SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 9, 1999
(Date of Earliest Event Reported)
ELCOM INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-27376 04-3175156
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
10 Oceana Way, Norwood, Massachusetts 02062
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (781) 440-3333
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Item 5. Other Events
On July 9, 1999, Elcom International, Inc., a Delaware corporation (the
"Company'), entered into a non-binding Heads of Agreement (the "Heads") with
Specialist Computer Holdings Limited, a corporation organized under the laws of
the United Kingdom ("SCH"). The Heads is the equivalent of a letter of intent in
the United States and is subject to final negotiation of definitive Agreements
for Sale and Purchase and customary related matters prior to closing. The
Company anticipates a closing in July or August, 1999. The Heads provides that,
pursuant to definitive agreements, SCH will acquire specified customer
relationships, inventory and other assets, assume only specified liabilities
(including the Company's Langley, Berkshire facility lease) and employ specified
sales, support, management and professional services personnel (collectively,
the "Disposed Business"). Elcom International Limited, a United Kingdom indirect
subsidiary of the Company, and its subsidiaries ("Elcom Limited"), will continue
to operate the Company's United Kingdom direct response/telemarketing PC
remarketer business (the "Retained Business"), focusing on ultimately migrating
the retained customers to a web-based Internet storefront similar to the
operating model of the Company's United States eBusiness entity, elcom.com, inc.
It is expected that Elcom Limited also will be responsible for collecting the
accounts receivable of the Disposed Business as well as satisfying all retained
liabilities, including trade liabilities, personnel severance, facility
liabilities and associated wind-down costs of the Disposed Business. The Heads
anticipates that Elcom Limited will enter into a non-exclusive three-year
contract for SCH to act as Elcom Limited's preferred product in the United
Kingdom.
Subject to negotiation of definitive agreements, the Heads provides for a
payment to the Company of approximately $12.5 million for the Disposed Business,
plus the value, at cost, of inventory which SCH purchases. The Company
preliminarily estimates that it will incur between $5 and $8 million of costs to
wind down and satisfy the liabilities of the Disposed Business, and reorient the
Retained Business to the eBusiness model of elcom.com, inc. in the United
States. The Company's initial evaluation also indicates that it will write off
approximately $26 million of goodwill associated with acquisition of its
historical United Kingdom operations. The Disposed Business accounted for
approximately 74% of the $314 Million of net sales recorded by Elcom Limited in
1998. It is anticipated that approximately 300 of 465 United Kingdom personnel
will become employees of SCH if the proposed transaction is consummated.
In conjunction with this transaction, the Company intends to eventually
relocate its United Kingdom headquarters from Langley, Berkshire to Basingstoke,
Hampshire. Except as described above, there are no material relationships
between the Company and SCH, the SCH shareholders or any of their respective
affiliates, directors or officers.
Page 2 of 4
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Exhibits:
Exhibit Number
2.1 Heads of Agreement dated July 9, 1999 between Specialist
Computer Holdings Limited and Elcom International, Inc.
99 Press Release dated July 13, 1999
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Page 3 of 4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELCOM INTERNATIONAL, INC.
/s/ Laurence F. Mulhern
Laurence F. Mulhern,
Chief Financial Officer and Treasurer
Date: July 14, 1999
Page 4 of 4
EXHIBIT 2.1
ELCOM HEADS OF AGREEMENT
Subject to Contract
1. The acquisition by Specialist Computer Holdings Limited ("SCH") of certain
parts of the business and specific assets of Elcom International Limited
("Elcom").
2. The businesses to be acquired to include those operations described in the
Management Accounts as (known as the transferring businesses):
Major Accounts
Enterprise Accounts
Nets and Comms
ERP
Technical Services
Elite Distribution
For the avoidance of doubt, it is the intention to acquire the core
businesses of Elcom excluding those classified as Corporate Accounts in
Elcom's Management Accounts. Also to be excluded is Elcom Systems Limited
(Elcom.Com) (known as the retained businesses).
3. The assets to be acquired to include the stock of the business of Elcom to
the extent that it falls within the description of clean stock received
direct from manufacturer or supplier still in original packaging and to be
a current supported product line. This description to specifically exclude
product returned from customers and any product held for repair, warranty
or otherwise. In addition, certain fixed assets to be transferred as
defined more exactly in paragraph 23 where they are required for the use of
the people to be transferred (to include personal computing equipment,
mobile phones, desks and furniture and the physical fixtures and fittings
and leasehold improvements at Langley). For the avoidance of doubt debtors
and creditors will not be purchased.
4. The people to transfer (under TUPE as appropriate) to be those people
agreed as being employed solely by the transferring businesses which will
include the sales and support staff as well as the technical staff (the
intention is to include within the transferring people the Bid Manager,
certain Product Marketing and other Marketing personnel, leaving an option
open to discuss whether it would be practical from both parties' point of
view to also transfer certain Accounts and MIS staff). For the avoidance of
doubt this will exclude those people classified and charged in the
management accounts under the heading "overheads" otherwise than as
referred to above which are understood to include warehouse, configuration,
finance, MIS, personnel, customer services, purchasing and senior
management. It is, however, a prerequisite that the technical management
wherever they are currently charged to include, but not be limited to,
Group Director - Major and Enterprise Business and Group Director -
Technical Services, (which Elcom confirm are still working in the business,
have not handed in their notice or resigned nor expressed any intention to
do so) to transfer with the transferring businesses.
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5. Elcom will obtain the assignment of the Langley lease to SCH on existing
terms, but will retain all other leases and freehold premises. Elcom to
assign contract hire agreements on cars in relation to transferring
employees plus any required leased office equipment at Langley.
6. Elcom to commit to provision of suitable exclusivity clauses on the
customers of the transferring businesses sufficient to maintain their value
to SCH for a period of at least three years.
7. Elcom to commit to provision of suitable clauses to prohibit them
approaching / soliciting or employing staff of the businesses to be
transferred and the key technical management referred to above for a period
of one year.
8. SCH to be awarded supply contracts (for those products it is able to
supply) for at least three years in respect of IT products and services to
be sold through any of the retained businesses (retained businesses to be
obliged to purchase under these contracts where SCH are able to supply and
can supply competitively). Suitable Service Level Agreements to be
concluded between SCH and Elcom. The intention is for ordering to be via an
automated electronic ordering link.
9. Elcom International Limited and Elcom International Inc. to warrant that,
for a period of three years, they will not compete with any of the current
activities of SCH or the enlarged activities of SCH in the UK and Europe,
other than through the retained businesses, either themselves or through
any subsidiaries or affiliates. For the avoidance of doubt, SCH would not
permit the retained business to compete for business / trade with customers
and prospects of the transferring businesses (customers to be defined as
those companies or organisations that have purchased from the transferring
businesses within the last twelve months. Prospects to be defined as
companies or organisations with whom the transferring businesses have had
substantive contact with, either written or verbal including but not
limited to response by bid or through tender processes or via presentations
in the last twelve months). SCH would not, however, restrict their
activities to other potential prospects in the market.
10. Elcom to warrant in respect of their collection of debtors and funds /
rebates that this will not be done in a manner which could prejudice the
transferring businesses or SCH's ability to continue to transact business
with these customers.
Elcom to observe normal credit control procedures as currently operated in
collection of the debt.
With regard to debt from dealers in the Distribution operation, SCH would
be prepared to advise customers where reasonably requested by Elcom that
they are aware of overdue debts owed to Elcom and that failure to satisfy
this may impact future credit limits.
With regard to debt due from end user customers, where the debt is in
excess of 90 days and is a proven and valid debt, where Elcom advises they
wish to pursue this debt and prior to either legal action or use of an
external collection agency, SCH will be offered the option but not the
obligation to buy the debt from Elcom.
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11. Elcom to warrant that it will meet all proven and reasonable claims of the
suppliers of the stock to be acquired by SCH and to indemnify SCH against
any claims by these suppliers including but not limited to any issues of
retention of title. Elcom to indemnify SCH against claims made by staff
retained by Elcom (e.g. not transferring) but who may subsequently be made
redundant or consider they have any claim for compensation.
12. Elcom to warrant that it will not hold itself out as continuing to operate
any of the transferred businesses or interfere in those transferring
businesses, future business and activities.
13. Elcom to undertake to make the best endeavours to secure the transfer,
assignment or novation of current customers' contracts and, where relevant,
supplier and service contracts.
14. Elcom International Inc to agree for SCH to continue to use and to licence
the product (under free of charge licence) currently known as PECOS
Commerce Manager and the web enabled version, and any future derivations of
this, produced by Elcom Systems Inc. (elcom.com Inc) and Elcom Systems
Limited (elcom.com Limited) in Elcom's current customer base and SCH's
customer base (the enlarged customer base) for a period of three years,
necessary support for the product to be provided at agreed rates.
Post completion of this transaction, we would expect to discuss with Elcom
International the mutual benefits of SCH being granted exclusive
distribution rights for an agreed minimum period of time on all current and
future Elcom E-commerce products in the UK on an agent basis.
15. An appropriate charging / crediting mechanism to be constructed between the
parties to allow for:
(a) SCH to charge Elcom the deferred revenue element against revenues
already invoiced by Elcom in respect of services to be performed by
SCH post completion;
(b) Charges or credits to be made between the parties with regard to
pre-payments and accruals in respect of items such as rent, rates and
service charges on relevant properties, salaries and wages,
commissions, utility bills, other leases and contract hire
arrangements on cars etc.
16. Arrangements to be agreed with regard to returns that will not unfairly
prejudice either party.
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Transitional Arrangements
17. Elcom to warrant that it will make best endeavours to facilitate an orderly
transfer of the businesses' assets and people referred to above to SCH.
Suitable transitional arrangements to be defined to include provision at
cost where relevant if so required by SCH of accounting services, warehouse
services, personnel services, systems use and support (including Warehouse
Boss, PRMS and PECOS) during the transition period. Elcom will grant to SCH
licences to occupy existing premises including but not limited to Slough
for a period to be defined but up to six months at cost. SCH to grant to
Elcom licences to occupy Langley for the staff and computer equipment
currently based there for a period of up to six months. Access to be
granted to Elcom's internal systems as required by SCH in conducting the
ongoing and transferred business.
18. To the extent that any other tangible, intangible operating assets, rights
and licences are necessary for the continuing operation of the transferring
businesses, these to be transferred at cost by Elcom. All customer files
and information relating to both customers and suppliers to be transferred
to SCH or appropriate access is granted where Elcom is required to keep
documentation for statutory or legal requirements without cost as well as
any intellectual property utilised by the transferring businesses,
excluding PECOS and PECOS Procurement Manager.
19. SCH to have an option to continued use of the name or combining the name of
Elcom with SCH's existing trading names during the transition period of up
to six months.
20. Elcom to make available on a consultancy basis to SCH any key members of
management not transferred with the transferring businesses at cost on a
consultancy basis during the transition period.
21. The transaction to be constructed as a business transfer as a going concern
for VAT purposes.
22. SCH to have first option to purchase the retained businesses (for this
purpose solely to mean the existing businesses described as corporate
accounts in Elcom's Management Accounts) and for the avoidance of doubt to
exclude Elcom Systems (elcom.com) in the event that Elcom choose to dispose
of these in the next three years.
23. In consideration for the above SCH are prepared to offer in cash on
completion the following:
A payment in respect of Goodwill and (pound)8M
defined fixed assets:
An estimated payment in respect
of stock transferred assumed for the purpose
of this offer to amount to stock of(pound)7.2M (pound)7.2M
but in any case not to exceed(pound)10M.
This to comprise stock as defined in para 3
to be subject to physical verification
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on completion. To be valued in accordance
with normal UK GAAP at the lower of cost and net
realisable value subject to appropria
provisioning in respect of aged stock (based
on the provisioning policy of SCH previously
disclosed to Elcom)and for the avoidance of
doubt to be valued net of price protection claims
or credits or other manufacturer credits relating
to stock but excluding special bid rebates in
respect of previous sales which are customer
specific and do not relate to existing stock. In
the event stock falling outside the description in
paragraph 3 is offered to SCH by Elcom, SCH
will, at its sole discretion, offer to purchase this at its
reasonable valuation).
(the estimate of (pound)7.2M to be adjusted (pound)1 for (pound)1
in relation to the final physical verification and
valuation)
The fixed assets to transfer known as the defined fixed assets to comprise:
Langley - All fixtures, fittings and furniture including but not limited to
warehouse equipment and fittings (previously estimated at a written down
value of (pound)0.3M).
Slough - All furniture and equipment on site.
Redditch - All engineering equipment, benches, etc. utilised in and around
the returns and warranty departments.
Personal Equipment - All personal computers including peripherals whether
desktop or laptop used by the transferring employees as well as any other
individual assets.
Stationery - Existing stocks of stationery on the sites occupied by the
transferring staff.
24. (pound)0.5M of the initial consideration will be held on retention in
respect of the physical verification, valuation and reconciliation of
stock. This will be held for a period of a maximum of 90 days, and released
earlier in the event that the above reconciliations can be completed and it
can be demonstrated that all relevant creditors have been paid.
A further (pound)0.5M will be held on retention to be released after one
year unless there is a valid claim (as accepted by Gouldens) outstanding,
in which case the value of such valid claims will remain in Escrow. If a
claim is not accepted by Gouldens, this will be passed to arbitration which
will be binding, the cost of which will follow with the unsuccessful party.
Any such claims outstanding one year from completion will remain in Escrow
until the arbitrator has made a decision.
All monies to be held in Escrow with interest to follow reward of money.
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In addition, a full parent company guarantee from Elcom International Inc.
will be provided to SCH in respect of warranties and indemnities to be
agreed.
25. Financing of the Offer
The offer would be funded by existing cash resources and bank facilities of
SCH.
26. Announcement
Elcom and SCH to agree an appropriate announcement with regard to the
parties having signed a Heads of Agreement relating to the acquisition by
SCH of certain business and assets of Elcom.
27. Exclusivity
Elcom to extend the previously agreed exclusivity to the end of July.
28. Proposed Timetable
1. Suggested contract signature and completion 23rd July 1999
2. Operation of the transferred businesses under
SCH's control and utilising SCH's systems 26th July 1999
3. Commencement of staff and customer communication
programme subject to mutual agreement
(access will be required to Langley
and systems the weekend 24th / 25th July
1999 to load orders from Elcom systems
To SCH systems to enable trade to resume
on 26th July 1999 and to enable
counting and moving of stock).
Validity of Offer
The terms and conditions contained above to be open to acceptance until midnight
of the 9th July 1999 after which discussions and negotiations will be assumed to
have lapsed.
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SIGNED ON BEHALF
OF THE SAID PARTIES: /s/ Robert J. Crowell July 9, 1999
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R J Crowell Date
Chairman & Chief Executive
Elcom International Inc.
SIGNED ON BEHALF
OF THE SAID PARTIES: /s/ N. A. Roberts July 8, 1999
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N A Roberts Date
Group Finance Director
Specialist Computer Holdings Limited
(Logo) Exhibit 99
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD:
Investor Relations Michael Lawson-General Info (212) 661-8030
E-mail: [email protected] Elisa Mailman-Analyst Info (212) 661-8030
Investor Relations Voicemail: Claudine Cornelis-Media Info (212) 661-8030
(781)501-4094
FOR IMMEDIATE RELEASE
SPECIALIST COMPUTER HOLDINGS (U.K.) SIGNS LETTER OF INTENT TO ACQUIRE
THE MAJORITY OF ELCOM'S PC REMARKETER BUSINESSES IN THE U.K.
Proposed Sale of Elcom's U.K.field-based PC Remarketer and Distribution
Businesses is Designed to Allow Focus on elcom.com and Internet-based Company
Expansion
NORWOOD, MA, July 13, 1999 - Elcom International, Inc. ("Elcom"); (Nasdaq:ELCO)
today announced that it has signed a letter of intent with Specialist Computer
Holdings Limited ("SCH") for SCH to acquire Elcom's full service, commercial PC
remarketer and distribution businesses in the United Kingdom. The proposed
acquisition is subject to the execution of a definitive agreement and does not
include the Company's direct sales and marketing groups based in Basingstoke and
Redditch. These direct marketing and sales groups are currently generating over
$55 Million in annualized revenues and will form the basis for elcom.com to
develop its eBusiness infrastructure in the U.K., which is intended to provide a
foundation for licensing and remotely-hosting PECOS Internet Procurement
Manager, elcom.com's automated procurement system in the U.K. and European
marketplace.
The letter of intent provides for payment by SCH of approximately $12 to $13
Million plus the value of associated inventory. Including the write-off of
associated goodwill, the transaction is expected to generate a book loss and, if
consummated, will result in an increase in the Company's tangible book value of
approximately $5 Million and also increase the Company's available working
capital by approximately $8 Million. As part of the proposed transaction, the
Company will enter into a three year, non-exclusive supply agreement with SCH to
be its preferred supplier of PC products in the U.K. In addition to the
negotiation and execution of definitive agreements, consummation of these
transactions is conditioned upon a number of other customary matters.
Robert J. Crowell, the Company's Chairman and CEO stated, "The sale of this part
of our U.K. business will allow us to focus on our emerging Internet business
and begin marketing and branding our recently announced PECOS Internet
Procurement Manager automated procurement system. We also intend to create an
Internet Storefront in the U.K. and look forward to working with Specialist
Computer Holdings as our preferred distribution fulfillment partner, allowing
the Company to operate with a virtual inventory model in the U.K."
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Page 2
Peter Rigby, Specialist Computer Holdings Chairman and CEO said, "Whilst we are
the U.K.'s second largest reseller, our perceived strength has been in the
Midlands and the North. Elcom's blue chip customer base and technical and
services capabilities are predominantly Southern based. Its culture, people
skills and logistics are a perfect match to build and extend our added value
services offerings in the Home Counties. Signficant investment in people and
services will follow to provide our customers and staff with the best possible
options from a successful, experienced supplier of technology and quality
services."
Mr. Crowell also stated, "We expect to use our direct sales and marketing group
in the U.K. and many of the resources of Elcom Services Group, our PC remarketer
unit in the U.S., and leverage off our sales personnel in both countries. I
expect to begin offering our PECOS Internet Procurement System to many of these
customers over the next several months in the U.S. and U.K. as we continue our
transition to more of an Internet-based company. Together with our cash
availability, the additional working capital generated by this proposed
disposition will also help us to begin our marketing campaign and expand
elcom.com's Internet-based, automated procurement system's sales and support
platform in the U.S. and the U.K."
About Specialist Computer Holdings Limited
Founded in 1975, Specialist Computer Holdings (SCH). SCH is the largest
privately owned provider of PC lifecycle products and management services in the
U.K. SCH employs over 2,000 people - some 1,000 deployed in service functions -
in over 25 locations across the U.K. and last year turned over in excess of half
a billion pounds. Financially stable and profitable with no net borrowings, The
Group is in the top 400 U.K. companies by turnover and one of the top 10
privately owned U.K. companies. Projected Group turnover post acquisition is
(pound)700M in the current financial year.
SCH has pioneered customer care in the Desktop market place since its inception.
Its clear and consistent strategic mission is to provide major U.K. corporate
companies with a stable, innovative, and flexible IT Business Partner.
About Elcom International, Inc.
Elcom International, Inc. (www.elcominternational.com), through its wholly-owned
subsidiaries, develops, licenses, and uses Internet-based eBusiness systems
including PECOS Internet Procurement Manager, elcom.com's remotely-hosted
automated procurement system. elcom.com, inc., (www.elcom.com), the Company's
technology and eBusiness subsidiary, licenses its PECOS technologies to Elcom
Services Group's customers and to other companies and competes against companies
like Ariba, Inc., Commerce One, and Concur Technologies. elcom.com also operates
an Internet storefront through which it offers PC-oriented and office products
using the Company's electronic commerce and automated procurement and sourcing
technology. In this market sector, elcom.com competes against companies like
Value America, Cyberian Outpost, Inc., and Insight Enterprises, Inc. elcom.com's
Internet storefront also has an auction site capability and competes against
such companies as eBay Inc., uBid Inc., and Multiple Zones International, Inc.
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Statement Under the Private Securities Litigation Reform Act
This press release includes statements that may constitute forward-looking
statements. All statements other than statements of historical fact, including,
without limitation, those with respect to the Company's objectives, plans and
strategies set forth herein and those preceded by or that include the words
"believes," "intends," "expects," "will," "plans," "anticipates," or similar
expressions, are forward-looking statements. These statements are subject to
risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements. Such risks and uncertainties include: the
possibility that definitive agreements regarding the proposed sale may not be
reached or a closing may not occur, or that the terms thereof may change, as may
the actual level of liabilities retained by the Company, customers' acceptance
and usage of the Company's electronic commerce software systems and the impact
of competitive technology products as well as factors and other risks detailed
in the Company's 1998 Annual Report on Form 10-K and from time to time in the
Company's other reports filed with the SEC.
