person or
group, without the Company's consent, acquires beneficial ownership of
12% or more of the Company's common stock or announces or commences a
tender or exchange offer that could result in 12% ownership (the
"Change Date"). Once exercisable, each right entitles the holder to
purchase shares of common stock in number equal to eight multiplied by
the product of the number of shares outstanding on the Change Date
divided by the number of rights outstanding on the Change
Date not owned by the person or group and at a price of 20% of the per
share market value as of the Change Date. The rights have no voting
power and, until exercisable, no dilutive effect on net earnings per
common share. The rights expire in October 2006 and are redeemable at
the discretion of the Company's Board of Directors at $.01 per right.
8. Employee Benefit Plan
SED International maintains a voluntary retirement benefit program,
the Southern Electronics Distributors, Inc. 401(k) Plan. All employees
of SED International who have attained the age of 21 are eligible to
participate after completing one year of service. SED International
matches a portion of employee contributions to the plan. Employees are
immediately vested in their own contributions. Vesting in SED
International's matching contributions is based on years of
continuous service. SED International's matching contribution expense
for the years ended June 30, 1999, 1998 and 1997 was $142,000,
$114,000 and $90,000, respectively.
9. Segment Information
The Company operates in one business segment as a wholesale
distributor of microcomputer and wireless telephone products. The
Company operates and manages in two geographic regions, the
United States and Latin America. Financial information by geographic
region is as follows:
<TABLE>
United States Latin America Eliminations Consolidated
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Fiscal 1999
Net sales:
Unaffiliated customers $624,690,000 $82,880,000 $707,570,000
Foreign subsidiaries 7,362,000 $ (7,362,000)
------------ ----------- ------------- ------------
Total $632,052,000 $82,880,000 $ (7,362,000) $707,570,000
============ =========== ============= ============
Gross profit $ 23,090,000 $ 8,138,000 $ 31,228,000
Income (loss) from operations (32,058,000) (5,850,000) (37,908,000)
Total assets 128,379,000 28,882,000 $ (16,171,000) 141,090,000
Fiscal 1998
Net sales:
Unaffiliated customers $867,986,000 $24,643,000 $892,629,000
Foreign subsidiaries 2,129,000 $ (2,129,000)
------------ ----------- ------------- ------------
Total $870,115,000 $24,643,000 $ (2,129,000) $892,629,000
============ =========== ============= ============
Gross profit $ 41,587,000 $ 2,969,00 $ (17,000) $ 44,539,000
Income (loss) from operations 3,237,000 (390,000) (17,000) 2,830,000
Total assets 254,626,000 15,326,000 (3,387,000) 266,565,000
</TABLE>
<PAGE>
The Company operated in one geographic region (United States) in
fiscal 1997. Sales of products between the Company's geographic
regions are made at market prices. All corporate overhead is
included in the results of U.S. operations.
Net sales by product category is as follows:
<TABLE>
Microcomputer Wireless Telephone
Year Ended June 30, Products Products Total
- ------------------- ------------- ------------------ ------------
<S> <C> <C> <C>
1999 $612,847,000 $ 94,723,000 $707,570,000
1998 785,514,000 107,115,000 892,629,000
1997 588,166,000 58,170,000 646,336,000
</TABLE>
Approximately 38% of the Company's net sales in the United States in
the fiscal year ended June 30, 1999 consisted of sales to customers
for export principally into Latin America and direct sales to
customers in Brazil, Colombia and Argentina. For the years ended June
30, 1998 and 1997 approximately 41% and 45%, respectively, of the
Company's net sales in the United States were to customers for export
principally into Latin America.
10. Significant Vendors
During the year ended June 30, 1999, the Company purchased
approximately 21% of its product from one vendor. During the years
ended June 30, 1998 and 1997, the Company purchased approximately
39% and 43%, respectively, of its product from three vendors.
11. Supplemental Disclosures
Analysis of Allowances for Doubtful Accounts:
<TABLE>
Balance at Charged to Charged to Balance at
Beginning Costs and to Other End
of Period Expenses Deduction(1) Account(2) of Period
---------- ----------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Year ended June 30,
1999 $2,362,000 $13,622,000 $(13,091,000) $360,000 $3,253,000
1998 1,102,000 5,911,000 (4,813,000) 162,000 2,362,000
1997 1,141,000 1,391,000 (1,430,000) 1,102,000
</TABLE>
(1) Deductions represent actual write-offs of specific accounts
receivable charged against the allowance account, net of amounts
recovered.
(2) Represents balances of acquired business.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the Registrant's directors is
incorporated herein by reference to the section of the Registrant's
Proxy Statement for the Annual Meeting of Shareholders scheduled for
November 9, 1999 (the "Proxy Statement") entitled "Proposal 1 -
Election of Directors."
The executive officers of the Registrant, their ages and
their present positions are as follows:
Name Age Position
Gerald Diamond 61 Chairman of the Board, Chief Executive
Officer and Director of the Registrant
and SED International
Ray D. Risner 54 President, Chief Operating Officer and
Director of the Registrant and SED
International
Larry G. Ayers 53 Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer of the
Registrant and SED International
Mark Diamond 34 Executive Vice President and Director of
the Registrant and SED International
Jean Diamond 58 Vice President of SED International
Ronell Rivera 36 President of SED International do Brazil
Ltda and Senior Vice President of SED
International Latin America
Gerald Diamond. Mr. Diamond has been a director of the
Registrant or its predecessor, Southern Electronics Distributors,
Inc., since 1980 and currently serves as Chairman of the Board and
Chief Executive Officer of the Registrant and SED International. He
was elected President and Chairman of the Board of the Registrant and
SED International in June 1986 and has served in two or more
capacities as Chairman of the Board, Chief Executive Officer and
President of the Registrant and SED International from that time up
until May 1995. Mr. Diamond founded the predecessor to the
Registrant 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 husband of Jean
Diamond and the father of Mark Diamond.
Ray D. Risner. Mr. Risner has been a director of the
Registrant since November 1994 and has served as President and Chief
Operating Officer of the Registrant since May 1995. Mr. Risner served
as Executive Vice President-Administration from February 1995 to May
1995. He 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>
Larry G. Ayers. Mr. Ayers was elected Vice President-Finance,
Secretary and Treasurer of the Registrant in August 1986 and Chief
Financial Officer in November 1989. He was elected Vice President-
Finance and Treasurer of SED International in June 1986, Secretary in
August 1986 and Chief Financial Officer in November 1989. Mr. Ayers
served as Vice President-Finance of the predecessor to the
Registrant from May 1986 through July 1986, and as an independent
financial consultant from September 1985 through May 1986. Mr. Ayers
served as the Treasurer of Aaron Rents, Inc., a furniture rental and
sales company, from 1982 through September 1985 and as an accountant
with Touche Ross & Co., a national accounting firm, from 1970 through
1982.
Mark Diamond. Mr. Diamond has been a director of the
Registrant since October 1996. He has been employed by the Registrant
in various capacities since January 1987. In June 1995, Mr. Diamond
was elected Executive Vice President of the Registrant and in August
1995 was elected Executive Vice President of SED International. Mark
Diamond is the son of Gerald Diamond and Jean Diamond.
Jean Diamond. Ms. Diamond was elected Vice President of SED
International in August 1994. From 1986 to August 1994, she served as
Manager of Credit of SED International. Jean Diamond is the wife of
Gerald Diamond and the mother of Mark Diamond.
Ronell Rivera. Mr. Rivera has served as President of SED
International do Brasil Ltda. since June of 1999 and as Senior Vice
President of SED International Latin America since March 1997 and
as Vice President-Sales for Latin America from December 1995, when the
Company acquired U.S. Computer, to February 1977. From May 1991 to
December 1995, Mr. Rivera served in various capacities
with U.S. Computer, most recently as Vice President-Sales.
Item 11. EXECUTIVE COMPENSATION
Information regarding the Registrant's compensation of its
executive officers and directors is incorporated herein by reference
to the sections of the Proxy Statement entitled "Proposal 1-Election
of Directors" and "Executive Compensation."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding the security ownership of certain
beneficial owners and management of the Registrant is incorporated by
reference to the section of the Proxy Statement entitled "Ownership of
Shares."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is incorporated herein by reference to the section of the
Proxy Statement entitled "Compensation Committee Interlocks and
Insider Participation."
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this
Report:
1. Financial Statements. The following financial
statements and the report of the Registrant's
independent auditors thereon, are filed herewith.
- Independent Auditors' Report
- Consolidated Balance Sheets at June 30, 1998
and 1999
- Consolidated Statements of Operations for the
years ended June 30, 1997, 1998 and 1999
- Consolidated Statements of Shareholders'
Equity for the years ended June 30, 1997,
1998 and 1999
- Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1998 and 1999
- Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
- Schedules:
Schedule II for Valuation and Qualifying
accounts is filed herewith under
"Supplemental Disclosures" in Note 11 of the
Notes to Consolidated Financial Statements
Schedules other than the Schedule presented are
omitted because the information required is not
applicable or the required information is shown in
the consolidated financial statements or notes
thereto.
3. Exhibits Incorporated by Reference or Filed with
this Report.
Exhibit
Number Description
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles
of Incorporation and Bylaws of the Registrant,
respectively, defining rights of holders of common
stock of the Registrant.
<PAGE>
4.2 Form of Rights Agreement, dated as of October 31, 1996
between the Registrant and National City Bank.(1)
10.1 Form of Lease Agreement dated as of January 1, 1991
between Royal Park, Registrant and SED International,
Inc. (Formerly Southern Electronics Distributors, Inc.)
("SED International").(2)
10.2 Lease Agreement dated May 16, 1990 between The
Equitable Life Assurance Society of the United States
and SED International(3), as amended March 20, 1992.(4)
10.3 Southern Electronics Corporation 1986 Stock Option Plan
dated September 3, 1986, together with related forms of
Incentive Stock Option Agreement and NonQualified
Stock Option Agreement.(5)/*/
10.4 Form of First Amendment dated September 14, 1989 to
Southern Electronics Corporation 1986 Stock Option
Plan.(6)/*/
10.5 Second Amendment dated November 7, 1989 to Southern
Electronics Corporation 1996 Stock Option Plan.(7)/*/
10.6 Third Amendment dated July 17, 1992 to Southern
Electronics Corporation 1986 Stock Option Plan.(8)/*/
10.7 Southern Electronics Corporation 1988 Restricted Stock
Plan, together with related form of Restricted Stock
Agreement.(9)/*/
10.8 First Amendment dated November 7, 1989 to Southern
Electronics Corporation 1988 Restricted Stock
Plan.(10)/*/
10.9 Second Amendment dated July 17, 1992 to Southern
Electronics Corporation 1988 Restricted Stock
Plan.(11)/*/
10.10 Form of Southern Electronics Corporation 1991 Stock
Option Plan, together with related forms of Incentive
Stock Option Agreement and NonQualified Stock Option
Agreement. (12) /*/
10.11 First Amendment dated July 17, 1992 to Southern
Electronics Corporation 1991 Stock Option Plan.(13)/*/
10.12 Second Amendment dated August 30, 1996 to Southern
Electronics Corporation 1991 Stock Option Plan.(14)/*/
10.13 Form of NonQualified Stock Option Agreement dated as of
August 28, 1992 between the Registrant and Cary
Rosenthal.(15)/*/
10.14 Employment Agreements dated November 7, 1989, between
the Registrant, SED International and each of Gerald
Diamond and Jean Diamond (16)/*/, each as amended by
form of Amendment No. 1 dated September 24,
1991.(17)/*/
10.15 SED International, Inc. Savings Plan effective as of
January 1, 1991, together with Savings Plan Trust and
Savings Plan Adoption Agreement.(18)/*/
10.16 Lease Agreement dated November 1992 between H.G.
Pattillo and Elizabeth M. Pattillo and SED
International.(19)
10.17 Lease Agreement dated August 9, 1993 between New World
Partners Joint Venture and SED International and
Addendum I thereto ("NWPJV Lease"). (20)
10.18 Second Addendum to NWPJV Lease dated January 10, 1996
among New World Partners Joint Venture, New World
Partners Joint Venture Number Two and SED
International. (21)
10.19 Third Addendum to NWPJV Lease dated July 24, 1996
between New World Partners Joint Venture Number Two and
SED International. (22)
10.20 Amendment to Lease for 4775 N. Royal Atlanta Drive.(23)
10.21 Form of NonQualified Stock Option Agreement dated as of
May 21, 1993 between the Registrant and Cary Rosenthal
(see Exhibit 10.13)./*/
<PAGE>
10.22 Form of NonQualified Stock Option Agreement, dated as
of September 13, 1994 between the Registrant and Cary
Rosenthal (see Exhibit 10.13)./*/
10.23 Form of NonQualified Stock Option Agreement for
Directors. (24)./*/
10.24 1995 Formula Stock Option Plan, together with related
form of NonQualified Stock Option Agreement.(25)
10.25 Adoption Agreement for Swerdlin & Registrant Regional
Prototype Standardized 401(k) Profit Sharing Plan and
Trust, as amended. (26)/*/
10.26 Third Amendment dated September 12, 1996 to the
Southern Electronics Corporation Stock Option
Plan.(27)/*/
10.27 Industrial Real Estate Lease (Multi-Tenant Facility)
dated as of March 6, 1997, between Majestic Realty Co.
and Patrician Associates, Inc., as landlord (the
"Landlord"), and SED International, as Tenant, together
with Option to Extend Term dated as of March 26, 1997,
between the Landlord and SED International, as Tenant.
(28)
10.28 Lease Agreement made August 11, 1997, between Gwinnett
Industries, Inc. and SED International. (29)
10.29 Lease Agreement made February 3, 1998, between First
Industrial Harrisburg, L.P. and SED International. (30)
10.30 Second Amendment to Employment Agreement effective July
1, 1998 between SED International and Gerald Diamond.
(31)/*/
10.31 Second Amendment to Employment Agreement effective July
1, 1998 between SED International and Jean Diamond.
(32)/*/
10.32 1999 Stock Option Plan dated July 20, 1999, together
with related forms of Stock Option Agreement and
Restriction Agreement./*/
10.33 Third Amendment to Employment Agreement effective
December 16, 1998 between SED International and Jean
Diamond. (33)/*/
10.34 Third Amendment to Employment Agreement effective July
1, 1999 between SED International and Gerald
Diamond./*/
10.35 Fourth Amendment to Employment Agreement effective July
1, 1999 between SED International and Jean Diamond./*/
10.36 Employment Agreement effective June 1, 1999, between
SED International and Ronell Rivera./*/
10.37 Form of Second Amended and Restated Credit Agreement
dated as of August 31, 1999, among the Registrant and
SED International as Borrowers and Wachovia Bank, N.A.
as Agent./*/
10.38 Form of Indemnification Agreement entered into with
each of the directors of the Registrant and the
Registrant./*/
10.39 Form of Indemnification Agreement entered into with
each of the officers of the Registrant and the
Registrant./*/
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
24 Power of Attorney (see signature page to this
Registration Statement).
27 Financial Data Schedule.
- --------------------
/*/Management contract or compensatory plan or arrangement with one or
more directors or executive officers.
<PAGE>
(1) Incorporated herein by reference to Exhibit 7 to the Registrant's
Current Report on Form 8-K dated October 30, 1996.
(2) Incorporated herein by reference to exhibit of same number to
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1991 (SEC File No. 0-16345) ("1991 Form 10-K").
(3) Incorporated herein by reference to Exhibit 10.8 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1990 (SEC File No. 0-16345) ("1990 Form 10-K").
(4) Incorporated herein by reference to Exhibit 10.5 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1992 (SEC File No. 0-16345) ("1992 Form 10-K").
(5) Incorporated herein by reference to Exhibit 10.12 to Registrant's
("Registration Statement") on Form S1, filed September 5, 1986
(Reg. No. 338494).
(6) Incorporated herein by reference to Exhibit 10.22 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1988 (SEC File No. 0-16345).
(7) Incorporated herein by reference to Exhibit 10.25 to Registrant's
1990 Form 10-K.
(8) Incorporated herein by reference to Exhibit 10.12 to Registrant's
1992 Form 10-K.
(9) Incorporated herein by reference to Exhibit 10.21 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1988 (SEC File No. 0-16345).
(10) Incorporated herein by reference to Exhibit 10.26 to Registrant's
1990 Form 10-K.
(11) Incorporated herein by reference to Exhibit 10.15 to Registrant's
1992 Form 10-K.
(12) Incorporated herein by reference to Annex A to Registrant's
definitive Supplemental Proxy Statement dated October 18, 1991
(SEC File No. 0-16345).
(13) Incorporated herein by reference to Exhibit 10.17 to Registrant's
1992 Form 10-K.
(14) Incorporated herein by reference to Appendix A to Registrant's
Proxy Statement pertaining to Registrant's 1995 Annual Meeting of
Stockholders dated October 1, 1995 (SEC File No. 0-16345).
(15) Incorporated herein by reference to Exhibit 10.18 to Registrant's
1992 Form 10-K.
(16) Incorporated herein by reference to Exhibit 6(a) to Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1989 (SEC File No. 0-16345).
(17) Incorporated herein by reference to Exhibit 10.13 to Registrant's
1991 Form 10-K.
(18) Incorporated herein by reference to Exhibit 10.15 to Registrant's
1991 Form 10-K.
(19) Incorporated herein by reference to Exhibit 10.24 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993 (SEC File No. 0-16345) ("1993 Form 10-K").
(20) Incorporated herein by reference to Exhibit 10.25 to Registrant's
1993 Form 10-K.
(21) Incorporated herein by reference to Exhibit 10.32 to Registrant's
Annual Report on Form l0-K for the fiscal year ended June 30,
1996 (SEC File No. 0-16345) ("1996 Form 10-K").
(22) Incorporated herein by reference to Exhibit 10.33 to Registrant's
1996 Form 10-K.
(23) Incorporated herein by reference to Exhibit 10.26 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1995 (SEC File No. 0-16345) ("1995 Form 10-K").
(24) Incorporated herein by reference to Exhibit 10.29 to Registrant's
1995 Form 10-K.
(25) Incorporated herein by reference to Appendix B to Registrant's
Proxy Statement pertaining to Registrant's 1995 Annual Meeting of
Stockholders dated October 1, 1995 (SEC File No. 0-16345).
(26) Incorporated herein by reference to Exhibit 10.41 to Registrant's
1996 Form 10-K.
(27) Incorporated herein by reference to Appendix A to Registrant's
Proxy Statement pertaining to Registrant's 1996 Annual Meeting of
Stockholders dated October 1, 1996 (SEC File No. 0-16345).
(28) Incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997 (SEC File No. 0-16345).
(29) Incorporated herein by reference to Exhibit 10.40 to Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1997 (SEC File No. 0-16345).
<PAGE>
(30) Incorporated herein by reference to Exhibit 10.45 to Registrants
Annual Report on Form 10-K for the fiscal year ended June 30,
1998 (SEC File No. 01-6345) ("1998 Form 10-K").
(31) Incorporated herein by reference to Exhibit 10.48 to Registrant's
1998 Form 10-K.
(32) Incorporated herein by reference to Exhibit 10.49 to Registrant's
1998 Form 10-K.
(33) Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1998 (SEC File No. 0-16345).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during
the quarter ended June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SED INTERNATIONAL HOLDINGS, INC.
Date: September 28, 1999 By: /s/ Larry G. Ayers
Larry G. Ayers
Vice President - Finance, Chief
Financial Officer, Secretary and
Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints Gerald Diamond, Ray
D. Risner, and Larry G. Ayers, and any of them, as his true and lawful
attorneys-in-fact, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to the Annual
Report on Form 10-K of SED International Holdings, Inc., and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and other
appropriate agencies, granting unto said attorneys-in-fact, and any of
them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said
attorneys-in-fact, or any of them, or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated this 28th day
of September, 1999.
/s/ Gerald Diamond
Gerald Diamond
Chairman of the Board, Chief
Executive Officer and Director
(principal executive officer)
[Signatures continued on following page]
<PAGE>
/s/ Larry G. Ayers
Larry G. Ayers
Vice President - Finance,
Chief Financial Officer, Secretary
and Treasurer
(principal financial and
accounting officer)
/s/ Stewart I. Aaron
Stewart I. Aaron
Director
/s/ Joel Cohen
Joel Cohen
Director
/s/ Mark Diamond
Mark Diamond
Director
/s/ Ray D. Risner
Ray D. Risner
Director
/s/ Cary Rosenthal
Cary Rosenthal
Director
<PAGE>
ARTICLES OF INCORPORATION
OF
SED INTERNATIONAL HOLDINGS, INC.
I.
CORPORATE NAME
The name of the corporation is:
SED INTERNATIONAL HOLDINGS, INC.
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.
II.
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>
BYLAWS
OF
SED INTERNATIONAL HOLDINGS, INC.
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 theduties 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>
SED INTERNATIONAL HOLDINGS, INC.
1999 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
Purpose . . . . . . . . . . . . . . . . . . . . . . . Page 1
1.1 General Purpose . . . . . . . . . . . . . Page 1
1.2 Intended Tax Effects of Stock Rights . . Page 1
ARTICLE 2
Definitions . . . . . . . . . . . . . . . . . . . . . Page 1
2.1 1933 Act . . . . . . . . . . . . . . . . . Page 1
2.2 1934 Act . . . . . . . . . . . . . . . . . Page 1
2.3 Beneficiary . . . . . . . . . . . . . . . . Page 1
(a) Designation of Beneficiary . . . . . . Page 1
(b) No Designated Beneficiary . . . . . . Page 2
(c) Designation of Multiple Beneficiaries. Page 2
2.4 Board . . . . . . . . . . . . . . . . . . . Page 2
2.5 Cause . . . . . . . . . . . . . . . . . . . Page 2
2.6 Change of Control . . . . . . . . . . . . . Page 2
(a) Acquisition By Person of Substantial
Percentage of the Company's Voting
Power. . . . . . . . . . . . . . . . . Page 2
(b) Substantial Change of Board Members. . Page 2
(c) Disposition of Assets. . . . . . . . . Page 2
(a) Acquisition By Person of Substantial
Percentage of a Subsidiary's Voting
Power . . . . . . . . . . . . . . . . Page 3
(e) Disposition of Assets of a Subsidiary. Page 3
2.7 Code. . . . . . . . . . . . . . . . . . . . Page 4
2.8 Committee . . . . . . . . . . . . . . . . . Page 4
2.9 Common Stock. . . . . . . . . . . . . . . . Page 4
2.10 Company . . . . . . . . . . . . . . . . . . Page 5
2.11 Consultant. . . . . . . . . . . . . . . . . Page 5
2.12 Director. . . . . . . . . . . . . . . . . . Page 5
2.13 Disability. . . . . . . . . . . . . . . . . Page 5
2.14 Effective Date. . . . . . . . . . . . . . . Page 5
2.15 Fair Market Value . . . . . . . . . . . . . Page 5
(a) Stock Listed and Shares Traded. . . . . Page 5
(b) Stock Listed But No Shares Traded . . . Page 5
(c) Stock Not Listed . . . . . . . . . . . Page 6
2.16 NQSO. . . . . . . . . . . . . . . . . . . . Page 6
2.17 Option. . . . . . . . . . . . . . . . . . . Page 6
2.18 Option Agreement. . . . . . . . . . . . . . Page 6
2.19 Option Price. . . . . . . . . . . . . . . . Page 6
<PAGE>
2.20 Optionee. . . . . . . . . . . . . . . . . . Page 6
2.21 Person. . . . . . . . . . . . . . . . . . . Page 6
2.22 Plan. . . . . . . . . . . . . . . . . . . . Page 6
2.23 Recipient . . . . . . . . . . . . . . . . . Page 6
2.24 Restricted Stock. . . . . . . . . . . . . . Page 6
2.25 Restriction Agreement . . . . . . . . . . . Page 7
2.26 Stock Rights. . . . . . . . . . . . . . . . Page 7
ARTICLE 3
Administration . . . . . . . . . . . . . . . . . . . Page 7
3.1 General Administration. . . . . . . . . . . Page 7
3.2 Appointment . . . . . . . . . . . . . . . . Page 7
3.3 Organization. . . . . . . . . . . . . . . . Page 7
3.4 Indemnification . . . . . . . . . . . . . . Page 8
ARTICLE 4
Stock . . . . . . . . . . . . . . . . . . . . . . . Page 8
ARTICLE 5
Eligibility to Receive and Grant of Stock Rights. . . Page 8
5.1 Individuals Eligible for Grants of Stock
Rights. . . . . . . . . . . . . . . . . . . Page 8
5.2 Grants of Stock Rights. . . . . . . . . . . Page 9
5.3 Restriction on Grant of Stock Options . . . Page 9
ARTICLE 6
Terms and Conditions of Options . . . . . . . . . . . Page 9
6.1 Requirement of Option Agreement . . . . . . Page 9
6.2 Optionee and Number of Shares . . . . . . .Page 10
6.3 Vesting . . . . . . . . . . . . . . . . . .Page 10
6.4 Option Price. . . . . . . . . . . . . . . .Page 10
6.5 Terms of Options. . . . . . . . . . . . . .Page 10
6.6 Terms of Exercise . . . . . . . . . . . . .Page 11
6.7 Method of Exercise. . . . . . . . . . . . .Page 11
6.8 Medium and Time of Payment. . . . . . . . .Page 11
6.9 Effect of Termination of Employment,
Disability or Death. . . . . . . . . . . . Page 12
(a) Termination of Employment . . . . . . Page 12
(b) Termination of Employment by Company
Without Cause . . . . . . . . . . . . Page 13
(c) Disability. . . . . . . . . . . . . . Page 13
(b) Death . . . . . . . . . . . . . . . . Page 13
6.10 Restrictions on Transfer and Exercise of
Options. . . . . . . . . . . . . . . . . . Page 13
6.11 Rights as a Stockholder . . . . . . . . . .Page 14
<PAGE>
6.12 No Obligation to Exercise Option. . . . . .Page 14
6.13 Acceleration. . . . . . . . . . . . . . . .Page 14
ARTICLE 7
Terms and Conditions of Restricted Stock Awards . . Page 14
7.1 Requirement of Restriction Agreement. . . Page 14
7.2 Effect of Grant of Restricted Stock . . . Page 14
7.3 Restricted Stock Recipient and Number
of Shares . . . . . . . . . . . . . . . . Page 14
7.4 Restrictions on Stock . . . . . . . . . . .Page 14
7.5 Delivery of Restricted Stock. . . . . . . .Page 15
7.6 Termination of Service. . . . . . . . . . .Page 16
7.7 Restrictions on Transfer. . . . . . . . . .Page 17
7.8 Rights as a Stockholder . . . . . . . . . .Page 17
7.9 Acceleration. . . . . . . . . . . . . . . .Page 17
7.10 Restrictions on Grants. . . . . . . . . . .Page 17
ARTICLE 8
Adjustments Upon Changes in Capitalization. . . . . .Page 17
8.1 Recapitalization. . . . . . . . . . . . . .Page 17
8.2 Reorganization. . . . . . . . . . . . . . .Page 18
8.3 Dissolution and Liquidation . . . . . . . .Page 18
8.4 Limits on Adjustments . . . . . . . . . . .Page 18
ARTICLE 9
Agreement by Optionee or Recipient and Securities
Registration. . . . . . . . . . . . . . . . . . . . .Page 19
9.1 Agreement . . . . . . . . . . . . . . . . .Page 19
9.2 Registration. . . . . . . . . . . . . . . .Page 19
ARTICLE 10
Effective Date . . . . . . . . . . . . . . . . . . . Page 20
ARTICLE 11
Amendment and Termination. . . . . . . . . . . . . . Page 20
11.1 Amendment and Termination By the Board. . .Page 20
11.2 Restrictions on Amendment and Termination .Page 20
ARTICLE 12
Miscellaneous Provisions . . . . . . . . . . . . . . Page 20
12.1 Application of Funds. . . . . . . . . . . .Page 20
12.2 Notices . . . . . . . . . . . . . . . . . .Page 21
12.3 Term of Plan. . . . . . . . . . . . . . . .Page 21
12.4 Governing Law . . . . . . . . . . . . . . .Page 21
<PAGE>
12.5 Additional Provisions By Committee. . . . .Page 21
12.6 Plan Document Controls. . . . . . . . . . .Page 21
12.7 Gender and Number . . . . . . . . . . . . .Page 21
12.8 Headings. . . . . . . . . . . . . . . . . .Page 21
12.9 Legal References. . . . . . . . . . . . . .Page 21
12.10 No Rights to Employment or to Perform
Services. . . . . . . . . . . . . . . . . Page 21
12.11 Unfunded Arrangement . . . . . . . . . . Page 21
<PAGE>
SED INTERNATIONAL HOLDINGS, INC.
1999 STOCK OPTION PLAN
ARTICLE 1
Purpose
1.1 General Purpose. The purpose of this Plan 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 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 also intends that the Plan will afford the Company a means of
attracting to its service persons of outstanding quality.
1.2 Intended Tax Effects of Stock Rights. The tax effects of
any NQSO or Restricted Stock granted hereunder should be determined
under Code Paragraph 83.
ARTICLE 2
Definitions
The following words and phrases as used in this Plan shall have
the meanings set forth in this Article unless a different meaning is
clearly required by the context:
2.1 1933 Act shall mean the Securities Act of 1933, as amended.
2.2 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
2.3 Beneficiary shall mean, with respect to an Optionee, or
Restricted Stock Recipient, the individual or individuals to whom the
Optionee's Options or Restricted Stock Recipient's Restricted Stock
shall be transferred upon the Optionee's or Restricted Stock
Recipient's death (i.e., the Optionee's or Restricted Stock
Recipient's Beneficiary).
(a) Designation of Beneficiary. An Optionee's or
Restricted Stock Recipient's Beneficiary shall be the individual
who is last designated in writing by the Optionee or Restricted
Stock Recipient as such Optionee's or Restricted Stock
Recipient's Beneficiary hereunder. An Optionee or Restricted
Stock Recipient shall designate his or her original
<PAGE>
Beneficiary in writing on his or her Option Agreement or
Restricted Stock Agreement. Any subsequent modification of the
Optionee's or Restricted Stock Recipient's Beneficiary shall be
in a written executed and notarized letter addressed to the
Company and shall be effective when it is received and accepted
by the Committee, as determined in the Committee's sole
discretion.
(b) No Designated Beneficiary. If, at any time, no
Beneficiary has been validly designated by an Optionee or
Restricted Stock Recipient, or the Beneficiary designated by the
Optionee or Restricted Stock Recipient is no longer living at the
time of the Optionee's or Restricted Stock Recipient's death,
then the Optionee's or Restricted Stock Recipient's Beneficiary
shall be deemed to be the Optionee's estate.
(c) Designation of Multiple Beneficiaries. An
Optionee or Restricted Stock Recipient may not designate more
than one individual as a Beneficiary. To the extent that a
designation purports to designate more than one individual as a
Beneficiary, the designation shall be null and void.
2.4 Board shall mean the Board of Directors of SED International
Holdings, Inc.
2.5 Cause shall mean an act or acts by an individual involving
the commission of a felony, willful misconduct, fraud, embezzlement,
dishonesty, breach of fiduciary duty or violation or breach of a
written employment or consulting agreement or of Company policy as
described in a Company employee handbook, any of which acts cause the
Company material damage, as determined by the Committee in its sole
discretion.
2.6 Change of Control shall mean the occurrence of any one of
the following events:
(a) Acquisition By Person of Substantial Percentage of
the Company's Voting Power. Any individual, corporation,
partnership, Group, association or other person or entity,
together with his, its or their Affiliates and Associates, other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, hereafter becomes the
Beneficial Owner of securities of the Company representing thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding securities entitled to vote generally
in the election of directors;
(b) Substantial Change of Board Members. The
Continuing Directors of the Company shall at any time fail to
constitute a majority of the members of the Board of Directors of
the Company;
(c) Disposition of Assets. All or substantially all
of the assets of the Company are sold, conveyed, transferred or
otherwise disposed of, whether through one event or a
<PAGE>
series of related events, without being Duly Approved by the
Continuing Directors of the Company;
(d) Acquisition By Person of Substantial Percentage of
a Subsidiary's Voting Power. Any individual, corporation,
partnership, Group, association or other person or entity,
together with his, its or their Affiliates and Associates, other
than the Company, directly or indirectly, or a trustee or other
fiduciary holding securities under an employee benefit plan of a
Subsidiary, hereafter becomes the beneficial owner of securities
of that Subsidiary representing thirty percent (30%) or more of
the combined voting power of that Subsidiary's then outstanding
securities entitled to vote generally in the election of
directors without being Duly Approved by the Continuing Directors
of that Subsidiary; or
(e) Disposition of Assets of a Subsidiary. All
or substantially all of the assets of a Subsidiary are sold,
conveyed, transferred or otherwise disposed of, whether through
one event or a series of related events, without being Duly
Approved by the Continuing Directors of that Subsidiary.
For purposes of this Section 2.6 only, the following definitions
apply:
Affiliate or Affiliated means any person, firm, corporation,
partnership, association or entity, either directly or
indirectly, that controls, is controlled by, or is under common
control with a specified person, firm, corporation, partnership,
association or entity.
Associate means (1) any corporation, partnership or other entity
of which a specified person is an officer or partner, or is,
directly or indirectly, the beneficial owner of ten percent (10%)
or more of any class of equity securities thereof, (2) any trust
or estate in which the specified person has a substantial
beneficial interest or as to which the specified person serves as
trustee or in a similar fiduciary capacity, (3) any relative or
spouse of such specified person, or any relative of such spouse,
who has the same home as such specified person, and (4) any
person who is a trustee, officer or partner of such specified
person or of any corporation, partnership or other entity that is
an Affiliate of such specified person.
Beneficial Owner shall be defined by reference to Rule 13d-3
under the 1934 Act as such Rule is in effect on the Effective
Date; provided, however, that any individual, corporation,
partnership, Group, association or other person or entity which,
directly or indirectly, owns or has the right to acquire any of
the Company's or a Subsidiary's outstanding securities entitled
to vote generally in the election of directors at any time in the
future, whether such right is contingent, absolute, direct or
indirect, pursuant to any agreement, arrangement or
<PAGE>
understanding or upon exercise of conversion rights, warrants or
options or otherwise, shall be deemed the Beneficial Owner of
such securities.
Company means SED International Holdings, Inc.
Continuing Director means a director who either was a member of
the Board of Directors of either the Company or a Subsidiary, as
the case may be, on the Effective Date, or who becomes a member
of the Board of Directors of either the Company or a Subsidiary,
as the case may be, subsequent to such date and whose election or
nomination for election by the Board of Directors of that company
was Duly Approved by the Continuing Directors of that company at
the time of such election or nomination, either by a specific
vote or by approval of the proxy statement issued by the company
on behalf of the Board of Directors of the company in which such
person is named as a nominee for director.
Duly Approved by the Continuing Directors means an action
approved by the vote of at least a majority of the Continuing
Directors then on the Board of Directors of either the Company or
a Subsidiary, as the case may be; provided, however, if the votes
of such Continuing Directors in favor of such action would be
insufficient to constitute an act of the entire Board of
Directors of that company as if a vote by all of its members had
been taken, or if the number of persons constituting the
Continuing Directors of that company shall be equal to or less
than three, then the term Duly Approved by the Continuing
Directors shall mean an action approved by the unanimous vote of
the Continuing Directors then on the Board of Directors of that
company.
Group means persons who act in concert as described in Section
13(d)(3) of the 1934 Act as in effect on the date hereof.
Subsidiary means SED International, Inc., a Georgia corporation,
and each other subsidiary which is majority-owned by the Company,
whether directly or indirectly.
2.7 Code shall mean the Internal Revenue Code of 1986, as
amended.
2.8 Committee shall mean the committee appointed by the Board to
administer and interpret the Plan in accordance with Article 3 below.
2.9 Common Stock shall mean the common stock, par value $.01 per
share, of SED International Holdings, Inc.
<PAGE>
2.10 Company shall mean SED International Holdings, Inc., a
Georgia corporation, and shall also mean any parent or subsidiary
corporation of SED International Holdings, Inc. unless otherwise
specified.
2.11 Consultant shall mean an individual who is performing
services for the Company pursuant to an agreement with the Company.
2.12 Director shall mean an individual who is serving as a member
of the Board or who is serving as a member of the board of directors
of a parent or subsidiary corporation of the Company.
2.13 Disability shall mean, with respect to an individual, the
total and permanent disability of such individual as determined by the
Committee in its sole discretion.
2.14 Effective Date shall mean the date on which this Plan is
adopted by the Board.
2.15 Fair Market Value of the Common Stock as of a date of
determination shall mean the following:
(a) Stock Listed and Shares Traded. If the Common
Stock is listed and traded on a national securities exchange (as
such term is defined by the 1934 Act) or on The Nasdaq National
Market on the date of determination, the Fair Market Value per
share shall be the closing price of a share of the Common Stock
on said national securities exchange or The Nasdaq National
Market on the trading date immediately preceding the date of
determination. If the Common Stock is traded in the
over-the-counter market, the Fair Market Value per share shall be
the average of the closing bid and asked prices on the trading
date immediately preceding the date of determination.
(b) Stock Listed But No Shares Traded. If the Common
Stock is listed on a national securities exchange or on The
Nasdaq National Market but no shares of the Common Stock were
traded on the date specified in Section 2.15(a) above but there
were shares traded on a date within a reasonable period before
the date of determination, the Fair Market Value shall be the
closing price of the Common Stock on the most recent date before
the date of determination. If the Common Stock is regularly
traded in the over-the-counter market but no shares of the Common
Stock were traded on the date specified in Section 2.15(a) above
(or if records of such trades are unavailable or burdensome to
obtain) but there were shares traded on a date within a
reasonable period before the date of determination, the Fair
Market Value shall be the average of the closing bid and asked
prices of the Common Stock on the most recent date before the
date of determination.
<PAGE>
(c) Stock Not Listed. If the Common Stock is not
listed on a national securities exchange or on The Nasdaq
National Market or is not regularly traded in the
over-the-counter market, then the Committee shall determine the
Fair Market Value of the Common Stock from all relevant available
facts, which may include the average of the closing bid and ask
prices reflected in the over-the-counter market on a date within
a reasonable period either before or after the date of
determination or opinions of independent experts as to value and
may take into account any recent sales and purchases of such
Common Stock to the extent they are representative.
The Committee's determination of Fair Market Value, which shall be
made pursuant to the foregoing provisions, shall be final and binding
for all purposes of this Plan.
2.16 NQSO shall mean an option to which Code Paragraph 421
(relating generally to certain incentive stock options under Code
Paragraph 422(b) and other options) does not apply.
2.17 Option shall mean NQSOs granted to individuals pursuant to
the terms and provisions of this Plan.
2.18 Option Agreement shall mean a written agreement, executed
and dated by the Company and an Optionee, evidencing an Option granted
under the terms and provisions of this Plan, setting forth the terms
and conditions of such Option, and specifying the name of the
Optionee and the number of shares of stock subject to such Option.
2.19 Option Price shall mean the purchase price of the shares of
Common Stock underlying an Option.
2.20 Optionee shall mean an individual who is granted an Option
pursuant to the terms and provisions of this Plan.
2.21 Person shall mean any individual, organization, corporation,
partnership or other entity.
2.22 Plan shall mean this SED International Holdings, Inc. 1999
Stock Option Plan.
2.23 Recipient shall mean an individual who is granted Restricted
Stock pursuant to the terms and provisions of this Plan.
2.24 Restricted Stock shall mean Common Stock subject to a
Restriction Agreement between the Recipient and the Company, whereby
the Recipient has immediate rights of ownership in the shares of
Common Stock underlying the award but such shares are subject to
restrictions in accordance with the terms and provisions of this Plan
and the Restriction
<PAGE>
Agreement and are subject to forfeiture by the Recipient until the
earlier of (a) the time such restrictions lapse or are satisfied, or
(b) the time such shares are forfeited.
2.25 Restriction Agreement shall mean a written agreement,
executed and dated by the Company and a Recipient, evidencing
restrictions placed on the ownership of Restricted Stock by
a Recipient.
2.26 Stock Rights shall mean Options and/or Restricted Stock.
ARTICLE 3
Administration
3.1 General Administration. The Plan shall be administered and
interpreted by the Committee. Subject to the express provisions of
the Plan, the Committee shall have authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the Option Agreements
or Restriction Agreements (as applicable) by which Stock Rights shall
be evidenced (which shall not be inconsistent with the terms of the
Plan), and to make all other determinations necessary or advisable for
the administration of the Plan, all of which determinations shall be
final, binding and conclusive.
3.2 Appointment. The Board shall appoint the Committee from
among its members to serve at the pleasure of the Board. The Board
from time to time may remove members from, or add members to, the
Committee and shall fill all vacancies thereon. The Committee at all
times shall be composed of two or more directors. Each director
serving on the Committee must be a "non-employee director." To be a
non-employee director, the director must not (i) be an employee or
officer of the Company, (ii) have received compensation directly
or indirectly as a consultant or in any non-director capacity, or have
an interest in any transaction of the Company, for which disclosure
would be required under Item 404(a) of Regulation S-K of the 1934 Act,
or (iii) have been engaged through another entity in a business
relationship with the Company for which disclosure would be required
under Item 404(b) of Regulation S-K of the 1934 Act. The requirements
of this subsection are intended to comply with the "non-employee
director rule" of Rule 16b-3 under Section 16 of the 1934 Act or any
successor rule or regulation, and shall be interpreted and construed
in a manner which assures compliance with said Rule. To the extent
said Rule 16b-3 is modified to reduce or increase the restrictions on
who may serve on the Committee, the Plan shall be deemed modified in a
similar manner.
3.3 Organization. The Board or the Committee may select one of
the Committee's members as chairman of the Committee. The Committee
shall hold its meetings at such times, in such manner, and at such
places as the Committee or its chairman shall deem advisable. A
majority of the members of the Committee shall constitute a quorum,
and such majority shall
<PAGE>
determine the Committee's actions. The Committee shall keep minutes
of its proceedings and shall report the same to the Board at the
meeting next succeeding.
3.4 Indemnification. In addition to such other rights of
indemnification as they have as directors or as members of the
Committee, the members of the Committee, to the extent
permitted by applicable law, shall be indemnified by the Company
against reasonable expenses (including, without limitation, attorneys'
fees) actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any
appeal, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or
any Stock Rights granted hereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved to
the extent required by and in the manner provided by the articles or
certificate of incorporation or the bylaws of the Company relating to
indemnification of directors) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to
matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member or members did not act
in good faith and in a manner he or they reasonably believed to be in
or not opposed to the best interest of the Company.
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 1,400,000
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.
ARTICLE 5
Eligibility to Receive and Grant of Stock Rights
5.1 Individuals Eligible for Grants of Stock Rights. The
individuals eligible to receive Stock Rights hereunder shall be
employees, Directors and Consultants of the Company. It is the
Company's intent that the Plan shall be a "broad-based plan" and
that, at all times, no more than fifty percent (50%) of the optionees
and recipients under the Plan shall be officers or "affiliates" (as
such term is defined in Rule 144 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended) of
the Company, and that no more
<PAGE>
than fifty percent (50%) of the Common Stock issued under the Plan
shall be issued to such officers or "affiliates" of the Company.
5.2 Grants of Stock Rights. Subject to the provisions of the
Plan, the Committee or the Board shall have the authority and sole
discretion to determine and designate, from time to time, those
individuals (from among the individuals eligible for a grant of
Stock Rights under the Plan pursuant to Section 5.1 above) to whom
Stock Rights will actually be granted, the Option Price of the shares
covered by any Options granted, the manner in and conditions under
which Options are exercisable (including, without limitation, any
limitations or restrictions thereon), the manner in and conditions
under which shares of Restricted Stock shall vest and the time or
times at which Stock Rights shall be granted. In making such
determinations, the Committee may take into account the nature of the
services rendered or to be rendered by the respective individuals to
whom Stock Rights may be granted, their present and potential
contributions to the Company's success and such other factors as the
Committee, in its sole discretion, shall deem relevant. In its
authorization of the granting of an Option hereunder, the Committee
shall specify the name of the Optionee and the number of shares of
stock subject to such Option. In its authorization of an
award of Restricted Stock hereunder, the Committee shall specify the
name of the Recipient, the number of shares of Restricted Stock to be
awarded and the restrictions to which such Restricted Stock shall be
subject. The Committee may grant, at any time, new Stock Rights to an
Optionee or a Recipient who previously has received Stock Rights,
whether such Stock Rights include prior Stock Rights that still are
outstanding, previously have been exercised in whole or in part,
have expired or are canceled in connection with the issuance of new
Stock Rights. No individual shall have any claim or right to be
granted Stock Rights under the Plan.
5.3 Restriction on Grant of Stock Options. No more than
the maximum number of shares of Common Stock available under the Plan
may be made subject to Options granted during a calendar year to any
one individual.
ARTICLE 6
Terms and Conditions of Options
Options granted hereunder and Option Agreements shall comply with
and be subject to the following terms and conditions:
6.1 Requirement of Option Agreement. Upon the grant of an
Option hereunder, the Committee shall prepare (or cause to be
prepared) an Option Agreement. The Committee shall present such
Option Agreement to the Optionee. Upon execution of such Option
Agreement by the Optionee, such Option shall be deemed to have been
granted effective as of the date of grant. The failure of the Optionee
to execute the Option Agreement within 30 days after the date of the
receipt of same shall render the Option Agreement and the underlying
Option null and void ab initio.
<PAGE>
6.2 Optionee and Number of Shares. Each Option Agreement shall
state the name of the Optionee and the total number of shares of the
Common Stock to which it pertains, the Option Price, the Beneficiary
of the Optionee and the date as of which the Option was granted
under this Plan.
6.3 Vesting. Each Option shall first become exercisable (i.e.,
vested) with respect to such portions of the shares subject to such
Option as are specified in the schedule set forth hereinbelow, except
as may be otherwise specified by the Committee:
(a) Commencing as of the first anniversary of the date
the Option is granted, the Optionee shall have the right to
exercise the Option with respect to, and to thereby purchase, 25%
of the shares subject to such Option. Prior to said date, the
Option shall be unexercisable in its entirety.
(b) Commencing as of the second anniversary of the
date the Option is granted, the Optionee shall have the right to
exercise the Option with respect to, and to thereby purchase, an
additional 25% of the shares subject to the Option.
(c) Commencing as of the third anniversary of the date
the Option is granted, the Optionee shall have the right to
exercise the Option with respect to, and to thereby purchase, an
additional 25% of the shares subject to the Option.
(d) Commencing as of the fourth anniversary of the
date the Option is granted, the Optionee shall have the right to
exercise the Option with respect to, and to thereby purchase, the
remainder of the shares subject to such Option.
(e) Notwithstanding subsections (a) through (d) above,
any Options previously granted to an Optionee shall become
immediately vested and exercisable for 100% of the number of
shares subject to the Options upon the Optionee's death or
becoming Disabled or upon a Change of Control of the Company.
Other than as provided above, if an Optionee ceases to be an employee,
Director or Consultant of the Company, his rights with regard to all
non-vested Options shall cease immediately.
6.4 Option Price. The Option Price of the shares of Common
Stock underlying each Option shall be the Fair Market Value of the
Common Stock on the date the Option is granted. Upon execution of an
Option Agreement by both the Company and Optionee, the date as of
which the Committee granted the Option as specified in the Option
Agreement shall be considered the date on which such Option is
granted.
6.5 Terms of Options. Terms of Options granted under the Plan
shall commence on the date of grant and shall expire on such date as
the Committee may determine for each Option;
<PAGE>
provided, in no event shall any Option be exercisable after ten years
from the date the Option is granted. No Option shall be granted
hereunder after ten years from the date the Plan is adopted
by the Board.
6.6 Terms of Exercise. The exercise of an Option may be for
less than the full number of shares of Common Stock subject to such
Option, but such exercise shall not be made for less than (i) 100
shares, or (ii) the total remaining shares subject to the Option,
if such total is less than 100 shares. Subject to the other
restrictions on exercise set forth herein, the unexercised
portion of an Option may be exercised at a later date by the Optionee.
6.7 Method of Exercise. All Options granted hereunder shall be
exercised by written notice directed to the Secretary of the Company
at its principal place of business or to such other person as the
Committee may direct. Each notice of exercise shall identify
the Option which the Optionee is exercising (in whole or in part) and
shall be accompanied by payment of the Option Price for the number of
shares specified in such notice and by any documents required by
Section 9.1. The Company shall make delivery of such shares within a
reasonable period of time; provided, if any law or regulation requires
the Company to take any action (including, but not limited to, the
filing of a registration statement under the 1933 Act and causing such
registration statement to become effective) with respect to the shares
specified in such notice before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to
take such action.
6.8 Medium and Time of Payment.
(a) The Option Price shall be payable upon the
exercise of the Option in an amount equal to the number of shares
then being purchased times the per share Option Price. Payment,
at the election of the Optionee (or his Beneficiary as provided
in subsection (c) of Section 6.9), shall be (A) in cash; (B) by
delivery to the Company of a certificate or certificates for
shares of the Common Stock duly endorsed for transfer to the
Company with signature guaranteed by a member firm of a national
stock exchange or by a national or state bank or a federally
chartered thrift institution (or guaranteed or notarized in such
other manner as the Committee may require) or by instructing the
Company to retain shares of Common Stock upon the exercise of the
Option with a Fair Market Value equal to the exercise price as
payment; or (C) by a combination of (A) and (B).
(b) If all or part of the Option Price is paid by
delivery of shares of the Common Stock, the Optionee must have
held such shares as of the date of the payment for at least six
months from (i) the date of acquisition, in the case of shares
acquired other than through a stock option or other stock award
plan, or (ii) the date of grant or award in the case of shares
acquired through such a plan; and the value of such Common Stock
(which shall be the Fair Market Value of such Common Stock on the
date of exercise)
<PAGE>
shall be less than or equal to the total Option Price payment.
If the Optionee delivers shares of Common Stock with a value that
is less than the total Option Price, then such Optionee shall pay
the balance of the total Option Price in cash as provided in
subsection (a) above.
(c) In addition to the payment of the purchase price
of the shares then being purchased, an Optionee also shall pay in
cash (or have withheld from his normal pay) or, if permitted by
the Board or the Committee, in shares of Common Stock held for
the minimum period of time as specified in Section 6.8 above, an
amount equal to the amount, if any, which the Company at the time
of exercise is required to withhold under the income tax or
Federal Insurance Contribution Act tax withholding provisions of
the Code, of the income tax laws of the state of the Optionee's
residence, and of any other applicable law.
6.9 Effect of Termination of Employment, Disability or Death.
Except as provided in subsections (a), (b), (c) and (d) below, no
Option shall be exercisable unless the Optionee thereof shall have
been an employee, Director or Consultant of the Company from the
date of the granting of the Option until the date of exercise;
provided, the Committee, in its sole discretion, may waive the
application of this Section and, instead, may provide a different
expiration date or dates in an Option Agreement.
(a) Termination of Employment. In the event an
Optionee ceases to be an employee, Director or Consultant of the
Company for any reason other than death, Disability or
termination by the Company without Cause of the Optionee's
service as employee, Director or Consultant of the Company, any
Option or unexercised portion thereof granted to him shall
terminate on and shall not be exercisable after the earliest to
occur of (i) the expiration date of the Option, (iii) the date on
which the Optionee ceases to be an employee, Director or
Consultant of the Company or (iii) the date on which the Company
gives notice to such Optionee of termination of service as
employee, Director or Consultant if such service is terminated by
the Company for Cause (an Optionee's resignation of such service
in anticipation of termination of service by the Company for
Cause shall constitute a notice of termination by the Company);
rovided, the Committee may provide in the Option Agreement that
such Option or any unexercised portion thereof shall terminate
sooner. Notwithstanding the foregoing and any provision of
subsection (b), in the event that an Optionee's service as
employee, Director or Consultant of the Company terminates for a
reason other than death or Disability at any time after a Change
of Control, the term of all Options of that Optionee shall be
extended through the end of the three-month period immediately
following the date of such termination. Prior to the earlier of
the dates specified in the preceding sentences of this subsection
(a), the Option shall be exercisable only in accordance with its
terms and only for the number of shares exercisable on the date
of termination of service. The question of whether an authorized
leave of absence or absence for military or government service or
for any other
<PAGE>
reason shall constitute a termination of service for purposes of
the Plan shall be determined by the Committee, which
determination shall be final and conclusive.
(b) Termination of Employment by Company Without
Cause. In the event that the Company terminates an Optionee's
service as employee, Director or Consultant of the Company
without Cause, any Option or unexercised portion thereof granted
to him shall terminate and not be exercisable after the earlier
of (i) the expiration date of such option or (ii) three months
after the date the Optionee ceases to be an employee, Director or
Consultant of the Company; provided, the Committee may provide in
the Option Agreement that such Option or any unexercisedportion
thereof shall terminate sooner. Prior to the earlier of such
dates, such option shall be exercisable on the date such
Optionee's service is terminated by the Company without Cause.
(c) Disability. Upon the termination of an Optionee's
service as employee, Director or Consultant of the Company due to
Disability, any Option or unexercised portion thereof granted to
him which is otherwise exercisable shall terminate on and shall
not be exercisable after the earlier to occur of (i) the
expiration date of such Option, or (ii) one year after the date
on which such Optionee ceases to be an employee, Director or
Consultant of the Company due to Disability; provided, the
Committee may provide in the Option Agreement that such Option or
any unexercised portion thereof shall terminate sooner. Prior to
the earlier of such dates, such Option shall be exercisable only
in accordance with its terms and only for the number of shares
exercisable on the date such Optionee's service ceases due to
Disability.
(b) Death. In the event of the death of the Optionee
while he is an employee, Director or Consultant of the Company,
any Option or unexercised portion thereof granted to him which is
otherwise exercisable may be exercised by his Beneficiary at any
time prior to the expiration of one year from the date of death
of such Optionee, but in no event later than the date of
expiration of the option period; provided, the Committee may
provide in the Option Agreement that such Option or any
unexercised portion thereof shall terminate sooner. Such
exercise shall be effected pursuant to the terms of this Section
as if such Beneficiary is the named Optionee.
6.10 Restrictions on Transfer and Exercise of Options. No Option
shall be assignable or transferable by the Optionee except by transfer
to a Beneficiary upon the death of the Optionee, and any purported
transfer (other than as excepted above) shall be null and void.
During the lifetime of an Optionee, the Option shall be exercisable
only by him; provided, however, that in the event the Optionee is
incapacitated and unable to exercise Options, such Options may be
exercised by such Optionee's legal guardian or duly appointed
attorney-in-fact whom the Committee deems appropriate based on
applicable facts and circumstances.
<PAGE>
6.11 Rights as a Stockholder. An Optionee shall have no rights
as a stockholder with respect to shares covered by his Option until
the date of issuance of the shares to him and only after the Option
Price of such shares is fully paid and the tax withholding
amount is paid or withheld. Unless specified in Article 8, no
adjustment will be made for dividends or other rights for which the
record date is prior to the date of such issuance.
6.12 No Obligation to Exercise Option. The granting of an Option
shall impose no obligation upon the Optionee to exercise such Option.
6.13 Acceleration. The Committee shall at all times have the
power to accelerate the vesting date of Options previously granted
under this Plan.
ARTICLE 7
Terms and Conditions of Restricted Stock Awards
Restriction Agreements and the Restricted Stock awarded under
this Plan shall comply with and be subject to the following terms and
conditions:
7.1 Requirement of Restriction Agreement. Upon the grant of
Restricted Stock hereunder, the Committee shall prepare (or cause to
be prepared) a Restriction Agreement, and shall present such
Restriction Agreement to the Recipient. The failure of the
Recipient to execute the Restriction Agreement within 30 days after
the date of the receipt of same shall render the Restriction Agreement
and the underlying award of Restricted Stock null and void ab initio.
7.2 Effect of Grant of Restricted Stock. An award of Restricted
Stock granted under the Plan shall provide the Recipient with
immediate rights of ownership in the shares of Common Stock underlying
the award, but such shares shall be subject to such restrictions as
the Committee shall specify and shall be subject to forfeiture by the
Recipient until the earlier of (i) the time such restrictions lapse or
are satisfied, or (ii) the time such shares are forfeited.
7.3 Restricted Stock Recipient and Number of Shares. Each
Restriction Agreement shall state the name of the Restricted Stock
Recipient and the total number of shares of the Common Stock to which
it pertains, the Beneficiary of the Restricted Stock Recipient and the
date as of which the Restricted Stock was granted under this Plan.
7.4 Restrictions on Stock.
(a) The vesting of complete ownership rights in any
Restricted Stock awarded under this Plan shall be subject to such
terms and conditions as the Committee may determine in its sole
discretion; provided, no Recipient shall be required to pay any
<PAGE>
consideration in the form of cash or other property as a
condition to acquiring the Restricted Stock. A Recipient shall
vest and obtain a nonforfeitable interest in the Restricted Stock
as of the date that the last of such terms and conditions is
satisfied; provided, if such terms and conditions are not
satisfied by the deadline, if any, designated by the Committee
and specified in the Restriction Agreement, the portion of
Restricted Stock still subject to such terms and conditions shall
be forfeited and returned to the Company. The Committee, in its
sole discretion, may provide for the lapse of the terms and
conditions to which Restricted Stock is subject in installments
and may provide for different terms and conditions and/or a
different restriction period with respect to each award, or any
portion of an award, of Restricted Stock.
(b) In addition to such terms and conditions as the
Committee may determine with respect to the vesting of any shares
of Restricted Stock, all Restricted Stock shall vest with respect
to such portion of each grant of Restricted Stock as is specified
in the schedule set forth hereinbelow, except as may otherwise be
specified by the Committee.
(i) Commencing as of the first anniversary
of the date the Restricted Stock is granted, complete
ownership rights shall vest (subject to such other terms and
conditions as the Committee may determine) in 25% of the
Restricted Stock so granted. Prior to said date, none of
such Restricted Stock shall be vested.
(ii) Commencing as of the second anniversary
of the date the Restricted Stock is granted, complete
ownership rights shall vest (subject to such other terms and
conditions as the Committee may determine) in an additional
25% of the Restricted Stock so granted.
(iii) Commencing as of the third
anniversary of the date the Restricted Stock is granted,
complete ownership rights shall vest (subject to such other
terms and conditions as the Committee may determine) in an
additional 25% of the Restricted Stock so granted.
(iv) Commencing as of the fourth anniversary
of the date the Restricted Stock is granted, complete
ownership rights shall vest (subject to such other terms and
conditions as the Committee may determine) in the remainder
of the Restricted Stock so granted.
Notwithstanding (a) and (b) above, 100% of the shares of Restricted
Stock previously granted to a Restricted Stock Recipient shall become
immediately vested upon a Change of Control or upon a Restricted Stock
Recipient's becoming Disabled or upon his death.
<PAGE>
7.5 Delivery of Restricted Stock.
(a) The Company shall make delivery of the shares of
Restricted Stock within a reasonable period of time after
execution of a Restriction Agreement; provided, if any law or
regulation requires the Company to take any action (including,
but not limited to, the filing of a registration statement under
the 1933 Act and causing such registration statement to become
effective) with respect to such shares before the issuance
thereof, then the date of delivery of such shares shall be
extended for the period necessary to take such action.
(b) Unless the certificates representing shares of the
Restricted Stock are deposited with a custodian pursuant to
subsection (c) of this Section, each such certificate shall bear
the following legend (in addition to any other restrictive legend
required pursuant to Article 9):
The transferability of this certificate and the shares of
stock represented hereby are subject to the restrictions,
terms and conditions (including forfeiture and restrictions
against transfer) contained in the SED International
Holdings, Inc. 1999 Stock Option Plan and a Restriction
Agreement, dated ___________, ______, between
________________________ and SED International Holdings,
Inc. The Plan and Restriction Agreement are on file in the
office of the Secretary of SED International Holdings, Inc.
Such legend shall be removed from any certificate evidencing
such shares of Restricted Stock as of the date that such
shares become nonforfeitable.
Such legend shall be removed from any certificate evidencing such
shares of Restricted Stock as of the date that such shares become
nonforfeitable.
(c) As an alternative to delivering a stock
certificate to the Recipient pursuant to subsection (b) of this
Section, any certificate evidencing Restricted Stock may be
deposited by the Company with a custodian to be designated by the
Committee. The Company shall cause the custodian to issue to the
Recipient a receipt for any Restricted Stock deposited with it in
accordance with this subsection. Such custodian shall hold the
deposited certificates and deliver the same to the Recipient in
whose name the shares of Restricted Stock evidenced thereby are
registered only after such shares become nonforfeitable.
(d) A Recipient shall pay in cash (or have withheld
from his normal pay) or, if permitted by the Board or the
Committee, in shares of Common Stock held for the minimum period
of time as specified in Section 6.8(b) hereof, an amount equal to
the amount, if any, which the Company is required at any time to
withhold under the income tax or Federal Insurance Contributions
Act tax withholding provisions of the Code, of the income tax
laws of the state of the Recipient's residence, and any other
applicable law.
<PAGE>
7.6 Termination of Service. Except as otherwise determined by
the Committee and set forth in a Restriction Agreement, in the event
that the service as employee, Director or Consultant of the Company of
a Recipient to whom Restricted Stock has been granted is terminated
for any reason (including retirement of the Recipient or a termination
by the Company whether or not for Cause) other than a Change of
Control, or the Disability or death of the Recipient, before
satisfaction of the terms and conditions to which the Restricted Stock
is subject, all shares of Restricted Stock still subject to
restriction shall be forfeited and shall be reacquired by the Company.
7.7 Restrictions on Transfer. No shares of Restricted Stock
shall be assignable or transferable by the Recipient, except by
transfer to a Beneficiary upon the death of the Recipient, while such
shares are still subject to restriction, and any purported transfer
(other than as excepted above) shall be null and void.
7.8 Rights as a Stockholder. Upon delivery of Restricted Stock
to the Recipient (or the custodian, if any), the Recipient shall,
except as otherwise set forth in this Article and in the Restriction
Agreement, have all of the rights of a stockholder with respect to
the Restricted Stock, including the right to vote the shares of
Restricted Stock and receive all dividends or other distributions paid
or made with respect to the Restricted Stock. Until such
delivery, the Recipient shall have no rights as a stockholder.
7.9 Acceleration. The Committee shall at all times have the
power to accelerate the vesting date of Restricted Stock previously
granted under this Plan.
7.10 Restrictions on Grants. No Restricted Stock shall be
granted hereunder after ten years from the date the Plan is adopted by
the Board.
ARTICLE 8
Adjustments Upon Changes in Capitalization
8.1 Recapitalization. In the event that the outstanding shares
of the Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of a
recapitalization, reclassification, stock split, combination of shares
or dividend payable in shares of the Common Stock, the following rules
shall apply:
(a) The Committee shall make an appropriate adjustment
in the number and kind of shares available for the granting of
Stock Rights under the Plan.
(b) The Committee also shall make an appropriate
adjustment in the number and kind of shares as to which
outstanding Options, or portions thereof then unexercised,
<PAGE>
shall be exercisable; any such adjustment in any outstanding
Options shall be made without change in the total price
applicable to the unexercised portion of such Option and with a
corresponding adjustment in the Option Price per share. No
fractional shares shall be issued or optioned in making the
foregoing adjustments, and the number of shares available under
the Plan or the number of shares subject to any outstanding
Options shall be the next lower number of shares, rounding all
fractions downward.
(c) If any rights or warrants to subscribe for
additional shares are given pro rata to holders of outstanding
shares of the class or classes of stock then set aside for the
Plan, each Optionee shall be entitled to the same rights or
warrants on the same basis as holders of the outstanding shares
with respect to such portion of his Option as is exercised on or
prior to the record date for determining stockholders entitled to
receive or exercise such rights or warrants.
8.2 Reorganization. Subject to any required action by the
stockholders, if the Company shall be a party to any reorganization
involving merger, consolidation, acquisition of the stock or
acquisition of the assets of the Company which does not
constitute a Change of Control, the Committee, in its discretion, may
declare that:
(a) any Option granted but not yet exercised shall
pertain to and apply, with appropriate adjustment as determined
by the Committee, to the securities of the resulting corporation
to which a holder of the number of shares of the Common Stock
subject to such Option would have been entitled;
(b) any or all outstanding Stock Rights granted
hereunder shall become immediately nonforfeitable and fully
exercisable or vested (to the extent permitted under federal or
state securities laws); and/or
(c) any or all Stock Rights granted hereunder shall
become immediately nonforfeitable and fully exercisable or vested
(to the extent permitted under federal or state securities laws)
and are to be terminated after giving at least 30 days' notice to
the Optionees and/or Recipients to whom such Stock Rights have
been granted.
8.3 Dissolution and Liquidation. If the Board adopts a plan of
dissolution and liquidation that is approved by the stockholders of
the Company, the Committee shall give each Optionee and Recipient
written notice of such event at least ten days prior to its effective
date, and the rights of all Optionees and Recipients shall become
immediately nonforfeitable and fully exercisable or vested (to the
extent permitted under federal or state securities laws).
8.4 Limits on Adjustments. Any issuance by the Company of stock
of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of the Common
Stock
<PAGE>
subject to any Option, except as specifically provided otherwise in
this Article. The grant of Stock Rights pursuant to the Plan shall
not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate or dissolve, or
to liquidate, sell or transfer all or any part of its business or
assets. All adjustments the Committee makes under this Article
shall be conclusive.
ARTICLE 9
Agreement by Optionee or Recipient and Securities Registration
9.1 Agreement. If, in the opinion of counsel to the Company,
such action is necessary or desirable, no Stock Rights shall be
granted to any Optionee or Recipient, and no Option shall be
exercisable, unless, at the time of grant or exercise, as applicable,
such Optionee or Recipient (i) represents and warrants that he will
acquire the Common Stock for investment only and not for purposes of
resale or distribution, and (ii) makes such further representations
and warranties as are deemed necessary or desirable by counsel to the
Company with regard to holding and resale of the Common Stock. The
Optionee or Recipient shall, upon the request of the Committee,
execute and deliver to the Company an agreement or affidavit to
such effect. Should the Committee have reasonable cause to believe
that such Optionee or Recipient did not execute such agreement or
affidavit in good faith, the Company shall not be bound by the grant
of the Option or Restricted Stock or by the exercise of the Option.
All certificates representing shares of Common Stock issued pursuant
to the Plan shall be marked with the following restrictive
legend or similar legend, if such marking, in the opinion of counsel
to the Company, is necessary or desirable:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state and are held by an "affiliate" (as
such term is defined in Rule 144 promulgated by the Securities
and Exchange Commission under the Securities Act of 1933, as
amended) of the Company. Accordingly, these shares may not be
sold, hypothecated, pledged or otherwise transferred except (i)
pursuant to an effective registration statement under the
Securities Act of 1933, as amended, and any applicable securities
laws or regulations of any state with respect to such shares,
(ii) in accordance with Securities and Exchange Commission Rule
144, or (iii) upon the issuance to the Company of a favorable
opinion of counsel or the submission to the Company of such other
evidence as may be satisfactory to the Company that such proposed
sale, assignment, encumbrance or other transfer will not be in
violation of the Securities Act of 1933, as amended, or any
applicable securities laws of any state or any rules or
regulations thereunder. Any attempted transfer of this
certificate or the shares represented hereby which is in
violation of the preceding restrictions will not be recognized by
the Company, nor will any transferee be recognized as the owner
thereof by the Company.
If the Common Stock is (A) held by an Optionee or Recipient who is not
an "affiliate," as that term is defined in Rule 144 of the 1933 Act,
or who ceases to be an "affiliate," or (B) registered under the 1933
Act and all applicable state securities laws and regulations as
provided in Section 9.2, the Committee, in its discretion and with the
advice of counsel, may dispense with or authorize the removal of the
restrictive legend set forth above or the portion thereof which is
inapplicable.
<PAGE>
9.2 Registration. In the event that the Company in its sole
discretion shall deem it necessary or advisable to register, under the
1933 Act or any state securities laws or regulations, any shares with
respect to which Stock Rights have been granted hereunder, then the
Company shall take such action at its own expense before or, if
appropriate and upon the advice of legal counsel, after delivery of
the certificates representing such shares to an Optionee or Recipient.
In such event, and if the shares of Common Stock of the Company shall
be listed on any national securities exchange or on The Nasdaq
National Market at the time of the exercise of any Option or the
vesting of any shares of Restricted Stock, the Company shall make
prompt application at its own expense for the listing on such stock
exchange or The Nasdaq National Market of the shares of Common Stock
to be issued.
ARTICLE 10
Effective Date
The Plan shall be effective as of the Effective Date, and no
Stock Rights shall be granted hereunder prior to said date.
ARTICLE 11
Amendment and Termination
11.1 Amendment and Termination By the Board. Subject to Section
11.2 below, the Board shall have the power at any time to add to,
amend, modify or repeal any of the provisions of the Plan, to suspend
the operation of the entire Plan or any of its provisions for any
period or periods or to terminate the Plan in whole or in part. In
the event of any such action, the Committee shall prepare written
procedures which, when approved by the Board, shall govern
the administration of the Plan resulting from such addition,
amendment, modification, repeal, suspension or termination.
11.2 Restrictions on Amendment and Termination. Notwithstanding
the provisions of Section 11.1 above, no addition, amendment,
modification, repeal, suspension or termination shall adversely
affect, in any way, the rights of the Optionees or Recipients who have
outstanding Stock Rights, without the consent of such Optionees or
Recipients.
ARTICLE 12
Miscellaneous Provisions
12.1 Application of Funds. The proceeds received by the Company
from the sale of the Common Stock subject to the Stock Rights granted
hereunder will be used for general corporate purposes.
<PAGE>
12.2 Notices. All notices or other communications by an Optionee
or Recipient to the Committee pursuant to or in connection with the
Plan shall be deemed to have been duly given when received in the form
specified by the Committee at the location, or by the person,
designated by the Committee for the receipt thereof.
12.3 Term of Plan. Subject to the terms of Article 11, the Plan
shall terminate upon the later of (i) the complete exercise or lapse
of the last outstanding Stock Right, or (ii) the last date upon which
Options may be granted hereunder.
12.4 Governing Law. The Plan shall be governed by and construed
in accordance with the laws of the State of Georgia.
12.5 Additional Provisions By Committee. The Option Agreements
authorized under the Plan may contain such other provisions,
including, without limitation, restrictions upon the exercise of an
Option, as the Committee shall deem advisable. The Restriction
Agreements authorized under the Plan may contain such other
provisions, including, without limitation, restrictions upon the
complete ownership of Restricted Stock, as the Committee
shall deem advisable.
12.6 Plan Document Controls. In the event of any conflict
between the provisions of an Option Agreement and the Plan, or between
a Restriction Agreement and the Plan, the Plan shall control.
12.7 Gender and Number. Wherever applicable, the masculine
pronoun shall include the feminine pronoun, and the singular shall
include the plural.
12.8 Headings. The titles in this Plan are inserted for
convenience of reference; they constitute no part of the Plan and are
not to be considered in the construction hereof.
12.9 Legal References. Any references in this Plan to a
provision of law which is, subsequent to the Effective Date of this
Plan, revised, modified, finalized or redesignated, shall
automatically be deemed a reference to such revised, modified,
finalized or redesignated provision of law.
12.10 No Rights to Employment or to Perform Services.
Nothing contained in the Plan, or any modification thereof, shall be
construed to give any individual any rights to employment with the
Company, or to perform services for the Company.
12.11 Unfunded Arrangement. The Plan shall not be funded,
and except for reserving a sufficient number of authorized shares to
the extent required by law to meet the requirements of the Plan, the
Company shall not be required to establish any special or separate
fund or to make any other segregation of assets to assure the payment
of any grant under the Plan.
<PAGE>
ADOPTED BY BOARD OF DIRECTORS ON JULY 20, 1999.
NOT TO BE SUBMITTED FOR SHAREHOLDER VOTE
NONQUALIFIED STOCK OPTION NO. ________
<PAGE>
SED INTERNATIONAL HOLDINGS, INC.
1999 STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the "Agreement") is
entered into as of the ____ day of ___________________, ________, by
and between SED International Holdings, Inc. (the "Company") and
______________________________________ ("Optionee").
W I T N E S S E T H:
WHEREAS, the Company (which term as used herein shall include any
parent or subsidiary of the Company) has adopted the SED International
Holdings, Inc. 1999 Stock Option Plan (the "Plan") which is
administered by a committee appointed by the Board of Directors of
SED International Holdings, Inc. (the "Committee"); and
WHEREAS, effective as of _________________, ________, the
Committee granted to Optionee a nonqualified stock option under, and
in accordance with, the terms of the Plan to reward Optionee for his
efforts on behalf of the Company and to encourage his continued
loyalty and diligence; and
WHEREAS, to comply with the terms of the Plan and to further the
interests of the Company and Optionee, the parties hereto have set
forth the terms of such option in writing in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and
mutual promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:
1. Grant of Option. Effective as of _________________,
________, the Committee granted Optionee a nonqualified stock option
under the Plan. Under that option and subject to the terms and
conditions set forth herein, Optionee shall have the right to purchase
________ shares of the $.01 par value common stock of SED
International Holdings, Inc. (the "Common Stock"); such ________
shares hereinafter are referred to as the "Optioned Shares",
and this option hereinafter is referred to as the "Option".
<PAGE>
2. Option Price. The price per share for each of the Optioned
Shares shall be $________________ (the "Option Price"), which is not
less than 100% of the per share Fair Market Value of the Optioned
Shares on the date of grant specified above.
3. Exercise of Option.
(a) General. The Option may be exercised by Optionee's
delivery to the Secretary of the Company of a written notice of
exercise executed by Optionee (the "Notice of Exercise"). The Notice
of Exercise shall be substantially in the form set forth as Exhibit A,
attached hereto and made a part hereof, and shall identify the Option
and the number of Optioned Shares that are being exercised.
(b) Beginning of Exercise Period. The Option first shall
become exercisable (i.e., vested) according to the following schedule;
provided, if Optionee ceases to be an employee, Director or Consultant
of the Company, his rights with regard to all nonvested Options under
this schedule shall cease immediately:
[Describe meeting schedule]
Notwithstanding the foregoing, the Option shall become 100% vested
immediately upon the death or Disability of Optionee or upon a Change
of Control.
(c) Partial Exercise. Optionee may exercise the Option for
less than the full number of exercisable Optioned Shares, but such
exercise may not be made for less than 100 shares or the total
remaining shares subject to the Option, if less than 100 shares.
4. Termination of Option. Notwithstanding any provisions to
the contrary herein, the Option shall not be exercisable either in
whole or in part after the earliest of:
(a) Ten years from the date of grant;
(b) The date that is immediately prior to the first
anniversary of the date on which Optionee dies while in the service of
the Company as an employee, Director or Consultant;
(c) The date of expiration of the one-year period that
begins on the date on which Optionee ceases to be an employee,
Director or Consultant of the Company due to Disability;
(d) The date of expiration of the three-month period that
begins on the date on which Optionee ceases to be an employee,
Director or Consultant of the Company for any reason other than death
or Disability;
<PAGE>
(e) The date on which the Company gives notice (or is
deemed to have given notice) to Optionee of his termination of service
as an employee, Director or Consultant for Cause, all as described in
Section 6.9(a) of the Plan.
(f) Such other earlier date as may be required under the
terms of the Plan.
5. Option Non-Transferable. The Option shall not be
transferable by Optionee other than by will or by the laws of descent
and distribution except by transfer to a Beneficiary upon the death of
the Optionee, and any purported transfer (other than as excepted
above) shall be null and void. During the lifetime of Optionee, the
Option shall be exercisable only by Optionee (or, if he becomes
disabled or otherwise incapacitated, by the legal guardian of
his property or his duly appointed attorney-in-fact), and shall not be
assignable or transferable by Optionee and, subject to Section 6
hereof, no other person shall acquire any rights in the
Option.
6. Death of Optionee and Transfer of Option. In the event of
the death of Optionee while in the service of the Company as an
employee, Director or Consultant, all or any of the unexercised
portion of the Option owned by the deceased Optionee may be exercised
by Optionee's Beneficiary at any time prior to the first anniversary
of the date of the death of Optionee, but in no event later than the
date as of which such Option expires pursuant to Section 4 hereof.
Such exercise shall be effected in accordance with the terms hereof
as if such Beneficiary was Optionee herein. The Optionee agrees that
the following individual shall initially be his Beneficiary:
Name: ______________________________________
Address: ______________________________________
______________________________________
______________________________________
Any subsequent modification of the Optionee's Beneficiary shall be
made pursuant to the terms and provisions of the Plan.
7. Medium and Time of Payment of Option Price.
(a) General. The Option Price shall be payable by Optionee
(or his Beneficiary in accordance with Section 6 hereof) upon exercise
of the Option and shall be paid in cash, in shares of the Common
Stock, or any combination thereof.
(b) Payment in Shares of the Common Stock. If Optionee
pays all or part of the Option Price with shares of the Common Stock,
the following conditions shall apply:
(i) Optionee shall deliver to the Secretary of
the Company a certificate or certificates for shares of the
Common Stock duly endorsed for transfer to the Company
<PAGE>
with signature guaranteed by a member firm of a national stock
exchange or by a national or state bank (or guaranteed or
notarized in such other manner as the Committee may require);
(ii) Optionee must have held any shares of the
Common Stock used to pay the Option Price for at least six months
prior to the date such payment is made;
(iii) Such shares shall be valued on the basis
of the Fair Market Value of the Common Stock on the date of
exercise pursuant to the terms of the Plan; and
(iv) The value of such Common Stock shall be less
than or equal to the Option Price. If Optionee delivers Common
Stock with a value that is less than the Option Price, then
Optionee shall pay the balance of the Option Price in a form
allowed under subsection (a) above.
In addition to the payment of the Option Price, Optionee also shall
pay in cash (or have withheld from his normal pay) or, if permitted by
the Board or the Committee, in shares of Common Stock held for the
minimum period of time as specified in Section 6.8 of the Plan an
amount equal to, the amount, if any, which the Company at the time of
exercise is required to withhold under the income tax and FICA
withholding provisions of the Internal Revenue Code of 1986, as
amended, and of the income tax laws of the state of Optionee's
residence.
8. Agreement of Optionee. Optionee acknowledges that he has
read Section 9 of the Plan and understands that certain restrictions
may apply with respect to shares of the Common Stock acquired by him
pursuant to his exercise of the Option (including restrictions on
resale applicable to "affiliates" under Rule 144 of the Securities Act
of 1933, as amended, and restrictions on resale applicable to shares
of the Common Stock that have not been registered under the Securities
Act of 1933, as amended, and applicable state securities laws).
Optionee hereby agrees to execute such documents and take such actions
as the Company may require with respect to state and federal
securities laws and any restrictions on the resale of such shares
which may pertain.
9. Delivery of Stock Certificates. As promptly as practical
after the date of exercise of the Option and the receipt by the
Company of full payment therefor, as well as full payment of amounts
required to be withheld by the Company for income tax and FICA
purposes, the Company shall deliver to Optionee a stock certificate
representing the shares of the Common Stock acquired by Optionee
pursuant to his exercise of the Option.
10. Notices. All notices or other communications hereunder
shall be in writing and shall be effective (i) when personally
delivered by courier (including overnight carriers) or otherwise to
the party to be given such notice or other communication or (ii) on
the third business day following the date deposited in the United
States mail if such notice or other communication
<PAGE>
is sent by certified or registered mail with return receipt requested
and postage thereon fully prepaid. The addresses for such notices
shall be as follows:
If to the Company:
SED International Holdings, Inc.
Attention: Corporate Secretary
4916 North Royal Atlanta Drive
Tucker, Georgia 30085
If to Optionee:
__________________________
__________________________
__________________________
__________________________
Any party hereto, by notice of the other party hereunder, may change
its address for receipt of notices hereunder.
11. Other Terms and Conditions. In addition to the terms and
conditions set forth herein, the Option is subject to and governed by
the other terms and conditions set forth in the Plan, which is hereby
incorporated by reference. In the event of any conflict between the
provisions of this Agreement and the Plan, the Plan shall control.
12. Miscellaneous.
(a) The granting of the Option and the execution of this
Agreement shall not give Optionee any rights to similar grants in
future years or any right to be retained in the service of the Company
or to interfere in any way with the right of the Company to terminate
Optionee's service with the Company as an employee, Director or
Consultant at any time.
(b) Unless and except as otherwise specifically provided in
this Agreement, Optionee shall have no rights of a stockholder with
respect to any shares covered by the Option until the date of issuance
of a stock certificate to him for such shares.
(c) If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal regulatory
agency of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect, and
shall in no way be affected, impaired or invalidated. If for any
reason such court or regulatory agency determines that this Agreement
will not permit Optionee to acquire the full number of Optioned Shares
as provided in Section 1
<PAGE>
hereof, it is the express intention of the Company to allow Optionee
to acquire such lesser number of shares as may be permissible without
any amendment or modification hereof.
(d) This Agreement shall be construed and enforced in
accordance with the laws of Georgia.
(e) This Agreement, together with the Plan, contains the
entire understanding among the parties and supersedes any prior
understanding and agreements between them representing the subject
matter hereof. There are no representations, agreements, arrangements
or understandings, oral or written, between and among the parties
hereto relating to the subject matter hereof which are not fully
expressed herein, in the Plan.
(f) Section and other headings contained in this Agreement
are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provision hereof.
(g) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of
which shall constitute one agreement, and the signatures of any party
or any counterpart shall be deemed to be a signature to, and may be
appended to, any other counterpart.
(h) All capitalized terms in this Agreement shall be
construed in accordance with their defined terms under the Plan.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the first date written above.
SED INTERNATIONAL HOLDINGS, INC.
By:______________________________________
Title:___________________________________
OPTIONEE:
__________________________________________
Signature
__________________________________________
Print or type name
<PAGE>
EXHIBIT A
SED INTERNATIONAL HOLDINGS, INC.
1999 STOCK OPTION PLAN
NOTICE OF EXERCISE FOR NONQUALIFIED STOCK OPTION AGREEMENT
This Notice of Exercise is given pursuant to the terms of the
Nonqualified Stock Option Agreement, dated __________________,
_______, between SED International Holdings, Inc. (the "Company") and
the undersigned Optionee (the "Agreement"), which Agreement represents
Nonqualified Stock Option No. ________ and which is made a part hereof
and incorporated herein by reference.
EXERCISE OF OPTION. Optionee hereby exercises his option to
purchase _______ of his Optioned Shares. Optionee hereby delivers,
together with this written statement of exercise, the full Option
Price with respect to the exercised Optioned Shares, which consists
of: [COMPLETE ONLY ONE]
[ ] cash in the total amount of $________________.
[ ] ________ shares of the Company's Common Stock.
[ ] cash in the total amount of $_________________ and
_________ shares of the Company's Common Stock.
ACKNOWLEDGMENT. Optionee hereby acknowledges that, to the extent
he is an "affiliate" of the Company (as that term is defined in Rule
144 promulgated under the Securities Act of 1933, as amended) or to
the extent that the Optioned Shares have not been registered under the
Securities Act of 1933, as amended, or applicable state securities
laws, any shares of the Company's Common Stock acquired by
him as a result of his exercise of the Option pursuant to this Notice
are subject to, and the certificates representing such shares shall be
legended to reflect, certain trading restrictions under applicable
securities laws (including particularly the Securities
and Exchange Commission's Rule 144), all as described in Section 9 of
the Plan, and Optionee hereby agrees to comply with all such
restrictions and to execute such documents or take such other
actions as the Company may require in connection with such
restrictions.
Executed this ______ day of _________________, _________.
OPTIONEE:
_______________________________________
_______________________________________
Print or Type Name
The Company hereby acknowledges receipt of this Notice of
Exercise and receipt of payment in the form and amount indicated
above, all on this ______ day of ____________________,
________.
SED INTERNATIONAL HOLDINGS, INC.
By:_____________________________________
Title:__________________________________
<PAGE>
RESTRICTION AGREEMENT NO. ____
SED INTERNATIONAL HOLDINGS, INC.
1999 STOCK OPTION PLAN
RESTRICTION AGREEMENT
This Restriction Agreement (the "Agreement") is entered into as
of the _________ day of ________________, ____, by and between SED
International Holdings, Inc. (the "Company")
and ________________________________________ ("Recipient").
W I T N E S S E T H:
WHEREAS, the Company (which term as used herein shall include any
parent or subsidiary of the Company) has adopted the SED International
Holdings, Inc. 1999 Stock Option Plan (the "Plan") which is
administered by a Committee appointed by the Board of Directors of
SED International Holdings, Inc. (the "Committee"); and
WHEREAS, effective as of ____________________, _____, the
Committee granted to Recipient an award of restricted stock under, and
in accordance with, the terms of the Plan to reward Recipient for his
efforts on behalf of the Company and to encourage his continued
loyalty and diligence; and
WHEREAS, to comply with the terms of the Plan and to further the
interests of the Company and Recipient, the parties hereto have set
forth the terms of such award in writing in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises
herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. Grant of Award. Effective as of ___________________, _____,
the Committee granted to Recipient an Award of _____________________
shares of the $.01 par value common stock of SED International
Holdings, Inc. to Recipient, which Award is hereinafter referred to as
the "Restricted Shares."
2. Vesting Restrictions. The Restricted Shares shall be
subject to the following vesting restrictions; provided, if Recipient
ceases to be an employee, Director or Consultant of
<PAGE>
the Company, his rights with respect to all nonvested Restricted
Shares under this schedule shall cease immediately:
[Describe vesting schedule]
Notwithstanding the foregoing, the Restricted Shares shall become 100%
vested and nonforfeitable immediately upon the death or Disability of
Recipient or upon a Change of Control of the Company.
3. Restrictions on Transfer. Restricted Shares shall not be
transferred or assignable by the Recipient, except by transfer to a
Beneficiary on the death of the Recipient, and any purported transfer
(other than as excepted above) shall be null and void. The
Recipient agrees that the following individual shall initially be his
Beneficiary:
Name: _______________________________
Address: _______________________________
_______________________________
_______________________________
Any subsequent modifications of the Recipient's Beneficiary shall be
made pursuant to the terms and provisions of the Plan.
4. Agreement of Recipient. Recipient acknowledges that
Recipient has read the Plan and understands that certain restrictions
may apply with respect to the Restricted Shares acquired by Recipient
pursuant to the Award. Specifically, Recipient acknowledges
that, to the extent Recipient is an "affiliate" of the Company , as
that term is defined by the Securities Act of 1933 (the "1933 Act"),
the Restricted Shares acquired by Recipient as a result of
the Award are subject to, and the certificate or certificates, if any,
representing the Restricted Shares shall be legended to reflect,
certain trading restrictions under applicable securities laws
(including particularly the Securities and Exchange Commission's Rule
144). Recipient hereby agrees to execute such documents and take such
actions as the Company may require with respect to state and federal
securities laws and any restrictions on the resale of such shares
which may pertain. Recipient further acknowledges that the securities
represented by the Award have been registered under the 1933 Act and
all applicable state securities acts.
5. Execution of Agreement; Issuance of Restricted Stock.
Recipient shall execute the Agreement within 30 days after receipt of
same or the Agreement and the Award shall be null and void ab initio.
Within a reasonable time after the date of execution of the Agreement,
the Company shall cause the Restricted Shares to be issued to
Recipient.
6. Withholding. Recipient shall pay in cash (or have withheld
from his normal pay) or, if permitted by the Board or the Committee,
in shares of Common Stock held for the
<PAGE>
minimum period of time as specified in Section 6.8 of the Plan an
amount equal to the amount, if any, which the Company is required at
any time to withhold under such tax withholding requirements, which is
sufficient to fully satisfy the tax withholding requirements of the
Internal Revenue Code of 1986, as amended, and of any applicable state
or local tax laws.
7. Other Terms and Conditions. In addition to the terms and
conditions set forth herein, the Award is subject to and governed by
the terms and conditions set forth in the Plan, each of which is
hereby incorporated by reference. In the event of any conflict
between the provisions of the Agreement and the Plan, the Plan shall
control.
8. Notices. All notices or other communications hereunder
shall be in writing and shall be effective (i) when personally
delivered by courier (including overnight carriers) or otherwise to
the party to be given such notice or other communication or (ii)
on the third business day following the date deposited in the United
States mail if such notice or other communication is sent by certified
or registered mail with return receipt requested and postage thereon
fully prepaid. The addresses for such notices shall be as follows:
If to the Company:
SED International Holdings, Inc.
Attention: Corporate Secretary
4916 North Royal Atlanta Drive
Tucker, Georgia 30085
If to Recipient:
__________________________
__________________________
__________________________
__________________________
Any party hereto, by notice of the other party hereunder, may change
its address for receipt of notices hereunder.
9. Miscellaneous.
(a) Limitation of Rights. The granting of the Award
and the execution of the Agreement shall not give Recipient any
rights to similar grants in future years or any right to be
retained in the employ or service of the Company or to interfere
in any way with the right of the Company to terminate Recipient's
employment or services at any time.
<PAGE>
(b) Voting Rights and Dividends. Upon issuance of the
Restricted Shares, Recipient shall have the rights of a
shareholder to vote the Restricted Shares and to receive all
dividends or other distributions paid or made with respect to
such Restricted Shares.
(c) Severability. If any term, provision, covenant or
restriction contained in the Agreement is held by a court or a
federal regulatory agency of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions contained in the Agreement
shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
(d) Controlling Law. The Agreement shall be construed
and enforced in accordance with the laws of Georgia.
(e) Construction. The Agreement, together with the
Plan, contains the entire understanding between the parties and
supersedes any prior understanding and agreements between them
representing the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral
or written, between and among the parties hereto relating to the
subject matter hereof which are not fully expressed herein other
than in the Plan.
(f) Headings. Section and other headings contained in
the Agreement are for reference purposes only and are in no way
intended to describe, interpret, define or limit the scope,
extent or intent of the Agreement or any provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the
Agreement as of the date first above written.
SED INTERNATIONAL HOLDINGS, INC.
By:_____________________________________
Title: _________________________________
RECIPIENT
_________________________________________
Signature
_________________________________________
Print or Type Name
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
THIS THIRD AMENDMENT TO EMPLOYMENT AGREEMENT is made this 7th
day of June, 1999, effective as of July 1, 1999, between SED
INTERNATIONAL, INC., a Georgia corporation (the "Subsidiary") and a
wholly-owned subsidiary of SED INTERNATIONAL HOLDINGS, INC., a Georgia
corporation, and Gerald Diamond, an individual resident of the State
of Georgia (the "Employee").
W I T N E S S E T H:
WHEREAS, on November 7, 1989, Employee and the Subsidiary
entered into an Employment Agreement (the "Agreement") setting forth
the terms and conditions of Employee's employment with the Subsidiary;
and
WHEREAS, effective July 1, 1991, Employee and the Subsidiary
entered into the First Amendment to the Employment Agreement,
modifying certain terms and conditions of Employee's employment with
the Subsidiary; and
WHEREAS, effective July 1, 1998, Employee and the Subsidiary
entered into the Second Amendment to the Employment Agreement,
modifying certain terms and conditions of Employee's employment with
the Subsidiary; and
WHEREAS, the Subsidiary and Employee agree that it is in the
best interest of both parties to make certain further modifications to
the terms and conditions of Employee's employment with the Subsidiary.
NOW, THEREFORE, in consideration of the foregoing, the continued
employment of the Employee, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. AMENDMENT TO SECTION 3(H) OF THE AGREEMENT. Pursuant to
Section 15(d) of the Agreement, Section 3(h) is hereby deleted in its
entirety and replaced by the following paragraphs:
(h) If a Change of Control occurs while the Employee is
employed by the Subsidiary during the term of this Agreement, or
during any extension thereof, and:
(1) the Employee's employment is terminated involuntarily,
or voluntarily by the Employee based on (i) material
changes in the nature or scope of the Employee's duties
or employment, (ii) a reduction in compensation of the
Employee made without the Employee's consent, (iii) a
relocation of the Subsidiary's executive offices other
than in compliance with the provisions of Section 2(b)
of this Agreement, or (iv) a good faith determination
made by the Employee, upon consultation with the Board
of Directors of the Subsidiary, that it is necessary or
appropriate for the Employee to relocate from the
Atlanta, Georgia Metropolitan Area to enable Employee
to perform his duties hereunder, the Employee may, in
his sole discretion, give written notice within thirty
(30) days after the date of termination of employment
to the Secretary or Assistant Secretary of the
Subsidiary that he is exercising his rights hereunder
and requests payment of the amounts provided for under
this Section 3(h); or
(2) the Employee gives written notice of his termination of
employment for any reason concurrently with the time a
Change of Control occurs or any time within thirty (30)
days after the date the Change of Control becomes
effective to the Secretary or Assistant Secretary of
the Subsidiary, he may exercise his rights hereunder
and request payment of the amounts provided for under
this Section 3(h) (the notice provided pursuant to
Subsection 3(h)(1) or Subsection 3(h)(2) is referred to
as the "Notice of Exercise").
If the Employee gives a Notice of Exercise to receive the
payments provided for hereunder, the Subsidiary shall pay to
or for the benefit of the Employee, immediately upon the
Subsidiary's receipt of the Notice of Exercise, a single
cash
<PAGE>
payment for damages suffered by the Employee by reason of
the Change in Control (the "Executive Payment") in an amount
equal to (as determined in accordance with Section 280G(d)
(4) of the Code) all annual salary, Bonuses and other
benefits owing to Employee for the period from Employee's
date of termination hereunder through the remainder of the
Initial Term of this Agreement, as may be extended;
provided, however, in the event the period from the date of
Employee's termination hereunder through the remainder of
the Initial Term of this Agreement, as may be extended, is
less than twelve (12) months, then the Employee shall
receive an Executive Payment equal to the sum of (as
determined in accordance with Section 280G(d)(4) of the
Code) (i) the current annual salary and the value of all
other benefits payable to the Employee annualized for a
twelve (12) month period, and (ii) an amount equal to any
Bonus that would have been paid for such period of less than
twelve (12) months based on an extrapolation of SEC's Pretax
Adjusted Annual Income for the full quarterly periods from
the end of the most recent fiscal year to the date of
termination; and further provided, however, if Employee's
termination of employment hereunder occurs in the first
fiscal quarter of a fiscal year, then the Bonus shall be
based on SEC's Pretax Adjusted Annual Income for the
immediately preceding fiscal year.
The Executive Payment shall be in addition to and shall not
be offset or reduced by (i) any other amounts that have been
earned or accrued or that have otherwise become payable or
will become payable to the Employee or his beneficiaries,
but have not been paid by SEC or the Subsidiary at the time
the Employee gives the Notice of Exercise including, without
limitation, salary, bonuses, severance pay, consulting fees,
disability benefits, termination benefits, retirement
benefits, life and health insurance benefits or any other
compensation or benefit payment that is part of any
previous, current or future contract, plan or agreement,
written or oral, and (ii) any indemnification payments that
may have accrued but not paid or that may thereafter become
payable to the Employee pursuant to the provisions of SEC's
and the Subsidiary's Articles of Incorporation, Bylaws or
similar policies, plans or agreements relating to
indemnification of directors and officers of SEC and the
Subsidiary under certain circumstances. The Executive
Payment shall not be reduced by any present value
calculations.
In the event the Employee dies during the term of this
Agreement, the Employee's legal representative shall be
entitled to receive the
<PAGE>
Executive Payment, provided that the Notice of Exercise has
been or is given either by the Employee or his legal
representative, as the case may be.
2. OTHER PROVISIONS OF THE AGREEMENT. Except as otherwise
provided herein, all other provisions of the Agreement shall remain
in full force and effect and Employee's employment thereunder shall
continue on the terms described therein throughout the term of the
Agreement, as amended hereby.
IN WITNESS WHEREOF, the parties have duly executed and delivered
this Third Amendment to Employment Agreement as of the day and year
first indicated above.
SED INTERNATIONAL, INC.
By: _______________________________________
Name: RAY D. RISNER
Title: PRESIDENT AND COO
_____________________________________(SEAL)
Gerald Diamond (Employee)
<PAGE>
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT is made this 7th
day of June, 1999, effective as of July 1, 1999, between SED
INTERNATIONAL, INC., a Georgia corporation (the "Subsidiary") and a
wholly-owned subsidiary of SED INTERNATIONAL HOLDINGS, INC., a Georgia
corporation, and Jean Diamond, an individual resident of the State of
Georgia (the "Employee").
W I T N E S S E T H:
WHEREAS, on November 7, 1989, Employee and the Subsidiary
entered into an Employment Agreement (the "Agreement") setting forth
the terms and conditions of Employee's employment with the Subsidiary;
and
WHEREAS, effective July 1, 1991, Employee and the Subsidiary
entered into the First Amendment to the Employment Agreement,
modifying certain terms and conditions of Employee's employment with
the Subsidiary; and
WHEREAS, effective July 1, 1998, Employee and the Subsidiary
entered into the Second Amendment to the Employment Agreement,
modifying certain terms and conditions of Employee's employment with
the Subsidiary; and
WHEREAS, effective December 1, 1998, Employee and the Subsidiary
entered into the Third Amendment to the Employment Agreement,
modifying certain terms and conditions of Employee's employment with
the Subsidiary; and
<PAGE>
WHEREAS, the Subsidiary and Employee agree that it is in the
best interest of both parties to make certain further modifications to
the terms and conditions of Employee's employment with the Subsidiary.
NOW, THEREFORE, in consideration of the foregoing, the continued
employment of the Employee, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. AMENDMENT TO SECTION 3(F) OF THE AGREEMENT. Pursuant to
Section 15(d) of the Agreement, Section 3(f) is hereby deleted in its
entirety and replaced by the following paragraphs:
(f) If a Change of Control occurs while the Employee is employed
by the Subsidiary during the term of this Agreement, or
during any extension thereof, and:
(1) the Employee's employment is terminated involuntarily,
or voluntarily by the Employee based on (i) material
changes in the nature or scope of the Employee's duties
or employment, (ii) a reduction in compensation of the
Employee made without the Employee's consent, (iii) a
relocation of the Subsidiary's executive offices other
than in compliance with the provisions of Section 2(b)
of this Agreement, or (iv) a good faith determination
made by the Employee, upon consultation with the Board
of Directors of the Subsidiary, that it is necessary or
appropriate for the Employee to relocate from the
Atlanta, Georgia Metropolitan Area to enable Employee
to perform her duties hereunder, the Employee may, in
her sole discretion, give written notice within thirty
(30) days after the date of termination of employment
to the Secretary or Assistant Secretary of the
Subsidiary that she is exercising her rights hereunder
and requests payment of the amounts provided for under
this Section 3(f); or
(2) the Employee gives written notice of her termination of
employment for any reason concurrently with the time a
Change of Control occurs or any time within thirty (30)
<PAGE>
days after the date the Change of Control becomes
effective to the Secretary or Assistant Secretary of
the Subsidiary, she may exercise her rights hereunder
and request payment of the amounts provided for under
this Section 3(f) (the notice provided pursuant to
Subsection (f)(1) or Subsection (f)(2) is referred to
as the "Notice of Exercise").
If the Employee gives a Notice of Exercise to receive the
payments provided for hereunder, the Subsidiary shall pay to
or for the benefit of the Employee, immediately upon the
Subsidiary's receipt of the Notice of Exercise, a single
cash payment for damages suffered by the Employee by reason
of the Change in Control (the "Executive Payment") in an
amount equal to (as determined in accordance with Section
280G(d) (4) of the Code) all annual salary and other
benefits owing to Employee for the period from Employee's
date of termination hereunder through the remainder of the
Initial Term of this Agreement, as may be extended;
provided, however, in the event the period from the date of
Employee's termination hereunder through the remainder of
the Initial Term of this Agreement, as may be extended, is
less than twelve (12) months, then the Employee shall
receive an Executive Payment equal to the sum of (as
determined in accordance with Section 280G(d)(4) of the
Code) the current annual salary and the value of all other
benefits payable to the Employee annualized for a twelve
(12) month period.
The Executive Payment shall be in addition to and shall not
be offset or reduced by (i) any other amounts that have been
earned or accrued or that have otherwise become payable or
will become payable to the Employee or her beneficiaries,
but have not been paid by SEC or the Subsidiary at the time
the Employee gives the Notice of Exercise including, without
limitation, salary, bonuses, severance pay, consulting fees,
disability benefits, termination benefits, retirement
benefits, life and health insurance benefits or any other
compensation or benefit payment that is part of any
previous, current or future contract, plan or agreement,
written or oral, and (ii) any indemnification payments that
may have accrued but not paid or that may thereafter become
payable to the Employee pursuant to the provisions of SEC's
and the Subsidiary's Articles of Incorporation, Bylaws or
similar policies, plans or agreements relating to
indemnification of directors and officers of SEC and the
Subsidiary under certain circumstances. The Executive
Payment shall not be reduced by any present value
calculations.
<PAGE>
In the event the Employee dies during the term of this
Agreement, the Employee's legal representative shall be
entitled to receive the Executive Payment, provided that the
Notice of Exercise has been or is given either by the
Employee or her legal representative, as the case may be.
2. OTHER PROVISIONS OF THE AGREEMENT. Except as otherwise
provided herein, all other provisions of the Agreement shall remain
in full force and effect and Employee's employment thereunder shall
continue on the terms described therein throughout the term of the
Agreement, as amended hereby.
IN WITNESS WHEREOF, the parties have duly executed and delivered
this Fourth Amendment to Employment Agreement as of the day and year
first indicated above.
SED INTERNATIONAL, INC.
By: _______________________________________
Name: RAY D. RISNER
Title: PRESIDENT AND COO
_____________________________________(SEAL)
Jean Diamond (Employee)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the
first day of June, 1999 between Ronell Rivera (hereinafter referred to
as "Employee") and SED International, Inc., a Georgia Corporation
(hereinafter referred to as the "Company").
W I T N E S S E T H :
WHEREAS, the Company desires to enter into this Agreement
regarding Employee's employment by the Company, and Employee desires
to accept the terms of said employment;
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, it is hereby agreed
as follows:
1. EMPLOYMENT OF EMPLOYEE. This Agreement is effective for a
period of one (1) year commencing on June 1, 1999, unless this
Agreement is sooner terminated pursuant to the provisions hereof.
Employee agrees to such employment on the terms and conditions herein
set forth and agrees to devote his best efforts to his duties under
this Agreement and to perform such duties diligently and
efficiently and in accordance with the written policies of the
Company.
During the term of this Agreement, Employee shall be employed as
President, SED Magna, and Senior V.P. Latin America Division,
reporting to the President, SED International. In Employee's capacity
as President, SED Magna, Employee shall be responsible for all
operations of SED Magna, oversight management of the Company's Latin
America Division consisting of Argentina, Columbia, Miami and Puerto
Rico and such other and further duties as may from time to time become
necessary for management of the Company and the Latin American
Division, as determined by either the Chief Executive Officer or
President of SED International.
<PAGE>
Employee shall devote substantially all of Employee's business
time, attention and energies to the business of the Company, shall act
at all times in the best interests of the Company, and shall not
during the term of this Agreement be engaged in any other significant
business activity, whether or not such business is pursued for gain,
profit or other pecuniary advantage, except as contemplated by this
Agreement.
2. COMPENSATION AND BENEFITS.
(a) Employee's annual base salary during the term of this
Agreement shall be $160,000.
(b) Employee's base salary shall be paid by the Company
pursuant to its customary payroll practices.
(c) Furthermore, the employee will receive a Brazilian
Premium as additional compensation as a result of accepting the
position to relocate himself and his family to Sao Paulo, Brazil. The
Brazilian Premium will be payable only as long as the employee is
stationed in Sao Paulo, Brazil and will be pro-rated over the year if
the employee vacates the Sao Paulo position before one year from June
1, 1999. The Brazilian Premium consists of the following:
[bullet] Additional compensation equal to U.S. $60,000
per year payable in Reals.
[bullet] Exclusive use of a four-bedroom apartment in
the Paraiso district of Sao Paulo with the
rent, utilities and maintenance costs paid by
SED Magna after final approval by the
President of the Company of the original
lease.
[bullet] Furniture at a cost limited to $20,000 for an
unfurnished apartment in Sao Paulo.
[bullet] Four-family round-trip airline tickets (equal
to 16 tickets) between Sao Paulo and Miami
for one year beginning on June 1, 1999 on a
coach level basis.
<PAGE>
Arrangements for these trips, with reasonable
notice, must be made through the Company.
[bullet] $1 million term life insurance for the
benefit of employee's family paid for by the
Company for the duration of this assignment.
[bullet] An incentive of U.S. $60,000 if the
performance of SED Magna equals or exceeds
U.S. $1 million in net income fully taxed
U.S. GAAP basis for the twelve months
beginning June 1, 1999.
(d) The Company or SED Magna will pay off the lease
balance on the Employee's Expedition not to exceed $5,790.84. SED
Magna will lease or buy, during the term of the Employee's assignment
at SED Magna, one four-door, mid-size vehicle for his use in Brazil.
(e) The Company shall provide Employee such medical
coverage and other benefits as mandated by Brazilian law for employees
of SED Magna, subject to Employee meeting any eligibility or other
requirements of such coverages or benefits. Employee and immediate
family members will have medical and dental coverage equal to coverage
as if the Employee was an U.S. Employee of the Company, paid for by
SED Magna.
(f) Employee shall be entitled to three (3) weeks of paid
vacation per year.
(g) Employee and family will be covered under the
Company's kidnap insurance policy.
3. PERSONNEL POLICIES. Employee shall conduct himself at all
times in a businesslike and professional manner as appropriate for a
person in his position and shall represent the Company in all respects
as complies with good business and ethical practices.
<PAGE>
4. BUSINESS EXPENSES. Employee shall be reimbursed by the
Company for ordinary, necessary and reasonable business expenses
consistent with the Company's policies concerning reimbursement of
such expenses; provided that, Employee shall first document said
business expenses in the manner generally required by the Company
under its policies and procedures, and in any event, the manner
required to meet applicable regulations of the Internal Revenue
Service relating to the deductibility of such expenses.
5. LOCATION OF EMPLOYMENT. From June 1, 1999 to May 31, 2000
the position and place of employment is in Sao Paulo, Brazil at SED
Magna Distribuidora LDTA.
6. TERMINATION.
(a) This Agreement may be terminated for good cause by the
Company upon written notice to Employee. As used herein, "good cause"
means: (i) any act of fraud or malfeasance; (ii) any act of theft or
embezzlement; (iii) the breach of any material provision of this
Agreement by Employee (provided that such breach is not cured by
Employee within 30 days of receiving written notice of such breach
from the Company); (iv) failure to comply with the written
directions of the President of SED International provided that those
directions would not require the Employee to break any law in the U.S.
or Brazil; (v) engaging in any unlawful harassment or discrimination;
(vi) the conviction of Employee of any crime involving moral turpitude
(whether felony or misdemeanor) or involving any felony; (vii) any act
of moral turpitude by Employee that materially adversely affects the
Company or its business reputation; (viii) violation of state or
federal securities laws; (ix) violation of the laws, rules
and regulations of any stock exchange, over-the-counter trading
system, including the Nasdaq Stock Market, Inc., or the National
Association of Securities Dealers, Inc.
<PAGE>
(b) This Agreement also shall terminate immediately upon
the death of Employee, or immediately upon written notice to Employee
if Employee shall at any time be unable to perform the essential
functions of his job hereunder, by reason of a physical or mental
illness or condition, with or without physical accommodation, for a
continuous period of 180 consecutive days, as certified by
a physician or physicians selected by the Board of Directors of the
Company.
(c) In the event of termination under subsections (a) or
(b) of this Section 6, the salary and other benefits provided herein
shall be paid to Employee up to the effective date of termination of
this Agreement, and not thereafter, subject to any benefit
continuation requirements under applicable laws or regulations.
(d) The Company may terminate this Employment Agreement at
any time without "good cause" upon written notice to Employee. In the
event of such termination, Company shall pay to Employee the (i)
greater of (a) Employee's base salary, less applicable withholdings,
for the remaining period of the Agreement or (b) three (3) months of
base salary, less applicable withholdings and for the remaining period
of the Agreement, the Brazilian premium pro rated for period of time
employed at SED Magna, and vesting of options and grants. All
such payments owing under this Section shall be payable concurrently
at the time of termination. Other than the payments of the base
salary, benefits amounts and Brazilian premium as specified herein, no
further payments of any kind shall be made to Employee.
7. PRODUCTS, NOTES, RECORDS AND SOFTWARE. All memoranda,
notes, records and other documents and computer software created,
developed, compiled or used by Employee or made available to Employee
during the term of this Agreement concerning or relative to the
business of the Company, including without limitation, all customer
data, marketing and sales information,
<PAGE>
billing information, service data and other technical material of the
Company, is the Company's property. Employee agrees to deliver all
such materials to the Company within three (3) business days after the
termination of this Agreement.
8. NONDISCLOSURE. Employee acknowledges and agrees that
during the term of this Agreement, he will have access to and become
familiar with information that the parties acknowledge to be
confidential, valuable and uniquely proprietary information regarding
the Company, its customers and employees. Employee further
acknowledges that the disclosure or unauthorized use of Trade
Secrets or confidential information by Employee would harm the
Company's business. Employee therefore promises and agrees that,
during the term of Employee's employment and for two (2) years
thereafter, Employee shall not use or disclose, directly or
indirectly, for any purpose any such confidential or proprietary
information which includes, without limitation, technical
materials of the Company, sales and marketing information, customer
account records, billing information, training and operations
information, materials and memoranda, personnel records and pricing
and financial information relating to the business, accounts, vendors,
suppliers, customers, prospective customers, employees and affairs of
the Company. Employee further agrees that Employee will
not, at any time during or after the term of Employee's employment
with the Company, use, reveal or divulge any Trade Secrets as defined
under applicable state law.
9. RESTRICTIVE COVENANTS. Employee acknowledges and agrees
that, because of his employment he has access to confidential or
proprietary information concerning vendors, suppliers and customers of
the Company and has established relationships with such vendors,
suppliers and customers. In exchange for valuable consideration to be
given by the Company to Employee, as provided herein, Employee agrees
to the following provisions:
<PAGE>
(a) Employee agrees that during the term of his employment
and for a period of one (1) year thereafter, if the Employee leaves
voluntarily or Employee is terminated for "good cause," Employee shall
not, directly or indirectly, either individually, in partnership,
jointly, or in conjunction with, or on behalf of, any person, firm,
partnership, corporation, or unincorporated association or entity of
any kind, solicit or contact, for the purpose of providing products or
services the same as or substantially similar to those provided by the
Company, any person or entity that, during the term of Employee's
employment with the Company, was a customer of the Company with
whom Employee had contact during the last twelve (12) months of his
employment, or was a prospective customer of the Company with whom
Employee had contact during the last twelve (12) months of his
employment;
(b) Employee agrees that during the term of his employment
and for a period of one (1) year thereafter, if the Employee leaves
voluntarily or Employee is terminated for "good cause," Employee shall
not, directly or indirectly, either individually, in partnership,
jointly, or in conjunction with, or on behalf of, any person, firm,
partnership, corporation, or unincorporated association or entity of
any kind, hire or solicit, or attempt to hire or solicit, for
employment any person who was employed by the Company up
to 90 days prior to the date of termination of this Agreement, or
persuade or attempt to persuade any such person to terminate or modify
his or her employment relationship, whether or not pursuant to a
written agreement, with the Company; and
(c) Employee agrees that during the term of his
employment, he shall not, directly or indirectly, either individually,
in partnership, jointly, or in conjunction with, or on behalf of, any
person, firm, partnership, corporation, or unincorporated association
or entity of any kind (i) provide operational or management services
to the following competitors of the Company: Ingram Micro, Inc., Tech
Data Corp., CHS Electronics, Inc., Microage, Inc., ASI
<PAGE>
Corp. or Supercom, Inc., or any of their respective affiliates, which
purchase, market and sell computer products, cellular telephones and
related products; or (ii) otherwise obtain any interest in (except as
a stockholder holding less than two percent (2%) interest in a
corporation which is traded on a national exchange or
over-the-counter), or perform services for, or otherwise
participate in the ownership, management, or control of, the companies
listed above.
Employee acknowledges that the time restrictions and scope
included in this Section 9 are as narrow as possible and cannot be
reduced and still adequately protect the Company's business interests.
Employee acknowledges that the scope of this Section 9 is reasonable
and necessary to protect the Company's legitimate business interests.
10. REMEDY FOR BREACH. Employee agrees that the damage to the
Company resulting from any actual or threatened breach by Employee of
the covenants contained in Sections 7, 8 and 9 of this Agreement would
be immediate, irreparable and difficult to measure, and that money
damages would not be an adequate remedy. Therefore, Employee agrees
that the Company shall be entitled to specific performance of the
covenants in such sections or injunctive relief, by temporary or
permanent injunction or other appropriate judicial remedy,
writ or order, or both, in addition to any damages which the Company
may be legally entitled to recover.
11. SURVIVAL. The provisions of Sections 7, 8, 9 and 10 shall
survive termination of this Agreement.
12. INVALIDITY OF ANY PROVISION. It is the intent of the
parties hereto that the provisions of this Agreement shall be enforced
to the fullest extent permissible under the laws and public policies
of each state and jurisdiction in which such enforcement is sought,
but that the unenforceability (or the modification to conform with
such laws or public policies) of any provision hereof shall not render
unenforceable or impair the remainder of this Agreement which
<PAGE>
shall be deemed amended to delete or modify, as necessary, the invalid
or unenforceable provisions. The parties further agree to alter the
balance of this Agreement in order to render the same valid and
enforceable.
13. APPLICABLE LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of Florida.
14. WAIVER OF BREACH. The waiver by the Company of a breach by
Employee of any provision of this Agreement may only be made in
writing and shall not operate or be construed as a waiver of any
subsequent breach by Employee.
15. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the Company, its subsidiaries and affiliates, and their
respective successors and assigns.
16. ENTIRE AGREEMENT. This instrument contains the entire
agreement of the parties and supersedes all prior agreements regarding
Employee's employment by the Company, including, but not limited to,
oral discussions, letter agreements, or any other document concerning
the possibility of employment with the Company. This Agreement may
only be changed by an agreement in writing signed by the party against
whom enforcement of any waiver, changes, modification, extension or
discharge is sought. It cannot be changed orally.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal as of the date first above shown.
EMPLOYEE:
_____________________________(SEAL)
COMPANY:
SED INTERNATIONAL, INC.
By:_______________________________
Title:____________________________
(CORPORATE SEAL)
$50,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
August 31, 1999
among
SED INTERNATIONAL HOLDINGS, INC.
AND
SED INTERNATIONAL, INC.
as Borrowers,
AND
WACHOVIA BANK, N.A.,
as Agent
<PAGE>
TABLE OF CONTENTS
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Page
ARTICLE I
DEFINITIONS............................................................1
SECTION 1.01. Definitions....................................................1
SECTION 1.02. Accounting Terms and Determinations...........................26
SECTION 1.03. References....................................................26
SECTION 1.04. Use of Defined Terms..........................................26
SECTION 1.05. Terminology...................................................27
ARTICLE II
THE CREDITS...........................................................27
SECTION 2.01. Commitments to Lend Syndicated Loans..........................27
SECTION 2.02. Method of Borrowing...........................................29
SECTION 2.03. Notes.........................................................32
SECTION 2.04. Maturity of Loans.............................................32
SECTION 2.05. Interest Rates................................................33
SECTION 2.06. Fees..........................................................35
SECTION 2.07. Optional Termination or Reduction of
Commitments...............................................35
SECTION 2.08. Mandatory Termination or Reduction of
Commitments...............................................35
SECTION 2.09. Optional Prepayments..........................................35
(i)
<PAGE>
SECTION 2.10. Mandatory Prepayments.........................................36
SECTION 2.12. General Provisions as to Payments.............................36
SECTION 2.13. Computation of Interest and Fees..............................38
ARTICLE III
LETTER OF CREDIT FACILITY.............................................39
SECTION 3.01. Obligation to Issue...........................................39
SECTION 3.02. Types and Amounts.............................................39
SECTION 3.03. Conditions....................................................39
SECTION 3.04. Issuance of Letters of Credit.................................40
(a) Request for Issuance..............................................40
(b) Issuance; Notice of Issuance......................................40
(c) No Extension or Amendment.........................................41
SECTION 3.05. Reimbursement Obligations; Duties of the
Issuing Bank..............................................41
(a) Reimbursement...................................................41
(b) Duties of the Agent...............................................42
SECTION 3.06. Participations................................................42
(a) Purchase of Participations........................................42
(b) Sharing of Letter of Credit Payments..............................42
(c) Sharing of Reimbursement Obligation Payments......................43
(d) Documentation.....................................................43
(e) Obligations Irrevocable...........................................43
SECTION 3.07. Payment of Reimbursement Obligations..........................44
(a) Payments to Issuing Bank..........................................44
(b) Recovery or Avoidance of Payments...............................45
SECTION 3.08. Compensation for Letters of Credit and Agent
Reporting Requirements....................................46
(a) Letter of Credit Fees and Fronting Fees.........................46
(b) Agent Charges...................................................46
SECTION 3.09. Indemnification; Exoneration..................................46
(a) Indemnification.................................................46
(b) Assumption of Risk by Borrowers.................................47
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(c) Exoneration.....................................................47
SECTION 3.10. Credit Yield Protection; Capital Adequacy.....................47
ARTICLE IV
CONDITIONS TO BORROWINGS..............................................50
SECTION 4.01. Conditions to Closing.........................................50
SECTION 4.02. Conditions to All Borrowings..................................52
ARTICLE V
REPRESENTATIONS AND WARRANTIES........................................53
SECTION 5.01. Corporate Existence and Power.................................53
SECTION 5.02. Corporate and Governmental Authorization;
No Contravention..........................................53
SECTION 5.03. Binding Effect................................................54
SECTION 5.04. Financial Information.........................................54
SECTION 5.05. No Litigation.................................................54
SECTION 5.06. Compliance with ERISA.........................................55
SECTION 5.07. Compliance with Laws; Payment of Taxes........................55
SECTION 5.08. Subsidiaries..................................................55
SECTION 5.09. Investment Company Act........................................56
SECTION 5.10. Public Utility Holding Company Act............................56
SECTION 5.11. Ownership of Property; Liens..................................56
SECTION 5.12. No Default....................................................56
SECTION 5.13. Full Disclosure...............................................56
SECTION 5.14. Environmental Matters.........................................56
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<PAGE>
SECTION 5.15. Capital Stock.................................................57
SECTION 5.16. Margin Stock..................................................57
SECTION 5.17. Insolvency....................................................58
SECTION 5.18. Y2K Plan......................................................58
ARTICLE VI
COVENANTS.............................................................59
SECTION 6.01. Information...................................................59
SECTION 6.02. Inspection of Property, Books and Records.....................62
SECTION 6.03. Maintenance of Existence and Management.......................62
SECTION 6.04. Dissolution...................................................62
SECTION 6.05. Consolidations, Mergers and Sales of Assets...................63
SECTION 6.06. Use of Proceeds...............................................63
SECTION 6.07. Compliance with Laws; Payment of Taxes........................64
SECTION 6.08. Insurance.....................................................64
SECTION 6.09. Change in Fiscal Year.........................................64
SECTION 6.10. Maintenance of Property.......................................65
SECTION 6.11. Environmental Notices.........................................65
SECTION 6.12. Environmental Matters.........................................65
SECTION 6.13. Environmental Release.........................................65
SECTION 6.14. Transactions with Affiliates..................................65
SECTION 6.15. Restricted Payments...........................................66
SECTION 6.16. Loans or Advances.............................................66
SECTION 6.17. Investments...................................................66
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SECTION 6.18. Negative Pledge...............................................66
SECTION 6.19. Restrictions on Ability of Subsidiaries
to Pay Dividends..........................................68
SECTION 6.20. Leverage Ratio................................................68
SECTION 6.21. Fixed Charge Coverage.........................................68
SECTION 6.22. Current Ratio.................................................68
SECTION 6.23. Minimum Profitability.........................................69
SECTION 6.24. Minimum Consolidated Tangible Net Worth.......................69
SECTION 6.25. Distributor Agreements........................................69
SECTION 6.26. Accounts Receivable...........................................69
SECTION 6.27. Inventory.....................................................70
SECTION 6.28. Additional Debt...............................................70
SECTION 6.29. Post-Closing Matters..........................................71
SECTION 6.30. Y2K Compliance................................................71
ARTICLE VII
DEFAULTS..............................................................71
SECTION 7.01. Events of Default.............................................71
SECTION 7.02. Notice of Default.............................................75
ARTICLE VIII
THE AGENT.............................................................75
SECTION 8.01. Appointment; Powers and Immunities............................75
SECTION 8.02. Reliance by Agent.............................................76
SECTION 8.03. Defaults......................................................77
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<PAGE>
SECTION 8.04. Rights of Agent and its Affiliates as a Bank..................77
SECTION 8.05. Indemnification...............................................78
SECTION 8.06 Consequential Damages.........................................78
SECTION 8.07. Payee of Note Treated as Owner................................78
SECTION 8.08. Nonreliance on Agent and Other Banks..........................79
SECTION 8.09. Failure to Act................................................79
SECTION 8.10. Resignation or Removal of Agent...............................79
ARTICLE IX
CHANGE IN CIRCUMSTANCES; COMPENSATION.................................80
SECTION 9.01. Basis for Determining Interest Rate
Inadequate or Unfair......................................80
SECTION 9.02. Illegality....................................................81
SECTION 9.03. Increased Cost and Reduced Return.............................81
SECTION 9.04. Base Rate Loans or Other Euro-Dollar Loans
Substituted for Affected Euro-Dollar Loans................83
SECTION 9.05. Compensation..................................................83
ARTICLE X
MISCELLANEOUS.........................................................84
SECTION 10.01. Notices......................................................84
SECTION 10.02. No Waivers...................................................85
SECTION 10.03. Expenses; Documentary Taxes..................................85
SECTION 10.04. Indemnification..............................................85
SECTION 10.05. Setoff; Sharing of Setoffs...................................86
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<PAGE>
SECTION 10.06. Amendments and Waivers.......................................87
SECTION 10.07. No Margin Stock Collateral...................................88
SECTION 10.08. Successors and Assigns.......................................88
SECTION 10.09. Confidentiality..............................................91
SECTION 10.10. Representation by Banks......................................92
SECTION 10.11. Obligations Several..........................................92
SECTION 10.12. Georgia Law..................................................92
SECTION 10.13. Severability.................................................92
SECTION 10.14. Interest.....................................................92
SECTION 10.15. Interpretation...............................................94
SECTION 10.16. Waiver of Jury Trial; Consent to Jurisdiction................94
SECTION 10.17. Counterparts.................................................94
SECTION 10.18. Source of Funds -- ERISA.....................................94
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<PAGE>
EXHIBIT A-1 Form of Syndicated Loan Note
EXHIBIT A-2 Form of Swing Loan Note
EXHIBIT B Form of Opinion of Special Counsel for the
Borrowers
EXHIBIT C Form of Opinion of Special Counsel for the Agent
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Notice of Borrowing
EXHIBIT F Form of Borrowing Base Certificate
EXHIBIT G Form of Notice of Letter of Credit
EXHIBIT H Form of Compliance Certificate
EXHIBIT I Form of Closing Certificate
EXHIBIT J Form of Officer's Certificate
EXHIBIT K Form of Landlord Agreement
EXHIBIT L Form of Telephone Instruction Letter
EXHIBIT M Form of Security Agreement
EXHIBIT N Form of FINOVA Intercreditor Agreement
EXHIBIT O Form of Subsidiary Guaranty
Schedule 5.08 Subsidiaries
Schedule 6.28 Debt
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<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of August
31, 1999 among SED INTERNATIONAL HOLDINGS, INC. and SED INTERNATIONAL, INC.,
jointly and severally, and the BANKS listed on the signature pages hereof and
WACHOVIA BANK, N.A., as Agent. This Agreement amends, restates and supersedes
that
certain Amended and Restated Credit Agreement dated as of August 13, 1997 (the
"Existing Credit Agreement"), among the parties to this Agreement.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The terms as defined in this Section
1.01 shall, for all purposes of this Agreement and any amendment hereto (except
as herein otherwise expressly provided or unless the context otherwise
requires), have the meanings set forth herein:
"Account Debtor" means the person who is obligated on any of the
Accounts Receivable or otherwise is obligated as a purchaser or lessee of any
of the Inventory.
"Accounts Receivable" means all rights of either Borrower to
payment for goods sold or leased, or to be sold or to be leased, or for services
rendered or to be rendered, howsoever evidenced or incurred, including,
without limitation, all accounts, instruments, chattel paper and general
intangibles, all returned or repossessed goods and all books, records, computer
tapes, programs and ledger books arising therefrom or relating thereto, whether
now owned or hereafter acquired or arising.
"Adjusted London Interbank Offered Rate" has the
meaning set forth in Section 2.05(c).
"Affiliate" of any relevant Person means (i) any Person that
directly, or indirectly through one or more intermediaries, controls the
relevant Person (a "Controlling Person"), (ii) any Person (other than the
relevant Person or a Subsidiary of the relevant Person) which is controlled by
or is under common control with a Controlling Person, or (iii) any Person (other
than a Subsidiary of the relevant Person) of which the relevant
<PAGE>
Person owns, directly or indirectly, 20% or more of the common stock or
equivalent equity interests. As used herein, the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means Wachovia Bank, N.A., a national banking association
organized under the laws of the United States of America, in its capacity as
agent for the Banks hereunder, and its successors and permitted assigns in
such capacity.
"Agreement" means this Second Amended and Restated Credit
Agreement, together with all amendments and supplements hereto.
"Aggregate Commitments" means, at any time, the
aggregate amount of Commitments of all of the Banks.
"Aggregate Principal Amount Outstanding" means, at any time, the
sum of (i) the aggregate outstanding principal amount of the Syndicated Loans to
both Borrowers, (ii) the aggregate outstanding principal amount of the Swing
Loans to both Borrowers and (iii) the aggregate outstanding principal amount
of the Letter of Credit Obligations with respect to both Borrowers.
"Aggregate Unused Commitments" means at any date, an amount equal
to the Aggregate Commitments less the Aggregate Principal Amount Outstanding
(but without giving effect to any outstanding Swing Loans).
"Applicable Margin" has the meaning set forth in
Section 2.05(a).
"Assignee" has the meaning set forth in Section
10.08(c).
"Assignment and Acceptance" means an Assignment and Acceptance
executed in accordance with Section 10.08(c) in the form attached hereto as
Exhibit D.
"Assignment of Claims Acts" means The Assignment of
Claims Act of 1940, as may be amended from time to time, and any
Federal, State, county or municipal statute, regulation, ordinance,
constitution or charter, now or hereafter existing, similar in effect thereto,
as determined by the Agent in its sole discretion.
<PAGE>
"Authority" has the meaning set forth in Section 9.02.
"Availability" means the amount of Loans which the Borrowers are
entitled to borrow at any time pursuant to Section 2.01.
"Bank" means each bank listed on the signature pages hereof as
having a Commitment, and its successors and assigns.
"Base Rate" means for any Base Rate Loan for any day, the rate per
annum equal to the higher as of such day of (i) the Prime Rate, or (ii)
one-half of one percent above the Federal Funds Rate. For purposes of
determining the Base Rate for any day, changes in the Prime Rate or the Federal
Funds Rate shall be effective on the date of each such change.
"Base Rate Loan" means a Loan which bears or is to bear interest
at a rate based upon the Base Rate, and is to be made as a Base Rate Loan
pursuant to the applicable Notice of Borrowing, Section 2.02(f), or Article IX,
as applicable.
"Borrower" means, both individually and collectively, as the
context shall require, SEDH and SEDI, and their respective successors and
permitted assigns, as joint and several primary obligors with respect to the
principal of and interest on all Loans and Letter of Credit Obligations, all
yield protection, compensation and indemnification obligations, and all fees,
costs, expenses and other amounts payable hereunder.
"Borrowing" means a borrowing hereunder consisting of Loans made
to either Borrower (i) at the same time by all of the Banks, in the case of a
Syndicated Loan, or (ii) separately by Wachovia, in the case of a Swing
Borrowing, in each case pursuant to Article II. A Borrowing is a "Syndicated
Borrowing" if such Loans are made pursuant to Section 2.01(a), (c) or (d), or
a "Swing Borrowing" if such Loans are made pursuant to Section 2.01(b). A
Borrowing is a "Base Rate Borrowing" if such Loans are Base Rate Loans, or a
"Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans.
"Borrowing Base" means the following sum:
(i) (A) an amount equal to 75% (or such greater or lesser
percentage which the Agent shall establish by written notice
to the Borrowers in its good faith discretion) of the face
dollar amount of Eligible Accounts as at the date of
determination,
<PAGE>
PLUS
(B) an amount equal to the lesser of
(x) 40% (or such greater or lesser
percentage which the Agent shall establish by
written notice to the Borrowers in its good
faith discretion) of the dollar amount of the
Eligible Inventory, valued at the lower of its
FIFO ("first-in, first-out") cost or market value,
as at the date of determination, and
(y) the lesser of
(1) 50% of the Aggregate
Commitments, and
(2) the amount of clause (i)(A) of
this definition,
MINUS
(ii) (A) the FINOVA Reserve,
PLUS
(B) any additional reserve determined by the Agent, in
its sole discretion, as the Agent deems necessary as
security for payment of the Obligations.
"Borrowing Base Certificate" has the meaning given it
in Section 6.01(f).
"Borrowing Base Reporting Date" means each date the
Borrowers deliver Borrowing Base Certificates to the Agent.
"Capital Stock" means any nonredeemable capital stock of either
Borrower or any Consolidated Subsidiary (to the extent issued to a Person
other than such Borrower), whether common or preferred.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. ss. 9601 et. seq. and its
implementing regulations and amendments.
<PAGE>
"CERCLIS" means the Comprehensive Environmental
Response Compensation and Liability Inventory System established
pursuant to CERCLA.
"Change of Law" shall have the meaning set forth in
Section 9.02.
"Closing Certificate" has the meaning set forth in
Section 4.01(e).
"Closing Date" means August 31, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code.
"Collateral" has the meaning set forth in each
Security Agreement.
"Commitment" means, with respect to each Bank, (i) the amount set
forth opposite the name of such Bank on the signature pages hereof, and (ii)as
to any Bank which enters into any Assignment and Acceptance (whether as
transferor Bank or as Assignee thereunder), the amount of such Bank's
Commitment after giving effect to such Assignment and Acceptance, in each case
as such amount may be reduced from time to time pursuant to Sections 2.07 and
2.09.
"Compliance Certificate" has the meaning set forth in
Section 6.01(c).
"Compliance Reporting Date" means each date the Borrowers deliver
Compliance Certificates to the Agent.
"Consolidated Debt" means at any date the Debt of the Borrowers and
the Consolidated Subsidiaries, determined on a consolidated basis as of such
date.
"Consolidated Fixed Charges" for any period means the sum of (i)
Consolidated Interest Expense for such period, and (ii) all payment obligations
of the Borrowers and the Consolidated Subsidiaries for such period under all
operating leases and rental agreements.
"Consolidated Interest Expense" for any period means interest,
whether expensed or capitalized, in respect of Debt of the Borrowers or any of
its Consolidated Subsidiaries outstanding during such period.
<PAGE>
"Consolidated Net Income" means, for any period, the Net Income of
the Borrowers and the Consolidated Subsidiaries determined on a consolidated
basis, but excluding (i) extraordinary items, (ii) gains or losses on sales of
assets, and (iii) any equity interests of the Borrowers or any Subsidiary in the
unremitted earnings of any Person that is not a Subsidiary.
"Consolidated Operating Profits" means, for any period, the
Operating Profits of the Borrowers and the Consolidated Subsidiaries.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of either Borrower in its consolidated financial statements as of
such date.
"Consolidated Tangible Net Worth" means, at any time, Stockholders'
Equity, less the sum of the value, as set forth or reflected on the most recent
consolidated balance sheet of the Borrowers and the Consolidated Subsidiaries,
prepared in accordance with GAAP, of:
(A) Any surplus resulting from any write-up of assets
subsequent to December 31, 1998;
(B) All assets which would be treated as intangible assets for
balance sheet presentation purposes under GAAP, including without limitation
goodwill (whether representing the excess of cost over book value of assets
acquired, or otherwise), trademarks, tradenames, copyrights, patents and
technologies, and unamortized debt discount and expense;
(C) To the extent not included in (B) of this definition, any
amount at which shares of Capital Stock of the Borrowers appear as an asset on
the balance sheet of the Borrowers and the Consolidated Subsidiaries;
(D) Loans or advances to stockholders, directors, officers or
employees; and
(E) To the extent not included in (B) of this definition,
deferred expenses.
"Consolidated Total Assets" means, at any time, the total assets of
the Borrowers and the Consolidated Subsidiaries, determined on a consolidated
basis, as set forth or reflected on the most recent consolidated balance sheet
of the Borrowers and the Consolidated Subsidiaries, prepared in accordance with
GAAP.
<PAGE>
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with either Borrower, are treated as a single
employer under Section 414 of the Code.
"Current Ratio" means, at any time of any determination thereof, the
ratio of (a) the amount of all Accounts Receivable plus Inventory to (b) the
amount of all accounts payable plus the outstanding balance of all Loans and
Letter of Credit Obligations plus the FINOVA Indebtedness. Accounts Receivable
and Inventory, for the purposes of this definition, shall be valued as set forth
in the definitions of "Eligible Accounts" and "Eligible Inventory".
"Debt" of a Person means all liabilities, obligations and
indebtedness of such Person, of any kind or nature, whether now or hereafter
owing, arising, due or payable, howsoever evidenced, created, incurred, acquired
or owing, and whether primary, secondary, direct, contingent, fixed or
otherwise, including, without in any way limiting the generality of the
foregoing: (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, (iv) all obligations of such Person as lessee
under capital leases, (v) all obligations of such Person to reimburse any bank
or other Person in respect of amounts payable under a banker's acceptance, (vi)
all Redeemable Preferred Stock of such Person (in the event such Person is a
corporation), (vii) all obligations of such Person to reimburse any bank or
other Person in respect of amounts paid or to be paid or to be paid under a
letter of credit or similar instrument, (viii) all Debt of others secured by a
Lien on any asset of such Person, whether or not such Debt is assumed by such
Person, (ix) all obligations of such Person with respect to interest rate
protection agreements, foreign currency exchange agreements or other hedging
arrangements (valued as the termination value thereof computed in accordance
with a method approved by the International Swap Dealers Association and agreed
to by such Person in the applicable hedging agreement, if any), (x) all Debt of
others Guaranteed by such Person, (xi) all accrued pension fund and other
employee benefit plan obligations and liabilities, (xii) deferred taxes, and
(xiii) all other liabilities of such Person, including, but not limited to trade
payables and other monetized commercial obligations.
<PAGE>
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" means, with respect to any Loan, on any day, the sum
of 2% plus the then highest interest rate (including the Applicable Margin)
which may be applicable to any Loans hereunder (irrespective of whether any such
type of Loans are actually outstanding hereunder).
"Distributor Agreements" means any agreement between a manufacturer
or producer of electronics hardware or software and either of the Borrowers
pursuant to which such Borrower purchases electronics hardware or software and
acts as the distributor for the manufacturer or producer thereof, in each case
as any of the foregoing may be extended, renewed, amended, supplemented or
replaced from time to time.
"Dollars" or "$" means dollars in lawful currency of
the United States of America.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Georgia are authorized by law to close.
"Domestic Subsidiary" means each of (i) SED Miami, (ii)
SED Retail, and (iii) SED E-Store.
"EBITDA" means for any period the sum of (i) Consolidated Net
Income, (ii) taxes on income, (iii) Consolidated Interest Expense, (iv)
depreciation expense, and (v) amortization expense, all determined with respect
to the Borrowers and the Consolidated Subsidiaries on a consolidated basis for
such period and in accordance with GAAP.
"EBILTDA" means for any period the sum of (i) Consolidated Net
Income, (ii) taxes on income, (iii) Consolidated Interest Expense, (iv)
depreciation expense, (v) amortization expense, and (vi) all payment obligations
for such period under all operating leases and rental agreements, all determined
with respect to the Borrowers and the Consolidated Subsidiaries on a
consolidated basis for such period and in accordance with GAAP.
"Eligible Accounts" means that portion of the Accounts Receivable
consisting of accounts actually owing to either Borrower by its Account Debtors
subject to no counterclaim, defense, setoff or deduction, excluding, however,
any account:
<PAGE>
(i) with respect to which any portion thereof is more than 60 days past due or
90 days past invoice date; (ii) which is owing by any Account Debtor
affiliated with either Borrower or with any of its shareholders, directors or
officers, as determined by the Agent in its sole discretion; (iii) which is
owing by any Account Debtor having 50% or more in face value of its then
existing accounts with either Borrower ineligible hereunder; (iv) the assignment
of which is subject to any requirements set forth in any Assignment of Claims
Acts, unless such requirements have been satisfied in all respects; (v) which is
owing by any Account Debtor whose accounts, in face amount, with either Borrower
exceed 10% of such Borrower's total accounts, but only to the extent of such
excess; (vi) which is owing by an Account Debtor located outside the United
States, unless it is (x) secured by an irrevocable letter of credit, which
letter of credit shall have been confirmed by a financial institution acceptable
to the Agent and shall be in form and substance acceptable to the Agent and
pledged to the Agent, and (y) payable in full in United States dollars; (vii) is
at any time not subject to the first priority security interest of the Agent
under the Security Agreements; (viii) is subject to any Lien (other than in
favor of the Agent), including, without limitation, any Lien under any of the
Distributor Agreements (except to the extent permitted under any Lien
Subordination Agreement) or otherwise; (ix) is subject to a contra account; (x)
which arises from the sale of Special Inventory; and/or (xi) which has otherwise
been determined by the Agent in its reasonable credit judgment not to be
eligible for the purposes hereof.
"Eligible Inventory" means that portion of the Inventory consisting
of inventory located in the United States of America and in the possession and
control of either Borrower which (i) is located on real property owned by either
Borrower or on leased property with respect to which such landlord has executed
and delivered to the Agent a Landlord Agreement and which was the subject of an
invoice to such Borrower from the seller thereof dated not more than 90 days
prior to the date of determination; (ii) was manufactured not more than 365 days
prior to the date of determination; (iii) is at all times subject to the first
priority security interest of the Agent under the Security Agreements and is not
subject to any other Lien, including, without limitation, any Lien under any of
the Distributor Agreements (except to the extent permitted under any Lien
Subordination Agreement), the Liens against the FINOVA Collateral (defined in
the FINOVA Intercreditor Agreement) or otherwise; (iv) is in good and saleable
condition; (v) is not on consignment from any distributor; (vi) does not
constitute returned, repossessed, damaged or slow-moving goods; (vii)
<PAGE>
conforms in all respects to the warranties and representations set forth herein
and in each Security Agreement; (viii) is not subject to a negotiable document
of title (unless issued or endorsed to the Agent); (ix) is not subject to any
license or other agreement that limits or restricts either Borrower's or the
Agent's right to sell or otherwise dispose of such inventory; (x) does not
consist of Special Inventory; and (xi) has otherwise been determined by the
Agent in its reasonable credit judgment not to be ineligible for the purposes
hereof.
"Environmental Authority" means any foreign, federal, state, local
or regional government that exercises any form of jurisdiction or authority
under any Environmental Requirement.
"Environmental Authorizations" means all licenses,
permits, orders, approvals, notices, registrations or other legal
prerequisites for conducting the business of either Borrower or
any Subsidiary required by any Environmental Requirement.
"Environmental Judgments and Orders" means all judgments, decrees
or orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent, or written agreements with
an Environmental Authority or other entity arising from or in any way associated
with any Environmental Requirement, whether or not incorporated in a judgment,
decree or order.
"Environmental Liabilities" means any liabilities, whether accrued,
contingent or otherwise, arising from and in any way associated with any
Environmental Requirements.
"Environmental Notices" means notice from any Environmental
Authority or by any other person or entity, of possible or alleged noncompliance
with or liability under any Environmental Requirement, including without
limitation any complaints, citations, demands or requests from any Environmental
Authority or from any other person or entity for correction of any violation of
any Environmental Requirement or any investigations concerning any violation of
any Environmental Requirement.
"Environmental Proceedings" means any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases" means releases as defined in CERCLA or
under any applicable state or local environmental law or regulation.
<PAGE>
"Environmental Requirements" means any legal requirement relating
to health, safety or the environment and applicable to either Borrower, any
Subsidiary or the Properties, including but not limited to any such
requirement under CERCLA or similar state legislation and all federal, state and
local laws, ordinances, regulations, orders, writs, decrees and common law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor law. Any reference to any
provision of ERISA shall also be deemed to be a reference to any successor
provision or provisions thereof.
"Euro-Dollar Business Day" means any Domestic Business Day on
which
dealings in Dollar deposits are carried out in the London interbank market.
"Euro-Dollar Loan" means a Loan which bears or is to bear interest
at a rate based upon the London Interbank Offered Rate and to be made as a
Euro-Dollar Loan pursuant to the applicable Notice of Borrowing.
"Euro-Dollar Reserve Percentage" has the meaning set
forth in Section 2.05(c).
"Event of Default" has the meaning set forth in Section 7.01.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Domestic Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Domestic
Business Day as so published on the next succeeding Domestic Business Day, and
(ii) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Agent on such day on such
transactions, as determined by the Agent.
"FINOVA Indebtedness" means, without duplication, all Debt and other
liabilities which the Borrowers and their Subsidiaries owe to FINOVA Capital
Corporation.
<PAGE>
"FINOVA Intercreditor Agreement" means that certain Intercreditor
Agreement among the Agent, SEDI, and FINOVA Capital Corporation dated as of even
date with this Agreement, satisfactory to the Agent in all respects and
substantially in the form of EXHIBIT N.
"FINOVA Reserve" means (i) as of the date of this Agreement,
$15,000,000, or (ii) upon obtaining the Agent's prior written consent thereto
and an amendment to the FINOVA Intercreditor Agreement satisfactory to the Agent
in all respects, such lesser or greater amount that may be available to the
Borrower under the FINOVA Loan Documents from time to time.
"Fiscal Month" means any fiscal month of the Borrowers.
"Fiscal Quarter" means any fiscal quarter of the Borrowers.
"Fiscal Year" means any fiscal year of the Borrowers.
"Foreign Equity Lien Limitation" means the lesser of (x) 100% of the
equity interests issued by each Foreign Subsidiary owned by SEDI at any time, or
(y) in the event SEDI owns more than 65% of all of the issued and outstanding
equity interests of such Foreign Subsidiary at any time, an amount not greater
than 65% of all of such issued and outstanding equity interests of such
Foreign Subsidiary.
"Foreign Subsidiary" means each of (i) SED Magna, (ii) SED
Argentina, and (iii) SED Colombia.
"Fronting Fee" shall have the meaning ascribed to it in
Section 3.08.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with those which, in accordance with Section 1.02, are to be
used in making the calculations for purposes of determining compliance with the
terms of this Agreement.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by virtue
of partnership arrangements, by
<PAGE>
agreement to keep-well, to purchase assets, goods, securities or services, to
provide collateral security, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hazardous Materials" includes, without limitation, (a) solid or
hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and
amendments, or in any applicable state or local law or regulation, (b)
"hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or
in any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof,
(d) toxic substances, as defined in the Toxic Substances Control Act of 1976,
or in any applicable state or local law or regulation and (e) insecticides,
fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide,
and Rodenticide Act of 1975, or in any applicable state or local law or
regulation, as each such Act, statute or regulation may be amended from time
to time.
"HP (US) Agreement" means the U.S. Distributor Agreement dated June
27, 1997, between Hewlett-Packard Company and SEDI, as the same may be extended,
renewed, amended, supplemented or replaced from time to time.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the first, second, third or sixth month
thereafter, as the relevant Borrower may elect in the applicable Notice of
Borrowing; provided that, with respect to all Euro-Dollar Borrowings:
(a) any Interest Period (subject to paragraph (c) below) which
would otherwise end on a day which is not a Euro-Dollar Business Day
shall be extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
<PAGE>
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall, subject to paragraph (c) below, end on the last
Euro-Dollar Business Day of the appropriate subsequent calendar month;
and
(c) no Interest Period may be selected which begins before the
Termination Date and would otherwise end after the Termination Date.
(2) with respect to each Base Rate Borrowing the period commencing on
the date of such Borrowing and ending 30 days thereafter; provided that:
(a) any Interest Period (subject to paragraph (b) below) which
would otherwise end on a day which is not a Domestic Business Day
shall be extended to the next succeeding Domestic Business Day; and
(b) no Interest Period which begins before the Termination Date
and would otherwise end after the Termination Date may be selected.
"Inventory" means all inventory of each Borrower, or in which it
has rights, whether now owned or hereafter acquired, wherever located,
including, without limitation, all goods of each Borrower held for sale or lease
or furnished or to be furnished under contracts of service, all goods held for
display or demonstration, goods on lease or consignment, spare parts, repair
parts, returned and repossessed goods, all raw materials, work-in-process,
finished goods and supplies used or consumed in such Borrower's business,
together with all documents, documents of title, dock warrants, dock receipts,
warehouse receipts, bills of lading or orders for the delivery of all, or any
portion, of the foregoing.
"Landlord Agreement" means a landlord agreement in favor of the
Agent substantially in the form set forth as Exhibit K attached hereto.
"Lending Office" means, as to each Bank, its office located at its
address set forth on the signature pages hereof (or identified on the signature
pages hereof as its Lending Office) or such other office as such Bank may
hereafter designate as its Lending Office by notice to the Borrowers and the
Agent.
<PAGE>
"Letter of Credit" shall mean a commercial or standby letter of
credit issued by the Agent for the account of either Borrower pursuant to
Article III.
"Letter of Credit Fee" shall have the meaning ascribed
to it in Section 3.08.
"Letter of Credit Obligations" shall mean, at any particular time,
the sum of (a) the Reimbursement Obligations at such time, (b) the aggregate
maximum amount available for drawing under the Letters of Credit at such time
and (c) the aggregate maximum amount available for drawing under Letters of
Credit which have been requested pursuant to Section 3.04(a) and approved for
issuance by the Agent pursuant to Section 3.04(b) and which are to be, but
have not yet been, issued.
"Letter of Credit Application Agreement" shall mean, with respect
to a Letter of Credit, such form of application therefor (whether in a single or
several documents) as the Agent may employ in the ordinary course of business
for its own account, whether or not providing for collateral security, with
such modifications thereto as may by agreed upon by the Agent and the relevant
Borrower and are not materially adverse to the interests of the Banks;
provided, however, that in the event of any conflict between the terms of any
Letter of Credit Application Agreement and this Agreement, the terms of this
Agreement shall control.
"Leverage Ratio" means the ratio of Consolidated Debt to
Consolidated Tangible Net Worth, determined at any applicable time.
"Lien" means, with respect to any asset, any mortgage, deed to
secure debt, deed of trust, lien, pledge, charge, security interest, security
title, preferential arrangement which has the practical effect of constituting
a security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of any Debt, whether by
consensual agreement or by operation of statute or other law, or by any
agreement, contingent or otherwise, to provide any of the foregoing. For the
purposes of this Agreement, each Borrower or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Lien Subordination Agreement" means (i) the Lien Subordination
Agreement among the Agent, SEDI, and Hewlett-
<PAGE>
Packard Company dated as of June 27, 1997, as the same may be extended, renewed,
amended, supplemented or replaced from time to time, and (ii) each additional
lien subordination agreement among the Agent, SEDI or SEDH, and the respective
distributor, in form and substance satisfactory to the Agent and the Banks in
all respects.
"Loan" means a Base Rate Loan, Euro-Dollar Loan, Syndicated Loan,
or Swing Loan, and "Loans" means Base Rate Loans, Euro-Dollar Loans, Syndicated
Loans, Swing Loans, or any or all of them, as the context shall require.
"Loan Documents" means this Agreement, the Notes, each Letter of
Credit Application Agreement, each Borrowing Base Certificate, each Lien
Subordination Agreement, the FINOVA Intercreditor Agreement, each Landlord
Agreement, each Security Agreement, each Guarantee executed by a Domestic
Subsidiary guaranteeing the Loans, any other document evidencing, relating to
or securing the Loans or the Letters of Credit, and any other document or
instrument delivered from time to time in connection with this Agreement, the
Notes, the Loans, the FINOVA Intercreditor Agreement, each Lien Subordination
Agreement, each Landlord Agreement, each Security Agreement, each Subsidiary
Guarantee, or the Letters of Credit, as such documents and instruments may be
amended or supplemented from time to time.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(c).
"Margin Stock" means "margin stock" as defined in Regulations U, T
or X.
"Material Adverse Effect" means, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
financial condition, operations, business, properties or prospects of the
Borrowers and the Consolidated Subsidiaries taken as a whole, (b) the rights
and remedies of the Agent or the Banks under the Loan Documents, or
the ability of either Borrower to perform its obligations under the Loan
Documents to which it is a party, as applicable, or (c) the legality, validity
or enforceability of any Loan Document.
<PAGE>
"Mission Critical Systems and Equipment" means the Borrowers' and
their Domestic Subsidiaries' hardware systems, software systems, and equipment
relating to the operation of their businesses, with respect to which the
failure to properly function would have a Material Adverse Effect.
"Moody's" means Moody's Investor Service, Inc.
"Multiemployer Plan" shall have the meaning set forth
in Section 4001(a)(3) of ERISA.
"Net Income" means, as applied to any Person for any period, the
aggregate amount of net income of such Person, after taxes, for such period,
as determined in accordance with GAAP.
"Net Proceeds of Capital Stock" means any proceeds received by
either Borrower or a Consolidated Subsidiary in respect of the issuance of
Capital Stock, after deducting therefrom all reasonable and customary costs
and expenses incurred by such Borrower or such Consolidated Subsidiary directly
in connection with the issuance of such Capital Stock.
"Notes" means each of the Syndicated Loan Notes or the Swing Loan
Note, or any or all of them, as the context shall require.
"Notice of Borrowing" has the meaning set forth in Section 2.02.
"Obligations" shall mean any and all indebtednesses, liabilities
and obligations of the Borrowers to the Agent and the Banks, arising under the
Notes, any Letter of Credit Application Agreement or otherwise under this
Agreement or any other Loan Document, including without limiting the
generality of the foregoing, any indebtedness, liability or obligation of the
Borrowers to the Agent and the Banks under any later or future advances or loans
made hereunder, and any and all extensions or renewals thereof in whole or in
part; and any and all future or additional indebtednesses, liabilities or
obligations hereunder of the Borrowers to the Agent and the Banks whatsoever and
in any event, whether existing as of the date hereof or hereafter
arising, whether direct, indirect, absolute or contingent, as maker, endorser,
guarantor, surety or otherwise, and whether evidenced by, arising out of, or
relating to, a promissory note, bill of exchange, check, draft, bond, letter
of credit, guaranty agreement, bankers' acceptance, foreign exchange contract,
interest rate protection agreement, commitment fee, service charge or
otherwise.
<PAGE>
"Officer's Certificate" has the meaning set forth in Section
4.01(f).
"Operating Profits" means, as applied to any Person for any
period, earnings before taxes plus interest of such Person for such period, as
determined in accordance with GAAP.
"Participant" has the meaning set forth in Section 10.08(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means (i) Liens for taxes not yet due and
payable or being actively contested as permitted by the Loan Documents, only
if such Liens do not adversely affect Agent's rights or the priority of Agent's
security interest in the Collateral; (ii) carriers', warehousemen's mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business, payment for which is not yet due or which are being actively
contested in good faith and by appropriate, lawful proceedings, but only if such
liens are and remain junior to liens granted against the Collateral in favor of
Agent; (iii) pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation; (iv) deposits to
secure the performance of utilities, leases, statutory obligations and surety
and appeal bonds and other obligations of a like nature arising by statute or
under customary terms regarding depository relationships on deposits held by
financial institutions with whom either Borrower has a banker-customer
relationship; (vi) typical restrictions imposed by licenses and leases of
software (including location and transfer restrictions); (vii) purchase money
liens in favor of Hewlett Packard Company securing the purchase of inventory
sold by Hewlett-Packard Company to the Borrowers; and (viii) Liens in favor of
Agent.
"Person" means an individual, a corporation, a partnership, an
unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for
<PAGE>
employees of any member of the Controlled Group or (ii) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which a member of the Controlled Group
is then making or accruing an obligation to make contributions or has within the
preceding 5 plan years made contributions.
"Prime Rate" refers to that interest rate so denominated and set by
Wachovia from time to time as an interest rate basis for borrowings. The Prime
Rate is but one of several interest rate bases used by Wachovia. Wachovia
lends at interest rates above and below the Prime Rate.
"Properties" means all real property owned, leased or otherwise
used or occupied by either Borrower or any Subsidiary, wherever located.
"Redeemable Preferred Stock" of any Person means any preferred
stock issued by such Person which is at any time prior to the Termination Date
either (i) mandatorily redeemable (by sinking fund or similar payments or
otherwise) or (ii) redeemable at the option of the holder thereof.
"Refunding Loan" means a new Syndicated Loan made on the day on
which an outstanding Syndicated Loan is maturing or a Base Rate Borrowing is
being converted to a Euro-Dollar Borrowing, if and to the extent that the
proceeds thereof are used entirely for the purpose of paying such maturing
Loan or Loan being converted, excluding any difference between the amount of
such maturing Loan or Loan being converted and any greater amount being borrowed
on such day and actually either being made available to the relevant Borrower
pursuant to Section 2.02(c) or remitted to the Agent as provided in Section
2.12, in each case as contemplated in Section 2.02(d).
"Regulation T" means Regulation T of the Board of Governors of the
Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.
"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System, as in effect from time
<PAGE>
to time, together with all official rulings and interpretations issued
thereunder.
"Reimbursement Obligations" means the reimbursement or repayment
obligations of the Borrowers to the Agent pursuant to Section 3.05 with
respect to Letters of Credit.
"Reported Net Income" means, for any period, the Net Income of the
Borrowers and the Consolidated Subsidiaries determined on a consolidated
basis.
"Required Banks" means (i) at any time during which any Bank holds
65% or more of the Aggregate Commitments, Banks having at least 85% of the
Aggregate Commitments or, if the Commitments are no longer in effect, Banks
holding at least 85% of the aggregate outstanding principal amount of the sum
of the Syndicated Loans, and (ii) at any time during which no Bank holds 65% or
more of the Aggregate Commitments, Banks having at least 66 2/3% of the
Aggregate Commitments or, if the Commitments are no longer in effect, Banks
holding at least 66 2/3% of the aggregate outstanding principal amount of the
sum of the Syndicated Loans.
"Restricted Investment" shall mean any investment in cash or by
delivery of property to any Person, whether by acquisition of stock,
indebtedness or other obligation (including, without limitation, by Guarantee
of such Person) or security, or by loan, advance or capital contribution, or
otherwise, or in any property, except that investments consisting of the
following shall not constitute "Restricted Investments": (i) property used or
to be used in the ordinary course of business; (ii) current assets arising from
the sale of goods or the provision of services in the ordinary course of
business;(iii) loans or advances to employees for salary, commissions, travel or
the like, made in the ordinary course of business; (iv) unless immediately after
giving effect to the making of any of the following investments, a Default or
Event of Default shall have occurred and be continuing, investments in (A)
direct obligations of the United States Government maturing within one year,
(B) certificates of deposit issued by a commercial bank whose credit is
satisfactory to the Agent, (C) commercial paper rated A1 or the equivalent
thereof by S&P or P1 or the equivalent thereof by Moody's and in either case
maturing within 6 months after the date of acquisition and/or (D) tender bonds
the payment of the principal of and interest on which is fully supported by a
letter of credit issued by a United States bank whose long-term certificates of
deposit are rated at least AA or the equivalent thereof by S&P and Aa or the
equivalent thereof by Moody's; (v)
<PAGE>
loans or advances to SED Magna not exceeding an aggregate principal
balance outstanding at any time equal to $2,000,000, evidenced by a promissory
note subject to the Agent's first priority perfected security interest therein
as a part of the Collateral; (vi) equity or debt investments by SEDI in each
Domestic Subsidiary (whether in cash or as a part of a stock or other equity
interest exchange with respect to SEDH capital stock, valued at the amount of
cash so invested, if cash, or the market value of SEDH capital stock, if
capital stock), so long as such Domestic Subsidiary issues a Guarantee for all
of the Obligations and all of the assets of such Domestic Subsidiaries are
subject to the first priority perfected security interest of the Agent as a part
of the Collateral pursuant to a Security Agreement; (vii) equity investments by
SEDI in any Foreign Subsidiaries (whether in cash or as a part of a stock or
other equity interest exchange with respect to SEDH capital stock) not exceeding
an aggregate amount equal to $15,000,000 for all Foreign Subsidiaries (valued at
the amount of cash so invested, if cash, or the market value of SEDH capital
stock, if capital stock), which equity interests so obtained shall be subject
to the Agent's first priority perfected security interest therein as a part of
the Collateral (provided that the Agent's security interest therein shall not
exceed the Foreign Equity Lien Limitation for any Foreign Subsidiary), and
(viii) in addition to items in clause (vii) contained in this definition, SED
Argentina Investments.
"Restricted Payment" means (i) any dividend or other distribution
on any shares of SEDH's Capital Stock (except dividends payable solely in shares
of its Capital Stock) or (ii) any payment on account of the purchase,
redemption, retirement or acquisition of (a) any shares of SEDH's Capital Stock
(except shares acquired upon the conversion thereof into other shares of its
Capital Stock) or (b) any option, warrant or other right to acquire shares of
SEDH's Capital Stock.
"SED Argentina" means Intermaco S.R.L., an Argentinian corporation.
"SED Argentina Investments" means payments made by SEDI to the
former owners of SED Argentina in Fiscal Years 2000 and 2001 not exceeding
$3,000,000 for each such Fiscal Year.
"SED Colombia" means SED de Colombia LDTA., a Colombian corporation.
"SED E-Store" means e-store.com, Inc., a Georgia corporation.
<PAGE>
"SEDH" means SED International Holdings, Inc., a Georgia
corporation.
"SEDI" means SED International, Inc., a Georgia corporation.
"SED Magna" means SED International de Brasil Distribuidora LTDA.,
a Brazilian corporation.
"SED Miami" means SED Magna (Miami), Inc., a Delaware
corporation.
"SED Retail" means SED Retail, Inc., a Georgia corporation.
"S&P" means Standard & Poor's Ratings Group, a division
of McGraw-Hill, Inc.
"Security Agreement(s)" means each Amended and Restated Security
Agreement executed by each of the Borrowers dated as of even date herewith,
and each Security Agreement executed by each Domestic Subsidiary from time to
time, substantially in the form of EXHIBIT M, as the same may be extended,
renewed, amended, supplemented or replaced from time to time.
"Senior Management" means all officers of a Borrower having the
title of Vice President or above.
"Special Inventory" shall mean any Inventory purchased by either
Borrower from a distributor who is offering for sale such Inventory pursuant
to a one-time special cash discount offer which is not scheduled as a part of
such distributor's standard, customary or contractual discounts.
"Stockholders' Equity" means, at any time, the shareholders'
equity of the Borrowers and the Consolidated Subsidiaries, as set forth or
reflected on the most recent consolidated balance sheet of the Borrowers and the
Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any
Redeemable Preferred Stock of either Borrower or any of the Consolidated
Subsidiaries. Shareholders' equity generally would include, but not be limited
to (i) the par or stated value of all outstanding Capital Stock, (ii) capital
surplus, (iii) retained earnings, and (iv) various deductions such as (A)
purchases of treasury stock, (B) valuation allowances, (C) receivables due from
an employee stock ownership plan, (D) employee stock ownership plan debt
guarantees, and (E) translation adjustments for foreign currency transactions.
<PAGE>
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by either Borrower.
"Swing Loan" means a Loan made by Wachovia pursuant to Section
2.01(b), which must be a Base Rate Loan.
"Swing Loan Note" means the Amended and Restated Swing Loan Note
issued by the Borrowers, substantially in the form of Exhibit A-2, evidencing
the obligation of the Borrowers to repay the Swing Loans, together with all
amendments, consolidations, modifications, renewals, and supplements thereto.
"Syndicated Loan Notes" means the Amended and Restated Syndicated
Loans Notes issued by the Borrowers, substantially in the form of Exhibit A-1,
evidencing the obligation of the Borrowers to repay Syndicated Loans, together
with all amendments, consolidations, modifications, renewals and supplements
thereto.
"Syndicated Loans" means Base Rate Loans or Euro-Dollar Loans made
pursuant to the terms and conditions set forth in Section 2.01.
"Taxes" has the meaning set forth in Section 2.12(c).
"Termination Date" means whichever is applicable of (i) August 31,
2001, (ii) the date the Commitments are terminated pursuant to Section 7.01
following the occurrence of an Event of Default, or (iii) the date the
Borrowers terminate the Commitments entirely pursuant to Section 2.07.
"Third Parties" means all lessees, sublessees, licensees and other
users of the Properties, excluding those users of the Properties in the
ordinary course of the Borrowers' business and on a temporary basis.
"Transferee" has the meaning set forth in Section 10.08(d).
"Unfunded Vested Liabilities" means, with respect to any Plan at
any time, the amount (if any) by which (i) the present value of all vested
nonforfeitable benefits under such Plan exceeds (ii) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that
<PAGE>
such excess represents a potential liability of a member of the Controlled Group
to the PBGC or the Plan under Title IV of ERISA.
"Wachovia" means Wachovia Bank, N.A., a national banking
association, and its successors.
"Wholly Owned Subsidiary" means any Subsidiary all of the shares
of capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by either
Borrower.
"Y2K Plan" has the meaning set forth in Section 5.18.
"Year 2000 Compliant and Ready" means that (a) the Mission
Critical Systems and Equipment will: (i) handle date information involving any
and all dates before, during and after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or in part;
(ii) operate, accurately without interruption on and in respect of any and all
dates before, during and after January 1, 2000 and without any materially
adverse change in performance; (iii) store and provide date input information
without creating any ambiguity as to the century; and (b) the Borrowers and
their Domestic Subsidiaries have developed reasonable, alternative plans to
ensure business continuity in the event of the failure of any or all of items
(i) through (iii) in clause (a) above in this definition.
SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all terms of an accounting character used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared,
in accordance with GAAP, applied on a basis consistent (except for changes
concurred in by the Borrowers' independent public accountants or otherwise
required by a change in GAAP) with the most recent audited consolidated
financial statements of the Borrowers and the Consolidated Subsidiaries
delivered to the Banks unless with respect to any such change concurred in by
the Borrowers' independent public accountants or required by GAAP, in
determining compliance with any of the provisions of this Agreement or any of
the other Loan Documents: (i) the Borrowers shall have objected to determining
such compliance on such basis at the time of delivery of such financial
statements, or (ii) the Required Banks shall so object in writing within 30
days after the delivery of such financial statements, in either of which events
such calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which such objection
shall not have been made (which, if
<PAGE>
objection is made in respect of the first financial statements delivered under
Section 6.01, shall mean the financial statements referred to in Section 5.04).
SECTION 1.03. References. Unless otherwise indicated, references
in this Agreement to "Articles", "Exhibits", "Schedules", "Sections" and other
Subdivisions are references to articles, exhibits, schedules, sections and
other subdivisions hereof.
SECTION 1.04. Use of Defined Terms. All terms defined in this
Agreement shall have the same defined meanings when used in any of the other
Loan Documents, unless otherwise defined therein or unless the context shall
require otherwise.
SECTION 1.05. Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the
plural shall include the singular. Titles of Articles and Sections in this
Agreement are for convenience only, and neither limit nor amplify the provisions
of this Agreement, and all references in this Agreement to Articles, Sections,
Subsections, paragraphs, clauses, subclauses or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause, subclause of,
or Exhibit attached to, this Agreement, unless specific reference is made to the
articles, sections or other subdivisions divisions of, or Exhibit to, another
document or instrument. Wherever in this Agreement reference is made to any
instrument, agreement or other document, including, without limitation, any of
the Loan Documents, such reference shall be understood to mean and include any
and all amendments thereto or modifications, restatements, renewals or
extensions thereof. Wherever in this Agreement reference is made to any
statute, such reference shall be understood to mean and include any and all
amendments thereof and all regulations promulgated pursuant thereto. Whenever
any matter set forth herein or in any Loan Document is to be consented to or be
satisfactory to the Agent or either of the Banks, or is to be determined,
calculated or approved by the Agent or either of the Banks, then, unless
otherwise expressly set forth herein or in any such Loan Document, such
consent, satisfaction, determination, calculation or approval shall be in the
sole discretion of the Agent or either of the Banks, exercised in good faith
and, where required by law, in a commercially reasonable manner, and shall be
conclusive absent manifest error.
<PAGE>
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend Syndicated Loans. (a)
Each Bank severally agrees, on the terms and conditions set forth
herein, to make Syndicated Loans to either Borrower from time to
time before the Termination Date; provided that,
(i) immediately after each such Syndicated Loan is made, the sum of
the aggregate outstanding principal amount of Syndicated Loans to both
Borrowers by such Bank and the risk participation of such Bank in Letter of
Credit Obligations of both Borrowers shall not exceed the amount of its
Commitment, and
(ii) the Aggregate Principal Amount Outstanding shall not exceed the
lesser of (x) the Borrowing Base or (y) the Aggregate Commitments.
Each Syndicated Borrowing under this Section shall be in an aggregate
principal amount of: (i) for Euro-Dollar Loans, $1,000,000 or any larger
integral multiple of $100,000; and (ii) for Base Rate Loans, (x) so long as
there are fewer than 3 Banks parties hereto, $100,000 or any larger integral
multiple of $50,000 and (y) at any time during which there are 3 or more Banks
parties hereto, $1,000,000 or any larger integral multiple of $100,000 (except
in each case that any such Syndicated Borrowing may be in the aggregate amount
of the Aggregate Unused Commitments) and shall be made from the several Banks
ratably in proportion to their respective Commitments. Within the foregoing
limits, either Borrower may borrow under this Section, repay or, to the extent
permitted by Section 2.09, prepay Syndicated Loans and reborrow under this
Section at any time before the Termination Date.
(b) Swing Loans. In addition to the foregoing, at any time during which
there are 3 or more Banks parties hereto, Wachovia shall from time to time,
upon the request of either Borrower, if the applicable conditions precedent in
Article IV have been satisfied, make Swing Loans to such Borrower in an
aggregate principal amount at any time outstanding not exceeding $5,000,000;
provided that, immediately after such Swing Loan is made, the Aggregate
Principal Amount Outstanding shall not exceed the lesser of (x) the Borrowing
Base or (y) the Aggregate Commitments. Each Swing Borrowing under this Section
2.01(b) shall be in an aggregate principal amount of $100,000 or any larger
multiple of $25,000. Within the foregoing limits, the
<PAGE>
Borrowers may borrow under this Section 2.01(b), prepay and reborrow under this
Section 2.01(b) at any time before the Termination Date. Swing Loans shall be
included in the calculation of "Aggregate Principal Amount Outstanding"
hereunder, but shall not be considered a utilization of the Commitment of
Wachovia or any other Bank hereunder. All Swing Loans shall be made as Base Rate
Loans. At any time, upon the request of Wachovia, each Bank other than Wachovia
shall, on the third Domestic Business Day after such request is made, purchase a
participating interest in Swing Loans in an amount equal to its ratable share
(based upon its respective Commitment) of such Swing Loans. On such third
Domestic Business Day, each Bank will immediately transfer to Wachovia, in
immediately available funds, the amount of its participation. Whenever, at any
time after Wachovia has received from any such Bank its participating interest
in a Swing Loan, the Agent receives any payment on account thereof, the Agent
will distribute to such Bank its participating interest in such amount
(appropriately adjusted, in the case of interest payments, to reflect the
period of time during which such Bank's participating interest was outstanding
and funded); provided, however, that in the event that such payment received by
the Agent is required to be returned, such Bank will return to the Agent any
portion thereof previously distributed by the Agent to it. Each Bank's
obligation to purchase such participating interests shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation: (i) any set-off, counterclaim, recoupment, defense or other right
which such Bank or any other Person may have against Wachovia requesting such
purchase or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default or an Event of Default or the termination of the
Commitments; (iii) any adverse change in the condition (financial or otherwise)
of either of the Borrowers or any other Person; (iv) any breach of this
Agreement by either of the Borrowers or any other Bank; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
SECTION 2.02. Method of Borrowing. (a) The requesting Borrower
shall give the Agent notice (a "Notice of Borrowing"), which shall be
substantially in the form of Exhibit E, prior to 12:00 P.M. (Atlanta, Georgia
time) on the same Domestic Business Day as each Base Rate Borrowing and at least
3 Euro-Dollar Business Days before each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing
<PAGE>
or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether such Borrowing is to be a Syndicated Borrowing or a
Swing Borrowing, and in the case of a Syndicated Borrowing, whether the
Syndicated Loans comprising such Borrowing are to be Base Rate Loans or
Euro-Dollar Loans,
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period, and
(v) the amount available to be borrowed under Section 2.01.
(b) Upon receipt of a Notice of Borrowing, the Agent shall
promptly notify each Bank of the contents thereof, and of such Bank's ratable
share of such Syndicated Borrowing and such Notice of Borrowing, once received
by the Agent, shall not thereafter be revocable by either Borrower.
(c) Not later than (x) for Euro-Dollar Loans, 11:00 A.M., and (y)
for Base Rate Loans, 2:00 P.M., (Atlanta, Georgia time) on the date of each
Syndicated Borrowing, each Bank shall (except as provided in paragraph (d) of
this Section) make available its ratable share of such Syndicated Borrowing,
in Federal or other funds immediately available in Atlanta, Georgia, to the
Agent at its address determined pursuant to Section 10.01. Unless the Agent
determines that any applicable condition specified in Article IV has not been
satisfied, the Agent will make the funds so received from the Banks available to
the relevant Borrower at the Agent's aforesaid address. Unless the Agent
receives notice from a Bank, at the Agent's address referred to in or specified
pursuant to Section 10.01, no later than 2:00 P.M. (local time at such address)
on the Domestic Business Day before the date of a Syndicated Borrowing stating
that such Bank will not make a Syndicated Loan in connection with such
Syndicated Borrowing, the Agent shall be entitled to assume that such Bank will
make a Syndicated Loan in connection with such Syndicated Borrowing and, in
reliance on such assumption, the Agent may (but shall not be obligated to) make
available such Bank's ratable share of such Syndicated Borrowing to the
requesting Borrower for the account of such Bank. If the Agent makes such Bank's
ratable share available to the requesting Borrower and such Bank does not in
fact make its ratable share of
<PAGE>
such Syndicated Borrowing available on such date, the Agent shall be entitled to
recover such Bank's ratable share from such Bank or the Borrowers (and for such
purpose shall be entitled to charge such amount to any account of the Borrowers
maintained with the Agent), together with interest thereon for each day during
the period from the date of such Syndicated Borrowing until such sum shall be
paid in full at a rate per annum equal to the rate at which the Agent determines
that it obtained (or could have obtained) overnight Federal funds to cover such
amount for each such day during such period, provided that (i) any such payment
by the Borrowers of such Bank's ratable share and interest thereon shall be
without prejudice to any rights that the Borrowers may have against such Bank
and (ii) until such Bank has paid its ratable share of such Syndicated
Borrowing, together with interest pursuant to the foregoing, it will have no
interest in or rights with respect to such Syndicated Borrowing for any purpose
hereunder. If the Agent does not exercise its option to advance funds for the
account of such Bank, it shall forthwith notify the Borrowers of such decision.
Unless the Agent determines that any applicable condition specified in Article
IV has not been satisfied, Wachovia will make available to the requesting
Borrower at Wachovia's Lending Office the amount of any such Borrowing which is
a Swing Borrowing.
(d) If any Bank makes a new Syndicated Loan hereunder on a day on
which the relevant Borrower is to repay all or any part of an outstanding
Syndicated Loan from such Bank, such Bank shall apply the proceeds of its new
Syndicated Loan to make such repayment as a Refunding Loan and only an amount
equal to the difference (if any) between the amount being borrowed and the
amount of such Refunding Loan shall be made available by such Bank to the
Agent as provided in paragraph (c) of this Section, or remitted by the relevant
Borrower to the Agent as provided in Section 2.12, as the case may be.
(e) Notwithstanding anything to the contrary contained in this
Agreement, no Euro-Dollar Borrowing may be made if there shall have occurred a
Default or an Event of Default, which Default or Event of Default shall not
have been cured or waived, and all Refunding Loans shall be made as Base Rate
Loans (but shall bear interest at the Default Rate, if applicable).
(f) In the event that a Notice of Borrowing fails to specify
whether the Syndicated Loans comprising such Syndicated Borrowing are to be Base
Rate Loans, or Euro-Dollar Loans, such Syndicated Loans shall be made as Base
Rate Loans. If the Borrowers are otherwise entitled under this Agreement to
repay any Syndicated Loans maturing at the end of an Interest Period
<PAGE>
applicable thereto with the proceeds of a new Borrowing, and either Borrower
fails to repay such Syndicated Loans using its own moneys and fails to give a
Notice of Borrowing in connection with such new Syndicated Borrowing, a new
Syndicated Borrowing shall be deemed to be made on the date such Syndicated
Loans mature in an amount equal to the principal amount of the Syndicated Loans
so maturing, and the Syndicated Loans comprising such new Syndicated Borrowing
shall be Base Rate Loans.
(g) Notwithstanding anything to the contrary contained herein,
there shall not be more than 7 Euro-Dollar Borrowings outstanding at any given
time.
SECTION 2.03. Notes. (a) The Syndicated Loans of each Bank shall
be evidenced by a single Syndicated Loan Note from each Borrower payable to the
order of such Bank for the account of its Lending Office in an amount equal to
the original principal amount of such Bank's Commitment.
(b) The Swing Loans made by Wachovia to each Borrower shall be
evidenced by a single Swing Loan Note payable by such Borrower to the order of
Wachovia for the account of its Lending Office in an amount equal to
$5,000,000.
(c) Upon receipt of each Bank's Notes pursuant to Section 4.01,
the Agent shall deliver such Notes to such Bank. Each Bank (or Wachovia, with
respect to the Swing Loan) shall record, and prior to any transfer of its
Notes shall endorse on the schedules forming a part thereof (or on separate
records of such Bank) appropriate notations to evidence, the date, amount and
maturity of, and effective interest rate for, each Loan made by it, the date and
amount of each payment of principal made by the Borrowers with respect thereto,
and such schedules of each such Bank's Notes or other records of such Bank shall
constitute rebuttable presumptive evidence of the respective principal amounts
owing and unpaid on such Bank's Notes; provided that the failure of any Bank
to make, or any error in making, any such recordation or endorsement shall not
affect the obligation of the Borrowers hereunder or under the Notes or the
ability of any Bank to assign its Notes. Each Bank is hereby irrevocably
authorized by each Borrower so to endorse its Notes and to attach to and make
a part of any Note a continuation of any such schedule as and when required.
SECTION 2.04. Maturity of Loans. (a) Each Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
<PAGE>
(b) Notwithstanding the foregoing, the outstanding principal
amount of the Loans, if any, together with all accrued but unpaid interest
thereon, if any, shall be due and payable on the Termination Date.
SECTION 2.05. Interest Rates. (a) "Applicable Margin" means the
sum of (x) with respect to Euro-Dollar Loans, 2.25%, and, with respect to Base
Rate Loans, 0.0%, and (y) during any period in which the outstanding balance of
the Loans plus the Letter of Credit Obligations exceeds 50% of the amount of the
Borrowing Base (and to be increased and decreased retroactively, when
applicable), then, during any such period, 0.50%.
(b) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until
it becomes due, at a rate per annum equal to the Base Rate for such day plus the
Applicable Margin. Such interest shall be payable for each Interest Period on
the last day of the calendar month in which such Interest Period occurs. Any
overdue principal of and, to the extent permitted by applicable law, overdue
interest on any Base Rate Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the Default Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a
rate per annum equal to the sum of the Applicable Margin plus the applicable
Adjusted London Interbank Offered Rate for such Interest Period. Such interest
shall be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than 3 months, at intervals of 3 months after the
first day thereof. Any overdue principal of and, to the extent permitted by law,
overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the Default Rate.
The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the
applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00
minus the Euro-Dollar Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Euro-Dollar
Loan means for the Interest Period of such Euro-Dollar Loan, the rate per
annum determined on the basis of the offered rate for deposits in Dollars of
amounts equal or comparable to the principal amount of such Euro-Dollar Loan
<PAGE>
offered for a term comparable to such Interest Period, which rates appear on the
Telerate Page 3750 effective as of 11:00 A.M., London time, 2 Euro-Dollar
Business Days prior to the first day of such Interest Period, provided that if
no such offered rates appear on such page, the "London Interbank Offered Rate"
for such Interest Period will be the arithmetic average (rounded upward, if
necessary, to the next higher 1/100th of 1%) of rates quoted by not less than 2
major banks in New York City, selected by the Agent, at approximately 10:00
A.M., New York City time, 2 Euro-Dollar Business Days prior to the first day of
such Interest Period, for deposits in Dollars offered by leading European banks
for a period comparable to such Interest Period in an amount comparable to the
principal amount of such Euro-Dollar Loan.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which
the interest rate on Euro-Dollar Loans is determined or any category of
extensions of credit or other assets which includes loans by a non-United States
office of any Bank to United States residents). The Adjusted London Interbank
Offered Rate shall be adjusted automatically on and as of the effective date of
any change in the Euro-Dollar Reserve Percentage.
(d) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrowers and the
Banks by telecopier of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(e) After the occurrence and during the continuance of an Event of
Default, the principal amount of the Loans (and, to the extent permitted by
applicable law, all accrued interest thereon) may, at the election of the
Required Banks, bear interest at the Default Rate.
SECTION 2.06. Fees. (a) The Borrowers shall pay to the Agent, for
the ratable account of each Bank, a commitment fee on the average daily amount
of such Bank's Unused Commitment, at a rate per annum equal to the sum of (i)
0.25% of the entire Unused Commitment, and (ii) 0.75% of the amount of the
Unused Commitment constituting the FINOVA Reserve. Such commitment fees shall
accrue from and including the Closing Date to but excluding the
<PAGE>
Termination Date and shall be payable on each March 31, June 30, September 30
and December 31 and on the Termination Date.
(b) The Borrowers shall pay to the Agent, for the ratable account
of each Bank, a fully-earned and non-refundable facility fee equal to $50,000 on
the Closing Date.
SECTION 2.07. Optional Termination or Reduction of Commitments.
The Borrowers may, upon at least 3 Domestic Business Days' notice to the Agent,
terminate at any time, or proportionately and permanently reduce the Aggregate
Unused Commitments from time to time by an aggregate amount of at least
$5,000,000 or any larger integral multiple of $1,000,000. If the Commitments
are terminated in their entirety, all accrued fees (as provided under Section
2.06) shall be due and payable on the effective date of such termination.
SECTION 2.08. Mandatory Termination or Reduction of Commitments.
The Commitments shall terminate on the Termination Date and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable
on such date.
SECTION 2.09. Optional Prepayments. (a) The Borrowers may, on
notice to the Agent on or before the same Domestic Business Days as the
prepayment,
prepay any Base Rate Borrowing in whole at any time, or from time to time in
part in amounts aggregating at least: (i) for Syndicated Borrowings, (x) so
long
as there are fewer than 3 Banks parties hereto, $100,000 or any larger
integral
multiple of $50,000 or (y) at any time during which there are 3 or more Banks
parties hereto, $1,000,000 or any larger integral multiple of $100,000; and
(ii)
for Swing Borrowings, $100,000 and any larger integral multiple of $25,000, by
paying the principal amount to be prepaid together with accrued interest
thereon
to the date of prepayment. Each such optional prepayment on the Syndicated
Loans
shall be applied to prepay ratably the Base Rate Loans of the several Banks
included in such Base Rate Borrowing.
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<PAGE>
(b) Subject to any payments required pursuant to the terms of
Article IX for such Euro-Dollar Loan, upon 3 Domestic Business Day's prior
written notice, the Borrowers may prepay in minimum amounts of $1,000,000 with
additional increments of $100,000 (or any lesser amount equal to the
outstanding
balance of such Loan) all or any portion of the principal amount of any
Euro-Dollar Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this
Section
2.09, the Agent shall promptly notify each Bank of the contents thereof and of
such Bank's ratable share of such prepayment and such notice, once received by
the Agent, shall not thereafter be revocable by the Borrowers.
SECTION 2.10. Mandatory Prepayments. On each date on which the
Commitments are reduced pursuant to Section 2.07 or Section 2.09, the
Borrowers
shall repay or prepay such principal amount of the outstanding Loans, if any
(together with interest accrued thereon and any amount due under Section
9.05(a)), as may be necessary so that after such payment the Aggregate
Principal
Amount Outstanding does not exceed the Aggregate Commitments as then reduced.
On
each date on which the Borrowers are aware that the Aggregate Principal Amount
Outstanding exceeds the lesser of (x) the Borrowing Base or (y) the Aggregate
Commitments, the Borrowers shall repay or prepay such principal amount of the
outstanding Loans, if any (together with interest accrued thereon and any
amount
due under Section 9.05(a)), as may be necessary so that after such payment the
Aggregate Principal Amount Outstanding does not exceed the lesser of (x) the
Borrowing Base or (y) the Aggregate Commitments. Each such payment or
prepayment
shall be applied ratably to the Loans of the Banks outstanding on the date of
payment or prepayment in the following order of priority: (i) first, Swing
Rate
Loans; (iii) secondly, to Syndicated Loans which are Base Rate Loans; and (iv)
lastly, to Euro-Dollar Loans.
SECTION 2.12. General Provisions as to Payments. (a) The Borrowers
shall make each payment of principal of, and interest on, the Loans and of
fees
hereunder, not later than 11:00 A.M. (Atlanta, Georgia time) on the date when
due, in Federal or other funds immediately available in Atlanta, Georgia, to
the
Agent at its address referred to in Section 10.01. The Agent will promptly
distribute to Wachovia each such payment received by the Agent on account of
the
Swing Loans and to each
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<PAGE>
Bank its ratable share of each such payment of Syndicated Loans or fees
received
by the Agent for the account of the Banks.
(b) Whenever any payment of principal of, or interest on, the Base
Rate Loans or of fees hereunder shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to
the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day.
(c) All payments of principal, interest and fees and all other
amounts to be made by the Borrowers pursuant to this Agreement with respect to
any Loan or fee relating thereto shall be paid without deduction for, and free
from, any tax, imposts, levies, duties, deductions, or withholdings of any
nature now or at anytime hereafter imposed by any governmental authority or by
any taxing authority thereof or therein excluding in the case of each Bank,
taxes imposed on or measured by its net income, and franchise taxes imposed on
it, by the jurisdiction under the laws of which such Bank is organized or any
political subdivision thereof and, in the case of each Bank, taxes imposed on
its income, and franchise taxes imposed on it, by the jurisdiction of such
Bank's applicable Lending Office or any political subdivision thereof (all
such
non-excluded taxes, imposts, levies, duties, deductions or withholdings of any
nature being "Taxes"). In the event that either Borrower is required by
applicable law to make any such withholding or deduction of Taxes with respect
to any Loan or fee or other amount, such Borrower shall pay such deduction or
withholding to the applicable taxing authority, shall promptly furnish to any
Bank in respect of which such deduction or withholding is made all receipts
and
other documents evidencing such payment and shall pay to such Bank additional
amounts as may be necessary in order that the amount received by such Bank
after
the required withholding or other payment shall equal the amount such Bank
would
have received had no such withholding or other payment been made. If no
withholding or deduction of Taxes are payable in respect to any Loan or fee
relating thereto, the Borrowers shall furnish any Bank, at such Bank's
request,
a certificate from each applicable taxing authority or an opinion of counsel
acceptable to such
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<PAGE>
Bank, in either case stating that such payments are exempt from or not subject
to withholding or deduction of Taxes. If the relevant Borrower fails to
provide
such original or certified copy of a receipt evidencing payment of Taxes or
certificate(s) or opinion of counsel of exemption, the Borrowers hereby agree
to
compensate such Bank for, and indemnify them with respect to, the tax
consequences of such Borrower's failure to provide evidence of tax payments or
tax exemption.
Each Bank which is not organized under the laws of the United
States
or any state thereof agrees, as soon as practicable after receipt by it of a
request by either Borrower to do so, to file all appropriate forms and take
other appropriate action to obtain a certificate or other appropriate document
from the appropriate governmental authority in the jurisdiction imposing the
relevant Taxes, establishing that it is entitled to receive payments of
principal and interest under this Agreement and the Notes without deduction
and
free from withholding of any Taxes imposed by such jurisdiction; provided that
if it is unable, for any reason, to establish such exemption, or to file such
forms and, in any event, during such period of time as such request for
exemption is pending, the Borrowers shall nonetheless remain obligated under
the
terms of the immediately preceding paragraph.
In the event any Bank receives a refund of any Taxes paid by
either
Borrower pursuant to this Section 2.12(c), it will pay to such Borrower the
amount of such refund promptly upon receipt thereof; provided that if at any
time thereafter it is required to return such refund, such Borrower shall
promptly repay to it the amount of such refund.
Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers and the
Banks contained in this Section 2.12(c) shall be applicable with respect to
any
Participant, Assignee or other Transferee, and any calculations required by
such
provisions (i) shall be made based upon the circumstances of such Participant,
Assignee or other Transferee, and (ii) constitute a continuing agreement and
shall survive the termination of this Agreement and the payment in full or
cancellation of the Notes.
SECTION 2.13. Computation of Interest and Fees.
Interest on Base Rate Loans and Euro-Dollar Loans shall be
computed on the basis of a year of 360 days and paid for the
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<PAGE>
actual number of days elapsed (including the first day but excluding the last
day). Commitment fees and any other fees payable hereunder shall be computed
on
the basis of a year of 360 days and paid for the actual number of days elapsed
(including the first day but excluding the last day).
ARTICLE III
LETTER OF CREDIT FACILITY
SECTION 3.01. Obligation to Issue. Subject to the terms and
conditions of this Agreement, and in reliance upon the representations and
warranties of the Borrowers herein set forth, the Agent shall issue for the
account of either Borrower, one or more Letters of Credit denominated in
Dollars, in accordance with this Article III, from time to time during the
period commencing on the Closing Date and ending on the Domestic Business Day
prior to the Termination Date.
SECTION 3.02. Types and Amounts. The Agent shall have
no obligation to issue any Letter of Credit at any time:
(a) if the aggregate maximum amount then available for drawing
under
Letters of Credit, after giving effect to the issuance of the requested
Letter of Credit, shall exceed any limit imposed by law or regulation
upon
the Agent;
(b) if, after giving effect to the issuance of the requested
Letter
of Credit, (i) the aggregate Letter of Credit Obligations of both
Borrowers would exceed $10,000,000, or (ii) the Aggregate Principal
Amount
Outstanding at such time would exceed the lesser of (x) the Borrowing
Base
or (y) the Aggregate Commitments;
(c) which has an expiration date (i) more than 12 months after the
date of issuance or (ii) after the Termination Date.
SECTION 3.03. Conditions. In addition to being subject to the
satisfaction of the conditions contained in Article IV, the obligation of the
Agent to issue any Letter of Credit is subject to the satisfaction in full of
the following conditions:
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(a) the relevant Borrower shall have delivered to the Agent at
such
times and in such manner as the Agent may prescribe, a Letter of Credit
Application Agreement and such other documents and materials as may be
required pursuant to the terms thereof all satisfactory in form and
substance to the Agent and the terms of the proposed Letter of Credit
shall be satisfactory in form and substance to the Agent;
(b) as of the date of issuance no order, judgment or decree of any
court, arbitrator or Authority shall purport by its terms to enjoin or
restrain the Agent from issuing the Letter of Credit and no law, rule or
regulation applicable to the Agent and no request or directive (whether
or
not having the force of law) from any Authority with jurisdiction over
the
Agent shall prohibit or request that the Agent refrain from the issuance
of letters of credit generally or the issuance of that Letter of Credit;
and
(c) the Aggregate Unused Commitments shall not be less than the
amount of the requested Letter of Credit.
SECTION 3.04. Issuance of Letters of Credit.
(a) Request for Issuance. At least 2 Domestic Business Days before
the effective date for any Letter of Credit, the relevant Borrower shall give
the Agent a written notice containing the original signature of an authorized
officer or employee of such Borrower. Such notice shall be irrevocable and
shall
specify the original face amount of the Letter of Credit requested (which
original face amount shall not be less than $100,000), the effective date
(which
day shall be a Domestic Business Day) of issuance of such requested Letter of
Credit, the date on which such requested Letter of Credit is to expire, the
amount of then outstanding Letter of Credit Obligations of both Borrowers, the
purpose for which such Letter of Credit is to be issued, whether such Letter
of
Credit may be drawn in single or partial draws and the person for whose
benefit
the requested Letter of Credit is to be issued.
(b) Issuance; Notice of Issuance. If the original face amount of
the
requested Letter of Credit is less than or equal to the Aggregate Unused
Commitments at such time and the applicable conditions set forth in this
Agreement are satisfied, the Agent shall issue the requested Letter of Credit.
The Agent shall give each Bank written or telex notice in substantially the
form
of
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Exhibit G, or telephonic notice confirmed promptly thereafter in writing, of
the
issuance of a Letter of Credit, and shall deliver to each Bank in connection
with such notice a copy of the Letter
of Credit issued by the Agent.
(c) No Extension or Amendment. The Agent shall not extend or amend
any Letter of Credit if the issuance of a new Letter of Credit having the same
terms as such Letter of Credit as so amended or extended would be prohibited
by
Section 3.02 or Section 3.03.
SECTION 3.05. Reimbursement Obligations; Duties of the
Issuing Bank.
(a) Reimbursement. Notwithstanding any provisions to the contrary
in
any Letter of Credit Application Agreement:
(i) the Borrowers shall reimburse the Agent for drawings
under
a Letter of Credit issued by it no later than the earlier of (A) the
time
specified in such Letter of Credit Application Agreement, or (B) 1
Domestic Business Day after the payment by the Agent;
(ii) any Reimbursement Obligation with respect to any Letter
of Credit shall bear interest from the date of the relevant drawing
under
the pertinent Letter of Credit until the date of payment in full thereof
at a rate per annum equal to (A) prior to the date that is 3 Domestic
Business Days after the date of the related payment by the Agent, the
Base
Rate and (B) thereafter, the Default Rate; and
(iii) in order to implement the foregoing, upon the
occurrence
of a draw under any Letter of Credit, unless the Agent is reimbursed in
accordance with subsection (i) above, the Borrowers irrevocably
authorize
the Agent to treat such nonpayment as a Notice of Borrowing in the
amount
of such Reimbursement Obligation and to make Loans to the relevant
Borrower in such amount regardless of whether the conditions precedent
to
the making of Loans hereunder have been met. The Borrowers further
authorize the Agent to credit the proceeds of such Loan so as to
immediately eliminate the liability of the relevant Borrower for
Reimbursement Obligations under such Letter of Credit.
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(b) Duties of the Agent. Any action taken or omitted to be taken
by
the Agent in connection with any Letter of Credit, if taken or omitted in the
absence of willful misconduct or gross negligence, shall not put the Agent
under
any resulting liability to any Bank, or assuming that the Agent has complied
with the procedures specified in Section 3.04 and such Bank has not given a
notice contemplated by Section 3.06(a) that continues in full force and
effect,
relieve that Bank of its obligations hereunder to the Agent. In determining
whether to pay under any Letter of Credit, the Agent shall have no obligation
relative to the Banks other than to confirm that any documents required to
have
been delivered under such Letter of Credit appear to comply on their face,
with
the requirements of such Letter of Credit.
SECTION 3.06. Participations.
(a) Purchase of Participations. Immediately upon issuance by the
Agent of any Letter of Credit in accordance with the procedures set forth in
Section 3.04, each Bank shall be deemed to have irrevocably and
unconditionally
purchased and received from the Agent, without recourse or warranty, an
undivided interest and participation, to the extent of such Bank's share of
the
Aggregate Commitments, in such Letter of Credit; provided, that a Letter of
Credit shall not be entitled to the benefits of this Section 3.06 if the Agent
shall have received written notice from any Bank on or before the Domestic
Business Day immediately prior to the date of the Agent's issuance of such
Letter of Credit that one or more of the conditions contained in Section 3.03
or
Article IV is not then satisfied, and, in the event the Agent receives such a
notice, it shall have no further obligation to issue any Letter of Credit
until
such notice is withdrawn by that Bank or until the Required Banks have
effectively waived such condition in accordance with the provisions of this
Agreement.
(b) Sharing of Letter of Credit Payments. In the event that the
Agent makes any payment under any Letter of Credit for which the relevant
Borrower shall not have repaid such amount to the Agent pursuant to Section
3.07
or which cannot be paid by a Loan pursuant to subsection (iii) of Section
3.05,
the Agent shall promptly notify each Bank of such failure, and each Bank shall
promptly and unconditionally pay to the Agent such Bank's share of the
Aggregate
Commitments of the amount of such payment in Dollars and in same day funds. If
the Agent so notifies such Bank prior to 10:00 A.M. (Atlanta, Georgia time) on
any Domestic
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Business Day, such Bank shall make available to the Agent its ratable share of
the amount of such payment on such Domestic Business Day in same day funds. If
and to the extent such Bank shall not have so made its ratable share of the
amount of such payment available to the Agent, such Bank agrees to pay to the
Agent forthwith on demand such amount together with interest thereon, for each
day from the date such payment was first due until the date such amount is
paid
to the Agent at the Base Rate for the first 3 days and thereafter at the
Default
Rate. The failure of any Bank to make available to the Agent its ratable share
of any such payment shall neither relieve nor increase the obligation of any
other Bank hereunder to make available to the Agent its ratable share of any
payment on the date such payment is to be made.
(c) Sharing of Reimbursement Obligation Payments. Whenever the
Agent
receives a payment on account of a Reimbursement Obligation, including any
interest thereon, as to which the Agent has received any payments from the
Banks
pursuant to this Section 3.06, it shall promptly pay to each Bank which has
funded its participating interest therein, in Dollars and in the kind of funds
so received, an amount equal to such Bank's ratable share thereof. Each such
payment shall be made by the Agent on the Domestic Business Day on which the
funds are paid to such Person, if received prior to 10:00 am. (Atlanta,
Georgia
time) on such Domestic Business Day, and otherwise on the next succeeding
Domestic Business Day.
(d) Documentation. Upon the request of any Bank, the Agent shall
furnish to such Bank copies of any Letter of Credit, Letter of Credit
Application Agreement and other documentation relating to Letters of Credit
issued pursuant to this Agreement.
(e) Obligations Irrevocable. The obligations of the Banks to make
payments to the Agent with respect to a Letter of Credit shall be irrevocable,
not subject to any qualification or exception whatsoever and shall be made in
accordance with, but not subject to, the terms and conditions of this
Agreement
under all circumstances (assuming that the Agent has issued such Letter of
Credit in accordance with Section 3.04 and such Bank has not given a notice
contemplated by Section 3.06(a) that continues in full force and effect),
including, without limitation, any of the following circumstances:
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(i) any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, set-off, defense or other
right which either Borrower may have at any time against a beneficiary
named in a Letter of Credit or any transferee of any Letter of Credit
(or
any Person for whom any such transferee may be acting), the Agent, any
Bank or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions;
(iii) any draft, certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security
for the performance or observance of any of the terms of
any
of the Loan Documents;
(v) payment by the Agent under any Letter of Credit proving
to
be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(vi) payment by the Agent under any Letter of Credit against
presentation of any draft or certificate that does not comply with the
terms of such Letter of Credit, except payment resulting from the gross
negligence or willful misconduct of the Agent; or
(vii) any other circumstances or happenings whatsoever,
whether or not similar to any of the foregoing, except circumstances or
happenings resulting from the gross negligence or willful misconduct of
the Agent.
SECTION 3.07. Payment of Reimbursement Obligations.
(a) Payments to Issuing Bank. Each Borrower agrees to pay to the
Agent the amount of all Reimbursement Obligations, interest and other amounts
payable to the Agent under or in connection with any Letter of Credit issued
for
either Borrower's
account immediately when due, irrespective of:
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(i) any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, set-off, defense or other
right which either Borrower may have at any time against a beneficiary
named in a Letter of Credit or any transferee of any Letter of Credit
(or
any Person for whom any such transferee may be acting), the Agent, any
Bank or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions;
(iii) any draft, certificate or any other document presented
under the Letter of Credit proves to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security
for the performance or observance of any of the terms of
any
of the Loan Documents;
(v) payment by the Agent under any Letter of Credit proving
to
be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(vi) payment by the Agent under any Letter of Credit against
presentation of any draft or certificate that does not comply with the
terms of such Letter of Credit, except payment resulting from the gross
negligence or willful misconduct of the Agent; or
(vii) any other circumstances or happenings whatsoever,
whether or not similar to any of the foregoing, except circumstances or
happenings resulting from the gross negligence or willful misconduct of
the Agent.
(b) Recovery or Avoidance of Payments. In the event any payment by
or on behalf of the Borrower received by the Agent with respect to a Letter of
Credit and distributed by the Agent to the Banks on account of their
participations is thereafter set aside, avoided or recovered from the Agent in
connection with any receivership, liquidation or bankruptcy proceeding, each
Bank that received such distribution shall, upon demand by such Agent,
contribute such Bank's ratable share of the amount set aside,
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avoided or recovered together with interest at the rate required to be paid by
the Agent upon the amount required to be repaid by it.
SECTION 3.08. Compensation for Letters of Credit and
Agent Reporting Requirements.
(a) Letter of Credit Fees and Fronting Fees. The Borrowers shall
pay
to the Agent with respect to each Letter of Credit issued hereunder (i) a
letter
of credit fee ("Letter of Credit Fee") equal to the Applicable Margin in
effect
from time to time for Euro-Dollar Loans multiplied by the face amount of such
Letter of Credit and (ii) to the Agent, solely for its own account, a fronting
fee (the "Fronting Fee") equal to 0.125% per annum of the face amount. The
Letter of Credit Fee and the Fronting Fee shall be payable on the Domestic
Business Day on which such Letter of Credit is issued. Letter of Credit Fees
and
Fronting Fees payable hereunder shall be computed on the basis of a year of
360
days and paid for the actual number of days elapsed (including the first day
but
excluding the last day). The Agent shall promptly remit such Letter of Credit
Fees, when paid, to the Banks in accordance with their ratable shares of the
Aggregate Commitments.
(b) Agent Charges. The Borrowers shall pay to the Agent, solely
for
its own account, the standard charges assessed by the Agent in connection with
the issuance, administration, amendment and payment or cancellation of Letters
of Credit issued hereunder, which charges shall be those typically charged by
the Agent to its customers generally having credit and other characteristics
similar to the Borrowers, as determined in good faith by the Agent.
SECTION 3.09. Indemnification; Exoneration.
(a) Indemnification. In addition to amounts payable as elsewhere
provided in this Article III, the Borrowers shall protect, indemnify, pay and
save the Agent and each Bank harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) which the Agent, or any Bank may incur or be
subject
to as a consequence of the issuance of any Letter of Credit for either
Borrower's account other than as a result of its gross negligence or willful
misconduct, as determined by a court of competent jurisdiction.
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(b) Assumption of Risk by Borrowers. As between the Borrowers, the
Agent and the Banks, the Borrowers assume all risks of the acts and omissions
of, or misuse of the Letters of Credit issued for either Borrower's account
by,
the respective beneficiaries of such Letters of Credit. In furtherance and not
in limitation of the foregoing, the Agent and the Banks shall not be
responsible
for (i) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the application for
and issuance of the Letters of Credit, even if it should in fact prove to be
in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged,
(ii) the validity or sufficiency of any instrument transferring or assigning
or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason, (iii) failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit, (iv) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher, for errors in interpretation of
technical terms, (vi) any loss or delay in the transmission or otherwise of
any
document required in order to make a drawing under any Letter of Credit or of
the proceeds thereof, (vii) the misapplication by the beneficiary of a Letter
of
Credit of the proceeds of any drawing under such Letter of Credit; and (viii)
any consequences arising from causes beyond the control of the Agent and the
Banks.
(c) Exoneration. In furtherance and extension and not in
limitation
of the specific provisions hereinabove set forth, any action taken or omitted
by
the Agent under or in connection with the Letters of Credit or any related
certificates if taken or omitted in good faith and with reasonable care, shall
not put the Agent or any Bank under any resulting liability to the Borrowers
or
relieve the Borrowers of any of its obligations hereunder to any such Person.
SECTION 3.10. Credit Yield Protection; Capital Adequacy. If the
adoption after the date hereof of any applicable law, statute, rule,
regulation,
ordinance, writ, injunction, decree, order, judgment, guideline or decision of
any Authority ("Governmental Rule"), any change after the date hereof in any
interpretation or administration of any applicable Governmental Rule by any
Person charged with its interpretation
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or administration or compliance by the Agent or any Bank (or its Lending
Office)
with any request or directive (whether or not having the force of law) of any
such Person:
(a) shall subject the Agent or any Bank (or its Lending Office) to
any tax (other than overall net income taxation or franchise taxes),
duty
or other charge with respect to any amount drawn on any Letter of Credit
or its obligation to make any payment under the Letters of Credit, or to
maintain the Letters of Credit, or shall change the basis of taxation
(other than overall net income taxation or franchise taxes) of payments
to
the Agent or any Bank (or its Lending Office) of any amounts due under
this Agreement or any amount drawn on the Letters of Credit; or
(b) shall impose, modify or deem applicable any reserve
(including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System or any Person regulating insurance activities or
insurance
companies), special deposit or similar requirements against assets of,
deposits with or for the account of, credit extended by, letters of
credit
issued or maintained by, or collateral subject to a lien in favor of the
Agent or any Bank (or its Lending Office), or shall impose on the Agent
or
any Bank (or its Lending Office) any other condition affecting any
amount
drawn on the Letters of Credit, or its obligation to make any payment
under the Letters of Credit, as the case may be, or to maintain the
Letters of Credit; then the remaining provisions of this Section 3.10
shall apply. If the result of any of the foregoing (without regard to
whether the Agent or any Bank shall have sold participations in its
respective obligations under this Agreement) is to increase the cost to
or
to impose a cost on the Agent or any Bank (or its Lending Office) of
making or maintaining any amounts payable hereunder, of maintaining the
Letters of Credit, or to reduce the amount of any sum received or
receivable by the Agent or any Bank (or its Lending Office) under any
Letter of Credit, then:
(i) the Agent or such Bank shall promptly deliver to the
Borrowers a certificate stating the change which has occurred or
the
reserve requirements or other conditions which have been imposed
on
the Agent or such Bank (or its Lending Office) or the
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request, direction or requirement with which it has
complied, together with the date hereof; and
(ii) the Borrowers shall pay to the Agent or such Bank
within
15 days of written request (which request shall state the amount
of
increased cost, reduction or payment and the way in which such
amount has been calculated), such amount or amounts as will
compensate the Agent or such Bank for the additional cost,
reduction
of return or payment incurred by the Agent or such other Bank;
provided, that the Borrowers shall have no liability for amounts
related to periods earlier than 90 days prior to the date of such
written request. The written request of the Agent or such Bank as
to
the additional amounts payable pursuant to this paragraph
delivered
to the Borrowers shall be conclusive evidence of the amount
thereof
in the absence of manifest error.
(c) If any Bank shall have determined that after the date hereof
the
adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof, or compliance by any Bank (or its Lending
Office)
with any request or directive regarding capital adequacy (whether or not
having the force of law) of any Authority, has or would have the effect
of
reducing the rate of return on such Bank's capital as a consequence of
its
obligations hereunder to a level below that which such Bank could have
achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by
an
amount deemed by such Bank to be material, then from time to time,
within
15 days after demand by such Bank, the Borrowers shall pay to such Bank
such additional amount or amounts as will compensate such Bank for such
reduction; provided, that the Borrowers shall have no liability for
amounts related to periods earlier than 90 days prior to the date of
such
written request.
(d) Each Bank will promptly notify the Borrowers and the Agent of
any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section
and
will designate a different Lending Office if such designation will avoid
the
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need for, or reduce the amount of, such compensation and will not, in
the
judgment of such Bank, be otherwise disadvantageous to such Bank. A
certificate of any Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it
hereunder
shall be conclusive in the absence of manifest error. In determining
such
amount, such Bank may use any reasonable averaging and attribution
methods.
(e) The provisions of this Section 3.10 shall be applicable with
respect to any Participant, Assignee or other Transferee, and any
calculations required by such provisions shall be made based upon the
circumstances of such Participant, Assignee or other Transferee.
ARTICLE IV
CONDITIONS TO BORROWINGS
SECTION 4.01. Conditions to Closing. The obligation of the Agent
and
each Bank to enter into this Agreement is subject to the satisfaction of the
conditions set forth in Section 4.02 and receipt by the Agent of the following
(as to the documents described in paragraphs (a), (d), (e) and (f) below, in
sufficient number of counterparts for delivery of a counterpart to each Bank
and
retention of one counterpart by the Agent):
(a) from each of the parties hereto of either (i) a duly executed
counterpart of this Agreement signed by such party or (ii) a facsimile
transmission of such executed counterpart, with the original to be sent
to
the Agent by overnight courier;
(b) a duly executed Syndicated Loan Note for the account of each
Bank and a duly executed Swing Loan Note for the account of Wachovia, in
each case complying with the provisions of Section 2.03;
(c) evidence of perfected filings of UCC Financing Statements in
connection with the Security Agreements in form and substance acceptable
to the Agent;
(d) an opinion letter (together with any opinions of local counsel
relied on therein) of Long, Aldridge & Norman,
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counsel for the Borrowers, dated as of the Closing Date, substantially
in
the form of Exhibit B and covering such additional matters relating to
the
transactions contemplated hereby as the Agent or any Bank may reasonably
request;
(e) an opinion of Jones, Day, Reavis & Pogue, special counsel for
the Agent, dated as of the Closing Date, substantially in the form of
Exhibit C and covering such additional matters relating to the
transactions contemplated hereby as the Agent may reasonably request;
(f) a certificate (the "Closing Certificate") substantially in the
form of Exhibit I), dated as of the Closing Date, signed by a principal
financial officer of each of the Borrowers, to the effect that (i) no
Default has occurred and is continuing on the Closing Date and (ii) the
representations and warranties of the Borrowers contained in Article V
are
true on and as of the Closing Date;
(g) Landlord Agreements with respect to SEDI for its (i) the City
of
Industry, California location, and (ii) Dauphin County, Pennsylvania,
along with copies of the executed leases therefor;
(h) a certificate of insurance respecting all insurance coverage
required by the Security Agreements in forms and substance acceptable to
the Agent;
(i) judgment, tax and UCC lien searches with respect to the
Collateral and releases of all liens other than Permitted Encumbrances;
(j) all documents which the Agent or any Bank may reasonably
request
relating to the existence of the Borrowers, the corporate authority for
and the validity of this Agreement, the Notes, and the other Loan
Documents, and any other matters relevant hereto, all in form and
substance satisfactory to the Agent, including, without limitation, a
certificate of each of the Borrowers substantially in the form of
Exhibit
J (the "Officer's Certificate"), signed by the Secretary or an Assistant
Secretary of such Borrower, certifying as to the names, true signatures
and incumbency of the officer or officers of such Borrower authorized to
execute and deliver the Loan Documents, and certified copies of the
following items: (i) such Borrower's Certificate of
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Incorporation, (ii) such Borrower's Bylaws, (iii) a certificate of the
Secretary of State of the State of Georgia as to the good standing of
such
Borrower, respectively, and (iv) the action taken by the Board of
Directors of such Borrower authorizing such Borrower's execution,
delivery
and performance of this Agreement, the Notes and the other Loan
Documents
to which such Borrower is a party;
(k) a Notice of Borrowing and a Borrowing Base
Certificate;
(l) an executed Security Agreement from each Borrower and each
Domestic Subsidiary, and an executed Guarantee from each Domestic
Subsidiary substantially in the form of
Exhibit O;
(m) an executed FINOVA Intercreditor Agreement;
(n) receipt by the Agent of a telephone instruction letter,
concerning requests for Loans hereunder, to be substantially in the form
of Exhibit L attached hereto; and
(o) payment of (i) fees owed to the Agent pursuant to Section
2.06(b) hereof, and (ii) the Agent's attorney fees and expenses incurred
in connection with this Agreement.
In addition, if either Borrower desires funding of a Euro-Dollar Loan on the
Closing Date, the Agent shall have received, the requisite number of days
prior
to the Closing Date, a funding indemnification letter satisfactory to it,
pursuant to which (i) the Agent and such Borrower shall have agreed upon the
interest rate, amount of Borrowing and Interest Period for such Euro- Dollar
Loan, and (ii) such Borrower shall indemnify the Banks from any loss or
expense
arising from the failure to close on the anticipated Closing Date identified
in
such letter or the failure to borrow such Euro-Dollar Loan on such date.
SECTION 4.02. Conditions to All Borrowings. The
obligation of each Bank to make a Syndicated Loan on the
occasion
of each Borrowing, or of Wachovia to make a Swing Loan or of the
Agent to issue a Letter of Credit is subject to the satisfaction
of the following conditions:
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(a) receipt by the Agent of a Notice of Borrowing or notice
pursuant
to Section 3.04(b) of a request for a Letter of Credit, accompanied by a
Letter of Credit Application Agreement and any other documents required
pursuant to
Section 3.03(a).
(b) the fact that, immediately before and after such Borrowing or
Letter of Credit Issuance, as applicable, no Default shall have occurred
and be continuing;
(c) the fact that the representations and warranties of the
Borrowers contained in Article V of this Agreement shall be true on and
as
of the date of such Borrowing; and
(d) the fact that, immediately after such Borrowing or issuance of
a
Letter of Credit, the conditions set forth in clauses (i) and (ii) of
Section 2.01 shall have been
satisfied.
Each Syndicated Borrowing, each Swing Borrowing and each request for the
issuance of a Letter of Credit hereunder shall be deemed to be a
representation
and warranty by the Borrowers on the date of such Borrowing as to the truth
and
accuracy of the facts specified in paragraphs (b), (c) and (d) of this
Section.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants that:
SECTION 5.01. Corporate Existence and Power. Such Borrower is a
corporation duly organized, validly existing and in good standing under the
laws
of the jurisdiction of its incorporation, is duly qualified to transact
business
in every jurisdiction where, by the nature of its business, the failure to
qualify could have a Material Adverse Effect, and has all corporate powers and
all governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted.
SECTION 5.02. Corporate and Governmental
Authorization;
No Contravention. The execution, delivery and performance by
such Borrower of this Agreement, the Notes and the other Loan
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Documents (i) are within such Borrower's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) require no action by or in
respect of or filing with, any governmental body, agency or official, (iv) do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of such
Borrower
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon such Borrower or any of its Subsidiaries, and (v) do not result
in
the creation or imposition of any Lien on any asset of such Borrower or any of
its Subsidiaries.
SECTION 5.03. Binding Effect. This Agreement constitutes a valid
and
binding agreement of such Borrower enforceable in accordance with its terms,
and
the Notes and the other Loan Documents executed by such Borrower, when
executed
and delivered in accordance with this Agreement, will constitute valid and
binding obligations of such Borrower enforceable in accordance with their
respective terms, provided that the enforceability hereof and thereof is
subject
in each case to general principles of equity and to bankruptcy, insolvency and
similar laws affecting the enforcement of creditors' rights generally.
SECTION 5.04. Financial Information. (a) The consolidated balance
sheet of the Borrowers and the Consolidated Subsidiaries as of June 30, 1999
and
the related consolidated statements of income, shareholders' equity and cash
flows for the Fiscal Year then ended, reported on by Deloitte & Touche LLP,
copies of which have been delivered to each of the Banks, and the unaudited
consolidated financial statements of the Borrowers for the interim period
ended
June 30, 1999 copies of which have been delivered to each of the Banks, fairly
present, in conformity with GAAP, the consolidated financial position of the
Borrowers and their Consolidated Subsidiaries as of such dates and their
consolidated results of operations and cash flows for such periods stated.
(b) Since June 30, 1999 there has been no event, act, condition or
occurrence having a Material Adverse Effect.
SECTION 5.05. No Litigation. There is no action, suit
or proceeding pending, or to the knowledge of such Borrower
threatened, against or affecting the Borrowers or any of the
Subsidiaries before any court or arbitrator or any governmental
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body, agency or official which, if adversely determined, could have a Material
Adverse Effect or which in any manner draws into question the validity of or
could impair the ability of the Borrowers to perform their respective
obligations under, this Agreement, the Notes, the Letter of Credit Application
Agreements or any of the other Loan Documents executed by either of them.
SECTION 5.06. Compliance with ERISA. (a) The Borrowers and each
member of the Controlled Group have fulfilled their obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and
are in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and have not incurred any liability to the
PBGC or a Plan under Title IV of ERISA.
(b) Neither of the Borrowers nor any member of the Controlled
Group
is or ever has been obligated to contribute to any Multiemployer Plan.
SECTION 5.07. Compliance with Laws; Payment of Taxes. The
Borrowers
and the Subsidiaries are in compliance with all applicable laws, regulations
and
similar requirements of governmental authorities, except where such compliance
is being contested in good faith through appropriate proceedings or where a
failure to comply could not have a Material Adverse Effect. There have been
filed on behalf of the Borrowers and the Subsidiaries all Federal, state and
local income, excise, property and other tax returns which are required to be
filed by them and all taxes due pursuant to such returns or pursuant to any
assessment received by or on behalf of the Borrowers or any Subsidiary have
been
paid. The charges, accruals and reserves on the books of the Borrowers and the
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrowers, adequate. United States income tax returns of the
Borrowers and the Subsidiaries have been examined and closed through the
Fiscal
Year ended 1993.
SECTION 5.08. Subsidiaries. Each of the Borrowers' respective
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, is duly
qualified
to transact business in every jurisdiction where, by the nature of its
business,
failure to qualify could have a Material Adverse Effect, and has all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now
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conducted. The Borrowers have no Subsidiaries except for those Subsidiaries
listed on Schedule 5.08, which accurately sets forth, by Borrower, each such
Subsidiary's complete name and jurisdiction of incorporation.
SECTION 5.09. Investment Company Act. Neither of the
Borrowers nor any of the Subsidiaries is an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
SECTION 5.10. Public Utility Holding Company Act. Neither of the
Borrowers nor any of the Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or
of
a "subsidiary company" of a "holding company", as such terms are defined in
the
Public Utility Holding Company Act of 1935, as amended.
SECTION 5.11. Ownership of Property; Liens. Each of the Borrowers
and their Consolidated Subsidiaries has title to its properties sufficient for
the conduct of its business, and none of such property is subject to any Lien
except as permitted in Section 6.18.
SECTION 5.12. No Default. Neither of the Borrowers nor any of
their
Consolidated Subsidiaries is in default under or with respect to any
agreement,
instrument or undertaking to which it is a party or by which it or any of its
property is bound which default could have or cause a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
SECTION 5.13. Full Disclosure. All information heretofore
furnished
by the Borrowers to the Agent or any Bank for purposes of or in connection
with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrowers to the Agent or any Bank will
be, true, accurate and complete in every material respect or based on
reasonable
estimates on the date as of which such information is stated or certified. The
Borrowers have disclosed to the Banks in writing any and all facts which could
have or cause a Material Adverse Effect.
SECTION 5.14. Environmental Matters. (a) Neither the
Borrowers nor any Subsidiary is subject to any Environmental
Liability which could have or cause a Material Adverse Effect
and
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neither the Borrowers nor any Subsidiary has been designated as a potentially
responsible party under CERCLA or under any state statute similar to CERCLA.
None of the Properties has been identified on any current or proposed (i)
National Priorities List under 40 C.F.R. ss. 300, (ii) CERCLIS list or (iii)
any
list arising from a state statute similar to CERCLA.
(b) To the Borrowers' knowledge, no Hazardous Materials have been
or
are being used, produced, manufactured, processed, treated, recycled,
generated,
stored, disposed of, managed or otherwise handled at, or shipped or
transported
to or from the Properties or are otherwise present at, on, in or under the
Properties, or, to the best of the knowledge of the Borrowers, at or from any
adjacent site or facility, except for Hazardous Materials, such as cleaning
solvents, pesticides and other materials used, produced, manufactured,
processed, treated, recycled, generated, stored, disposed of, managed, or
otherwise handled in minimal amounts in the ordinary course of business in
compliance with all applicable Environmental Requirements.
(c) Each of the Borrowers, and each of the Subsidiaries and
Affiliates, has procured all Environmental Authorizations necessary for the
conduct of its business, and is in material compliance with all Environmental
Requirements in connection with the operation of the Properties and the
Borrowers', and each of their Subsidiary's and Affiliate's, respective
businesses.
SECTION 5.15. Capital Stock. All Capital Stock, debentures, bonds,
notes and all other securities of the Borrowers and the Subsidiaries presently
issued and outstanding are validly and properly issued in accordance with all
applicable laws, including, but not limited to, the "Blue Sky" laws of all
applicable states and the federal securities laws. The issued shares of
Capital
Stock of the Borrowers' respective Wholly Owned Subsidiaries are owned by the
Borrowers free and clear of any Lien or adverse claim. At least a majority of
the issued shares of capital stock of each of each Borrower's other
Subsidiaries
(other than Wholly Owned Subsidiaries) is owned by such Borrower free and
clear
of any Lien or adverse claim.
SECTION 5.16. Margin Stock. Neither the Borrowers nor
any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of purchasing or carrying
any Margin Stock, and no part of the proceeds of any Loan will
be
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used to purchase or carry any Margin Stock or to extend credit to others for
the
purpose of purchasing or carrying any Margin Stock, or be used for any purpose
which violates, or which is inconsistent with, the provisions of Regulation T,
U
or X.
SECTION 5.17. Insolvency. After giving effect to the execution and
delivery of the Loan Documents and the making of the Loans under this
Agreement:
(i) neither of the Borrowers will (x) be "insolvent," within the meaning of
such
term as used in O.C.G.A. ss. 18-2-22 or as defined in ss. 101 of the
"Bankruptcy
Code", or Section 2 of either the "UFTA" or the "UFCA", or as defined or used
in
any "Other Applicable Law" (as those terms are defined below), or (y) be
unable
to pay its debts generally as such debts become due within the meaning of
Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 6 of the
UFCA, or (z) have an unreasonably small capital to engage in any business or
transaction, whether current or contemplated, within the meaning of Section
548
of the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA; and
(ii)
the obligations of the Borrowers under the Loan Documents and with respect to
the Loans will not be rendered avoidable under any Other Applicable Law. For
purposes of this Section 5.17, "Bankruptcy Code" means Title 11 of the United
States Code, "UFTA" means the Uniform Fraudulent Transfer Act, "UFCA" means
the
Uniform Fraudulent Conveyance Act, and "Other Applicable Law" means any other
applicable law pertaining to fraudulent transfers or acts voidable by
creditors,
in each case as such law may be amended from time to time.
SECTION 5.18. Y2K Plan. The Borrowers have developed and have
delivered to the Agent and the Banks a written plan (the "Y2K Plan") for the
testing and, if necessary, repair, of all Mission Critical Systems and
Equipment
in order that they will be Year 2000 Compliant and Ready on or before January
1,
2000. The Borrowers have timely achieved all such tests and repairs as of the
dates set forth on the Y2K Plan.
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ARTICLE VI
COVENANTS
The Borrowers agree that, so long as any Bank has any Commitment
hereunder or any amount payable hereunder or under any
Note remains unpaid:
SECTION 6.01. Information. The Borrowers will deliver
to each of the Banks:
(a) as soon as available and in any event within 90 days after the
end of each Fiscal Year, a consolidated balance sheet of the Borrowers and the
Consolidated Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of income, shareholders' equity and cash flows for
such
Fiscal Year, setting forth in each case in comparative form the figures for
the
previous fiscal year, all certified by Deloitte & Touche LLP or other
independent public accountants of nationally recognized standing, with such
certification to be free of exceptions and qualifications not acceptable to
the
Required Banks;
(b) as soon as available and in any event within 30 days after the
end of each of the first 12 Fiscal Months of each Fiscal Year, consolidated
and
consolidating balance sheets of the Borrowers and the Consolidated
Subsidiaries
as of the end of such Fiscal Month and the related statement of income and
statement of cash flows for such Fiscal Month and for the portion of the
Fiscal
Year ended at the end of such Fiscal Month setting forth in each case in
comparative form the figures for the corresponding Fiscal Month and the
corresponding portion of the previous Fiscal Year, all certified (subject to
normal year-end adjustments) as to fairness of presentation, GAAP and
consistency by the chief financial officer or the chief accounting officer of
each of the Borrowers;
(c) simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a certificate,
substantially in the form of Exhibit H (a "Compliance Certificate"), of the
chief financial officer or the chief accounting officer of each of the
Borrowers
(i) setting forth in reasonable detail the calculations required to establish
whether the Borrowers were in compliance with the requirements of Sections
6.05,
6.15, 6.18, and 6.20 through 6.24, inclusive, on
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the date of such financial statements and (ii) stating whether any Default
exists on the date of such certificate and, if any Default then exists,
setting
forth the details thereof and the action which the Borrowers are taking or
proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of annual
financial
statements referred to in paragraph (a) above, a statement of the firm of
independent public accountants which reported on such statements to the effect
that nothing has come to their attention to cause them to believe that any
Default existed on the date of such financial statements;
(e) as soon as practicable, but in any event on or before 10 days
after the end of each Fiscal Month, a status report, certified by a duly
authorized officer of each of the Borrowers, showing (i) the aggregate dollar
value of the items comprising the Accounts Receivable and the age of each
individual item thereof as of the last day of the preceding Fiscal Month
(segregating such items to show any which are subject to a Lien under any of
the
Distributor Agreements, and otherwise segregating such items in such manner
and
to such degree as the Agent may request), (ii) the type, dollar value and
location of the Inventory as at the end of the preceding Fiscal Month, valued
at
the lower of FIFO cost or market value (segregating such items to show
separately those which are (x) subject to a Lien under any of the Distributor
Agreements, (y) are the subject of an invoice to such Borrower from the seller
thereof dated more than 90 days prior to the date of such report and (z) were
manufactured more than 365 days prior to the date of such report) and (iii)
the
aggregate dollar value of the items comprising the accounts payable of the
Borrowers and the age of each individual item thereof as of the last day of
the
preceding Fiscal Month (segregating such items in such manner and to such
degree
as the Agent may request);
(f) at the end of each calendar week (i) a Borrowing Base
Certificate (a "Borrowing Base Certificate") in substantially the form of
Exhibit F, setting forth the calculations of the Borrowing Base, as of such
date
as of the date of report submission, certified as to truth and accuracy by a
duly authorized officer of each of the Borrowers; (ii) (a) during the
existence
of a Default or Event of Default, confirmatory assignment schedules; (b)
copies
of Account Debtor invoices; and (c) such further schedules, documents and/or
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information regarding the Accounts Receivable as the Agent may require; and
(iii) (a) a detailed aging schedule of all Accounts Receivable by Account
Debtor, in such detail, and accompanied by such supporting information, as the
Agent may from time to time reasonably request, (b) a detailed aging of all
accounts payable by vendor or supplier, in such detail, and accompanied by
such
supporting information, as the Agent may from time to time reasonably request
(The items to be provided under this Section shall be in form satisfactory to
the Agent, and certified as true and correct by the Borrower's chief financial
officer or president, and delivered to the Agent and the other Lenders from
time
to time solely for the Agent's and the other Lenders' convenience in
maintaining
records of the Collateral. The Borrower's failure to deliver any of such items
to the Agent or the other Lenders shall not affect, terminate, modify, or
otherwise limit the Agent's security interests in the Collateral);
(g) within 5 Domestic Business Days after either Borrower becomes
aware of the occurrence of any Default, a certificate of the chief financial
officer or the chief accounting officer of each of the Borrowers setting forth
the details thereof and the action which the Borrowers are taking or proposes
to
take with respect thereto;
(h) promptly upon the mailing thereof to the shareholders of the
Borrowers generally, copies of all financial statements, reports and proxy
statements so mailed;
(i) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and annual, quarterly or monthly reports which the
Borrowers shall have filed with the Securities and Exchange Commission;
(j) if and when any member of the Controlled Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii)
receives
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notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer any Plan, a copy of such notice; and
(k) from time to time such additional information regarding the
financial position or business of the Borrowers and the Subsidiaries as the
Agent, at the request of any Bank, may reasonably request.
SECTION 6.02. Inspection of Property, Books and Records. The
Borrowers will (i) keep, and cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries in conformity with
GAAP, subject to Section 1.02, shall be made of all dealings and transactions
in
relation to its business and activities; and (ii) permit, and cause each
Subsidiary to permit, representatives of any Bank at such Bank's expense prior
to the occurrence of a Default (except as provided below with respect to field
examinations) and at the Borrowers' expense after the occurrence of a Default
to
visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants. The foregoing shall include but
not be limited to field examinations with respect to the Accounts and the
Inventory, the reasonable and customary costs of which shall be borne by the
Borrowers, whether or not a Default exists, but, so long as no Default exists,
the Borrowers shall not be obligated to bear expenses for field examinations
performed more frequently than once in each Fiscal Quarter. The Borrowers
agree
to cooperate and assist in such visits and inspections, in each case at such
reasonable times during normal business hours and as often as may reasonably
be
desired.
SECTION 6.03. Maintenance of Existence and Management. The
Borrowers
shall, and shall cause each Subsidiary to, (i) maintain its corporate
existence
and carry on its business in substantially the same manner and in
substantially
the same fields as such business is now carried on and maintained and (ii)
maintain Senior Management reasonably acceptable to the Banks in keeping with
their bylaws (and the Banks acknowledge that present Senior Management is
acceptable as of the Closing Date).
SECTION 6.04. Dissolution. Neither the Borrowers nor
any of the Subsidiaries shall suffer or permit dissolution or
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liquidation either in whole or in part or redeem or retire any shares of its
own
stock or that of any Subsidiary, except through corporate reorganization to
the
extent permitted by Section 6.05.
SECTION 6.05. Consolidations, Mergers and Sales of Assets. The
Borrowers will not, nor will it permit any Subsidiary to, consolidate or merge
with or into, or sell, lease or otherwise transfer all or any substantial part
of its assets to, any other Person, or discontinue or eliminate any business
line or segment, provided that (a) either Borrower may merge with another
Person
if (i) such Person was organized under the laws of the United States of
America
or one of its states, (ii) such Borrower is the corporation surviving such
merger and (iii) immediately after giving effect to such merger, no Default
shall have occurred and be continuing, (b) the Borrowers may merge with one
another and Subsidiaries of the Borrowers may merge with one another, and (c)
the foregoing limitation on the sale, lease or other transfer of assets and on
the discontinuation or elimination of a business line or segment shall not
prohibit (A) transfers of Accounts to insurers permitted by Section 6.26 or
(B)
during any Fiscal Quarter, a transfer of assets or the discontinuance or
elimination of a business line or segment (in a single transaction or in a
series of related transactions) unless the aggregate assets to be so
transferred
or utilized in a business line or segment to be so discontinued, when combined
with all other assets transferred, and all other assets utilized in all other
business lines or segments discontinued, during such Fiscal Quarter and the
immediately preceding 3 Fiscal Quarters, either (x) constituted more than 2%
of
Consolidated Total Assets at the end of the most recent Fiscal Year
immediately
preceding such Fiscal Quarter, or (y) contributed more than 2% of Consolidated
Operating Profits during the 4 Fiscal Quarters immediately preceding such
Fiscal
Quarter.
SECTION 6.06. Use of Proceeds. No portion of the proceeds of the
Loans will be used by the Borrowers or any Subsidiary (i) in connection with,
whether directly or indirectly, any tender offer for, or other acquisition of,
stock of any corporation with a view towards obtaining control of such other
corporation, unless such tender offer or other acquisition is to be made on a
negotiated basis with the approval of the Board of Directors of the Person to
be
acquired, and the provisions of Section 6.17 would not be violated, (ii)
directly or indirectly, for the purpose, whether immediate, incidental or
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ultimate, of purchasing or carrying any Margin Stock, or (iii) for any purpose
in violation of any applicable law or regulation.
SECTION 6.07. Compliance with Laws; Payment of Taxes. The
Borrowers
will, will cause each of the Subsidiaries to and will use its best effort to
cause each member of the Controlled Group to, comply with applicable laws
(including but not limited to ERISA), regulations and similar requirements of
governmental authorities (including but not limited to PBGC), except where the
necessity of such compliance is being contested in good faith through
appropriate proceedings diligently pursued. The Borrowers will, and will cause
each of the Subsidiaries to, pay promptly when due all taxes, assessments,
governmental charges, claims for labor, supplies, rent and other obligations
which, if unpaid, might become a lien against the property of the Borrowers or
any Subsidiary, except liabilities being contested in good faith and against
which, if requested by the Agent (acting at the direction of the Required
Banks), the Borrowers will set up reserves in accordance with GAAP.
SECTION 6.08. Insurance. In addition to and cumulative with any
other requirements herein imposed on each Borrower with respect to insurance
under the Security Agreements, each Borrower shall maintain insurance with
responsible insurance companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar businesses
operating
in the same vicinity, but in any event to include loss, damage, flood,
windstorm, fire, theft, extended coverage and product liability insurance in
amounts satisfactory to the Agent, which such insurance shall not be
cancelable
by either Borrower, unless with the prior written consent of the Agent, or by
such Borrower's insurer, unless with at least ten (10) days advance written
notice to the Agent thereof. Each Borrower shall file with the Agent upon its
request a detailed list of such insurance then in effect stating the names of
the insurance companies, the amounts and rates of insurance, the date of
expiration thereof, the properties and risks covered thereby and the insured
with respect thereto, and, within thirty (30) days after notice in writing
from
the Agent, obtain such additional insurance as the Agent may reasonably
request
necessary to maintain insurance on Inventory in an amount equal to the full
insurable value thereof.
SECTION 6.09. Change in Fiscal Year. The Borrowers
will not change their Fiscal Year without the consent of the
Required Banks.
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SECTION 6.10. Maintenance of Property. The Borrowers shall, and
shall cause each Subsidiary to, maintain all of its properties and assets in
good condition, repair and working order, ordinary wear and tear excepted;
provided, that each of the Borrowers and each of the Subsidiaries may dispose
of
used, worn out or obsolete equipment, so long as it obtains such replacements
as
are reasonably required for its operations.
SECTION 6.11. Environmental Notices. The Borrowers shall furnish
to
the Banks and the Agent prompt written notice of all Environmental
Liabilities,
pending, or, to the extent either of the Borrowers is aware of the same,
threatened or anticipated Environmental Proceedings, Environmental Notices,
Environmental Judgments and Orders, and Environmental Releases at, on, in,
under
or in any way affecting the Properties or any adjacent property which, if
adversely determined, could have a Material Adverse Effect, and all facts,
events, or conditions that could lead to any of the foregoing.
SECTION 6.12. Environmental Matters. The Borrowers and the
Subsidiaries will not, and will not permit any Third Party to, use, produce,
manufacture, process, treat, recycle, generate, store, dispose of, manage at,
or
otherwise handle, or ship or transport to or from the Properties any Hazardous
Materials except for Hazardous Materials such as cleaning solvents, pesticides
and other similar materials used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed, managed, or otherwise handled in
minimal
amounts in the ordinary course of business in compliance with all applicable
Environmental Requirements.
SECTION 6.13. Environmental Release. The Borrowers agree that upon
the occurrence of an Environmental Release at or on any of the Properties it
will act immediately to investigate the extent of, and to take appropriate
remedial action to eliminate, such Environmental Release, whether or not
ordered
or otherwise directed to do so by any Environmental Authority.
SECTION 6.14. Transactions with Affiliates. Neither the Borrowers
nor any of the Subsidiaries shall enter into, or be a party to, any
transaction
with any Affiliate of the Borrowers or such Subsidiary (which Affiliate is not
one of the Borrowers or a Wholly Owned Subsidiary), except as permitted by law
and in the ordinary course of business and pursuant to reasonable terms which
are fully disclosed to the Agent and the Banks, and are no
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less favorable to the Borrowers or such Subsidiary than would be obtained in a
comparable arm's length transaction with a Person which is not an Affiliate.
SECTION 6.15. Restricted Payments. SEDH will not declare or make
any
Restricted Payment in any Fiscal Year unless the Agent and the Banks have
consented thereto in writing in the exercise of their sole discretion.
SECTION 6.16. Loans or Advances. Neither the Borrowers nor any of
the Subsidiaries shall make loans or advances to any Person except as
permitted
by Section 6.17 and except: (i) loans or advances to employees not exceeding
$250,000 in the aggregate principal amount outstanding at any time, in each
case
made in the ordinary course of business and consistent with practices existing
on December 31, 1998; (ii) deposits required by government agencies or public
utilities; and (iii) loans and advances from one Borrower to the other;
provided
that after giving effect to the making of any loans, advances or deposits
permitted by this Section, and no Default shall be in existence or be created
thereby.
SECTION 6.17. Investments. Neither the Borrowers nor any of the
Subsidiaries shall make any Restricted Investments; provided, however, if
immediately after giving effect to any SED Argentina Investment either (i) a
Default or Event of Default is in existence, or (ii) the Borrowers do not have
sufficient availability to borrow at least $10,000,000 in Loans in accordance
with the terms of Section 2.01 of this Agreement, then, in either such event,
the making of such SED Argentina Investment shall constitute an Event of
Default
hereunder.
SECTION 6.18. Negative Pledge. Other than Liens in favor of the
Agent and the Banks securing the Obligations and Permitted Encumbrances
against
the Collateral, neither the Borrowers nor any Consolidated Subsidiary will
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, and the Borrowers shall not permit any Subsidiary which is not
a
Borrower to incur any Lien, except the following Liens:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement, which are in an aggregate principal
amount not exceeding $250,000;
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(b) any Lien existing on any specific fixed asset of any
corporation
at the time such corporation becomes a Consolidated Subsidiary and not created
in contemplation of such event;
(c) any Lien on any specific fixed asset of any corporation
existing
at the time such corporation is merged or consolidated with or into one of the
Borrowers or a Consolidated Subsidiary and not created in contemplation of
such
event;
(d) any Lien existing on any specific fixed asset prior to the
acquisition thereof by one of the Borrowers or a Consolidated Subsidiary and
not
created in contemplation of such acquisition;
(e) Liens securing Debt owing by any Subsidiary to one
of the Borrowers;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
paragraphs of this Section, provided that (i) such Debt is not secured by any
additional assets, and (ii) the amount of such Debt secured by any such Lien
is
not increased;
(g) Liens incidental to the conduct of its business or the
ownership
of its assets which (i) do not secure Debt and (ii) do not in the aggregate
materially detract from the value of its assets or materially impair the use
thereof in the operation of its business;
(h) any Lien on Margin Stock securing Debt not to
exceed $100,000;
(i) Debt owing to the Borrowers or another Subsidiary;
(j) any Lien permitted under any Lien Subordination
Agreement or the FINOVA Intercreditor Agreement; and
(k) any Lien on any specific fixed asset securing Debt incurred or
assumed for the purpose of financing all or any part of the cost of acquiring
or
constructing such asset, provided that (x) such Lien attaches to such asset
concurrently with or within 18 months after the acquisition or completion of
construction thereof, (y) such Lien may not secure any other
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indebtedness, and (z) the aggregate outstanding principal amount of all Debt
secured by such Liens shall not at any time exceed $1,500,000.
SECTION 6.19. Restrictions on Ability of Subsidiaries to Pay
Dividends. The Borrowers shall not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any
encumbrance or restriction on the ability of any such Subsidiary to (i) pay
any
dividends or make any other distributions on its Capital Stock or any other
interest or (ii) make or repay any loans or advances to the Borrowers or the
parent of such Subsidiary.
SECTION 6.20. Leverage Ratio. Tested at the end of
each Fiscal Quarter, the Leverage Ratio shall not at any time
exceed 3.5 to 1.0.
SECTION 6.21. Fixed Charge Coverage. Commencing on June 30, 1999,
and tested on such date and at the end of each Fiscal Quarter thereafter, the
ratio of EBILTDA to Consolidated Fixed Charges shall not at any time be less
than the following amounts as of the end of each of the following Fiscal
Quarters:
Fiscal Quarters Ending Ratio
June 30, 1999 through September 30, 1999 1.0 to 1.0
December 31, 1999 through March 31, 2000 1.25 to 1.0
Each Fiscal Quarter thereafter 1.5 to 1.0
The foregoing ratio shall be calculated on a cumulative basis for
the Fiscal Quarter just ended and the immediately preceding three Fiscal
Quarters; provided, however, for the 3 Fiscal Quarters ending after the
Closing
Date, the foregoing ratio shall be calculated as follows: (i) for the first
Fiscal Quarter after the Closing Date, times 4, (ii) for the first and second
Fiscal Quarters after the Closing Date on a cumulative basis, times 2, and
(iii)
for the first, second and third Fiscal Quarters after the Closing Date on a
cumulative basis, times 1.3333.
SECTION 6.22. Current Ratio. Tested at the end of
each
Fiscal Quarter, the Borrower will at all times maintain a
Current
Ratio greater than 1.25 to 1.0.
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SECTION 6.23. Minimum Profitability. Tested at the end
of each Fiscal Quarter, the Borrower's EBITDA shall not be less
than $500,000 for such Fiscal Quarter.
SECTION 6.24. Minimum Consolidated Tangible Net Worth.
Consolidated
Tangible Net Worth will as of June 30, 1999 be not less than $40,000,000, and
at
all times thereafter will not be less than (x) $40,000,000 plus (y) the sum of
(i) 75% of the cumulative Reported Net Income of the Borrowers and the
Consolidated Subsidiaries during any period after March 31, 1999 (taken as one
accounting period), calculated monthly at the end of each month (but excluding
from such calculations of Reported Net Income for purposes of this clause (i),
any month in which the Reported Net Income of the Borrowers and the
Consolidated
Subsidiaries is negative), and (ii) 100% of the cumulative Net Proceeds of
Capital Stock received during any period after March 31, 1999, calculated
monthly at the end of each month.
SECTION 6.25. Distributor Agreements. The Borrowers will comply in
all material respects with each of the Distributor Agreements and, promptly
(and
in any event within 5 Domestic Business Days) after the effective date
thereof,
furnish to each of the Banks a true and correct copy of each new Distributor
Agreement and each document which extends, renews, amends, supplements or
replaces any Distributor Agreement.
SECTION 6.26. Accounts Receivable. The Borrowers will not sell or
otherwise dispose of any of the Accounts Receivable without the prior written
consent of the Agent (acting at the direction of the Required Banks) except
(i)
in the ordinary course of business for cash or on open account or on terms of
payment ordinarily extended to its customers and (ii) with respect to Accounts
the collectibility of which has been insured, transfers to the insurers of
defaulted Accounts as to which the insurer has paid or contemporaneously with
such transfer is paying the amount due to the Borrowers under the relevant
policy on account of such defaulted Accounts. The Borrowers will not allow the
Accounts Receivable to be encumbered, except as may be required pursuant to
the
HP (US) Agreement. Additionally, the Agent may, at any time in its sole
discretion, require the Borrowers to permit the Agent to verify the individual
account balances of the individual Account Debtors immediately upon its
request
therefor. In any event, upon request from the Agent, made at any time
hereafter
(but not more frequently than monthly,
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so long as no Default or Event of Default is in existence), the Borrowers
shall
furnish the Agent with a then current Account Debtor address list.
SECTION 6.27. Inventory. Notwithstanding the first sentence of
Section 4.1 of the Security Agreements, the Borrowers may sell, lease,
exchange,
or otherwise dispose of any of the Inventory as may be required by any of the
Distributor Agreements. Notwithstanding Section 4.5 of the Security Agreement,
the Borrowers may, without notice to or the consent of the Agent, transfer
temporarily (for periods not to exceed 3 months in any event) Inventory from a
location under its possession and control to another location at any time or
from time to time hereafter for the limited purpose of having work performed
on
such Inventory if done in the ordinary course of the Borrowers' business. In
the
event that the Borrowers certify to the Agent in writing that the Borrowers
have
relocated Inventory from a closed location to another location (provided that
the Lien created by the Security Agreements is perfected at such new
location),
then the Agent shall, upon request, file partial releases or terminations of
filed UCC financing statements filed with respect to such Inventory at such
closed location (but not with respect to any other Collateral which may be
perfected thereby).
SECTION 6.28. Additional Debt. Neither of the Borrowers or any of
their Subsidiaries shall incur or permit to exist any Debt other than (i) Debt
in the amounts listed on Schedule 6.28, (ii) Debt permitted to be secured by
Liens permitted by Section 6.18, (iii) Debt of the types described in clause
(vii) of the definition of Debt which is incurred in the ordinary course of
business in connection with the sale or purchase of goods or to assure
performance of any obligation to a utility or a governmental entity or a
worker's compensation obligation; (iv) Debt permitted by the FINOVA
Intercreditor Agreement; (v) other Debt not to exceed an aggregate amount
outstanding at any time of $500,000; (vi) trade payables arising in the
ordinary
course of business; (vii) Investments in Subsidiaries consisting of Debt
excluded under the definition of "Restricted Investment"; and (viii) Debt
consisting of a Guarantee by SEDH of SED's obligations to purchase certain
equity interests in SED Magna such investment amount permitted under the
definition of "Restricted Investment."
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SECTION 6.29. Post-Closing Matters. The Borrowers agree that on or
before September 30, 1999, the Borrowers shall have delivered to the Agent (i)
executed pledge agreements (satisfactory to the Agent in all respects), blank
stock powers, and original stock certificates whereby the Borrowers' equity
interests in each Foreign Subsidiary becomes subject to the Agent's first
priority perfected security interest as a part of the Collateral (provided
that
the Agent's security interest therein shall not exceed the Foreign Equity Lien
Limitation for any Foreign Subsidiary), and (ii) Landlord's Agreements for the
Borrowers' California and Pennsylvania locations.
SECTION 6.30. Y2K Compliance. The Borrowers shall take, and cause
their Domestic Subsidiaries to take, all actions reasonably necessary in order
to become Y2K Compliant and Ready on or before January 1, 2000. In any event,
and without limiting the Borrowers obligations set forth in the preceding
sentence, the Borrowers shall cause all Mission Critical Systems and Equipment
to be Y2K Compliant and Ready on or before February 15, 2000.
ARTICLE VII
DEFAULTS
SECTION 7.01. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be
continuing:
(a) either of the Borrowers shall fail to pay when due any
principal
of any Loan or any Reimbursement Obligation, shall fail to pay any
interest on any Loan within 5 Domestic Business Days after such interest
shall become due, or shall fail to pay any fee or other amount payable
hereunder within 5 Domestic Business Days after such fee or other amount
becomes due; or
(b) either of the Borrowers shall fail to observe or perform any
covenant contained in Sections 6.01(g), 6.02(ii), 6.03 through 6.06,
inclusive, Sections 6.15 through 6.17, inclusive, or Sections 6.19
through
6.24, inclusive, 6.26 through 6.28, inclusive, or any covenant (beyond
any
applicable cure period) contained in any Loan Document; or
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(c) either of the Borrowers shall fail to observe or perform any
covenant or agreement contained or incorporated by reference in this
Agreement (other than those covered by paragraph (a) or (b) above) and
such failure shall not have been cured within 30 days after the earlier
to
occur of (i) written notice thereof has been given to the Borrowers by
the
Agent at the request of any Bank or (ii) either of the Borrowers
otherwise
becomes aware of any such failure; or
(d) any representation, warranty, certification or statement made
by
either of the Borrowers in Article V of this Agreement or in any Loan
Document, certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been incorrect or
misleading in any material respect when made (or deemed made); or
(e) either of the Borrowers or any Subsidiary shall fail to make
any
payment in respect of Debt in an aggregate amount outstanding of
$500,000
or more (other than the Notes) when due or within any applicable grace
period; or
(f) any event or condition shall occur which results in the
acceleration of the maturity of Debt in an aggregate amount outstanding
of
$500,000 or more of either of the Borrowers or any Subsidiary
(including,
without limitation, any required mandatory prepayment or "put" of such
Debt to either of the Borrowers or any Subsidiary) or enables (or, with
the giving of notice or lapse of time or both, would enable) the holders
of such Debt or commitment or any Person acting on such holders' behalf
to
accelerate the maturity thereof or terminate any such commitment
(including, without limitation, any required mandatory prepayment or
"put"
of such Debt to either of the Borrowers or any Subsidiary); or
(g) either of the Borrowers or any Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the
appointment of a trustee, receiver, liquidator, custodian or other
similar
official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced
against
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it, or shall make a general assignment for the benefit of creditors, or
shall fail generally, or shall admit in writing its inability, to pay
its
debts as they become due, or shall take any corporate action to
authorize
any of the foregoing; or
(h) an involuntary case or other proceeding shall be commenced
against either of the Borrowers or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property,
and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be
entered
against either of the Borrowers or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect; or
(i) either of the Borrowers or any member of the Controlled Group
shall fail to pay when due any material amount which it shall have
become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or
notice
of intent to terminate a Plan or Plans shall be filed under Title IV of
ERISA by either of the Borrowers, any member of the Controlled Group,
any
plan administrator or any combination of the foregoing; or the PBGC
shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans
to
enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not
have been dismissed within 30 days thereafter; or a condition shall
exist
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated; or either
of
the Borrowers or any other member of the Controlled Group shall enter
into, contribute or be obligated to contribute to, terminate or incur
any
withdrawal liability with respect to, a Multiemployer Plan; or
(j) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $500,000 shall be rendered against any
one,
or more or all of the Borrowers
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and the Subsidiaries unsatisfied and unstayed for a period
of 30 days; or
(k) a federal tax lien shall be filed against either of the
Borrowers or any Subsidiary under Section 6323 of the Code or a lien of
the PBGC shall be filed against either of the Borrowers or any
Subsidiary
under Section 4068 of ERISA and in either case such lien shall remain
undischarged for a period of 25 days after the date of filing; or
(l) (i) any Person or two or more Persons acting in concert shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act
of 1934) of 20% or more of the outstanding shares of the voting stock of
SEDH; or (ii) as of any date a majority of the Board of Directors of
SEDH
consists of individuals who were not either (A) directors of SEDH as of
the corresponding date of the previous year, (B) selected or nominated
to
become directors by the Board of Directors of SEDH of which a majority
consisted of individuals described in clause (A), or (C) selected or
nominated to become directors by the Board of Directors of SEDH of which
a
majority consisted of individuals described in clause (A) and
individuals
described in clause (B); or
(m) there shall have occurred uninsured damage to, or loss, theft
or
destruction of, any part of the Collateral, occurring in one or more
incidents in which the cost of such uninsured Collateral exceeds
$500,000;
then, and in every such event, (i) the Agent shall, if requested by the
Required
Banks, by notice to the Borrowers terminate the Commitments and they shall
thereupon terminate, (ii) Wachovia may terminate its obligation to fund Swing
Loans, and (iii) the Agent shall, if requested by the Required Banks, by
notice
to the Borrowers declare the Notes, including the Swing Loan Note (in each
case
together with accrued interest thereon), and all other amounts payable
hereunder
and under the other Loan Documents, to be, and the Notes, including the Swing
Loan Note (in each case together with accrued interest thereon), and all other
amounts payable hereunder and under the other Loan Documents shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrowers
together with interest
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at the Default Rate accruing on the principal amount thereof from and after
the
date of such Event of Default; provided that if any Event of Default specified
in paragraph (g) or (h) above occurs with respect to either of the Borrowers,
without any notice to the Borrowers or any other act by the Agent or the
Banks,
the Commitments shall thereupon terminate and the Notes, including the Swing
Loan Note (in each case together with accrued interest thereon) and all other
amounts payable hereunder and under the other Loan Documents shall
automatically
and without notice become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrowers together with interest thereon at the Default Rate accruing on
the
principal amount thereof from and after the date of such Event of Default. In
addition, upon the occurrence of an Event of Default, to the extent of any
existing Letter of Credit Obligations, the Borrowers shall immediately deposit
with the Agent cash collateral in an amount equal to 105% of the aggregate
undrawn amount available under all outstanding Letters of Credit, which cash
collateral shall be set aside as a collateral reserve for payment of the
Reimbursement Obligations relating to Letters of Credit which are subsequently
funded. After all Letters of Credit have been canceled and all Reimbursement
Obligations have been satisfied, and the Agent has been reimbursed all amounts
funded by it with respect thereto, any balance remaining in said collateral
reserve may be applied to other amounts owed by the Borrowers hereunder, and,
if
none, shall be remitted to Borrowers. Notwithstanding the foregoing, the Agent
shall have available to it all other remedies under each Loan Document and at
law or equity, and shall exercise any one or all of them at the request of the
Required Banks.
SECTION 7.02. Notice of Default. The Agent shall give notice to
the
Borrowers of any Default under Section 7.01(c) promptly upon being requested
to
do so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE VIII
THE AGENT
SECTION 8.01. Appointment; Powers and Immunities. Each
Bank hereby irrevocably appoints and authorizes the Agent to act
as its agent hereunder and under the other Loan Documents with
such powers as are specifically delegated to the Agent by the
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terms hereof and thereof, together with such other powers as are reasonably
incidental thereto. The Agent: (a) shall have no duties or responsibilities
except as expressly set forth in this Agreement and the other Loan Documents,
and shall not by reason of this Agreement or any other Loan Document be a
trustee for any Bank; (b) shall not be responsible to the Banks for any
recitals, statements, representations or warranties contained in this
Agreement
or any other Loan Document, or in any certificate or other document referred
to
or provided for in, or received by any Bank under, this Agreement or any other
Loan Document, or for the validity, effectiveness, genuineness,
enforceability,
perfection, collectibility, or sufficiency of this Agreement or any other Loan
Document or any other document referred to or provided for herein or therein
or
for any failure by either of the Borrowers to perform any of its obligations
hereunder or thereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder or under any other Loan
Document
except to the extent requested by the Required Banks, and then only on terms
and
conditions satisfactory to the Agent, and (d) shall not be responsible for any
action taken or omitted to be taken by it hereunder or under any other Loan
Document or any other document or instrument referred to or provided for
herein
or therein or in connection herewith or therewith, except for its own gross
negligence or wilful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or
misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
The
provisions of this Article VIII are solely for the benefit of the Agent and
the
Banks, and the Borrowers shall not have any rights as a third party
beneficiary
of any of the provisions hereof. In performing its functions and duties under
this Agreement and under the other Loan Documents, the Agent shall act solely
as
agent of the Banks and does not assume and shall not be deemed to have assumed
any obligation towards or relationship of agency or trust with or for the
Borrowers. The duties of the Agent shall be ministerial and administrative in
nature, and the Agent shall not have by reason of this Agreement or any other
Loan Document a fiduciary relationship in respect of any Bank.
SECTION 8.02. Reliance by Agent. The Agent shall be entitled to
rely
upon any certification, notice or other communication (including any thereof
by
telephone, telecopier, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person
or
Persons, and upon advice and statements of legal counsel,
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independent accountants or other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Loan
Document,
the Agent shall in all cases be fully protected in acting, or in refraining
from
acting, hereunder and thereunder in accordance with instructions signed by the
Required Banks, and such instructions of the Required Banks in any action
taken
or failure to act pursuant thereto shall be binding on all of the Banks.
SECTION 8.03. Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default or an Event of Default (other than
the
nonpayment of principal of or interest on the Loans) unless the Agent has
received notice from a Bank or either of the Borrowers specifying such Default
or Event of Default and stating that such notice is a "Notice of Default". In
the event that the Agent receives such a notice of the occurrence of a Default
or an Event of Default, the Agent shall give prompt notice thereof to the
Banks.
The Agent shall give each Bank prompt notice of each nonpayment of principal
of
or interest on the Loans whether or not it has received any notice of the
occurrence of such nonpayment. The Agent shall (subject to Section 9.06) take
such action hereunder with respect to such Default or Event of Default as
shall
be directed by the Required Banks, provided that, unless and until the Agent
shall have received such directions, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests
of
the Banks.
SECTION 8.04. Rights of Agent and its Affiliates as a Bank. With
respect to the Loans made by the Agent and any Affiliate of the Agent,
Wachovia
in its capacity as a Bank hereunder and any Affiliate of the Agent or such
Affiliate in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though
Wachovia
were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include Wachovia in its individual capacity and
any
Affiliate of the Agent in its individual capacity. The Agent and any Affiliate
of the Agent may (without having to account therefor to any Bank) accept
deposits from, lend money to and generally engage in any kind of banking,
trust
or other business with either of the Borrowers (and any of the Borrowers'
Affiliates) as if Wachovia were not acting as the Agent, and the Agent and any
Affiliate of the Agent may accept fees and other consideration from the
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Borrowers (in addition to any agency fees and arrangement fees heretofore
agreed
to between the Borrowers and the Agent) for services in connection with this
Agreement or any other Loan Document or otherwise without having to account
for
the same to the Banks.
SECTION 8.05. Indemnification. Each Bank severally agrees to
indemnify the Agent, to the extent the Agent shall not have been reimbursed by
the Borrowers, ratably in accordance with its Commitment, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits,
costs, expenses (including, without limitation, counsel fees and
disbursements)
or disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising
out
of this Agreement or any other Loan Document or any other documents
contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby (excluding, unless an Event of Default has occurred and is continuing,
the normal administrative costs and expenses incident to the performance of
its
agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or any such other documents; provided that no Bank shall be liable for
any of the foregoing to the extent they arise from the gross negligence or
wilful misconduct of the Agent. If any indemnity furnished to the Agent for
any
purpose shall, in the opinion of the Agent, be insufficient or become
impaired,
the Agent may call for additional indemnity and cease, or not commence, to do
the acts indemnified against until such additional indemnity is furnished.
SECTION 8.06 Consequential Damages. THE AGENT SHALL NOT BE
RESPONSIBLE OR LIABLE TO ANY BANK, THE BORROWERS OR ANY OTHER PERSON OR ENTITY
FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
SECTION 8.07. Payee of Note Treated as Owner. The Agent may deem
and
treat the payee of any Note as the owner thereof for all purposes hereof
unless
and until a written notice of the assignment or transfer thereof shall have
been
filed with the Agent and the provisions of Section 10.08(c) have been
satisfied.
Any requests, authority or consent of any Person who at the time of making
such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of
that
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Note or of any Note or Notes issued in exchange therefor or replacement
thereof.
SECTION 8.08. Nonreliance on Agent and Other Banks. Each Bank
agrees
that it has, independently and without reliance on the Agent or any other
Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrowers and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent
or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Agent shall not be required to keep itself (or any Bank)
informed
as to the performance or observance by the Borrowers of this Agreement or any
of
the other Loan Documents or any other document referred to or provided for
herein or therein or to inspect the properties or books of the Borrowers or
any
other Person. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder or
under
the other Loan Documents, the Agent shall not have any duty or responsibility
to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Borrowers or any other Person (or any
of
their Affiliates) which may come into the possession of the Agent.
SECTION 8.09. Failure to Act. Except for action expressly required
of the Agent hereunder or under the other Loan Documents, the Agent shall in
all
cases be fully justified in failing or refusing to act hereunder and
thereunder
unless it shall receive further assurances to its satisfaction by the Banks of
their indemnification obligations under Section 8.05 against any and all
liability and expense which may be incurred by the Agent by reason of taking,
continuing to take, or failing to take any such action.
SECTION 8.10. Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent
may
resign at any time by giving notice thereof to the Banks and the Borrowers and
the Agent may be removed at any time with or without cause by the Required
Banks. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Banks and
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shall have accepted such appointment within 30 days after the retiring Agent's
notice of resignation or the Required Banks' removal of the retiring Agent,
then
the retiring Agent may, on behalf of the Banks, appoint a successor Agent. Any
successor Agent shall be a bank which has a combined capital and surplus of at
least $500,000,000. Upon the acceptance of any appointment as Agent hereunder
by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as
Agent,
the provisions of this Article VII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as
the Agent hereunder.
ARTICLE IX
CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 9.01. Basis for Determining Interest Rate
Inadequate or Unfair. If on or prior to the first day of any
Interest Period:
(a) the Agent determines that deposits in Dollars (in the
applicable
amounts) are not being offered in the relevant market for such Interest
Period, or
(b) the Required Banks advise the Agent that the London Interbank
Offered Rate, as determined by the Agent will not adequately and fairly
reflect the cost to such Banks of funding the relevant type of
Euro-Dollar
Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrowers and the Banks,
whereupon until the Agent notifies the Borrowers that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make
the type of Euro- Dollar Loans specified in such notice shall be suspended.
Unless the Borrowers notify the Agent at least 2 Domestic Business Days before
the date of any Borrowing of such type of Euro-Dollar Loans for which a Notice
of Borrowing has previously been given that it elects not to borrow on such
date, such Borrowing shall instead be made as a Base Rate Borrowing.
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SECTION 9.02. Illegality. If, after the date hereof, the adoption
of
any applicable law, rule or regulation, or any change therein or any existing
or
future law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable
agency charged with the interpretation or administration thereof (any such
agency being referred to as an "Authority" and any such event being referred
to
as a "Change of Law"), or compliance by any Bank (or its Lending Office) with
any request or directive (whether or not having the force of law) of any
Authority shall make it unlawful or impossible for any Bank (or its Lending
Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so
notify the Agent, the Agent shall forthwith give notice thereof to the other
Banks and the Borrowers, whereupon until such Bank notifies the Borrowers and
the Agent that the circumstances giving rise to such suspension no longer
exist,
the obligation of such Bank to make such type of Euro-Dollar Loans shall be
suspended. Before giving any notice to the Agent pursuant to this Section,
such
Bank shall designate a different Lending Office if such designation will avoid
the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such Bank shall determine that it
may
not lawfully continue to maintain and fund any of its outstanding Euro-Dollar
Loans to maturity and shall so specify in such notice, the Borrowers shall
immediately prepay in full the then outstanding principal amount of each
Euro-Dollar Loan of such Bank, together with accrued interest thereon and any
amount due such Bank pursuant to Section 9.05(a). Concurrently with prepaying
each such Euro-Dollar Loan, the Borrowers shall borrow a Base Rate Loan in an
equal principal amount from such Bank (on which interest and principal shall
be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Base Rate Loan.
SECTION 9.03. Increased Cost and Reduced Return. (a)
If after the date hereof, a Change of Law or compliance by any
Bank (or its Lending Office) with any request or directive
(whether or not having the force of law) of any Authority:
(i) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement included in an applicable
Euro-Dollar Reserve Percentage) against assets of, deposits
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with or for the account of, or credit extended by, any Bank
(or its Lending Office); or
(ii) shall impose on any Bank (or its Lending Office) or on the
United States market for the London interbank market or any other market
used as the basis for any Euro- Dollar Loan any other condition
affecting
its Euro-Dollar Loans, its Notes or its obligation to make Euro-Dollar
Loans;
and the result of any of the foregoing is to increase the cost to such Bank
(or
its Lending Office) of making or maintaining any Loan, or to reduce the amount
of any sum received or receivable by such Bank (or its Lending Office) under
this Agreement or under its Notes with respect thereto, by an amount deemed by
such Bank to be material, then, within 15 days after demand by such Bank (with
a
copy to the Agent), the Borrowers shall pay to such Bank such additional
amount
or amounts as will compensate such Bank for such increased cost or reduction;
provided, that the Borrowers shall have no liability for amounts related to
periods earlier than 90 days prior to the date of such written request.
(b) If any Bank shall have determined that after the date hereof
the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any request or
directive regarding capital adequacy (whether or not having the force of law)
of
any Authority, has or would have the effect of reducing the rate of return on
such Bank's capital as a consequence of its obligations hereunder to a level
below that which such Bank could have achieved but for such adoption, change
or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank, the Borrowers shall
pay
to such Bank such additional amount or amounts as will compensate such Bank
for
such reduction.
(c) Each Bank will promptly notify the Borrowers and the Agent of
any event of which it has knowledge, occurring after the date hereof, which
will
entitle such Bank to compensation pursuant to this Section and will designate
a
different Lending Office if such designation will avoid the need for, or
reduce
the amount of, such compensation and will not, in the judgment of
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such Bank, be otherwise disadvantageous to such Bank. A certificate of any
Bank
claiming compensation under this Section and setting forth the additional
amount
or amounts to be paid to it hereunder and calculations in reasonable detail
with
respect thereto shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
(d) The provisions of this Section 9.03 shall be applicable with
respect to any Participant, Assignee or other Transferee, and any calculations
required by such provisions shall be made based upon the circumstances of such
Participant, Assignee or other Transferee.
SECTION 9.04. Base Rate Loans or Other Euro-Dollar Loans
Substituted
for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make or
maintain any type of Euro- Dollar Loans has been suspended pursuant to Section
9.02 or (ii) any Bank has demanded compensation under Section 9.03, and the
Borrowers shall, by at least 5 Euro-Dollar Business Days' prior notice to such
Bank through the Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies the Borrowers
that
the circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as
Euro-Dollar Loans shall be made instead as Base Rate Loans, and
(b) after each of its Euro-Dollar Loans has been repaid, all
payments of principal which would otherwise be applied to repay such
Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead.
SECTION 9.05. Compensation. Upon the request of any Bank,
delivered
to the Borrowers and the Agent, the Borrowers shall pay to such Bank such
amount
or amounts as shall compensate such Bank for any loss, cost or expense
incurred
by such Bank as a result of:
(a) any payment or prepayment (pursuant to Section 2.09, 2.10,
7.01,
9.02 or otherwise) of a Euro-Dollar Loan on a date other than the last day of
an
Interest Period for such Loan; or
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(b) any failure by the Borrowers to prepay a Euro- Dollar Loan on
the date for such prepayment specified in the relevant notice of prepayment
hereunder; or
(c) any failure by the Borrowers to borrow a Euro- Dollar Loan on
the date for the Fixed Rate Borrowing specified in the applicable Notice of
Borrowing delivered pursuant to Section 2.02;
such compensation to include, without limitation, with respect to Euro-Dollar
Loans, an amount equal to the excess, if any, of (x) the amount of interest
which would have accrued on the amount so paid or prepaid or not prepaid or
borrowed for the period from the date of such payment, prepayment or failure
to
prepay or borrow to the last day of the then current Interest Period for such
Euro-Dollar Loan (or, in the case of a failure to prepay or borrow, the
Interest
Period for such Euro-Dollar Loan which would have commenced on the date of
such
failure to prepay or borrow) at the applicable rate of interest for such
Euro-Dollar Loan provided for herein over (y) the amount of interest (as
reasonably determined by such Bank) such Bank would have paid on deposits in
Dollars of comparable amounts having terms comparable to such period placed
with
it by leading banks in the London interbank market.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including
telecopier
or similar writing) and shall be given to such party at its address or
telecopier number set forth on the signature pages hereof or such other
address
or telecopier number as such party may hereafter specify for the purpose by
notice to each other party. Each such notice, request or other communication
shall be effective (i) if given by telecopier, when such telecopy is
transmitted
to the telecopier number specified in this Section and the confirmation is
received, (ii) if given by mail, 72 hours after such communication is
deposited
in the mail with first class postage prepaid, addressed as aforesaid or (iii)
if
given by any other means, when delivered at the address specified in this
Section; provided that notices to the Agent
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under Article II or Article X shall not be effective until
received.
SECTION 10.02. No Waivers. No failure or delay by the Agent or any
Bank in exercising any right, power or privilege hereunder or under any Note
or
other Loan Document shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.03. Expenses; Documentary Taxes. The Borrowers shall
pay
(i) all reasonable out-of-pocket expenses incurred by the Agent, including
reasonable fees and disbursements of special outside counsel for the Banks and
the Agent, in connection with the preparation of this Agreement and the other
Loan Documents, any waiver or consent hereunder or thereunder or any amendment
hereof or thereof or any Default or alleged Default hereunder or thereunder
and
(ii) if a Default occurs, all reasonable out-of-pocket expenses incurred by
the
Agent and the Banks, including reasonable fees and disbursements of counsel
(including allocated costs of inside counsel for any Bank which does not use
outside counsel), in connection with such Default and collection and other
enforcement proceedings resulting therefrom, including out-of-pocket expenses
incurred in enforcing this Agreement and the other Loan Documents. The
Borrowers
shall indemnify the Agent and each Bank against any transfer taxes,
documentary
taxes, assessments or charges made by any Authority by reason of the execution
and delivery of this Agreement or the other Loan Documents.
SECTION 10.04. Indemnification. The Borrowers shall indemnify the
Agent, the Banks and each Affiliate thereof and their respective directors,
officers, employees and agents from, and hold each of them harmless against,
any
and all losses, liabilities, claims or damages to which any of them may become
subject, insofar as such losses, liabilities, claims or damages arise out of
or
result from any actual or proposed use by the Borrowers of the proceeds of any
extension of credit by any Bank hereunder or breach by either of the Borrowers
of this Agreement or any other Loan Document or from any investigation,
litigation (including, without limitation, any actions taken by the Agent or
any
of the Banks to enforce this Agreement or any of the other Loan Documents) or
other proceeding (including, without
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limitation, any threatened investigation or proceeding) relating to the
foregoing, and the Borrowers shall reimburse the Agent and each Bank, and each
Affiliate thereof and their respective directors, officers, employees and
agents, upon demand for any expenses (including, without limitation, legal
fees)
incurred in connection with any such investigation or proceeding; but
excluding
any such losses, liabilities, claims, damages or expenses incurred by reason
of
the gross negligence or wilful misconduct of the Person to be indemnified.
SECTION 10.05. Setoff; Sharing of Setoffs. (a) Each of the
Borrowers
hereby grants to the Agent and each Bank a lien for all indebtedness and
obligations owing to them from the Borrowers upon all deposits or deposit
accounts, of any kind, or any interest in any deposits or deposit accounts
thereof, now or hereafter pledged, mortgaged, transferred or assigned to the
Agent or any such Bank or otherwise in the possession or control of the Agent
or
any such Bank for any purpose for the account or benefit of either of the
Borrowers and including any balance of any deposit account or of any credit of
either of the Borrowers with the Agent or any such Bank, whether now existing
or
hereafter established hereby authorizing the Agent and each Bank at any time
or
times with or without prior notice to apply such balances or any part thereof
to
such of the indebtedness and obligations owing by either of the Borrowers to
the
Banks and/or the Agent then past due and in such amounts as they may elect,
and
whether or not the collateral, if any, or the responsibility of other Persons
primarily, secondarily or otherwise liable may be deemed adequate. For the
purposes of this paragraph, all remittances and property shall be deemed to be
in the possession of the Agent or any such Bank as soon as the same may be put
in transit to it by mail or carrier or by other bailee.
(b) Each Bank agrees that if it shall, by exercising any right of
setoff or counterclaim or resort to collateral security or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest
owing
with respect to the Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of all principal
and interest owing with respect to the Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks owing to such other Banks,
and such other adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Notes held
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by the Banks owing to such other Banks shall be shared by the Banks pro rata;
provided that (i) nothing in this Section shall impair the right of any Bank
to
exercise any right of setoff or counterclaim it may have and to apply the
amount
subject to such exercise to the payment of indebtedness of the Borrowers other
than its indebtedness under the Notes, and (ii) if all or any portion of such
payment received by the purchasing Bank is thereafter recovered from such
purchasing Bank, such purchase from each other Bank shall be rescinded and
such
other Bank shall repay to the purchasing Bank the purchase price of such
participation to the extent of such recovery together with an amount equal to
such other Bank's ratable share (according to the proportion of (x) the amount
of such other Bank's required repayment to (y) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by
the
purchasing Bank in respect of the total amount so recovered. The Borrowers
agree, to the fullest extent it may effectively do so under applicable law,
that
any holder of a participation in a Note, whether or not acquired pursuant to
the
foregoing arrangements, may exercise rights of setoff or counterclaim and
other
rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of the Borrowers in the amount of such
participation.
SECTION 10.06. Amendments and Waivers. (a) Any provision of this
Agreement, the Notes or any other Loan Documents may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed by the
Borrowers and the Required Banks (and, if the rights or duties of the Agent
are
affected thereby, by the Agent); provided that, no such amendment or waiver
shall, unless signed by all Banks, (i) change the Commitment of any Bank or
subject any Bank to any additional obligation, (ii) change the principal of or
rate of interest on any Loan or any fees (other than fees payable to the
Agent)
hereunder, (iii) change the date fixed for any payment of principal of or
interest on any Loan or any fees hereunder, (iv) change the amount of
principal,
interest or fees due on any date fixed for the payment thereof, (v) change the
percentage of the Commitments or of the aggregate unpaid principal amount of
the
Notes, or the percentage of Banks, which shall be required for the Banks or
any
of them to take any action under this Section or any other provision of this
Agreement, (vi) change the manner of application of any payments made under
this
Agreement or the Notes, (vii) release or substitute all or any substantial
part
of
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the collateral (if any) held as security for the Loans, or (viii) release any
Guarantee given to support payment of the Loans.
(b) The Borrowers will not solicit, request or negotiate for or
with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement unless each Bank shall be informed thereof by the Borrowers and
shall
be afforded an opportunity of considering the same and shall be supplied by
the
Borrowers with sufficient information to enable it to make an informed
decision
with respect thereto. Executed or true and correct copies of any waiver or
consent effected pursuant to the provisions of this Agreement shall be
delivered
by the Borrowers to each Bank forthwith following the date on which the same
shall have been executed and delivered by the requisite percentage of Banks.
The
Borrowers will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any Bank (in its capacity as such) as consideration for or as an
inducement to the entering into by such Bank of any waiver or amendment of any
of the terms and provisions of this Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to all such Banks.
SECTION 10.07. No Margin Stock Collateral. Each of the Banks
represents to the Agent and each of the other Banks that it in good faith is
not, directly or indirectly (by negative pledge or otherwise), relying upon
any
Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.
SECTION 10.08. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that the Borrowers may
not
assign or otherwise transfer any of their respective rights under this
Agreement.
(b) Any Bank may at any time sell to one or more Persons (each a
"Participant") participating interests in any Loan owing to such Bank, any
Note
held by such Bank, any Commitment hereunder or any other interest of such Bank
hereunder. In the event of any such sale by a Bank of a participating interest
to a Participant, such Bank's obligations under this Agreement shall remain
unchanged, such Bank shall remain solely responsible for the performance
thereof, such Bank
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shall remain the holder of any such Note for all purposes under this
Agreement,
and the Borrowers and the Agent shall continue to deal solely and directly
with
such Bank in connection with such Bank's rights and obligations under this
Agreement. In no event shall a Bank that sells a participation be obligated to
the Participant to take or refrain from taking any action hereunder except
that
such Bank may agree that it will not (except as provided below), without the
consent of the Participant, agree to (i) the change of any date fixed for the
payment of principal of or interest on the related loan or loans, (ii) the
change of the amount of any principal, interest or fees due on any date fixed
for the payment thereof with respect to the related loan or loans, (iii) the
change of the principal of the related loan or loans, (iv) any change in the
rate at which either interest is payable thereon or (if the Participant is
entitled to any part thereof) fee is payable hereunder from the rate at which
the Participant is entitled to receive interest or fee (as the case may be) in
respect of such participation, (v) the release or substitution of all or any
substantial part of the collateral (if any) held as security for the Loans, or
(vi) the release of any Guarantee given to support payment of the Loans. Each
Bank selling a participating interest in any Loan, Note, Commitment or other
interest under this Agreement, within 10 Domestic Business Days of such sale,
shall provide the Borrowers and the Agent with written notification stating
that
such sale has occurred and identifying the Participant and the interest
purchased by such Participant. The Borrowers agree that each Participant shall
be entitled to the benefits of Article IX with respect to its participation in
Loans outstanding from time to time.
(c) Any Bank may at any time assign to one or more banks or
financial institutions (each an "Assignee") all or a proportionate part of its
rights and obligations under this Agreement, the Notes and the other Loan
Documents, and such Assignee shall assume all such rights and obligations,
pursuant to an Assignment and Acceptance, executed by such Assignee, such
transferor Bank and the Agent (and, in the case of an Assignee that is not
then
a Bank, subject to clause (iii) below, by the Borrowers); provided that (i) no
interest may be sold by a Bank pursuant to this paragraph (c) unless the
Assignee shall agree to assume ratably equivalent portions of the transferor
Bank's Commitment, (ii) if a Bank is assigning only a portion of its
Commitment,
then, the amount of the Commitment being assigned (determined as of the
effective date of the assignment) shall be in an amount not less than
$5,000,000, (iii) except during the
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continuance of a Default, no interest may be sold by a Bank pursuant to this
paragraph (c) to any Assignee that is not then a Bank (or an Affiliate of a
Bank) without the consent of the Borrowers and the Agent, which consent shall
not be unreasonably withheld, and (iv) a Bank may not have more than 2
Assignees
that are not then Banks at any one time. Upon (A) execution of the Assignment
and Acceptance by such transferor Bank, such Assignee, the Agent and (if
applicable) the Borrowers, (B) delivery of an executed copy of the Assignment
and Acceptance to the Borrowers and the Agent, (C) payment by such Assignee to
such transferor Bank of an amount equal to the purchase price agreed between
such transferor Bank and such Assignee, and (D) payment of a processing and
recordation fee of $2,500 to the Agent, such Assignee shall for all purposes
be
a Bank party to this Agreement and shall have all the rights and obligations
of
a Bank under this Agreement to the same extent as if it were an original party
hereto with a Commitment as set forth in such instrument of assumption, and
the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by the Borrowers, the
Banks or the Agent shall be required. Upon the consummation of any transfer to
an Assignee pursuant to this paragraph (c), the transferor Bank, the Agent and
the Borrowers shall make appropriate arrangements so that, if required, a new
Note is issued to each of such Assignee and such transferor Bank.
Notwithstanding the foregoing, the Commitments of and Loans made by National
City Bank of Columbus hereunder may be assigned by it to one of its Affiliates
and such assignment (i) may be made without consent by either Borrower, the
Agent or any Bank, and (ii) shall not be subject to the $2,500 processing and
recordation fee described in this paragraph (c).
(d) Subject to the provisions of Section 10.09, the Borrowers
authorize each Bank to disclose to any Participant, Assignee or other
transferee
(each a "Transferee") and any prospective Transferee any and all financial
information in such Bank's possession concerning the Borrowers which has been
delivered to such Bank by the Borrowers pursuant to this Agreement or which
has
been delivered to such Bank by the Borrowers in connection with such Bank's
credit evaluation prior to entering into this Agreement.
(e) No Transferee shall be entitled to receive any greater payment
under Section 10.03 than the transferor Bank would have been entitled to
receive
with respect to the rights
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transferred, unless such transfer is made with the Borrowers' prior written
consent or by reason of the provisions of Section 9.02 or 9.03 requiring such
Bank to designate a different Lending Office under certain circumstances or at
a
time when the circumstances giving rise to such greater payment did not exist.
(f) Anything in this Section 10.08 to the contrary
notwithstanding,
any Bank may assign and pledge all or any portion of the Loans and/or
obligations owing to it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank, provided that any payment in respect of such
assigned
Loans and/or obligations made by the Borrowers to the assigning and/or
pledging
Bank in accordance with the terms of this Agreement shall satisfy the
Borrowers'
obligations hereunder in respect of such assigned Loans and/or obligations to
the extent of such payment. No such assignment shall release the assigning
and/or pledging Bank from its obligations hereunder.
SECTION 10.09. Confidentiality. Each Bank agrees to exercise
commercially reasonable efforts to keep any information delivered or made
available by the Borrowers to it which is clearly indicated to be confidential
information, confidential from anyone other than persons employed or retained
by
such Bank who are or are expected to become engaged in evaluating, approving,
structuring or administering the Loans; provided that nothing herein shall
prevent any Bank from disclosing such information (i) to any other Bank, (ii)
upon the order of any court or administrative agency, (iii) upon the request
or
demand of any regulatory agency or authority having jurisdiction over such
Bank,
(iv) which has been publicly disclosed, (v) to the extent reasonably required
in
connection with any litigation to which the Agent, any Bank or their
respective
Affiliates may be a party, (vi) to the extent reasonably required in
connection
with the exercise of any remedy hereunder, (vii) to such Bank's legal counsel
and independent auditors and (viii) to any actual or proposed Participant,
Assignee or other Transferee of all or part of its rights hereunder which has
agreed in writing to be bound by the provisions of this Section 10.09;
provided
that should disclosure of any such confidential information be required by
virtue of clause (ii) of the immediately preceding sentence, to the extent
permitted by law, any relevant Bank shall promptly notify the Borrowers of
same
so as to allow the Borrowers to seek a protective order or to take any other
appropriate action;
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provided, further, that, no Bank shall be required to delay compliance with
any
directive to disclose any such information so as to allow the Borrowers to
effect any such action.
SECTION 10.10. Representation by Banks. Each Bank hereby
represents
that it is a commercial lender or financial institution which makes loans in
the
ordinary course of its business and that it will make its Loans hereunder for
its own account in the ordinary course of such business; provided that,
subject
to Section 10.08, the disposition of the Note or Notes held by that Bank shall
at all times be within its exclusive control.
SECTION 10.11. Obligations Several. The obligations of each Bank
hereunder are several, and no Bank shall be responsible for the obligations or
commitment of any other Bank hereunder. Nothing contained in this Agreement
and
no action taken by the Banks pursuant hereto shall be deemed to constitute the
Banks to be a partnership, an association, a joint venture or any other kind
of
entity. The amounts payable at any time hereunder to each Bank shall be a
separate and independent debt, and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement or any other Loan Document
and
it shall not be necessary for any other Bank to be joined as an additional
party
in any proceeding for such purpose.
SECTION 10.12. Georgia Law. This Agreement and each
Note shall be construed in accordance with and governed by the
law of the State of Georgia.
SECTION 10.13. Severability. In case any one or more of the
provisions contained in this Agreement, the Notes or any of the other Loan
Documents should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby and
shall be enforced to the greatest extent permitted by law.
SECTION 10.14. Interest. In no event shall the amount of interest,
and all charges, amounts or fees contracted for, charged or collected pursuant
to this Agreement, the Notes or the other Loan Documents and deemed to be
interest under applicable law (collectively, "Interest") exceed the highest
rate
of interest allowed by applicable law (the "Maximum Rate"), and in the event
any
such payment is inadvertently received by any Bank,
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then the excess sum (the "Excess") shall be credited as a payment of
principal,
unless the Borrowers shall notify such Bank in writing that it elects to have
the Excess returned forthwith. It is the express intent hereof that the
Borrowers not pay and the Banks not receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may legally be paid by the
Borrowers under applicable law. The right to accelerate maturity of any of the
Loans does not include the right to accelerate any interest that has not
otherwise accrued on the date of such acceleration, and the Agent and the
Banks
do not intend to collect any unearned interest in the event of any such
acceleration. All monies paid to the Agent or the Banks hereunder or under any
of the Notes or the other Loan Documents, whether at maturity or by
prepayment,
shall be subject to rebate of unearned interest as and to the extent required
by
applicable law. By the execution of this Agreement, the Borrowers covenant, to
the fullest extent permitted by law, that (i) the credit or return of any
Excess
shall constitute the acceptance by the Borrowers of such Excess, and (ii) the
Borrowers shall not seek or pursue any other remedy, legal or equitable ,
against the Agent or any Bank, based in whole or in part upon contracting for
charging or receiving any Interest in excess of the Maximum Rate. For the
purpose of determining whether or not any Excess has been contracted for,
charged or received by the Agent or any Bank, all interest at any time
contracted for, charged or received from the Borrowers in connection with this
Agreement, the Notes or any of the other Loan Documents shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of the Commitments. The Borrowers, the
Agent and each Bank shall, to the maximum extent permitted under applicable
law,
(i) characterize any non- principal payment as an expense, fee or premium
rather
than as Interest and (ii) exclude voluntary prepayments and the effects
thereof.
The provisions of this Section shall be deemed to be incorporated into each
Note
and each of the other Loan Documents (whether or not any provision of this
Section is referred to therein). All such Loan Documents and communications
relating to any Interest owed by the Borrowers and all figures set forth
therein
shall, for the sole purpose of computing the extent of obligations hereunder
and
under the Notes and the other Loan Documents be automatically recomputed by
the
Borrowers, and by any court considering the same, to give effect to the
adjustments or credits required by this Section.
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<PAGE>
SECTION 10.15. Interpretation. No provision of this Agreement or
any
of the other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or
judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
SECTION 10.16. Waiver of Jury Trial; Consent to Jurisdiction. Each
of the Borrowers (a) and each of the Banks and the Agent irrevocably waives,
to
the fullest extent permitted by law, any and all right to trial by jury in any
legal proceeding arising out of this Agreement, any of the other Loan
Documents,
or any of the transactions contemplated hereby or thereby, (b) submits to the
nonexclusive personal jurisdiction in the State of Georgia, the courts thereof
and the United States District Courts sitting therein, for the enforcement of
this Agreement, the Notes and the other Loan Documents, (c) waives any and all
personal rights under the law of any jurisdiction to object on any basis
(including, without limitation, inconvenience of forum) to jurisdiction or
venue
within the State of Georgia for the purpose of litigation to enforce this
Agreement, the Notes or the other Loan Documents, and (d) agrees that service
of
process may be made upon it in the manner prescribed in Section 10.01 for the
giving of notice to the Borrowers. Nothing herein contained, however, shall
prevent the Agent from bringing any action or exercising any rights against
any
security and against the Borrowers personally, and against any assets of the
Borrowers, within any other state or jurisdiction.
SECTION 10.17. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 10.18. Source of Funds -- ERISA. Each of the Banks hereby
severally (and not jointly) represents to the Borrowers that no part of the
funds to be used by such Bank to fund the Loans hereunder from time to time
constitutes (i) assets allocated to any separate account maintained by such
Bank
in which any employee benefit plan (or its related trust) has any interest nor
(ii) any other assets of any employee benefit plan. As used in this Section,
the
terms "employee benefit plan" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to
be duly executed, under seal, by their respective authorized officers as of
the
day and year first above written.
SED INTERNATIONAL HOLDINGS, INC. (SEAL)
By:
Title:
SED INTERNATIONAL, INC. (SEAL)
By:
Title:
SED International Holdings, Inc.
SED International, Inc.
4916 North Royal Atlanta Drive
Tucker, Georgia 30084
Attention: Larry G. Ayers,
Vice President-Finance
Telecopier number: 770-938-2414
Confirmation number: 770-491-8692
AT: 1030545v10
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<PAGE>
COMMITMENTS WACHOVIA BANK, N.A.,
as Agent and as a Bank (SEAL)
$50,000,000
By:
Title:
Lending Office
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Commercial Group
Telecopier number: 404-332-6920
Confirmation number: 404-332-5269
TOTAL COMMITMENTS:
$50,000,000
AT: 1030545v10
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<PAGE>
EXHIBIT
A-1
AMENDED AND RESTATED SYNDICATED LOAN NOTE
Atlanta, Georgia
August 31, 1999
For value received, SED INTERNATIONAL HOLDINGS, INC.
and SED INTERNATIONAL, INC., each a Georgia corporation, jointly
and severally (individually and collectively, as the context
shall require, the "Borrowers"), promise to pay to the order of
(the
"Bank"), for the account of its Lending Office, the principal sum of MILLION
AND
NO/100 DOLLARS ($ ), or such lesser amount as shall equal the unpaid principal
amount of each Syndicated Loan made by the Bank to the Borrowers pursuant to
the
Credit Agreement referred to below, on the dates and in the amounts provided
in
the Credit Agreement. The Borrower promises to pay interest on the unpaid
principal amount of this Syndicated Loan Note on the dates and at the rate or
rates provided for in the Credit Agreement. Interest on any overdue principal
of
and, to the extent permitted by law, overdue interest on the principal amount
hereof shall bear interest at the Default Rate, as provided for in the Credit
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of Wachovia Bank, N.A., 191 Peachtree Street, N.E., Atlanta,
Georgia
30303-1757, or such other address as may be specified from time to time
pursuant
to the Credit Agreement.
All Loans made by the Bank, the respective maturities thereof, the
interest rates from time to time applicable thereto, and all repayments of the
principal thereof shall be recorded by the Bank and, prior to any transfer
hereof, endorsed by the Bank on the schedule attached hereto, or on a
continuation of such schedule attached to and made a part hereof; provided
that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the Borrowers hereunder or under the Credit
Agreement.
This Syndicated Loan Note is one of the Syndicated Loan Notes
referred to in the Second Amended and Restated Credit Agreement dated as of
even
date herewith among the Borrowers, the
AT: 1030545v10
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<PAGE>
Banks listed on the signature pages thereof and Wachovia Bank, N.A., as Agent
(as the same may be amended and modified from time to time, the "Credit
Agreement"), and amends and restates that certain Syndicated Loan Note dated
as
of August 13, 1997 issued by the Borrowers payable to the order of the Bank.
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the optional and
mandatory prepayment and the repayment hereof and the acceleration of the
maturity hereof, as well as the obligation of the Borrower to pay all costs of
collection, including reasonable attorneys fees, in the event this Syndicated
Loan Note is collected by law or through an attorney at law.
The Borrowers hereby waive presentment, demand, protest, notice of
demand, protest and nonpayment and any other notice required by law relative
hereto, except to the extent as otherwise may be expressly provided for in the
Credit Agreement.
IN WITNESS WHEREOF, the Borrowers have caused this Syndicated Loan
Note to be duly executed, under seal, by their respective duly authorized
officers as of the day and year first above written.
SED INTERNATIONAL HOLDINGS, INC. (SEAL)
By:
Title:
SED INTERNATIONAL, INC. (SEAL)
By:
Title:
AT: 1030545v10
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<PAGE>
Amended and Restated Syndicated Loan Note (cont'd)
SYNDICATED LOANS AND PAYMENTS OF PRINCIPAL
Base Rate Amount Amount of
or Euro- of Principal Maturity Notation
Date Dollar Loan Loan Repaid Date Made By
AT: 1030545v10
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<PAGE>
EXHIBIT
A-2
AMENDED AND RESTATED SWING LOAN NOTE
Atlanta, Georgia
August 31, 1999
For value received, SED INTERNATIONAL HOLDINGS, INC. and SED
INTERNATIONAL, INC., each a Georgia corporation, jointly and severally
(individually and collectively, as the context shall require, the
"Borrowers"),
promise to pay to the order of WACHOVIA BANK, N.A., a national banking
association (the "Bank"), for the account of its Lending Office, the principal
sum of FIVE MILLION and No/100 Dollars ($5,000,000), or such lesser amount as
shall equal the unpaid principal amount of each Swing Loan made by the Bank to
the Borrowers pursuant to the Credit Agreement referred to below, on the dates
and in the amounts provided in the Credit Agreement. The Borrower promises to
pay interest on the unpaid principal amount of this Swing Loan Note at the
rate
provided for Base Rate Loans on the dates provided for in the Credit
Agreement.
Interest on any overdue principal of and, to the extent permitted by law,
overdue interest on the principal amount hereof shall bear interest at the
Default Rate, as provided for in the Credit Agreement. All such payments of
principal and interest shall be made in lawful money of the United States in
Federal or other immediately available funds at the office of Wachovia Bank,
N.A., 191 Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such other
address as may be specified from time to time pursuant to the Credit
Agreement.
All Swing Loans made by the Bank, the respective maturities
thereof,
and all repayments of the principal thereof shall be recorded by the Bank and,
prior to any transfer hereof, endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or
under
the Credit Agreement.
This Swing Loan Note is the Swing Loan Note referred to in the
Second
Amended and Restated Credit Agreement dated as of even date herewith among the
Borrowers, the Banks listed on the signature pages thereof and Wachovia Bank,
N.A., as Agent (as the same may be amended and modified from time to time, the
"Credit
AT: 1030545v10
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<PAGE>
Agreement"), and amends and restates that certain Swing Loan Note dated as of
August 13, 1997 issued by the Borrowers payable to the order of the Bank.
Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the optional and
mandatory prepayment and the repayment hereof and the acceleration of the
maturity hereof.
IN WITNESS WHEREOF, the Borrowers have caused this Swing Loan Note
to
be duly executed, under seal, by their respective duly authorized officers as
of
the day and year first above written.
SED INTERNATIONAL HOLDINGS, INC. (SEAL)
By:
Title:
SED INTERNATIONAL, INC. (SEAL)
By:
Title:
AT: 1030545v10
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<PAGE>
Amended and Restated Swing Loan Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
Amount Amount of
of Principal Maturity Notation
Date Loan Repaid Date Made By
AT: 1030545v10
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<PAGE>
EXHIBIT
B
OPINION OF LONG, ALDRIDGE & NORMAN
SPECIAL COUNSEL FOR THE BORROWERS
[Dated as provided in
Section 4.01 of the Credit
Agreement]
To the Banks and the Agent
Referred to Below
c/o Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn: Commercial Group
[to be provided in substantially the same
form as delivered for the Existing Credit Agreement]
AT: 1030545v10
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<PAGE>
EXHIBIT
C
OPINION OF
JONES, DAY, REAVIS & POGUE, SPECIAL COUNSEL
FOR THE AGENT
[Dated as provided in
Section 4.01 of the Credit
Agreement]
To the Banks and the Agent
Referred to Below
c/o Wachovia Bank, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn: Commercial Group
Dear Sirs:
We have participated in the preparation of the Second Amended and
Restated Credit Agreement (the "Credit Agreement") dated as of August 31,
1999,
among SED International Holdings, Inc. and SED International, Inc., each a
Georgia corporation (individually and collectively, as the context requires,
the
"Borrowers"), the banks listed on the signature pages thereof (the "Banks")
and
Wachovia Bank, N.A., as Agent (the "Agent"), and have acted as special counsel
for the Agent for the purpose of rendering this opinion pursuant to Section
4.01(e) of the Credit Agreement. Terms defined in the Credit Agreement are
used
herein as therein defined.
This opinion letter is limited by, and is in accordance with, the
January 1, 1992 edition of the Interpretive Standards applicable to Legal
Opinions to Third Parties in Corporate Transactions adopted by the Legal
Opinion
Committee of the Corporate and Banking Law Section of the State Bar of Georgia
which Interpretive Standards are incorporated herein by this reference.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact
AT: 1030545v10
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<PAGE>
and law as we have deemed necessary or advisable for purposes of
this opinion.
Upon the basis of the foregoing, and assuming the due
authorization,
execution and delivery of the Credit Agreement, each of the Notes and each of
the Letter of Credit Application Agreements by or on behalf of the Borrowers,
we
are of the opinion that the Credit Agreement and the Notes constitute, and
upon
execution and delivery thereof, each Letter of Credit Application Agreement
will
constitute, a valid and binding obligations of each Borrower which is a party
thereto, in each case enforceable in accordance with its terms except as: (i)
the enforceability thereof may be affected by bankruptcy, insolvency,
reorganization, fraudulent conveyance, voidable preference, moratorium or
similar laws applicable to creditors' rights or the collection of debtors'
obligations generally; (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability; and (iii) the enforceability of certain of the remedial, waiver
and other provisions of the Credit Agreement and the Notes may be further
limited by the laws of the State of Georgia; provided that such additional
laws
do not, in our opinion, substantially interfere with the practical realization
of the benefits expressed in the Credit Agreement, the Notes and the Letter of
Credit Application Agreements, except for the economic consequences of any
procedural delay which may result from such laws.
In giving the foregoing opinion, we express no opinion as to the
effect (if any) of any law of any jurisdiction except the State of Georgia. We
express no opinion as to the effect of the compliance or noncompliance of the
Agent or any of the Banks with any state or federal laws or regulations
applicable to the Agent or any of the Banks by reason of the legal or
regulatory
status or the nature of the business of the Agent or any of the Banks.
This opinion is delivered to you in connection with the transaction
referenced above and may only be relied upon by you and any Assignee,
Participant or other Transferee under the Credit Agreement without our prior
written consent.
Very truly yours,
AT: 1030545v10
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<PAGE>
EXHIBIT
D
ASSIGNMENT AND ACCEPTANCE
Dated , 19
Reference is made to the Second Amended and Restated Credit
Agreement
dated as of August 31, 1999 (together with all amendments and modifications
thereto, the "Credit Agreement") among SED International Holdings, Inc. and
SED
International, Inc., each a Georgia corporation (individually and
collectively,
as the context shall require, the "Borrowers"), the Banks (as defined in the
Credit Agreement) and Wachovia Bank, N.A., as Agent (the "Agent"). Terms
defined
in the Credit Agreement are used herein with the same meaning.
(the
"Assignor") and (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse to the Assignor, and the Assignee hereby purchases and assumes from
the
Assignor, a % interest in and to all of the Assignor's rights and obligations
under the Credit Agreement as of the Effective Date (as defined below)
(including, without limitation, a % interest (which on the Effective Date
hereof
is $__________) in the Assignor's Commitment and a interest (which on the
Effective Date hereof is $ ) in the Syndicated Loans [and Swing Loans] owing
to
the Assignor and a % interest in the Note[s] held by the Assignor (which on
the
Effective Date hereof is
$----------).
2. The Assignor (i) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto,
other
than that it is the legal and beneficial owner of the interest being assigned
by
it hereunder, that such interest is free and clear of any adverse claim and
that
as of the date hereof its Commitment (without giving effect to assignments
thereof which have not yet become effective) is
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<PAGE>
$__________ and the aggregate outstanding principal amount of Syndicated Loans
[and Swing Loans] owing to it (without giving effect to assignments thereof
which have not yet become effective) is $ ; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrowers or the performance or observance by the Borrowers of any of
their obligations under the Credit Agreement or any other instrument or
document
furnished pursuant thereto; and (iii) attaches the Note[s] referred to in
paragraph 1 above and requests that the Agent exchange such Note[s] for [a new
Syndicated Loan Note from each Borrower dated
, in the principal amount of $__________ payable to the order of
the Assignee and a new Swing Loan Note from each Borrower dated ___________,
____ in the principal amount of $______________ payable to the order of the
Assignee] [new Notes as follows: a (i) Syndicated Loan Note from each Borrower
dated , in the principal amount of $ payable to the order of the Assignor (ii)
Syndicated Loan Note from each Borrower dated , in the principal amount of $
payable to the order of the Assignee, and (iii) and a new Swing Loan Note from
each Borrower dated ___________, ____ in the principal amount of
$______________
payable to the order of the Assignee].
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 5.04(a) (or any more recent financial statements of the Borrowers
delivered pursuant to Section 6.01(a) or (b)) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (ii) agrees that it
will,
independently and without reliance upon the Agent, the Assignor or any other
Bank and based on such documents and information as it shall deem appropriate
at
the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement; (iii) confirms that it is a bank or
financial
institution; (iv) appoints and authorizes the Agent to take such action as
agent
on its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; (vi) specifies as its
Lending Office (and address for notices) the office set forth
AT: 1030545v10
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<PAGE>
beneath its name on the signature pages hereof, (vii) represents and warrants
that the execution, delivery and performance of this Assignment and Acceptance
are within its corporate powers and have been duly authorized by all necessary
corporate action, (viii) makes the representation and warranty contained in
Section 10.18 of the Credit Agreement[, and (ix) attaches the forms prescribed
by the Internal Revenue Service of the United States certifying as to the
Assignee's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to the Assignee
under
the Credit Agreement and the Notes or such other documents as are necessary to
indicate that all such payments are subject to such taxes at a rate reduced by
an applicable tax treaty].
4. The Effective Date for this Assignment and Acceptance shall be ,
19 (the "Effective Date"). Following the execution of this Assignment and
Acceptance, it will be delivered to the Agent for execution and acceptance by
the Agent and [IF REQUIRED BY THE CREDIT AGREEMENT] to the Borrowers for
execution by the Borrowers.
5. Upon such execution and acceptance by the Agent [and execution
by
the Borrowers] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement and,
to the extent rights and obligations have been transferred to it by this
Assignment and Acceptance, have the rights and obligations of a Bank
thereunder
and (ii) the Assignor shall, to the extent its rights and obligations have
been
transferred to the Assignee by this Assignment and Acceptance, relinquish its
rights (other than under Sections 8.03, 9.03 and 9.04 of the Credit Agreement)
and be released from its obligations under the Credit Agreement.
6. Upon such execution and acceptance by the Agent [and execution
by
the Borrowers] [IF REQUIRED BY THE CREDIT AGREEMENT], from and after the
Effective Date, the Agent shall make all payments in respect of the interest
assigned hereby to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to such acceptance by
the
Agent directly between themselves.
AT: 1030545v10
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<PAGE>
7. This Assignment and Acceptance shall be governed by, and
construed
in accordance with, the laws of the State of Georgia.
[NAME OF ASSIGNOR]
By:
Title:
[NAME OF ASSIGNEE]
By:
Title:
Lending Office:
[Address]
WACHOVIA BANK, N.A.,
As Agent
By:
Title:
SED INTERNATIONAL HOLDINGS, INC.
IF REQUIRED BY THE CREDIT AGREEMENT
By:
Title:
SED INTERNATIONAL, INC.
IF REQUIRED BY THE CREDIT AGREEMENT
By:
Title:
AT: 1030545v10
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<PAGE>
EXHIBIT
E
NOTICE OF BORROWING
, 199
Wachovia Bank, N.A., as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Commercial Group
Re: Second Amended and Restated Credit Agreement (as amended and
modified from time to time, the "Credit Agreement") dated as of
August 31, 1999 by and among SED International Holdings, Inc. and
SED International, Inc., as the Borrowers, the Banks from time to
time parties thereto, and Wachovia Bank, N.A., as Agent.
Gentlemen:
Unless otherwise defined herein, capitalized terms used herein shall
have
the meanings attributable thereto in the Credit Agreement.
This Notice of Borrowing is delivered to you pursuant to Section 2.02 of
the Credit Agreement.
The undersigned Borrower hereby requests a [Euro-Dollar Borrowing]
[Swing
Borrowing] [Syndicated Borrowing which is a Base Rate Borrowing] in the
aggregate principal amount of $ to be made on , 199 , and for interest to
accrue
thereon at the rate established by the Credit Agreement for [Euro-Dollar
Loans]
[Base Rate Loans]. The duration of the Interest Period with respect thereto
shall be [1 month] [2 months] [3 months] [6 months] [30 days] [60 days] [90
days].
The amount available to be borrowed under Section 2.01 of the Credit
Agreement, net of amounts to be paid with the proceeds of this Borrowing, is
as
follows:
(a) Aggregate Commitments $
(b) Borrowing Base per most recent
Borrowing Base Certificate $
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<PAGE>
(c) Principal amount outstanding under
Syndicated Loans $
(d) Principal amount outstanding under
Swing Loans $
(e) Aggregate outstanding principal amount of Letter of Credit
Obligations
$
(f) Amount available to be borrowed
(lesser of: (a); or sum of (b), less
(c) less (d) less (e) $
The undersigned Borrower has caused this Notice of Borrowing to be
executed and delivered by its duly authorized officer this
day of , 199 .
[SED INTERNATIONAL HOLDINGS, INC.]
[SED INTERNATIONAL, INC.]
By:
Title:
AT: 1030545v10
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<PAGE>
EXHIBIT
F
FORM OF BORROWING BASE CERTIFICATE
[TO BE PROVIDED BY WACHOVIA]
AT: 1030545v10
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<PAGE>
EXHIBIT
G
FORM OF NOTICE
IN RESPECT OF ISSUANCE OF LETTERS OF CREDIT
TO: The Banks under that certain Second Amended and Restated Credit
Agreement,
dated as of August 31, 1999 ("Credit Agreement"), among SED
International
Holdings, Inc. and SED International, Inc., as the Borrowers, the Banks
parties thereto and Wachovia Bank, N.A., as Agent ("Agent").
Pursuant to Section 3.04(b) of the Credit Agreement, the Agent
hereby certifies to the Banks that it has issued the following Letters of
Credit
pursuant to Article III of the Credit Agreement:
Face Date of
Number Amount Issuance/Expiration Beneficiary Purpose
A copy of each of the Letters of Credit listed above has been
attached hereto.
Unless otherwise defined herein, terms defined in the Credit
Agreement shall have the same meaning in this notice.
Date: , 19 .
WACHOVIA BANK, N.A.
By:
Name:
Title:
Enclosures
AT: 1030545v10
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<PAGE>
EXHIBIT
H
COMPLIANCE CERTIFICATE
Reference is made to the Second Amended and Restated Credit
Agreement
dated as of August 31, 1999 (as modified and supplemented and in effect from
time to time, the "Credit Agreement") among SED International Holdings, Inc.
and
SED International, Inc., as Borrowers, the Banks from time to time parties
thereto, and Wachovia Bank, N.A., as Agent. Capitalized terms used herein
shall
have the meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 6.01(c) of the Credit Agreement,
, the duly authorized of SED
International Holdings, Inc. and , the duly
authorized of SED International, Inc.,
hereby certify to the Agent and the Banks that the information
contained in the Compliance Check List attached hereto is true,
accurate and complete as of , 199 , and that no
Default is in existence on and as of the date hereof.
SED INTERNATIONAL HOLDINGS, INC.
By:
Title:
SED INTERNATIONAL, INC.
By:
Title:
AT: 1030545v10
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<PAGE>
Exhibit
"H"
COMPLIANCE CHECK LIST
SED INTERNATIONAL HOLDINGS, INC.
SED INTERNATIONAL, INC.
,
1. Consolidations, Mergers and Sales of Assets. (Section 6.05.)
The Borrowers will not, nor will it permit any Subsidiary to, consolidate
or merge with or into, or sell, lease or otherwise transfer all or any
substantial part of its assets to, any other Person, or discontinue or
eliminate any business line or segment, provided that (a) either Borrower
may merge with another Person if (i) such Person was organized under the
laws of the United States of America or one of its states, (ii) such
Borrower is the corporation surviving such merger and (iii) immediately
after giving effect to such merger, no Default shall have occurred and be
continuing, (b) the Borrowers may merge with one another and Subsidiaries
of the Borrowers may merge with one another, and (c) the foregoing
limitation on the sale, lease or other transfer of assets and on the
discontinuation or elimination of a business line or segment shall not
prohibit (A) transfers of Accounts to insurers permitted by Section 6.26
or
(B) during any Fiscal Quarter, a transfer of assets or the discontinuance
or elimination of a business line or segment (in a single transaction or
in
a series of related transactions) unless the aggregate assets to be so
transferred or utilized in a business line or segment to be so
discontinued, when combined with all other assets transferred, and all
other assets utilized in all other business lines or segments
discontinued,
during such Fiscal Quarter and the immediately preceding 3 Fiscal
Quarters,
either (x) constituted more than 2% of Consolidated Total Assets at the
end
of the most recent Fiscal Year immediately preceding such Fiscal Quarter,
or (y) contributed more than 2% of Consolidated Operating Profits during
the 4 Fiscal Quarters immediately preceding such Fiscal Quarter.
(a) Value of assets transferred or business
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<PAGE>
lines or segments discontinued $
(b) Consolidated Total Assets $
(c) 2% of (b) $
----------
(d) Consolidated Operating Profits - Schedule 1 $
(e) 2% of (d) $
----------
Limitation (a) not to exceed (c) or (e)
2. Priority Debt (Section 6.18)
None of the Borrowers' nor any Consolidated Subsidiary's property is
subject to any Lien securing Debt, except for:
Description of Lien and Property Amount of Debt
subject to same Secured
a. ___________________________ $_____________
b. ___________________________ $_____________
c. ___________________________ $_____________
d. ___________________________ $_____________
e. ___________________________ $_____________
f. ___________________________ $_____________
g. ___________________________ $_____________
Total $
Aggregate Debt secured by purchase
money Liens permitted by
Section 6.18(k) $
-------------
Limitation: $1,500,000
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<PAGE>
3. Leverage Ratio (Section 6.20)
Tested at the end of each Fiscal Quarter, the Leverage Ratio shall not at
any time exceed 3.5 to 1.0.
(a) Consolidated Debt - Schedule 3 $
----------
(b) Consolidated Tangible Net
Worth - Schedule 4 $
----------
Actual Ratio of (a) to (b)
Maximum Ratio 3.5 to 1.0
4. Fixed Charge Coverage (Section 6.21)
Commencing on June 30, 1999, and tested on such date and at the end of
each
Fiscal Quarter thereafter, the ratio of EBILTDA to Consolidated Fixed
Charges shall not at any time be less than the following amounts as of
the
end of each of the following Fiscal Quarters:
Fiscal Quarters Ending Ratio
June 30, 1999 through September 30, 1999 1.0 to 1.0
December 31, 1999 through March 31, 2000 1.25 to 1.0
Each Fiscal Quarter thereafter 1.5 to 1.0
The foregoing ratio shall be calculated on a cumulative basis for the
Fiscal Quarter just ended and the immediately preceding three Fiscal
Quarters; provided, however, for the 3 Fiscal Quarters ending after the
Closing Date, the foregoing ratio shall be calculated as follows: (i) for
the first Fiscal Quarter after the Closing Date, times 4, (ii) for the
first and second Fiscal Quarters after the Closing Date on a cumulative
basis, times 2, and (iii) for the first, second and third Fiscal Quarters
after the Closing Date on a cumulative basis, times 1.3333.
(a) EBILTDA - Schedule 2 $
----------
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<PAGE>
(b) Consolidated Interest
Expense - Schedule 2 $
----------
(c) operating leases and rentals - Schedule 2 $
----------
(d) sum of (b) plus (c) $
Ratio of (a) to (d) to 1.0
------
Requirement >= [1.0 to 1.0]
[1.25 to
1.0]
[1.5 to
1.0]
5. Current Ratio (Section 6.22)
Tested at the end of each Fiscal Quarter, the Borrower will at all times
maintain a Current Ratio greater than 1.25 to 1.0.
(a) Aggregate Accounts Receivable $
(b) Aggregate Inventory $
(c) sum of (a) and (b) $
----------
(d) Principal amount outstanding under
Syndicated Loans $
(e) Principal amount outstanding under
Swing Loans $
(f) Aggregate outstanding principal amount
of Letter of Credit Obligations $
(g) Aggregate accounts payable $
(h) sum of (d) plus (e) plus (f) plus (g)$
(i) ratio of (c) to (h) to 1.0
----
Limitation 1.25 to 1.0
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<PAGE>
6. Minimum Profitability (Section 6.23)
Tested at the end of each Fiscal Quarter, the Borrower's EBITDA shall not
be less than $500,000 for such Fiscal Quarter.
(a) EBITDA - Schedule 5 $
---------
(b) Requirement $500,000
7. Minimum Consolidated Tangible Net Worth (Section 6.24)
Consolidated Tangible Net Worth will as of June 30, 1999 be not less than
$40,000,000, and at all times thereafter will not be less than (x)
$40,000,000 plus (y) the sum of (i) 75% of the cumulative Reported Net
Income of the Borrowers and the Consolidated Subsidiaries during any
period
after March 31, 1999 (taken as one accounting period), calculated monthly
at the end of each month (but excluding from such calculations of
Reported
Net Income for purposes of this clause (i), any month in which the
Reported
Net Income of the Borrowers and the Consolidated Subsidiaries is
negative),
and (ii) 100% of the cumulative Net Proceeds of Capital Stock received
during any period after March 31, 1999, calculated monthly at the end of
each month.
(a) $40,000,000
(b) 75% of positive Reported Net Income
after March 31, 1999 $
----------
(c) 100% of cumulative Net Proceeds of Capital Stock received after
March
31, 1999 $
Actual Consolidated Tangible
Net Worth - Schedule 4 $
----------
Required Consolidated Tangible Net
Worth (sum of (a) plus (b) plus (c) $
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<PAGE>
Schedule
1
Consolidated Operating Profits
Consolidated Operating Profits
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
Total $
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<PAGE>
Schedule
2
EBILTDA
Consolidated Net Income for:
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
Total $
Income taxes for:
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
Total $
Depreciation expense for:
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
Total $
Amortization expense for:
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
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<PAGE>
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
Total $
Consolidated Interest Expense for:
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
Total $
Operating Leases and Rentals for:
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
quarter 199 $
--- - ----------
Total $
TOTAL EBILTDA $
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<PAGE>
Schedule 3
Consolidated Debt
INTEREST
RATE MATURITY TOTAL
Secured
$
$
$
$
$
Total Secured $
Unsecured
$
$
$
$
Total Unsecured $
Guarantees
$
$
Total $
Redeemable Preferred Stock $
- -------------------------- ----------
Total $
----------
Other Liabilities
$
$
$
TOTAL DEBT $
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<PAGE>
Schedule 4
Consolidated Tangible Net Worth
Stockholders' Equity $
Less:
Surplus from write-up of assets subsequent
to , 19 $
Intangibles $
Loans to stockholders, directors
officers or employees $
-----------
Capital Stock shown as assets1 $
-----------
Deferred expenses $
-----------
Consolidated Tangible Net Worth $
Intangibles Description
(a) $
(b) $
(c) $
Other $
Total $
- --------
1 To the extent not included above as an Intangible.
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<PAGE>
Schedule 5
EBITDA
Consolidated Net Income for:
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
Total $
Income taxes for:
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
Total $
Depreciation expense for:
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
Total $
Amortization expense for:
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
Total $
Consolidated Interest Expense for:
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
quarter 199 $
--- - -----------
Total $
TOTAL EBITDA $
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<PAGE>
EXHIBIT I
SED INTERNATIONAL HOLDINGS, INC.
SED INTERNATIONAL, INC.
CLOSING CERTIFICATE
Reference is made to the Second Amended and Restated Credit Agreement
(the
"Credit Agreement") dated as of August 31, 1999, among SED International
Holdings, Inc., SED International, Inc., the Banks listed therein, and
Wachovia
Bank, N.A., as Agent. Capitalized terms used herein have the meanings ascribed
thereto in the Credit Agreement.
Pursuant to Section 4.01(f) of the Credit Agreement,
, the duly authorized of SED
International Holdings, Inc., and , the duly authorized of SED International,
Inc., hereby certify to the Agent and the Banks that (i) no Default has
occurred
and is continuing as of the date hereof, and (ii) the representations and
warranties contained in Article V of the Credit Agreement are true on and as
of
the date hereof.
Certified as of August 31, 1999.
SED INTERNATIONAL HOLDINGS, INC.
By:
Printed Name:
Title:
SED INTERNATIONAL, INC.
By:
Printed Name:
Title:
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<PAGE>
EXHIBIT J
[SED INTERNATIONAL HOLDINGS, INC.]
[SED INTERNATIONAL, INC.]
SECRETARY'S CERTIFICATE
The undersigned, ,
, Secretary of [SED INTERNATIONAL
HOLDINGS, INC.] [SED INTERNATIONAL, INC.], a Georgia corporation (the
"Borrower"), hereby certifies that [s]he has been duly elected, qualified and
is
acting in such capacity and that, as such, [s]he is familiar with the facts
herein certified and is duly authorized to certify the same, and hereby
further
certifies, in connection with the Second Amended and Restated Credit Agreement
dated as of August 31, 1999 (the "Credit Agreement") among SED International
Holdings, Inc. and SED International, Inc., as the Borrowers, Wachovia Bank,
N.A. as Agent and as a Bank, and certain other Banks listed on the signature
pages thereof, that:
1. Attached hereto as Exhibit A is a complete and correct copy of the
Certificate of Incorporation of the Borrower as in full force and effect on
the
date hereof as certified by the Secretary of State of the State of Georgia,
the
Borrower's state of incorporation.
2. Attached hereto as Exhibit B is a complete and correct copy of the
Bylaws of the Borrower as in full force and effect on the date hereof.
3. Attached hereto as Exhibit C is a complete and correct copy of the
resolutions duly adopted by the Board of Directors of the Borrower on [ ]
approving, and authorizing the execution and delivery of, the Credit
Agreement,
the Notes, the Letter of Credit Application Agreements and the other Loan
Documents (as such terms are defined in the Credit Agreement) to which the
Borrower is a party. Such resolutions have not been repealed or amended and
are
in full force and effect, and no other resolutions or consents have been
adopted
by the Board of Directors of the Borrower in connection therewith.
4. , who is of the
Borrower signed the Credit Agreement, the Notes [, THE LETTER OF
CREDIT APPLICATION AGREEMENTS EXECUTED ON THE CLOSING DATE] and the
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<PAGE>
other Loan Documents to which the Borrower is a party, was duly elected,
qualified and acting as such at the time [s]he signed the Credit Agreement,
the
Notes [, THE LETTER OF CREDIT APPLICATION AGREEMENTS EXECUTED ON THE CLOSING
DATE] and other Loan Documents to which the Borrower is a party, and [his/her]
signature appearing on the Credit Agreement, the Notes [, THE LETTER OF CREDIT
APPLICATION AGREEMENTS EXECUTED ON THE CLOSING DATE] and the other Loan
Documents to which the Borrower is a party is [his/her] genuine signature.
IN WITNESS WHEREOF, the undersigned has hereunto set [his/her] hand as of
August
31, 1999.
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<PAGE>
EXHIBIT K
LANDLORD'S AGREEMENT
THIS LANDLORD'S AGREEMENT ("Agreement"), made and entered into as of
[_______________] by the undersigned landlord (the "Landlord") in favor of
WACHOVIA BANK, N.A., as agent (the "Agent") for the ratable benefit of itself
and the other banks party to the "Financing Arrangement" defined below (the
"Banks").
W I T N E S S E T H:
RECITALS:
1.1. Landlord is the landlord under the Lease described on Exhibit "A"
attached hereto (the "Lease"), covering the business premises likewise
described
on said Exhibit "A" (the "Premises").
1.2. ("Tenant") is the tenant of Landlord under the Lease and, in such
capacity, is operating its business on, or keeps property on, the Premises.
1.3. Tenant has notified Landlord that it intends to enter into a certain
financing arrangement (the "Financing Arrangement") with the Agent and the
Banks, pursuant to which the Agent and the Banks will make certain loans,
advances and other financial accommodations to Tenant.
1.4. Tenant intends to secure the payment and performance of its
obligations to the Agent, for the ratable benefit of the Banks, under the
Financing Arrangement by granting to the Agent a security interest in, among
other property of Tenant, all of its inventory, equipment and trade fixtures,
whether now owned or hereafter acquired (the "Collateral"), portions of which
are or hereafter may be located on the Premises.
1.5. In connection therewith, pursuant to the Agent's request, Tenant has
requested that Landlord execute this Agreement in favor of the Agent.
1.6. Landlord has agreed, at Tenant's request and as an ac commodation to
it, to execute this Agreement.
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<PAGE>
IN CONSIDERATION of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged by
Landlord, Landlord acknowledges and agrees as follows in favor of the Agent:
1. Consent. Landlord hereby consents to the grant by the Tenant
of a security interest in the Collateral to Agent.
2. Lien Subordination. Landlord acknowledges and agrees that: (a) the
security interest of Agent in the Collateral shall be superior to any lien,
right, title, claim or interest which Landlord may now or hereafter have
therein; (b) Landlord shall not assert as against Agent's security interest
therein any statutory, contractual or possessory lien, right, title, claim or
interest in the Collateral, including without limitation, rights of levy or
distraint for rent, all of which Landlord hereby subordinates to Agent for the
term of this Agreement; (c) Agent shall have access to the Collateral and the
Premises at all times hereafter during regular business hours to re move the
Collateral therefrom should Agent elect to enforce the security interest
granted
in their favor in the Collateral, without hindrance or delay by Landlord; and
(d) all Collateral which is now located or hereafter may be located on the
Premises shall remain the personal property of Tenant.
3. Termination of the Lease or Sublease. If, after the date hereof,
Landlord intends to terminate the Lease or otherwise exercise any right it may
have to require Tenant to surrender the Premises or to remove any property of
Tenant (including the Collateral) from the Premises, Landlord shall use its
best
efforts to notify Agent in writing at Wachovia Bank, N.A., 191 Peachtree
Street,
Atlanta, Georgia 30303, Attn: Structured Finance, of its intent to take such
action and to permit Agent, at its option, either (a) to keep the Collateral
on
the Premises for a period of up to thirty (30) days after its receipt of such
notice, at the then effective rental provided in the Lease (pro-rated on a
daily
basis) without incurring any other obligations of Tenant as a result thereof
(including any obligations for past due rent), or (b) to enter onto the
Premises
within such thirty (30) day period in order to remove the Collateral
therefrom,
without charge, except for reasonable compensation to Landlord for any damage
to
the Premises caused by such removal; and in either such event, Landlord agrees
to cooperate with Agent and not to hinder its actions in protecting or
realizing
upon the Collateral.
4. Term. This Agreement shall remain in full force and effect
until the Financing Arrangement has been terminated, and all
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<PAGE>
obligations and liabilities of Tenant to Agent arising therefrom have been
paid
and satisfied in full.
5. No Oral Modification; Successors and Assigns. The provisions of this
Agreement may not be modified or terminated orally, and shall be binding upon
the successors, assigns and personal representatives of Landlord, and upon any
successor owner or transferee of the Premises, and shall inure to the benefit
of
the successors and assigns of Agent.
IN WITNESS WHEREOF, Landlord has caused this Agreement to be
executed, by its duly authorized officer, agent or other represen tative as of
the date first above written.
Signed and delivered LANDLORD:
in the presence of: _______________________________
_________________________ By:____________________________
Witness Name:
Title:
Notary Public
My Commission Expires:
(NOTARY SEAL)
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<PAGE>
EXHIBIT "A"
Description of Lease:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Description of Premises:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(or add Exhibit)
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<PAGE>
EXHIBIT L
TELEPHONE INSTRUCTION LETTER
August [___], 1999
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Structured Finance
Ladies and Gentlemen:
Please refer to that certain Second Amended and Restated Credit Agreement
of even date herewith between you and us ("Credit Agreement").
From any Loans under the Credit Agreement which you make to us, we hereby
authorize and direct you to make disbursements from time to time for our
account
to our bank account number ______________ maintained with ________________
_________________ of _____________________, ________________ upon receipt of
telephone instructions from any of the following persons or their respective
designees:
Name Title
---------------------------- ----------------------------
---------------------------- ----------------------------
---------------------------- ----------------------------
You shall have no liability to us whatsoever for acting upon any such
telephone instruction which you, in good faith, believe was given by any of
the
above designated persons or their respective designees and you shall have no
duty to inquire as to the propriety of any disbursement.
You shall have the right to accept the telephone instructions of any of
the
above designated persons or their respective designees
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<PAGE>
unless and until actual receipt by you from us of written notice of
termination
of the authority of any such designated persons. We may change persons
designated to give you telephone instructions only by delivering to you
written
notice of such change.
Unless and until you advise us to the contrary, each telephone
instruction
from the above-named persons or their respective designees shall be followed
by
a written confirmation of the request for disbursement in such form as you
make
available from time to time to use for such purpose.
Very truly yours,
SED INTERNATIONAL HOLDINGS, INC.
By:______________________________
President
SED INTERNATIONAL, INC.
By:______________________________
President
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<PAGE>
EXHIBIT M
FORM OF SECURITY AGREEMENT
PREAMBLE. THIS SECURITY AGREEMENT (this "Agreement"), made, entered into
and effective as of June [__], 1999, by and between SED INTERNATIONAL, INC.
("Obligor") and WACHOVIA BANK, N.A. (successor by merger to Wachovia Bank of
Georgia, N.A.), acting as agent (the "Agent") under the Credit Agreement (as
defined below) for the ratable benefit of the Banks (as defined in the Credit
Agreement) party to the Credit Agreement from time to time. This Agreement
amends, restates and supersedes that certain Security Agreement dated as of
June
27, 1997 between the parties to this Agreement.
W I T N E S S E T H :
WHEREAS, concurrently herewith, Obligor, SED INTERNATIONAL HOLDINGS,
INC.,
the Agent and the Banks party thereto executed and delivered that certain
Second
Amended and Restated Credit Agreement, dated as of even date herewith (as
amended, supplemented or otherwise modified from time to time hereafter, the
"Credit Agreement"). Pursuant to the terms of the Credit Agreement, the Agent
and the Banks have made available to the Obligor and SED INTERNATIONAL
HOLDINGS,
INC. certain financial accommodations.
WHEREAS, Agent and the Banks are willing to extend such financial
accommodations to Obligor and SED INTERNATIONAL HOLDINGS, INC. in accordance
with the terms of the Credit Agreement upon the execution of this Agreement by
Obligor, compliance by Obligor with all of the terms and provisions of this
Agreement and fulfillment of all conditions precedent to the execution and
delivery of the Credit Agreement by the Agent and the Banks;
NOW, THEREFORE, to induce the Agent and the Banks to execute and deliver
the Credit Agreement, and for other good and valuable consideration, the
sufficiency and receipt of all of which are acknowledged by Obligor, Agent and
Obligor agree as follows:
1 DEFINITIONS, TERMS AND REFERENCES.
1.1 CERTAIN DEFINITIONS. Capitalized terms contained in this Agreement,
but
not defined in this Agreement, shall be defined in and have the meanings
attributed to them in the Credit Agreement. In addition to such other terms as
elsewhere defined herein, as used in this Agreement, the following terms shall
have the following meanings:
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<PAGE>
"Accounts Receivable Collateral" shall mean and include all accounts,
instruments, chattel paper and general intangibles, including, without
limitation, all rights of Obligor to payment for goods sold or leased, or to
be
sold or to be leased, or for services rendered or to be rendered, howsoever
evidenced or incurred, and together with all returned or repossessed goods and
all books, records, computer tapes, programs and ledger books arising
therefrom
or relating thereto, all whether now owned or hereafter acquired or arising.
"Account Debtor" shall mean the person who is obligated on any of the
Accounts Receivable Collateral or otherwise is obligated as a purchaser or
lessee of any of the Inventory Collateral.
"Agent" shall have the meaning given to such term in the preamble to this
Agreement.
"Agreement" shall mean this Security Agreement, as it may be amended or
supplemented from time to time.
"Balances Collateral" shall mean all property of Obligor left with Agent
or
in Agent's possession, custody or control now or hereafter, all deposit
accounts
of Obligor now or hereafter opened with Agent, all certificates of deposit
issued by Agent to Obligor, and all drafts, checks and other items deposited
in
or with Agent by Obligor for collection now or hereafter.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as it
may
be amended from time to time.
"Collateral" shall mean the property of Obligor described in Article 2 in
which Agent has, or is to have, for the ratable benefit of the Banks, a
security
interest as security for the payment of the Obligations.
"Collateral Locations" shall mean the Executive Office and those
additional
locations, if any, set forth and described on Exhibit A hereto.
"Collateral Reserve Account" shall mean any non-interest bearing, demand
deposit account which Obligor is or may be required to open and maintain with
Agent pursuant to the requirements of Section 4.4.
"Equipment Collateral" shall mean all equipment and fixtures of
Obligor, whether now owned or hereafter acquired, wherever located,
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<PAGE>
including, without limitation, all machinery, furniture, furnishings,
leasehold
improvements, motor vehicles, forklifts, rolling stock, dies and tools used or
useful in Obligor's business operations.
"Intangibles Collateral" shall mean all general intangibles of Obligor,
whether now existing or hereafter acquired or arising, including, without
limitation, all rights to tax refunds or rebates, all copyrights, royalties,
trademarks, trade names, service marks, patent and proprietary rights,
blueprints, drawings, designs, trade secrets, plans, diagrams, schematics and
assembly and display materials relating thereto, all customer lists and, all
books and records and all computer software and programs.
"Inventory Collateral" shall mean all inventory of Obligor, whether now
owned or hereafter acquired, wherever located, including, without limitation,
all goods of Obligor held for sale or lease or furnished or to be furnished
under contracts of service, all goods held for display or demonstration, goods
on lease or consignment, spare parts, repair parts, returned and repossessed
goods, all raw materials, work-in-process, finished goods and supplies used or
consumed in Obligor's business, together with all documents, documents of
title,
dock warrants, dock receipts, warehouse receipts, bills of lading or orders
for
the delivery of all, or any portion, of the foregoing.
"Obligor" shall have the meaning given to such term in the preamble to
this
Agreement.
"Permitted Liens" shall mean Liens (defined in the Credit Agreement)
which
are not prohibited under Section 6.18 of the Credit Agreement.
"Person" shall mean any individual, partnership, corporation, joint
venture, joint stock company, trust, governmental unit or other entity.
"UCC" shall mean the Uniform Commercial Code- Secured Transactions
of Georgia (OCGA Art. 11-9), as in effect on the date hereof.
1.2 UCC TERMS. The terms "accounts", "chattel paper", "in struments",
"general intangibles", "inventory," "equipment" and "fixtures", as and when
used
in the Loan Documents, shall have the same meanings given such terms under the
UCC.
1.3 TERMINOLOGY. All personal pronouns used in this Agreement, whether
used
in the masculine, feminine or neuter gender, shall include all other genders;
the singular shall include the plural, and the plural shall include the
singular. Titles of Articles and Sections in this
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<PAGE>
Agreement are for convenience only, and neither limit nor amplify the
provisions
of this Agreement, and all references in this Agreement to Articles, Sections,
Subsections, paragraphs, clauses, or subclauses shall refer to the
corresponding
Article, Section, Subsection, paragraph, clause, subclause of this Agreement,
unless specific reference is made to the articles, sections or other
subdivisions divisions of, or Exhibit to, another document or instrument.
Wherever in this Agreement reference is made to any instrument, agreement or
other document, including, without limitation, any of the Loan Documents, such
reference shall be understood to mean and include any and all amendments
thereto
or modifications, restatements, renewals or extensions thereof. Wherever in
this
Agreement reference is made to any statute, such reference shall be understood
to mean and include any and all amendments thereof and all regulations
promulgated pursuant thereto. Whenever any matter set forth herein or in any
Loan Document is to be consented to or be satisfactory to Agent, or is to be
determined, calculated or approved by Agent, then, unless otherwise expressly
set forth herein or in any such Loan Document, such consent, satisfaction,
determination, calculation or approval shall be in Agent's sole discretion,
exercised in good faith and, where required by law, in a commercially
reasonable
manner, and shall be conclusive absent manifest error.
2 SECURITY INTEREST. As security for the payment of all Obligations,
Obligor hereby grants to Agent, for the ratable benefit of the Banks, a
continuing, general Lien upon and security interest and security title in and
to
the following described property, wherever located, whether now existing or
hereafter acquired or arising, namely: (a) the Accounts Receivable Collateral;
(b) the Inventory Collateral; (c) the Equipment Collateral; (d) the
Intangibles
Collateral; (e) the Balances Collateral; and (f) all products and/or proceeds
of
any and all of the foregoing, including, without limitation, insurance
proceeds.
The Property of Obligor described hereinabove in this Article 2 are herein
sometimes collectively called the "Collateral."
3 REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO ACCOUNTS
RECEIVABLE COLLATERAL. With respect to the Accounts Receivable Collateral,
Obligor hereby represents, warrants and covenants to Agent as set forth below.
3.1 BONA FIDE ACCOUNTS. Each item of the Accounts Receivable Collateral
arises or will arise under a contract between Obligor and the Account Debtor,
or
from the bona fide sale or delivery of goods to or performance of services
for,
the Account Debtor.
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3.2 GOOD TITLE. Obligor has good title to the Accounts Receivable
Collateral free and clear of all liens, security interests and encumbrances
thereon other than any Permitted Liens, and no financing statement covering
the
Accounts Receivable Collateral is on file in any public office other than any
evidencing Permitted Liens.
3.3 RIGHT TO ASSIGN. Obligor has full right, power and authority to make
this assignment of the Accounts Receivable Collateral and hereafter will not
pledge, hypothecate, grant a security interest in, sell, assign, transfer, or
otherwise dispose of the Accounts Receivable Collateral, or any interest
therein.
3.4 COLLATERAL RESERVE ACCOUNT. Simultaneously herewith, Obligor shall
establish and maintain with Agent a Collateral Reserve Account and shall
deposit
in the Collateral Reserve Account all items of payment received (including,
without limitation, cash, checks, drafts, items and other instruments for the
payment of money) which it now has or may at any time hereafter receive in
full
or partial payment for the Inventory Collateral or otherwise as proceeds of
the
Accounts Receivable Collateral. All collected balances in the Collateral
Reserve
Account shall be applied by Agent on a daily basis in payment of amounts
outstanding under the Obligations (first to interest, then to principal) then
due and payable. Obligor shall not be entitled to draw on the Collateral
Reserve
Account without the prior written consent of Agent; provided, however, that,
at
any time during which collected balances exist in the Collateral Reserve
Account, if there are no amounts outstanding under the Obligations, and
provided
that no Default Condition or Event of Default is in existence, Obligor may
withdraw such collected balances, or any portion thereof, therefrom. Upon the
occurrence of an Event of Default, the Agent may, additionally, at any time in
its sole discretion, require that the Obligor obtain a lockbox with the Agent
and direct Account Debtors to make payments on the Accounts Receivable
Collateral, or portions thereof, to the lockbox or directly payable to the
order
of the Agent, and the Account Debtors are hereby authorized and directed to do
so by Obligor upon Agent's direction, and the funds so received shall be also
deposited in the Collateral Reserve Account and applied as aforesaid. In
addition, after the occurrence of an Event of Default, the Obligor shall
transfer and deliver to the Agent all such items of payment which it now has
or
may at any time hereafter receive in full or partial payment for the Inventory
Collateral or otherwise as proceeds of the Accounts Receivable Collateral and,
pending such transfer and delivery to the Agent, Obligor shall be deemed to
hold
same in trust for the benefit of Agent.
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3.5 TRADE STYLES. Except as may be set forth on Exhibit A hereto, Obligor
uses no trade names or trade styles in its business operations (herein, "Trade
Styles"), and Obligor covenants with Agent not to use any Trade Styles in its
business operations hereafter, except as so specified on Exhibit A prior to
having given Agent at least thirty (30) days prior written notice thereof. In
any event, to the extent that, now or hereafter, Obligor uses any Trade
Styles,
Obligor hereby certifies and agrees with Agent that: (i) all of the accounts
receivable and proceeds thereof arising out of sales under the Trade Styles
shall be the property of, and belong to, Obligor; (ii) each of the Trade
Styles
is a trade name and trade style (and not an independent corporation or other
legal entity) by which Obligor identifies and sells certain of its products or
services and under which it may conduct a portion of its business; (iii) all
accounts receivable, proceeds thereof, and returned merchandise which arise
from
the sale of products invoiced under the names of any of the Trade Styles shall
be owned solely by Obligor and shall be subject to the terms of this Agreement
as they relate to Accounts Receivable Collateral; and (iv) Obligor hereby
appoints Agent as its attorney-in-fact to file such certificates disclosing
Obligor's use of the Trade Styles and to take such other actions on its behalf
as are necessary to comply with the statutes of any states relating to the use
of fictitious or assumed business names, to the extent that borrower fails to
do
so.
3.6 POWER OF ATTORNEY. Obligor irrevocably designates and appoints Agent
its true and lawful attorney either in the name of Agent or in the name of
Obligor to ask for, demand, sue for, collect, compromise, compound, receive,
receipt for and give acquittances for any and all sums owing or which may
become
due upon any items of the Inventory Collateral or the Accounts Receivable
Collateral and, in connection therewith, to take any and all actions as Agent
may deem necessary or desirable in order to realize upon the Inventory
Collateral and the Accounts Receivable Collateral, including, without
limitation, power to endorse in the name of Obligor, any checks, drafts, notes
or other instruments received in payment of or on account of the Inventory
Collateral or the Accounts Receivable Collateral, but Agent shall not be under
any duty to exercise any such authority or power or in any way be responsible
for the collection of the Inventory Collateral or the Accounts Receivable
Collateral.
4 REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INVENTORY
COLLATERAL. With respect to the Inventory Collateral, Obligor hereby
represents,
warrants and covenants to Agent as set forth below:
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4.1 SALE OF INVENTORY COLLATERAL. Obligor will not sell, lease, exchange,
or otherwise dispose of any of the Inventory Collateral without the prior
written consent of Agent, except in the ordinary course of business for cash
or
on open account or on terms of payment ordinarily extended to its customers.
Upon the sale, exchange or other disposition of the Inventory Collateral, the
security interest and lien created and provided for herein, without break in
continuity and without further formality or act, shall continue in and attach
to
any proceeds thereof, including, without limitation, accounts, contract
rights,
shipping documents, documents of title, bills of lading, warehouse receipts,
dock warrants, dock receipts and cash or noncash proceeds, and in the event of
any unauthorized sale, shall continue in the Inventory Collateral itself.
4.2 INSURANCE. Obligor agrees that it will obtain and maintain insurance
on
the Inventory Collateral with such companies, in such amounts and against such
risks as Agent may request, with loss payable to Agent as its interests may
appear. Such insurance shall not be cancellable by Obligor, unless with the
prior written consent of Agent, or by Obligor's insurer, unless with at least
ten (10) days advance written notice to Agent.
4.3 GOOD TITLE. Except with respect to any Permitted Liens, Obligor owns
the Inventory Collateral free and clear of any prior security interest, lien
or
encumbrance, and no financing statements or other evidences of the grant of a
security interest respecting the Inventory Collateral exist on the public
records as of the date hereof other than any evidencing any Permitted Liens.
4.4 RIGHT TO GRANT SECURITY INTEREST. Obligor has the right to grant a
security interest in the Inventory Collateral. Obligor will pay all taxes and
other charges against the Inventory Collateral, and Obligor will not use the
Inventory Collateral illegally or allow the Inventory Collateral to be
encumbered except for the security interest in favor of Agent granted herein
and
except for any Permitted Liens.
4.5 LOCATION OF INVENTORY COLLATERAL. Obligor hereby represents and
warrants to Agent that, as of the date hereof, the Inventory Collateral of
Obligor is situated only at one or more of the Collateral Locations and
Obligor
covenants with Agent not to locate the Inventory Collateral at any location
other than a Collateral Location without at least thirty (30) days prior
written
notice to Agent.
4.6 RETURNS OF INVENTORY COLLATERAL. Obligor agrees (i) to notify
the Agent in writing of any return of Inventory Collateral by Obligor to
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any distributor with a value in excess of $1,000,000; and (ii) without the
prior
written consent of the Agent and the Banks that it shall not return Inventory
Collateral to any distributor with a value in excess of $ 2,000,000 in the
aggregate in any Fiscal Year. The "value" of Inventory Collateral in this
Section 4.6 shall mean the purchase price paid to the relevant distributor
therefor.
5 REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO EQUIPMENT
COLLATERAL. With respect to the Equipment Collateral, Obligor hereby
represents,
warrants and covenants to Agent as set forth below:
5.1 SALE OF EQUIPMENT COLLATERAL. Obligor will not sell, lease, exchange,
or otherwise dispose of any of the Equipment Collateral without the prior
written consent of Agent; provided, however, that, with notice to, but without
the necessity of consent of, Agent, from time to time hereafter, in the
ordinary
course of Obligor's business, Obligor may sell, exchange or otherwise dispose
of
portions of its Equipment Collateral which are obsolete, worn-out or
unsuitable
for continued use by Obligor if such Equipment Collateral is replaced promptly
upon its disposition with equipment constituting Equipment Collateral having a
market value equal to or greater than the Equipment Collateral so disposed of
and in which Agent shall obtain and have a first priority security interest
pursuant hereto.
5.2 INSURANCE. Obligor agrees that it will obtain and maintain insurance
on
the Equipment Collateral with such companies and in such amounts and against
such risks as Agent may reasonably request, with loss payable to Agent as its
interests may appear. Such insurance shall not be cancellable by Obligor,
unless
with the prior written consent of Agent, or by Obligor's insurer, unless with
at
least ten (10) days advance written notice to Agent.
5.3 GOOD TITLE. Obligor owns the Equipment Collateral free and clear of
any
prior security interest, lien or encumbrance thereon other than with respect
to
any Permitted Liens and no financing statements or other evidences of the
grant
of a security interest respecting the Equipment Collateral exist on the public
records as of the date hereof other than any evidencing any Permitted Liens.
5.4 RIGHT TO GRANT SECURITY INTEREST. Obligor has the right to grant a
security interest in the Equipment Collateral. Obligor will pay all taxes and
other charges against the Equipment Collateral, Obligor will not use the
Equipment Collateral illegally or allow the Equipment Collateral to be
encumbered except for the security interest in favor of Agent granted herein
and
except for any Permitted Liens.
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5.5 LOCATION. As of the date hereof, the Equipment Collateral is located
only at one or more of the Collateral Locations and, hereafter, Obligor
covenants with Agent not to locate Equipment Collateral at any location other
than a Collateral Location without at least thirty (30) days written notice to
Agent.
6 REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO BALANCES
COLLATERAL. With respect to the Balances Collateral, Obligor hereby
represents,
warrants and covenants to Agent as set forth below:
6.1 OWNERSHIP. Obligor owns the Balances Collateral free and clear of any
liens, mortgages, security interests or encumbrances thereon, except for any
Permitted Liens.
6.2 REMEDIES. In addition to such other rights and remedies with respect
to
the Balances Collateral as may exist from time to time hereafter in favor of
Agent, whether by way of set-off, banker's lien, consensual security interest
or
otherwise, upon the occurrence and during the continuation of any Event of
Default hereunder, Agent may charge any part or all of the obligations of
Agent
to Obligor represented by items constituting the Balances Collateral in the
possession and control of Agent against the Obligations, without the prior
notice to or demand upon Obligor.
6.3 LIENS. Hereafter, Obligor will not incur, create or suffer to exist
any
lien, security interest or encumbrance upon the Balances Collateral, except
for
Permitted Liens, or sell, convey, hypothecate, pledge or assign its right,
title
or interest therein, without the prior written consent of Agent thereto.
7 REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INTANGIBLES
COLLATERAL. With respect to the Intangibles Collateral, each Obligor hereby
represents, warrants and covenants to Agent as set forth below:
7.1 OWNERSHIP. Obligor owns the Intangibles Collateral free and clear of
any liens, mortgages, security interests or encumbrances thereon other than
with
respect to any Permitted Liens and no financing statements or other evidences
of
the grant of a security interest respecting the Intangibles Collateral exist
on
the public records as of the date hereof other than any evidencing any
Permitted
Liens.
7.2 LIENS. Hereafter, Obligor will not incur, create or suffer to exist
any
lien, security interest or encumbrance upon the Intangibles
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Collateral except for the security interest granted herein and except for any
Permitted Liens or sell, convey, hypothecate, pledge or assign its right,
title
or interest therein.
7.3 PRESERVATION. Hereafter, Obligor will take all necessary and
appropriate measures to obtain, maintain, protect and preserve the Intangibles
Collateral including, without limitation, registration thereof with the
appropriate state or federal governmental agency or department.
8 REMEDIES. Upon the acceleration of any of the Obligations, Agent shall
thereupon have the rights and remedies of a secured party under the UCC in
effect on date thereof (regardless of whether the same has been enacted in the
jurisdiction where the rights or remedies are asserted), including, without
limitation, the right to take possession of any of the Collateral or the
proceeds thereof, to sell or otherwise dispose of the same, to apply the
proceeds therefrom to any of the Obligations in such order as Agent, in its
sole
discretion, may elect. Agent shall give Obligor written notice of the time and
place of any public sale of the Collateral or the time after which any other
intended disposition thereof is to be made. The requirement of sending
reasonable notice shall be met if such notice is given to Obligor at least ten
(10) days before such disposition. Expenses of retaking, holding, insuring,
preserving, protecting, preparing for sale or selling or the like with respect
to the Collateral shall include, in any event, reasonable attorneys' fees and
other legally recoverable collection expenses, all of which shall constitute
Obligations.
8.1 REPOSSESSION OF THE COLLATERAL. Agent may take the Collateral or any
portion thereof into its possession, by such means (without breach of the
peace)
and through agents or otherwise as it may elect (and, in connection therewith,
demand that Obligor assemble the Collateral at a place or places and in such
manner as Agent shall prescribe), and sell, lease or otherwise dispose of the
Collateral or any portion thereof in its then condition or following any
commercially reasonable preparation or processing, which disposition may be by
public or private proceedings, by one or more contracts, as a unit or in
parcels, at any time and place and on any terms, so long as the same are
commercially reasonable and Obligor hereby waives all rights which Obligor has
or may have under and by virtue of OCGA Ch. 44-14, including, without
limitation, the right of Obligor to notice and to a judicial hearing prior to
seizure of any Collateral by Agent.
8.2 OTHER REMEDIES. Unless and except to the extent expressly
provided for to the contrary herein, the rights of Agent specified
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herein shall be in addition to, and not in limitation of, Agent's rights under
the UCC, as amended from time to time, or any other statute or rule of law or
equity, or under any other provision of any of the Loan Documents, or under
the
provisions of any other document, instrument or other writing executed by
Obligor or any third party in favor of Agent, all of which may be exercised
successively or concurrently.
9 MISCELLANEOUS.
9.1 WAIVER. Each and every right granted to Agent under this Agreement or
allowed it by law or in equity, shall be cumulative and may be exercised from
time to time. No failure on the part of Agent to exercise, and no delay in
exercising, any right shall operate as a waiver thereof, nor shall any single
or
partial exercise by Agent of any right preclude any other or future exercise
thereof or the exercise of any other right. No waiver by Agent of any Default
or
Event of Default shall constitute a waiver of any subsequent Default or Event
of
Default.
9.2 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
9.3 SURVIVAL. All representations, warranties and covenants made herein
shall survive the execution and delivery hereof and thereof. The terms and
provisions of this Agreement shall continue in full force and effect, until
all
of the Obligations have been paid in full and Agent has terminated this
Agreement in writing.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when fully executed shall be an original, and all
of
said counterparts taken together shall be deemed to constitute one and the
same
agreement.
9.5 REIMBURSEMENT. Obligor shall pay to Agent on demand all out-of-pocket
costs and expenses that Agent pays or actually incurs in connection with the
negotiation, preparation, consummation, enforcement and termination of this
Agreement and the other Loan Documents, including, without limitation: (a)
attorneys' fees and paralegals' fees and disbursements of outside counsel; (b)
costs and expenses (including outside attorneys' and paralegals' fees and
disbursements) for any amendment, supplement, waiver, consent or subsequent
closing in connection with the Loan Documents and the transactions
contemplated
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thereby; (c) costs and expenses of lien and title searches and title
insurance;
(d) actual taxes, fees and other charges for recording any deeds to secure
debt,
deeds of trust, mortgages, filing financing statements and continuations, and
other actions to perfect, protect and continue the Lien of Agent in the
Collateral; (e) sums paid or incurred to pay for any amount or to take any
action required of Obligor under the Loan Documents that Obligor fails to pay
or
take; (f) costs of appraisals, inspections, field audits and verifications of
the Collateral, including, without limitation, costs of travel, for
inspections
of the Collateral and Obligor's operations by Agent; (g) costs and expenses of
preserving and protecting the Collateral; and (h) after an Event of Default,
costs and expenses (including attorneys' and paralegals' fees and
disbursements)
paid or incurred to obtain payment of the Obligations, enforce the Lien in the
collateral, sell or otherwise realize upon the Collateral, and otherwise
enforce
the provisions of the Loan Documents or to defend any claim made or threatened
against lender arising out of the transactions contemplated hereby (including,
without limitation, preparations for and consultations concerning any such
matters). The foregoing shall not be construed to limit any other provisions
of
the Loan Documents regarding costs and expenses to be paid to Obligor. In the
event Obligor becomes a debtor under the Bankruptcy Code, Agent's secured
claim
in such case shall include interest on the Obligations and all fees, costs and
charges provided for herein (including, without limitation, reasonable
attorneys' fees actually incurred) all for the extent allowed by the
Bankruptcy
Code.
9.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure
to the benefit of the successors and permitted assigns of the parties hereto
and
thereto.
9.7 SEVERABILITY. If any provision of this Agreement or the application
thereof to any party thereto or circumstances shall be invalid or
unenforceable
to any extent, the remainder hereof and the application of such provisions to
any other party thereto or circumstance shall not be affected thereby and
shall
be enforced to the greatest extent permitted by law.
9.8 NOTICES. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made when given or made
in
accordance with Section 10.01 of the Credit Agreement.
9.9 TIME OF ESSENCE. Time is of the essence in this Agreement.
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9.10 INTERPRETATION. No provision of this Agreement shall be construed
against or interpreted to the disadvantage of any party hereto by any court or
other governmental or judicial authority by reason of such party having or
being
deemed to have structured or dictated such provision.
9.11 JURISDICTION. OBLIGOR AGREES THAT ANY LEGAL ACTION OR PROCEEDING
WITH
RESPECT TO THIS AGREEMENT OR ANY LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF
THE STATE OF GEORGIA OR THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT
OF GEORGIA, ATLANTA DIVISION, ALL AS AGENT MAY ELECT. BY EXECUTION OF THIS
AGREEMENT, OBLIGOR HEREBY SUBMITS TO EACH SUCH JURISDICTION, HEREBY EXPRESSLY
WAIVING WHATEVER RIGHTS MAY CORRESPOND TO IT BY REASON OF ITS PRESENT OR
FUTURE
DOMICILE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF AGENT TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST OBLIGOR IN ANY OTHER JURISDICTION OR
TO
SERVE PROCESS IN ANY MANNER PERMITTED OR REQUIRED BY LAW.
9.12 CURE OF DEFAULTS BY AGENT. If, hereafter, Obligor defaults in the
performance of any duty or obligation to Agent or the Banks hereunder, Agent
may, at its option, but without obligation, cure such default and any costs,
fees and expenses incurred by Agent in connection therewith including, without
limitation, for the purchase of insurance, the payment of taxes and the
removal
or settlement of liens and claims, shall be a part of the Obligations and
payable upon demand.
9.13 RECITALS. All recitals contained herein are hereby incorporated by
reference into this Agreement and made part thereof.
9.14 ATTORNEY-IN-FACT. Obligor hereby designates, appoints and empowers
Agent irrevocably as its attorney-in-fact, at Obligor's cost and expense, to
do
in the name of Obligor any and all actions which Agent may deem necessary or
advisable to carry out the terms of this Agreement upon the failure, refusal
or
inability of Obligor to do so and Obligor hereby agrees to indemnify and hold
Agent harmless from any costs, damages, expenses or liabilities arising
against
or incurred by Agent in connection therewith.
9.15 JURY TRIAL WAIVER. OBLIGOR AND AGENT HEREBY WAIVE, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE
LOAN DOCUMENTS, OBLIGATIONS OR THE COLLATERAL.
9.16 PLACE(S) OF BUSINESS; FEDERAL IDENTIFICATION NUMBER. The Obligor
represents and warrants that set forth on Exhibit A attached hereto are (i)
the
address of the Obligor's chief executive offices,
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(ii) each of its places of business, (iii) each place where the Collateral or
any books or records relating thereto, and (iv) its Federal Identification
number.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and Obligor has caused its seal to be affixed hereto, as of the day
and
year first above written.
"AGENT"
WACHOVIA BANK, N.A.
By:_____________________________
[Name/Title]
"OBLIGOR"
SED INTERNATIONAL, INC. (SEAL)
By:_____________________________
[Name], President
Attest:_________________________
[Name], Secretary
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EXHIBIT N
FORM OF FINOVA INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (this "Agreement") is made as of
_________________________, 1999, by and among WACHOVIA BANK, N.A., as agent
for
itself and the other "Banks" party to the Credit Agreement (defined below)
(the
"Agent"); FINOVA CAPITAL CORPORATION ("FINOVA"); and SED INTERNATIONAL, INC.
(the "Debtor").
WITNESSETH
In order to induce the Agent and the Banks to enter into the Credit
Agreement, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1
As used in this Agreement, the term:
"Bank Indebtedness" means all indebtedness, liabilities and obligations
of
the Debtor and SED International Holdings, Inc. to the Agent and the Banks of
every kind and nature whatsoever, whether now existing or hereafter arising or
created at any time under or pursuant to the Credit Agreement and the Bank
Loan
Documents.
"Bank Loan Documents" means the collective reference to the Credit
Agreement, and each and every note, instrument, security agreement, pledge
agreement, guaranty agreement, mortgage, deed of trust, loan agreement,
hypothecation agreement, indemnity agreement, letter of credit application,
assignment, or any other document (whether similar or dissimilar to any of the
foregoing) previously, simultaneously or hereafter executed and delivered by
the
Debtor, SED International Holdings, Inc. or any other Person, singly or
jointly
with another Person or Persons, in connection with any of the Bank
Indebtedness.
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"Bank Priority Collateral" means all assets of the Debtor now owned or
hereafter acquired, including all collateral security granted in favor of the
Agent for the benefit of the Banks pursuant to the Bank Loan Documents,
excluding therefrom, however, the FINOVA Priority Collateral.
"Bankruptcy Code" means The Bankruptcy Code of 1978, as amended from
time
to time (11 U.S.C. Sections 101 et seq.), and any replacement or successor act
which has a substantially similar purpose.
"Credit Agreement" means that certain Second Amended and Restated Credit
Agreement dated as of even date herewith among the Agent, the Banks, the
Debtor
and SED International Holdings, Inc., as the same may be amended or otherwise
modified from time to time.
"FINOVA Indebtedness" means all indebtedness, liabilities and
obligations
of the Debtor to FINOVA of every kind and nature whatsoever, whether now
existing or hereafter arising or created at any time under the FINOVA Loan
Agreement and the FINOVA Loan Documents.
"FINOVA Loan Agreement" means that certain Dealer Loan and Security
Agreement dated as of January 13, 1999 between FINOVA and the Debtor, as the
same may be amended or otherwise modified from time to time.
"FINOVA Loan Documents" means the collective reference to the FINOVA
Loan
Agreement, and each and every note, instrument, security agreement, pledge
agreement, guaranty agreement, mortgage, mortgage, deed of trust, loan
agreement, hypothecation agreement, indemnity agree ment, letter of credit
application, assignment, or any other document (whether similar or dissimilar
to
any of the foregoing) previously, simultaneously or hereafter executed and
delivered by any of the Debtor or any other Person, singly or jointly with
another Person or Persons, in connection with any of the FINOVA Indebtedness.
"FINOVA Priority Collateral" means all of the following assets of the
Debtor, whether now owned or hereafter acquired: (i) all inventory and
equipment
manufactured or sold by or bearing the trademarks or tradenames of FINOVA
Vendors; and all parts, accessories, accessions, exchanges, substitutions,
replacements, reclaimed units, returns and repossessions thereof, and all
editions and attachments thereto, and all documents of title arising
therefrom;
(ii) all price protection payments, credits, incentive payments, rebates, and
refunds which at any time are due to Debtor with respect to or in connection
with any inventory and equipment described in (i) above; and (iii) all
identifiable cash proceeds received on or before delivery of inventory
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(excluding, however, accounts and proceeds of accounts arising from the sale
of
the foregoing by Debtor) of the foregoing and insurance proceeds payable by
reason of loss or damage to any of the foregoing.
"FINOVA Vendors" means Acer America Corporation; Acer Peripherals
America,
Inc.; A-Open America Incorporated; Western Digital Corporation; Super Micro
Computer, Inc.; and Epson America, Inc., Lexmark International, Inc., Merisel
Americas, Inc., Proview Technology, Inc., Synnex Information Technology, Inc.,
Tech Data Corporation.
"Insolvency Proceeding" means any receivership, conservatorship, general
meeting of creditors, insolvency or bankruptcy proceeding, assignment for the
benefit of creditors, or any proceeding by or against the Debtor for any
relief
under any bankruptcy or insolvency law or other laws relating to the relief of
debtors, readjustment of indebtedness, reorganizations, compositions or
extensions, including, without limitation, proceedings under the Bankruptcy
Code, or under other federal, state or local statute, laws, rules and
regulations, all whether now or hereafter in effect.
"Lien(s)" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, financing
statement, lien or charge of any kind, whether perfected or unperfected,
avoidable or unavoidable, consensual or non-consensual including, without
limitation, any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction.
"Person" means an individual, a corporation, a partnership, a joint
venture, a trust, an unincorporated association, a government or political
subdivision or agency thereof or any other entity.
"Shared Collateral" means the Bank Priority Collateral and the
FINOVA Priority Collateral.
SECTION 1.2 Other Definitional Provisions. Unless otherwise defined
herein, all terms used herein which are defined by the Georgia Uniform
Commercial Code shall have the same meanings as assigned to them by the
Georgia
Uniform Commercial Code unless and to the extent varied by this Agreement. The
words "hereof", "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section, subsection, schedule and
exhibit references are
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references to sections or subsections of, or schedules or exhibits to, as the
case may be, this Agreement unless otherwise specified. As used herein, the
singular number shall include the plural, the plural the singular and the use
of
the masculine, feminine or neuter gender shall include all genders, as the
context may require. Reference to any one or more of the Bank Loan Documents
and
the FINOVA Loan Documents shall mean the same as the foregoing may from time
to
time be amended, restated, substituted, extended, renewed, supplemented or
otherwise modified.
2 ARTICLE
COLLATERAL SECURITY
SECTION 2.1 Consent to the FINOVA Liens; Consent to Agent Liens. (a)
Upon
(i) the execution and delivery hereof by all of the parties hereto, and the
execution and delivery by the Debtor of the Credit Agreement, and (ii) upon
the
execution and delivery by FINOVA to the Agent of amendments to all UCC
financing
statements filed by the Debtor in favor of FINOVA whereby pursuant to such
amendments reference is made to the subordination of FINOVA's interest in Bank
Priority Collateral as provided in this Agreement, the Agent, on behalf of the
Banks, hereby consents to the incurrence by the Debtor of the FINOVA
Indebtedness and the FINOVA Liens against the FINOVA Priority Collateral and
the
other Shared Collateral and waives any default or event of default caused
thereby under the Bank Loan Documents; provided, however, in no event shall
such
consent extend to any amendment or other modification to the FINOVA Loan
Documents which increases the FINOVA Indebtedness at any time outstanding (i)
in
excess of $15,000,000, or (ii) in excess of $17,000,000, so long as the Agent
shall have received written notice thereof from the Debtor 5 business days
prior
to any such increase above $15,000,000 under this clause (ii).
(b) Upon (i) the execution and delivery hereof by all of the parties
hereto and subject to the terms hereof, and (ii) upon the execution and
delivery
by the Agent to FINOVA of amendments to all UCC financing statements filed by
the Debtor in favor of the Agent whereby pursuant to such amendments reference
is made to the subordination of the Agent's interest in the FINOVA Priority
Collateral as provided in this Agreement, FINOVA hereby consents to the
incurrence by the Debtor of the Agent's Liens against the Bank Priority
Collateral and the other Shared Collateral.
SECTION 2.2 Bank Priority Collateral. (a) FINOVA hereby
subordinates the Lien and priority of FINOVA's existing and future Liens
and other interests, if any, in and to the Bank Priority Collateral to
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the interests of the Agent and the Banks therein notwithstanding the time of
attachment of the interests of the Agent or FINOVA or the time the Bank
Indebtedness or the FINOVA Indebtedness is incurred. The Lien priorities
provided in this Section shall not be altered or otherwise affected by any
amendment, modification, supplement, extension, renewal, restatement or
refinancing of either the Bank Indebtedness or the FINOVA Indebtedness, nor by
any action or inaction which either the Agent or the Banks or FINOVA may take
or
fail to take in respect of any collateral security held by them, except as
otherwise provided above in this subsection. Notwithstanding anything to the
contrary contained in this Agreement, under applicable law or otherwise, in
the
event that the Liens of the Agent are at any time unperfected with respect to
any or all of the Bank Priority Collateral or the other Shared Collateral, the
lack of perfection by the Agent as to the Bank Priority Collateral or the
other
Shared Collateral shall not affect the validity, enforceability or priority of
any Lien of FINOVA against the Bank Priority Collateral or the other Shared
Collateral. In any such event, the Liens of FINOVA shall have priority over
any
and all other Liens in favor of any third party with respect to the Bank
Priority Collateral and the other Shared Collateral (including, but not
limited
to any trustee under the Bankruptcy Code), FINOVA shall be, and is hereby
constituted, as the Agent's agent and bailee for purposes of perfection of the
Liens of the Agent in the Bank Priority Collateral and the other Shared
Collateral such that the Lien in favor of FINOVA shall be held by FINOVA for
the
benefit of the Agent and FINOVA and the proceeds of any disposition of the
Bank
Priority Collateral and the other Shared Collateral shall be and are in all
respects subject to the priorities and rights of payment and satisfaction as
provided in this Agreement, respectively, for the Agent and FINOVA.
(b) Until the Bank Indebtedness has been fully and indefeasibly paid in
cash and there exists no agreement between the Debtor and SED International
Holdings, Inc. and the Agent and the Banks under which the Banks are required
to
or may make loans or provide other financial accommodations, FINOVA shall not,
without the prior written consent of the Agent, sue for, liquidate, sell,
foreclose, set off against, collect, accept a surrender, receive any proceeds,
petition, or commence any other action against the Bank Priority Collateral.
In
the event the Agent may from time to time execute releases, partial releases,
terminations, reconveyances, subordinations or other documents releasing or
otherwise limiting the Agent's interests in the Bank Priority Collateral,
FINOVA
agrees to execute and deliver at such time such further documents as the Agent
may require to effect a corresponding change to FINOVA's position in the Bank
Priority Collateral. The Agent and the Banks shall have the exclusive right to
exercise and enforce all
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privileges and rights with respect to the Bank Priority Collateral according
to
the Agent and the Banks' sole discretion and the exercise of their sole
business
judgment, subject to applicable law.
(c) The Agent and the Banks shall not be liable to FINOVA for any error
in
judgment or for any action taken or omitted to be taken by the Agent or the
Banks with respect to the Debtor or the Bank Priority Collateral. In no event
and under no circumstances, whether existing before or after this Agreement,
shall the Agent or the Banks be deemed to have assumed a fiduciary duty to
FINOVA.
SECTION 2.3 FINOVA Priority Collateral.(a) The Agent hereby subordinates
the Lien and priority of the Agent's existing and future Liens and other
interests, if any, in and to the FINOVA Priority Collateral to the interests
of
FINOVA therein notwithstanding the time of attachment of the interests of
FINOVA
or the Agent or the time the FINOVA Indebtedness or the Bank Indebtedness is
incurred, provided, however, in no event shall such subordination by the Agent
extend to Liens securing FINOVA Indebtedness at any time outstanding (i) in
excess of $15,000,000, or (ii) in excess of $17,000,000, so long as the Agent
shall have received written notice thereof from FINOVA at least 5 business
days
prior to any such increase above $15,000,000 under this clause (ii), subject
to
the further limitations thereon set forth in Section 2.1 hereof. The Lien
priorities provided in this Section shall not be altered or otherwise affected
by any amendment, modification, supplement, extension, renewal, restatement or
refinancing of either the FINOVA Indebtedness or the Bank Indebtedness, nor by
any action or inaction which either FINOVA or the Banks or the Agent may take
or
fail to take in respect of any collateral security held by them, except as
otherwise provided above in this subsection. Notwithstanding anything to the
contrary contained in this Agreement, under applicable law or otherwise, in
the
event that the Liens of FINOVA are at any time unperfected with respect to any
or all of the FINOVA Priority Collateral or the Shared Collateral, the lack of
perfection by FINOVA as to the FINOVA Priority Collateral or the other Shared
Collateral shall not affect the validity, enforceability or priority of any
Lien
of the Agent against the FINOVA Priority Collateral or the other Shared
Collateral. In any such event, the Liens of the Agent shall have priority over
any and all other Liens in favor of any third party with respect to the FINOVA
Priority Collateral and the other Shared Collateral (including, but not
limited
to any trustee under the Bankruptcy Code), the Agent shall be, and is hereby
constituted, as FINOVA's agent and bailee for purposes of perfection of the
Liens of FINOVA in the FINOVA Priority Collateral and the other Shared
Collateral such that the Lien in favor of the Agent shall be held by the Agent
for the benefit of FINOVA and
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the Agent and the proceeds of any disposition of the FINOVA Priority
Collateral
and the other Shared Collateral shall be and are in all respects subject to
the
priorities and rights of payment and satisfaction as provided in this
Agreement,
respectively, for FINOVA and
the Agent.
(b) Until the FINOVA Indebtedness has been fully and indefeasibly paid
in
cash and there exists no agreement between the Debtor and
FINOVA
under which FINOVA is required to or may make loans or provide other financial
accommodations, the Agent shall not, without the prior written consent of
FINOVA, sue for, liquidate, sell, foreclose, set off against, collect, accept
a
surrender, receive any proceeds, petition, or commence any other action
against
the FINOVA Priority Collateral. In the event FINOVA may from time to time
execute releases, partial releases, terminations, reconveyances,
subordinations
or other documents releasing or otherwise limiting FINOVA's interests in the
FINOVA Priority Collateral, the Agent agrees to execute and deliver at such
time
such further documents as FINOVA may require to effect a corresponding change
to
the Agent's position in the FINOVA Priority Collateral. FINOVA shall have the
exclusive right to exercise and enforce all privileges and rights with respect
to the FINOVA Priority Collateral according to FINOVA's sole discretion and
the
exercise of its sole business judgment, subject to applicable law.
(c) FINOVA shall not be liable to the Agent or the Banks for any error
in
judgment or for any action taken or omitted to be taken by FINOVA with respect
to the Debtor or the FINOVA Priority Collateral. In no event and under no
circumstances, whether existing before or after this Agreement, shall FINOVA
be
deemed to have assumed a fiduciary duty to the Agent or the Banks.
SECTION 2.4 Further Assurances. FINOVA, the Agent and the Debtor agree
they shall promptly execute such further documents and acknowledgments as
FINOVA
and Agent may reasonably require to confirm or evidence their respective
obligations and rights under this Agreement.
3 ARTICLE
DISTRIBUTIONS AND RECEIPTS
SECTION 3.1 Distributions, etc.In the event of any distribution,
division
or application, partial or complete, voluntary or involuntary, by operation of
law or otherwise, of all or any part of the assets of the Debtor or the
proceeds
thereof to creditors of the Debtor or to any indebtedness, liabilities and
obligations of the Debtor, by
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reason of the liquidation, dissolution or other winding up of the Debtor or
Debtor's business, or in the event of any sale or Insolvency Proceedings with
respect to the Debtor or its assets, then in any such event, any payment,
distribution or benefit of any kind whatsoever or character, either in cash,
securities or other property, which shall be payable, deliverable or
receivable
upon or with respect to all or any part of the Debtor's assets shall be paid
or
delivered directly to the Agent or FINOVA in accordance with their respective
rights thereto as set forth in this Agreement for application to,
respectively,
the Bank Indebtedness or the FINOVA Indebtedness (whether due or not due and
in
such order and manner, respectively, as the Agent or FINOVA may elect; and
including, without limitation any interest accruing subsequent to the
commencement of any such event or Insolvency Proceedings) until, respectively,
the Bank Indebtedness and the FINOVA Indebtedness shall have been fully and
indefeasibly paid in cash and satisfied (and any commitments of the Banks with
respect thereto terminated). Should any payment or distribution not permitted
by
the provisions of this Agreement or property or proceeds thereof be received
by
FINOVA or the Agent upon or with respect to all or any part of the Bank
Priority
Collateral or FINOVA Priority Collateral prior to the full payment and
satisfaction, respectively, of the Bank Indebtedness or the FINOVA
Indebtedness
(and any commitments of the Banks with respect thereto terminated), the Agent
and FINOVA will deliver the same to the other in precisely the form received
(except for the non-recourse endorsement or assignment of the Agent or FINOVA
when the other deems appropriate), for application, respectively, to the Bank
Indebtedness or the FINOVA Indebtedness (whether due or not due and in such
order and manner, respectively, as the Agent or FINOVA may elect; and
including,
without limitation any interest accruing subsequent to the commencement of any
such event or Insolvency Proceedings), and, until so delivered, the same shall
be held in trust by the Agent and FINOVA as property of the other. In the
event
of the failure of FINOVA or the Agent to make any such endorsement or
assignment, FINOVA and the Agent, or any of their respective officers or
employees on behalf of FINOVA or the Agent, is hereby irrevocably authorized
in
its own name or in the respective name of the Agent and FINOVA to make the
same,
and is hereby appointed the other's attorney-in-fact solely for those
purposes,
that appointment being coupled with an interest and irrevocable.
4 ARTICLE
ADDITIONAL AGREEMENTS
SECTION 4.1 Consents, Waivers, etc. Except as provided in
Section 2.1 above, each of the Agent and FINOVA hereby consents that at
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any time and from time to time and with or without consideration, the Agent
and
FINOVA may, respectively, without further consent of or notice (except for
notice as required by applicable law) to the other and without in any manner
affecting, impairing, lessening or releasing any of the provisions of this
Agreement, renew, extend, change the manner, time, place and terms of payment
of, sell, exchange, release, substi tute, surrender, realize upon, modify,
waive, grant indulgences with respect to and otherwise deal with in any
manner:
(a) all or any part of the Bank Indebtedness or the FINOVA Indebtedness; (b)
all
or any of the Bank Loan Documents or the FINOVA Loan Documents; (c) all or any
part of any property at any time by the Agent included within the Bank
Priority
Collateral, or all or any part of any property at any time by FINOVA included
within FINOVA Priority Collateral; and (d) any Person at any time primarily or
secondarily liable for all or any part of, respectively, the Bank
Indebtedness,
the FINOVA Indebtedness and/or any collateral and security therefor, all as if
this Agreement did not exist. FINOVA hereby waives demand, presentment for
payment, protest, notice of dishonor and of protest with respect to the Bank
Indebtedness and/or the Bank Priority Collateral, notice of acceptance of this
Agreement, notice of the making of any of the Bank Indebtedness and notice of
default under any of the Bank Loan Documents. The Agent hereby waives demand,
presentment for payment, protest, notice of dishonor and of protest with
respect
to the FINOVA Indebtedness and/or FINOVA Priority Collateral, notice of
acceptance of this Agreement, notice of the making of any of the FINOVA
Indebtedness and notice of default under any of the FINOVA Loan Documents.
SECTION 4.2 Continuing Agreement. This is a continuing agreement until
all
of the Bank Indebtedness and the FINOVA Indebtedness has been fully and
indefeasibly paid in cash.
SECTION 4.3 No Third Party Beneficiaries. The provisions of this
Agreement
are solely for the benefit of the Agent, the Banks and FINOVA, their
respective
successors and assigns, and there are no other parties or Persons whatsoever
(including, without limitation, the Debtor, its successors and assigns) who
are
intended to be benefitted in any manner whatsoever by this Agreement.
SECTION 4.4 Notice of Defaults. The Debtor agrees that it shall,
promptly
upon receipt from FINOVA but in no event later than 5 business days after such
receipt, send a copy to the Agent of any written notice of a default or event
of
default received by the Debtor from FINOVA under the FINOVA Loan Documents.
The
Debtor agrees that it shall, promptly upon receipt from the Agent but in no
event later than 5 business days after such receipt, send a copy to FINOVA of
any written
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notice of a default or event of default received by the Debtor from the Agent
under the Bank Loan Documents.
5 ARTICLE
MISCELLANEOUS
SECTION 5.1 Further Advances. Nothing herein contained shall obligate
the
Agent or the Banks, or FINOVA, to grant credit to, or continue financing
arrangements with, the Debtor.
SECTION 5.2 Delay in Enforcement, etc. No delay or failure on the part
of
the Agent or FINOVA to exercise any of their respective rights or remedies
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise, or any partial or single exercise thereof, shall constitute a
waiver
thereof. All such rights and remedies are cumulative and may be exercised
singly
or concurrently and the exercise of any one or more of them will not be a
waiver
of any other. No waiver of any of their rights and remedies hereunder, and no
modification or amendment of this Agreement shall be deemed to be made by the
parties hereto unless the same shall be in writing, duly signed on behalf of
the
respective parties, and each such waiver, if any, shall apply only with
respect
to the specific instance involved and shall in no way impair the rights and
remedies of the Agent or FINOVA hereunder in any other respect at any other
time.
SECTION 5.3 Successors and Assigns. This Agreement shall be binding upon
the Agent, FINOVA and the Debtor and the Agent's, FINOVA's and the Debtor's
respective successors and assigns.
SECTION 5.4 Headings. The titles and headings of Articles, sections or
other parts of this Agreement are for convenience only, and shall not limit or
otherwise affect any of the terms hereof.
SECTION 5.5 Governing Law and Submission to Jurisdiction. This Agreement
shall be governed and construed in accordance with the laws of the State of
Georgia. Each of the parties hereto agrees that the Federal District Court of
the Northern District of Georgia or any state court located in Fulton County,
Georgia shall have jurisdiction to hear and determine any claims or disputes
between or among the parties to this Agreement. Each of the parties hereto
expressly submits and consents in advance to such jurisdiction in any action
or
proceeding commenced in such courts.
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SECTION 5.6 Notices. All notices, requests and demands to or upon the
parties to this Agreement shall be deemed to have been given or made when
delivered by hand, or three (3) days after the date when deposited in the
mail,
postage prepaid by registered or certified mail, return receipt requested, or,
in the case of telegraphic notice, when delivered to the telegraphic company
and
when properly transmitted, or, when sent by overnight courier, on the first
business day after the day when delivered to such overnight courier. All such
notices shall be ad dressed to the Agent, the Debtor and FINOVA as set forth
below the signature lines to this Agreement, or to such other address as may
be
hereafter designated by notice by one party to the other.
IN WITNESS THEREOF, the signatures and seals of the Agent, FINOVA and of
the Debtor are subscribed to this Agreement as of the date first written
above.
WITNESS: WACHOVIA BANK, N.A., as Agent
_________________________ By:_____________________(SEAL)
Name:
Agent Address: Title:
191 Peachtree Street
30th Floor
Atlanta, GA 30303
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<PAGE>
WITNESS: FINOVA CAPITAL CORPORATION
_________________________ By:_____________________(SEAL)
Name:
FINOVA Address: Title:
Attention: Pat Smith, VP Credit
1060 1st Avenue
Suite 100
King of Prussia, PA 19406
WITNESS: SED INTERNATIONAL, INC.
_________________________ By:_____________________(SEAL)
Name:
Debtor Address: Title:
4916 North Royal Atlanta Drive
Tucker, GA 30084
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<PAGE>
EXHIBIT O
FORM OF SUBSIDIARY GUARANTY
GUARANTY
THIS GUARANTY (this "Guaranty") is made as of
,
199 , by , a corporation (the "Guarantor") in favor of the Agent, for the
ratable benefit of the Banks, under the Credit Agreement referred to below;
W I T N E S S E T H
WHEREAS, SED INTERNATIONAL HOLDINGS, INC. and SED INTERNATIONAL,
INC., jointly and severally, (the "Borrowers") and WACHOVIA BANK, N.A., as
Agent
(the "Agent"), and certain other Banks from time to time party thereto have
entered into a certain Second Amended and Restated Credit Agreement dated as
of
, 1999 (as it may be amended or modified further from time to time, the
"Credit
Agreement"), providing, subject to the terms and conditions thereof, for
extensions of credit to be made by the Banks to the Borrowers for the benefit
of
the Guarantor;
WHEREAS, it is required by Section 4.01(l) of the Credit
Agreement,
that the Guarantor execute and deliver this Guaranty whereby the Guarantor
shall
guarantee the payment when due of all principal, interest and other amounts
that
shall be at any time payable by the Borrowers under the Credit Agreement, the
Notes and the other Loan Documents; and
WHEREAS, in consideration of the financial and other support that
the Borrowers have provided, and such financial and other support as the
Borrowers may in the future provide, to Guarantor, whether directly or
indirectly, and in order to induce the Banks and the Agent to enter into the
Credit Agreement, the Guarantor is willing to guarantee the obligations of the
Borrowers under the Credit Agreement, the Notes, and the other Loan Documents;
NOW, THEREFORE, in consideration of the premises and other good
and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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SECTION 1. Definitions. Terms defined in the Credit
Agreement and not otherwise defined herein have, as used herein, the
respective meanings provided for therein.
SECTION 2. Representations and Warranties. The Guarantor
incorporates herein by reference as fully as if set forth herein all of the
representations and warranties pertaining to a Subsidiary contained in Article
V
of the Credit Agreement (which representations and warranties shall be deemed
to
have been renewed by the Guarantor upon each Borrowing under the Credit
Agreement.
SECTION 3. Covenants. The Guarantor covenants that, so long as any
Bank has any Commitment outstanding under the Credit Agreement or any amount
payable under the Credit Agreement or any Note shall remain unpaid, that the
Guarantor will fully comply with those covenants pertaining to a Subsidiary
contained in Article VI of the Credit Agreement.
SECTION 4. The Guaranty. The Guarantor hereby unconditionally
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal of and interest on each Note
issued
by the Borrowers pursuant to the Credit Agreement, and the full and punctual
payment of all other Obligations (defined in the Credit Agreement) (all of the
foregoing obligations being referred to collectively as the "Guaranteed
Obligations"). Upon failure by the Borrowers to pay punctually any such
amount,
the Guarantor agrees that it shall forthwith on demand pay the amount not so
paid at the place and in the manner specified in the Credit Agreement, the
relevant Note or the relevant Loan Document, as the case may be.
Notwithstanding
the foregoing, the Guarantor shall not have any liability hereunder for an
amount in excess of the greater of: (A) (i) the sum of (x) the aggregate
principal amount of all loans, advances and other financial accommodations
made
to the Guarantor by the Borrowers, directly or indirectly, both prior to and
after the date hereof, less (y) all amounts repaid by the Guarantor thereon;
plus (ii) interest on the amount determined under clause (i) from the date due
until the date paid at the Default Rate; plus (iii) all costs of collection,
including reasonable attorneys fees; and (B) the maximum amount of liability
which could be asserted against the Guarantor hereunder without (i) rendering
the Guarantor "insolvent" within the meaning of Section 101(31) of the Federal
Bankruptcy Code (the "Bankruptcy Code") or Section 2 of either the Uniform
Fraudulent Transfer Act (the "UFTA") or the Uniform Fraudulent Conveyance Act
(the "UFCA"), (ii) leaving the Guarantor with unreasonably small capital,
within
the meaning of Section 548 of the Bankruptcy Code or Section 4 of the UFTA or
Section 5 of the UFCA or
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(iii) leaving such Contributing Party unable to pay its debts as they become
due
within the meaning of Section 548 of the Bankruptcy Code or Section 4 of the
UFTA or Section 6 of the UFCA, or (iv) rendering the obligation of the
Guarantor
hereunder avoidable under any other applicable state statute pertaining to
fraudulent transfers.
SECTION 5. Guaranty Unconditional. The obligations of the
Guarantor hereunder shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Borrowers under the Credit
Agreement, any Note, or any other Loan Document, by operation of law or
otherwise or any obligation of any other guarantor of any of the
Guaranteed
Obligations;
(ii) any modification or amendment of or supplement to the
Credit Agreement, any Note, or any other
Loan Document;
(iii) any release, nonperfection or invalidity of any direct
or
indirect security for any obligation of the Borrowers under the Credit
Agreement, any Note, any Loan Document, or any obligations of any other
guarantor of any of the Guaranteed Obligations;
(iv) any change in the corporate existence, structure or
ownership of the Borrowers or any other guarantor of any of the
Guaranteed
Obligations, or any insolvency, bankruptcy, reorganization or other
similar
proceeding affecting the Borrowers, or any other guarantor of the
Guaranteed Obligations, or its assets or any resulting release or
discharge
of any obligation of the Borrowers, or any other guarantor of any of the
Guaranteed Obligations;
(v) the existence of any claim, setoff or other rights which
the Guarantor may have at any time against the Borrowers, any other
guarantor of any of the Guaranteed Obligations, the Agent, any Bank or
any
other Person, whether in connection herewith or any unrelated
transactions,
provided that nothing herein shall prevent
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<PAGE>
the assertion of any such claim by separate suit or
compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or
against
the Borrowers, or any other guarantor of any of the Guaranteed
Obligations,
for any reason related to the Credit Agreement, any other Loan Document,
or
any other Guaranty, or any provision of applicable law or regulation
purporting to prohibit the payment by the Borrowers, or any other
guarantor
of the Guaranteed Obligations, of the principal of or interest on any
Note
or any other amount payable by the Borrowers under the Credit Agreement,
the Notes, or any other Loan Document; or
(vii) any other act or omission to act or delay of any kind
by
the Borrowers, any other guarantor of the Guaranteed Obligations, the
Agent, any Bank or any other Person or any other circumstance whatsoever
which might, but for the provisions of this paragraph, constitute a legal
or equitable discharge of the Guarantor's obligations hereunder,
including
without limitation, any failure, omission, delay or inability on the part
of the Agent or any Bank to enforce, assert or exercise any right power
or
remedy conferred on the Agent or any Bank under the Credit Agreement or
any
other Loan Documents.
SECTION 6. Discharge Only Upon Payment In Full; Reinstatement In
Certain Circumstances. The Guarantor's obligations hereunder shall remain in
full force and effect until all Guaranteed Obligations shall have been paid in
full and the Commitments under the Credit Agreement shall have terminated or
expired. If at any time any payment of the principal of or interest on any
Note
or any other amount payable by the Borrowers under the Credit Agreement or any
other Loan Document is rescinded or must be otherwise restored or returned
upon
the insolvency, bankruptcy or reorganization of the Borrowers or otherwise,
the
Guarantor's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
SECTION 7. Waiver of Notice by the Guarantor. The Guarantor
irrevocably waives acceptance hereof, presentment, demand, protest and, to the
fullest extent permitted by law, any notice not provided for herein, as well
as
any requirement that at
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any time any action be taken by any Person against the Borrowers, any other
guarantor of the Guaranteed Obligations, or any other Person.
SECTION 8. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Borrowers under the Credit Agreement, any
Note or any other Loan Document is stayed upon the insolvency, bankruptcy or
reorganization of the Borrowers, all such amounts otherwise subject to
acceleration under the terms of the Credit Agreement, any Note or any other
Loan
Document shall nonetheless be payable by the Guarantor hereunder forthwith on
demand by the Agent made at the request of the Required Banks.
SECTION 9. Notices. All notices, requests and other communications
to
any party hereunder shall be given or made by telecopier or other writing and
telecopied or mailed or delivered to the intended recipient at its address or
telecopier number set forth on the signature pages hereof or such other
address
or telecopy number as such party may hereafter specify for such purpose by
notice to the Agent in accordance with the provisions of Section 10.01 of the
Credit Agreement. Except as otherwise provided in this Guaranty, all such
communications shall be deemed to have been duly given when transmitted by
telecopier, or personally delivered or, in the case of a mailed notice, 72
hours
after such communication is deposited in the mails with first class postage
prepaid, in each case given or addressed as aforesaid.
SECTION 10. No Waivers. No failure or delay by the Agent or any
Banks
in exercising any right, power or privilege hereunder shall operate as a
waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.
The rights and remedies provided in this Guaranty, the Credit Agreement, the
Notes, and the other Loan Documents shall be cumulative and not exclusive of
any
rights or remedies provided by law.
SECTION 11. Successors and Assigns. This Guaranty is for the
benefit
of the Agent and the Banks and their respective successors and assigns and in
the event of an assignment of any amounts payable under the Credit Agreement,
the Notes, or the other Loan Documents, the rights hereunder, to the extent
applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty may not be assigned by the Guarantor without the
prior written consent of the Agent and the Required
AT: 1030545v10
165
<PAGE>
Banks, and shall be binding upon the Guarantor and its
successors
and permitted assigns.
SECTION 12. Changes in Writing. Neither this Guaranty nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Guarantor and the Agent with the consent of the
Required Banks.
SECTION 13. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF GEORGIA.
EACH
OF THE GUARANTOR AND THE AGENT HEREBY SUBMITS TO THE
NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN
DISTRICT OF GEORGIA AND OF ANY GEORGIA STATE COURT SITTING IN
ATLANTA, GEORGIA AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING
OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
THE
GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE GUARANTOR AND THE AGENT HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 14. Taxes, etc. All payments required to be made by the
Guarantor hereunder shall be made without setoff or counterclaim and free and
clear of and without deduction or withholding for or on account of, any
present
or future taxes, levies, imposts, duties or other charges of whatsoever nature
imposed by any government or any political or taxing authority as required
pursuant to the Credit Agreement.
SECTION 15. Subrogation. Each Guarantor hereby agrees that it will
not exercise any rights which it may acquire by way of subrogation under this
Guaranty, by any payment made hereunder or otherwise, unless and until all of
the Guaranteed Obligations shall have been paid in full. If any amount shall
be
paid to any Guarantor on account of such subrogation rights at any time when
all
of the Guaranteed Obligations shall not have been paid in full, such amount
shall be held in trust for the benefit of the Agent and the Banks and shall
forthwith be paid to the Agent to be credited and applied upon the Guaranteed
Obligations, whether matured or unmatured, in accordance with the terms of the
Credit Agreement.
AT: 1030545v10
166
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
duly
executed, under seal, by its authorized officer as of
the date first above written.
, a
corporation (SEAL)
By:
Title:
Attention:
Telecopier number:
Confirmation number:
AT: 1030545v10
167
<PAGE>
Schedule
5.08
Subsidiaries of SED International Holdings, Inc.
Name Jurisdiction of Incorporation
SED International, Inc. Georgia
Subsidiaries of SED International, Inc.
DOMESTIC SUBSIDIARIES:
Name Jurisdiction of Incorporation
SED Magna (Miami), Inc. Delaware
SED Retail, Inc. Georgia
e-store.Com, Inc. Georgia
FOREIGN SUBSIDIARIES:
Name Jurisdiction of Incorporation
SED International de
Brasil Distribuidora Ltda. Brazil
Intermaco S.R.L. Argentina
SED de Colombia LDTA. Colombia
AT: 1030545v10
168
<PAGE>
INDEMNIFICATION AGREEMENT
FOR DIRECTORS
OF
SED INTERNATIONAL HOLDINGS, INC.
This Indemnification Agreement ("Agreement") is made as of the ____ day
of
______________, 1999, by and between SED International Holdings, Inc., a
Georgia
corporation (the "Company"), and ____________________, a member of the Board
of
Directors of the Company (the "Indemnitee").
RECITALS
WHEREAS, the Company desires to attract and retain the services of
certain
individuals, including Indemnitee, to serve as directors of the Company; and
WHEREAS, the Company believes that Indemnitee's service as a director is
important to the Company and that the protection afforded by this Agreement
will
enhance Indemnitee's ability to discharge his or her responsibilities as a
director; and
WHEREAS, in order to induce Indemnitee to continue to serve as a
director
of the Company, the Board of Directors of the Company has determined that it
is
in its best interests of the Company for the Company to enter into this
Agreement with Indemnitee which is intended to provide to Indemnitee at all
times the broadest and most favorable possible indemnification permitted by
applicable law (whether by legislative action or judicial decision); and
WHEREAS, Indemnitee is willing, subject to certain conditions including,
without limitation, the execution and performance of this Agreement by the
Company, to continue to serve as a director of the Company;
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises and covenants set forth in this Agreement, and Indemnitee's agreement
to serve or continue to serve as a director of the Company after the date of
this Agreement, the parties agree as follows:
1. SERVICE AS A DIRECTOR. Indemnitee will serve as a director of the
Company so long as he or she is duly elected and qualified to serve in such
capacity or until his or her earlier death, resignation or removal.
2. INDEMNIFICATION. (a) The Company shall indemnify and hold harmless
the
Indemnitee if and when he or she was or is made a party to, is threatened to
be
made a party to, or is otherwise involved in any manner (including without
limitation as a deponent or a witness) or is threatened to be made so
involved,
in any threatened,
<PAGE>
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (including without limitation any
proceeding brought by or in the right of the Company), formal or informal, any
appeals therefrom, and any inquiry or investigation that could lead to such an
action, suit or proceeding (each a "Proceeding"), by reason of the fact that
he
or she is or was or had agreed to become a director, officer, employee or
agent
of the Company, or is or was serving or had agreed to serve at the request of
the Company as a director, officer, partner, member, trustee, employee or
agent
(each an "Authorized Capacity") of another corporation, partnership, joint
venture, trust or other enterprise (including, without limitation, service
with
respect to employee benefit plans), or by reason of any action alleged to have
been taken or omitted in such capacity, against any and all costs, charges and
expenses (including attorneys' and others' fees), judgments, fines and amounts
paid in settlement (collectively, "Losses") actually and reasonably incurred
by
Indemnitee in connection with such Proceeding to the fullest extent permitted
by
applicable law, as currently or hereafter in force. In the event of any change
in any law, statute or rule which narrows the right of a Georgia corporation
to
indemnify its directors, such change, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement, shall have no
affect
on this Agreement or the parties' rights and obligations hereunder.
(b) In the event of payment under this Agreement, the Company
shall
be subrogated to the extent of such payment to all of the rights of recovery
of
the Indemnitee, who shall execute all papers required and shall do everything
that may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
(c) The Company shall not be liable under this Agreement to make
any
payment in connection with any claim made against the Indemnitee:
(i) for which payment is actually made to the Indemnitee
under
a valid and collectible insurance policy, except in respect of any
excess beyond the amount of payment under such insurance;
(ii) for which the Indemnitee is entitled to indemnity
and/or
payment by reason of having given notice of any circumstance which
might give rise to a claim under any policy of insurance, the
terms
of which have expired prior to the effective date of this
Agreement;
(iii) for which the Indemnitee is indemnified by the Company
otherwise than pursuant to this Agreement;
(iv) based upon or attributable to the Indemnitee gaining in
fact any personal profit or advantage to which he or she was not
legally entitled;
(v) for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of the Company within the
meaning of
<PAGE>
Section 16(b) of the Securities Exchange Act of 1934, as
amended, or similar provisions of any state statutory law; or
(vi) brought about or contributed to by the dishonesty of
the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement
as
to any claims upon which suit may be brought against him or her by
reason of any alleged dishonesty on his or her part, unless a
judgment or other final adjudication thereof adverse to Indemnitee
shall establish that he or she committed acts of active and
deliberate dishonesty with actual dishonest purpose and intent,
which acts were material to the cause of action so adjudicated.
3. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. (a) Except as otherwise permitted or required by the Georgia
Business
Corporation Code (the "GBCC"), for purposes of pursuing his or her rights to
indemnification, the Indemnitee shall submit to the Company (to the attention
of
the Corporate Secretary) a statement of request for indemnification stating
that
he or she believes that he or she is entitled to indemnification pursuant to
this Agreement, together with such documents supporting the request as are
reasonably available to the Indemnitee and are reasonably necessary to
determine
whether and to what extent the Indemnitee is entitled to indemnification
hereunder. Upon receipt of any Indemnification Statement, the Corporate
Secretary will promptly advise the Board of Directors of the Company in
writing
that the Indemnitee has requested indemnification. The Indemnitee's
entitlement
to indemnification under SECTION 2 will be determined in accordance with the
provisions of the GBCC within 30 calendar days after receipt by the Company of
a
request for Indemnification.
(b) The Company shall advance all reasonable expenses incurred by
Indemnitee in connection with any Proceeding if Indemnitee submits to the
Company a written undertaking (the "Undertaking") substantially in the form
attached hereto as Annex I, stating that (i) he or she believes that he or she
has met the standard of conduct set forth in Section 14-2-851 of the GBCC or
that the proceeding involves conduct for which liability has been eliminated
under a provision of the Articles of Incorporation as authorized by paragraph
(4) of subsection (b) of Section 14-2-202 of the GBCC, (ii) he or she has
incurred or will incur actual expenses in connection with a Proceeding and
(ii)
if and to the extent required by law at the time of such advance, he or she
undertakes to repay such amounts advanced as to which it ultimately is
determined that the Indemnitee is not entitled to indemnification under this
Agreement. Within 45 calendar days after receipt of an Undertaking, the
Company
will, in accordance with the provisions of Article 8, Part 5 of the GBCC, make
payment of the costs, charges and expenses stated in the Undertaking. No
security will be required in connection with any Undertaking and any
Undertaking
will be accepted, and all such payments shall be made, without reference to
the
Indemnitee's ability to make repayment.
<PAGE>
4. ENFORCEMENT. (a) If the Company determines that Indemnitee is not
entitled to indemnification under this Agreement, Indemnitee shall be entitled
to seek adjudication of his or her entitlement to indemnification in an
appropriate court in the State of Georgia.
(b) It is the Company's intent that Indemnitee not be required to
incur any expenses associated with the enforcement of his or her rights under
this Agreement. Accordingly, if in any proceeding brought under this Section 4
the Indemnitee is found to be entitled to indemnification, the Company shall
reimburse Indemnitee for all costs and expenses (including attorneys' fees)
incurred in connection with the enforcement of this Agreement.
(c) It shall be a defense to any proceeding brought under this
Section 4 (other than a proceeding brought to enforce a claim for expenses
incurred in connection with any action, suit or proceeding in advance of its
final disposition) that Indemnitee has not met the standards of conduct which
make it permissible under applicable law for the Company to indemnify
Indemnitee
for the amount claimed, but the burden of proving such defense shall be on the
Company and Indemnitee shall be entitled to receive interim payments of
interim
expenses pursuant to Section 2 hereof unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of
the
Company (including its Board of Directors, any committee of the Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination that indemnification of Indemnitee is proper in the
circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its
Board
of Directors, any committee of the Board of Directors, independent legal
counsel, or its shareholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
5. PARTIAL INDEMNITY. If the Indemnitee is entitled under any
provisio
of this Agreement to indemnification by the Company for some or a portion of
the
costs, charges, expenses, judgments, fines and amounts paid in settlement of a
Proceeding but not, however, for the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for the portion thereof to which the
Indemnitee is entitled.
6. NONEXCLUSIVITY AND SEVERABILITY. (a) The right to indemnification
and advancement of expenses provided by this Agreement is not exclusive of any
other right to which the Indemnitee may be entitled under the Articles of
Incorporation or the Bylaws of the Company or under the GBCC, any other
statute,
insurance policy, agreement, vote of shareholders or of directors or
otherwise,
both as to actions in an Authorized Capacity and as to actions in another
capacity while holding such office, and will continue after the Indemnitee has
ceased to serve in an Authorized Capacity and will inure to the benefit of his
or her heirs, executors and administrators; PROVIDED, HOWEVER, that, to the
extent the Indemnitee otherwise would have any greater right to
<PAGE>
indemnification or advancement of expenses under any provision of the Articles
of Incorporation or the Bylaws, as the same exist or may hereafter be amended,
the Indemnitee will be deemed to have such greater right pursuant to this
Agreement; and, PROVIDED FURTHER, that, inasmuch as it is the intention of the
Company to provide the Indemnitee with the broadest and most favorable
possible
indemnity permitted by applicable law (whether by legislative action or
judicial
decision), to the extent that the Georgia law currently or in the future
permits
(whether by legislative action or judicial decision) any greater right to
indemnification or advancement of expenses than that provided under this
Agreement, the Indemnitee will automatically, without the necessity of any
further action by the Company or the Indemnitee, be deemed to have such
greater
right pursuant to this Agreement.
(b) The Company will not adopt any amendment to the Articles of
Incorporation or Bylaws of the Company the effect of which would be to deny,
diminish or encumber the Indemnitee's rights to indemnity pursuant to the
Articles of Incorporation or the Bylaws or under the GBCC or any other
applicable law as applied to any act or failure to act occurring in whole or
in
part prior to the date upon which any such amendment was approved by the Board
of Directors or the shareholders of the Company, as the case may be.
Notwithstanding the foregoing, if the Company adopts any amendment to the
Articles of Incorporation or Bylaws the effect of which is to so deny,
diminish
or encumber the Indemnitee's rights to such indemnity, such amendment will
apply
only to acts or failures to act occurring entirely after the effective date
thereof.
(c) If any provision or provisions of this Agreement are held to
be
invalid, illegal or unenforceable for any reason whatsoever: (i) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable,
that
are not themselves invalid, illegal or unenforceable) will not in any way be
affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this Agreement (including without limitation all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) will be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
7. LIABILITY INSURANCE. The Company shall maintain director and
officer
liability insurance coverage. If at any time after the date hereof the Company
elects to change director and officer liability insurance carriers, it shall
be
a condition to such change that the new policy provide coverage for expenses
and
liability arising from or in connection with events, acts or omissions
occurring, or alleged to have occurred, prior to the date of the new policy.
8. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Georgia, without giving effect to the
principles
<PAGE>
of conflict of laws.
9. MODIFICATION; SURVIVAL. This Agreement contains the entire
agreement
of the parties relating to the subject matter hereof and supercedes all prior
indemnification agreements, whether oral or written, between the Company and
the
Indemnitee; PROVIDED, however, that this provision shall not be construed to
affect the Company's obligations to the Indemnitee under the Articles of
Incorporation or Bylaws of the Company. This Agreement may be modified only by
an instrument in writing signed by both parties hereto. The provisions of this
Agreement will survive the death, disability or incapacity of the Indemnitee
or
the termination of the Indemnitee's service as a director of the Company or in
an Authorized Capacity of or for the Company or another entity and will inure
to
the benefit of the Indemnitee's heirs, executors and administrators.
10. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless made in writing
signed by both parties hereto.
11. CHANGE IN POSITION. Notwithstanding any change in the position(s)
shown below as held by the Indemnitee with the Company, this Agreement shall
continue in full force and effect, and a new agreement between the parties
hereto need not be executed and delivered as long as Indemnitee continues to
serve as an officer and/or member of the Board of Directors of the Company or
any subsidiary of the Company.
12. NOTICES. All notices and other communications hereunder shall be
in
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
(a) if to the Company:
SED International Holdings, Inc.
4916 N. Royal Atlanta Drive
Tucker, Georgia 30085-5044
Attn: Corporate Secretary
Telephone: (770) 491-8962
Facsimile: (770) 938-2814
(b) if to the Indemnitee:
__________________________
__________________________
__________________________
Telephone: _________________
<PAGE>
Facsimile: _________________
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the third calendar day after the date postmarked; in the
case of notice so given by overnight delivery service, on the date of actual
delivery; and, in the case of notice so given by cable, telegram, facsimile
transmission, telex or personal delivery, on the date of actual transmission
or,
as the case may be, personal delivery.
(Signatures on following page)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
SED INTERNATIONAL HOLDINGS, INC.
By:
Name:
Title:
INDEMNITEE
Name:
Title:
<PAGE>
ANNEX I
UNDERTAKING AGREEMENT
This AGREEMENT is made and entered into as of __________________, 1999,
by
and between SED INTERNATIONAL HOLDINGS, INC., a Georgia corporation (the
"Company"), and ________________, a member of the Board of Directors of the
Company ("Indemnitee").
WHEREAS, Indemnitee has become involved in investigations, claims,
actions, suits or proceedings which have arisen as a result of Indemnitee's
service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in
advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed
by
insurance; and
WHEREAS, the Company is willing to make such payments if it receives an
undertaking from the Indemnitee to repay these amounts as required by Section
14-2-853 of the Georgia Business Corporations Code (the "GBCC"); and
WHEREAS, Indemnitee is willing to give such an undertaking.
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises contained herein, the parties agree as follows:
1. In regard to any payments advanced by the Company to Indemnitee
pursuant to the terms of the Indemnification Agreement dated as of
___________,
1999 between the Company and Indemnitee, Indemnitee hereby undertakes and
agrees
to repay to the Company any and all amounts so advanced promptly and in any
event within thirty (30) days after the disposition, including any appeals, of
any litigation or threatened litigation on account of which payments were
advanced; provided, however, that Indemnitee shall not be required to repay
the
amount as to which he or she is determined to be entitled to be indemnified by
the Company under Article X of the Articles of Incorporation and Article VII
of
the Bylaws of the Company and Section 14-2-850 et al. of the GBCC or other
applicable law.
2. The Indemnitee affirms his or her good faith belief that he or she
has
met the relevant standard of conduct described in Section 14-2-851 of the GBCC
or that the proceeding involves conduct for which liability has been
eliminated
under a provision of the Articles of Incorporation as authorized by paragraph
(4) of subsection (b) of Section 14-2-202 of the GBCC.
<PAGE>
3. This Agreement shall not affect in any manner the rights which
Indemnitee may have against the Company, any insurer or any other person to
seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
SED INTERNATIONAL HOLDINGS, INC.
By:
Name:
Title:
INDEMNITEE
By:
Name:
Title:
INDEMNIFICATION AGREEMENT
FOR OFFICERS
OF
SED INTERNATIONAL HOLDINGS, INC.
This Indemnification Agreement ("Agreement") is made as of the ____ day
of
______________, 1999, by and between SED International Holdings, Inc., a
Georgia
corporation (the "Company"), and ____________________, an officer of the
Company
(the "Indemnitee").
RECITALS
WHEREAS, the Company desires to attract and retain the services of
certain
individuals, including Indemnitee, to serve as officers of the Company; and
WHEREAS, the Company believes that Indemnitee's service as an officer is
important to the Company and that the protection afforded by this Agreement
will
enhance Indemnitee's ability to discharge his or her responsibilities as an
officer; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer
of the Company, the Board of Directors of the Company has determined that it
is
in its best interests of the Company for the Company to enter into this
Agreement with Indemnitee which is intended to provide to Indemnitee at all
times the broadest and most favorable possible indemnification permitted by
applicable law (whether by legislative action or judicial decision); and
WHEREAS, Indemnitee is willing, subject to certain conditions including,
without limitation, the execution and performance of this Agreement by the
Company, to continue to serve as an officer of the Company;
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises and covenants set forth in this Agreement, and Indemnitee's agreement
to serve or continue to serve as an officer of the Company after the date of
this Agreement, the parties agree as follows:
1. SERVICE AS AN OFFICER. Indemnitee will serve as an officer of the
Company so long as he or she is duly elected and qualified to serve in such
capacity or until his or her earlier death, resignation or removal. For the
purposes of this Agreement, the term "officer" includes in-house counsel to
the
Company.
2. INDEMNIFICATION. (a) The Company shall indemnify and hold harmless
the
Indemnitee if and when he or she was or is made a party to, is threatened to
be
made a party to, or is otherwise involved in any manner (including without
limitation as a
<PAGE>
deponent or a witness) or is threatened to be made so involved, in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative (including without
limitation any proceeding brought by or in the right of the Company), formal
or
informal, any appeals therefrom, and any inquiry or investigation that could
lead to such an action, suit or proceeding (each a "Proceeding"), by reason of
the fact that he or she is or was or had agreed to become an officer of the
Company, or is or was serving or had agreed to serve at the request of the
Company as a director, officer, partner, member, trustee, employee or agent
(each an "Authorized Capacity") of another corporation, partnership, joint
venture, trust or other enterprise (including, without limitation, service
with
respect to employee benefit plans), or by reason of any action alleged to have
been taken or omitted in such capacity, against any and all costs, charges and
expenses (including attorneys' and others' fees), judgments, fines and amounts
paid in settlement (collectively, "Losses") actually and reasonably incurred
by
Indemnitee in connection with such Proceeding to the fullest extent permitted
by
applicable law, as currently or hereafter in force. In the event of any change
in any law, statute or rule which narrows the right of a Georgia corporation
to
indemnify its officers, such change, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement, shall have no
affect
on this Agreement or the parties' rights and obligations hereunder.
(b) In the event of payment under this Agreement, the Company
shall
be subrogated to the extent of such payment to all of the rights of recovery
of
the Indemnitee, who shall execute all papers required and shall do everything
that may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
(c) The Company shall not be liable under this Agreement to make
any
payment in connection with any claim made against the Indemnitee:
(i) for which payment is actually made to the Indemnitee
under
a valid and collectible insurance policy, except in respect of any
excess beyond the amount of payment under such insurance;
(ii) for which the Indemnitee is entitled to indemnity
and/or
payment by reason of having given notice of any circumstance which
might give rise to a claim under any policy of insurance, the
terms
of which have expired prior to the effective date of this
Agreement;
(iii) for which the Indemnitee is indemnified by the Company
otherwise than pursuant to this Agreement;
(iv) based upon or attributable to the Indemnitee gaining in
fact any personal profit or advantage to which he or she was not
legally entitled;
<PAGE>
(v) for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Securities Exchange Act of 1934,
as
amended, or similar provisions of any state statutory law; or
(vi) brought about or contributed to by the dishonesty of
the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement
as
to any claims upon which suit may be brought against him or her by
reason of any alleged dishonesty on his or her part, unless a
judgment or other final adjudication thereof adverse to Indemnitee
shall establish that he or she committed acts of active and
deliberate dishonesty with actual dishonest purpose and intent,
which acts were material to the cause of action so adjudicated.
3. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. (a) Except as otherwise permitted or required by the Georgia
Business
Corporation Code (the "GBCC"), for purposes of pursuing his or her rights to
indemnification, the Indemnitee shall submit to the Company (to the attention
of
the Corporate Secretary) a statement of request for indemnification stating
that
he or she believes that he or she is entitled to indemnification pursuant to
this Agreement, together with such documents supporting the request as are
reasonably available to the Indemnitee and are reasonably necessary to
determine
whether and to what extent the Indemnitee is entitled to indemnification
hereunder. Upon receipt of any Indemnification Statement, the Corporate
Secretary will promptly advise the Board of Directors of the Company in
writing
that the Indemnitee has requested indemnification. The Indemnitee's
entitlement
to indemnification under SECTION 2 will be determined in accordance with the
provisions of the GBCC within 30 calendar days after receipt by the Company of
a
request for Indemnification.
(b) The Company shall advance all reasonable expenses incurred by
Indemnitee in connection with any Proceeding if Indemnitee submits to the
Company a written undertaking (the "Undertaking") substantially in the form
attached hereto as Annex I, stating that (i) he or she believes that he or she
has met the standard of conduct set forth in Section 14-2-851 of the GBCC or
that the proceeding involves conduct for which liability has been eliminated
under a provision of the Articles of Incorporation as authorized by paragraph
(4) of subsection (b) of Section 14-2-202 of the GBCC, (ii) he or she has
incurred or will incur actual expenses in connection with a Proceeding and
(ii)
if and to the extent required by law at the time of such advance, he or she
undertakes to repay such amounts advanced as to which it ultimately is
determined that the Indemnitee is not entitled to indemnification under this
Agreement. Within 45 calendar days after receipt of an Undertaking, the
Company
will, in accordance with the provisions of Article 8, Part 5 of the GBCC, make
payment of the costs, charges and expenses stated in the Undertaking. No
security will be required in connection with any Undertaking and any
Undertaking
will be accepted, and all such
<PAGE>
payments shall be made, without reference to the Indemnitee's ability to make
repayment.
4. ENFORCEMENT. (a) If the Company determines that Indemnitee is not
entitled to indemnification under this Agreement, Indemnitee shall be entitled
to seek adjudication of his or her entitlement to indemnification in an
appropriate court in the State of Georgia.
(b) It is the Company's intent that Indemnitee not be required to
incur any expenses associated with the enforcement of his or her rights under
this Agreement. Accordingly, if in any proceeding brought under this Section 4
the Indemnitee is found to be entitled to indemnification, the Company shall
reimburse Indemnitee for all costs and expenses (including attorneys' fees)
incurred in connection with the enforcement of this Agreement.
(c) It shall be a defense to any proceeding brought under this
Section 4 (other than a proceeding brought to enforce a claim for expenses
incurred in connection with any action, suit or proceeding in advance of its
final disposition) that Indemnitee has not met the standards of conduct which
make it permissible under applicable law for the Company to indemnify
Indemnitee
for the amount claimed, but the burden of proving such defense shall be on the
Company and Indemnitee shall be entitled to receive interim payments of
interim
expenses pursuant to Section 2 hereof unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of
the
Company (including its Board of Directors, any committee of the Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination that indemnification of Indemnitee is proper in the
circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its
Board
of Directors, any committee of the Board of Directors, independent legal
counsel, or its shareholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
5. PARTIAL INDEMNITY. If the Indemnitee is entitled under any
provision
of this Agreement to indemnification by the Company for some or a portion of
the
costs, charges, expenses, judgments, fines and amounts paid in settlement of a
Proceeding but not, however, for the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for the portion thereof to which the
Indemnitee is entitled.
6. NONEXCLUSIVITY AND SEVERABILITY. (a) The right to indemnification
and advancement of expenses provided by this Agreement is not exclusive of any
other right to which the Indemnitee may be entitled under the Articles of
Incorporation or the Bylaws of the Company or under the GBCC, any other
statute,
insurance policy, agreement, vote of shareholders or of directors or
otherwise,
both as to actions in an
<PAGE>
Authorized Capacity and as to actions in another capacity while holding such
office, and will continue after the Indemnitee has ceased to serve in an
Authorized Capacity and will inure to the benefit of his or her heirs,
executors
and administrators; PROVIDED, HOWEVER, that, to the extent the Indemnitee
otherwise would have any greater right to indemnification or advancement of
expenses under any provision of the Articles of Incorporation or the Bylaws,
as
the same exist or may hereafter be amended, the Indemnitee will be deemed to
have such greater right pursuant to this Agreement; and, PROVIDED FURTHER,
that,
inasmuch as it is the intention of the Company to provide the Indemnitee with
the broadest and most favorable possible indemnity permitted by applicable law
(whether by legislative action or judicial decision), to the extent that the
Georgia law currently or in the future permits (whether by legislative action
or
judicial decision) any greater right to indemnification or advancement of
expenses than that provided under this Agreement, the Indemnitee will
automatically, without the necessity of any further action by the Company or
the
Indemnitee, be deemed to have such greater right pursuant to this Agreement.
(b) The Company will not adopt any amendment to the Articles of
Incorporation or Bylaws of the Company the effect of which would be to deny,
diminish or encumber the Indemnitee's rights to indemnity pursuant to the
Articles of Incorporation or the Bylaws or under the GBCC or any other
applicable law as applied to any act or failure to act occurring in whole or
in
part prior to the date upon which any such amendment was approved by the Board
of Directors or the shareholders of the Company, as the case may be.
Notwithstanding the foregoing, if the Company adopts any amendment to the
Articles of Incorporation or Bylaws the effect of which is to so deny,
diminish
or encumber the Indemnitee's rights to such indemnity, such amendment will
apply
only to acts or failures to act occurring entirely after the effective date
thereof.
(c) If any provision or provisions of this Agreement are held to
be
invalid, illegal or unenforceable for any reason whatsoever: (i) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable,
that
are not themselves invalid, illegal or unenforceable) will not in any way be
affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this Agreement (including without limitation all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) will be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
7. LIABILITY INSURANCE. The Company shall maintain director and
officer
liability insurance coverage. If at any time after the date hereof the Company
elects to change director and officer liability insurance carriers, it shall
be
a condition to such change that the new policy provide coverage for expenses
and
liability arising from or in connection with events, acts or omissions
occurring, or alleged to have occurred, prior
<PAGE>
to the date of the new policy.
8. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Georgia, without giving effect to the
principles of conflict of laws.
9. MODIFICATION; SURVIVAL. This Agreement contains the entire
agreement
of the parties relating to the subject matter hereof and supercedes all prior
indemnification agreements, whether oral or written, between the Company and
the
Indemnitee; PROVIDED, however, that this provision shall not be construed to
affect the Company's obligations to the Indemnitee under the Articles of
Incorporation or Bylaws of the Company or under the GBCC. This Agreement may
be
modified only by an instrument in writing signed by both parties hereto. The
provisions of this Agreement will survive the death, disability or incapacity
of
the Indemnitee or the termination of the Indemnitee's service as an officer of
the Company or in an Authorized Capacity of or for the Company or another
entity
and will inure to the benefit of the Indemnitee's heirs, executors and
administrators.
10. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless made in writing
signed by both parties hereto.
11. CHANGE IN POSITION. Notwithstanding any change in the position(s)
shown below as held by the Indemnitee with the Company, this Agreement shall
continue in full force and effect, and a new agreement between the parties
hereto need not be executed and delivered as long as Indemnitee continues to
serve as an officer and/or member of the Board of Directors of the Company or
any subsidiary of the Company.
12. NOTICES. All notices and other communications hereunder shall be
in
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
(a) if to the Company:
SED International Holdings, Inc.
4916 N. Royal Atlanta Drive
Tucker, Georgia 30085-5044
Attn: Corporate Secretary
Telephone: (770) 491-8962
Facsimile: (770) 938-2814
(b) if to the Indemnitee:
<PAGE>
______________________________
______________________________
______________________________
Telephone: _________________
Facsimile: _________________
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the third calendar day after the date postmarked; in the
case of notice so given by overnight delivery service, on the date of actual
delivery; and, in the case of notice so given by cable, telegram, facsimile
transmission, telex or personal delivery, on the date of actual transmission
or,
as the case may be, personal delivery.
(Signatures on following page)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
SED INTERNATIONAL HOLDINGS, INC.
By:
Name:
Title:
INDEMNITEE
Name:
Title:
<PAGE>
ANNEX I
UNDERTAKING AGREEMENT
This AGREEMENT is made and entered into as of __________________, 1999,
by
and between SED INTERNATIONAL HOLDINGS, INC., a Georgia corporation (the
"Company"), and ________________, an officer of the Company ("Indemnitee").
WHEREAS, Indemnitee has become involved in investigations, claims,
actions, suits or proceedings which have arisen as a result of Indemnitee's
service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in
advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed
by
insurance; and
WHEREAS, the Company is willing to make such payments if it receives an
undertaking from the Indemnitee to repay these amounts as required by Section
14-2-853 of the Georgia Business Corporations Code (the "GBCC"); and
WHEREAS, Indemnitee is willing to give such an undertaking.
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises contained herein, the parties agree as follows:
1. In regard to any payments advanced by the Company to Indemnitee
pursuant to the terms of the Indemnification Agreement dated as of
___________,
1999 between the Company and Indemnitee, Indemnitee hereby undertakes and
agrees
to repay to the Company any and all amounts so advanced promptly and in any
event within thirty (30) days after the disposition, including any appeals, of
any litigation or threatened litigation on account of which payments were
advanced; provided, however, that Indemnitee shall not be required to repay
the
amount as to which he or she is determined to be entitled to be indemnified by
the Company under Article X of the Articles of Incorporation and Article VII
of
the Bylaws of the Company and Section 14-2-850 et al. of the GBCC or other
applicable law.
2. The Indemnitee affirms Indemnitee's good faith belief that he or
she
has met the relevant standard of conduct described in Section 14-2-851 of the
GBCC or that the proceeding involves conduct for which liability has been
eliminated under a provision of the Articles of Incorporation as authorized by
paragraph (4) of subsection (b) of Section 14-2-202 of the GBCC.
3. This Agreement shall not affect in any manner the rights which
Indemnitee
<PAGE>
may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
SED INTERNATIONAL HOLDINGS, INC.
By:
Name:
Title:
INDEMNITEE
By:
Name:
Title:
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
SED International, Inc., a Georgia corporation
SED Magna (Miami), Inc., a Delaware corporation
SED Retail, Inc., a Georgia corporation
SED International do Brasil Ltda., a Brazilian corporation
SED International de Colombia Ltda., a Colombian corporation
Intermaco S.R.L., an Argentinean corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in
Registration Statement Nos. 333-44103, 333-35055, 33-64133,
33-64135, 33-55730 and 33-33882 of SED International Holdings,
Inc. on Form S-8 of our report dated September 22, 1999 appearing
in this Annual Report on Form 10-K of SED International Holdings,
Inc. for the year ended June 30, 1999.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
September 28, 1999
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SED
INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END JUN-30-1999
PERIOD-END JUN-30-1999
CASH 3,266,000
SECURITIES 0
RECEIVABLES 58,085,000
ALLOWANCES 3,253,000
INVENTORY 57,092,000
CURRENT ASSETS 124,973,000
PP&E 6,994,000
ACCUMULATED DEPRECIATION 5,539,000
TOTAL-ASSETS 141,090,000
CURRENT LIABILITIES 79,780,000
BONDS 0
PREFERRED 0
PREFERRED MANDATORY 0
COMMON 112,000
OTHER SE 52,698,000
TOTAL LIABILITY AND EQUITY 141,090,000
SALES 707,570,000
TOTAL REVENUES 707,570,000
CGS 676,342,000
TOTAL COSTS 676,342,000
OTHER EXPENSES 69,812,000
LOSS PROVISION 0
INTEREST EXPENSE 731,000
INCOME PRETAX (39,315,000)
INCOME TAX BENEFIT (1,407,000)
INCOME CONTINUING (37,908,000)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET LOSS (37,908,000)
EPS BASIC (4.36)
EPS DILUTED (4.36)
