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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER: 0-16207
ALL AMERICAN SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2814714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16115 N.W. 52ND AVENUE
MIAMI, FLORIDA 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 621-8282
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
As of March 27, 1996, 19,863,895 shares (including 160,703 held by a
wholly-owned subsidiary of the Registrant) of the common stock of ALL AMERICAN
SEMICONDUCTOR, INC. were outstanding, and the aggregate market value of the
common stock held by non-affiliates was $41,350,000.
Documents Incorporated by Reference:
Portions of the definitive proxy statement to be filed within 120 days after the
end of the Registrant's fiscal year are incorporated by reference into Part III.
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ALL AMERICAN SEMICONDUCTOR, INC.
FORM 10-K - 1995
TABLE OF CONTENTS
PART ITEM PAGE
NO. NO. DESCRIPTION NO.
I 1 Business............................................. 1
2 Properties........................................... 17
3 Legal Proceedings ................................... 17
4 Submission of Matters to a Vote of Security-Holders.. 18
II 5 Market for the Registrant's Common Equity and Related
Stockholder Matters................................ 18
6 Selected Financial Data.............................. 20
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 21
8 Financial Statements and Supplementary Data.......... 30
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 30
III 10 Directors and Executive Officers of the Registrant... 30
11 Executive Compensation............................... 30
12 Security Ownership of Certain Beneficial Owners and
Management......................................... 30
13 Certain Relationships and Related Transactions....... 30
IV 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K............................................ 30
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PART I
ITEM 1. BUSINESS
GENERAL
All American Semiconductor, Inc. and its subsidiaries (collectively, the
"Company"; sometimes referred to herein as "Registrant") is a national
distributor of electronic components manufactured by others. The Company
distributes a full range of semiconductors (active components), including
transistors, diodes, memory devices and other integrated circuits, as well as
passive components, such as capacitors, resistors, inductors and
electromechanical products, including cable, connectors, filters and sockets.
The Company's products are sold primarily to original equipment manufacturers
("OEMs") in a diverse and growing range of industries, including manufacturers
of consumer goods, satellite and communications products, computers and
computer-related products, robotics and industrial equipment, defense and
aerospace equipment and medical instrumentation. In June 1995, the Company began
distributing a very limited offering of computer products, consisting of
motherboards and computer upgrade kits. Approximately 75% of the Company's 1995
sales were derived from the sale of semiconductors (active components), 23% from
passive products and 2% from computer products. The Company expects that this
sales mix may change due to the newly created computer products division as well
as the addition of the products now offered as a result of the Company's
acquisitions of the Added Value Companies (as hereinafter defined) in December
1995. See "Expansion" below.
While the Company reincorporated in Delaware in 1987, it and its predecessors
have operated since 1964. The Company is one of the faster growing distributors
in the industry and, as a result of its growth, the Company was recognized by
industry trade publications as the 18th largest distributor of electronic
components in the United States, as well as the 9th largest distributor of
semiconductors in the United States, out of an industry group that numbers more
than 1,000 distributors.
The Company's principal executive office is located at 16115 N.W. 52nd Avenue,
Miami, Florida 33014.
THE ELECTRONICS DISTRIBUTION INDUSTRY
The electronics industry is one of the largest and fastest growing industries in
the United States. An industry association estimates total U.S. factory sales of
electronic products by OEMs, the Company's primary customer base, at $382
billion for 1995 compared to $276 billion in 1991. The growth of this industry
has been driven by increased demand for new products incorporating sophisticated
electronic components, such as laptop computers and satellite and
telecommunications equipment, as well as the increased utilization of electronic
components in a wide range of industrial, consumer and military products. The
three product groups included in the electronic components industry are
semiconductors,
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which account for approximately 35% of the electronic components
distribution marketplace, passive/electromechanical components, accounting for
approximately 35% and systems or computer products (such as disk drives,
terminals and computer peripherals), accounting for approximately 30%. Until
June 1995, the Company was historically a distributor of only semiconductors and
passive/electromechanical products. At such time, the Company created a new
computer products division. This division presently only carries a very limited
product offering, however, the Company currently intends to expand its computer
products offering in the future.
Distributors are an integral part of the electronics industry. During 1995, an
estimated $20 billion of electronic components were sold through distribution in
the United States, up from $9 billion in 1991. In recent years, there has been a
growing trend for distribution to play an increasing role in the electronics
industry. OEMs which utilize electronic components are increasingly looking to
outsource their procurement, inventory and materials management processes to
third parties in order to concentrate their resources, including management
talent, personnel costs and capital investment, on their core competencies,
which include product development and marketing. Large distribution companies
not only fill these roles, but further serve as a single supply source for OEMs,
offering a much broader line of products, incremental quality control measures
and more support services than individual electronic component manufacturers.
Management believes that OEMs will continue to increase their service and
quality requirements, and that this trend will result in OEMs becoming more
dependent on distributors in the future.
Electronic component manufacturers are under similar pressure to allocate a
larger share of their resources to research, product development and
manufacturing capacity as technological advances continue to shorten product
lifecycles. Electronic component manufacturers sell directly to only a small
number of their potential customers. This small segment of their customer base
accounts for a large portion of the total available revenues. It is not
economical for component manufacturers to provide a broad range of sales support
services to handle the large amount of customers that account for the balance of
available revenues. With their expanded service capabilities, large distributors
have now become a reliable means for component manufacturers to outsource their
sales, marketing, customer service and distribution functions. This trend
particularly benefits larger distributors with nationwide distribution
capabilities such as the Company, as manufacturers continue to allocate a larger
percentage of their business to a more limited number of full service
distribution companies. Management believes that this trend should also provide
consolidation opportunities within the electronic components distribution
industry.
As a result of the trends discussed above, management believes that distribution
represents a growing share of the electronics industry.
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BUSINESS STRATEGY
The Company's strategy is to continue its managed growth and to gain market
share by: (i) increasing the number of customers it sells to through a
combination of expanding existing sales offices, opening new sales offices and
making selective acquisitions, and (ii) increasing sales to existing customers.
As part of its growth strategies, the Company has and continues to expand its
product offerings and service capabilities. While the Company's aggressive
growth plans caused an adverse effect on profitability in 1994 and continued to
lessen earnings in 1995, the Company believes that the investment in future
expansion was necessary to position the Company to participate in the dynamics
of its rapidly growing and changing industry and to achieve greater
profitability in the future.
EXPANSION
The Company has undergone significant expansion over the last few years. Over
the past three years, the Company has opened 15 new sales offices (including its
first foreign sales office based in Toronto, Canada in January 1996), relocated
and expanded all existing offices and acquired five electronic component
distributors in order to increase its presence as a national distributor. See
"Sales and Marketing-Sales Office Locations" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Acquisitions." The Company is seeking to further expand and enhance
its geographic coverage by opening or acquiring additional sales offices as well
as by expanding its businesses through further synergistic acquisitions.
Although no agreement has been reached as of the date of this filing, the
Company is currently in discussions with acquisition candidates.
As a result of the implementation of the Company's business strategy, the
Company has experienced significant growth. In order to effectively drive and
manage its expansion, the Company has over the last two fiscal years: (i)
restructured, enhanced and expanded its sales staff and sales management team;
(ii) expanded its quality control programs, including the implementation of its
total quality management ("TQM") and continuous process improvement programs
that ensure quality service, enhance productivity and, over time, reduce costs;
(iii) created and staffed a corporate operations department; (iv) increased
staffing in almost all corporate departments; (v) developed state-of-the-art
distribution technology, and (vi) enhanced its asset management capabilities
through new computer and telecommunications equipment. Additionally, the Company
expanded its marketing department. To better service the large customer base in
the western part of the United States, the Company opened a west coast corporate
office during 1994 which houses a regional credit department, as well as sales
and marketing executives for the Company. In addition, during 1995 the Company
opened an additional west coast regional credit department and an east coast
regional credit department.
To create additional opportunities for growth, the Company established a
computer products division. This division presently only carries a limited
product offering, however,
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the Company expects to expand its product offering in this division. See
"Products-Computer Products."
In order to process rapid growth in sales, the Company has increased its
capacity. In addition to the 110,800 square feet of corporate offices and
state-of-the-art distribution center in Miami, Florida, the Company leased
20,000 square feet of space in Fremont, California (near San Jose) which was
opened in January 1996 to expand its semiconductor programming and distribution
capabilities and improve quality control and service capabilities for its west
coast customers. Additionally, as a result of the Company purchasing through two
separate mergers with and into the Company's wholly-owned subsidiaries (the
"Added Value Acquisitions") all of the capital stock of Added Value Electronics
Distribution, Inc. ("Added Value") and A.V.E.D.-Rocky Mountain, Inc. ("Rocky
Mountain," and together with Added Value, collectively the "Added Value
Companies") in December 1995, the Company currently has distribution facilities
in Tustin, California and Denver, Colorado. See "Facilities and Systems." The
Company's capacity, combined with future growth in sales, should enable the
Company to realize the benefits of improved operating efficiencies and
increasing economies of scale in future periods.
INCREASING PRODUCT OFFERINGS
The Company intends to continue its effort to increase the number and breadth of
its product offerings, thereby allowing it to attract new customers and to
represent a larger percentage of the purchases being made by its existing
customers. As part of its efforts to attract new suppliers and expand its
product offerings, the Company has opened new sales offices (see
"Business-Business Strategy-Expansion") in order to achieve the geographic
coverage necessary to be recognized as a national distributor. Over the past 10
years the Company has increased the number of suppliers it represents to over
100 in order to expand its product offering and better serve its customers.
Acquisitions also provide the Company the opportunity to increase its product
offerings. The Company has already received national franchises from suppliers
of one of the companies acquired in the Added Value Acquisitions.
SERVICE CAPABILITIES
As stated above, customers are reducing their approved vendor base in an effort
to place a greater percentage of their purchases with fewer, more capable
distributors. As part of its overall strategy to increase market penetration,
the Company has endeavored to develop state-of-the-art service capabilities. The
Company refers to these service capabilities as "distribution technology." The
Company believes that it has developed service capabilities comparable to some
of the largest distributors in the industry, which service capabilities are not
yet readily available at many distributors of comparable size to the Company.
The Company further believes that these capabilities are not generally made
available by the largest distributors to middle market customers, which
represent the vast majority of the Company's customer base. See "Competition."
Management believes that smaller distributors generally do not have the ability
to offer as broad an array of services
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as the Company. The Company differentiates itself from its competition by making
state-of-the-art distribution technology available to both large and middle
market customers. Although the Company believes that this differentiation will
assist the Company's growth, there can be no assurance that such differentiation
exists to the extent that the Company currently believes or that it will
continue in the future.
The Company's distribution technology incorporates nationwide access to
real-time inventory and pricing information, electronic order entry and rapid
order processing. During the past few years, the Company has expanded its
services capabilities to include just-in-time deliveries, bar coding, bonded
inventory programs, in-plant stores, in-plant terminals and automatic inventory
replenishment programs. The Company has also implemented electronic data
interchange ("EDI") programs. EDI programs permit the electronic exchange of
information between the Company and its customers and suppliers, thus
facilitating transactions between them by reducing labor costs and paperwork.
The Company has also expanded its technical capabilities by creating a technical
sales program. As part of this program, the Company has hired electrical
engineers at various sales offices across the country and expects to continue to
hire additional engineers in the future. The program is intended to generate
sales by providing customers with engineering support and increased service at
the design and development stages. The program is also intended to enhance the
technical capabilities of the Company's entire sales force through regular
training sessions. Management believes that this capability is also of great
importance in attracting new suppliers.
In an effort to reduce the number of distributors they deal with, and ultimately
reduce their procurement costs, many customers have been selecting distributors
that, in addition to providing their standard components, are also able to
provide products that are not part of the distributors' regular product
offerings. This service is referred to as "kitting." In order to expand its
service offerings to address this growing customer requirement, the Company
created a kitting department toward the end of 1994. One of the strategic
purposes of the Added Value Acquisitions is to enhance the Company's ability to
provide kitting services, as one of the acquired companies has extensive kitting
capabilities. The Company intends to expand nationwide the kitting capabilities
obtained as a result of such acquisitions. In addition to kitting capabilities,
as a result of the recent acquisitions, the Company now has expertise in turnkey
manufacturing which enables customers to outsource their entire procurement and
manufacturing process. Turnkey services are especially attractive to smaller
OEMs which do not have the capital resources necessary to invest in
state-of-the-art manufacturing equipment nor the capacity requirement necessary
to justify such an investment. In performing turnkey services, the Company
subcontracts out all of the manufacturing work to third party assemblers. In
order to properly focus on and market the kitting and turnkey services
capabilities, the Company has created a new division, Apex Solutions. The
Company offers warranties against defects in workmanship with respect to its
turnkey services, which is a pass-through from the assembler.
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In order to further drive the sales of value-added services, the Company created
its American Assemblies & Design division in Chicago during the fourth quarter
of 1994. American Assemblies & Design has expanded the Company's value-added
capabilities with respect to electromechanical products.
Another rapidly growing segment of electronics distribution is the sale of
programmable semiconductor products. Programmable semiconductors enable
customers to reduce the number of components they use by highly customizing one
semiconductor to perform a function that otherwise would require several
components to accomplish. This saves space and enables customers to reduce the
size and cost of their products. In order to effectively sell programmable
products, most major distributors have established their own semiconductor
programming centers. To participate in this growing segment of the industry, the
Company opened a semiconductor programming center during the third quarter of
1995 and in January 1996 moved such programming center into the Company's new
20,000 square foot facility in Fremont, California (near San Jose). In addition
to enabling the Company to address a rapidly growing market for programmable
products, this capability will allow the Company to attract new product lines
that require programming capabilities.
In order to participate in the rapidly expanding utilization of Internet
services, in 1995 the Company acquired the hardware and developed its own
website. The Company believes that in the upcoming years a substantial amount of
transactions in its industry will be processed over the Internet. In this
regard, the Company has begun to design and develop its own home page which will
have extensive functionality for potential users. The Company expects this new
capability to be operational during the second quarter of 1996.
QUALITY CONTROLS AND ISO CERTIFICATION
During 1994 the Company created an operations department and embarked upon a TQM
program in order to properly manage its rapid growth and achieve compliance with
the increasingly stringent quality standards of its customer base. The TQM
program created continuous process improvement teams empowered to design and
direct the ongoing re-engineering of the Company. The intention of the TQM
program is to improve service, increase efficiency and productivity and, over
time, reduce costs. The expansion in capacity and service capabilities discussed
above were done within the confines of increasing strictness in quality control
programs and traceability procedures. As a result, the Company's Miami
distribution center successfully completed a procedure and quality audit that
resulted in its certification under the international quality standard of ISO
9002. This quality standard was established by the International Standards
Organization (the "ISO") created by the European Economic Community ("EEC"). The
ISO created uniform standards of measuring a company's processes, traceability
procedures and quality control in order to assist and facilitate business among
the EEC. The Company believes that this certification is becoming a requirement
of an increasing portion of the customer base and has currently been obtained by
only a small percentage of distributors in the United States.
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PRODUCTS
ACTIVE AND PASSIVE COMPONENTS
The Company markets both semiconductors and passive products. Semiconductors,
which are active products, respond to or activate upon receipt of electronic
current. Active products include transistors, diodes, memory devices and other
integrated circuits. Passive components, on the other hand, are designed to
facilitate completion of electronic functions. Passive products include
capacitors, resistors, inductors and electromechanical products such as cable,
connectors, filters and sockets. Virtually all of the Company's customers
purchase both active and passive products.
While the Company offers many of the latest technology semiconductor and passive
products, its focus has historically been on mature products that have a more
predictable demand, more stable pricing and more constant sourcing. The Company
believes that the greater predictability in the demand for these products and
the fact that component manufacturers are not likely to invest capital in order
to increase production of older technologies combine to reduce the risks
inherent in large volume purchases of mature products. By making large volume
purchases of semiconductor and passive products, the Company decreases its
per-unit cost, thus increasing its potential for higher profit margins upon
resale of these mature products. Although the Company continues to position
itself as a leader in the more mature product lines, as part of its growth
strategy, sales of the newer technology products are now playing a greater role
in the overall sales mix of the Company and may play an even greater role in the
overall sales mix as the Company expands its product offerings. Many of the
newer technology products, as well as memory and microprocessor products, have
lower profit margins than the more mature semiconductor and passive product
lines.
The Company does not offer express warranties with respect to any of its active,
passive or computer products, instead passing on only those warranties, if any,
granted by its suppliers.
COMPUTER PRODUCTS
While the Company currently estimates that 30% of electronics distributors'
revenues relate to computer products and microprocessor sales, the Company has
not in the past derived significant revenues from the sale of these products. In
June 1995, the Company entered into a non-exclusive agreement with NexGen to
distribute its line of fifth-generation high-performance Microsoft
WINDOWS(TM)-compatible processor products for the personal computer industry,
which include Nx586 microprocessors and complete motherboards. In January 1996,
AMD, the fourth largest U.S. merchant manufacturer of integrated circuits,
acquired NexGen. There can be no assurance that AMD will maintain NexGen's
present distribution network. As a result of AMD's acquisition of NexGen, AMD
may discontinue the manufacture of Nx586 products, however, the NexGen
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opportunity has provided the Company with an entrance into the very large and
rapidly growing computer products business. In this regard, the Company, in June
1995, established a computer products division. This division presently carries
only NexGen's motherboard products and computer upgrade kits, however, the
Company expects to expand its product offering in this division which operates
under the name "Access Micro Products." This new division addresses a different
customer base than the traditional OEMs to which the Company markets its
products. This new customer base includes value-added resellers ("VARs"),
systems integrators, computer products distributors, catalog companies and
computer superstores. Sales from this new division will generate substantially
lower profit margins than are generated by the Company's other products,
however, the Company expects to compensate for the lower margins by having a
lower cost structure for these operations and generating higher sales dollars on
a per-unit basis. Management currently remains optimistic about the business
prospects of its computer products division, despite minimal 1995 operating
profit attributable to Nx586 products. No assurance can be given as to the
future success of this new division.
ELECTROMECHANICAL VALUE-ADDED SERVICES
In an effort to reduce overhead, a growing number of customers have been
outsourcing certain processes and relying more upon distributors to handle
certain assemblies and modification work. These include connector and cable
assemblies, cable harnessing, terminal block modifications and other services.
These electromechanical value-added services offer distributors an opportunity
to sell their components at higher margins when these components become
integrated into an assembly.
The Company began offering electromechanical value-added services in 1989 as a
result of its acquisition of a regional passive component distributor which
offered such services. To date, the Company has derived only nominal revenues
from these value-added services. Part of the strategy for the acquisition in
January 1994 of a Chicago, Illinois-based distributor (see Note 4 to Notes to
Consolidated Financial Statements) was to expand the Company's electromechanical
value-added capabilities as the acquired company derived a substantially higher
percentage of its revenues from these value-added services. In order to further
drive the sales of these value-added services, the Company created its American
Assemblies & Design division in Chicago during the fourth quarter of 1994,
thereby expanding the Company's value-added capabilities with respect to
electromechanical products. No assurance can be given as to the success of this
division.
FLAT PANEL DISPLAYS
The Company believes that one of the fastest growing segments of the electronics
industry will be utilization of flat panel displays. As a result of the Added
Value Acquisitions in late December 1995, the Company now has significant
expertise in flat panel display products and has on staff the technical
capabilities required to support flat panel display applications. Flat panel
displays are commonly used in laptop computers and are currently replacing
standard cathode ray tubes in a variety of applications, including
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personal computers and video monitors, as well as in the development of high
definition television ("HDTV"). The acquired companies have developed and
currently sell flat panel display kits which facilitate installation of flat
panel displays. Industry sources estimate that the U.S. flat panel display
market will grow 23% per year from approximately $2 billion in 1995 to over $5.7
billion by the year 2000, and the Company expects to capitalize on this growth
through the sale of its flat panel display kits as well as flat panel displays.
In order to properly function in any application, flat panel displays need
controlled inputs of electronic impulses. In this regard, the recently acquired
companies have developed board level products to control and regulate the
electronic input that drives the flat panel display. These products are commonly
referred to as driver boards. Each display requires specific software to allow
the driver board to "talk" to the display. The recently acquired companies have
developed software for various types of display products. In addition to the
driver board, flat panel displays require a back-light inverter to run the
back-light and cable assemblies to connect the display, inverter and the driver
board to each other and to the equipment of which it is a part. The recently
acquired companies have developed the expertise to assemble the entire kit of
parts needed so that the OEM customer can eliminate this design function and use
one part number to order all of the components needed. This greatly simplifies
the customer's design-in and purchasing process, and allows the customer to
optimize the performance of the flat panel displays.
To date, the recently acquired companies have had only nominal revenues from the
sale of flat panel displays, driver boards and display kits, however, the
Company currently believes that the potential market for these products should
be substantial and, by having these comprehensive capabilities available, the
Company will have a greater opportunity to participate in this new market. The
Company presently represents multiple suppliers of flat panel displays,
back-light inverters and, in its American Assemblies & Design division, has the
ability to manufacture the cable assemblies required to make the complete flat
panel display kits. To date, the Company has had limited revenues from these
products because the Company has not previously had the technical expertise to
design the kits. The technical expertise acquired as a result of the Added Value
Acquisitions will facilitate the Company's ability to sell its existing
components to its OEM customer base as well as to sell driver board and display
kit products to other distributors.
MEMORY MODULES
As a result of the Added Value Acquisitions, the Company now also designs, has
manufactured and sells memory modules. Memory products, which include the memory
module subsegment, represent the largest product sector of semiconductor
revenues, estimated by industry sources at $48 billion worldwide. Memory modules
facilitate the incorporation of expanded memory in limited space. The Company
believes the memory module industry will grow from approximately $14 billion in
1996 to $23 billion
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worldwide by 2000. Growth in memory products is being driven by a variety of
factors, including new software applications such as Microsoft's WINDOWS 95(TM).
With respect to all products manufactured or assembled by the Company, the
Company offers a warranty for a period of one year against defects in
workmanship and materials under normal use and service and in their original,
unmodified condition.
CUSTOMERS
The Company markets its products primarily to OEMs in a diverse and growing
range of industries. The Company's customer base includes manufacturers of
computers and computer-related products, consumer goods, satellite and
telecommunications equipment, defense and aerospace equipment, robotics and
industrial equipment and medical instrumentation. In addition, as a result of
creating its Access Micro Products division, the Company has begun expanding its
customer base to include VARs, systems integrators, computer products
distributors, catalog companies and computer superstores. The Company's customer
list includes approximately 10,000 accounts. During 1995, no customer accounted
for more than 3% of the Company's sales and the Company does not believe that
the loss of any one customer would have a material adverse impact on its
business.
SALES AND MARKETING
OVERALL STRATEGY
The Company differentiates itself from its competitors in the marketplace by the
combination of products and services that it can provide to its customers. The
Company is a broad-line distributor offering over 60,000 different products
representing more than 100 different component manufacturers. In addition, the
Company employs a decentralized management philosophy whereby branch managers
are given latitude to run their operations based on their experience within
their particular regions and the needs of their particular customer base. This
decentralization results in greater flexibility and a higher level of customer
service. Thus, the Company believes it can provide the broad product offering
and competitive pricing normally associated with the largest national
distributors, while still providing the personalized service levels usually
associated only with regional or local distributors. Additionally, because of
its size and capabilities, the Company brings to the middle market customers a
level of service capabilities that the smaller distributor cannot provide.
The Company's marketing strategy is to have the broad product offerings, service
capabilities and flexibility, and the quality assurance necessary to enable it
to be an expanded and preferred source of supply for all middle market
customers. The Company plans on achieving this by providing a broad range of
products and services to these customers. In addition, the Company now plans to
become a more significant supplier for the
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top tier customers by providing a niche of products supported by the high level
of quality, service and technical capabilities required to do business with
these accounts.
MARKETING TECHNIQUES
The Company uses various techniques in marketing its products which include: (i)
direct marketing through personal visits to customers by management, field
salespeople and sales representatives, supported by a staff of inside sales
personnel who handle the quoting, accepting, processing and administration of
sales orders; (ii) ongoing advertising in various national industry publications
and trade journals; (iii) general advertising, sales referrals and marketing
support from component manufacturers; and (iv) the Company's telemarketing
efforts. The Company also uses its expanded service capabilities, new technical
sales program and its status as an authorized distributor as marketing tools.
See "Business Strategy-Service Capabilities" and "Suppliers."
SALES PERSONNEL
As of March 1, 1996, the Company employed 314 people in sales on a full-time
basis, of which 121 are field salespeople, 102 are inside salespeople, 37 are in
management, 42 are in administration and 12 are electrical engineers in the
technical sales program. The Company also had 6 sales representatives covering
various territories where the Company does not have sales offices. Salespeople
are generally compensated by a combination of salary and commissions based upon
the gross profits obtained on their sales. Each branch is run by a general
manager who reports to a regional manager, who in turn reports to an area
manager. All area managers report to the Company's Senior Vice President of
Sales. Area, regional and general managers are compensated by a combination of
salary and incentives based upon achieving various goals including gross profits
from the sales offices in their respective areas or regions.
SALES OFFICE LOCATIONS
As a result of the Added Value Acquisitions in December 1995, the Company
acquired sales offices in Tustin, San Diego, Westlake Village and Visalia,
California; Scottsdale, Arizona; Denver, Colorado; and Salt Lake City (Midvale),
Utah. The Company merged its existing Salt Lake City sales office with the
acquired sales office in Midvale, Utah. Additionally, the Company merged the San
Diego, California office with its existing San Diego office, the Westlake
Village, California office with its existing Calabasas office and the Tustin,
California office with its existing Cypress office.
During the second quarter of 1995, the Company relocated its San Fernando Valley
and Orange County, California offices into two much larger facilities in
Calabasas and Cypress, California. As part of such relocations, the Company
closed its office in Torrance, California which was originally opened in 1981.
During 1995, the Company opened three new offices in Tampa, Florida, Rochester,
New York, and Atlanta, Georgia. In addition, the Company opened two more offices
during the first quarter of 1996, including the Company's first office outside
of the United States in Toronto, Canada.
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As a result of the Added Value Acquisitions and the consolidations, relocations
and new openings since January 1995, the Company currently operates 27 sales
offices in 17 states and Canada. The locations of the sales offices are as
follows: Huntsville, Alabama; Phoenix (Scottsdale), Arizona; Orange County
(Cypress), San Diego, San Fernando Valley (Calabasas), San Jose and Visalia,
California; Toronto, Canada; Denver, Colorado; Danbury, Connecticut; Fort
Lauderdale, Miami and Tampa (Clearwater), Florida; Atlanta, Georgia; Chicago
(Schaumburg), Illinois; Rockville, Maryland; Boston, Massachusetts; Detroit,
Michigan; Minneapolis, Minnesota; Hauppauge and Rochester, New York; Portland,
Oregon; Philadelphia, Pennsylvania; Austin, Dallas and Houston, Texas; and Salt
Lake City (Midvale), Utah.
The Company also retains field sales representatives to market other territories
throughout the United States, Puerto Rico and Mexico. The Company may consider
opening branches in these other territories if the representatives located there
achieve certain specified sales levels.
TRANSPORTATION
All of the Company's products are shipped through third party carriers. Incoming
freight charges are generally paid by the Company, while outgoing freight
charges are typically paid by the customer.
SEASONALITY
The Company's sales have not historically been materially greater in any
particular season or part of the year.
BACKLOG
As is typical of distributors, the Company has a backlog of customer orders.
While these customer orders are cancelable, the Company believes its backlog is
a reliable indicator of future sales. At December 31, 1995, the Company had a
backlog in excess of $74 million (including the backlog from the Added Value
Acquisitions), 139% higher than the backlog of $31 million at December 31, 1994.
By February 29, 1996, the Company's backlog had risen to approximately $76
million. The Company believes that a substantial portion of its backlog
represents products due to be delivered within the next three months.
Approximately 50% of the backlog relates to purchase orders which call for
scheduled shipments of inventory over a period of time, with the balance
representing products that are on back-order with suppliers. The scheduled
shipments enable the Company to plan purchases of inventory over extended time
periods to satisfy such requirements.
12
<PAGE>
SUPPLIERS
The Company generally purchases products from components manufacturers pursuant
to non-exclusive distribution agreements. Such suppliers generally limit the
number of distributors they will authorize in a given territory in order to
heighten the distributor's focus on their products as well as to prevent
over-distribution. As a "factory authorized distributor," the Company obtains
sales referrals, as well as sales, marketing and engineering support, from
component manufacturers. This support assists the Company in closing sales and
obtaining new customers. The company's status as an authorized distributor is a
valuable marketing tool as customers recognize that when dealing with an
authorized distributor, they receive greater support from the components
manufacturers.
The Company believes that an important factor which suppliers consider in
determining whether to grant or to continue to provide distribution rights to a
certain distributor is such distributor's geographic representation. In meeting
its goal of being recognized as a national distributor, the Company has opened
and acquired sales offices in a number of markets throughout the United States
and has advertised in national industry publications to demonstrate its
distribution capabilities to current and potential customers and suppliers.
Another important factor that suppliers consider is whether the distributor has
in place an engineering staff capable of designing-in the supplier's products at
the customer base. To address this requirement, the Company established an
engineering program in 1994 which is currently staffed with 12 engineers. As a
result of the Company's strategy, the Company has expanded the number of
suppliers it represents to over 100 in order to expand its product offerings and
better serve its customers.
All distribution agreements are cancelable by either party, typically upon 30 to
90 days' notice. The Company does not regard any one supplier as essential to
its operations since most of the products that the Company sells are available
from other sources at competitive prices. For the year ended December 31, 1995,
the Company's three largest suppliers accounted for 16%, 9% and 8% of
consolidated purchases, respectively. While the Company does not believe that
the loss of any one supplier would have a material adverse impact on its
business, the loss of a significant number of suppliers in a short period of
time could have such an impact. If the Company were to lose its rights to
distribute the products of any one particular supplier, there can be no
assurance that the Company would be able to replace the products which were
available from that particular supplier. The Company, from time to time, alters
its list of authorized suppliers in an attempt to provide its customers with a
better product mix. As a result of its rapid growth, the Company has recently
begun developing a strategy to disengage with several smaller suppliers that do
not fit into the Company's long-term growth strategy.
As a distributor of electronic components, the Company believes that it benefits
from technological change within the electronics industry as new product
introductions accelerate industry growth and provide the Company with additional
sales opportunities. While technological changes may create sales opportunities,
the Company believes its inventory risk to technological obsolescence is
significantly reduced by certain provisions
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<PAGE>
typically found in its distribution agreements including price protection, stock
rotation privileges, obsolescence credits and return privileges. Price
protection is typically in the form of a credit to the Company for any inventory
the Company has of products for which the manufacturer reduces its prices. Stock
rotation privileges typically allow the Company to exchange inventory in an
amount up to 5% of a prior period's purchases. Obsolescence credits allow the
Company to return any products which the manufacturer discontinues. Upon
termination of a distribution agreement, the return privileges typically require
the manufacturer to repurchase the Company's inventory at the Company's average
purchase price, however, if the Company terminates the distribution agreement,
there is typically a 10% to 15% restocking charge.
Substantially all of the Company's inventory is purchased pursuant to its
distribution agreements. The Company does not generally purchase product for
inventory unless it is a commonly sold product, there is an outstanding customer
order to be filled, a special purchase is available or unless it is an initial
stocking package in connection with a new line of products.
FACILITIES AND SYSTEMS
FACILITIES
As a result of its continued growth, the Company has relocated its corporate
headquarters and distribution facility twice since 1990. In order to support
substantial future growth without another relocation, in May 1994 the Company
moved into a 110,800 square foot facility in Miami, Florida to contain new
corporate offices and a state-of-the-art distribution center designed by the
Company. The Company occupies this facility through a lease which expires in
2014 (subject to the Company's right to terminate at any time after the fifth
year of the term upon twenty-four months prior written notice and the payment of
all outstanding debt owed to the landlord). The lease for this facility contains
three six-year options to renew at the then fair market value rental rates. The
lease provides for annual fixed rental payments totaling approximately $264,000
in the first year, $267,000 in the second year, $279,000 in each of the third,
fourth and fifth years, $300,600 in the sixth year, $307,800 in the seventh
year, and in each year thereafter during the term the rent shall increase once
per year in an amount equal to the annual percentage increase in the consumer
price index not to exceed 4% in any one year. The Company presently occupies
approximately 75% of the facility. In June 1994, the Company entered into a
sublease with an unrelated third party for approximately 25% of this facility
for a term of three years ending on July 14, 1997, with no renewal options and
the Company having the right to recapture a portion of the sublet space from and
after the eighteenth month of the three-year term. In February 1996, the Company
notified its subtenant that it plans to reclaim 11,300 square feet pursuant to
the sublease agreement, which will bring the total amount of the building
occupied by the Company to 84%. Although continued growth is not assured, the
Company estimates that this facility (including the space currently sublet) has
capacity to handle over $400 million in annual revenues.
14
<PAGE>
As a result of the Added Value Acquisitions, the Company leases a 13,900 square
foot facility in Tustin, California and a 7,600 square foot facility in Denver,
Colorado. The Tustin facility contains a distribution center as well as the
staff supporting the Company's kitting and turnkey operations and the separate
divisions created for flat panel displays and memory module operations. See
"Business-Products." The Denver facility contains a regional distribution center
and sales office.
In October 1995, the Company entered into a lease for a new west coast
distribution and semiconductor programming center located in Fremont, California
(near San Jose). This facility contains approximately 20,000 square feet of
space. The Company moved into such facility in January 1996. The Company will
use this space to expand its semiconductor programming and distribution
capabilities and improve quality control and service capabilities for its west
coast customers.
As a result of a January 1994 acquisition, the Company leases a 9,700 square
foot facility located near Chicago, Illinois, which contains a regional
distribution center and the value-added operations of the Company's American
Assemblies division. The Chicago sales operations have been relocated from this
facility to a separate office in the Chicago area. Furthermore, the Company
occupies approximately 11,000 square feet of space in San Jose, California,
approximately 7,500 square feet of which is presently used for sales and 3,500
square feet of which is used for corporate offices. In addition, the Company
leases space for its other sales offices, which range in size from approximately
1,000 square feet to 8,000 square feet. See "Sales and Marketing -- Sales Office
Locations."
The Company has significant excess capacity as a result of its distribution
centers in Miami, Florida, Fremont and Tustin, California and Denver, Colorado.
The Company expects to realize improved operating efficiencies and economies of
scale subject to achieving its projected sales growth.
SYSTEMS
In 1990, the Company created a management information systems department ("MIS")
and, in 1991, new computer and communications systems were placed into service.
As a result of its rapid growth and in order to provide state-of-the-art
distribution technology, the Company expanded these systems during 1994 and
expects to continue to develop and expand its systems capabilities further. The
Company believes that these systems will assist in increasing sales and in
improving efficiencies and the potential for greater profitability through
increased employee productivity, enhanced asset management, improved quality
control capabilities and expanded customer service capabilities. See "Business
Strategy-Service Capabilities."
The Company's systems and operations are designed to facilitate centralized
warehousing which allows salespeople across the country to have real-time access
to inventory and pricing information and allows a salesperson in any office to
enter orders electronically, which instantaneously print in the Company's
distribution facility for shipping and
15
<PAGE>
invoicing. The combination of the
centralized distribution center and the electronic order entry enable the
Company to provide rapid order processing at low costs. The system also provides
for automatic credit checks, which prohibit any product from being shipped until
the customer's credit has been approved. Additionally, the Company's systems
provide more timely and reliable information and analytical tools that will
allow the Company to continue to enhance its asset management capabilities.
Further, the systems allow the Company to participate with customers and
suppliers in electronic data interchange and to expand customer services,
including just-in-time deliveries, kitting programs, bar-coding, automatic
inventory replenishment programs, bonded and consigned inventory programs,
in-plant stores and in-plant terminals.
FOREIGN MANUFACTURING AND TRADE REGULATION
A significant number of the components sold by the Company are manufactured
outside the United States and purchased by the Company from United States
subsidiaries or affiliates of those foreign manufacturers. As a result, the
Company and its ability to sell at competitive prices could be adversely
affected by increases in tariffs or duties, changes in trade treaties, currency
fluctuations, strikes or delays in air or sea transportation, and possible
future United States legislation with respect to pricing and import quotas on
products from foreign countries. The Company's ability to be competitive in or
with the sales of imported components could also be affected by other
governmental actions and changes in policies related to, among other things,
anti-dumping legislation and currency fluctuations. Since the Company purchases
from United States subsidiaries or affiliates of foreign manufacturers, the
Company's purchases are paid for in U.S. dollars which reduces the potential
adverse effect of currency fluctuations. While the Company does not believe that
these factors adversely impact its business at present, there can be no
assurance that such factors will not have a material adverse affect on the
Company in the future.
EMPLOYEES
As of March 1, 1996, the Company employed 571 persons, of which 314 are involved
in sales; 68 are involved in marketing; 58 are involved in the distribution
centers; 54 are involved in operations; 40 are involved in management; 26 are
involved in bookkeeping and clerical; and 11 are involved in MIS. None of the
Company's employees are covered by collective bargaining agreements. The Company
believes that management's relations with its employees are good.
COMPETITION
The Company believes that there are over 1,000 electronic components
distributors throughout the United States, ranging in size from less than $1
million in revenues to companies with annual sales exceeding $5 billion
worldwide. These distributors can be divided into global distributors who have
operations around the world, national distributors who have offices throughout
the United States, regional distributors and local
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<PAGE>
distributors. With 27 sales offices in 17 states and Canada, the Company
competes as a national distributor. The Company, which was recently recognized
by industry sources as the ninth largest distributor of semiconductors and the
18th largest distributor of electronic components in the United States, believes
its primary competition comes from the top 50 distributors in the industry.
The Company competes with many companies that distribute electronic components
and, to a lesser extent, companies that manufacture such products and sell them
directly. Some of these companies have greater assets and possess greater
financial and personnel resources than does the Company. The competition in the
electronics distribution industry can be segregated by target customers: major
(or top tier) accounts; middle market accounts; and emerging growth accounts.
Competition to be the primary supplier for the major customers is dominated by
the top 10 distributors as a result of the product offerings, pricing and
distribution technology offered by these distributors. The Company competes for
these major industry customers by seeking to provide the very best service and
quality and focusing on fill-in or niche products. With its expanded service
capabilities and quality assurance procedures in place, the Company believes
that it can now compete for a bigger portion of the business at the top tier
customer base, although there can be no assurance it will be successful in doing
so. The Company believes competition from the top 10 distributors for the middle
market customer base is not as strong since the largest distributors focus their
efforts on the major account base. For this reason, the Company has focused its
efforts on servicing this middle market customer base. The Company competes for
this business by seeking to offer a broader product base, better pricing and
more sophisticated distribution technology than the regional or local
distributors by seeking to offer more sophisticated distribution technology than
comparably-sized distributors and by seeking to offer to such middle market
companies a higher service level than is offered to them by the major national
distributors.
ITEM 2. PROPERTIES
See "ITEM 1. Business-Facilities and Systems" and "-Sales and Marketing-Sales
Office Locations" and Note 9 to Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation relating to claims
arising out of its operations in the ordinary course of business. Such claims
are generally covered by insurance or, if they relate to products manufactured
by others which it distributes, the Company would expect that the manufacturers
of such products would indemnify the Company, as well as defend such claims on
the Company's behalf, although no assurance can be given that any manufacturer
would do so. The Company believes that none of these claims should have a
material adverse impact on its financial condition or results of operations.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) On December 28, 1995, the Registrant held a special meeting of its
stockholders (the "Special Meeting"), which Special Meeting was
reconvened on December 29, 1995 after its adjournment on December 28,
1995.
(b) Not applicable.
(c) The only matter voted on at the Special Meeting was the approval of the
Added Value Acquisitions pursuant to which the Company through two
newly-formed, wholly-owned subsidiaries proposed to acquire by merger
two affiliated, privately-held companies, Added Value Electronics
Distribution, Inc. and A.V.E.D.-Rocky Mountain, Inc. See "ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations-Acquisitions."
This matter received the votes of the holders of the number of shares
of common stock voted in person or by proxy at the Special Meeting and
the percentage of total votes cast, as indicated below:
For 8,804,712 95.1%
Against 145,905 1.6%
Abstain 303,658 3.3%
(d) Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on The Nasdaq Stock Market under the symbol
"SEMI." The following table sets forth the range of high and low sale prices for
the Company's common stock as reported on The Nasdaq Stock Market during each of
the quarters presented:
18
<PAGE>
<TABLE>
<CAPTION>
QUARTER OF FISCAL YEAR HIGH LOW
<S> <C> <C>
1994
First Quarter $ 3 7/8 $ 2 7/16
Second Quarter 3 13/16 2 1/2
Third Quarter 3 1/4 2 1/8
Fourth Quarter 2 3/8 1 1/2
1995
First Quarter 2 1/8 1 15/32
Second Quarter 2 7/16 1 5/8
Third Quarter 3 11/16 2 1/8
Fourth Quarter 3 5/16 2 3/16
1996
First Quarter (through March 27, 1996) 2 5/16 2
</TABLE>
As of March 27, 1996, there were approximately 525 holders of record of the
Company's common stock, based on the stockholders list maintained by the
Company's transfer agent. Many of these record holders hold these securities for
the benefit of their customers. The Company believes that it has over 4,700
beneficial holders of its common stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends. In 1989, the Company's
Board of Directors declared a 25% stock split effected in the form of a stock
dividend. Future dividend policy will depend on the Company's earnings, capital
requirements, financial condition and other relevant factors. It is not
anticipated, however, that the Company will pay cash dividends on its common
stock in the foreseeable future, inasmuch as it expects to employ all available
cash in the continued growth of its business. In addition, the Company's
revolving line of credit agreement and recently completed $15,000,000 senior
subordinated promissory note financing prohibit the payment of any dividends
without the prior written consent of the Company's senior lender and holder of
such senior subordinated promissory note, respectively. See Note 6 to Notes to
Consolidated Financial Statements.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the Company for and as of
the years 1991 through 1995 has been derived from the audited Consolidated
Financial Statements of the Company. Such information should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this report and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Income Statement Data
YEARS ENDED DECEMBER 31 1995 (1) 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $ 180,794,000 $ 101,085,000 $ 67,510,000 $ 49,015,000 $ 45,332,000
Cost of Sales..................... (140,928,000) (74,632,000) (49,010,000) (35,083,000) (32,001,000)
------------- -------------- ------------- ------------ --------------
Gross Profit...................... 39,866,000 26,453,000 18,500,000 13,932,000 13,331,000
Selling, General and
Administrative Expenses......... (32,806,000) (23,335,000) (14,821,000) (11,366,000) (11,577,000)
Nonrecurring Expenses (2)......... (1,098,000) (548,000) (61,000) (114,000) (124,000)
------------- -------------- ------------- ------------- --------------
Income from Operations............ 5,962,000 2,570,000 3,618,000 2,452,000 1,630,000
Interest Expense.................. (2,739,000) (1,772,000) (1,103,000) (1,153,000) (1,407,000)
Other Income (Expense)-Net (3).... - (39,000) 281,000 (18,000) 47,000
------------- -------------- ------------- ------------- --------------
Income Before Income Taxes........ 3,223,000 759,000 2,796,000 1,281,000 270,000
Provision for Income Taxes........ (1,337,000) (407,000) (1,094,000) (525,000) (153,000)
------------- -------------- ------------- ------------- --------------
Net Income........................ $ 1,886,000 $ 352,000 $ 1,702,000 $ 756,000 $ 117,000
============= ============== ============= ============= ==============
Earnings Per Share (4):
Primary......................... $.12 $.03 $.19 $.12 $.03
==== ==== ==== ==== ====
Fully Diluted................... $.12 $.03 $.18 $.12 $.03
==== ==== ==== ==== ====
Balance Sheet Data
DECEMBER 31 1995 (1) 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
Working Capital................... $ 59,352,000 $ 39,800,000 $ 27,534,000 $ 19,427,000 $ 15,112,000
Total Assets...................... 114,474,000 57,858,000 37,968,000 28,595,000 24,977,000
Long-Term Debt, including
current portion................. 37,604,000 27,775,000 14,928,000 13,850,000 13,405,000
Shareholders' Equity.............. 32,267,000 16,950,000 15,612,000 8,517,000 4,633,000
Book Value Per Common Share....... $1.62 $1.37 $1.30 $1.10 $1.24
- -------------------------
</TABLE>
(1) On December 29, 1995, the Company completed the Added Value Acquisitions.
The income statement data reflects only the nonrecurring expenses
associated with such acquisitions while the balance sheet data reflects
the assets and liabilities of the acquired companies as of December 29,
1995.
(2) 1995 includes a charge for front-end incentive employment compensation of
$1,098,000 associated with the Added Value Acquisitions. 1994 includes a
charge for relocation of plant facilities in the amount of $185,000 and a
write-off of the Company's product development investment of $363,000.
(3) 1993 includes approximately $237,000 of income from the settlement of a
business interruption claim.
(4) Weighted average shares (including common share equivalents) outstanding
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 were
15,945,696, 13,029,714, 9,166,908, 6,514,481 and 3,806,856, respectively,
on a primary basis and were 15,945,696, 13,029,714, 9,511,500, 6,514,481
and 3,962,038, respectively, on a fully diluted basis.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following table sets forth for the years ended December 31, 1995, 1994 and
1993 (i) certain items in the Company's consolidated statements of income
expressed as a percentage of net sales and (ii) the percentage change in dollar
amounts of such items as compared to the indicated prior fiscal year.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
ITEMS AS A PERCENTAGE PERCENTAGE INCREASE
OF NET SALES /(DECREASE)
YEARS ENDED YEARS ENDED
DECEMBER 31 DECEMBER 31
1995 1994 1993 1995-94 1994-93
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales............................. 100.0% 100.0% 100.0% 78.9% 49.7%
Gross Profit.......................... 22.1 26.2 27.4 50.7 43.0
Selling, General and
Administrative Expenses............. 18.1 23.1 22.0 40.6 57.4
Nonrecurring Expenses................. .6 .5 .1 100.4 798.4
Income from Operations................ 3.3 2.5 5.4 132.0 (29.0)
Interest Expense...................... 1.5 1.8 1.6 54.6 60.7
Income Before Income
Taxes............................... 1.8 .8 4.1 324.6 (72.9)
Net Income............................ 1.0 .3 2.5 435.8 (79.3)
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
SALES
For the year ended December 31, 1995, the Company achieved record-breaking sales
by reaching net sales of $180.8 million, a 78.9% increase over net sales of
$101.1 million in 1994. This dramatic increase in sales reflects the success of
the Company's aggressive sales strategy and the general increase in demand for
electronic products. The increase in sales was comprised of revenues generated
from existing territories which had revenue increases of approximately $62.3
million, revenues generated by new sales offices of approximately $10.8 million
and revenues generated by a company acquired in September 1994 of approximately
$6.6 million. Substantially all of the increase in net sales is attributable to
volume increases and the introduction of new products as opposed to price
increases. See "ITEM 1 - Business-Business Strategy."
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<PAGE>
GROSS PROFIT
Gross profit was $39.9 million in 1995 compared to $26.5 million for 1994,
representing a 50.7% increase. The increase was due to the significant growth in
sales. Gross profit margins as a percentage of net sales were 22.1% for 1995
compared to 26.2% for 1994. The decline in gross margins has been attributable
to several factors, including the development of long-term strategic
relationships with accounts who have required aggressive pricing, the
competitive environment in the electronic distribution marketplace, as well as
the addition of memory products, microprocessors and motherboards to the
Company's product mix, all of which carry lower gross margins but either
substantially higher unit prices or volume and consequently generate higher
gross profit dollars. The decline in gross profit margins has been more than
offset by increases in sales and improved operating efficiencies. While gross
profit margins are expected to continue to decline slightly, the Company
believes that any future decline should continue to be offset by increases in
sales and improved operating efficiencies. See "ITEM 1. - Business-Business
Strategy."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for 1995 was $32.8 million
compared to $23.3 million for 1994. The increase was primarily the result of the
Company's rapid growth and aggressive expansion. As sales grew dramatically,
selling expenses, including sales commissions and telephone expenses, also
increased. In addition, as a result of the relocation of the Company's corporate
headquarters and distribution facility in May 1994, the expansion of the
computer and communications systems, the opening of new sales offices and the
relocating of existing sales offices into larger facilities, rent (both for
realty and personalty), occupancy expenses and depreciation and amortization
costs increased. Furthermore, the Company expanded its sales personnel, created
and staffed a northeast credit department and increased staffing in almost all
corporate departments. Additionally, during 1995 the Company created a computer
products division ("CPD," and also referred to as Access Micro Products) to
distribute microprocessors, motherboards and other computer products, opened its
new programming center and created a cable assembly division (known as American
Assemblies). As a result, SG&A for 1995 reflects start-up costs including
additional salaries, payroll taxes and employee benefit costs, increased
advertising and promotion expenses and increased training costs.
SG&A as a percentage of net sales improved to 18.1% for 1995 from 23.1% for
1994. The significant improvement in SG&A as a percentage of sales reflects the
anticipated improvement in operating efficiencies and benefits from economies of
scale.
The Company expects to further expand its service capabilities and increase
staffing to support its recently opened programming center and its newly created
CPD, as well as its cable assembly division. Additionally, during the latter
part of 1995 and early 1996 the Company opened three new sales offices,
relocated its west coast programming and
22
<PAGE>
distribution center into a significantly larger facility and completed the Added
Value Acquisitions. (See "Acquisitions" below). In connection with these
acquisitions, the Company created two new divisions. The first division, Aved
Industries, is intended to concentrate on the design, manufacture, sales and
marketing of flat panel display products and technical support for these
products. Additionally, Aved Industries will be involved in the design,
manufacture, sales and marketing of memory module products. The other division,
Apex Solutions, was created to expand the Company's ability to support kitting
and turnkey services on a national basis. In connection with these two new
divisions, the Company will be increasing staff and incurring additional
operating expenses. As a result of the foregoing, SG&A, in absolute dollars and
as a percentage of sales, may increase in the near term. While these expansions
and increases will have a negative impact on profitability in the short term,
the Company believes that these investments will enable the Company to obtain a
greater competitive advantage which will improve its performance in the future.
As a result of its distribution centers in Miami, Florida; Fremont, California;
and from the Added Value Acquisitions in Tustin, California and Denver,
Colorado, the Company now has significant excess capacity. With its present
systems and staff, the Company believes that it can facilitate substantial
increases in revenues without significant additional fixed costs. Accordingly,
SG&A as a percentage of sales should decrease in the future as the Company
realizes the benefits from improved operating efficiencies and economies of
scale.
INCOME FROM OPERATIONS
Income from operations was $6.0 million in 1995, notwithstanding nonrecurring
expenses of $1.1 million relating to front-end incentive employment compensation
paid in connection with the Added Value Acquisitions. This represents an
increase of 132.0% over income from operations of $2.6 million, including
nonrecurring expenses aggregating $548,000, in 1994. The increase in income from
operations was attributable to the significant increase in sales and improved
operating efficiencies which more than offset the decline in gross profit
margins and the additional expenses associated with the Company's expansion.
INTEREST EXPENSE
Interest expense increased to $2.7 million in 1995 as compared to $1.8 million
in 1994. The increase reflects an increase in both the prime rate as well as the
average borrowings outstanding under the Company's line of credit required to
fund the Company's continued growth. Additionally, interest expense also
increased as a result of the subordinated debt issued during June 1994, debt
issued in connection with tenant improvements relating to the relocation of the
Company's corporate headquarters and distribution center in May 1994 and debt
associated with capital leases.
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<PAGE>
NET INCOME
Net income for 1995 reached an all-time high of $1.9 million, a more than
five-fold increase over net income of $352,000 for 1994. Earnings per share
increased 300% to $.12 in 1995 from $.03 in 1994, even with a 22% increase in
the average number of shares outstanding. The increase in earnings for 1995
resulted primarily from the significant increase in sales resulting in increased
operating efficiencies and benefits from economies of scale as discussed above.
In addition, this increase in earnings was achieved notwithstanding the negative
impact on earnings associated with start-up costs in connection with the
creation of the CPD and cable assembly division, the opening of the Company's
programming center and the nonrecurring expenses associated with the Added Value
Acquisitions.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
SALES
Net sales for 1994 increased $33.6 million to $101.1 million, a 49.7% increase
over net sales of $67.5 million for 1993. The sales increase was attributable to
a general increase in demand for electronic products, an increase in sales in
substantially all territories, revenues generated by new sales offices and
revenues generated by acquired companies which represented approximately $10
million of sales in 1994. In addition, the Company continued to benefit from
consolidations within the industry as customers continued to seek additional
sources of supply in order to minimize supplier dependency and to achieve a
higher level of service. Substantially all of the increase in net sales is
attributable to volume increases and the introduction of new products as opposed
to price increases.
GROSS PROFIT
Gross profit was $26.5 million in 1994, an $8.0 million or 43.0% increase over
gross profit of $18.5 million in 1993. The increase was due predominantly to the
growth in sales discussed above. Gross profit margins as a percentage of net
sales were 26.2% in 1994 compared to 27.4% in 1993. The downward trend reflects
a decline associated with a greater number of large volume transactions at
reduced margins, the competitive environment in the electronic distribution
marketplace, as well as a change in the Company's overall sales mix. The overall
sales mix changed as sales of newer technology products began playing a greater
role in the sales of the Company than in prior years. Many of the newer
technology products result in lower profit margins than sales of more mature
product lines on which the Company had historically focused. By making large
volume purchases, the Company decreases its per-unit cost, thus increasing its
potential for higher profit margins upon resale of these mature products. This
downward trend is expected to continue, and has accelerated, in 1995.
24
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased $8.5 million to $23.3 million in 1994 compared to $14.8 million
in 1993. The increase was primarily the result of the Company's rapid growth and
aggressive expansion. As sales grew by $33.6 million, selling expenses increased
substantially including sales commissions, telephone expenses and the cost of
supplies. SG&A as a percentage of sales increased to 23.1% in 1994 as compared
to 22.0% in 1993 due to the increase in expenses discussed below.
In May 1994, the Company relocated its corporate headquarters and distribution
facility for the second time since 1990 into a Company designed state-of-the art
facility. The 1994 move into a Company-designed state-of-the-art facility was
intended to accommodate significant future growth and enable the Company to
expand its service capabilities, enhance its quality control programs and
improve its productivity. Additionally, the Company expanded its computer and
communications systems and equipment. During 1994, the Company also opened seven
new sales offices, relocated four existing offices into larger facilities,
opened a west coast corporate office and acquired two electronic components
distributors. This resulted in increased SG&A including increased rent (both for
realty and personalty) and related occupancy expenses, depreciation expense and
amortization costs and the incurrence of moving and start-up costs and design,
consulting and integration expenses.
In order to effectively drive and manage its aggressive expansion, the Company
expanded its sales staff and sales management team, created and staffed a
corporate operations department and a west coast credit department and increased
staffing in almost all corporate departments. The Company also expanded its
service capabilities by staffing its technical sales program, creating a kitting
department and establishing its American Assemblies division to improve its
value-added services. The Company's quality control programs and traceability
procedures were enhanced resulting in the Company's Miami distribution center
obtaining the international quality standard of ISO 9002. As a result, the
Company incurred consulting expenses and start-up costs and had increased
salaries, payroll taxes and employee benefit costs.
INCOME FROM OPERATIONS
As a result of the additional SG&A as detailed above and the recording of
nonrecurring expenses consisting of a charge for relocation of plant facilities
in the amount of $185,000 and a write-off of a product development investment in
the amount of $363,000, compared to nonrecurring expenses of $61,000 incurred in
1993, income from operations was impacted and decreased to $2.6 million in 1994
compared to $3.6 million in 1993. See Notes 5 and 9 to Notes to Consolidated
Financial Statements.
25
<PAGE>
INTEREST EXPENSE
Interest expense increased to $1.8 million in 1994 compared to $1.1 million in
1993. The increase was due primarily to an increase in borrowings required to
fund the Company's continued growth, including the issuance of subordinated
debentures in the amount of $5,150,000 in a private placement completed in the
second quarter of 1994, additional debt incurred in connection with the
Company's acquisitions in the approximate amount of $3.4 million and
subordinated debt aggregating approximately $2 million relating to purchase
money financing of acquisitions and the financing of tenant improvements and
personal property in connection with the Company's new corporate headquarters
and distribution center. Additionally, an increase in interest rates more than
offset savings associated with the decrease in the rate charged the Company by
its senior lender.
NET INCOME
For the year ended December 31, 1994, net income was $352,000 ($.03 per share),
as compared to net income of $1.7 million ($.19 per share, $.18 fully diluted)
in 1993. This decrease was primarily attributable to the increase in SG&A, the
increased interest expense and the recording of nonrecurring expenses discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1995 increased to approximately $59.4 million
from working capital of approximately $39.8 million at December 31, 1994. The
current ratio was 2.31:1 at December 31, 1995 as compared to 3.94:1 at December
31, 1994. The decrease in the current ratio was due to an increase in accounts
payable related to increases in inventory as well as additional liabilities
associated with the Added Value Acquisitions. Accounts receivable levels at
December 31, 1995 were $35.1 million, up from accounts receivable levels of
$16.6 million at December 31, 1994. The increase in accounts receivable reflects
the record level of sales for 1995 and the receivables acquired in the Added
Value Acquisitions on December 29, 1995. The average number of days that
accounts receivable were outstanding as of December 31, 1995, was 58 days
compared to 56 days as of December 31, 1994. Inventory increased to $67.5
million at December 31, 1995 from inventory of $35.0 million at December 31,
1994. The increase in inventory was primarily to support the increases in sales
in 1995, budgeted growth for 1996 and an initial stocking package relating to
the addition of microprocessor and motherboard products. The increase in
inventory also reflects inventory associated with the Added Value Acquisitions.
Inventory turns, on the other hand, improved to 2.7 times in 1995 compared to
2.6 times in 1994. The increase in accounts payable and accrued expenses by
$30.4 million to $43.5 million at December 31, 1995 as compared to $13.0 million
at December 31, 1994, was primarily as a result of the increase in inventory in
1995 over 1994, as well as additional liabilities associated with the Added
Value Acquisitions. The Company's assets and liabilities increased overall as a
result of the Added Value Acquisitions. See "Acquisitions" and Note 4 to Notes
to Consolidated Financial Statements.
26
<PAGE>
Certain additional improvements to the Company's Miami corporate facility
aggregating approximately $90,300 were financed as of May 1, 1995 by the
landlord. This $90,300 is evidenced by a promissory note payable in 240
consecutive, equal self-amortizing monthly installments of principal and
interest. This note, which is subordinate to the Company's line of credit,
accrues interest at a fixed rate of 8% per annum. See "Item 1.
Business--Facilities and Systems" and Note 6 to Notes to Consolidated Financial
Statements.
During 1995, the Company's shareholders' equity nearly doubled to $32.3 million
from $17.0 million at the end of 1994. This increase resulted from the net
income during such period; the Company's completion of a public offering in June
and July 1995 (the "1995 Public Offering") of 5,232,500 shares of common stock
which generated aggregate net proceeds (after deducting all associated costs) of
approximately $8.5 million; and 2,013,401 shares of common stock issued in the
Added Value Acquisitions. The aggregate net proceeds from the 1995 Public
Offering initially were used to reduce the amount outstanding under the
Company's line of credit, pending the use of the line of credit for continued
growth and expansion, including opening new sales offices, acquisitions,
inventory diversification and general working capital purposes. See
"Acquisitions" and Notes 2 and 8 to Notes to Consolidated Financial Statements.
The Company's main source of financing is its line of credit facility with its
senior lender. In March 1995, the line of credit facility was increased from $25
million to $30 million and in December 1995, the Company's line of credit was
again amended to increase the facility from $30 million to $45 million. Of the
last $15 million increase, $10 million matures on June 30, 1996, with the
balance (together with the original $30 million) maturing on May 31, 1997. In
1994, the interest rate on the facility was reduced to, at the Company's option,
either one-quarter of one percent (1/4%) below prime or two percent (2%) above
certain LIBOR rates. Under the terms of the 1994 amendment, the Company pays a
nonusage fee of one-tenth of one percent (1/10%) calculated on the unused
portion of the facility, payable quarterly in arrears, and the termination date
of the facility was extended to May 31, 1997. See Note 6 to Notes to
Consolidated Financial Statements. The line of credit agreement requires the
Company to be in compliance with certain financial ratios including a minimum
amount of a tangible net worth and a current asset support ratio based upon
specified percentages of eligible accounts receivable and inventories. The
Company also is required to comply with certain affirmative and negative
covenants. These covenants place limitations on the Company's future borrowings,
dividend payments, redemption of certain securities, transactions with
affiliates on less than an arm's-length basis, investments, acquisitions,
mergers, capital expenditures and changes in control and management. As of
December 31, 1995, the Company was in compliance with the required financial
ratios and other covenants. Outstanding borrowings under this facility, which
are secured by accounts receivable, inventories and equipment and a pledge of
the capital stock of the Company's subsidiaries, amounted to $25,900,000 at
December 31, 1995 as compared to $19,991,000 at December 31, 1994.
27
<PAGE>
This increase in outstanding borrowings reflects the increase in borrowings to
support the significant growth of the Company and in connection with the Added
Value Acquisitions.
In June 1994, the Company completed a private placement (the "1994 Private
Placement") of 51.5 units, with each unit consisting of a 9% non-convertible
subordinated debenture due 2004 in the principal amount of $100,000 issuable at
par, together with 7,500 common stock purchase warrants exercisable at $3.15 per
share. The 51.5 units issued represent debentures aggregating $5,150,000
together with an aggregate of 386,250 warrants. The debentures are payable in
semi-annual installments of interest only commencing December 1, 1994, with the
principal amount maturing in full on June 13, 2004. The Company is not required
to make any mandatory redemptions or sinking fund payments. The debentures are
subordinated to the Company's senior indebtedness including the line of credit
facility, the recently completed senior subordinated promissory note financing
discussed below and notes issued to the Company's landlord. Each warrant issued
can be exercised to purchase one share of the Company's Common Stock at any time
between December 14, 1994 and June 13, 1999 at an exercise price equal to $3.15
per share. See Notes 6 and 8 to Notes to Consolidated Financial Statements.
On March 18, 1996, subsequent to the balance sheet date, the Company executed a
senior subordinated promissory note in the amount of $15,000,000 to be repaid on
July 31, 1997. Interest is payable quarterly in arrears at a fluctuating rate
equal to the greater of (a) the prime rate or (b) the federal funds rate plus
one-half of one percent (1/2%); plus the applicable margin. The applicable
margin will be 4% for the first three months and will increase by one-half of
one percent (1/2%) in each subsequent three-month period until maturity. In
addition, beginning with the second three-month interest period, the Company is
obligated to pay a fee each three-month interest period equal to one and
one-half percent (1-1/2%) of the principal amount then outstanding. This note,
which is subordinated to the Company's line of credit facility, is unsecured and
requires that the Company comply with certain affirmative and negative
covenants. The proceeds were used to reduce the amount outstanding under the
Company's line of credit.
The Company expects that its cash flows from operations and additional
borrowings available under the line of credit agreement will be sufficient to
meet its current financial requirements over the next twelve months. However,
the Company continues to explore available financing alternatives to fund the
Company's long-term growth.
INFLATION AND CURRENCY FLUCTUATIONS
The Company does not believe that inflation or currency fluctuations
significantly impacted its business during 1995; however, inflation, changing
interest rates and currency fluctuations have had significant effects on the
economy in the past and could adversely impact the Company's results in the
future.
28
<PAGE>
ACQUISITIONS
On December 29, 1995, the Company purchased through two separate mergers with
and into the Company's wholly-owned subsidiaries (the "Added Value
Acquisitions") all of the capital stock of Added Value Electronics Distribution,
Inc. ("Added Value") and A.V.E.D.-Rocky Mountain, Inc. ("Rocky Mountain," and
together with Added Value, collectively the "Added Value Companies"), two
affiliated, privately-held electronic component distributors. The purchase price
for the Added Value Companies included approximately $2,936,000 in cash and
2,013,401 shares of common stock of the Company valued at approximately
$4,893,000 (exclusive of the 160,703 shares of common stock issued in the
transaction to a wholly-owned subsidiary of the Company). In addition, the
Company paid an aggregate of $1,200,000 in cash to the selling stockholders in
exchange for covenants not to compete, and an aggregate of $1,098,000 in cash as
front-end incentive employment compensation paid to certain key employees of the
Added Value Companies. The Company also assumed substantially all of the
seller's disclosed liabilities of approximately $8,017,000, including
approximately $3,809,000 in bank notes which have since been repaid. The Company
may be obligated to pay to the selling stockholders of the Added Value Companies
up to $1,900,000 of additional consideration ("Additional Consideration") if the
aggregate value of the shares of the Company's common stock issued to the
selling stockholders has not, by June 30, 1998, appreciated in the aggregate by
at least $1,900,000. The Additional Consideration is payable, subject to certain
limitations, at the election of the Company, in cash or the Company's common
stock, or a combination of cash and the Company's common stock. The acquisitions
were accounted for by the purchase method of accounting which resulted in the
recognition of approximately $2,937,000 of excess cost over fair value of net
assets acquired. The assets, liabilities and operating results of the acquired
companies are included in the consolidated financial statements of the Company
from the date of the acquisitions, December 29, 1995.
Also see Notes 4, 6 and 8 to Notes to Consolidated Financial Statements for a
discussion of acquisitions by the Company of All American Transistor Corporation
of D.C. based in Rockville, Maryland on June 14, 1993, Components Incorporated,
a regional distributor of electronic components and related products based in
Chicago, Illinois, on January 24, 1994 and GCI Corp., a Philadelphia-area
distributor of electronic components based in southern New Jersey, on September
9, 1994.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries and
supplementary data required by this item are included in Item 14(a)(1) and (2)
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to these items will be included in a definitive proxy statement
filed within 120 days after the end of the Registrant's fiscal year, which proxy
statement is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT PAGE
1. FINANCIAL STATEMENTS
Independent Auditors' Report......................... F-1
Consolidated Balance Sheets.......................... F-2
Consolidated Statements of Income.................... F-3
Consolidated Statements of Changes in
Shareholders' Equity.............................. F-4
Consolidated Statements of Cash Flows................ F-5
Notes to Consolidated Financial Statements........... F-6
2. FINANCIAL STATEMENT SCHEDULES
None
3. EXHIBITS
3.1 Certificate of Incorporation, as amended
(incorporated by reference to Exhibits 3.1 to the
Company's Registration Statement on Form S-1, File
No. 33-15345-A, and to the Company's Form 10-K for
the fiscal year ended December 31, 1991), as further
amended by Certificate of Amendment of Certificate of
Incorporation dated August 21, 1995 of the Company.*
30
<PAGE>
3.2 By-Laws, as amended July 29, 1994 (incorporated by
reference to Exhibit 3.1 to the Company's Form 10-Q
for the quarter ended June 30, 1994).
4.1 Specimen Certificate of Common Stock (incorporated
by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-2, File No.
33-47512).
4.2 Specimen A Warrant Certificate (incorporated by
reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-2, File No.
33-47512).
4.3 Specimen B Warrant Certificate (incorporated
by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-2, File No.
33-47512).
4.4 Form of Warrant Agreement (incorporated by
reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-2, File No.
33-47512).
4.5 Form of Underwriters' Warrant Agreement
(incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-2, File
No. 33-47512).
4.6 Fiscal Agency Agreement, dated as of June 8, 1994,
between the Company and American Stock Transfer &
Trust Co. ("American Stock Transfer"), as fiscal
agent, paying agent and securities registrar
(incorporated by reference to Exhibit 4.1 to the
Company's Form 8-K dated June 14, 1994 and filed with
the Securities and Exchange Commission on June 15,
1994).
4.7 Warrant Agreement, dated as of June 8, 1994, between
the Company and American Stock Transfer, as warrant
agent (incorporated by reference to Exhibit 4.2 to
the Company's Form 8-K dated June 14, 1994 and filed
with the Securities and Exchange Commission on June
15, 1994).
4.8 Placement Agent's Warrant Agreement, dated as of June
8, 1994, between the Company and RAS Securities Corp.
(incorporated by reference to Exhibit 4.3 to the
Company's Form 8-K dated June 14, 1994 and filed with
the Securities and Exchange Commission on June 15,
1994).
4.9 Underwriter's Warrant Agreement between the
Company and Lew Lieberbaum & Co., Inc. (incorporated
by reference to Exhibit 4.2 to Amendment No. 1 to the
Company's Registration Statement on Form S-1, File
No. 33-58661).
31
<PAGE>
9.1 Form of Voting Trust Agreement attached as Exhibit
"E" to Purchase Agreement (incorporated by reference
to Exhibit 9.1 to the Company's Registration
Statement on Form S-4, File No. 033-64019).
10.1 Form of Indemnification Contracts with Directors
and Executive Officers (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement
on Form S-2, File No. 33-47512).
10.2 Lease Agreement for Headquarters dated May 1, 1994
between Sam Berman d/b/a Drake Enterprises ("Drake")
and the Company (incorporated by reference to Exhibit
10.1 to the Company's Form 10-Q for the quarter ended
March 31, 1994).
10.3 Promissory Notes, all dated May 1, 1994 payable to
the Company's landlord in the amounts of $865,000,
$150,000 and $32,718 (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended March 31, 1994).
10.4 Promissory Note, dated May 1, 1995, payable to
Drake, the Company's landlord, in the amount of
$90,300 (incorporated by reference to Exhibit 10.35
to Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-58661).
10.5 Agreement between Drake and the Company dated May 1,
1994 (incorporated by reference to Exhibit 10.5 to
the Company's Form 10-K for the year ended December
31, 1994).
10.6 Amended and Restated All American Semiconductor,
Inc. Employees', Officers', Directors' Stock Option
Plan (incorporated by reference to Exhibit 10.36 to
Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-58661).**
10.7 Deferred Compensation Plan (incorporated by
reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-2, File No.
33-47512).**
10.8 Master Lease Agreement dated March 21, 1994, together
with lease schedules for computer and other equipment
(incorporated by reference to Exhibit 10.9 to the
Company's Form 10-K for the year ended December 31,
1994).
32
<PAGE>
10.9 Revolving Credit Agreement, Master Promissory Note,
Security Agreement and Stock Pledge Agreement, all
dated December 29, 1992 with the Company's lender
(incorporated by reference from the Company's Current
Report on Form 8-K dated December 29, 1992).
10.10 Employment Agreement dated as of May 24, 1995,
between the Company and Paul Goldberg (incorporated
by reference to Exhibit 10.22 to Amendment No. 1 to
the Company's Registration Statement on Form S-1,
File No. 33-58661).**
10.11 Employment Agreement dated as of May 24, 1995,
between the Company and Bruce M. Goldberg
(incorporated by reference to Exhibit 10.24 to
Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-58661).**
10.12 Form of Warrant Extension Agreement relating
to the Warrant issued to The Equity Group, Inc.
(assigned to Robert D. Goldstein) (incorporated by
reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-2, File No.
33-47512).
10.13 Asset Purchase Agreement dated March 30,
1993 by and between All American Semiconductor of
Rockville, Inc. and All American Transistor
Corporation of D.C. (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-K for the
fiscal year ended December 31, 1992).
10.14 Asset Purchase Agreement dated January 5, 1994 by and
between All American Semiconductor of Chicago, Inc.
and Components Incorporated; and as an exhibit
thereto the employment agreement with Robert Ryan
(incorporated by reference to exhibits to the
Company's current report on Form 8-K dated January
19, 1994).
10.15 Asset Purchase Agreement dated as of July 1, 1994 by
and between the Company and GCI Corp.; Letter
Agreement dated July 1, 1994 among the Company, GCI
Corp., Robert Andreini, Joseph Cardarelli and Joseph
Nelson; Guaranty dated July 1, 1994 and Amendment
Letter to Asset Purchase Agreement and Letter
Agreement dated July 15, 1994 (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended June 30, 1994).
10.16 Merger Purchase Agreement (the "Purchase Agreement")
dated as of October 31, 1995, among the Company, All
American Added Value, Inc., All American A.V.E.D.,
Inc. and the Added Value Companies (incorporated by
reference to Appendix A to the Proxy
Statement/Prospectus included in and to Exhibit 2.1
to the Company's Registration Statement on Form S-4,
File No. 033-64019).
33
<PAGE>
10.17 First Amendment to Revolving Credit Agreement (Letter
Agreement), Master Promissory Note and Guaranty
Agreement, all dated May 27, 1993, with the Company's
lender (incorporated by reference as Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended June
30, 1993).
10.18 Second Amendment to Revolving Credit Agreement and
First Amendment to Stock Pledge Agreement and Master
Promissory Note, all dated July 19, 1993, with the
Company's lender (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended June 30, 1993).
10.19 Third Amendment to Revolving Credit Agreement and
Master Promissory Note, both dated as of August 4,
1994; and Second Amendment to Stock Pledge Agreement,
Security Agreement and Guaranty Agreement, all dated
as of August 10, 1994, with the Company's lender
(incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended June 30,
1994).
10.20 Fourth Amendment to Revolving Credit Agreement and
Master Promissory Note, both dated as of March 28,
1995, with the Company's lender (incorporated by
reference to Exhibit 10.22 to the Company's Form 10-K
for the year ended December 31, 1994).
10.21 Fifth Amendment to Revolving Credit Agreement and
Master Promissory Note, both dated as of December 15,
1995, with the Company's lender.*
10.22 Sixth Amendment to Revolving Credit Agreement
dated as of March 14, 1996, with the Company's
lender.*
10.23 Consulting Contract dated July 1, 1995 by and
between All American Semiconductor, Inc. and The
Equity Group, Inc.*
10.24 Form of Consulting Agreement between the
Company and Lew Lieberbaum & Co., Inc. (incorporated
by reference to Exhibit 10.19 to Amendment No. 1 to
the Company's Registration Statement on Form S-1,
File No. 33-58661).
10.25 Warrant Certificates Nos. 93-1 and 93-2 dated as
of May 13, 1993, issued to The Equity Group, Inc.
(incorporated by reference to Exhibit 10.24 to the
Company's Form 10-K for the year ended December 31,
1994).
34
<PAGE>
10.26 All American Semiconductor, Inc. 401(k) Profit
Sharing Plan (incorporated by reference to Exhibit
10.25 to the Company's Form 10-K for the year ended
December 31, 1994).**
10.27 Employment Agreement dated as of May 24, 1995,
between the Company and Howard L. Flanders
(incorporated by reference to Exhibit 10.25 to
Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-58661).**
10.28 Employment Agreement dated as of May 24, 1995,
between the Company and Rick Gordon (incorporated by
reference to Exhibit 10.26 to Amendment No. 1 to the
Company's Registration Statement on Form S-1, File
No. 33-58661).**
10.29 Senior Subordinated Promissory Note dated
March 18, 1996 from the Company to and accepted by
CIBC Inc. in the principal amount of $15,000,000.*
10.30 Senior Subordinated Subsidiaries Guarantee
dated March 18, 1996 from all of the Company's
wholly-owned subsidiaries in favor of CIBC Inc.*
11.1 Earnings per share; see Note 1 to Notes to
Consolidated Financial Statements regarding
computation of per share earnings.
21.1 List of subsidiaries of the Registrant.*
23.1 Consent of Lazar, Levine & Company LLP, independent
certified public accountants.*
27.1 Financial Data Schedule.*
- ------------------
* Filed herewith
** Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K
Although no reports were filed during the fourth quarter of 1995, on
January 12, 1996, the Company filed a Form 8-K dated December 29, 1995,
reporting in items 2 and 7 thereof the completion of the Added Value
Acquisitions and the financial statements "previously filed" in
connection therewith.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
ALL AMERICAN SEMICONDUCTOR, INC.
(Registrant)
By: /S/ PAUL GOLDBERG
Paul Goldberg, Chairman of the Board and
Chief Executive Officer
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 29, 1996.
/S/ PAUL GOLDBERG Chairman of the Board and Chief Executive
Paul Goldberg Officer, Director
(Principal Executive Officer)
/S/ BRUCE M. GOLDBERG President and Chief Operating Officer, Director
Bruce M. Goldberg
/S/ HOWARD L. FLANDERS Vice President and Chief Financial Officer,
Howard L. Flanders Director
(Principal Financial and Accounting Officer)
/S/ RICK GORDON Senior Vice President of Sales, Director
Rick Gordon
/S/ SHELDON LIEBERBAUM Director
Sheldon Lieberbaum
/S/ S. CYE MANDEL Director
S. Cye Mandel
36
<PAGE>
Independent Auditors' Report
To The Board of Directors
All American Semiconductor, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of All American
Semiconductor, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of All
American Semiconductor, Inc. and subsidiaries at December 31, 1995 and 1994 and
the results of their operations and their cash flows for the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/S/ LAZAR, LEVINE & COMPANY LLP
LAZAR, LEVINE & COMPANY LLP
New York, New York March 9, 1996, except as to Note 6, the date of which is
March 18, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash ............................................................ $ 276,000 $ 200,000
Accounts receivable, less allowances for doubtful
accounts of $921,000 and $425,000................................ 35,101,000 16,615,000
Inventories........................................................ 67,463,000 34,971,000
Other current assets............................................... 1,959,000 1,543,000
------------------ ----------------
Total current assets........................................... 104,799,000 53,329,000
Property, plant and equipment - net.................................... 3,882,000 2,832,000
Deposits and other assets.............................................. 2,316,000 1,178,000
Excess of cost over fair value of net assets
acquired - net....................................................... 3,477,000 519,000
------------------ ----------------
$ 114,474,000 $ 57,858,000
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................. $ 844,000 $ 396,000
Accounts payable and accrued expenses.............................. 43,451,000 13,007,000
Income taxes payable............................................... 199,000 -
Other current liabilities.......................................... 953,000 126,000
------------------ ----------------
Total current liabilities...................................... 45,447,000 13,529,000
Long-term debt:
Notes payable...................................................... 29,900,000 20,507,000
Subordinated debt.................................................. 6,515,000 6,872,000
Other long-term debt............................................... 345,000 -
------------------ ----------------
82,207,000 40,908,000
------------------ ----------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued.......................................... - -
Common stock, $.01 par value, 40,000,000 and 20,000,000 shares
authorized, 19,863,895 and 12,416,791 shares
issued and outstanding........................................... 199,000 124,000
Capital in excess of par value..................................... 25,511,000 11,764,000
Retained earnings.................................................. 7,008,000 5,122,000
Treasury stock, at cost, 180,295 and
19,592 shares.................................................. (451,000) (60,000)
------------------ ----------------
32,267,000 16,950,000
------------------ ----------------
$ 114,474,000 $ 57,858,000
================== ================
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES......................................... $ 180,794,000 $ 101,085,000 $ 67,510,000
Cost of sales..................................... (140,928,000) (74,632,000) (49,010,000)
-------------------- -------------------- -------------------
Gross profit...................................... 39,866,000 26,453,000 18,500,000
Selling, general and administrative
expenses........................................ (32,806,000) (23,335,000) (14,821,000)
Nonrecurring expenses:
Acquisition costs.............................. (1,098,000) - -
Relocation of plant facilities................. - (185,000) (61,000)
Write-off of product development
investment.............................. - (363,000) -
-------------------- -------------------- ------------------
INCOME FROM OPERATIONS............................ 5,962,000 2,570,000 3,618,000
Interest expense.................................. (2,739,000) (1,772,000) (1,103,000)
Other income (expense) - net...................... - (39,000) 281,000
-------------------- -------------------- ------------------
Income before income taxes........................ 3,223,000 759,000 2,796,000
Provision for income taxes........................ (1,337,000) (407,000) (1,094,000)
-------------------- -------------------- ------------------
NET INCOME........................................ $ 1,886,000 $ 352,000 $ 1,702,000
==================== ==================== ==================
Earnings Per Share:
Primary....................................... $.12 $.03 $.19
==== ==== ====
Fully diluted................................. $.12 $.03 $.18
==== ==== ====
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED TREASURY SHAREHOLDERS'
SHARES STOCK PAR VALUE EARNINGS STOCK EQUITY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992...... 7,746,791 $ 77,000 $ 5,432,000 $ 3,068,000 $ (60,000) $ 8,517,000
Sale of equity securities....... 4,270,959 43,000 5,350,000 - - 5,393,000
Net income...................... - - - 1,702,000 - 1,702,000
---------- ----------- ------------ ----------- ------------ --------------
Balance, December 31, 1993...... 12,017,750 120,000 10,782,000 4,770,000 (60,000) 15,612,000
Exercise of stock options and
warrants..................... 399,041 4,000 545,000 - - 549,000
Issuance of options and
warrants..................... - - 437,000 - - 437,000
Net income...................... - - - 352,000 - 352,000
---------- ----------- ------------ ----------- ----------- --------------
Balance, December 31, 1994...... 12,416,791 124,000 11,764,000 5,122,000 (60,000) 16,950,000
SALE OF EQUITY SECURITIES....... 5,232,500 53,000 8,447,000 - - 8,500,000
ISSUANCE OF EQUITY SECURITIES... 2,174,104 22,000 5,262,000 - (391,000) 4,893,000
EXERCISE OF STOCK OPTIONS AND
WARRANTS..................... 40,500 - 38,000 - - 38,000
NET INCOME...................... - - - 1,886,000 - 1,886,000
---------- ----------- ------------ ----------- ----------- --------------
BALANCE, DECEMBER 31, 1995...... 19,863,895 $ 199,000 $25,511,000 $ 7,008,000 $ (451,000) $ 32,267,000
========== =========== =========== =========== =========== ==============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 1,886,000 $ 352,000 $ 1,702,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 1,038,000 677,000 384,000
Non-cash interest expense............................. 148,000 47,000 -
Nonrecurring expenses................................. - 363,000 -
Other expense, net.................................... - - 31,000
Changes in assets and liabilities
Increase in accounts receivable.................... (14,002,000) (3,019,000) (2,835,000)
Increase in inventories............................ (24,495,000) (9,508,000) (5,228,000)
Increase in other current assets................... (251,000) (904,000) (411,000)
Increase in accounts payable and
accrued expenses.................................. 26,523,000 4,702,000 708,000
Increase (decrease) in other current liabilities... 867,000 (63,000) 85,000
-------------- ------------- --------------
Net cash used for operating activities........... (8,286,000) (7,353,000) (5,564,000)
-------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (1,435,000) (1,618,000) (250,000)
Increase in other assets.................................. (1,540,000) (712,000) (134,000)
Purchases of net assets of acquired companies (net
of cash acquired)..................................... (2,860,000) (1,084,000) -
-------------- ------------- --------------
Net cash used for investing activities........... (5,835,000) (3,414,000) (384,000)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of equity securities........... 8,538,000 742,000 5,393,000
Increase in notes payable................................. 134,000 6,088,000 -
Repayments of notes payable............................... (385,000) (2,119,000) (964,000)
Net borrowings under line of credit agreements............ 5,910,000 6,076,000 1,536,000
-------------- ------------- --------------
Net cash provided by financing activities........ 14,197,000 10,787,000 5,965,000
-------------- ------------- --------------
Increase in cash.......................................... 76,000 20,000 17,000
Cash, beginning of year................................... 200,000 180,000 163,000
--------------- ------------- --------------
Cash, end of year......................................... $ 276,000 $ 200,000 $ 180,000
============== ============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 2,581,000 $ 1,604,000 $ 1,102,000
============== ============= ==============
Income taxes paid......................................... $ 898,000 $ 1,021,000 $ 1,163,000
============== ============= ==============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Capital
leases aggregating $634,000 for computer equipment became effective during 1994.
During 1995, the Company purchased all the capital stock of Added Value
Electronics Distribution, Inc. and A.V.E.D.-Rocky Mountain, Inc. The Company
paid approximately $2,936,000 in cash and 2,013,401 shares of common stock of
the Company valued at approximately $4,893,000. The Company also assumed
substantially all of the seller's disclosed liabilities. During 1994, the
Company acquired substantially all of the assets of GCI Corporation. The Company
paid $485,000 in cash, with the balance by a combination of a promissory note
and stock options. The Company also assumed substantially all of the seller's
disclosed liabilities. In addition, during 1994, the Company acquired
substantially all of the assets of Components Incorporated. The Company paid
$599,000 in cash, with the balance in a promissory note. The Company also
assumed substantially all of the seller's disclosed liabilities. During 1993,
the Company acquired substantially all of the assets of an affiliated company.
The purchase price payable for such assets was the assumption of liabilities.
See notes to consolidated financial statements
F-5
<PAGE>
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a national distributor of electronic components manufactured by
others. The Company primarily distributes a full range of semiconductors (active
components), including transistors, diodes, memory devices and other integrated
circuits, as well as passive components, such as capacitors, resistors,
inductors and electromechanical products, including cable, connectors, filters
and sockets. The Company's products are sold primarily to original equipment
manufacturers ("OEMs") in a diverse and growing range of industries, including
manufacturers of consumer goods, satellite and communications products,
computers and computer-related products, robotics and industrial equipment,
defense and aerospace equipment and medical instrumentation.
The Company's financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP"). Those principles considered
particularly significant are detailed below. GAAP requires management to make
estimates and assumptions affecting the reported amounts of assets, liabilities,
revenues and expenses. While actual results could differ from these estimates,
management does not expect the variances, if any, to have a material effect on
the consolidated financial statements.
BASIS OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements of the Company include the accounts of all
subsidiaries, all of which are wholly-owned. All material intercompany balances
and transactions have been eliminated in consolidation.
Prior years' financial statements have been reclassified to conform with the
current year's presentation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable. The Company,
from time to time, maintains cash balances which exceed the federal depository
insurance coverage limit. The Company performs periodic reviews of the relative
credit rating of its bank to lower its risk. The Company believes that
concentration with regards to accounts receivable is limited due to its large
customer base.
INVENTORIES
Inventories, which consist solely of electronic components held for resale, are
stated at the lower of cost (determined on an average cost basis) or market.
F-6
<PAGE>
DEPRECIATION AND AMORTIZATION
Fixed assets are reflected at cost. Depreciation of office furniture and
equipment, computer equipment and motor vehicles is provided on straight-line
and accelerated methods over the estimated useful lives of the respective
assets. Amortization of leasehold improvements is provided using the
straight-line method over the term of the related lease or the life of the
respective asset, whichever is shorter. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized.
The excess of cost over the fair value of net assets acquired is being amortized
over periods ranging from 15 years to 40 years using the straight-line method.
INCOME TAXES
The Company has elected to file a consolidated federal income tax return with
its subsidiaries. Deferred income taxes are provided on transactions which are
reported in the financial statements in different periods than for income tax
purposes. The Company adopted Financial Accounting Standards Board Statement No.
109, "Accounting for Income Taxes" ("SFAS 109"), for the year ended December 31,
1993. SFAS 109 requires recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the difference is expected to reverse. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. The
effect of the adoption of SFAS 109 was not material. See Note 7 to Notes to
Consolidated Financial Statements.
EARNINGS PER SHARE
Primary earnings per share has been computed based upon the weighted average
number of common and common equivalent shares outstanding during each period
presented. Fully diluted earnings per share has been computed assuming
conversion of all dilutive stock options and warrants.
The following average shares were used for the computation of primary and fully
diluted earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary........................................... 15,945,696 13,029,714 9,166,908
Fully diluted..................................... 15,945,696 13,029,714 9,511,500
</TABLE>
F-7
<PAGE>
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
investments purchased with an original maturity of three months or less to be
cash.
POSTRETIREMENT BENEFITS
In 1993, the Company adopted Financial Accounting Standards Board Statement No.
106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions."
The effect of the adoption of this Statement was not material.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This Statement is
required to be implemented no later than for fiscal years beginning after
December 15, 1995. The Company has not yet adopted SFAS 123, but believes that
the effect in the year of implementation will not be material.
NOTE 2 - PUBLIC OFFERING
On June 15, 1995, the Company completed a public offering of 4,550,000 shares
(exclusive of the over-allotment option) of its common stock at $1.875 per
share. On July 13, 1995, the Company issued an additional 682,500 shares of its
common stock as a result of the exercise of an over-allotment option. The
aggregate net proceeds from this offering, after deducting all associated costs,
aggregated approximately $8,500,000. As a result, the Company's common stock and
capital in excess of par value increased by $53,000 and $8,447,000,
respectively. The net proceeds initially were used to reduce the amount
outstanding under the Company's line of credit, pending the use of the line of
credit for continued growth and expansion, including opening new sales offices,
acquisitions, inventory diversification and general working capital purposes.
F-8
<PAGE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Office furniture and equipment..................................... $ 3,283,000 $ 2,210,000
Computer equipment................................................. 2,162,000 1,321,000
Leasehold improvements............................................. 1,271,000 1,058,000
Motor vehicles..................................................... 25,000 25,000
--------------- -----------------
6,741,000 4,614,000
Accumulated depreciation and amortization.......................... (2,859,000) (1,782,000)
--------------- -----------------
$ 3,882,000 $ 2,832,000
=============== =================
</TABLE>
NOTE 4 - ACQUISITIONS
On December 29, 1995, the Company purchased through two separate mergers with
and into the Company's wholly-owned subsidiaries (the "Added Value
Acquisitions") all of the capital stock of Added Value Electronics Distribution,
Inc. ("Added Value") and A.V.E.D.-Rocky Mountain, Inc. ("Rocky Mountain," and
together with Added Value, collectively the "Added Value Companies"). The
purchase price for the Added Value Companies included approximately $2,936,000
in cash and 2,013,401 shares of common stock of the Company valued at
approximately $4,893,000 (exclusive of the 160,703 shares of common stock issued
in the transaction to a wholly-owned subsidiary of the Company). In addition,
the Company paid an aggregate of $1,200,000 in cash to the selling stockholders
in exchange for covenants not to compete, and an aggregate of $1,098,000 in cash
as front-end incentive employment compensation paid to certain key employees of
the Added Value Companies. The Company also assumed substantially all of the
seller's disclosed liabilities of approximately $8,017,000, including
approximately $3,809,000 in bank notes which have since been repaid. The Company
may be obligated to pay to the selling stockholders of the Added Value Companies
up to $1,900,000 of additional consideration ("Additional Consideration") if the
aggregate value of the shares of the Company's common stock issued to the
selling stockholders has not, by June 30, 1998, appreciated in the aggregate by
at least $1,900,000. The Additional Consideration is payable, subject to certain
limitations, at the election of the Company in cash or the Company's common
stock, or a combination of cash and the Company's common stock. The acquisitions
were accounted for by the purchase method of accounting which resulted in the
recognition of approximately $2,937,000 of excess cost over fair value of net
assets acquired. The assets, liabilities and operating results of the acquired
companies are included in the consolidated financial statements of the Company
from the date of the acquisitions, December 29, 1995.
F-9
<PAGE>
On September 9, 1994, the Company completed the acquisition of substantially all
of the assets of GCI Corp., a Philadelphia-area distributor of electronic
components. As consideration for this acquisition, the Company paid $485,000 in
cash, issued a promissory note of approximately $306,000 payable interest only
for two years and in quarterly installments over the next three years, and
issued stock options valued at $144,000 at September 9, 1994. The Company also
assumed substantially all of the seller's disclosed liabilities of approximately
$1,930,000, including a $1,400,000 bank note payable which has been repaid. See
Notes 6 and 8 to Notes to Consolidated Financial Statements. The promissory note
is required to be paid down by one-half of the then outstanding principal
balance if certain Net Earnings (as defined) are attained for 1995 or 1996. For
1995, the level of Net Earnings (as defined) was not met and therefore no
principal payments were made on such promissory note. The seller may earn up to
an additional $760,000 of contingent purchase price over the three-year period
ending December 31, 1997 if certain gross profit targets are met. For 1995, the
gross profit targets were not met and, therefore, no additional purchase price
was earned. The acquisition was accounted for by the purchase method of
accounting which resulted in the recognition of approximately $394,000 of excess
cost over fair value of net assets acquired. The operating results of the
acquired company are included in the consolidated statement of income from the
date of acquisition.
The three principal stockholders and key employees of GCI Corp. (the "GCI
Principals") each received an employment agreement expiring on December 31, 1997
providing for base salary of $122,000, $113,000 and $110,000 per annum,
respectively. In addition to base salary, each of the GCI Principals may earn a
bonus based upon the percentage of the Net Earnings generated in the sales
Territory, as defined. In addition to the net earnings bonus, two of the GCI
Principals may earn an annual bonus based upon the gross profit of the Company
with respect to all sales made in Maryland, Virginia and Delaware, but only if
certain minimum gross profit levels are obtained. The Company has also agreed to
grant to each of the GCI Principals employee incentive stock options at fair
market value on the date of grant (10,000 to each by January 30, 1996; 10,000 to
each by January 30, 1997; and 10,000 to each by January 30, 1998), but each such
grant is conditional upon sales in the sales Territory, as defined, attaining a
minimum gross profit for the year most recently ended. One other key employee of
GCI Corp. accepted employment with the Company and was granted 10,000 employee
incentive stock options at an exercise price of $2.63 per share, the ability to
receive up to 15,000 additional employee incentive stock options (5,000 per year
in respect of 1995, 1996 and 1997) if certain minimum gross profit for sales in
the sales Territory, as defined, are attained during each such year, and shall
be issued 1,000 shares of Common Stock upon completing his 18th month of
service.
On January 24, 1994, the Company completed the acquisition of substantially all
of the assets of Components Incorporated, a Chicago-based distributor of
electronic components
F-10
<PAGE>
("Components"). As consideration for this acquisition, the Company paid $599,000
in cash and issued a promissory note of approximately $399,000 due two years
from closing, which has since been repaid. The Company also assumed
substantially all of the seller's disclosed liabilities of approximately
$700,000, including a $400,000 bank note payable which has been repaid. See Note
6 to Notes to Consolidated Financial Statements. The Components principal
received $350,000 of consideration for a covenant not to compete that restricts
any competition with the Company for a period equal to the later of the third
anniversary of the Components principal's termination as an employee or January
24, 1999. The $350,000 consideration was in the form of a grant of stock options
valued at $100,000 as of January 24, 1994 and the delivery to the Components
principal of a promissory note in the principal amount of $250,000. See Notes 6
and 8 to Notes to Consolidated Financial Statements. The Company has also agreed
to grant to the Components principal employee incentive stock options at fair
market value on the date of grant (5,000 on January 24, 1995; 10,000 on January
24, 1996; and 15,000 on January 24, 1997), each of such three sets of options to
be for a period of five years, subject to earlier termination in the event of
termination of employment, death or disability. The acquisition was accounted
for by the purchase method of accounting. The operating results of the acquired
company are included in the consolidated statement of income from the date of
acquisition.
On June 14, 1993, the Company completed the acquisition of substantially all of
the assets of All American Transistor Corporation of D.C. ("D.C."), formerly a
45% owned affiliate. The consideration for the acquisition was the assumption of
all of D.C.'s disclosed liabilities. As a result, the Company's assets and
liabilities each increased by approximately $1,000,000, including principal and
interest on a bank note payable of approximately $503,000 which has since been
repaid. The acquisition of D.C. has been accounted for by the purchase method of
accounting and the purchase price approximates the fair value of the net assets
acquired. The operating results of this acquisition are included in the
Company's consolidated statement of income from the date of acquisition.
The following unaudited pro forma consolidated income statement data presents
the consolidated results of operations of the Company as if the acquisitions of
the Added Value Companies, GCI Corp., Components and D.C. had occurred at the
beginning of the years presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales......................................... $ 219,558,000 $145,402,000 $111,922,000
Net income........................................ 2,851,000 1,779,000 3,275,000
Primary earnings per share........................ $.16 $.12 $.29
Fully diluted earnings per share.................. $.16 $.12 $.28
</TABLE>
F-11
<PAGE>
The above pro forma information does not purport to be indicative of what would
have occurred had the acquisitions been made as of such date or of the results
which may occur in the future.
NOTE 5 - PRODUCT DEVELOPMENT INVESTMENT WRITE-OFF
As a result of the rapid growth of the Company's electronic components
distribution business, in 1994 the Company decided to no longer pursue the
design and development of certain licensed technology intended to protect
various electronic equipment and machines from surges and sags in power.
Accordingly, the Company expensed its total investment of $363,000 in 1994.
NOTE 6 - LONG-TERM DEBT
LINE OF CREDIT
In March 1995, the Company's line of credit facility was increased from $25
million to $30 million, and in December 1995, the Company's line of credit was
again amended to increase the facility from $30 million to $45 million. Of the
last $15 million increase, $10 million matures on June 30, 1996, with the
balance (together with the original $30 million) maturing on May 31, 1997.
Outstanding borrowings under this facility, which are secured by accounts
receivable, inventories and equipment and a pledge of the capital stock of the
Company's subsidiaries, amounted to $25,900,000 at December 31, 1995.
In 1994, the Company's line of credit agreement was amended to reduce the
Company's interest rate from one-quarter of one percent (1/4%) above prime to,
at the Company's option, either one-quarter of one percent (1/4%) below prime or
two percent (2%) above certain LIBOR rates. The Company pays a nonusage fee of
one-tenth of one percent (1/10%) calculated on the unused portion of the
facility, payable quarterly in arrears.
Under the line of credit agreement, the Company is required to comply with
certain affirmative and negative covenants. These covenants place limitations on
the Company's future borrowings, dividend payments, redemption of certain
securities and transactions with affiliates on less than an arm's-length basis,
investments, acquisitions, mergers, capital expenditures and changes in control
and management. Furthermore, the agreement requires the Company to be in
compliance with certain financial ratios including a minimum amount of tangible
net worth and a current asset support ratio based upon specified percentages of
eligible accounts receivable and inventories. As of December 31, 1995, the
Company was in compliance with the required financial ratios and other
covenants.
F-12
<PAGE>
At December 31, 1994, outstanding borrowings under the Company's then $25
million facility were $19,991,000.
NOTES PAYABLE - BANKS
In connection with the acquisitions of the Added Value Companies, the Company
assumed two notes payable to banks of approximately $3,809,000 which were
subsequently repaid in January 1996. These notes are included in long-term debt
as of December 31, 1995.
SUBORDINATED DEBT
On March 18, 1996, subsequent to the balance sheet date, the Company executed a
senior subordinated promissory note in the amount of $15,000,000 to be repaid on
July 31, 1997. Interest is payable quarterly in arrears at a fluctuating rate
equal to the greater of (a) the prime rate or (b) the federal funds rate plus
one-half of one percent (1/2%); plus an applicable margin. The applicable margin
will be 4% for the first three months and will increase by one-half of one
percent (1/2%) in each subsequent three-month period until maturity. In
addition, beginning with the second three-month interest period, the Company is
obligated to pay a fee each three-month interest period equal to one and
one-half percent (1-1/2%) of the principal amount then outstanding. This note,
which is subordinated to the Company's line of credit facility, is unsecured and
requires that the Company comply with certain affirmative and negative
covenants. The proceeds were used to reduce the amount outstanding under the
Company's line of credit.
In September 1994, in connection with the acquisition of GCI Corp., the Company
issued a promissory note to the seller bearing interest at 7% per annum in the
approximate amount of $306,000 due in 1999. The promissory note, which is
subordinate to the Company's line of credit and recently completed senior
subordinated promissory note financing, is payable interest only on a quarterly
basis for the first two years with the principal amount, together with accrued
interest thereon, payable in equal quarterly installments over the next three
years. One-half of the then outstanding principal balance of the promissory note
is required to be paid if certain Net Earnings (as defined) are attained for
1995 or 1996. For 1995, the level of Net Earnings (as defined) was not met.
In June 1994, the Company completed a private placement (the "1994 Private
Placement") of 51.5 units, with each unit consisting of a 9% non-convertible
subordinated debenture due 2004 in the principal amount of $100,000 issuable at
par, together with 7,500
F-13
<PAGE>
common stock purchase warrants exercisable at $3.15 per share. The 51.5 units
issued represent debentures aggregating $5,150,000 together with an aggregate of
386,250 warrants. See Note 8 to Notes to Consolidated Financial Statements. The
debentures are payable in semi-annual installments of interest only commencing
December 1, 1994, with the principal amount maturing in full on June 13, 2004.
The Company is not required to make any mandatory redemptions or sinking fund
payments. The debentures are subordinated to the Company's senior indebtedness
including the line of credit facility, the recently completed senior
subordinated promissory note financing and notes issued to the Company's
landlord. The 386,250 warrants were valued at $.50 per warrant as of the date of
the 1994 Private Placement and, accordingly, the Company has recorded the
discount in the aggregate amount of $193,125 as additional paid-in capital. This
discount is being amortized over the ten-year term of the debentures and in 1995
approximately $19,000 was expensed.
In May 1994, the Company executed a promissory note in the amount of $865,000 in
favor of the Company's landlord to finance substantially all of the tenant
improvements necessary for the Company's Miami facility. This $865,000 note
requires no payments in the first year (interest accrues and is added to the
principal balance), is payable interest only in the second year and has a
repayment schedule with varying monthly payments over the remaining 18 years. At
the same time, the Company entered into another promissory note with the
Company's landlord for up to $150,000 to finance certain personal property for
the facility. This $150,000 note is payable interest only for six months and
thereafter in 60 equal self-amortizing monthly payments of principal and
interest. These notes, which are subordinate to the Company's line of credit,
bear interest at 8% per annum and are payable monthly. In May 1994, the Company
executed another promissory note in the approximate amount of $33,000 with the
Company's landlord. This note is payable monthly with interest at 9.5% per annum
and matures in April 1997. Certain additional improvements to the Company's
Miami corporate facility aggregating approximately $90,300 were financed as of
May 1, 1995 by the landlord. This $90,300 is evidenced by a promissory note
payable in 240 consecutive, equal self-amortizing monthly installments of
principal and interest. This note, which is subordinate to the Company's line of
credit, accrues interest at a fixed rate of 8% per annum.
In January 1994, in connection with the acquisition of Components, the Company
issued a promissory note to the seller bearing interest at 8% per annum in the
approximate amount of $399,000, payable in quarterly installments of interest
only, for a term of two years. The entire principal amount was repaid in January
1996. In addition, as part of the consideration for a covenant not to compete,
the Company issued a promissory note to the principal of the seller in the
amount of $250,000 (the "Non-Compete Note"). The Non-Compete Note bears interest
at 8% per annum, payable quarterly, with $100,000 of principal due March 10,
1995, $50,000 of principal due April 24, 1996, and the remaining $100,000
payable in eight quarterly principal installments each in the amount of $12,500
F-14
<PAGE>
payable over the fourth and fifth years of such note. One-half of the then
outstanding principal balance of the Non-Compete Note is required to be paid if
certain Net Earnings (as defined) are attained in any fiscal year, with the
entire then outstanding principal balance of the Non-Compete Note required to be
paid if at least the same level of Net Earnings (as defined) are attained in a
subsequent fiscal year. For 1995, the level of Net Earnings (as defined) was not
attained. These notes are subordinate to the Company's line of credit.
Long-term debt of the Company as of December 31, 1995, other than the line of
credit, matures as follows:
1996............................................... $ 579,000
1997............................................... 204,000
1998............................................... 277,000
1999............................................... 192,000
2000............................................... 44,000
Thereafter......................................... 6,158,000
----------------
$ 7,454,000
================
OBLIGATIONS UNDER CAPITAL LEASES
The Company is the lessee of computer and office equipment under capital leases
expiring in various years through 1997. The assets, aggregating $773,000, and
liabilities under capital leases are recorded at the lower of the present value
of the minimum lease payments or the fair value of the assets. The assets are
depreciated over their estimated productive lives. As of December 31, 1995,
accumulated depreciation of these assets aggregated approximately $257,000.
Depreciation of assets under capital leases is included in depreciation expense.
Minimum future lease payments under capital leases as of December 31, 1995 and
for each of the next five years and in the aggregate are approximately as
follows:
1996......................................... $ 331,000
1997......................................... 190,000
1998......................................... -
1999......................................... -
2000......................................... -
---------------
Total minimum lease payments................. 521,000
Less amount representing interest............ (82,000)
---------------
Total obligations under capital leases....... 439,000
Current portion.............................. (265,000)
---------------
$ 174,000
===============
F-15
<PAGE>
Interest rates on capital leases vary from 11.7% to 13.9% per annum and are
imputed based on the lower of the Company's incremental borrowing rate at the
inception of each lease or the lessor's implicit rate of return.
Various capital leases provide for purchase options.
NOTE 7 - INCOME TAXES
The tax effects of the temporary differences that give rise to the deferred tax
assets and liabilities as of December 31, 1995 and 1994 are as follows:
Deferred tax assets: 1995 1994
------------- --------------
Accounts receivable............ $ 336,000 $ 168,000
Inventory...................... 354,000 222,000
Other assets................... 145,000 51,000
------------- --------------
835,000 441,000
Deferred tax liabilities:
Fixed assets................... 270,000 326,000
------------- --------------
Net deferred tax asset........... $ 565,000 $ 115,000
============= ==============
The components of income tax expense for the years ended December 31, 1995, 1994
and 1993 are as follows:
CURRENT DEFERRED TOTAL
1995
FEDERAL.... $ 1,450,000 $ (292,000) $ 1,158,000
STATE...... 225,000 (46,000) 179,000
---------------- -------------- ----------------
$ 1,675,000 $ (338,000) $ 1,337,000
================ ============== ================
1994
Federal.... $ 385,000 $ (3,000) $ 382,000
State...... 26,000 (1,000) 25,000
---------------- -------------- ----------------
$ 411,000 $ (4,000) $ 407,000
================ ============== ================
1993
Federal.... $ 962,000 $ (11,000) $ 951,000
State...... 145,000 ( 2,000) 143,000
---------------- ------------- ----------------
$ 1,107,000 $ (13,000) $ 1,094,000
================ ============= ================
A reconciliation of the difference between the expected income tax rate using
the statutory federal tax rate and the Company's effective tax rate is as
follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax statutory rate............................ 34.0% 34.0% 34.0%
State income tax, net of federal
income tax benefit............................................. 3.7 4.6 3.4
Other - including non-deductible items............................ 3.8 15.0 1.7
---- ---- ----
Effective tax rate................................................ 41.5% 53.6% 39.1%
==== ==== ====
</TABLE>
The high effective tax rate for 1994 was primarily due to non-deductible
entertainment expenses.
NOTE 8 - CAPITAL STOCK, OPTIONS AND WARRANTS
In December 1995, in connection with the acquisition of the Added Value
Companies, the Company issued an aggregate of 2,174,104 shares of common stock
(see Note 4 to Notes to Consolidated Financial Statements). As a result of Added
Value previously owning approximately 37% of Rocky Mountain, 160,703 shares,
valued at approximately $391,000, issued as part of the Rocky Mountain merger
were acquired by the Company's wholly-owned subsidiary. In addition, in
connection with such acquisitions, certain selling stockholders were granted an
aggregate of 50,000 stock options to acquire the Company's common stock at an
exercise price of $2.313 per share exercisable, subject to a six-year vesting
period, through December 29, 2002.
In July 1995, the Company issued to a consulting firm a warrant to acquire
45,000 shares of the Company's common stock at an exercise price of $2.50 per
share exercisable through July 20, 2000. The warrant was issued in consideration
of such consulting firm entering into a new one-year consulting agreement with
the Company covering financial public relations/investor relations services. At
December 31, 1995, these warrants remained unexercised. The same consulting firm
had previously been issued warrants to acquire an aggregate of 180,000 shares in
September 1987 and May 1993 in connection with prior consulting agreements as
discussed below.
In connection with new employment agreements between the Company and each of its
four executive officers entered into in May 1995, an aggregate of 1,000,000
stock options were granted on June 8, 1995 to such four executive officers
pursuant to the Employees', Officers', Directors' Stock Option Plan, as amended
(the "Option Plan"). These options have an exercise price of $1.875 per share
and are exercisable through June 7, 2005, subject to a vesting schedule.
In connection with the public offering (see Note 2 to Notes to Consolidated
Financial Statements), the Company issued to the underwriter common stock
purchase warrants covering an aggregate of 523,250 shares of common stock
(including warrants issued in
F-17
<PAGE>
connection with the underwriter's exercise of the over-allotment option). These
warrants are exercisable at a price of $2.625 per share for a period of four
years commencing one year from June 8, 1995.
In June 1994, the Company issued an aggregate of 386,250 common stock purchase
warrants in connection with a private placement of subordinated debentures (see
Note 6 to Notes to Consolidated Financial Statements). The warrants are
exercisable at any time between December 14, 1994 and June 13, 1999 at an
exercise price of $3.15 per share. In connection with this private placement,
the placement agent received warrants to purchase 38,625 shares of the Company's
common stock. The placement agent's warrants are exercisable for a four-year
period commencing June 14, 1995 at an exercise price of $3.78 per share. At
December 31, 1995, these warrants had not been exercised.
During 1992, the Company sold units, each unit consisting of two shares of
common stock and two warrants. In addition, the underwriters of this offering
were issued warrants to purchase 175,000 units at $3.30 per unit. The
underwriters' warrants are exercisable for a four-year period which commenced in
June 1993. During 1993, the Company redeemed its then outstanding warrants. In
addition, during 1993, 78,750 of the underwriters' warrants were exercised. As a
result of these transactions, the Company received aggregate net proceeds of
approximately $5,393,000 in 1993. During 1994, an additional 78,750 of the
underwriters' warrants were exercised, leaving a balance of 17,500 warrants. The
Company received aggregate net proceeds of approximately $465,000 in 1994. At
December 31, 1995, the 17,500 warrants remained unexercised.
In March 1992, the Company issued a warrant to acquire 30,000 shares of its
common stock at $1.00 per share in connection with a $1.0 million subordinated
loan to the Company which was repaid in June 1992. This warrant was exercised in
March 1995.
In September 1987, the Company issued a warrant to acquire 90,000 shares of its
common stock at $1.60 per share (after the 1989 stock split) relating to a since
expired consulting agreement. In connection with the public offering completed
in June 1992, the Company extended the exercise period of this warrant to June
1994. In May 1993, in connection with a new consulting agreement with the same
party, the Company further extended the exercise period to June 1997 and issued
additional warrants to acquire 90,000 shares of its common stock at $1.35 per
share. At December 31, 1995, none of the warrants relating to these consulting
agreements had been exercised.
In June 1987, the Company reserved 375,000 shares of common stock for issuance
under an employee stock option plan. In 1992, the number of shares of common
stock reserved for issuance under this stock option plan was increased to
750,000 shares, in 1993 the number of shares of common stock reserved for
issuance under this stock option plan was increased to 1,750,000 shares, in 1994
the number of shares of common
F-18
<PAGE>
stock reserved was increased to 2,250,000 shares, and in 1995 the number of
shares of common stock reserved was increased to 3,250,000 shares. As of
December 31, 1995 outstanding options under this plan were as follows:
NUMBER OF OPTIONS
DATE OF GRANT OUTSTANDING OPTION PRICE
- ----------------------------------------------------------------
1991..................... 425,000 $.75-$1.03
1993..................... 469,063 $1.375-$2.53
1994..................... 261,000 $2.125-$2.63
1995..................... 1,055,000 $1.84-$2.313
---------
Total outstanding........ 2,210,063
Total exercised.......... 156,627
Total available.......... 883,310
--------
3,250,000
=========
All such options outstanding are exercisable within six years from the date
granted.
In connection with the acquisition of the assets of Components (see Note 4 to
Notes to Consolidated Financial Statements), the Company issued 98,160
unqualified stock options exercisable through January 1999 at an exercise price
of $1.65 per share.
In connection with the acquisition of the assets of GCI Corp. (see Note 4 to
Notes to Consolidated Financial Statements), the Company issued 117,551
unqualified stock options exercisable from September 1995 through September 1999
at an exercise price of $1.65 per share.
In addition, the Company is obligated to issue 1,000 shares of its common stock
and, under certain circumstances, the Company may be obligated to issue 130,000
incentive stock options. See Note 4 to Notes to Consolidated Financial
Statements.
NOTE 9 - COMMITMENTS/RELATED PARTY TRANSACTIONS
Included in the Company's results of operations for 1995 is approximately
$875,000 of sales, at cost, to the Added Value Companies.
In December 1991, the Company relocated its corporate offices and Miami
warehouse to a 37,000 sq. ft. facility. In addition, a warehouse in New York was
consolidated into this new Miami warehouse. In connection with the relocation
and consolidation, the Company entered into a new lease with an unrelated third
party which was to expire in December 1997. Annual rent payments under this
lease totaled $57,000 in 1994.
F-19
<PAGE>
In May 1994, the Company terminated its lease covering the 37,000 sq. ft.
facility and entered into a new lease with its then existing landlord to lease a
new 110,800 sq. ft. facility for its corporate headquarters and Miami
distribution center. During 1995, the Company was utilizing approximately 75% of
this new facility, the balance of which the Company was subleasing to an
unrelated third party for a term of three years ending on July 14, 1997. This
sublease has no renewal options and the Company has the right to recapture a
portion of the sublet space from the tenant after the eighteenth month of the
three-year term. In February 1996 the Company notified its subtenant that it
plans to reclaim 11,300 square feet pursuant to the sublease agreement, which
will bring the total amount of the building occupied by the Company to 84% at
such time. The sublease provides for base rent of $5,000 per month increasing 5%
per year and additional rent representing the subtenant's pro rata share of
landlord pass-through expenses and other expenses pertaining to the sublet
premises. The lease has a term expiring in 2014 (subject to the Company's right
to terminate at any time after the fifth year of the term upon twenty-four
months prior written notice and the payment of all outstanding debt owed to the
landlord). The lease gives the Company three six-year options to renew at the
fair market value rental rates. The lease provides for annual fixed rental
payments totaling approximately $264,000 in the first year, $267,000 in the
second year, $279,000 in each of the third, fourth and fifth years, $300,600 in
the sixth year, $307,800 in the seventh year and in each year thereafter during
the term the rent shall increase once per year in an amount equal to the annual
percentage increase in the consumer price index not to exceed 4% in any one
year.
As a result of the Added Value Acquisitions, the Company leases a 13,900 square
foot facility in Tustin, California and a 7,600 square foot facility in Denver,
Colorado. The Tustin facility contains a distribution center as well as the
staff supporting the Company's kitting and turnkey operations and the separate
divisions created for flat panel displays and memory module operations. The
Denver facility contains a regional distribution center and sales office.
In October 1995, the Company entered into a lease for a new west coast
distribution and semiconductor programming center located in Fremont, California
(near San Jose). The Company moved into such facility in January 1996. The
Company will use this space to expand its semiconductor programming and
distribution capabilities and improve quality control and service capabilities
for its west coast customers.
The Company leases space for 27 sales offices, including non-cancelable leases
assumed in connection with the acquisitions of the Added Value Companies, which
expire at various dates and include various escalation clauses and renewal
options.
F-20
<PAGE>
Approximate minimum future rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1995, are as follows for the next five years:
YEAR ENDING DECEMBER 31
1996...................... $2,107,000
1997...................... 1,863,000
1998...................... 1,371,000
1999...................... 995,000
2000...................... 660,000
Total rent expense, including real estate taxes and net of sublease income,
amounted to approximately $1,345,000, $753,000 and $526,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
In May 1995, the Company entered into new employment agreements with each of the
four executive officers of the Company (collectively, the "1995 Agreements").
These agreements provide for an aggregate of $845,500 in base salary per annum
effective beginning either March or June 1995 and are subject to an annual
increase commencing as of January 1, 1996 equal to the greater of 4% per annum
as to two agreements and 5% per annum as to the other two agreements or the
increase in the cost of living. The 1995 Agreements provide that the executive
officers as a group are entitled to receive an annual cash bonus, subject to
certain caps, equal to an aggregate of 10% of the Company's pre-tax income,
before nonrecurring and extraordinary charges, in excess of $1,000,000 in any
calendar year. Excluding certain one-time bonuses for 1995 aggregating $55,000,
the total amount of bonuses earned for 1995 was approximately $370,000. The 1995
Agreements also provide for certain additional benefits, including participation
in the Company's benefit plans, disability benefits and various life insurance
policies. The 1995 Agreements also contain change-in-control provisions that may
result in certain lump sum severance payments based on a multiple (two or three
years) of all annual compensation and benefits being payable to them. One
agreement contains a retirement benefits package including $100,000 per annum
from date of retirement (any time on or after January 1, 1999) until the later
of the death of such executive officer or his spouse. A postretirement benefit
cost of $264,000, related to retirement benefits under this agreement, is
included in the consolidated statement of income for the year ended December 31,
1995. Retirement benefits under this agreement are presently unfunded. A
postretirement benefit obligation of $264,000 is included in the consolidated
balance sheet at December 31, 1995.
In connection with the acquisitions of the Added Value Companies, the Company
entered into employment agreements with a total of 17 employees, including five
key employees.
F-21
<PAGE>
The two-year employment agreements for the five key employees provide for annual
salaries aggregating $695,000, excluding certain front-end incentive employment
compensation aggregating $765,000. The remaining 12 employment agreements
provide for annual compensation at rates comparable to what was previously paid
to such employees and in certain agreements provide front-end incentive
employment compensation (aggregating $333,000) and additional employment
compensation aggregating $214,500 payable ratably over their two-year employment
periods.
Effective January 1, 1988, the Company established a deferred compensation plan
(the "Deferred Compensation Plan") for executive officers and key employees of
the Company. The employees eligible to participate in the Deferred Compensation
Plan (the "Participants") are chosen at the sole discretion of the Board of
Directors upon a recommendation from the Board of Directors' Compensation
Committee. Pursuant to the Deferred Compensation Plan, commencing on a
Participant's retirement date, he or she will receive an annuity for ten years.
The amount of the annuity shall be computed at 30% of the Participant's Salary,
as defined. Any Participant with less than ten years of service to the Company
as of his or her retirement date will only receive a pro rata portion of the
annuity. Retirement benefits paid under the Deferred Compensation Plan will be
distributed monthly. The Company paid benefits under this plan of approximately
$15,600 and $52,000 during 1995 and 1994, respectively, none of which was paid
to any executive officer. The maximum benefit payable to a Participant
(including each of the executive officers) under the Deferred Compensation Plan
is presently $22,500 per annum. At December 31, 1995 the cash surrender values
of insurance policies owned by the Company under the Plan, which provide for the
accrued deferred compensation benefits, aggregated approximately $78,000.
The Company maintains a 401(k) plan (the "401(k) Plan"), which is intended to
qualify under Section 401(k) of the Internal Revenue Code. All full-time
employees of the Company over the age of 21 are eligible to participate in the
401(k) Plan after completing 90 days of employment. Each eligible employee may
elect to contribute to the 401(k) Plan, through payroll deductions, up to 15% of
his or her salary, limited to $9,240 in 1995. The Company makes matching
contributions and in 1995 its contributions were in the amount of 25% on the
first 6% contributed of each participating employee's salary.
NOTE 10 - SETTLEMENT OF INSURANCE CLAIM
In 1993, the Company settled its business interruption claim, which occurred
during the third quarter of 1992, for $237,000. This settlement is reflected as
other income in the consolidated statement of income for the year ended December
31, 1993.
F-22
<PAGE>
NOTE 11 - CONTINGENCIES
From time to time the Company may be named as a defendant in suits for product
defects, breach of warranty, breach of implied warranty of merchantability,
patent infringement or other actions relating to products which it distributes
which are manufactured by others. In each case, the Company expects that the
manufacturer of such products will indemnify the Company, as well as defend such
actions on the Company's behalf although there is no guarantee that the
manufacturers will do so. In addition, as a result of the acquisitions of the
Added Value Companies, the Company offers a warranty with respect to its
manufactured products for a period of one year against defects in workmanship
and materials under normal use and service and in the original, unmodified
condition.
NOTE 12 - ECONOMIC DEPENDENCY
For the year ended December 31, 1995, purchases from one supplier were in excess
of 10% of the Company's total purchases and aggregated approximately
$26,528,000. The net outstanding accounts payable to this supplier at December
31, 1995 amounted to approximately $838,000.
For the year ended December 31, 1994, purchases from one supplier were in excess
of 10% of the Company's total purchases and aggregated approximately
$12,200,000. The net outstanding accounts payable to this supplier at December
31, 1994 amounted to approximately $246,000.
For the year ended December 31, 1993, purchases from one supplier were in excess
of 10% of the Company's total purchases and aggregated approximately $9,600,000.
The net outstanding accounts payable to this supplier at December 31, 1993
amounted to approximately $178,000.
F-23
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION, AS AMENDED (INCORPORATED BY REFERENCE TO
EXHIBITS 3.1 TO THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1, FILE
NO. 33-15345-A, AND TO THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1991), AS FURTHER AMENDED BY CERTIFICATE OF
AMENDMENT OF CERTIFICATE OF INCORPORATION DATED AUGUST 21, 1995 OF THE
COMPANY.
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
ALL AMERICAN SEMICONDUCTOR, INC.
--------------------------------------------
The undersigned, President and Secretary of All American Semiconductor,
Inc., a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), do hereby certify:
FIRST: That at a special meeting of the Board of Directors
the following resolution was duly adopted setting forth a proposed amendment to
the Certificate of Incorporation of the Corporation, as previously amended,
declaring said amendment to be advisable and directing that said amendment be
submitted at the next annual meeting of the shareholders of the Corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that, subject to obtaining the approval of
shareholders of the Corporation holding a majority of the outstanding
shares of common stock of the Corporation, Article 4 of the Certificate
of Incorporation of the Corporation, as previously amended (the
"Certificate"), be, and it hereby is authorized and deemed advisable to
be, further amended by revising the first paragraph of Article 4 of the
Certificate to read as follows (the "Common Stock Amendment"):
"4. The total number of shares of common
stock which the Corporation shall have
authority to issue is 40,000,000 shares of
$.01 par value common stock."
SECOND: That thereafter, pursuant to the resolution of the
Board of Directors, an annual meeting of the shareholders of the Corporation was
duly called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the Common Stock
Amendment.
THIRD: That said amendment to the Certificate of
Incorporation was duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware and, accordingly, the
first paragraph of Article 4 of the Certificate of Incorporation is amended as
provided herein.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Bruce M. Goldberg, its
President, and Howard L. Flanders, its Secretary, this 21st day of August, 1995.
/s/ BRUCE M. GOLDBERG
-----------------------------------
Bruce M. Goldberg, President
(Corporate Seal) /s/ HOWARD L. FLANDERS
-----------------------------------
Howard L. Flanders, Secretary
2
<PAGE>
ACKNOWLEDGEMENTS
STATE OF FLORIDA )
) SS:
COUNTY OF DADE )
The foregoing instrument was acknowledged before me this 21st day of
August, 1995, by Bruce M. Goldberg as President of All American Semiconductor,
Inc., a Florida corporation, on behalf and as the act and deed of said
corporation. He is personally known to me or has produced a State of Florida's
driver's license as identification and he swore that the facts stated therein
are true and correct.
Sign Name: /s/ DONNA MARIE JARKE
_______________________
Print Name: Donna Marie Jarke
________________________
My Commission Expires: 3/2/97 NOTARY PUBLIC
Serial No. (none, if blank): ______
[NOTARIAL SEAL]
STATE OF FLORIDA )
) SS:
COUNTY OF DADE )
The foregoing instrument was acknowledged before me this 21st day of
August, 1995, by Howard L. Flanders as Secretary of All American Semiconductor,
Inc., a Florida corporation, on behalf and as the act and deed of said
corporation. He is personally known to me or has produced a State of Florida's
driver's license as identification and he swore that the facts stated therein
are true and correct.
Sign Name: /s/ DONNA MARIE JARKE
_______________________
Print Name: Donna Marie Jarke
________________________
My Commission Expires: 3/2/97 NOTARY PUBLIC
Serial No. (none, if blank): ______
[NOTARIAL SEAL]
3
EXHIBIT 10.21
FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT AND MASTER
PROMISSORY NOTE, BOTH DATED AS OF DECEMBER 15, 1995,
WITH THE COMPANY'S LENDER.
<PAGE>
FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT AND MASTER PROMISSORY NOTE,
BOTH DATED AS OF DECEMBER 15, 1995, WITH THE COMPANY'S LENDER.
THIS FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Fifth
Amendment"), made and entered into this 15th day of December, 1995, by and
between:
ALL AMERICAN SEMICONDUCTOR, INC.,
a Delaware corporation
16115 N.W. 52nd Avenue
Miami, Florida 33014
(hereinafter referred to as "BORROWER")
- and -
SUNTRUST BANK, MIAMI, N.A., formerly known as
SUN BANK/MIAMI, NATIONAL ASSOCIATION
777 Brickell Avenue
Miami, Florida 33131
(hereinafter referred to as "BANK")
R E C I T A L S:
A. On December 29, 1992, BORROWER and BANK entered into a
Revolving Credit Agreement (the "Credit Agreement"), establishing a revolving
line of credit (the "Revolving Line") by BANK in favor of BORROWER, and secured
by, inter alia, a Stock Pledge Agreement (the "Pledge Agreement") between
BORROWER and BANK of even date with the Credit Agreement.
B. On May 27, 1993, BORROWER and BANK entered into a letter
agreement (the "First Amendment") modifying certain terms of the Credit
Agreement (most of which were on an interim basis).
C. On July 19, 1993, BORROWER and BANK entered into the Second
Amendment to Revolving Credit Agreement and First Amendment to Stock Pledge
Agreement (the "Second Amendment") (1) increasing the Revolving Line to a
maximum principal amount of TWENTY MILLION DOLLARS ($20,000,000.00), (2)
providing for a conditional reduction to one of the interest rates which may
apply to the Revolving Line, and (3) increasing the sublimit applicable to
inventory advances.
D. On August 4, 1994, BORROWER and BANK entered into the Third
Amendment to Revolving Credit Agreement (the "Third Amendment") (1) increasing
the Revolving Line to a maximum principal amount of TWENTY-FIVE MILLION AND
NO/100 DOLLARS
<PAGE>
($25,000,000.00), (2) extending the Revolving Line Termination Date to May 31,
1997, (3) making available to BORROWER an interest rate option based upon the
London InterBank Offered Rate, (4) eliminating the Borrowing Base limitation
applicable to the Revolving Line, and (5) modifying certain covenants under the
Agreement.
E. On March 28, 1995, BORROWER and BANK entered into the Fourth
Amendment to Revolving Credit Agreement (the "Fourth Amendment") (1) increasing
the Revolving Line to a maximum principal amount of THIRTY MILLION AND NO/100
DOLLARS ($30,000,000.00), and (2) establishing a FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00) sublimit within the Revolving Line for the issuance of standby
letters of credit for the account of BORROWER.
F. The OBLIGORS (as defined in the Credit Agreement) have
requested that BANK increase the Revolving Line to a maximum principal amount of
FORTY-FIVE MILLION AND NO/100 DOLLARS ($45,000,000.00), and BANK is agreeable to
same, subject to the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants of the parties
hereto, and for other good and valuable consideration, it is agreed as follows:
1. The foregoing statements are true and correct and are
incorporated herein as if set forth in full.
2. Unless otherwise defined herein, all terms used herein shall
have the definitions specified in the Credit Agreement, as modified by the First
Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment;
all references hereinafter made to the Credit Agreement to include the
modifications thereto effectuated pursuant to the First Amendment, the Second
Amendment, the Third Amendment and the Fourth Amendment.
3. The OBLIGORS each confirm and acknowledge that, as of the
date hereof, the balance due BANK under the Revolving Line is the principal
amount of $25,981,338.05 plus accrued interest since the date last paid, all
free and clear of any defense, set-off or counterclaim.
4. The Credit Agreement is hereby modified as follows (all
references to Sections or Subsections being the applicable Sections or
Subsections of the Credit Agreement):
(a) In Subsection 1.1, the following definition is
substituted for the definition of "Revolving Line
Termination Date": May 31, 1997, as to THIRTY-FIVE
MILLION AND NO/100 DOLLARS ($35,000,000.00) of the
Revolving Line, and June 30, 1996 as to the
2
<PAGE>
remaining TEN MILLION AND NO/100 DOLLARS
($10,000,000.00) of the Revolving Line.
(b) The Revolving Line amount, as specified in
Subsection 2.1, is hereby increased to the principal
sum of FORTY-FIVE MILLION AND NO/100 DOLLARS
($45,000,000.00), reducing to THIRTY-FIVE MILLION AND
NO/100 DOLLARS ($35,000,000.00) on June 30, 1996.
(c) The "Revolving Line Note" referenced in
Subsection 2.3 shall hereafter refer to a similar
Master Promissory Note of BORROWER in the principal
amount of FORTY-FIVE MILLION AND NO/100 DOLLARS
($45,000,000.00), in lieu of any previously executed
promissory note(s).
(d) On February 28, 1996, the interest rates
applicable to the Revolving Line pursuant to
Subsection 2.4 shall each be increased by
one-half of one percent (1/2%) unless, on or before
that date, BANK has been provided with
satisfactory written evidence, from the
applicable underwriter or placement agent, of a
commitment for a private placement of not less
than FIFTEEN MILLION DOLLARS ($15,000,000.00) of
Subordinated Debt. Such Subordinated Debt may be
secured by a junior lien on the Collateral,
provided that BANK is furnished with a hold-
harmless agreement from such debt-holders, holding
BANK harmless from any and all claims, damages
and losses which such debt-holders may incur
pertaining to or resulting from BANK's
disposition of the Collateral, and otherwise in
form and substance satisfactory to BANK.
(e) The dollar amount specified in Subsection 2.10 is
increased to FORTY-FIVE MILLION AND NO/100
DOLLARS ($45,000,000.00).
5. Each and every reference to the Credit Agreement in the
other Loan Documents shall be deemed to refer to the Credit Agreement, as
modified by this Fifth Amendment and the prior four amendments.
6. The obligation of BANK to hereafter make any Advance(s)
under the Facility is subject to satisfactory compliance with conditions
precedent requiring that BANK shall have received from the OBLIGORS, in
connection with the execution of this Fifth Amendment:
(a) a Secretary's certificate, dated as of the date
of this Fifth Amendment, certifying as to
resolutions
3
<PAGE>
of the Board of Directors of BORROWER, authorizing
the execution, delivery and performance of this
Fifth Amendment, the borrowings under the Revolving
Line, as hereby amended, and the execution and
delivery to BANK of the promissory note specified
in Subsection 2.3, as modified by the terms of this
Fifth Amendment, and the full force and effect of
such resolutions on the date of this Fifth Amendment;
(b) the original promissory note which must be
executed pursuant to the terms of this Fifth
Amendment, duly executed by BORROWER;
(c) current certificates of good standing for each of
the OBLIGORS from the appropriate governmental
officials of their respective jurisdictions of
incorporation;
(d) the written opinion of counsel for the OBLIGORS,
addressed to BANK, confirming that each of the
OBLIGORS is duly organized, validly existing and
in good standing in the state of its
incorporation and qualified to do business in
each state in which it does business, that the
parties signing this Fifth Amendment and the
related promissory note are each duly authorized
to do so and that such documents, instruments and
agreements, when executed and delivered to BANK,
will be, and the Credit Agreement and related
documents, instruments and agreements previously
executed and delivered to BANK continue to be,
valid and binding obligations of the OBLIGORS,
enforceable according to their respective terms;
and
(e) such additional documents, instruments and
agreements as are required hereunder as well as those
which BANK or its counsel may reasonably request.
7. As partial consideration for BANK increasing the principal
amount of the Revolving Line, as provided above, BANK has fully earned a
nonrefundable commitment/facility fee in the amount of FOUR THOUSAND FIVE
HUNDRED AND NO/100 DOLLARS ($4,500.00), which shall be paid to BANK
simultaneously with the execution of this Fifth Amendment, irrespective of any
actual further funding under the Facility.
8. Each of the OBLIGORS represents and warrants to BANK that,
except as has been otherwise disclosed to BANK in writing, the representations
and warranties contained in the Credit Agreement and all related loan
documentation are true and correct
4
<PAGE>
on and as of the date hereof (with the same force and effect as if made on and
as of the date hereof) and with respect to this Fifth Amendment and the related
documentation referenced herein. Specifically, each of the OBLIGORS existing as
of August 19, 1994, represents and warrants that its Certificate or Articles of
Incorporation and Bylaws were not amended on or subsequent to said date.
9. Each of the OBLIGORS acknowledges and confirms that the
Security Agreement, the Pledge Agreement and all Collateral furnished in
connection with the Credit Agreement continue to secure the obligations and
Indebtedness thereunder, as hereby modified.
10. BORROWER shall pay all out-of-pocket expenses incurred by
BANK in connection with the preparation for and closing of the transaction
contemplated under this Fifth Amendment, including, without limitation, the fees
and expenses of special counsel for BANK. In addition, BORROWER shall pay any
and all taxes and fees, including, without limitation, documentary stamp taxes,
now or hereafter required in connection with the execution and delivery of the
Credit Agreement, as hereby amended, and all related documents, instruments and
agreements, including, without limitation, the promissory note above-referenced.
11. Except as expressly modified herein, all terms and
provisions of the Credit Agreement, and all other documents, instruments and
agreements executed and/or delivered in connection with the Credit Agreement,
shall remain unchanged and in full force and effect. No consent of BANK
hereunder shall operate as a waiver or continuing consent with respect to any
instance or event other than those specified herein.
12. All covenants, agreements, representations and warranties
contained herein shall be binding upon and inure to the benefit of the parties
hereto, their respective successors and assigns, except that BORROWER shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of BANK.
13. BANK AND THE OBLIGORS EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
FIFTH AMENDMENT OR THE CREDIT AGREEMENT AND ANY AGREEMENT, DOCUMENT OR
INSTRUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK ENTERING INTO THIS FIFTH
AMENDMENT.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fifth
Amendment the day and year first above written.
BORROWER:
(CORPORATE SEAL) ALL AMERICAN SEMICONDUCTOR,
INC., a Delaware corporation
By: /s/ PAUL GOLDBERG
--------------------------
Paul Goldberg,
Chief Executive Officer
BANK:
SUNTRUST BANK, MIAMI, N.A.
By: /s/ JERRY D. WEISMAN
--------------------------
Jerry D. Weisman
Senior Vice President
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this 15th day of December, 1995, before me personally came Paul
Goldberg, to me known, who stated that (s)he is the Chief Executive Officer of
ALL AMERICAN SEMICONDUCTOR, INC., the corporation described in and which
executed the foregoing instrument; and that (s)he signed his (her) name thereto
by order of the Board of Directors of said corporation.
[ ] Personally known
[X] Provided Drivers License
[ ] Provided as identification.
/s/ LAURA M. EHRHARDT
----------------------------------
Notary Public - State of New York
Print Name: LAURA M. EHRHARDT
Commission No.: O1EH5019548
Expiration: OCTOBER 25, 1997
6
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this 15th day of December, 1995, before me personally came Jerry D.
Weisman, to me known, who stated that (s)he is the Senior Vice President of
SUNTRUST BANK, MIAMI, N.A., and that (s)he is authorized to execute this
instrument on behalf of said financial institution.
[ ] Personally known
[X] Provided Drivers License
[ ] Provided as identification.
/s/ LAURA M. EHRHARDT
----------------------------------
Notary Public - State of New York
Print Name: LAURA M. EHRHARDT
Commission No.: O1EH5019548
Expiration: OCTOBER 25, 1997
7
<PAGE>
JOINDER
Each of the undersigned: (1) acknowledges and confirms that BANK's
loans, advances and credit to BORROWER have been, are and will continue to be of
direct economic benefit to the undersigned, (2) consents to all terms and
provisions of the Fifth Amendment which are applicable to them, and agrees to be
bound by and comply with such terms and provisions, and (3) acknowledges and
confirms that their guaranties in favor of BANK executed pursuant to the terms
of the Credit Agreement are each valid and binding and remain in full force and
effect in accordance with their respective terms (without defense, setoff or
counterclaim against enforcement thereof), which include, without limitation,
their guarantees in connection with the Credit Agreement, as modified by the
Fifth Amendment.
ALL AMERICAN TRANSISTOR OF ALL AMERICAN SEMICONDUCTOR-
CALIFORNIA, INC., a California NORTHERN CALIFORNIA, INC., a
corporation California corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
MINNESOTA, INC., a Minnesota TEXAS, INC., a Texas corporation
corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
MASSACHUSETTS, INC., a Massachusetts FLORIDA, INC., a Florida corporation
corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
8
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ALL AMERICAN SEMICONDUCTOR OF
NEW YORK, INC., a New York PALM ELECTRONICS MANUFACTURING
corporation, f/k/a CORP., a Florida corporation
QAR INDUSTRIAL ELECTRONIC
SALES, INC.,
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN TECHNOLOGIES, ALL AMERICAN SEMICONDUCTOR OF
INC., a Florida corporation SALT LAKE, INC., a Utah corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
HUNTSVILLE, INC., an Alabama ROCKVILLE, INC., a Maryland
corporation corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
CHICAGO, INC., an Illinois PORTLAND, INC., an Oregon
corporation corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
9
<PAGE>
ALL AMERICAN SEMICONDUCTOR OF
PHILADELPHIA, INC., a New ALL AMERICAN ADDED VALUE,
Jersey corporation INC., a California corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ACCESS MICRO TECHNOLOGIES, AMERICAN ASSEMBLIES & DESIGN,
INC., a Delaware corporation INC., an Illinois corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------------- -------------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN A.V.E.D., INC., a
Colorado corporation
By: /s/ PAUL GOLDBERG
-------------------------------
Paul Goldberg, Chief
Executive Officer
10
<PAGE>
MASTER PROMISSORY NOTE
$45,000,000.00 New York, New York
December 15, 1995
FOR VALUE RECEIVED, the undersigned, ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation, hereinafter called "MAKER", promises to pay to the order
of SUNTRUST BANK, MIAMI, N.A., formerly known as SUN BANK/MIAMI, NATIONAL
ASSOCIATION, hereinafter called "BANK", or its successor(s) or assign(s), at its
office at 777 Brickell Avenue, Miami, Florida 33131, or at such other
address(es) as BANK or any subsequent holder of this Note may designate in
writing from time to time, in the manner hereinafter set forth, in immediately
available local, collected funds, the principal sum of FORTY-FIVE MILLION AND
00/100 DOLLARS ($45,000,000.00), or so much thereof as may be advanced and
outstanding from time to time, together with interest thereon from the date(s)
of funding to maturity at the applicable rate(s) as specified in the Credit
Agreement (hereinafter defined). All interest shall be computed on a daily basis
and calculated on the basis of a three hundred sixty (360) day year.
This Note constitutes the "Revolving Line Note" described in that
certain Revolving Credit Agreement dated December 29, 1992 by and between BANK
and MAKER, as amended by that certain letter dated May 27, 1993, that certain
Second Amendment to Revolving Credit Agreement and First Amendment to Stock
Pledge Agreement dated July 19, 1993, that certain Third Amendment to Revolving
Credit Agreement dated August 4, 1994, that certain Fourth Amendment to
Revolving Credit Agreement dated March 28, 1995, and that certain Fifth
Amendment to Revolving Credit Agreement of even date with this Note
(collectively, the "Credit Agreement") and the principal and interest due
hereunder shall be payable in accordance with those terms and provisions of the
Credit Agreement which are applicable to the Revolving Line Note. This Note
shall be deemed to evidence the principal amount outstanding from time to time
under the Revolving Line (defined in the Credit Agreement), even though the face
amount of this Note may be in excess of such principal amount outstanding from
time to time.
This Note is subject to all terms and provisions of the Credit
Agreement, which are hereby incorporated by this reference as though set forth
in full herein. In the event of any conflict or inconsistency between the terms
and provisions of this Note and those of the Credit Agreement, the terms and
provisions of the Credit Agreement shall in all respects govern and control.
This Note is secured by the Collateral described in the Credit Agreement.
Upon the occurrence of an Event of Default (as defined in the Credit
Agreement), BANK may, at its option, accelerate maturity, and the unpaid
principal balance hereof and all unpaid accrued interest shall thereupon
immediately become due and payable without presentment, demand, notice or
protest, and BANK shall have the right to set off against this Note all money
owed by BANK in any
<PAGE>
capacity to MAKER and to set off against all other liabilities of MAKER to BANK,
all money owed by BANK in any capacity to MAKER. Failure to exercise this option
with repsect to any failure or breach shall not constitute a waiver of the
right as to any subsequent failure or breach.
MAKER, as well as any and all endorsers, guarantors, sureties and all
other parties liable for the payment of any sum or sums due or to become due
under the terms of this Note, waive presentment, protest and demand, and notice
of protest, demand and dishonor, and nonpayment of this Note, and consent that
the holder hereof shall have the right, without notice, to deal in any way at
any time with any party hereto, or to grant any extension or extensions of time
for payment of any of said indebtedness or any other indulgences or forbearances
whatsoever, or to release any of the security for this Note or any of the
guarantors of this Note without in any way affecting the liability of any other
party for the payment of this Note.
MAKER further agrees to pay all costs of collection, including
reasonable attorneys' fees (inclusive of any bankruptcy or appellate
proceedings), in case the principal of this Note or any interest thereon is not
paid when due, whether suit be brought or not.
No delay or omission on the part of the holder hereof in exercising any
right hereunder shall operate as a waiver of such right or any other right under
this Note, nor shall any waiver on one occasion be construed as a bar to or
waiver of any such right on any future occasion. No waiver under or modification
of this Note shall be effective unless in writing and signed by the holder of
this Note.
Interest hereunder shall be charged only on the sums advanced from the
date of advance to the date of repayment. MAKER does not intend or expect to
pay, nor does BANK intend or expect to charge, accept or collect any interest
which, when added to any commitment fee or any other charge upon the principal,
shall be in excess of the highest lawful rate allowable under the laws of the
State of Florida or the United States of America, whichever is higher or
unlimited. Should acceleration, prepayment or any other charges upon the
principal or any portion thereof result in the computation or earning of
interest in excess of the highest lawful rate allowable under the laws of the
State of Florida or the United States of America, whichever is higher or
unlimited, then any and all such excess is hereby waived and shall be applied
against the remaining principal balance, if any, and thereafter refunded to
MAKER.
Except as otherwise specifically provided with respect to the maximum
rate of interest hereunder, this Note shall be governed as to validity,
interpretation, construction, effect and all other respects by the laws and
decisions of the State of Florida.
2
<PAGE>
The undersigned hereby waives any plea of jurisdiction or venue as not
having a place of business in Dade County, Florida, and hereby specifically
authorizes any action brought upon the enforcement of this Note by BANK to be
instituted and prosecuted in either the Circuit Court of Dade County, Florida,
or in the United States District Court for the Southern District of Florida, at
the election of BANK.
All payments made hereunder shall be credited first to accrued interest
and then to principal; however, upon the occurrence of an Event of Default, BANK
may, in its sole discretion, and in such order as it may choose, apply any
payment to interest, principal, and/or lawful charges and expenses then accrued.
From and after the date of an Event of Default, the principal balance
under this Note shall bear interest, from such date until paid, at the Default
Rate (as defined in the Credit Agreement).
This Note is binding upon MAKER and its successors and assigns.
BANK (BY ACCEPTANCE OF AND FUNDING UNDER THIS NOTE) AND MAKER EACH
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE AND ANY AGREEMENT, DOCUMENT OR INSTRUMENT
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR BANK ACCEPTING THIS NOTE FROM MAKER AND
FOR BANK ENTERING INTO THE FIFTH AMENDMENT TO THE CREDIT AGREEMENT.
ALL AMERICAN SEMICONDUCTOR,
INC., a Delaware corporation
By: /s/ PAUL GOLDBERG
--------------------------------
Paul Goldberg
Chief Executive Officer
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
The foregoing Master Promissory Note was acknowledged before me this
15th day of December, 1995, by Paul Goldberg, as Chief Executive Officer of ALL
AMERICAN SEMICONDUCTOR, INC., [__ to me personally known] [ X having provided
DRIVERS LICENSE as identification], who executed same on behalf of said
corporation for the purposes therein expressed. An oath [__ was] [ X was not]
administered.
/s/ LAURA M. EHRHARDT
---------------------------------
Notary Public - State of New York
Print Name LAURA M. EHRHARDT
Commission No. O1EH5019548
3
EXHIBIT 10.22
SIXTH AMENDMENT TO REVOLVING CREDIT AGREEMENT DATED AS OF MARCH 14, 1996,
WITH THE COMPANY'S LENDER.
<PAGE>
SIXTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
DATED AS OF MARCH 14, 1996, WITH THE COMPANY'S LENDER.
THIS SIXTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Sixth
Amendment"), made and entered into this 14TH day of March, 1996, by and between:
ALL AMERICAN SEMICONDUCTOR, INC.,
a Delaware corporation
16115 N.W. 52nd Avenue
Miami, Florida 33014
(hereinafter referred to as "BORROWER")
- and -
SUNTRUST BANK, MIAMI, N.A., formerly known as
SUN BANK/MIAMI, NATIONAL ASSOCIATION
777 Brickell Avenue
Miami, Florida 33131
(hereinafter referred to as "BANK")
R E C I T A L S:
A. On December 29, 1992, BORROWER and BANK entered into a
Revolving Credit Agreement (the "Credit Agreement"), establishing a revolving
line of credit (the "Revolving Line") by BANK in favor of BORROWER, and secured
by, inter alia, a Stock Pledge Agreement (the "Pledge Agreement") between
BORROWER and BANK of even date with the Credit Agreement.
B. On May 27, 1993, BORROWER and BANK entered into a letter
agreement (the "First Amendment") modifying certain terms of the Credit
Agreement (most of which were on an interim basis).
C. On July 19, 1993, BORROWER and BANK entered into the Second
Amendment to Revolving Credit Agreement and First Amendment to Stock Pledge
Agreement (the "Second Amendment") (1) increasing the Revolving Line to a
maximum principal amount of TWENTY MILLION DOLLARS ($20,000,000.00), (2)
providing for a conditional reduction to one of the interest rates which may
apply to the Revolving Line, and (3) increasing the sublimit applicable to
inventory advances.
D. On August 4, 1994, BORROWER and BANK entered into the Third
Amendment to Revolving Credit Agreement (the "Third Amendment") (1) increasing
the Revolving Line to a maximum principal amount of TWENTY-FIVE MILLION AND
NO/100 DOLLARS
<PAGE>
($25,000,000.00), (2) extending the Revolving Line Termination Date to May 31,
1997, (3) making available to BORROWER an interest rate option based upon the
London InterBank Offered Rate, (4) eliminating the Borrowing Base limitation
applicable to the Revolving Line, and (5) modifying certain covenants under the
Agreement.
E. On March 28, 1995, BORROWER and BANK entered into the Fourth
Amendment to Revolving Credit Agreement (the "Fourth Amendment") (1) increasing
the Revolving Line to a maximum principal amount of THIRTY MILLION AND NO/100
DOLLARS ($30,000,000.00), and (2) establishing a FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00) sublimit within the Revolving Line for the issuance of standby
letters of credit for the account of BORROWER.
F. On December 15, 1995, BORROWER and BANK entered into the
Fifth Amendment to Revolving Credit Agreement (the "Fifth Amendment") increasing
the Revolving Line to a maximum principal amount of FORTY-FIVE MILLION AND
NO/100 DOLLARS ($45,000,000.00).
G. The OBLIGORS (as defined in the Credit Agreement) have
requested that BANK modify certain financial covenants under the Agreement, and
BANK is agreeable to same, subject to the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants of the parties
hereto, and for other good and valuable consideration, it is agreed as follows:
1. The foregoing statements are true and correct and are
incorporated herein as if set forth in full.
2. Unless otherwise defined herein, all terms used herein shall
have the definitions specified in the Credit Agreement, as modified by the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment and
the Fifth Amendment; all references hereinafter made to the Credit Agreement to
include the modifications thereto effectuated pursuant to the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment and the Fifth
Amendment.
3. The OBLIGORS each confirm and acknowledge that, as of the
date hereof, the balance due BANK under the Revolving Line is the principal
amount of $40,090,885.22 plus accrued interest since the date last paid, all
free and clear of any defense, set-off or counterclaim.
4. The Credit Agreement is hereby modified as follows (all
references to Sections or Subsections being the applicable Sections or
Subsections of the Credit Agreement):
-2-
<PAGE>
(a) The minimum amount of Tangible Net Worth at
December 31, 1995, as required pursuant to Subsection
7.9, shall be $35,750,000.00.
(b) The maximum ratio of Debt to Tangible Net
Worth from December 31, 1995, through March 30, 1996,
as required pursuant to Subsection 7.10, shall be
2.15:1.0.
5. Each and every reference to the Credit Agreement in the
other Loan Documents shall be deemed to refer to the Credit Agreement, as
modified by this Sixth Amendment and the prior five amendments.
6. Each of the OBLIGORS represents and warrants to BANK that,
except as has been otherwise disclosed to BANK in writing, the representations
and warranties contained in the Credit Agreement and all related loan
documentation are true and correct on and as of the date hereof (with the same
force and effect as if made on and as of the date hereof) and with respect to
this Sixth Amendment and the related documentation referenced herein.
7. Each of the OBLIGORS acknowledges and confirms that the
Security Agreement, the Pledge Agreement and all Collateral furnished in
connection with the Credit Agreement continue to secure the obligations and
Indebtedness thereunder, as hereby modified.
8. BORROWER shall pay all out-of-pocket expenses incurred by
BANK in connection with the preparation for and closing of the transaction
contemplated under this Sixth Amendment, including, without limitation, the fees
and expenses of special counsel for BANK. In addition, BORROWER shall pay any
and all taxes and fees, including, without limitation, documentary stamp taxes,
now or hereafter required in connection with the execution and delivery of the
Credit Agreement, as hereby amended, and all related documents, instruments and
agreements.
9. Except as expressly modified herein, all terms and
provisions of the Credit Agreement, and all other documents, instruments and
agreements executed and/or delivered in connection with the Credit Agreement,
shall remain unchanged and in full force and effect. No consent of BANK
hereunder shall operate as a waiver or continuing consent with respect to any
instance or event other than those specified herein.
10. All covenants, agreements, representations and warranties
contained herein shall be binding upon and inure to the benefit of the parties
hereto, their respective successors and assigns, except that BORROWER shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of BANK.
-3-
<PAGE>
11. BANK AND THE OBLIGORS EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
SIXTH AMENDMENT OR THE CREDIT AGREEMENT AND ANY AGREEMENT, DOCUMENT OR
INSTRUMENT EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK ENTERING INTO THIS SIXTH
AMENDMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Sixth
Amendment the day and year first above written.
BORROWER:
(CORPORATE SEAL) ALL AMERICAN SEMICONDUCTOR,
INC., a Delaware corporation
By: /s/ PAUL GOLDBERG
--------------------------
Paul Goldberg,
Chief Executive Officer
BANK:
SUNTRUST BANK, MIAMI, N.A.
By: /s JERRY D. WEISMAN
--------------------------
Jerry D. Weisman
Senior Vice President
-4-
<PAGE>
STATE OF GEORGIA )
) ss.:
COUNTY OF FULTON )
On this 14TH day of March, 1996, before me personally came Paul
Goldberg, to me known, who stated that (s)he is the Chief Executive Officer of
ALL AMERICAN SEMICONDUCTOR, INC., the corporation described in and which
executed the foregoing instrument; and that (s)he signed his (her) name thereto
by order of the Board of Directors of said corporation.
[ ] Personally known
[X] Provided Drivers License
[ ] Provided _____________ as identification.
/s/ PATTI HITCHCOCK
-----------------------------
Notary Public - State of Georgia
Print Name: PATTI HITCHCOCK
Commission No.: _________________
Expiration: _____________________
STATE OF GEORGIA )
) ss.:
COUNTY OF FULTON )
On this 14th day of March, 1996, before me personally came Jerry D.
Weisman, to me known, who stated that (s)he is Senior Vice President of SUNTRUST
BANK, MIAMI, N.A., and that (s)he is authorized to execute this instrument on
behalf of said financial institution.
[ ] Personally known
[X] Provided Drivers License
[ ] Provided _____________ as identification.
/s/ PATTI HITCHCOCK
----------------------------
Notary Public - State of Georgia
Print Name: PATTI HITCHCOCK
Commission No.: _________________
Expiration: _____________________
-5-
<PAGE>
JOINDER
Each of the undersigned: (1) acknowledges and confirms that BANK's
loans, advances and credit to BORROWER have been, are and will continue to be of
direct economic benefit to the undersigned, (2) consents to all terms and
provisions of the Sixth Amendment which are applicable to them, and agrees to be
bound by and comply with such terms and provisions, and (3) acknowledges and
confirms that their guaranties in favor of BANK executed pursuant to the terms
of the Credit Agreement are each valid and binding and remain in full force and
effect in accordance with their respective terms (without defense, setoff or
counterclaim against enforcement thereof), which include, without limitation,
their guarantees in connection with the Credit Agreement, as modified by the
Sixth Amendment.
ALL AMERICAN TRANSISTOR OF ALL AMERICAN SEMICONDUCTOR-
CALIFORNIA, INC., a California NORTHERN CALIFORNIA, INC., a
corporation California corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
MINNESOTA, INC., a Minnesota TEXAS, INC., a Texas
corporation corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
MASSACHUSETTS, INC., a Massachusetts FLORIDA, INC., a Florida
corporation corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-6-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ALL AMERICAN SEMICONDUCTOR OF
NEW YORK, INC., a New York PALM ELECTRONICS MANUFACTURING
corporation, f/k/a CORP., a Florida corporation
QAR INDUSTRIAL ELECTRONIC
SALES, INC.,
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN TECHNOLOGIES, ALL AMERICAN SEMICONDUCTOR OF
INC., a Florida corporation SALT LAKE, INC., a Utah corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
HUNTSVILLE, INC., an Alabama ROCKVILLE, INC., a Maryland
corporation corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ALL AMERICAN SEMICONDUCTOR OF ALL AMERICAN SEMICONDUCTOR OF
CHICAGO, INC., an Illinois PORTLAND, INC., an Oregon
corporation corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
-7-
<PAGE>
ALL AMERICAN SEMICONDUCTOR OF AMERICAN ASSEMBLIES & DESIGN,
PHILADELPHIA, INC., a New INC., an Illinois corporation
Jersey corporation
By: /s/ PAUL GOLDBERG By: /s/ PAUL GOLDBERG
------------------------- ------------------------------
Paul Goldberg, Chief Paul Goldberg, Chief
Executive Officer Executive Officer
ACCESS MICRO TECHNOLOGIES,
INC., a Delaware corporation
By: /s/ PAUL GOLDBERG
-------------------------
Paul Goldberg, Chief
Executive Officer
-8-
EXHIBIT 10.23
CONSULTING CONTRACT DATED JULY 1, 1995 BY AND BETWEEN
ALL AMERICAN SEMICONDUCTOR, INC.
AND THE EQUITY GROUP, INC.
<PAGE>
CONSULTING CONTRACT DATED JULY 1, 1995 BY AND BETWEEN
ALL AMERICAN SEMICONDUCTOR, INC. AND THE EQUITY GROUP, INC.
THIS CONTRACT made as of the 1st day of July 1995 by and
between All American Semiconductor, Inc. ("SEMI"), a Delaware
corporation, having offices at 16115 Northwest 52nd Avenue,
Miami, Florida, and The Equity Group Inc., a New York Corporation,
("Equity"), having offices at 919 Third Avenue, New York, New
York.
WHEREAS, SEMI desires to secure the services of Equity
as a consultant and Equity desires to provide such services
to SEMI;
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
1. Equity hereby agrees that it will render financial
public relations/investor relations services, the purpose of
which is to help SEMI communicate with the financial community,
the media and with shareholders. The services shall include
the introduction of SEMI to the financial community and to the
business and financial media as well as acting as the liaison
between the Company and these audiences; advice and assistance
in the planning and preparation of interim reports to shareholders;
the preparation and dissemination of press releases relating
to important business developments; and acting only in advisory
capacity with regard to annual reports. Equity will also advise
SEMI in all other areas that relate to its posture as a public
company.
2. The Term of this Contract shall commence on July
1, 1995 and shall continue until June 30, 1996.
3. (a) In consideration of the services to be rendered
and performed by Equity during the term of this Contract, SEMI
will pay Equity an aggregate amount of $39,600, payable in twelve
(12) installments of $3,300 on the first day of each calendar
month during the term hereof. Upon the full execution hereof,
SEMI shall prepay the first 3 and last 3 months payments in
the aggregate amount of $19,800.
(b) In addition, SEMI will issue to Equity a warrant,
(the "Warrant") to purchase forty five thousand (45,000) shares
of SEMI common stock. The actual issuance of the Warrant is
subject to the consent of Lew Lieberbaum and Company and the
approval by the shareholders of additional authorized shares
at a meeting to be held in August, 1995. The Warrant will be
exercisable for a five year period at an exercise price of two
dollars and fifty cents ($2.50) per share of common stock issued
pursuant to the Warrant. The Warrant shall have piggy-back registration
rights.
<PAGE>
All American Semiconductor, Inc. Page 2
Consulting Contract
(c) Equity shall also be reimbursed for all reasonable
and necessary out-of-pocket expenses as approved by SEMI and
incurred in the performance of its duties, to be paid upon presentation
of monthly statements.
4. Equity will use its best efforts to perform these
services for SEMI consistent with and specifically recognizing
Equity's commitments and obligations to other businesses for
which it performs services.
5. Equity agrees that neither it nor its employees
or agents will during the term of this Contract, or at any time
thereafter, disclose or divulge or use, directly or indirectly,
any confidential information, data, trade secrets, etc., relating
to the business of SEMI learned in connection with its work
for SEMI. The provisions of this paragraph shall survive the
termination of this Contract, and shall continue until such
information, data, trade secrets, etc., becomes public knowledge
through no fault of Equity or any of its employees or agents.
6. As a consultant for SEMI, Equity must at all times
rely upon the information supplied to Equity by SEMI's authorized
officers, directors, agents and employees as to accuracy and
completeness. Therefore, SEMI agrees to indemnify, hold harmless
and defend Equity, its directors, officers, employees and agents
from and against any and all claims, actions, proceedings, losses,
liabilities, costs and expenses, (including, without limitation,
reasonable attorney's fees) incurred by any of them in connection
with or as the result of any inaccuracy, incompleteness or omission
of information given to Equity by such authorized personnel
of SEMI.
7. In the event action of proceeding is commenced with
respect to this Contract, the prevailing party shall be entitled
to receive payment from the other party of its legal fees and
expenses.
<PAGE>
All American Semiconductor, Inc. Page 3
Consulting Contract
8. This Contract will not be assigned (including by
operation of law) by either party hereto and shall be interpreted
under the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this
Contract on the date above written.
THE EQUITY GROUP INC. ALL AMERICAN SEMICONDUCTOR, INC.
By: /s/ ROBERT GOLDSTEIN By: /s/ BRUCE M. GOLDBERG
-------------------------- -----------------------------
Robert Goldstein Bruce M. Goldberg
President President
EXHIBIT 10.29
SENIOR SUBORDINATED PROMISSORY NOTE DATED MARCH 18, 1996 FROM THE
COMPANY TO AND ACCEPTED BY CIBC INC. IN THE PRINCIPAL AMOUNT OF
$15,000,000.
<PAGE>
SENIOR SUBORDINATED PROMISSORY NOTE
DATED MARCH 18, 1996 FROM THE COMPANY TO AND ACCEPTED BY
CIBC INC. IN THE PRINCIPAL AMOUNT OF $15,000,000.
$15,000,000 New York, New York
March 18, 1996
FOR VALUE RECEIVED, the undersigned, ALL AMERICAN
SEMICONDUCTOR, INC., a Delaware corporation (the "BORROWER"), hereby
unconditionally promises to pay to the order of CIBC INC. (the "LENDER"), at its
office located at 425 Lexington Avenue, New York, New York 10017, in lawful
money of the United States of America and in immediately available funds, the
principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) on July 31, 1997 (the
"MATURITY DATE").
The Borrower further agrees to pay interest from the date
hereof until payment in full hereof in like money at such office on the unpaid
principal amount hereof at a fluctuating rate per annum equal to the Alternate
Base Rate PLUS the Applicable Margin, payable quarterly in arrears on the last
day of each Interest Period. Whenever it is calculated on the basis of the Prime
Rate, interest shall be calculated on the basis of a 365- (or 366-, as the case
may be) day year for the actual days elapsed, and, otherwise, interest shall be
calculated on the basis of a 360-day year for the actual days elapsed. Each
change in the interest rate resulting from a change in the Alternate Base Rate
shall become effective as of the opening of business on the day on which such
change becomes effective. The Lender shall as soon as practicable notify the
Borrower of the effective date and the amount of each such change in interest
rate.
The Borrower still further agrees to pay to the Lender on the
first day of each Interest Period (other than the initial Interest Period) a fee
in an amount equal to 1-1/2% of the principal amount hereof outstanding on such
date.
The Borrower may at any time prepay the principal amount
hereof in full, without premium or penalty, upon at least four Business Days'
irrevocable notice to the Lender specifying the date of prepayment, PROVIDED
that any such prepayment of principal shall be in an amount equal to 100% of the
principal amount hereof outstanding on the date of such prepayment. If any such
notice is given, such amount shall be due and payable on the date specified
therein, together with interest and all other amounts which have accrued and are
owing hereunder on such date.
This Note is guaranteed as provided in the Subsidiaries
Guarantee. Reference is hereby made thereto for a description of the nature and
extent of the guarantees, the terms and conditions upon which the guarantees
thereunder were granted and the rights of the holder of this Note in respect
thereof.
<PAGE>
2
1. DEFINED TERMS. As used in this Note, the following
terms shall have the following meanings:
"ACCOUNTS RECEIVABLE": has the meaning ascribed to the term
"Account" in Section 679.106 of the Florida Statutes, Uniform Commercial Code.
"ADDED VALUE TRANSACTION": as defined in subsection 2(a)
hereof.
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (a)
vote 10% or more of the securities having ordinary voting power for the election
of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"ALTERNATE BASE RATE": for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the
Prime Rate in effect on such day, and (b) the Federal Funds Effective Rate in
effect on such day PLUS 1/2 of 1%. For purposes hereof: "PRIME RATE" shall mean
the rate of interest per annum publicly announced from time to time by the
Lender as its prime rate in effect at its principal office in New York City (the
Prime Rate not being intended to be the lowest rate of interest charged by the
Lender in connection with extensions of credit to debtors); and "FEDERAL FUNDS
EFFECTIVE RATE" shall mean, for any day, the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Lender from three federal funds
brokers of recognized standing selected by it. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective as of the opening of business on the effective day of such change
in the Prime Rate or the Federal Funds Effective Rate, respectively.
"APPLICABLE MARGIN": (a) on any day during the initial
Interest Period hereunder, a rate per annum equal to 4%; (b) on any day during
any subsequent Interest Period, a rate per annum equal to the Applicable Margin
in effect during the immediately preceding Interest Period PLUS 1/2 of 1%; and
(c) on any day on which an Event of Default shall have occurred and be
continuing, a rate per annum which is 2% above the rate otherwise in effect as
determined pursuant to clause (a) or (b) of this definition.
"ASSET VALUATION AMOUNT": on any date of determination, an
amount equal to the sum of (a) 50% of Inventory on such date, PLUS (b) 85% of
Receivables on such date.
"BLOCKAGE NOTICE": a written notice from the Borrower or
SunTrust to the Lender that a Payment Event of Default has occurred and is
continuing.
<PAGE>
3
"BLOCKAGE PERIOD": with respect to any Blockage Notice, the
period commencing on the related Blockage Period Commencement Date and ending on
the date that the Lender receives written notice from SunTrust that the Payment
Event of Default that was the basis for such Blockage Notice has been cured or
waived.
"BLOCKAGE PERIOD COMMENCEMENT DATE": with respect to any
Blockage Notice, the date that such Blockage Notice is received by the Lender.
"BUSINESS DAY": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by
law to close.
"CAPITAL STOCK": any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants or options to purchase any of the
foregoing.
"CHANGE IN CONTROL" (a) any Person or "group" (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended) other than executive officers of the Borrower and Continuing Directors,
members of their respective families and trusts under which any of the foregoing
is a beneficiary, or a "group" consisting solely of such executive officers,
Continuing Directors, family members and trusts (i) shall have acquired
beneficial ownership of 30% or more of any outstanding class of capital stock
having ordinary voting power in the election of directors of the Borrower or
(ii) shall obtain the power (whether or not exercised) to elect a majority of
the Borrower's directors or (b) the Board of Directors of the Borrower shall not
consist of a majority of Continuing Directors; as used in this definition,
"CONTINUING DIRECTORS" shall mean the directors of the Borrower on the date
hereof and each other director, if such other director's nomination for election
to the Board of Directors of the Borrower is recommended by a majority of the
then Continuing Directors.
"CODE": the Internal Revenue Code of 1986, as amended from
time to time.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
"CONSOLIDATED EBITDA": for any period, the revenues of the
Borrower and its Subsidiaries for such period from continuing operations, MINUS
associated costs (generally excluding Consolidated Interest Expense, income
taxes, depreciation and amortization), determined in each case on a consolidated
basis in accordance with GAAP consistently applied.
"CONSOLIDATED INTEREST EXPENSE": for any period, the amount of
interest expense for such period of the Borrower and its Subsidiaries,
determined on a consolidated
<PAGE>
4
basis in accordance with GAAP, on the aggregate principal amount of their
Indebtedness, determined on a consolidated basis in accordance with GAAP
consistently applied.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"DEFAULT": any of the events specified in Section 5 hereof,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"ERISA": the Employee Retirement Income Security Act of
1974, as amended from time to time.
"EVENT OF DEFAULT": any of the events specified in Section 5
hereof, PROVIDED that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"FIXED ASSETS": the Borrower's real property and
improvements thereon, together with all machinery and equipment, furniture,
furnishings and such other property of the Borrower as would be encompassed
within the GAAP definition of "Fixed Assets".
"FIXED CHARGE COVERAGE RATIO": on any date of determination
and for any period, the ratio, computed in accordance with GAAP consistently
applied, of (a) Consolidated EBITDA for such period to (b) the sum of (i)
Consolidated Interest Expense for such period, PLUS (ii) the amount of capital
expenditures made by the Borrower and its consolidated Subsidiaries during such
period.
"GAAP": generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
PERSON"), any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to induce
the creation of which the guaranteeing person has issued a reimbursement,
counter indemnity or similar obligation, in either case guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other obligations
(the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in
any manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for the purchase
or payment of any such primary obligation or (2) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the
<PAGE>
5
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"INDEBTEDNESS": at any date, any obligation for money
borrowed, whether or not evidenced by notes, bonds, debentures or other similar
instruments, or any obligation under conditional sale or other title retention
agreements or capitalized leases or any obligation issued or assumed as full or
partial payment for property whether or not secured by a purchase money
mortgage.
"INSOLVENCY": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"INSOLVENCY EVENT": with respect to any Person, (i) such
Person's commencing any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or such Person's making a general assignment for the benefit of its
creditors; or (ii) there being commenced against such Person any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
60 days; or (iii) there being commenced against such Person any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) such Person's taking any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) such Person's generally not
paying, or being unable to pay, or admitting in writing its inability to pay,
its debts as they become due.
<PAGE>
6
"INTEREST PERIOD": (a) initially, the period commencing on the
date hereof and ending three months thereafter; and (b) thereafter, each period
commencing on the first day following the last day of the immediately preceding
Interest Period and ending three months thereafter (or, in the case of the
Interest Period commencing in June 1997, ending on the Maturity Date).
"INVENTORY": on any date of determination of the Asset
Valuation Amount, the reported value of "inventories" of the Borrower and its
consolidated Subsidiaries, as disclosed on the most recent balance sheet
furnished to the Lender in accordance with subsection 3(d) hereof (or, in the
case of the initial determination of the Asset Valuation Amount hereunder, the
preliminary unaudited balance sheet for the fiscal year ended December 31,
1995).
"LIABILITIES": as to any Person at any date, all liabilities
of such Person, computed in accordance with GAAP applied on a consistent basis.
"LIEN": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing).
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a)
the business, operations, property or condition (financial or otherwise) of the
Borrower and its Subsidiaries, taken as a whole, or (b) the validity or
enforceability of this Note or the Subsidiaries Guarantee or the rights or
remedies, taken as a whole, of the Lender hereunder or thereunder.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"NEW SUBSIDIARY": as defined in subsection 3(g) hereof.
"NOTE": this Senior Subordinated Promissory Note, as the
same may be amended, supplemented or otherwise modified from time to time.
"OBLIGATIONS": the collective reference to the unpaid
principal of and interest on this Note and all other obligations and liabilities
of the Borrower to the Lender hereunder (including, without limitation, interest
accruing at the then applicable rate provided herein after the maturity hereof
and interest accruing at the then applicable rate provided herein after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with this Note or any document made, delivered or given in connection herewith,
whether on account of principal, interest, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of
<PAGE>
7
counsel to the Lender that are required to be paid by the Borrower pursuant to
the terms of this Note or the Subsidiaries Guarantee).
"PAYMENT EVENT OF DEFAULT": any default in the payment of the
SunTrust Note (whether upon maturity, mandatory prepayment, acceleration or
otherwise) beyond any applicable grace period with respect thereto, which
default has not been confirmed in writing by SunTrust as having been either
cured or waived.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"PERSON": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"PLAN": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"RECEIVABLES": on any date of determination of the Asset
Valuation Amount, the reported value of "accounts receivable" of the Borrower
and its consolidated Subsidiaries, as disclosed on the most recent balance sheet
furnished to the Lender in accordance with subsection 3(d) hereof (or, in the
case of the initial determination of the Asset Valuation Amount hereunder, the
preliminary unaudited balance sheet for the fiscal year ended December 31,
1995).
"REORGANIZATION": with respect to any Multiemployer Plan,
the condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
ss. 2615.
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"RESPONSIBLE OFFICER": the chief executive officer, the
president or the chief financial officer of the Borrower, but with respect to
financial matters, only the chief financial officer of the Borrower.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
<PAGE>
8
"SUBSIDIARIES GUARANTEE": that certain Senior Subordinated
Subsidiaries Guarantee, dated as of the date hereof, made by each of the
Subsidiaries in favor of the Lender, as the same may be amended, supplemented or
otherwise modified from time to time.
"SUBSIDIARY": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all references to a "Subsidiary" or
to "Subsidiaries" in this Note shall refer to a Subsidiary or Subsidiaries of
the Borrower.
"SUBSIDIARY GUARANTORS": the Subsidiaries parties to the
Subsidiaries Guarantee (each such Subsidiary, individually, a "SUBSIDIARY
GUARANTOR").
"SUNTRUST": SunTrust Bank, Miami, N.A., formerly known as Sun
Bank/Miami, National Association, in its capacity as lender under the SunTrust
Credit Agreement.
"SUNTRUST CREDIT AGREEMENT": that certain Revolving Credit
Agreement dated December 29, 1992 between the Borrower and SunTrust, as the same
heretofore has been and hereafter may from time to time be amended, supplemented
or otherwise modified.
"SUNTRUST LOANS": the loans made by SunTrust to the Borrower
pursuant to the SunTrust Credit Agreement.
"SUNTRUST NOTE": the Revolving Line Note (as defined in the
SunTrust Credit Agreement).
"SUNTRUST OBLIGATIONS": the collective reference to the unpaid
principal of and interest on the SunTrust Note (including, without limitation,
interest accruing at the then applicable rate provided in the SunTrust Credit
Agreement after the maturity of the SunTrust Loans and interest accruing at the
then applicable rate provided in the SunTrust Credit Agreement after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
and all other obligations and liabilities, whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the SunTrust Credit
Agreement, the SunTrust Note, or any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
SunTrust that are required to be paid by the Borrower pursuant to the terms of
the SunTrust Credit Agreement).
<PAGE>
9
2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lender that:
(a) FINANCIAL CONDITION. The consolidated balance sheet
of the Borrower and its consolidated Subsidiaries as at December 31, 1994 and
the related consolidated statements of income and of cash flows for the fiscal
year ended on such date, reported on by Lazar, Levine & Company LLP, copies of
which have heretofore been furnished to the Lender, are complete and correct and
present fairly the consolidated financial condition of the Borrower and its
consolidated Subsidiaries as at such date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended. The
unaudited consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at September 30, 1995 and the related unaudited consolidated
statements of income and of cash flows for the nine-month period ended on such
date, included in the Form 10-Q filed by the Borrower with the Securities and
Exchange Commission and copies of which have heretofore been furnished to the
Lender, are complete and correct and present fairly the consolidated financial
condition of the Borrower and its consolidated Subsidiaries as at such date, and
the consolidated results of their operations and their consolidated cash flows
for the nine-month period then ended (subject to normal year-end audit
adjustments). All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein). Neither the
Borrower nor any of its consolidated Subsidiaries had, at the date of the most
recent balance sheet referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction, which is not reflected in
the foregoing statements or in the notes thereto. During the period from
September 30, 1995 to and including the date hereof there has been no sale,
transfer or other disposition by the Borrower or any of its consolidated
Subsidiaries of any material part of its business or property and no purchase or
other acquisition of any business or property (including any capital stock of
any other Person) material in relation to the consolidated financial condition
of the Borrower and its consolidated Subsidiaries at September 30, 1995, other
than the the Borrower's acquisition by merger of Added Value Electronics
Distribution, Inc., a California corporation, and A.V.E.D.-Rocky Mountain,
Inc., a Colorado corporation (such acquisition, the "ADDED VALUE TRANSACTION").
(b) NO CHANGE. Since September 30, 1995, there has been
no development or event which has had or would reasonably be expected to have a
Material Adverse Effect.
(c) CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of
the Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification and
<PAGE>
10
(d) is in compliance with all Requirements of Law except to the extent that the
failure to comply therewith would not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(d) CORPORATE POWER; AUTHORIZATION; ENFORCEABLE
OBLIGATIONS. The Borrower and each Subsidiary Guarantor have the corporate power
and authority, and the legal right, to make, deliver and perform this Note or
the Subsidiaries Guarantee, as the case may be, and, in the case of the
Borrower, to borrow the loan evidenced hereby, and the Borrower and each
Subsidiary Guarantor have taken all necessary corporate action to authorize, in
the case of the Borrower, such borrowing on the terms and conditions hereof and
to authorize the execution, delivery and performance hereof or of the
Subsidiaries Guarantee, as the case may be. No consent or authorization of,
filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person (other than SunTrust) is required in connection
with the borrowing evidenced hereby or with the execution, delivery,
performance, validity or enforceability hereof or of the Subsidiaries Guarantee.
This Note has been duly executed and delivered on behalf of the Borrower, and
the Subsidiaries Guarantee has been duly executed and delivered on behalf of
each Subsidiary Guarantor. This Note constitutes a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
its terms, and the Subsidiaries Guarantee constitutes a legal, valid and binding
obligation of each Subsidiary Guarantor enforceable against such Subsidiary
Guarantor in accordance with its terms, subject in each case to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
(e) NO LEGAL BAR. The execution, delivery and
performance hereof and of the Subsidiaries Guarantee, the borrowing evidenced
hereby and the use of the proceeds of such borrowing will not violate any
Requirement of Law or Contractual Obligation of the Borrower or of any of its
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation.
(f) NO MATERIAL LITIGATION. No litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Borrower, threatened by or
against the Borrower or any of its Subsidiaries or against any of its or their
respective properties or revenues (i) with respect to this Note, the
Subsidiaries Guarantee or any of the transactions contemplated hereby or
thereby, or (ii) which would reasonably be expected to have a Material Adverse
Effect.
(g) NO DEFAULT. After the making of the loan evidenced
hereby, neither the Borrower nor any of its Subsidiaries is in default under or
with respect to any of its Contractual Obligations in any respect which would
reasonably be expected to have a Material Adverse Effect. No Default or Event of
Default has occurred and is continuing.
(h) OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower
and its Subsidiaries has good record and marketable title in fee simple to, or
a valid leasehold
<PAGE>
11
interest in, all its real property, and good title to, or a valid leasehold
interest in, all its other property, and none of such property is subject to
any Lien except as permitted by subsection 4(g) hereof.
(i) NO BURDENSOME RESTRICTIONS. No Requirement of Law
or Contractual Obligation of the Borrower or any of its Subsidiaries has or
would reasonably be expected to have a Material Adverse Effect.
(j) TAXES. Each of the Borrower and its Subsidiaries
(i) has filed or caused to be filed all tax returns which, to the knowledge of
the Borrower, are required to be filed and (ii) has paid all taxes shown to be
due and payable on said returns or on any assessments made against it or any of
its property and all other taxes, fees or other charges imposed on it or any of
its property by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Borrower or its Subsidiaries, as the case may be),
other than (A) in the case of the Subsidiaries, any such taxes, fees or other
charges in an amount the failure to pay which could not reasonably be expected
to have a Material Adverse Effect, and (B) in the case of the Borrower, any such
taxes, fees and other charges in an aggregate amount not in excess of $5,000; no
tax Lien has been filed, and, to the knowledge of the Borrower, no claim is
being asserted, with respect to any such tax, fee or other charge.
(k) FEDERAL REGULATIONS. No part of the proceeds of the
loan evidenced hereby will be used for "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under
Regulation G or Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect.
(l) INVESTMENT COMPANY ACT; OTHER REGULATIONS. The
Borrower is not an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. The Borrower is not subject to regulation under any Federal or State
statute or regulation (other than Regulation X of the Board of Governors of the
Federal Reserve System) which limits its ability to incur Indebtedness.
(m) SUBSIDIARIES. The following constitute all of the
Subsidiaries of the Borrower as of the date hereof: Access Micro Products, Inc.,
All American Added Value, Inc., All American A.V.E.D., Inc., All American
Semiconductor of Atlanta, Inc., All American Semiconductor of Canada, Inc., All
American Semiconductor of Chicago, Inc., All American Semiconductor of Florida,
Inc., All American Semiconductor of Huntsville, Inc., All American Semiconductor
of Massachusetts, Inc., All American Semiconductor of Michigan, Inc., All
American Semiconductor of Minnesota, Inc., All American Semiconductor of New
York, Inc., All American Semiconductor-Northern California, Inc., All American
Semiconductor of Philadelphia, Inc., All American Semiconductor of Phoenix,
Inc., All American Semiconductor of Portland, Inc., All American Semiconductor
of Rockville, Inc., All American Semiconductor of Salt Lake, Inc., All American
Semiconductor of Texas, Inc., All American Technologies, Inc., All American
Transistor of California, Inc.,
<PAGE>
12
American Assemblies & Design, Inc., Aved Industries, Inc., Palm Electronics
Manufacturing Corp. and All American Semiconductor of Washington, Inc.
(n) PURPOSE OF LOAN. The proceeds of the loan evidenced
hereby shall be used by the Borrower, whether directly or indirectly, for
working capital purposes in the ordinary course of business.
3. AFFIRMATIVE COVENANTS. The Borrower hereby agrees
that, so long as any amount is owing to the Lender hereunder, the Borrower shall
and (except in the case of delivery of financial information, reports and
notices) shall cause each of its Subsidiaries to:
(a) CORPORATE EXISTENCE. Do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain, preserve and
protect all rights, privileges, licenses, permits and franchises necessary or
desirable in the normal conduct of its business; comply with all Contractual
Obligations except to the extent that failure to comply therewith would not, in
the aggregate, have a Material Adverse Effect; and conduct and operate its
business in substantially the same manner in which presently conducted and
operated (subject to changes in the ordinary course of business).
(b) MAINTENANCE OF PROPERTY; INSURANCE. Preserve and
maintain all property useful and necessary in its business in good working order
and condition; maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and against at least such
risks as are usually insured against in the same general area by companies
engaged in the same or a similar business; and furnish to the Lender, upon
written request, full information as to the insurance carried.
(c) OBLIGATIONS AND TAXES. Pay and discharge promptly
all taxes, assessments and governmental charges or levies imposed upon it or in
respect of its properties (other than, in the case of the Subsidiaries, any such
taxes, assessments, charges or levies the failure to pay which could not
reasonably be expected to have a Material Adverse Effect, and, in the case of
the Borrower, any such taxes, assessments, charges and levies in an aggregate
amount not in excess of $5,000), before the same shall become in default, as
well as all lawful claims for labor, materials and supplies or otherwise, which,
if unpaid, might become a Lien or charge upon such properties or any part
thereof; provided, however, that neither the Borrower nor any of its
Subsidiaries shall be required to pay and discharge, or to cause to be paid and
discharged, any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and adequate reserves have been set aside on its books with respect
to any such tax, assessment, charge, levy or claim so contested.
<PAGE>
13
(d) REPORTING REQUIREMENTS. Furnish to the Lender:
(i) as soon as available, but in any event no
later than ninety (90) days after the close of each fiscal year of the Borrower,
a copy of the Borrower's report on Form 10-K for such fiscal year;
ii) as soon as available, but in any event not
later than forty-five (45) days after the end of each fiscal quarter of the
Borrower, a copy of the Borrower's report on Form 10-Q for such fiscal quarter;
(iii) concurrently with the delivery of each
report referred to in clause (i) above, a certificate of the independent
certified public accountants reporting on the financial statements contained in
such report, stating that, in making the examination necessary therefor, no
knowledge was obtained of any Default or Event of Default, except as
specifically indicted in such certificate;
(iv) concurrently with the delivery of the
reports referred to in clauses (i) and (ii) above, a certificate of a
Responsible Officer of the Borrower: (A) stating that, to the best of his
knowledge, each of the Borrower and its Subsidiaries, during such period, has
kept, observed, performed and fulfilled in all material respects each and every
covenant and condition contained in this Note, and that he has obtained no
knowledge of any Default or Event of Default then existing hereunder except as
specifically indicated in such certificate, and (B) showing in detail the
calculations supporting such statement in respect of subsections 4(a) and 4(p)
of this Note;
(v) promptly upon receipt thereof, any
"Management Letter" received from the Borrower's independent certified public
accountants, together with any comments made by the Borrower with respect
thereto;
(vi) promptly after the same are sent, copies
of all proxy statements, financial statements and reports which the Borrower
sends to its stockholders, and promptly after the same are filed, copies of all
regular, periodic and special reports (including, but not limited to, reports on
Form 8-K), and all registration statements which the Borrower files with the
Securities and Exchange Commission or any Governmental Authority which may be
substituted therefor, or with any national securities exchange;
(vii) as soon as possible, and in any event,
within 30 days after any officer of the Borrower knows or has reason to know
that any Reportable Event has occurred, a statement of a Responsible Officer of
the Borrower setting forth details as to such Reportable Event and the action
which the Borrower proposes to take with respect thereto, together with a copy
of the notice of such Reportable Event given to the PBGC;
(viii) promptly after the filing thereof with
the United States Secretary of Labor or the PBGC, copies of any annual or other
report with respect to any Plan;
<PAGE>
14
(ix) promptly after receipt thereof, a copy of
each notice the Borrower receives from the PBGC relating to the PBGC's intention
to terminate any Plan or to appoint a trustee to administer any Plan;
(x) within 10 days after the service of
process or equivalent notice, written notice of any litigation, including
arbitrations, and of any proceeding by or before any Governmental Authority
where the amount involved or the nature of the proceeding would reasonably be
expected to have a Material Adverse Effect;
(xi) prompt written notice of (A) any Default
under any of the terms and provisions of this Note, (B) any change in executive
officers, the Borrower's name or the form in which it is currently doing
business, or (C) any default under any note, agreement, contract, indenture,
document or instrument entered into or to be entered into by it, or any other
matter, which has resulted in, or would reasonably be expected to result in, a
Material Adverse Effect;
(xii) within 10 days after the end of each
month, an account receivables aging summary report for such month; and
(xiii) promptly, from time to time, such other
information relating to its business, properties, condition or operations,
financial or otherwise, as the Lender may request.
(e) BOOKS AND RECORDS. Keep and maintain full and
accurate accounts and records of its operations in accordance with GAAP
consistently applied, and permit the Lender or any of its designated officers,
employees, agents and representatives, to have access thereto (including
computer data), and to make examination thereof at all reasonable times and as
often as the Lender may require, and to inspect and otherwise check the
Borrower's properties, real, personal and mixed.
(f) COMPLIANCE WITH LAW. Comply, in all material
respects, with all Requirements of Law and orders of Governmental Authorities
relating to the conduct of their respective businesses.
(g) NEW SUBSIDIARIES. Simultaneously with the formation
or acquisition of any Subsidiary which is not among those listed in subsection
2(m) hereof (each, a "NEW SUBSIDIARY"), have such New Subsidiary guarantee the
Obligations by becoming a party to the Subsidiaries Guarantee, all at the
Borrower's sole expense.
(h) EXECUTION OF OTHER DOCUMENTS. Promptly upon demand
by the Lender, execute or have executed all such additional agreements,
documents and instruments in connection with this Note or the Subsidiaries
Guarantee as the Lender may reasonably request.
<PAGE>
15
4. NEGATIVE COVENANTS. The Borrower hereby agrees
that, so long as any amount is owing to the Lender hereunder, the Borrower shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly
(without the express written consent of or waiver by the Lender in accordance
with the terms hereof):
(a) FIXED CHARGE COVERAGE RATIO. On each date of
determination set forth under the column headed "Determination Date" below,
permit the Fixed Charge Coverage Ratio for the Borrower and its consolidated
Subsidiaries for the period indicated opposite such "Determination Date" under
the column headed "Measurement Period" below to be less than 1.10 to 1.00:
DETERMINATION DATE MEASUREMENT PERIOD
------------------ ------------------
June 30, 1996 preceding three months
September 30, 1996 preceding six months
December 31, 1996 preceding nine months
March 31, 1997
and the last day of each
fiscal quarter thereafter preceding twelve months.
(b) INDEBTEDNESS. Incur, create, assume or permit to
exist any Indebtedness at any time outstanding, except:
(i) Indebtedness to the Lender hereunder;
(ii) amounts due for partial, progress or
advance payments pursuant to purchase contracts;
(iii) Indebtedness for wages and salaries to
employees (including all FICA, tax and pension accruals
related thereto), rents due and payable in the ordinary course
of business, accounts and other payables due to vendors of
goods or services furnished in the ordinary and usual course
of business with the Borrower, and any municipal, state and
federal taxes payable in the ordinary course of business;
(iv) capitalized lease obligations for normal
and customary office equipment and furniture;
(v) Indebtedness incurred for capital
expenditures;
(vi) Indebtedness pursuant to the SunTrust
Credit Agreement in a principal amount at any one time
outstanding not in excess of $45,000,000;
(vii) the obligations arising from the Added
Value Transaction; and
<PAGE>
16
(viii) Indebtedness, other than that listed in
the preceding clauses (i) through (vii), existing as of the
date hereof (and any renewals, extensions, modifications or
other refinancings thereof on substantially similar terms
thereto), as disclosed in the financial statements referred
to in subsection 2(a) hereof.
(c) TRANSACTIONS WITH AFFILIATES. Enter into any
transaction with any Affiliate (other than a Subsidiary) unless such transaction
is (i) not otherwise prohibited hereunder, (ii) in the ordinary course of the
Borrower's or such Subsidiary's business and (iii) upon fair and reasonable
terms no less favorable to the Borrower or such Subsidiary, as the case may be,
than it would obtain in a comparable arm's-length transaction with a Person
which is not an Affiliate.
(d) DISPOSAL OF PROPERTY. Sell, lease, transfer or
otherwise dispose of all or any substantial portion of its properties and assets
now owned or hereafter acquired, except in the ordinary course of business and
in compliance with all governmental requirements therefor which may now or
hereafter exist.
(e) LIENS. From and after the date hereof, incur,
create, assume or permit to exist any Lien of any nature whatsoever on any of
its property, assets or revenues, whether now owned or hereafter acquired,
except for:
(i) Liens in effect on the date hereof (A) in favor
of SunTrust securing the SunTrust Obligations and (B) securing
Indebtedness permitted hereunder;
(ii) Liens for taxes or assessments and similar
charges either (A) not yet due; or (B) being contested in good
faith by appropriate proceedings, PROVIDED that adequate
reserves with respect thereto are maintained on the books of
the Borrower or its Subsidiaries, as the case may be, in
conformity with GAAP;
(iii) Liens incurred or pledges and deposits in
connection with worker's compensation, unemployment insurance,
old age pensions and other social security benefits or
securing the performance of bids, tenders, leases, contracts
(other than for the repayment of borrowed money), statutory
obligations, surety and appeal bonds, and other obligations of
like nature, incurred in the ordinary course of business;
(iv) non-consensual Liens imposed by law, such as
landlord's, mechanic's, carriers', warehousemen's,
materialmen's and vendor's liens, incurred in good faith in
the ordinary course of business;
(v) Liens securing capital expenditures;
(vi) Liens securing the Obligations.
<PAGE>
17
(f) SALE AND LEASEBACK. Enter into any sale and
leaseback arrangement with respect to any of its Fixed Assets.
(g) GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation, except:
(i) endorsements by the Borrower of negotiable
instruments for collection in the ordinary course of business;
(ii) loans to its employees in an aggregate amount
at any one time outstanding not to exceed $25,000;
(iii) guarantees made by Subsidiaries in favor of
SunTrust in connection with the SunTrust Credit Agreement; and
(iv) guarantees of the obligations of any
Subsidiary made by the Borrower in the ordinary course of
business and in keeping with the current business practices of
the Borrower and its Subsidiaries as of the date hereof.
(h) INVESTMENTS. Purchase, acquire or hold beneficially
any stock or other securities of or evidences of indebtedness of, or make or
permit to exist any investment in, or acquire or permit to exist any interest
whatsoever in, or purchase all or a substantial part of the assets of, any other
Person, except:
(i) direct obligations of the United States
Government or any agency thereof, maturing in one year or
less;
(ii) certificates of deposit or repurchase agreements
of any domestic commercial bank which has combined capital and
surplus in excess of $100,000,000;
(iii) commercial paper maturing in 270 days or less
and rated as Prime-1 by Moody's Investors Service, Inc., or
as A-1 by Standard and Poor's Ratings Services or similarly
rated by any successor to either of such investment rating
services;
(iv) prepayments for merchandise in the ordinary
course of business;
(v) in the case of the Borrower, investments in
its Subsidiaries, to the extent not otherwise prohibited
hereunder;
(vi) the acquisition by the Borrower of Programming
Plus, Incorporated for a purchase price which includes cash
consideration not in excess of $250,000 (excluding any
contingent cash consideration, payable over time to the
sellers, in an amount to be determined based upon a percentage
of the future earnings of the acquired business); and
<PAGE>
18
(vii) stock acquired towards repayment of Accounts
Receivable owing to the Borrower or any of its Subsidiaries.
(i) CONSOLIDATION, MERGER, ACQUISITION OF ASSETS.
Consolidate with, or merge into, any other Person (other than Subsidiaries),
acquire all or any substantial portion of the stock, property or assets of any
other Person (other than Subsidiaries), or permit any Person (other than
Subsidiaries), to merge into it, acquire any of its stock (other than through
normal trading on public securities exchanges) or all or any substantial portion
of its property or assets; PROVIDED that this subsection 4(i) shall be deemed
not to apply to an acquisition by the Borrower of Programming Plus, Incorporated
for a purchase price which includes cash consideration not in excess of $250,000
(excluding any contingent cash consideration, payable over time to the sellers,
in an amount to be determined based upon a percentage of the future earnings of
the acquired business).
(j) DIVIDENDS, DISTRIBUTIONS. Declare, pay, make or
otherwise obligate itself for any dividend or distribution of assets to its
shareholders (other than dividends payable solely in common stock of the
Borrower).
(k) STOCK TRANSACTIONS. Redeem, purchase, retire or
otherwise acquire, directly or indirectly, for a consideration, any shares of
its Capital Stock, except as not otherwise prohibited hereunder and expressly
permitted under the SunTrust Credit Agreement.
(l) PREPAYMENTS OF LONG-TERM INDEBTEDNESS. Repurchase,
prepay, retire or redeem, other than as required by the terms of legally binding
agreements existing on the date hereof or the refinancing of existing capital
leases or other long-term Indebtedness or the repayments of the SunTrust Loans,
any Indebtedness which, by its terms, matures more than one year from the date
of such prepayment, except for payments or prepayments by the Borrower to the
Lender on account of the Obligations as permitted hereunder.
(m) NATURE OF BUSINESS. Enter into any business, either
directly or through any Subsidiary, except for businesses in which the Company
and its Subsidiaries are engaged on the date hereof and business directly
related to such existing businesses.
(n) CHANGE IN CONTROL. Permit a Change in Control to
occur.
(o) SUBSIDIARIES' LIABILITIES. Permit any Subsidiary to
incur, create, assume or permit to exist any Liabilities at any time
outstanding, except (i) trade debt incurred in the ordinary course of business
but at no time exceeding $20,000, (ii) Liabilities to the Lender or to SunTrust,
(iii) commissions payable, payroll and miscellaneous accruals, (iv) intercompany
liabilities among the Borrower and its Subsidiaries, and (v) Liabilities in
connection with such Subsidiary's premises or operating leases, employment
agreements with its employees, and similar routine obligations, and Liabilities
in connection with acquisitions of assets and businesses not otherwise
prohibited hereunder (including, without limitation, deferred purchase price and
noncompete payment obligations, obligations to assume liabilities and employment
agreement obligations).
<PAGE>
19
(p) ASSET VALUATION AMOUNT. Permit the Asset Valuation
Amount, determined on the date hereof and on the last day of each fiscal quarter
of the Borrower, to be less than the sum of (i) the outstanding principal amount
of SunTrust Loans on such date of determination, PLUS (ii) the outstanding
principal amount hereof on such date.
5. EVENTS OF DEFAULT. If any of the following events
shall occur and be continuing:
(a) The Borrower shall fail to pay any principal hereof when
due in accordance with the terms hereof; or the Borrower shall fail to pay any
interest on this Note, or any fee or other amount payable hereunder, within five
days after any such interest, fee or other amount becomes due in accordance with
the terms hereof; or
(b) Any representation or warranty made by the Borrower herein
or by any Subsidiary Guarantor in the Subsidiaries Guarantee or which is
contained in any certificate, document or financial or other statement furnished
by it at any time under or in connection with this Note or the Subsidiaries
Guarantee shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) The Borrower or any Subsidiary shall default in the
observance or performance of any agreement contained in Section 4 hereof; or
(d) The Borrower or any Subsidiary shall default in the
observance or performance of any other agreement contained in this Note (other
than as provided in paragraphs (a) through (c) of this section), and such
default shall continue unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default
in any payment of principal at final maturity of any Indebtedness (other than
the obligations under this Note); or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause such Indebtedness to become due prior to its stated maturity or such
Guarantee Obligation to become payable; PROVIDED, HOWEVER, that no Default or
Event of Default shall exist under this paragraph unless the aggregate amount of
Indebtedness and/or Guarantee Obligations in respect of which any default or
other event or condition referred to in this paragraph shall have occurred shall
be equal to at least $250,000; or
(f) There shall occur (i) an Insolvency Event with respect to
the Borrower or (ii) an Insolvency Event with respect to any Subsidiary or
Subsidiaries which, either individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect; or
<PAGE>
20
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Lender, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Lender is likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan; and in
each case in clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, would reasonably be expected
to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against
the Borrower or any Subsidiary or Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $250,000 or more and, in
the case of the Subsidiaries, such judgments or decrees would reasonably be
expected to have a Material Adverse Effect, and, in all cases, such judgments or
decrees shall not have been satisfied, vacated, discharged, stayed or bonded
pending appeal within 60 days from the entry thereof; or
(i) The Subsidiaries Guarantee shall cease, for any reason, to
be in full force and effect or any Subsidiary Guarantor thereunder shall so
assert;
then, and in any such event, (A) if such event is an Event of Default pursuant
to paragraph (f) of this Section 5 by virtue of its being an event specified in
clause (i) or (ii) of the definition of "Insolvency Event" hereunder with
respect to the Borrower, automatically the principal hereof which remains due
and outstanding at the time of such event (with accrued interest thereon) and
all other amounts owing under this Note shall immediately become due and
payable, and (B) if such event is any other Event of Default, the Lender may, by
notice to the Borrower, declare the principal hereof which remains due and
outstanding at the time of such event (with accrued interest thereon) and all
other amounts owing under this Note to be due and payable forthwith, whereupon
the same shall immediately become due and payable. Except as expressly provided
above in this Section 5, presentment, demand, protest and all other notices of
any kind are hereby expressly waived.
6. SUBORDINATION. (a) The Borrower and the Lender
agree that the Obligations are expressly "subordinate and junior in right of
payment" (as that phrase is defined in paragraph 6(b) below) to the SunTrust
Obligations.
<PAGE>
21
(b) "SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT" means
that:
(i) upon the occurrence of any Insolvency Event with
respect to the Borrower, (A) all SunTrust Obligations shall be paid in
full before any payment or distribution (other than a payment or
distribution of securities which are subordinate to the payment of all
SunTrust Obligations then outstanding) is made with respect to the
Obligations; and (B) any payment or distribution of assets of the
Borrower, whether in cash, property or securities (other than a payment
or distribution of securities which are subordinate to the payment of
all SunTrust Obligations then outstanding), to which the Lender would
be entitled except for the provisions of this Section 6, shall be paid
or delivered by the Borrower, or any receiver, trustee in bankruptcy,
liquidating trustee, disbursing agent or other Person making such
payment or distribution, directly to SunTrust, to the extent necessary
to pay in full all SunTrust Obligations, before any payment or
distribution shall be made to the Lender on account of the Obligations;
and
(ii) unless and until the SunTrust Obligations have
been paid in full and SunTrust's commitment to make loans under the
SunTrust Credit Agreement has been terminated, without the express
prior written consent of SunTrust, no interest or principal on account
of this Note shall be paid (whether directly or indirectly, by set-
off, redemption, purchase or otherwise) during such time as a Blockage
Period is in effect.
(c) Subject to the payment in full of the SunTrust
Obligations, the Lender shall be subrogated to the rights of SunTrust to receive
payments or distributions of assets of the Borrower in respect of the SunTrust
Obligations until the SunTrust Obligations shall be paid in full. For the
purposes of such subrogation, payments or distributions to SunTrust of any
money, property or securities to which the Lender would be entitled except for
the provisions of this Section 6 shall be deemed, as between the Borrower and
its creditors other than SunTrust and the Lender, to be a payment by the
Borrower to or on account of the Obligations, it being understood that the
provisions of this Section 6 are, and are intended solely, for the purpose of
defining the relative rights of the Lender and SunTrust.
(d) The subordination of the Obligations to the
SunTrust Obligations in accordance with this Section 6 shall continue to be
effective, or be reinstated, as the case may be, to the extent that any payment
in respect of the SunTrust Obligations is rescinded or must otherwise be
disgorged, restored or returned by SunTrust in connection with any Insolvency
Event.
7. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. Neither
this Note nor any of the terms hereof may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Lender and the
Borrower. In the case of any waiver, the Borrower and the Lender shall be
restored to their former positions and rights hereunder, and any Default or
Event of Default waived shall be deemed to be cured and not continuing; no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
<PAGE>
22
(b) NOTICES. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in writing
(including by facsimile transmission) and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made (a) in the case of
delivery by hand, when delivered, (b) in the case of delivery by mail, three
days after being deposited in the mails, postage prepaid, certified or
registered mail return receipt requested, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower and the Lender, or to such other address as
may be hereafter notified thereby:
The Borrower: All American Semiconductor, Inc.
16115 Northwest 52nd Avenue
Miami, Florida 33014
Attention: Bruce M. Goldberg
Fax: (305) 624-5258
with a copy to:
Rubin Baum Levin Constant Friedman & Bilzin
2500 First Union Financial Center
200 South Biscayne Boulevard
Miami, Florida 33131
Attention: Alan Axelrod, Esq.
Fax: (305) 374-7593
The Lender: CIBC Inc.
425 Lexington Avenue
New York, New York 10017
Attention: Timothy E. Doyle
Fax: (212) 856-3991
with copies to:
CIBC Credit Administration
2 Paces West
Atlanta, Georgia 30339
Attention: Kim Perrone
Fax: (707) 319-4950
and
CIBC Wood Gundy Securities Corp.
425 Lexington Avenue
New York, New York 10017
Attention: Brian Gerson
Fax: (212) 856-3991
<PAGE>
23
(c) NO WAIVER; CUMULATIVE REMEDIES. No failure to
exercise and no delay in exercising, on the part of the Lender, any right,
remedy, power or privilege hereunder or under the Subsidiaries Guarantee shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
(d) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder, in the Subsidiaries Guarantee and
in any document, certificate or statement delivered pursuant hereto or thereto
or in connection herewith or therewith shall survive the execution and delivery
of this Note.
(e) PAYMENT OF EXPENSES AND TAXES. The Borrower agrees
(a) to pay or reimburse the Lender for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Note, the
Subsidiaries Guarantee and any other documents prepared in connection herewith
or therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Lender, (b) to pay or reimburse the
Lender for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Note, the Subsidiaries
Guarantee and any such other documents, including, without limitation, the fees
and disbursements of counsel to the Lender, (c) to pay, indemnify, and hold the
Lender harmless from any and all administrative fees and any and all liabilities
with respect to, or resulting from, any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Note, the Subsidiaries
Guarantee and any such other documents, and (d) to pay, indemnify, and hold the
Lender harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Note, the
Subsidiaries Guarantee and any such other documents (all of the foregoing in
this clause (d), collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED that the
Borrower shall have no obligation hereunder to the Lender with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of the Lender. The agreements in this subsection shall survive repayment of the
principal hereof and all other amounts payable hereunder.
(f) SUCCESSORS AND ASSIGNS. This Note shall be binding
upon and inure to the benefit of the Borrower, the Lender and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Note without the prior written consent
of the Lender.
<PAGE>
24
(g) COUNTERPARTS. This Note may be executed by one or
more of the parties hereto on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Note signed by all the parties shall be lodged with the Borrower and the Lender.
(h) SEVERABILITY. Any provision of this Note which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(i) INTEGRATION. This Note and the Subsidiaries
Guarantee represent the agreement of the Borrower and the Lender with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Lender relative to subject matter hereof
not expressly set forth or referred to herein or in the Subsidiaries Guarantee.
(j) GOVERNING LAW. THIS NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(k) SUBMISSION TO JURISDICTION; WAIVERS. The Borrower
hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal
action or proceeding relating to this Note and the
Subsidiaries Guarantee, or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the
courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may
be brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead
or claim the same;
(iii) agrees that service of process in any such
action or proceeding may be effected by mailing a copy thereof
by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to the Borrower at its address
set forth in subsection 7(b) hereof or at such other address
of which the Lender shall have been notified pursuant thereto;
<PAGE>
25
(iv) agrees that nothing herein shall affect the
right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other
jurisdiction; and
(v) waives, to the maximum extent not prohibited by
law, any right it may have to claim or recover in any legal
action or proceeding referred to in this subsection any
special, exemplary, punitive or consequential damages.
(l) ACKNOWLEDGEMENTS. The Borrower hereby acknowledges
that:
(i) it has been advised by counsel in the
negotiation, execution and delivery of this Note and the
Subsidiaries Guarantee;
(ii) the Lender has no fiduciary relationship with or
duty to the Borrower arising out of or in connection with this
Note or the Subsidiaries Guarantee, and the relationship
between the Lender and the Borrower in connection herewith or
therewith is solely that of debtor and creditor; and
(iii) no joint venture is created hereby or by the
Subsidiaries Guarantee or otherwise exists by virtue of the
transactions contemplated hereby or thereby between the Lender
and the Borrower.
(m) WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS NOTE OR THE SUBSIDIARIES GUARANTEE AND FOR ANY
COUNTERCLAIM THEREIN.
(n) WAIVER OF NOTICES. All parties now and hereafter
liable with respect to this Note, whether maker, principal, surety, guarantor,
endorser or otherwise, hereby waive presentment, demand, protest and all other
notices of any kind, except as specifically provided herein to the contrary.
<PAGE>
26
IN WITNESS WHEREOF, the Borrower has caused this Senior
Subordinated Promissory Note to be duly executed and delivered by its proper and
duly authorized officer as of the day and year first above written.
ALL AMERICAN SEMICONDUCTOR, INC.
By: /s/ HOWARD L. FLANDERS
---------------------------
Name: HOWARD L. FLANDERS
---------------------------
Title: V.P & CFO
---------------------------
Accepted and Agreed:
CIBC INC.
By: /s/ TIMOTHY E. DOYLE
--------------------
Name: TIMOTHY E. DOYLE
--------------------
Title: MANAGING DIRECTOR
--------------------
EXHIBIT 10.30
SENIOR SUBORDINATED SUBSIDIARIES GUARANTEE DATED MARCH 18, 1996 FROM
ALL OF THE COMPANY'S WHOLLY-OWNED SUBSIDIARIES IN FAVOR OF CIBC INC.
<PAGE>
SENIOR SUBORDINATED SUBSIDIARIES GUARANTEE
DATED MARCH 18, 1996 FROM ALL OF THE COMPANY'S
WHOLLY-OWNED SUBSIDIARIES IN FAVOR OF CIBC INC.
SENIOR SUBORDINATED SUBSIDIARIES GUARANTEE, dated as of March
18, 1996, made by each of the corporations that are signatories hereto (the
"GUARANTORS") in favor of CIBC INC. (the "LENDER") in connection with that
certain Senior Subordinated Promissory Note, dated the date hereof (as amended,
supplemented or otherwise modified from time to time, the "NOTE"), made by ALL
AMERICAN SEMICONDUCTOR, INC. (the "BORROWER") in favor of the Lender.
W I T N E S S E T H:
WHEREAS, the Lender is making a loan to the Borrower, as
evidenced by the Note, upon the terms and subject to the conditions set forth
therein;
WHEREAS, the Borrower owns directly or indirectly all of the
issued and outstanding stock of each Guarantor;
WHEREAS, the Borrower and the Guarantors are engaged in
related businesses, and each Guarantor will derive substantial direct and
indirect benefit from the making of the loan; and
WHEREAS, the Lender is willing to make the loan to the
Borrower to be evidenced by the Note only on the condition that the Guarantors
shall have executed and delivered this Guarantee to the Lender.
NOW, THEREFORE, in consideration of the premises and to induce
the Lender to make its loan to the Borrower to be evidenced by the Note, the
Guarantors hereby agree with the Lender as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms
defined in the Note and used herein shall have the meanings ascribed to them in
the Note, and the following term shall have the following meaning:
"GUARANTOR OBLIGATIONS": with respect to any
Guarantor, all its obligations and liabilities under the
guarantee made by it in favor of SunTrust pursuant to the
SunTrust Credit Agreement.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Guarantee shall refer to this Guarantee as a
whole and not to any particular provision of this Guarantee, and section and
paragraph references are to this Guarantee unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
<PAGE>
2
2. GUARANTEE. (a) Subject to the provisions of paragraph 2(b),
each of the Guarantors hereby, jointly and severally, unconditionally and
irrevocably, guarantees to the Lender and its successors, indorsees, transferees
and assigns the prompt and complete payment and performance by the Borrower when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(b) Anything herein or in the Note to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder shall in no
event exceed the amount which can be guaranteed by such Guarantor under
applicable federal and state laws relating to the insolvency of debtors.
(c) Each Guarantor further agrees to pay any and all expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by the Lender in enforcing, or obtaining advice of counsel
in respect of, any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against,
such Guarantor under this Guarantee.
(d) No payment or payments made by the Borrower, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Lender from the Borrower, any of the Guarantors, any other guarantor or any
other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder which shall,
notwithstanding any such payment or payments other than payments made by such
Guarantor in respect of the Obligations or payments received or collected from
such Guarantor in respect of the Obligations, remain liable for the Obligations
until the Obligations are paid in full.
(e) Each Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Lender on account of its
liability hereunder, it will notify the Lender in writing that such payment is
made under this Guarantee for such purpose.
3. SUBORDINATION. (a) Each Guarantor and the Lender agree that
the Obligations are expressly "subordinate and junior in right of payment" (as
that phrase is defined in paragraph 3(b) below) to such Guarantor's Guarantor
Obligations.
(b) "SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT" means that:
(i) upon the occurrence of any Insolvency Event with
respect to any Guarantor, (A) such Guarantor's Guarantor Obligations
shall be paid in full before any payment or distribution (other than a
payment or distribution of securities which are subordinate to the
payment of all such Guarantor's Guarantor Obligations then outstanding)
is made with respect to the Obligations; and (B) any payment or
distribution of assets of such Guarantor, whether in cash, property or
securities (other than a payment or distribution of securities which
are subordinate to the payment of all such Guarantor's Guarantor
Obligations then outstanding), to which the Lender
<PAGE>
3
would be entitled except for the provisions of this Section 3, shall be
paid or delivered by such Guarantor, or any receiver, trustee in
bankruptcy, liquidating trustee, disbursing agent or other Person
making such payment or distribution, directly to SunTrust, to the
extent necessary to pay in full all such Guarantor's Guarantor
Obligations, before any payment or distribution shall be made to the
Lender on account of the Obligations; and
(ii) unless and until the SunTrust Obligations have
been paid in full and SunTrust's commitment to make loans under the
SunTrust Credit Agreement has been terminated, without the express
prior written consent of SunTrust, no amount shall be paid (whether
directly or indirectly, by set-off, redemption, purchase or otherwise)
by such Guarantor under this Guarantee during such time as a Blockage
Period is in effect.
(c) Subject to the payment in full of such Guarantor's
Guarantor Obligations, the Lender shall be subrogated to the rights of SunTrust
to receive payments or distributions of assets of such Guarantor in respect of
such Guarantor's Guarantor Obligations until such Guarantor's Guarantor
Obligations shall be paid in full. For the purposes of such subrogation,
payments or distributions to SunTrust of any money, property or securities to
which the Lender would be entitled except for the provisions of this Section 3
shall be deemed, as between the Borrower or any Guarantor and its creditors
other than SunTrust and the Lender, to be a payment by the Borrower or such
Guarantor to or on account of the Obligations, it being understood that the
provisions of this Section 3 are, and are intended solely, for the purpose of
defining the relative rights of the Lender and SunTrust.
(d) The subordination of the Obligations to each Guarantor's
Guarantor Obligations in accordance with this Section 3 shall continue to be
effective, or be reinstated, as the case may be, to the extent that any payment
in respect of such Guarantor's Guarantor Obligations is rescinded or must
otherwise be disgorged, restored or returned by SunTrust in connection with any
Insolvency Event with respect to such Guarantor.
4. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to
the extent that a Guarantor shall have paid more than its proportionate share of
any payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 5 hereof. The provisions
of this Section shall in no respect limit the obligations and liabilities of any
Guarantor to the Lender, and each Guarantor shall remain liable to the Lender
for the full amount guaranteed by such Guarantor hereunder.
5. NO SUBROGATION. Notwithstanding any payment or payments
made by any of the Guarantors hereunder or any set-off or application of funds
of any of the Guarantors by the Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Lender against the Borrower or any other
Guarantor or any collateral security or guarantee or right of offset held by the
Lender for the payment of the Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the
<PAGE>
4
Borrower or any other Guarantor in respect of payments made by such Guarantor
hereunder, until all amounts owing to the Lender by the Borrower on account of
the Obligations are paid in full. If any amount shall be paid to any Guarantor
on account of such subrogation rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by such Guarantor in
trust for the Lender, segregated from other funds of such Guarantor, and shall,
forthwith upon receipt by such Guarantor, be turned over to the Lender in the
exact form received by such Guarantor (duly indorsed by such Guarantor to the
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Lender may determine.
6. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF
RIGHTS. Each Guarantor shall remain obligated hereunder notwithstanding that,
without any reservation of rights against any Guarantor and without notice to or
further assent by any Guarantor, any demand for payment of any of the
Obligations made by the Lender may be rescinded by the Lender and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Lender, and the Note, this Guarantee and any
other documents executed and delivered in connection herewith or therewith may
be amended, modified, supplemented or terminated, in whole or in part, as the
Lender may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by the Lender for the payment of
the Obligations may be sold, exchanged, waived, surrendered or released. The
Lender shall not have any obligation to protect, secure, perfect or insure any
Lien at any time held by it as security for the Obligations or for this
Guarantee or any property subject thereto. When making any demand hereunder
against any of the Guarantors, the Lender may, but shall be under no obligation
to, make a similar demand on the Borrower or any other Guarantor or guarantor,
and any failure by the Lender to make any such demand or to collect any payments
from the Borrower or any such other Guarantor or guarantor or any release of the
Borrower or such other Guarantor or guarantor shall not relieve any of the
Guarantors in respect of which a demand or collection is not made or any of the
Guarantors not so released of their several obligations or liabilities
hereunder, and shall not impair or affect the rights and remedies, express or
implied, or as a matter of law, of the Lender against any of the Guarantors. For
the purposes hereof, "demand" shall include the commencement and continuance of
any legal proceedings.
7. GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations, and notice of or proof of reliance by the Lender upon this
Guarantee or acceptance of this Guarantee, the Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon this Guarantee; and all
dealings between the Borrower and any of the Guarantors, on the one hand, and
the Lender, on the other hand, likewise shall be conclusively presumed to have
been had or consummated in reliance upon this Guarantee. Each Guarantor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrower or any of the Guarantors with respect to the
Obligations. Each Guarantor understands and
<PAGE>
5
agrees that this Guarantee shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity,
regularity or enforceability of the Note, any of the Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Lender, (b) any defense,
set-off or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by the Borrower against the
Lender, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrower or such Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against any
Guarantor, the Lender may, but shall be under no obligation to, pursue such
rights and remedies as it may have against the Borrower or any other Person or
against any collateral security or guarantee for the Obligations or any right of
offset with respect thereto, and any failure by the Lender to pursue such other
rights or remedies or to collect any payments from the Borrower or any such
other Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrower or any such
other Person or any such collateral security, guarantee or right of offset,
shall not relieve such Guarantor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of the Lender against such Guarantor. This Guarantee shall
remain in full force and effect and be binding in accordance with and to the
extent of its terms upon each Guarantor and the successors and assigns thereof,
and shall inure to the benefit of the Lender and its successors, indorsees,
transferees and assigns, until all the Obligations and the obligations of each
Guarantor under this Guarantee shall have been satisfied by payment in full.
8. REINSTATEMENT. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower or any Guarantor, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any Guarantor or any substantial
part of its property, or otherwise, all as though such payments had not been
made.
9. PAYMENTS. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Lender without set-off or counterclaim in U.S.
Dollars at the office of the Lender located at 425 Lexington Avenue, New York,
New York 10017.
10. NOTICES. All notices, requests and demands to or upon the
Lender or any Guarantor to be effective shall be in writing (or by telex, fax or
similar electronic transfer confirmed in writing) and shall be deemed to have
been duly given or made (a) when delivered by hand or (b) if given by mail, when
deposited in the mails by certified mail, postage prepaid, return receipt
requested, or (c) if by telex, fax or similar electronic transfer, when sent and
receipt has been confirmed, addressed as follows:
(i) if to the Lender, at its address or transmission
number for notices provided in subsection 7(b) of the Note;
and
<PAGE>
6
(ii) if to any Guarantor, at its address or
transmission number set forth below:
c/o All American Semiconductor, Inc.
16115 Northwest 52nd Avenue
Miami, Florida 33014
Attention: Bruce M. Goldberg
Fax: (305) 624-5258
with a copy to:
Rubin Baum Levin Constant Friedman & Bilzin
2500 First Union Financial Center
200 South Biscayne Boulevard
Miami, Florida 33131
Attention: Alan Axelrod, Esq.
Fax: (305) 374-7593
The Lender and each Guarantor may change its address and
transmission numbers for notices by notice in the manner provided in this
Section.
11. COUNTERPARTS. This Guarantee may be executed by one or
more of the Guarantors on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the counterparts of this Guarantee signed by all the
Guarantors shall be lodged with the Lender.
12. SEVERABILITY. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. INTEGRATION. This Guarantee represents the agreement of
each Guarantor with respect to the subject matter hereof and there are no
promises or representations by the Lender relative to the subject matter hereof
not reflected herein.
14. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a)
None of the terms or provisions of this Guarantee may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
each Guarantor and the Lender, PROVIDED that any provision of this Guarantee may
be waived by the Lender in a letter or agreement executed by the Lender or by
telex or facsimile transmission from the Lender.
<PAGE>
7
(b) The Lender shall not by any act (except by a written
instrument pursuant to paragraph 14(a) hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Lender, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise have
on any future occasion.
(c) The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
15. SECTION HEADINGS. The section headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding
upon the successors and assigns of each Guarantor and shall inure to the benefit
of the Lender and its successors and assigns.
17. GOVERNING LAW. This Guarantee shall be governed by, and
construed and interpreted in accordance with, the law of the State of New York.
[ THE REMAINDER OF THIS PAGE INTENTIONALLY HAS BEEN LEFT BLANK ]
<PAGE>
8
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.
ACCESS MICRO PRODUCTS, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN ADDED VALUE, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN A.V.E.D., INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
ATLANTA, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
CANADA, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
CHICAGO, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
<PAGE>
9
ALL AMERICAN SEMICONDUCTOR OF
FLORIDA, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
HUNTSVILLE, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
MASSACHUSETTS, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
MICHIGAN, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
MINNESOTA, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF NEW
YORK, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
<PAGE>
10
ALL AMERICAN SEMICONDUCTOR -
NORTHERN CALIFORNIA, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
PHILADELPHIA, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
PHOENIX, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
PORTLAND, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
ROCKVILLE, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF SALT
LAKE, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
<PAGE>
11
ALL AMERICAN SEMICONDUCTOR OF
TEXAS, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN TECHNOLOGIES, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN TRANSISTOR OF
CALIFORNIA, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
AMERICAN ASSEMBLIES & DESIGN, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
AVED INDUSTRIES, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
PALM ELECTRONICS MANUFACTURING
CORP.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
ALL AMERICAN SEMICONDUCTOR OF
WASHINGTON, INC.
By: /s/ Howard Flanders
-------------------
Name: Howard Flanders
Title: VP & CFO
<PAGE>
12
Accepted and Agreed:
CIBC INC.
By: /s/ Timothy E. Doyle
----------------------
Name: Timothy E. Doyle
Title: Managing Director
EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT
<PAGE>
EXHIBIT 21.1
ALL AMERICAN SEMICONDUCTOR, INC.
LIST OF SUBSIDIARIES
Access Micro Products, Inc.
All American A.V.E.D., Inc.
All American Added Value, Inc.
All American Semiconductor of Atlanta, Inc.
All American Semiconductor of Canada, Inc.
All American Semiconductor of Chicago, Inc.
All American Semiconductor of Florida, Inc.
All American Semiconductor of Huntsville, Inc.
All American Semiconductor of Massachusetts, Inc.
All American Semiconductor of Michigan, Inc.
All American Semiconductor of Minnesota, Inc.
All American Semiconductor of New York, Inc.
All American Semiconductor of Philadelphia, Inc.
All American Semiconductor of Phoenix, Inc.
All American Semiconductor of Portland, Inc.
All American Semiconductor of Rockville, Inc.
All American Semiconductor of Salt Lake, Inc.
All American Semiconductor of Texas, Inc.
All American Semiconductor-Northern California, Inc.
All American Semiconductor of Washington, Inc.
All American Technologies, Inc.
All American Transistor of California, Inc.
American Assemblies & Design, Inc.
Aved Industries, Inc.
Palm Electronics Manufacturing Corp.
EXHIBIT 23.1 CONSENT OF LAZAR, LEVINE & COMPANY LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
All American Semiconductor, Inc.
We hereby consent to the use in this Registration Statement on Form S-8 of our
report dated March 9, 1996 except as to Note 6, the date of which is March 18,
1996, relating to the consolidated financial statements of All American
Semiconductor, Inc. and Subsidiaries and to the reference to our firm under the
caption "Experts" in the registration statement.
/s/ LAZAR, LEVINE & COMPANY LLP
-------------------------------
Lazar, Levine & Company LLP
New York, New York
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from the Registrant's
consolidated financial statements as of and for the year ended December 31,
1995, and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 276
<SECURITIES> 0
<RECEIVABLES> 36,022
<ALLOWANCES> 921
<INVENTORY> 67,463
<CURRENT-ASSETS> 104,799
<PP&E> 6,741
<DEPRECIATION> 2,859
<TOTAL-ASSETS> 114,474
<CURRENT-LIABILITIES> 45,447
<BONDS> 36,760
0
0
<COMMON> 199
<OTHER-SE> 32,068
<TOTAL-LIABILITY-AND-EQUITY> 114,474
<SALES> 180,794
<TOTAL-REVENUES> 180,794
<CGS> 140,928
<TOTAL-COSTS> 140,928
<OTHER-EXPENSES> 33,769
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 2,739
<INCOME-PRETAX> 3,223
<INCOME-TAX> 1,337
<INCOME-CONTINUING> 1,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,886
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
