SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16345
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SED International Holdings, Inc.
--------------------------------
(Exact name of Registrant as specified in its charter)
GEORGIA 22-2715444
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4916 North Royal Atlanta Drive, Tucker, Georgia 30085
- ----------------------------------------------- --------
(Address of principal executive offices) (Zip code)
(770) 491-8962
---------------------------------
(Registrant's telephone number, including area code)
Not applicable
---------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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
At January 31, 2000, there were 6,981,463 shares of Common Stock, $.01 par
value, outstanding.
<PAGE>
SED International Holdings, Inc.
And Subsidiaries
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Statements of Shareholders'
Equity 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Default Upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security
Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1999 1999
------ ------------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,721,000 $ 3,266,000
Trade accounts receivable, net 46,205,000 58,085,000
Inventories 47,782,000 57,092,000
Refundable income taxes 2,816,000 3,801,000
Other current assets 2,748,000 2,729,000
------------- -------------
TOTAL CURRENT ASSETS 103,272,000 124,973,000
PROPERTY AND EQUIPMENT, net 7,843,000 6,994,000
INTANGIBLES, net 10,980,000 9,123,000
------------- -------------
$ 122,095,000 $ 141,090,000
============= =============
CURRENT LIABILITIES:
Bank debt $ 2,812,000 $
Trade accounts payable 55,187,000 72,375,000
Accrued liabilities 8,371,000 7,405,000
------------- -------------
TOTAL CURRENT LIABILITIES 66,370,000 79,780,000
REVOLVING BANK DEBT 2,000,000 8,500,000
SHAREHOLDERS' EQUITY:
Preferred Stock
129,500 shares authorized, none issued
Common stock, $.01 par value; 100,000,000 shares
authorized; 11,155,411 shares (December 31, 1999)
and 11,158,311 shares (June 30, 1999) issued 112,000 112,000
Additional paid-in capital 71,692,000 71,712,000
Retained earnings 1,807,000 932,000
Accumulated other comprehensive loss (1,312,000) (984,000)
Treasury stock, at cost, 4,148,948 shares
(December 31, 1999) and 4,291,858 shares
(June 30, 1999) (17,341,000) (17,764,000)
Prepaid compensation - stock awards (1,233,000) (1,198,000)
------------- -------------
53,725,000 52,810,000
------------- -------------
$ 122,095,000 $ 141,090,000
============= =============
</TABLE>
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 149,452,000 $ 171,235,000 $ 336,096,000 $ 388,248,000
------------- ------------- ------------- -------------
COST AND EXPENSES
Cost of sales including buying
and occupancy expenses 139,231,000 160,015,000 314,754,000 365,803,000
Selling, general, and administrative 9,538,000 11,781,000 19,720,000 21,905,000
------------- ------------- ------------- -------------
148,769,000 171,796,000 334,474,000 387,708,000
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) 683,000 (561,000) 1,622,000 540,000
INTEREST EXPENSE (INCOME), net 290,000 (107,000) 379,000 212,000
------------- ------------- ------------- -------------
EARNINGS (LOSS) BEFORE INCOME TAXES 393,000 (454,000) 1,243,000 328,000
INCOME TAXES (BENEIFT) 118,000 (181,000) 368,000 259,000
------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ 275,000 $ (273,000) $ 875,000 $ 69,000
============= ============= ============= =============
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic $ .04 $ (.03) $ .13 $ .01
Diluted.04 (.03) .13 .01
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 6,544,000 9,399,000 6,537,000 9,889,000
Diluted 6,544,000 9,507,000 6,537,000 9,902,000
</TABLE>
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock Accumulated
-------------------------- Additional Other
Par Paid-In Retained Comprehensive
Shares Value Capital Earnings Loss
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 11,158,311 $112,000 $ 71,712,000 $ 932,000 $ (984,000)
Stock awards issued to
employees
Amortization of stock awards
Stock awards cancelled (2,900) (20,000)
Treasury shares purchased
Comprehensive earnings:
Net earnings 875,000
Translation adjustments (328,000)
Comprehensive earnings
---------- -------- ------------ ----------- -----------
BALANCE, December 11,155,411 $112,000 $ 71,692,000 $ 1,807,000 $(1,312,000)
========== ======== ============ =========== ===========
Treasury Stock Prepaid Total
------------------------ Compensation Shareholders'
Shares Cost Stock Awards Equity
<S> <C> <C> <C> <C>
BALANCE, June 30, 4,291,858 $(17,764,000) $ (1,198,000) $52,810,000
Stock awards issued to
employees (150,000) 441,000 (441,000)
Amortization of stock awards 386,000 386,000
Stock awards cancelled 20,000
Treasury shares purchased 7,090 (18,000) (18,000)
Comprehensive earnings:
Net earnings 875,000
Translation adjustments (328,000)
Comprehensive earnings 547,000
--------- ------------ ------------ -----------
BALANCE, December 4,148,948 $(17,341,000) $ (1,233,000) $53,725,000
========= ============ ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
Six Months Ended
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 875,000 $ 69,000
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 1,188,000 1,758,000
Compensation - stock awards 386,000 24,000
Changes in assets and liabilities 3,904,000 43,162,000
----------- -----------
Net cash provided by
operating activities 6,353,000 45,013,000
----------- -----------
INVESTING ACTIVITIES:
Purchase of business, net of cash acquired (2,386,000)
Purchases of equipment (1,864,000) (673,000)
----------- -----------
Net cash used in investing activities (1,864,000) (3,059,000)
----------- -----------
FINANCING ACTIVITIES:
Payments under line of credit, net (6,500,000) (31,000,000)
Borrowings from bank 2,812,000
Proceeds from issuance of common stock, net 3,000
Purchase of treasury stock (18,000) (7,899,000)
----------- -----------
Net cash used in
financing activities (3,706,000) (38,896,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (328,000) (383,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 455,000 2,675,000
CASH AND CASH EQUIVALENTS, beginning of period 3,266,000 2,693,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,721,000 $ 5,368,000
=========== ===========
</TABLE>
SED International Holdings, Inc.
And Subsidiaries
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 1999 and 1998
A. Interim Financial Statements
The accompanying condensed consolidated financial statements of SED
International Holdings, Inc. and its wholly-owned subsidiaries, SED
International, Inc., SED International do Brasil Ltda., SED Magna (Miami),
Inc., SED International de Colombia Ltda. and Intermaco S.R.L.
(collectively, the "Company") have been prepared without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) considered necessary for a fair presentation have been
included. All intercompany accounts and transactions have been eliminated.
The results of operations for the six months ended December 31, 1999 are
not necessarily indicative of the operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the year
ended June 30, 1999.
B. Acquisition
Effective November 1, 1998, the Company acquired Intermaco S.R.L.
("Intermaco"), a Buenos Aires, Argentina base distributor of
Hewlett-Packard products and other computer peripherals through Argentina,
for approximately $4,417,000 in cash. This acquisition has been accounted
for using the purchase method of accounting. The Company is required to pay
additional amounts to the sellers of Intermaco based on a multiple of
Intermaco's net earnings, as defined, for the two succeeding twelve months
periods commencing November 1, 1998; any additional amounts paid will be
recorded as additional goodwill. During the three months ended December 31,
1999 the Company accrued $2,030,000 due to the sellers of Intermaco based
on Intermaco's results for the twelve month period ended October 31, 1999.
Payment of this liability was made in February 2000, consisting of 400,000
shares of the Company's common stock and $1,230,000 in cash.
C. Borrowings
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 December 31, 1999, the Company had borrowings of $2.0 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. Available additional borrowing capacity under this agreement,
based on collateral limitations, at December 31, 1999 was $25.7 million
($15.0 million of which are only available to finance obligations due to
Finova, if necessary).
<PAGE>
Under the agreement the Company may borrow at the prime rate offered by
Wachovia (8.5% at December 31, 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. 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
and other restrictions. At December 31, 1999 the Company was not in
compliance with an agreement covenant. The Company has obtained a waiver of
such covenant from Wachovia.
In November 1999 the Company's Brazilian subsidiary entered into a $4.8
million line of credit agreement with a Brazilian bank. At December 31,
1999, outstanding borrowings under this line of credit agreement were $2.8
million. Borrowings under this line of credit agreement bear interest at
2.5% monthly. The credit agreement is secured by the subsidiary's accounts
receivable, requires the maintenance of financial ratios and expires on
February 28, 2000.
D. 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 Sates and Latin America.
Financial information by geographic region is as follows:
<TABLE>
United States Latin America Eliminations Consolidated
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the three months ended
December 31, 1999
Net sales:
Unaffiliated customers $120,459,000 $28,993,000 $149,452,000
Foreign subsidiaries 1,469,000 $ (1,469,000)
---------------------------------------------------------------------------------------------
Total $121,928,000 $28,993,000 $ (1,469,000) $149,452,000
---------------------------------------------------------------------------------------------
Gross profit $ 6,880,000 $ 3,341,000 $ 1,000 $ 10,222,000
Income from operations 63,000 211,000 1,000 275,000
Total assets $107,840,000 $35,980,000 $(21,725,000) $122,095,000
For the three months ended
December 31, 1998
Net sales:
Unaffiliated customers $146,217,000 $25,018,000 $171,235,000
Foreign subsidiaries 963,000 $ (963,000)
------------------------------------------------------------------------------
Total $147,180,000 $25,018,000 $ (963,000) $171,235,000
---------------------------------------------------------------------------------------------
Gross profit $ 7,802,000 $ 3,420,000 $ (2,000) $ 11,220,000
Income from operations (504,000) 233,000 (2,000) (273,000)
Total assets $187,330,000 $28,569,000 $(10,847,000) $205,052,000
</TABLE>
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>
For the three months Microcomputer Wireless Telephone
ended December 31, Products Products Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $120,849,000 $28,603,000 $149,452,000
1998 147,182,000 24,053,000 171,235,000
</TABLE>
Approximately 25.4% and 30.4% of the Company's net sales in the United
States for the three months ended December 31, 1999 and 1998, respectively,
consisted of sales to customers for export principally into Latin America
and direct sales to customers in Brazil, Colombia, and Argentina.
<PAGE>
<TABLE>
United States Latin America Eliminations Consolidated
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the six months ended
December 31, 1999
Net sales:
Unaffiliated customers $275,847,000 $60,249,000 $336,096,000
Foreign subsidiaries 2,723,000 $ (2,723,000)
---------------------------------------------------------------------------------------------
Total $278,570,000 $60,249,000 $ (2,723,000) $336,096,000
---------------------------------------------------------------------------------------------
Gross profit $ 14,262,000 $ 7,101,000 $ (21,000) $ 21,342,000
Income from operations 57,000 914,000 (96,000) 875,000
Total assets $107,840,000 $35,980,000 $(21,725,000) $122,095,000
For the six months ended
December 31, 1998
Net sales:
Unaffiliated customers $344,991,000 $43,257,000 $388,248,000
Foreign subsidiaries 2,368,000 $ (2,368,000)
------------------------------------------------------------------------------
Total $347,359,000 $43,257,000 $ (2,368,000) $388,248,000
---------------------------------------------------------------------------------------------
Gross profit $ 17,591,000 $ 4,859,000 $ (5,000) $ 22,445,000
Income from operations 29,000 45,000 (5,000) 69,000
Total assets $187,330,000 $28,569,000 $(10,846,000) $205,053,000
</TABLE>
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>
For the six months Microcomputer Wireless Telephone
ended December 31, Products Products Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $278,570,000 $57,526,000 $336,096,000
1998 340,810,000 47,438,000 388,248,000
</TABLE>
Approximately 27.9% and 30.4% of the Company's net sales in the United
States for the six months ended December 31, 1999 and 1998, respectively,
consisted of sales to customers for export principally into Latin America
and direct sales to customers in Brazil, Colombia and Argentina.
E. Shareholder's Equity
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 of $2.94 per share and stock awards for 150,000 shares were issued in
July 1999.
Principally all of the stock options and awards outstanding were
antidilutive to earnings per common share for the three months and six
months ended December 31, 1999.
F. Financial Instrument
In July 1999, the Company entered into a 180-day non-deliverable forward
contract covering Brazilian R$3,992,000. This contract is being accounted
for as a speculative forward contract. Gains and losses are computed by
multiplying the foreign currency amount of the forward contract by the
difference between the forward rate available for the remaining maturity of
the contract and the contracted forward rate (R$1.996 to US $1). During the
quarter ended December 31, 1999, the Company recorded a loss of $157,000 in
selling, general, and administrative expenses related to this contract. The
aggregate loss under this contract through December 31, 1999 was $219,000.
This instrument involves elements of market risk. The Company has not
entered
<PAGE>
into any other forward contracts or other financial instruments as
of December 31, 1999.
G. 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 amended, is effective for fiscal years beginning after June 15, 2000.
The Company has not yet fully evaluated the impact of this new standard.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended December 31, 1999 Compared to Three Months Ended
December 31, 1998
Net sales decreased 12.7% or $21.7 million, to $149.5 million in the second
quarter ended December 31, 1999 compared to $171.2 million in the second quarter
ended December 31, 1998. Information concerning the Company's domestic and
foreign sales is summarized below:
Three Months Ended
December 31, Change
------------------ ----------------
1999 1998 Amount Percent
------ ------ ------ -------
United States:
Domestic $ 91.0 $102.4 $(11.4) 11.1
Export 31.0 44.8 (13.8) 30.8
Latin America 29.0 25.0 4.0 16.0
Elimination (1.5) (1.0) (.5) N/A
------ ------ ------
Consolidated $149.5 $171.2 $(21.7) 12.7
====== ====== ======
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 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).
The decrease in sales in the United States was primarily due to lower sales of
mass storage products, printers, computer processors and monitors. Sales of
microcomputer products represented approximately 80.9% of the Company's second
quarter net sales compared to 84.6% for the same period last year. Sales of
wireless telephone products accounted for approximately 19.1% of the Company's
second quarter net sales compared to 15.4% for the same period last year.
Gross margin decreased $1.0 million, to $10.2 million in the second quarter
ended December 31, 1999 compared to $11.2 million in the second quarter ended
December 31, 1998. Gross margin as a percentage of net sales increased to 6.8%
in the second quarter ended December 31, 1999 from 6.6% in the second quarter
ended December 31, 1998. The change in gross margin as a percentage of sales was
due to a combination of lower sales and the change in the mix of products sold.
Overall, the Company continues to experience pricing pressures in selling
products.
Selling, general and administrative expenses decreased $2.3 million to $9.5
million in the second quarter ended December 31, 1999, compared to $11.8 million
in the second quarter ended December 31, 1998. These expenses as a percentage of
net sales decreased to 6.4% in the second quarter ended December 31, 1999
compared to 6.9% in the second quarter ended December 31, 1998. In its efforts
to reduce overhead costs, the Company closed its Harrisburg, Pennsylvania
distribution facility during the quarter ended December 31, 1999 and incurred
severance and closing costs totaling $175,000. Such closure costs included
future facility lease payments net of estimated sublease income.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
Net interest expense was $0.3 million in the second quarter ended December 31,
1999 compared to interest income of $.1 million in the second quarter ended
December 31, 1998.
Income tax expense was $0.1 million in the second quarter ended December 31,
1999 compared to an income tax benefit of $0.2 million in the second quarter
ended December 31, 1998.
Six Months Ended December 31, 1999 Compared to Six Months Ended
December 31, 1998
Net sales decreased 13.4% or $52.1 million, to $336.1 million in the six months
ended December 31, 1999 compared to $388.2 million in the six months ended
December 31, 1998. Information concerning the Company's domestic and foreign
sales is summarized below:
Six Months Ended
December 31, Change
------------------ ----------------
1999 1998 Amount Percent
------ ------ ------ -------
United States:
Domestic $200.8 $241.7 $(40.9) (16.9)
Export 77.8 105.7 (27.9) (26.4)
Latin America 60.2 43.2 17.0 39.4
Elimination (2.7) (2.4) (.3) N/A
------ ------ ------
Consolidated $336.1 $388.2 $(52.1) 13.4
====== ====== ======
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 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).
The decrease in sales in the United States was primarily due to lower sales of
mass storage products, printers, computer processors and monitors. Sales of
microcomputer products represented approximately 82.9% of the Company's six
months net sales compared to 87.8% for the same period last year. Sales of
wireless telephone products accounted for approximately 17.1% of the Company's
six months net sales compared to 12.2% for the same period last year.
Gross margin decreased $1.1 million, to $21.3 million in the six months ended
December 31, 1999 compared to $22.4 million in the six months ended December 31,
1998. Gross margin as a percentage of net sales increased to 6.3% in the six
months ended December 31, 1999 from 5.8% in the six months ended December 31,
1998. The change in gross margin as a percentage of sales was due to a
combination of lower sales and the change in the mix of products sold. Overall,
the Company continues to experience pricing pressures in selling products.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
Selling, general and administrative expenses decreased $2.2 million to $19.7
million in the six months ended December 31, 1999, compared to $21.9 million in
the six months ended December 31, 1998. These expenses as a percentage of net
sales increased to 5.9% in the six months ended December 31, 1999 compared to
5.6% the six months ended December 31, 1998. In its efforts to reduce overhead
costs, the Company closed its Harrisburg, Pennsylvania distribution facility
during the quarter ended December 31, 1999 and incurred severance and closing
costs totaling $175,000. Such closure costs included future facility lease
payments net of estimated sublease income.
Net interest expense was $0.4 million in the six months ended December 31, 1999
compared to interest expense of $0.2 million in the six months ended December
31, 1998.
Income tax was $0.4 million in the six months ended December 31, 1999 compared
to an income tax expense of $0.3 million in the six months ended December 31,
1998.
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 outside the
United States to make payments to the Company.
Operating activities provided $6.4 million in the six months ended December 31,
1999. The source of cash in the six months ended December 31, 1999 resulted
primarily from decreases of $11.9 million in accounts receivable and $9.3
million in inventory, partially offset by a $17.2 million decrease in accounts
payable.
Investing activities used $1.9 million in the six months ended December 31,
1999 to purchase equipment.
Financing activities used $3.7 million in the six months ended December 31,
1999. The Company used $6.5 million to repay borrowings under its line of
credit, which was partially offset by other bank borrowings of $2.8 million.
Effective November 1, 1998, the Company acquired Intermaco S.R.L. ("Intermaco"),
a Buenos Aires, Argentina base distributor of Hewlett-Packard products and other
computer peripherals through Argentina, for approximately $4,417,000 in cash.
This acquisition has been accounted for using the purchase method of accounting.
The Company is required to pay additional amounts to the sellers of Intermaco
based on a multiple of Intermaco's net earnings, as defined, for the two
succeeding twelve months periods commencing November 1, 1998; any additional
amounts paid will be recorded as additional goodwill. During the three months
ended December 31, 1999 the Company accrued $2,030,000 due to the sellers of
Intermaco based on Intermaco's results for the twelve month period ended October
31, 1999. Payment of this liability was made in February 2000, consisting of
400,000 shares of the Company's common stock and $1,230,000 in cash.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
The Company's credit agreement with Wachovia Bank N.A. ("Wachovia"), as amended
in August 1999, provided for a line of credit of up to $50.0 million. At
December 31, 1999, the Company had borrowings of $2.0 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. Available additional borrowing
capacity under this agreement based on collateral limitations, at December 31,
1999 were $25.7 million ($15.0 million of which are only available to finance
obligations due to Finova, if necessary).
Under the agreement the Company may borrow at the prime rate offered by Wachovia
(8.5% at December 31, 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. 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 and other restrictions. At December
31, 1999 the Company was not in compliance with an agreement covenant. The
Company has obtained a waiver of such covenant from Wachovia.
In November 1999 the Company's Brazilian subsidiary entered into a $4.8 million
line of credit agreement with a Brazilian bank. At December 31, 1999,
outstanding borrowings under this line of credit agreement were $2.8 million.
Borrowings under this line of credit agreement bear interest at 2.5% monthly.
The line of credit agreement is secured by the subsidiary's accounts receivable,
requires the maintenance of financial ratios and expires on February 28, 2000.
Financial Instruments
The functional currency for the Company's international subsidiaries is the
local currency for the country in which the subsidiaries own their primary
assets. The translation of the applicable currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation adjustments are
recorded directly to shareholders' equity.
In July 1999, the Company entered into a 180-day non-deliverable forward
contract covering Brazilian R$3,992,000. This contract is being accounted for as
a speculative forward contract. Gains and losses are computed by multiplying the
foreign currency amount of the forward contract by the difference between the
forward rate available for the remaining maturity of the contract and the
contracted forward rate (R$1.996 to US $1). During the quarter ended December
31, 1999, the Company recorded a loss of $157,000 in selling, general, and
administrative expenses related to this contract. The aggregate loss under this
contract through December 31, 1999 was $219,000. This instrument involves
elements of market risk. The Company has not entered into any other forward
contracts or other financial instruments as of December 31, 1999.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
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 to
either receive a credit from the vendor for the price differential or 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 did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the "Year 2000 issue." However, it
is possible that the full impact of the date change, which was of concern due to
computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with billing,
payroll or financial closings at month, quarter or year end. The Company
believes that any such problems are likely to be minor and correctable. In
addition, the Company could still be negatively affected if its customers or
suppliers are adversely affected by the Year 2000 or similar issues. The Company
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers or suppliers.
The Company expended approximately $500,000 on Year 2000 readiness efforts from
1997 to 1999. These efforts included replacing outdated, noncompliant hardware
and software, as well as identifying and correcting Year 2000 problems.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
Forward-Looking Information
The matters discussed herein 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 (SED File No. 333-35069) as well as general economic
conditions and industry trends, foreign currency fluctuation, the level of
acquisition opportunities available to the Company and the Company's ability to
negotiate the terms of such acquisition 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>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
10.1 Employment Agreement between Mark Diamond and SED
International, Inc. dated November 9, 1999
10.2 Employment Agreement between Barry Diamond and SED
International, Inc. dated November 11, 1999
10.3 Employment Agreement between Larry G. Ayers and SED
International, Inc. dated November 28, 1999
10.4 SED International do Brasil Ltda. Line of Credit
Agreement*
27.1 Financial Data Schedule
---------------
* To be filed by amendment
b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SED International Holdings, Inc.
--------------------------------
(Registrant)
February 14, 2000 /s/Gerald Diamond
--------------------------------
Gerald Diamond
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
February 14, 2000 /s/Larry G. Ayers
--------------------------------
Larry G. Ayers
Vice President-Finance and
Treasurer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.1 Employment Agreement between Mark Diamond and SED
International, Inc. dated November 9, 1999
10.2 Employment Agreement between Barry Diamond and SED
International, Inc. dated November 11, 1999
10.3 Employment Agreement between Larry G. Ayers and SED
International, Inc. dated November 28, 1999
10.4 SED International do Brasil Ltda. Line of Credit Agreement*
27.1 Financial Data Schedule
- -------------------
* To be filed by amendment
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 9th day of
November, 1999 between Mark Diamond (the "Employee") and SED International,
Inc., a Georgia corporation (the "Subsidiary") and wholly-owned subsidiary of
SED International Holdings, Inc., a Georgia corporation (the "Company").
W I T N E S S E T H :
-------------------
WHEREAS, the Subsidiary desires to enter into this Agreement regarding
Employee's employment by the Subsidiary and Employee desires to accept the terms
of said employment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1. Employment of Employee. This Agreement is effective for a period of five
(5) years commencing as of November 9, 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 directions of the Subsidiary.
<PAGE>
During the term of this Agreement, Employee shall be employed as
President of the Subsidiary reporting to the Board of Directors and Chief
Executive Officer. In Employee's capacity as President of the Subsidiary,
Employee shall have general and active control and charge of the property,
business and affairs of the Subsidiary and otherwise have the duties and
responsibilities accorded to such position as set forth in the Subsidiary's
Bylaws, and such other and further duties as may from time to time become
necessary for the management of the Subsidiary, as determined by the Board of
Directors.
Employee shall devote substantially all of Employee's business time,
attention and energies to the business of the Subsidiary shall act at all times
in the best interests of the Subsidiary 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 $250,000.00.
(b) Employee's base salary shall be paid by the Subsidiary pursuant to
its customary payroll practices.
<PAGE>
(c) Commencing on November 9, 2000 and on each November 9 thereafter
during the term of this Agreement, the annual base salary shall be increased
(but not decreased) by an amount equal to five percent (5%) of the then annual
base salary, together with such other increases, if any, as shall be approved by
the Subsidiary's Board of Directors.
(d) The Subsidiary shall provide Employee such medical coverage and
other benefits as are provided to its other employees, subject to Employee
meeting any eligibility or other requirements of such coverages or benefits. The
Subsidiary has the right to change or eliminate any of its benefits plans at any
time. The Employee shall also be entitled during the term of this Agreement to
the use of a luxury automobile, with the premiums for the automobile insurance
coverage thereon, together with the reasonable cost of maintenance and other
expenses (including gasoline) being payable by the Subsidiary or its designee.
The Employee shall have the option to have the use of a new (replacement)
automobile on the third anniversary of this Agreement. The amount of insurance
coverage shall be determined by the Subsidiary or its designee in accordance
with the policies of the Subsidiary, from time to time in effect. As a condition
to the use of such automobile, Employee shall cooperate fully with the
Subsidiary or its designee in
<PAGE>
connection with obtaining and maintaining in effect any such policy of
insurance.
(e) Employee shall be entitled to four (4) weeks of paid vacation per
year.
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 Subsidiary in all respects as complies with good
business and ethical practices. In addition, Employee shall be subject to and
abide by the policies and procedures of the Subsidiary.
4. Business Expenses. Employee shall be reimbursed by the Subsidiary for
ordinary, necessary and reasonable business expenses consistent with the
Subsidiary's policies concerning reimbursement of such expenses; provided that,
Employee shall first document said business expenses in the manner generally
required by the Subsidiary 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. At no time during the term of this Agreement
shall the Employee be asked or required to transfer his place of employment to a
location that is of a radius more than thirty five (35) miles from the
Subsidiary's current offices
<PAGE>
located at 4916 North Royal Atlanta Drive, Tucker, Georgia 30085.
6. Termination.
(a) This Agreement may be terminated for good cause by the Subsidiary
upon written notice to Employee. As used herein, "good cause" means: (i) any act
of fraud or dishonesty; (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 Subsidiary); (iv) violation of the policies and procedures
of the Subsidiary; (v) failure to comply with the directions of the Board of
Directors of the Subsidiary; (vi) engaging in any unlawful harassment or
discrimination; (vii) the conviction of Employee of any crime involving moral
turpitude (whether felony or misdemeanor) or involving any felony; (viii) any
act of moral turpitude by Employee that materially adversely affects the
Subsidiary or its business reputation; (ix) violation of state or federal
securities laws; (x) 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.; or (xi) any other
matter constituting "good cause" under the laws (including, inter alia,
statutes, regulations or judicial case law) of the State of Georgia.
<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 reasonable
accommodation, for a continuous period of 180 consecutive days, as certified by
a physician or physicians selected by the Board of Directors of the Subsidiary.
(c) In the event of termination under subsections (a) of this Section 6,
the base salary, less applicable withholdings, 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) In the event of termination under subsection (b) of this Section 6,
the Subsidiary shall pay to Employee or Employee's estate or personal
representative, as appropriate, the greater of (i) Employee's base salary, less
applicable withholdings, plus benefits, for the remaining period of the
Agreement or (ii) twelve (12) months of base salary, less applicable
withholdings, plus benefits for such monthly period.
<PAGE>
(e) The Subsidiary may terminate this Agreement at any time without
"good cause" upon written notice to Employee. In the event of such termination,
the Subsidiary shall pay to Employee the greater of (i) Employee's base salary,
less applicable withholdings, plus benefits, for the remaining period of the
Agreement or (ii) twelve (12) months of base salary, less applicable
withholdings.
(f) All such payments owing under this Section 6 shall be payable
concurrently at the time of termination. Other than the payments of the base
salary and benefits amounts 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 Subsidiary, including without
limitation, all customer data, marketing and sales information, billing
information, service data and other technical material of the Subsidiary, is the
Subsidiary's property. Employee agrees to deliver all such materials to the
Subsidiary within three (3) business days after the termination of this
Agreement.
8. Nondisclosure. Employee acknowledges and agrees that
<PAGE>
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 Subsidiary, its customers and
employees. Employee further acknowledges that the disclosure or unauthorized use
of Trade Secrets, as defined under applicable state law, or confidential
information by Employee would harm the Subsidiary'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 Subsidiary, 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 Subsidiary. Employee further agrees that Employee will not, at any time
during or after the term of Employee's employment with the Subsidiary, use,
reveal or divulge any Trade Secrets.
9. Restrictive Covenants. Employee acknowledges and agrees that, because
of his employment he has access to confidential or
<PAGE>
proprietary information concerning vendors, suppliers and customers of the
Subsidiary and has established relationships with such vendors, suppliers and
customers. In exchange for valuable consideration to be given by the Subsidiary
to Employee, as provided herein, Employee agrees to the following provisions:
(a) Employee agrees that during the term of his employment and
for a period of one (1) year thereafter, 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, (i) provide domestic or
international sales, purchasing, human resources, distribution operations,
marketing services as an officer or management level employee to any competitor
of the Subsidiary listed on Exhibit A attached hereto, which purchase, market
and sell computer and related products and/or cellular telephones and related
products (collectively, the "Business"); 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 in an automated quotations
system), or perform consulting services for, or otherwise participate in the
ownership, management, or control of, the companies listed on Exhibit A attached
hereto;
<PAGE>
(b) Employee agrees that during the term of his employment and
for a period of one (1) year thereafter, Employee shall not, directly or
indirectly, either individually, in partnership, jointly, or in conjunction
with, or on behalf of, any person, firm, partnership, corporation,
unincorporated association or other 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 Subsidiary in connection with the Business, any
person or entity that, during the term of Employee's employment with the
Subsidiary, was a vendor, supplier or customer of the Subsidiary with whom
Employee had contact during the last twelve (12) months of his employment, or
was a prospective vendor, supplier or customer of the Subsidiary with whom
Employee had contact during the last twelve (12) months of his employment; and
(c) Employee agrees that during the term of his employment and
for a period of one (1) year thereafter, Employee shall not, directly or
indirectly, either individually, in partnership, jointly, or in conjunction
with, or on behalf of, any person, firm, partnership, corporation,
unincorporated association or other entity of any kind, hire or solicit, or
attempt to hire or solicit, for employment any person who was employed by the
<PAGE>
Subsidiary up to 90 days prior to the date of termination of the Employee's
employment 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 Subsidiary.
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 Subsidiary's business interests. Employee acknowledges
that the scope of this Section 9 is reasonable and necessary to protect the
Subsidiary's legitimate business interests.
10. Remedy for Breach. Employee agrees that the damage to the Subsidiary
resulting from any actual or threatened breach by Employee of any 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 Subsidiary shall be
entitled to specific performance of the covenants in any of 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 and legal
expenses (including attorneys' fees) which the Subsidiary may be legally
entitled to recover.
<PAGE>
11. Survival. The provisions of Sections 7, 8, 9 and 10 shall
survive termination of this Agreement.
12. Change of Control. 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:
(a) 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 outside the Atlanta, Georgia Metropolitan Area or
farther than 35 miles from the present location of the executive offices, 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 12; or
<PAGE>
(b) 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 12 (the notice provided pursuant to Subsection 12(a) or Subsection 12(b)
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 five times the
aggregated of Employee's annual base salary, bonuses and other benefits owing to
Employee.
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 the Subsidiary at the time the Employee
gives the Notice of Exercise including, without limitation, salary, bonuses,
severance
<PAGE>
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 the Subsidiary's Articles of Incorporation, Bylaws
or similar policies, plans or agreements relating to the indemnification of
Employee under certain circumstances. The Executive Payment shall not be reduced
by any present value calculations.
In the event the Employee dies after giving the Notice of Exercise but
prior to receipt of the Executive Payment, then the Employee's estate or legal
representative shall be entitled to receive the Executive Payment.
13. Certain Additional Definitions.
"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
<PAGE>
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.
"ATLANTA, GEORGIA METROPOLITAN AREA" means the counties of Clayton,
Cobb, DeKalb, Fulton and Gwinnett, Georgia
"BENEFICIAL OWNER" shall be defined by reference to Rule 13d-3 under the
Exchange Act as such Rule may be amended from time to time; 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 the 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 understanding
<PAGE>
or upon exercise of conversion rights, warrants or options or otherwise, shall
be deemed the Beneficial Owner of such securities.
"CHANGE OF CONTROL" shall be deemed to have occurred if and when (1) any
individual, corporation, partnership, Group, association or other person or
entity, together with his, its or their Affiliates or 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; (2) 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; (3) all or substantially all of the assets of the Company 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 the Company; (4) any individual, corporation, partnership, Group,
association or other person or entity, together with his, its or their
Affiliates or Associates, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Subsidiary, becomes the
Beneficial Owner of securities of the Subsidiary
<PAGE>
representing thirty percent (30%) or more of the combined voting power of the
Subsidiary's then outstanding securities entitled to vote generally in the
election of directors; or (5) all or substantially all of the assets of the
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 the Subsidiary.
"CONTINUING DIRECTOR" means a director who either was a member of the
Board of Directors of either the Company or the Subsidiary, as the case may be,
on the date hereof, or who becomes a member of the Board of Directors of either
the Company or the 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 that company on behalf of the Board of Directors
of that 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 the Subsidiary, as the case may be; provided,
however, if the votes
<PAGE>
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.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GROUP" means persons who act in concert as described in Section
13(d)(3) of the Exchange Act as may be amended from time to time.
14. 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 shall be deemed amended to delete or modify, as necessary, the invalid or
unenforceable provisions.
<PAGE>
The parties further agree to alter the balance of this Agreement in order to
render the same valid and enforceable.
15. Applicable Law. This Agreement is being executed in the State of
Georgia and shall be construed and enforced in accordance with
the laws of said jurisdiction.
16. Waiver of Breach. The waiver by the Subsidiary 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.
17. Successors and Assigns. This Agreement shall inure to the benefit of
the Subsidiary, its subsidiaries and affiliates, and their respective successors
and assigns.
18. Entire Agreement. This Agreement contains the entire agreement of
the parties and supersedes all prior agreements regarding Employee's employment
by the Subsidiary, including, but not limited to, oral discussions, letter
agreements, or any other document concerning the possibility of employment with
the Subsidiary. 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.
19. Headings. The headings of the Sections of this
<PAGE>
Agreement are included solely for convenience of reference and shall not control
the meaning or interpretation of any of the provisions of this Agreement.
20. Interest on Amounts Payable. If any amounts that are required or
determined to be paid or payable or reimbursed or reimbursable to the Employee
under this Agreement, under any other plan, agreement, policy or arrangement
with the Subsidiary are not paid promptly at the times provided herein or
therein, such amounts shall accrue interest at an annual percentage rate of ten
percent (10%) from the date such amounts were required or determined to have
been paid or payable or reimbursed or reimbursable to the Employee until such
amounts and any interest accrued thereon are finally and fully paid; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
21. Employee's Expenses. All costs and expenses, including reasonable
legal, accounting and other advisory fees, incurred by the Employee to prepare
responses to an Internal Revenue Service audit of, and otherwise defend, his
personal income tax return for any year that is the subject of any such audit or
an adverse determination, administrative proceeding or civil litigation
<PAGE>
arising therefrom that is occasioned by, or related to, an audit by the Internal
Revenue Service of the Subsidiary's consolidated income tax returns are, upon
written demand by the Employee explaining the basis for the request for such
reimbursement or advancement, to be promptly advanced or reimbursed to the
Employee or paid directly, on a current basis, by the Subsidiary or its
successors.
Subject to the first paragraph of this Section 21 and except as
otherwise provided in this Agreement, if at any time during the term of this
Agreement or afterwards there should arise any litigation, hearing or
arbitration as to the interpretation or application of any term or condition of
this Agreement, the Subsidiary agrees, upon written demand by the Employee (and
the employee shall be entitled upon application to any court of competent
jurisdiction, to the entry of a mandatory injunction, without the necessity of
posting any bond with respect thereto, compelling the Subsidiary), promptly to
provide sums sufficient to pay on a current basis, either directly or by
reimbursing the Employee, the Employee's costs and reasonable attorneys' fees,
including, without limitation, expenses of investigation and disbursements for
the fees and expenses of experts, incurred by the Employee in connection with
any such litigation, hearing or
<PAGE>
arbitration; provided, however, if the Employee is not the prevailing party in
such litigation, hearing or arbitration, then Employee shall pay or reimburse
the Subsidiary for its costs and reasonable attorneys' fees, including, without
limitation, expenses of investigation and disbursements for the fees and
expenses of experts (other than Affiliates), incurred by the Subsidiary in
connection with any such litigation, hearing or arbitration, together with all
such costs and fees previously paid by the Subsidiary to or for the benefit of
Employee in connection with such litigation, hearing or arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above shown.
Employee:
______________________(SEAL)
MARK DIAMOND
Subsidiary:
SED INTERNATIONAL, INC.
By:__________________________
Title:_______________________
(CORPORATE SEAL)
<PAGE>
EXHIBIT A
COMPETITORS
ASI Corp.
Brightpoint, Inc.
Cellstar, Corp.
CHS Electronics, Inc.
Ingram Micro, Inc.
Merisel, Inc.
Microage, Inc.
Supercom, Inc.
Tech Data Corp.
or any of their respective Affiliates.
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 11th day
of November, 1999 between Barry Diamond (the "Employee") and SED International,
Inc., a Georgia corporation (the "Subsidiary") and wholly-owned subsidiary of
SED International Holdings, Inc., a Georgia corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Subsidiary desires to enter into this Agreement regarding
Employee's employment by the Subsidiary and Employee desires to accept the terms
of said employment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1. Employment of Employee. This Agreement is effective for a period of
three (3) years commencing as of November 11, 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 directions of the
Subsidiary.
<PAGE>
During the term of this Agreement, Employee shall be employed as Vice
President -- Cellular Division of the Subsidiary reporting to the President. In
Employee's capacity as Vice President -- Cellular Division of the Subsidiary,
Employee shall be responsible for all management of wireless phone sales,
purchasing and pricing of the Subsidiary and otherwise have the duties and
responsibilities accorded to such position as set forth in the Subsidiary's
Bylaws, and such other and further duties as may from time to time become
necessary for the management of the Subsidiary, as determined by the Board of
Directors.
Employee shall devote substantially all of Employee's business time,
attention and energies to the business of the Subsidiary shall act at all times
in the best interests of the Subsidiary 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 $160,000.00.
(b) Employee's base salary shall be paid by the Subsidiary
pursuant to its customary payroll practices.
<PAGE>
(c) Commencing on November 11, 2000 and on each November 11
thereafter during the term of this Agreement, the annual base salary shall be
increased (but not decreased) by an amount equal to five percent (5%) of the
then annual base salary, together with such other increases, if any, as shall be
approved by the Subsidiary's Board of Directors.
(d) The Subsidiary shall provide Employee such medical coverage and
other benefits as are provided to its other employees, subject to Employee
meeting any eligibility or other requirements of such coverages or benefits. The
Subsidiary has the right to change or eliminate any of its benefits plans at any
time. The Employee shall also be entitled during the term of this Agreement to
the use of an automobile, with the premiums for the automobile insurance
coverage thereon, together with the reasonable cost of maintenance and other
expenses (including gasoline) being payable by the Subsidiary or its designee.
The Employee shall have the option to have the use of a new (replacement)
automobile on the third anniversary of this Agreement. The amount of insurance
coverage shall be determined by the Subsidiary or its designee in accordance
with the policies of the Subsidiary, from time to time in effect. As a condition
to the use of such automobile, Employee shall cooperate fully with the
Subsidiary or its designee in
<PAGE>
connection with obtaining and maintaining in effect any such policy of
insurance.
(e) Employee shall be entitled to four (4) weeks of paid vacation
per year.
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 Subsidiary in all respects as complies with good
business and ethical practices. In addition, Employee shall be subject to and
abide by the policies and procedures of the Subsidiary.
4. Business Expenses. Employee shall be reimbursed by the Subsidiary for
ordinary, necessary and reasonable business expenses consistent with the
Subsidiary's policies concerning reimbursement of such expenses; provided that,
Employee shall first document said business expenses in the manner generally
required by the Subsidiary 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. At no time during the term of this Agreement
shall the Employee be asked or required to transfer his place of employment to a
location that is of a radius more than thirty five (35) miles from the
Subsidiary's current offices
<PAGE>
located at 4916 North Royal Atlanta Drive, Tucker, Georgia 30085.
6. Termination.
(a) This Agreement may be terminated for good cause by the Subsidiary
upon written notice to Employee. As used herein, "good cause" means: (i) any act
of fraud or dishonesty; (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 Subsidiary); (iv) violation of the policies and procedures
of the Subsidiary; (v) failure to comply with the directions of the Board of
Directors of the Subsidiary; (vi) engaging in any unlawful harassment or
discrimination; (vii) the conviction of Employee of any crime involving moral
turpitude (whether felony or misdemeanor) or involving any felony; (viii) any
act of moral turpitude by Employee that materially adversely affects the
Subsidiary or its business reputation; (ix) violation of state or federal
securities laws; (x) 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.; or (xi) any other
matter constituting "good cause" under the laws (including, inter alia,
statutes, regulations or judicial case law) of the State of Georgia.
<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 reasonable accommodation, for a continuous period of 180 consecutive
days, as certified by a physician or physicians selected by the Board of
Directors of the Subsidiary.
(c) In the event of termination under subsections (a) of this
Section 6, the base salary, less applicable withholdings, 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) In the event of termination under subsection (b) of this
Section 6, the Subsidiary shall pay to Employee or Employee's estate or personal
representative, as appropriate, the greater of (i) Employee's base salary, less
applicable withholdings, plus benefits, for the remaining period of the
Agreement or (ii) twelve (12) months of base salary, less applicable
withholdings, plus benefits for such monthly period.
<PAGE>
(e) The Subsidiary may terminate this Agreement at any time
without "good cause" upon written notice to Employee. In the event of such
termination, the Subsidiary shall pay to Employee the greater of (i) Employee's
base salary, less applicable withholdings, plus benefits, for the remaining
period of the Agreement or (ii) twelve (12) months of base salary, less
applicable withholdings.
(f) All such payments owing under this Section 6 shall be payable
concurrently at the time of termination. Other than the payments of the base
salary and benefits amounts 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 Subsidiary, including without
limitation, all customer data, marketing and sales information, billing
information, service data and other technical material of the Subsidiary, is the
Subsidiary's property. Employee agrees to deliver all such materials to the
Subsidiary within three (3) business days after the termination of this
Agreement.
8. Nondisclosure. Employee acknowledges and agrees that
<PAGE>
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 Subsidiary, its customers and
employees. Employee further acknowledges that the disclosure or unauthorized use
of Trade Secrets, as defined under applicable state law, or confidential
information by Employee would harm the Subsidiary'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 Subsidiary, 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 Subsidiary. Employee further agrees that Employee will not, at any time
during or after the term of Employee's employment with the Subsidiary, use,
reveal or divulge any Trade Secrets.
9. Restrictive Covenants. Employee acknowledges and agrees that, because
of his employment he has access to confidential or
<PAGE>
proprietary information concerning vendors, suppliers and customers of the
Subsidiary and has established relationships with such vendors, suppliers and
customers. In exchange for valuable consideration to be given by the Subsidiary
to Employee, as provided herein, Employee agrees to the following provisions:
(a) Employee agrees that during the term of his employment and
for a period of one (1) year thereafter, 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, (i) provide domestic or
international sales, purchasing, human resources, distribution operations,
marketing services as an officer or management level employee to any competitor
of the Subsidiary listed on Exhibit A attached hereto, which purchase, market
and sell computer and related products and/or cellular telephones and related
products (collectively, the "Business"); 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 in an automated quotations
system), or perform consulting services for, or otherwise participate in the
ownership, management, or control of, the companies listed on Exhibit A attached
hereto;
<PAGE>
(b) Employee agrees that during the term of his employment and
for a period of one (1) year thereafter, Employee shall not, directly or
indirectly, either individually, in partnership, jointly, or in conjunction
with, or on behalf of, any person, firm, partnership, corporation,
unincorporated association or other 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 Subsidiary in connection with the Business, any
person or entity that, during the term of Employee's employment with the
Subsidiary, was a vendor, supplier or customer of the Subsidiary with whom
Employee had contact during the last twelve (12) months of his employment, or
was a prospective vendor, supplier or customer of the Subsidiary with whom
Employee had contact during the last twelve (12) months of his employment; and
(c) Employee agrees that during the term of his employment and
for a period of one (1) year thereafter, Employee shall not, directly or
indirectly, either individually, in partnership, jointly, or in conjunction
with, or on behalf of, any person, firm, partnership, corporation,
unincorporated association or other entity of any kind, hire or solicit, or
attempt to hire or solicit, for employment any person who was employed by the
<PAGE>
Subsidiary up to 90 days prior to the date of termination of the Employee's
employment 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 Subsidiary.
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 Subsidiary's business interests. Employee acknowledges
that the scope of this Section 9 is reasonable and necessary to protect the
Subsidiary's legitimate business interests.
10. Remedy for Breach. Employee agrees that the damage to the Subsidiary
resulting from any actual or threatened breach by Employee of any 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 Subsidiary shall be
entitled to specific performance of the covenants in any of 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 and legal
expenses (including attorneys' fees) which the Subsidiary may be legally
entitled to recover.
<PAGE>
11. Survival. The provisions of Sections 7, 8, 9 and 10 shall
survive termination of this Agreement.
12. Change of Control. 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:
(a) 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 outside the Atlanta, Georgia Metropolitan Area or
farther than 35 miles from the present location of the executive offices, 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 12; or
<PAGE>
(b) 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 12 (the notice provided pursuant to Subsection 12(a) or
Subsection 12(b) 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 2.99 times the
aggregated of Employee's annual base salary, bonuses and other benefits owing to
Employee, subject to the provisions of Sections 21, 22 and 23.
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 the Subsidiary at the time the Employee
gives the Notice of
<PAGE>
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 the Subsidiary's Articles of Incorporation, Bylaws or similar
policies, plans or agreements relating to the indemnification of Employee under
certain circumstances. The Executive Payment shall not be reduced by any present
value calculations.
In the event the Employee dies after giving the Notice of Exercise but
prior to receipt of the Executive Payment, then the Employee's estate or legal
representative shall be entitled to receive the Executive Payment.
13. Certain Additional Definitions.
"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.
<PAGE>
"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.
"ATLANTA, GEORGIA METROPOLITAN AREA" means the counties of
Clayton, Cobb, DeKalb, Fulton and Gwinnett, Georgia
"BENEFICIAL OWNER" shall be defined by reference to Rule 13d-3
under the Exchange Act as such Rule may be amended from time to time; 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 the 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
<PAGE>
indirect, pursuant to any agreement, arrangement or understanding or upon
exercise of conversion rights, warrants or options or otherwise, shall be deemed
the Beneficial Owner of such securities.
"CHANGE OF CONTROL" shall be deemed to have occurred if and when
(1) any individual, corporation, partnership, Group, association or other person
or entity, together with his, its or their Affiliates or 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; (2) 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; (3) all or substantially all of the assets of the Company 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 the Company; (4) any individual, corporation, partnership, Group,
association or other person or entity, together with his, its or their
Affiliates or Associates, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Subsidiary,
<PAGE>
becomes the Beneficial Owner of securities of the Subsidiary representing thirty
percent (30%) or more of the combined voting power of the Subsidiary's then
outstanding securities entitled to vote generally in the election of directors;
or (5) all or substantially all of the assets of the 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 the Subsidiary.
"CONTINUING DIRECTOR" means a director who either was a member of the
Board of Directors of either the Company or the Subsidiary, as the case may be,
on the date hereof, or who becomes a member of the Board of Directors of either
the Company or the 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 that company on behalf of the Board of Directors
of that 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
<PAGE>
the 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.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GROUP" means persons who act in concert as described in Section
13(d)(3) of the Exchange Act as may be amended from time to time.
14. 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 shall be deemed amended to delete
<PAGE>
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.
15. Applicable Law. This Agreement is being executed in the State of
Georgia and shall be construed and enforced in accordance with the laws of said
jurisdiction.
16. Waiver of Breach. The waiver by the Subsidiary 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.
17. Successors and Assigns. This Agreement shall inure to the benefit
of the Subsidiary, its subsidiaries and affiliates, and their respective
successors and assigns.
18. Entire Agreement. This Agreement contains the entire agreement of
the parties and supersedes all prior agreements regarding Employee's employment
by the Subsidiary, including, but not limited to, oral discussions, letter
agreements, or any other document concerning the possibility of employment with
the Subsidiary. 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>
19. Headings. The headings of the Sections of this Agreement are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
20. Interest on Amounts Payable. If any amounts that are required or
determined to be paid or payable or reimbursed or reimbursable to the Employee
under this Agreement, under any other plan, agreement, policy or arrangement
with the Subsidiary are not paid promptly at the times provided herein or
therein, such amounts shall accrue interest at an annual percentage rate of ten
percent (10%) from the date such amounts were required or determined to have
been paid or payable or reimbursed or reimbursable to the Employee until such
amounts and any interest accrued thereon are finally and fully paid; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
21. Limitation on Payment. If the benefits provided to Employee under
this Agreement or under any other agreement with, or plan of, the Subsidiary (in
the aggregate, the "Total Payment") constitute a payment so that an excise tax
(the "Excise Tax") is due under Section 280G, Section 4999 or other provision of
the
<PAGE>
Internal Revenue Code of 1986, as amended (the "Code"), then the benefits
provided under this Agreement shall be limited to the Reduced Amount. The
"Reduced Amount" shall be the largest amount that could be received by Employee
under this Agreement such that no part of the Total Payment provided to Employee
shall be subject to the Excise Tax. The Reduced Amount shall be calculated by a
nationally recognized benefits consulting firm or accounting firm, and such
amount shall be presented to Employee for review and approval. If the amount
payable to Employee is limited to the Reduced Amount, Employee shall have the
right, in Employee=s sole discretion, to designate the portion of the Total
Payment that should be reduced or eliminated so as to avoid having the benefits
provided to Employee under this Agreement be subject to the Excise Tax.
22. Notification. If the Internal Revenue Service claims in writing that
any benefit received under this Agreement constitutes an "excess parachute
payment" under Section 280G of the Code, Employee shall notify the Subsidiary in
writing of such claim within 10 business days of the claim. Employee shall
apprise the Subsidiary of the nature of such claim and the date on which such
claim is requested to be paid. Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on
<PAGE>
which Employee provides notice of the claim to the Subsidiary (or such shorter
period ending on the date that any payment of taxes with respect to the claim is
due). If the Subsidiary notifies Employee in writing prior to the expiration of
such period that it desires to contest such claim, Employee shall (i) give the
Subsidiary any information reasonably requested by the Subsidiary relating to
such claim; (ii) take such action in connection with contesting such claim as
the Subsidiary shall reasonably request in writing from time to time; (iii)
cooperate with the Subsidiary in good faith in order to effectively contest such
claim; and (iv) permit the Subsidiary to participate in any proceedings relating
to such claim; provided, however, that the Subsidiary shall bear and pay
directly all costs and expenses (including, but not limited to, additional
interest and penalties and related legal, consulting or similar fees) incurred
in connection with such contest and shall indemnify and hold Employee harmless,
on an after-tax basis, for any Excise Tax or other tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.
23. Excise Tax Refund. If, after the receipt by Employee of an amount
advanced by the Subsidiary in connection with the contest of the Excise Tax
claim, Employee becomes entitled to receive any
<PAGE>
refund with respect to such claim, Employee shall promptly pay to the Subsidiary
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto); provided, however, that if the amount of that
refund exceeds the amount advanced by the Subsidiary or it is otherwise
determined for any reason that additional amounts could be paid to Employee
without incurring any Excise Tax, any such amount will be promptly paid by the
Subsidiary to Employee. If, after the receipt of an amount advanced by the
Subsidiary in connection with an Excise Tax claim, a determination is made that
Employee shall not be entitled to any refund with respect to such claim and the
Subsidiary does not notify Employee in writing of its intent to contest the
denial of such refund prior to the expiration of 30 days after such
determination, such advance shall be forgiven and shall not be required to be
repaid and shall be deemed to be in consideration for services rendered after
date of the termination of Employee's employment.
24. Employee's Expenses. All costs and expenses, including reasonable
legal, accounting and other advisory fees, incurred by the Employee to prepare
responses to an Internal Revenue Service audit of, and otherwise defend, his
personal income tax return for any year that is the subject of any such audit or
an adverse
<PAGE>
determination, administrative proceeding or civil litigation arising therefrom
that is occasioned by, or related to, an audit by the Internal Revenue Service
of the Subsidiary's consolidated income tax returns are, upon written demand by
the Employee explaining the basis for the request for such reimbursement or
advancement, to be promptly advanced or reimbursed to the Employee or paid
directly, on a current basis, by the Subsidiary or its successors.
Subject to the first paragraph of this Section 24 and except as
otherwise provided in this Agreement, if at any time during the term of this
Agreement or afterwards there should arise any litigation, hearing or
arbitration as to the interpretation or application of any term or condition of
this Agreement, the Subsidiary agrees, upon written demand by the Employee (and
the employee shall be entitled upon application to any court of competent
jurisdiction, to the entry of a mandatory injunction, without the necessity of
posting any bond with respect thereto, compelling the Subsidiary), promptly to
provide sums sufficient to pay on a current basis, either directly or by
reimbursing the Employee, the Employee's costs and reasonable attorneys' fees,
including, without limitation, expenses of investigation and disbursements for
the fees and expenses of experts, incurred by the
<PAGE>
Employee in connection with any such litigation, hearing or arbitration;
provided, however, if the Employee is not the prevailing party in such
litigation, hearing or arbitration, then Employee shall pay or reimburse the
Subsidiary for its costs and reasonable attorneys' fees, including, without
limitation, expenses of investigation and disbursements for the fees and
expenses of experts (other than Affiliates), incurred by the Subsidiary in
connection with any such litigation, hearing or arbitration, together with all
such costs and fees previously paid by the Subsidiary to or for the benefit of
Employee in connection with such litigation, hearing or arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above shown.
Employee:
______________________(SEAL)
BARRY DIAMOND
Subsidiary:
SED INTERNATIONAL, INC.
By:____________________________
Title:_________________________
(CORPORATE SEAL)
<PAGE>
EXHIBIT A
COMPETITORS
ASI Corp.
Brightpoint, Inc.
Cellstar, Corp.
CHS Electronics, Inc.
Ingram Micro, Inc.
Merisel, Inc.
Microage, Inc.
Supercom, Inc.
Tech Data Corp.
or any of their respective Affiliates.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 28th day of
November, 1999 between Larry G. Ayers (the "Employee") and SED International,
Inc., a Georgia corporation (the "Subsidiary") and wholly-owned subsidiary of
SED International Holdings, Inc., a Georgia corporation (the "Company").
W I T NE S S E T H :
WHEREAS, the Subsidiary desires to enter into this Agreement regarding
Employee's employment by the Subsidiary and Employee desires to accept the terms
of said employment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1. Employment of Employee. This Agreement is effective for a period of
three (3) years commencing as of November 28, 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 directions of the
Subsidiary.
<PAGE>
During the term of this Agreement, Employee shall be employed as Vice
President -- Finance, Chief Financial Officer and Secretary of the Subsidiary
reporting to the President. In Employee's capacity as Vice President -- Finance,
Chief Financial Officer and Secretary of the Subsidiary, Employee shall be
responsible for all accounting, finances and reporting of the Subsidiary and
otherwise have the duties and responsibilities accorded to such position as set
forth in the Subsidiary's Bylaws, and such other and further duties as may from
time to time become necessary for the management of the Subsidiary, as
determined by the Board of Directors.
Employee shall devote substantially all of Employee's business time,
attention and energies to the business of the Subsidiary shall act at all times
in the best interests of the Subsidiary 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 $140,000.00.
(b) Employee's base salary shall be paid by the Subsidiary pursuant to
its customary payroll practices.
<PAGE>
(c) Commencing on November 28, 2000 and on each November 28 thereafter
during the term of this Agreement, the annual base salary shall be increased
(but not decreased) by an amount equal to five percent (5%) of the then annual
base salary, together with such other increases, if any, as shall be approved by
the Subsidiary's Board of Directors.
(d) The Subsidiary shall provide Employee such medical coverage and
other benefits as are provided to its other employees, subject to Employee
meeting any eligibility or other requirements of such coverages or benefits. The
Subsidiary has the right to change or eliminate any of its benefits plans at any
time. The Employee shall also be entitled during the term of this Agreement to
the use of an automobile, with the premiums for the automobile insurance
coverage thereon, together with the reasonable cost of maintenance and other
expenses (including gasoline) being payable by the Subsidiary or its designee.
The Employee shall have the option to have the use of a new (replacement)
automobile on the third anniversary of this Agreement. The amount of insurance
coverage shall be determined by the Subsidiary or its designee in accordance
with the policies of the Subsidiary, from time to time in effect. As a condition
to the use of such automobile, Employee shall cooperate fully with the
Subsidiary or its designee in
<PAGE>
connection with obtaining and maintaining in effect any such policy of
insurance.
(e) Employee shall be entitled to three (3) weeks of paid vacation per
year.
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 Subsidiary in all respects as
complies with good business and ethical practices. In addition, Employee shall
be subject to and abide by the policies and procedures of the Subsidiary.
4. Business Expenses. Employee shall be reimbursed by the Subsidiary for
ordinary, necessary and reasonable business expenses consistent with the
Subsidiary's policies concerning reimbursement of such expenses; provided that,
Employee shall first document said business expenses in the manner generally
required by the Subsidiary 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. At no time during the term of this Agreement
shall the Employee be asked or required to transfer his place of employment to a
location that is of a radius more than thirty five (35) miles from the
Subsidiary's current offices
<PAGE>
located at 4916 North Royal Atlanta Drive, Tucker, Georgia 30085.
6. Termination.
(a) This Agreement may be terminated for good cause by the Subsidiary
upon written notice to Employee. As used herein, "good cause" means: (i) any act
of fraud or dishonesty; (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 Subsidiary); (iv) violation of the policies and procedures
of the Subsidiary; (v) failure to comply with the directions of the Board of
Directors of the Subsidiary; (vi) engaging in any unlawful harassment or
discrimination; (vii) the conviction of Employee of any crime involving moral
turpitude (whether felony or misdemeanor) or involving any felony; (viii) any
act of moral turpitude by Employee that materially adversely affects the
Subsidiary or its business reputation; (ix) violation of state or federal
securities laws; (x) 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.; or (xi) any other
matter constituting "good cause" under the laws (including, inter alia,
statutes, regulations or judicial case law) of the State of Georgia.
<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 reasonable
accommodation, for a continuous period of 180 consecutive days, as certified by
a physician or physicians selected by the Board of Directors of the Subsidiary.
(c) In the event of termination under subsections (a) of this Section 6,
the base salary, less applicable withholdings, 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) In the event of termination under subsection (b) of this Section 6,
the Subsidiary shall pay to Employee or Employee's estate or personal
representative, as appropriate, the greater of (i) Employee's base salary, less
applicable withholdings, plus benefits, for the remaining period of the
Agreement or (ii) twelve (12) months of base salary, less applicable
withholdings, plus benefits for such monthly period.
<PAGE>
(e) The Subsidiary may terminate this Agreement at any time without
"good cause" upon written notice to Employee. In the event of such termination,
the Subsidiary shall pay to Employee the greater of (i) Employee's base salary,
less applicable withholdings, plus benefits, for the remaining period of the
Agreement or (ii) twelve (12) months of base salary, less applicable
withholdings.
(f) All such payments owing under this Section 6 shall be payable
concurrently at the time of termination. Other than the payments of the base
salary and benefits amounts 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 Subsidiary, including without
limitation, all customer data, marketing and sales information, billing
information, service data and other technical material of the Subsidiary, is the
Subsidiary's property. Employee agrees to deliver all such materials to the
Subsidiary within three (3) business days after the termination of this
Agreement.
8. Nondisclosure. Employee acknowledges and agrees that
<PAGE>
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 Subsidiary, its customers and
employees. Employee further acknowledges that the disclosure or unauthorized use
of Trade Secrets, as defined under applicable state law, or confidential
information by Employee would harm the Subsidiary'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 Subsidiary, 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 Subsidiary. Employee further agrees that Employee will not, at any time
during or after the term of Employee's employment with the Subsidiary, use,
reveal or divulge any Trade Secrets.
9. Restrictive Covenants. Employee acknowledges and agrees that, because of
his employment he has access to confidential or
<PAGE>
proprietary information concerning vendors, suppliers and customers of the
Subsidiary and has established relationships with such vendors, suppliers and
customers. In exchange for valuable consideration to be given by the Subsidiary
to Employee, as provided herein, Employee agrees to the following provisions:
(a) Employee agrees that during the term of his employment and for a
period of one (1) year thereafter, 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, (i) provide accounting, finance or reporting
services to any competitor of the Subsidiary listed on Exhibit A attached
hereto, which purchase, market and sell computer and related products and/or
cellular telephones and related products (collectively, the "Business"); 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
in an automated quotations system), or perform consulting services for, or
otherwise participate in the ownership, management, or control of, the companies
listed on Exhibit A attached hereto;
(b) Employee agrees that during the term of his
<PAGE>
employment and for a period of one (1) year thereafter, Employee shall not,
directly or indirectly, either individually, in partnership, jointly, or in
conjunction with, or on behalf of, any person, firm, partnership, corporation,
unincorporated association or other 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 Subsidiary in connection with the Business, any
person or entity that, during the term of Employee's employment with the
Subsidiary, was a vendor, supplier or customer of the Subsidiary with whom
Employee had contact during the last twelve (12) months of his employment, or
was a prospective vendor, supplier or customer of the Subsidiary with whom
Employee had contact during the last twelve (12) months of his employment; and
(c) Employee agrees that during the term of his employment and for a
period of one (1) year thereafter, Employee shall not, directly or indirectly,
either individually, in partnership, jointly, or in conjunction with, or on
behalf of, any person, firm, partnership, corporation, unincorporated
association or other entity of any kind, hire or solicit, or attempt to hire or
solicit, for employment any person who was employed by the Subsidiary up to 90
days prior to the date of termination of the Employee's employment or persuade
or attempt to persuade any such
<PAGE>
person to terminate or modify his or her employment relationship, whether or not
pursuant to a written agreement, with the Subsidiary.
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 Subsidiary's business interests. Employee acknowledges that the
scope of this Section 9 is reasonable and necessary to protect the Subsidiary's
legitimate business interests.
10. Remedy for Breach. Employee agrees that the damage to the Subsidiary
resulting from any actual or threatened breach by Employee of any 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 Subsidiary shall be
entitled to specific performance of the covenants in any of 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 and legal
expenses (including attorneys' fees) which the Subsidiary may be legally
entitled to recover.
11. Survival. The provisions of Sections 7, 8, 9 and 10 shall survive
termination of this Agreement.
<PAGE>
12. Change of Control. 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:
(a) 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 outside the Atlanta, Georgia Metropolitan Area or
farther than 35 miles from the present location of the executive offices, 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 12; or
(b) the Employee gives written notice of his termination of employment
for any reason concurrently with the time a Change of
<PAGE>
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 12 (the notice provided pursuant to
Subsection 12(a) or Subsection 12(b) 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 2.99 times the
aggregated of Employee's annual base salary, bonuses and other benefits owing to
Employee, subject to the provisions of Sections 21, 22 and 23.
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 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,
<PAGE>
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 the Subsidiary's Articles
of Incorporation, Bylaws or similar policies, plans or agreements relating to
the indemnification of Employee under certain circumstances. The Executive
Payment shall not be reduced by any present value calculations.
In the event the Employee dies after giving the Notice of Exercise but
prior to receipt of the Executive Payment, then the Employee's estate or legal
representative shall be entitled to receive the Executive Payment.
13. Certain Additional Definitions.
"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,
<PAGE>
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.
"ATLANTA, GEORGIA METROPOLITAN AREA" means the counties of Clayton,
Cobb, DeKalb, Fulton and Gwinnett, Georgia
"BENEFICIAL OWNER" shall be defined by reference to Rule 13d-3
under the Exchange Act as such Rule may be amended from time to time; 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 the 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 understanding or upon exercise of conversion rights,
warrants or options or
<PAGE>
otherwise, shall be deemed the Beneficial Owner of such securities.
"CHANGE OF CONTROL" shall be deemed to have occurred if and when (1)
any individual, corporation, partnership, Group, association or other person or
entity, together with his, its or their Affiliates or 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; (2) 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; (3) all or substantially all of the assets of the Company 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 the Company; (4) any individual, corporation, partnership, Group,
association or other person or entity, together with his, its or their
Affiliates or Associates, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Subsidiary, becomes the
Beneficial Owner of securities of the Subsidiary representing thirty percent
(30%) or more of the combined voting
<PAGE>
power of the Subsidiary's then outstanding securities entitled to vote generally
in the election of directors; or (5) all or substantially all of the assets of
the 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 the Subsidiary.
"CONTINUING DIRECTOR" means a director who either was a member of the
Board of Directors of either the Company or the Subsidiary, as the case may be,
on the date hereof, or who becomes a member of the Board of Directors of either
the Company or the 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 that company on behalf of the Board of Directors
of that 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 the Subsidiary, as the case may be; provided,
however, if the votes of such Continuing Directors in favor of such action would
be
<PAGE>
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.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GROUP" means persons who act in concert as described in Section 13(d)
(3) of the Exchange Act as may be amended from time to time.
14. 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 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
<PAGE>
in order to render the same valid and enforceable.
15. Applicable Law. This Agreement is being executed in the State of
Georgia and shall be construed and enforced in accordance with the laws of said
jurisdiction.
16. Waiver of Breach. The waiver by the Subsidiary 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.
17. Successors and Assigns. This Agreement shall inure to the benefit of
the Subsidiary, its subsidiaries and affiliates, and their respective successors
and assigns.
18. Entire Agreement. This Agreement contains the entire agreement of the
parties and supersedes all prior agreements regarding Employee's employment by
the Subsidiary, including, but not limited to, oral discussions, letter
agreements, or any other document concerning the possibility of employment with
the Subsidiary. 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.
19. Headings. The headings of the Sections of this Agreement are included
solely for convenience of reference and shall not
<PAGE>
control the meaning or interpretation of any of the provisions of this
Agreement.
20. Interest on Amounts Payable. If any amounts that are required or
determined to be paid or payable or reimbursed or reimbursable to the Employee
under this Agreement, under any other plan, agreement, policy or arrangement
with the Subsidiary are not paid promptly at the times provided herein or
therein, such amounts shall accrue interest at an annual percentage rate of ten
percent (10%) from the date such amounts were required or determined to have
been paid or payable or reimbursed or reimbursable to the Employee until such
amounts and any interest accrued thereon are finally and fully paid; provided,
however, that in no event shall the amount of interest contracted for, charged
or received hereunder exceed the maximum non-usurious amount of interest allowed
by applicable law.
21. Limitation on Payment. If the benefits provided to Employee under this
Agreement or under any other agreement with, or plan of, the Subsidiary (in the
aggregate, the "Total Payment") constitute a payment so that an excise tax (the
"Excise Tax") is due under Section 280G, Section 4999 or other provision of the
Internal Revenue Code of 1986, as amended (the "Code"), then the benefits
provided under this Agreement shall be limited to the
<PAGE>
Reduced Amount. The "Reduced Amount" shall be the largest amount that could be
received by Employee under this Agreement such that no part of the Total Payment
provided to Employee shall be subject to the Excise Tax. The Reduced Amount
shall be calculated by a nationally recognized benefits consulting firm or
accounting firm, and such amount shall be presented to Employee for review and
approval. If the amount payable to Employee is limited to the Reduced Amount,
Employee shall have the right, in Employee=s sole discretion, to designate the
portion of the Total Payment that should be reduced or eliminated so as to avoid
having the benefits provided to Employee under this Agreement be subject to the
Excise Tax.
22. Notification. If the Internal Revenue Service claims in writing that
any benefit received under this Agreement constitutes an "excess parachute
payment" under Section 280G of the Code, Employee shall notify the Subsidiary in
writing of such claim within 10 business days of the claim. Employee shall
apprise the Subsidiary of the nature of such claim and the date on which such
claim is requested to be paid. Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which Employee provides
notice of the claim to the Subsidiary (or such shorter period ending on the date
that any payment of taxes
<PAGE>
with respect to the claim is due). If the Subsidiary notifies Employee in
writing prior to the expiration of such period that it desires to contest such
claim, Employee shall (i) give the Subsidiary any information reasonably
requested by the Subsidiary relating to such claim; (ii) take such action in
connection with contesting such claim as the Subsidiary shall reasonably request
in writing from time to time; (iii) cooperate with the Subsidiary in good faith
in order to effectively contest such claim; and (iv) permit the Subsidiary to
participate in any proceedings relating to such claim; provided, however, that
the Subsidiary shall bear and pay directly all costs and expenses (including,
but not limited to, additional interest and penalties and related legal,
consulting or similar fees) incurred in connection with such contest and shall
indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax
or other tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expenses.
23. Excise Tax Refund. If, after the receipt by Employee of an amount
advanced by the Subsidiary in connection with the contest of the Excise Tax
claim, Employee becomes entitled to receive any refund with respect to such
claim, Employee shall promptly pay to the Subsidiary the amount of such refund
(together with any
<PAGE>
interest paid or credited thereon after taxes applicable thereto); provided,
however, that if the amount of that refund exceeds the amount advanced by the
Subsidiary or it is otherwise determined for any reason that additional amounts
could be paid to Employee without incurring any Excise Tax, any such amount will
be promptly paid by the Subsidiary to Employee. If, after the receipt of an
amount advanced by the Subsidiary in connection with an Excise Tax claim, a
determination is made that Employee shall not be entitled to any refund with
respect to such claim and the Subsidiary does not notify Employee in writing of
its intent to contest the denial of such refund prior to the expiration of 30
days after such determination, such advance shall be forgiven and shall not be
required to be repaid and shall be deemed to be in consideration for services
rendered after date of the termination of Employee's employment.
24. Employee's Expenses. All costs and expenses, including reasonable
legal, accounting and other advisory fees, incurred by the Employee to prepare
responses to an Internal Revenue Service audit of, and otherwise defend, his
personal income tax return for any year that is the subject of any such audit or
an adverse determination, administrative proceeding or civil litigation arising
therefrom that is occasioned by, or related to, an audit by
<PAGE>
the Internal Revenue Service of the Subsidiary's consolidated income tax returns
are, upon written demand by the Employee explaining the basis for the request
for such reimbursement or advancement, to be promptly advanced or reimbursed to
the Employee or paid directly, on a current basis, by the Subsidiary or its
successors.
Subject to the first paragraph of this Section 24 and except as otherwise
provided in this Agreement, if at any time during the term of this Agreement or
afterwards there should arise any litigation, hearing or arbitration as to the
interpretation or application of any term or condition of this Agreement, the
Subsidiary agrees, upon written demand by the Employee (and the employee shall
be entitled upon application to any court of competent jurisdiction, to the
entry of a mandatory injunction, without the necessity of posting any bond with
respect thereto, compelling the Subsidiary), promptly to provide sums sufficient
to pay on a current basis, either directly or by reimbursing the Employee, the
Employee's costs and reasonable attorneys' fees, including, without limitation,
expenses of investigation and disbursements for the fees and expenses of
experts, incurred by the Employee in connection with any such litigation,
hearing or arbitration; provided, however, if the Employee is not the
<PAGE>
prevailing party in such litigation, hearing or arbitration, then Employee shall
pay or reimburse the Subsidiary for its costs and reasonable attorneys' fees,
including, without limitation, expenses of investigation and disbursements for
the fees and expenses of experts (other than Affiliates), incurred by the
Subsidiary in connection with any such litigation, hearing or arbitration,
together with all such costs and fees previously paid by the Subsidiary to or
for the benefit of Employee in connection with such litigation, hearing or
arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above shown.
Employee:
_____________________________(SEAL)
LARRY G. AYERS
Subsidiary:
SED INTERNATIONAL, INC.
By: _______________________________
Title:_____________________________
(CORPORATE SEAL)
<PAGE>
EXHIBIT A
COMPETITORS
ASI Corp.
Brightpoint, Inc.
Cellstar, Corp.
CHS Electronics, Inc.
Ingram Micro, Inc.
Merisel, Inc.
Microage, Inc.
Supercom, Inc.
Tech Data Corp.
or any of their respective Affiliates.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SED
INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,721,000
<SECURITIES> 0
<RECEIVABLES> 46,205,000
<ALLOWANCES> 7,474,000
<INVENTORY> 47,782,000
<CURRENT-ASSETS> 103,272,000
<PP&E> 7,843,000
<DEPRECIATION> 6,587,000
<TOTAL-ASSETS> 122,095,000
<CURRENT-LIABILITIES> 66,370,000
<BONDS> 0
0
0
<COMMON> 112,000
<OTHER-SE> 53,613,000
<TOTAL-LIABILITY-AND-EQUITY> 122,095,000
<SALES> 336,096,000
<TOTAL-REVENUES> 336,096,000
<CGS> 314,754,000
<TOTAL-COSTS> 314,754,000
<OTHER-EXPENSES> 19,720,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 379,000
<INCOME-PRETAX> 1,243,000
<INCOME-TAX> 368,000
<INCOME-CONTINUING> 875,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 875,000
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
