-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVELSaTF5lm1ziiAsHRYaNPkndoeZ1vKSfkxDYH0qe8wia7o4ae3Xz91r6XKMZ8B FfNtX4hDATvAqzidFlAwKg== 0000907098-95-000025.txt : 19951002 0000907098-95-000025.hdr.sgml : 19951002 ACCESSION NUMBER: 0000907098-95-000025 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950928 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN ELECTRONICS CORP CENTRAL INDEX KEY: 0000800286 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 222715444 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16345 FILM NUMBER: 95576822 BUSINESS ADDRESS: STREET 1: 4916 N ROYAL ATLANTA DR CITY: TUCKER STATE: GA ZIP: 30085 BUSINESS PHONE: 4044918962 MAIL ADDRESS: STREET 1: 4916 NORTH ROYAL ATLANTA DRIVE CITY: TUCKER STATE: GA ZIP: 30085 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended 06/30/95 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from N/A to N/A Commission file number 0-16345 SOUTHERN ELECTRONICS CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 22-2715444 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 4916 North Royal Atlanta Drive, Tucker, Georgia 30085 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 770/491-8962 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant was $24,619,194 as of September 13, 1995 based upon the closing price of such stock as reported by Nasdaq on that day. There were 6,995,902 shares of common stock, $.01 par value, outstanding at September 13, 1995. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to Stockholders for the fiscal year ended June 30, 1995 are incorporated by reference into Part II. Part III incorporates information by reference from the Registrant's definitive proxy statement for the 1995 annual meeting of stockholders presently scheduled to be held on November 9, 1995, which proxy statement will be filed no later than 120 days after the close of the Registrant's fiscal year ended June 30, 1995. Exhibit Index appears on pages ___ through ___. This document contains ___ sequentially numbered pages, including exhibits. PART I Item 1. BUSINESS (a) General Development of Business Southern Electronics Corporation, a Delaware corporation (the "Registrant"), through its wholly-owned operating subsidiary, Southern Electronics Distributors, Inc., a Delaware corporation ("SED"), is a distributor of microcomputers, computer peripheral products and cellular telephone products. These products are sold through a centralized telemarketing sales force to an active, nonexclusive, nationwide customer base of over 9,000 value-added resellers ("VARs") and dealers of microcomputer products located primarily in the Southeastern United States and resellers of cellular telephones. The Registrant distributes from its distribution facilities in Tucker, Georgia and Miami, Florida computer related products of nationally recognized manufacturers such as AOC International (USA) Ltd., Colorado Memory Systems, Inc., Cyrix Corporation, Epson America, Inc., Hewlett-Packard Company, Maxtor Corporation, Panasonic Communications & Systems Company and Seagate Technology, Inc., and cellular telephone products of nationally recognized manufacturers such as Mitsubishi Electronics America Incorporated, NEC America, Inc. and Toshiba America Consumer Products, Inc. The Registrant and SED were organized in June 1986 and acquired substantially all of the assets of Southern Electronics Distributors, Inc., a Georgia corporation (the "Predecessor"), on July 2, 1986. The Registrant, through SED, is conducting the business formerly operated by the Predecessor. The Predecessor originally was engaged in the business of wholesale distribution of consumer electronics products primarily to independent retailers in small-to-medium-sized markets in the Southeastern United States. In response to a perceived consolidation in the retail consumer electronics market resulting from increased competition, the Registrant began shifting its product mix by the end of fiscal 1987 toward microcomputers and computer peripheral products. The Registrant added sales of cellular telephone products during fiscal 1988. The Registrant substantially completed its strategic refocusing by the end of fiscal 1988. On August 9, 1993, the Registrant entered into a lease for an approximately 15,400 square foot sales and distribution facility located in Miami, Florida. See "Item 2. Properties." The Registrant opened this facility in November 1993 and is utilizing it primarily to foster the Registrant's relationships with exporters that ship to the Caribbean and to Central and South America. The Registrant presently has no intention to direct-export its products. (b) Financial Information about Industry Segments The Registrant operates in only one business segment. (c) Narrative Description of Business 1. Principal Products Distributed and Services Rendered The Registrant offers a broad range of computer related hardware products and cellular telephone products. Computer related hardware products accounted for approximately 91% of net sales for fiscal 1995, and included sales of microcomputers, floppy and hard disk drives, dot matrix and non-impact printers, monitors, add-on boards and accessories. Approximately 9% of the Registrant's net sales for fiscal 1995 consisted of cellular telephone products, such as sales of mobile, transportable and portable cellular telephones and related products. The Registrant continually evaluates its product mix and inventory levels and maintains flexibility in its product offerings by adding popular profitable items. As a distributor, the Registrant plays a valued role in linking manufacturers with customers that otherwise could not purchase products directly from the manufacturers because of the inability or unwillingness of manufacturers to deliver rapidly and handle efficiently small orders and to verify smaller customers' creditworthiness. The Registrant's position in the marketplace enables it to take advantage of volume discounts, product promotions and other buying opportunities from its vendors, which allow the Registrant to market a wide variety of product offerings to its customers at attractive prices. 2. Sales, Marketing and Credit Management The Registrant is sales driven. Knowledgeable, motivated salespeople are a key to the Registrant's success. The Registrant's sales are generated by a centralized telemarketing sales force, which consisted of approximately 120 persons on June 30, 1995. Members of the sales staff are trained through intensive in-house sales training programs, along with manufacturer-sponsored product seminars. This training allows sales personnel to provide customers with product information and to use their marketing expertise to answer customers' questions about important new product considerations, such as compatibility and capability, while offering advice on which products meet specific performance and price criteria. The Registrant's salespeople are able to analyze quickly the Registrant's extensive inventory through a sophisticated management information system and recommend the most appropriate cost-effective systems and hardware for each customer -- whether a full-line retailer or an industry-specific VAR. Because the Registrant's salespersons' compensation is based primarily on commissions, the salespeople are challenged to increase their product knowledge and to establish long-term relationships with existing and new customers. Customers can telephone their salespersons on a toll-free number provided by the Registrant. Salespeople initiate calls to introduce the Registrant's existing customers to the Registrant's new products and to solicit orders. In addition, salespeople conduct "cold-call" prospecting using mailing lists and telephone directories of various cities to develop new customer relationships. The telemarketing salespersons are supported by other marketing programs. Representatives of the Registrant generally attend at least one trade show annually where they publicize the Registrant's capabilities. In addition, the Registrant's in-house marketing staff prepares catalogs listing available microcomputer and related products and catalogs listing available cellular telephone products for distribution to the Registrant's customers. It also publishes other direct mail pieces promoting specials and new products. The Registrant's sales efforts for computer related products are directed principally to its nationwide customer base of VARs and dealers located primarily in the Southeastern United States. The Registrant maintains a separate telemarketing salesforce for the sale of cellular telephone products to retailers and cellular telephone carriers and their authorized agents located throughout the United States. The Registrant sells its merchandise on a trade credit, COD, prepaid or floor-plan basis. Under floor-plan arrangements, a lender finances a customer's purchase of inventory from the Registrant. The Registrant typically grants trade credit terms to its customers who qualify. The Registrant has a number of systems in place to monitor and manage trade credit extended to its customers, including its participation in a national credit association in which credit rating information on mutual customers is exchanged. Generally, product orders are processed and shipped from the Registrant's metropolitan Atlanta distribution facility on the same day an order is received or, in the case of orders received after 7:00 p.m., on the next business day. The Registrant generally uses United Parcel Service and Federal Express to deliver its merchandise to its customers. Alternative shippers are, however, readily available. Generally, the Registrant's inventory level of products has been adequate to permit the Registrant to be responsive to its customers' purchase requirements. From time to time, the Registrant experiences temporary shortages with respect to certain products as certain of its vendors experience increased demand or manufacturing with respect to their products, resulting in smaller allocations of such products for the Company. 3. Customers and Customer Support The Registrant serves an active, nonexclusive, nationwide customer base of over 9,000 VARs and dealers of microcomputer products and resellers of cellular telephones. The Registrant believes the multi-billion dollar microcomputer and cellular telephone wholesale distribution industries are comprised primarily of customers served on a nonexclusive basis, which provides the Registrant with significant growth opportunities. During fiscal 1995, no customer accounted for more than 10% of the net sales of the Registrant. The Registrant believes that most of its customers rely on distributors as their principal source of computer and cellular telephone products. The Registrant's salespeople are trained to help customers configure microcomputer products and to recommend the most appropriate, cost-effective systems and hardware for each customer. In addition, the Registrant's technical support department provides technical advice by toll-free telephone and configures many of the microcomputer products sold by the Registrant. If authorized by the Registrant, a customer may return to the Registrant a product found defective during the manufacturer's warranty period. Upon receipt of the defective product from the customer, the Registrant generally ships a replacement product to the customer and returns the defective product to the manufacturer for credit or repair. 4. Vendors Because of the growing number of relatively small VARs that purchase low volumes of product from manufacturers, it is becoming increasingly cost efficient for most manufacturers to rely on distributors, such as the Registrant, rather than to incur the cost of maintaining their own sales staff, warehouses and credit functions to market, distribute, verify creditworthiness and collect receivables from these customers. The Registrant's market position and financial condition have enabled it to purchase large quantities of products from many manufacturers at competitive prices. The Registrant believes that the inability of certain smaller distributors to control costs and finance their operations is causing a consolidation in the microcomputer and cellular distribution channel, making the Registrant an increasingly important resource to its vendors. The Registrant, like most wholesale microcomputer and cellular telephone distributors, sells products from manufacturers generally on a nonexclusive basis without geographical restrictions. Although most manufacturers seek geographical balance in their distributor network, distributors generally are permitted to sell their products throughout the United States and Canada. Management believes all of the Registrant's vendor agreements are in forms customarily used by its vendors. Except to take advantage of certain volume pricing opportunities, the Registrant's vendor agreements do not contain any minimum purchase requirements. The Registrant purchases goods from more than 120 vendors; however, it has negotiated favorable terms from certain manufacturers by purchasing a substantial portion of its products from them. During fiscal 1995, the Registrant purchased approximately 15% of its inventory from one vendor. No other vendor accounted for more than 10% of the Registrant's purchases in fiscal 1995. Management continually seeks to expand its list of vendors. While the loss of a major vendor could have a material adverse effect on the Registrant's business, the Registrant believes alternative vendors for similar products are available. There can be no assurance, however, that the addition of these alternative vendors would place the Registrant in the same or as competitive a financial position as it experienced immediately prior to the loss of the major vendor. Generally, management believes that its relationship with its vendors is good. The Registrant receives vendor price protection for substantially all of its inventory. In the event a vendor reduces its prices for goods covered by this price protection arrangement which have otherwise not been sold, the Registrant generally either receives a credit on account from the vendor for the price differential or returns the goods to the vendor for credit of the purchase price. 5. Employees As of June 30, 1995, the Registrant had 330 full-time employees, 120 of whom were engaged in telemarketing, and an additional 28 part-time employees. The salespeople are compensated primarily on a commission basis. Management believes the Registrant's relations with its employees are good, and the Registrant has never experienced a strike or work stoppage. There is no collective bargaining agreement covering any of the Registrant's employees. 6. Competition The microcomputer and cellular telephone products markets are extremely competitive. Competition within the industry is principally based on price, product breadth and availability, delivery terms, trade credit terms and various types of technical support and service. Major competitors include Ingram Micro, Inc., Merisel, Inc., Tech Data Corporation and a variety of other smaller regional competitors. The Registrant also competes with manufacturers that sell directly to retailers and VARs. Although many of the distributors with which the Registrant competes have greater financial resources, the Registrant nevertheless believes that its ability to provide competitive pricing, a broad range of products and available inventory, rapid delivery and technical support are important factors that enable it to compete effectively. 7. Seasonality The Registrant's sales are not subject to material seasonal fluctuations. Item 2. PROPERTIES The Registrant maintains its executive, administrative and sales office and principal distribution facility in the Atlanta metropolitan area. The Registrant leases its executive, administrative and sales office from Royal Park Company, a Georgia general partnership comprised of certain minority stockholders of the Registrant. The lease expires in October 1999 after an 8-year term and supersedes the original 15-year lease entered into in 1984 between the Predecessor and Royal Park Company. The facility consists of approximately 30,000 square feet, with an annual rental of approximately $163,000 through October 1, 1999, subject to increase based upon periodic changes in the Consumer Price Index. The Registrant has a right of first refusal to purchase the facility should it be offered for sale. The Registrant believes that the lease is on terms no less favorable than those available from unaffiliated parties. The Registrant's distribution facility in Atlanta consists of approximately 100,000 square feet subject to a lease expiring January 31, 1999. The Registrant also leases additional warehouse and sales office space near its executive, administrative and sales office in Atlanta for future growth. The Registrant believes there is available sufficient additional warehouse and sales office space for lease at reasonable prices near its principal facility in the event the Registrant's growth plans so require. On August 9, 1993, the Registrant entered into a lease for an approximately 15,400 square foot sales and distribution facility located in Miami, Florida. This lease expires in November 1996 and includes an annual rental of approximately $107,000, subject to periodic adjustment as set forth in the lease. Item 3. LEGAL PROCEEDINGS In the ordinary course of business, the Registrant, from time to time, is involved in litigation with certain of its customers and vendors regarding accounts receivable and accounts payable, respectively. With respect to disputes with its vendors, the Registrant typically withholds payment for the goods in controversy until a resolution of the matter has been obtained. Although the Registrant is not currently engaged in or threatened by any material litigation, it is the policy of management to vigorously defend suits brought against the Registrant. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Item 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Registrant and SED, their ages and their present positions with the Registrant and SED are as follows: Name Age Position Gerald Diamond 57 Chairman of the Board, Chief Executive Officer and Director of the Registrant and SED Ray D. Risner 50 President, Chief Operating Officer and Director of the Registrant and SED Larry G. Ayers 49 Vice President-Finance, Chief Financial Officer, Secretary and Treasurer of the Registrant and SED Mark Diamond 30 Executive Vice President of the Registrant and SED Barry Diamond 53 Vice President-Cellular of SED Jean Diamond 54 Vice President-Credit of SED Gerald Diamond was elected President and Chairman of the Board of the Registrant and SED in June 1986 and has served in two or more capacities as Chairman of the Board, Chief Executive Officer and President of the Registrant and SED since that date. Mr. Diamond, a founder of the Predecessor, served as its President and Treasurer from July 1980 through July 1986. Mr. Diamond has been in electronics-related businesses for over 30 years. Mr. Diamond is the brother of Barry Diamond and father of Mark Diamond. Ray D. Risner was elected as a director of the Registrant in November 1994 and was elected President and Chief Operating Officer of the Registrant and SED in May 1995. Mr. Risner served as Vice Chairman of RJM Group, Inc., a private investment advisory firm, from 1989 to 1994. From 1987 to 1989, he served as Vice President, Financial Administration of RJR Nabisco, Inc. Mr. Risner is also a trustee of The National Faculty and a member of the Board of American Red Cross Blood Services, Atlanta, Georgia. Larry G. Ayers was elected Vice President-Finance and Treasurer of SED in June 1986, Secretary in August 1986 and Chief Financial Officer in November 1989. He was also elected Vice President-Finance, Secretary and Treasurer of the Registrant in August 1986 and Chief Financial Officer in November 1989. Mr. Ayers served as Vice President-Finance of the Predecessor from May 1986 through July 1986. Mark Diamond has been employed by SED on a full-time basis in the Sales Department since January 1987. In February 1991, Mr. Diamond was elected Vice President-Sales of SED and in May 1993, was elected Executive Vice President-Marketing of SED. In February 1994, Mr. Diamond was elected Executive Vice President-Sales of SED, and in July 1995, he was elected Executive Vice President of the Registrant and in August 1995, he was elected Executive Vice President of SED. Mark Diamond is the son of Gerald Diamond. Barry Diamond joined SED in September 1987 as Vice President and has worked since that time in the purchasing, sales and distribution departments. In September 1989, Mr. Diamond was elected Vice President-Operations and in September 1990, was elected Vice President-Cellular Sales. In May 1993, Mr. Diamond was elected Vice President-Distribution of SED. In February 1994, Mr. Diamond was elected Vice President of SED, and in November 1994, his title became Vice President-Cellular of SED. Jean Diamond was elected Vice President - Credit of SED in August 1994. From 1986 to August 1994, she served as Manager of Credit of SED. Jean Diamond is the wife of Gerald Diamond and the mother of Mark Diamond. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information regarding the range of high and low sales prices for the common stock of the Registrant for each full quarterly period for fiscal 1995 and 1994 as reported by the Nasdaq National Market ("Nasdaq") and the number of holders of common stock of the Registrant (including individual participants in securities position listings) is incorporated by reference to "Price Range of Common Stock" on the inside back cover of the Registrant's 1995 Annual Report to Stockholders. The Registrant has not paid any cash dividends on its common stock since its inception. The Registrant currently intends to retain earnings to finance the growth and development of its business and does not anticipate paying cash dividends in the foreseeable future. Future policy with respect to payment of dividends on the common stock will be determined by the Board of Directors based on conditions then existing, including the Registrant's earnings and financial condition, capital requirements and other relevant factors. SED, the earnings of which would be the source of any dividend payments, and the Registrant are parties to a revolving credit agreement that contains certain financial covenants that may impact the Registrant's ability to pay dividends, should it choose to do so. Item 6. SELECTED FINANCIAL DATA Selected financial information about the Registrant is incorporated herein by reference to "Selected Income Statement Data" and "Selected Balance Sheet Data" on page 1 of the Registrant's 1995 Annual Report to Stockholders. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information and a discussion regarding the Registrant's financial condition and results of operations are incorporated herein by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 6 and 7 of the Registrant's 1995 Annual Report to Stockholders. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Registrant, notes thereto, and independent auditors' report thereon are incorporated herein by reference to pages 8 through 16 of the Registrant's 1995 Annual Report to Stockholders. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Registrant's directors is incorporated herein by reference to the section of the Registrant's Proxy Statement for the Annual Meeting of Stockholders scheduled for November 9, 1995 (the "Proxy Statement") entitled "Proposal 1 - Election of Directors." Information regarding the Registrant's executive officers is incorporated herein by reference to Item 4(A) of Part I of this Report. Item 11. EXECUTIVE COMPENSATION Information regarding the Registrant's compensation of its executive officers and directors is incorporated herein by reference to the sections of the Proxy Statement entitled "Proposal 1 - Election of Directors" and "Executive Compensation". Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding the security ownership of certain beneficial owners and management of the Registrant is incorporated by reference to the section of the Proxy Statement entitled "Ownership of Shares". Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is incorporated herein by reference to the section of the Proxy Statement entitled "Compensation Committee Interlocks and Insider Participation." PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Financial Statements. The Registrant's 1995 Annual Report to Stockholders, a copy of which is filed with this Form 10-K, contains the following financial statements and the report of the Registrant's independent auditors thereon, which are incorporated herein by reference: - Independent Auditors' Report - Consolidated Balance Sheets at June 30, 1995 and 1994 - Consolidated Statements of Earnings for the years ended June 30, 1995, 1994 and 1993 - Consolidated Statements of Stockholders' Equity for the years ended June 30, 1995, 1994 and 1993 - Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1994 and 1993 - Notes to Consolidated Financial Statements 2. Financial Statement Schedules. - Independent Auditors' Report - Schedules: Schedule Description II Valuation and Qualifying Accounts Schedule II and the report thereon appear immediately preceding the signature pages to this Report. Schedules other than the Schedule are omitted because the information required is not applicable or the required information is shown in the consolidated financial statements or notes thereto. 3. Exhibits Incorporated by Reference or Filed with this Report. Exhibit Number Description 3.1 Certificate of Incorporation, as amended, of the Registrant. 3.2 Amended and Restated By-Laws of the Registrant.(1) 4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation, as amended, and Amended and Restated By-Laws of the Registrant defining rights of holders of Common Stock of the Registrant. 10.1 Form of Lease Agreement dated as of January 1, 1991 between Royal Park Company and Southern Electronics Distributors, Inc.(2) 10.2 Consulting and Financial Advisory Agreement dated July 2, 1986 between SED Acquisition Corp. and the ZS Fund L.P.(3), as amended as of July 2, 1991.(2)* 10.3 Letter Agreement dated July 2, 1986 among Southern Electronics Distributors, Inc., the shareholders of Southern Electronics Distributors, Inc., SED Acquisition Corp. and the Registrant regarding tax liability indemnification and ERISA matters.(4)* 10.4 Lease Agreement dated May 16, 1990 between The Equitable Life Assurance Society of the United States and Southern Electronics Distributors, Inc.(5), as amended March 20, 1992.(6) 10.5 Lease Agreement dated September 16, 1989 between Industrial Distribution Group, Inc. and Southern Electronics Distributors, Inc.(7), as amended August 19, 1991.(3) 10.6 Lease Agreement dated January 15, 1992 between Southern Electronics Distributors, Inc. and RW Building One Associates.(8) 10.7 Revolving Credit Agreement dated as of June 29, 1995 among National City Bank, Columbus, Wachovia Bank of Georgia, N.A., the Registrant and SED. 10.8 Southern Electronics Corporation 1986 Stock Option Plan dated September 3, 1986, together with related forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement.(9)* 10.9 Form of First Amendment dated September 14, 1989 to Southern Electronics Corporation 1986 Stock Option Plan.(10)* 10.10 Second Amendment dated November 7, 1989 to Southern Electronics Corporation 1986 Stock Option Plan.(11)* 10.11 Third Amendment dated July 17, 1992 to Southern Electronics Corporation 1986 Stock Option Plan.(12)* 10.12 Southern Electronics Corporation 1988 Restricted Stock Plan, together with related form of Restricted Stock Agreement.(13)* 10.13 First Amendment dated November 7, 1989 to Southern Electronics Corporation 1988 Restricted Stock Plan.(14)* 10.14 Second Amendment dated July 17, 1992 to Southern Electronics Corporation 1988 Restricted Stock Plan.(15)* 10.15 Form of Southern Electronics Corporation 1991 Stock Option Plan, together with related forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement.(16)* 10.16 First Amendment dated July 17, 1992 to Southern Electronics Corporation 1991 Stock Option Plan.(17)* 10.17 Form of Non-Qualified Stock Option Agreement dated as of August 28, 1992 between the Registrant and Cary Rosenthal.(18)* 10.18 Form of Non-Qualified Stock Option Agreement dated as of August 28, 1992 between the Registrant and G. William Speer.(19)* 10.19 Employment Agreements dated November 7, 1989, between the Registrant, SED and each of Gerald Diamond, Jean Diamond, Barry Diamond and Larry G. Ayers(20)*, each as amended by form of Amendment No. 1 dated September 24, 1991.(21)* 10.20 Form of Employment Agreement dated September 24, 1991, among the Registrant, SED and Mark Diamond.(22)* 10.21 Southern Electronics Distributors, Inc. Savings Plan effective as of January 1, 1991, together with Savings Plan Trust and Savings Plan Adoption Agreement.(23)* 10.22 Form of Indemnification Agreement entered into with each of the directors and officers of the Registrant and Southern Electronics Distributors, Inc.(24)* 10.23 Form of Indemnification Agreement entered into with each of the directors and officers of the Registrant and Southern Electronics Corporation. 10.24 Lease Agreement dated November 1992 between H.G. Pattillo and Elizabeth M. Pattillo and Southern Electronics Distributors, Inc.(25) 10.25 Lease Agreement dated August 9, 1993 between New World Partners Joint Venture and Southern Electronics Distributors, Inc.(26) 10.26 Amendment to Lease for 4775 N. Royal Atlanta Drive. 10.27 Form of Non-Qualified Stock Option Agreement dated as of May 21, 1993 between the Registrant and Cary Rosenthal (see form referenced herein as Exhibit 10.17).* 10.28 Form of Non-Qualified Stock Option Agreement dated as of May 21, 1993 between the Registrant and G. William Speer (see form referenced herein as Exhibit 10.18).* 10.29 Form of Non-Qualified Stock Option Agreement for Directors. 10.30 Subscription and Stockholders Agreement dated as of July 2, 1986 by and among the Registrant, ZS SED L.P., ZS Southern L.P. and SED Associates. 11.1 Statement regarding computation of per share earnings. 13 Form of Southern Electronics Corporation 1995 Annual Report to Stockholders (only the portions incorporated by reference into this report are deemed "filed" with the Securities and Exchange Commission). 21 Subsidiaries of the Registrant.(27) 23 Independent Auditors' Consent. 24 Power of Attorney. See signature page to this Registration Statement. 27 Financial Data Schedule. Notes *Management contract or compensatory plan or arrangement with one or more directors or executive officers. (1) Incorporated herein by reference to exhibit of same number to Registrant's Registration Statement ("Registration Statement") on Form S-1, filed September 5, 1986 (Reg. No. 33-8494). (2) Incorporated herein by reference to exhibit of same number to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1991 (SEC File No. 0-16345) ("1991 Form 10-K"). (3) Incorporated herein by reference to exhibit 10.6 to Registrant's Registration Statement. (4) Incorporated herein by reference to exhibit 10.7 to Registrant's Registration Statement. (5) Incorporated herein by reference to exhibit 10.8 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990 (SEC File No. 0-16345) ("1990 Form 10-K"). (6) Incorporated herein by reference to exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 (SEC File No. 0-16345) ("1992 Form 10-K"). (7) Incorporated herein by reference to exhibit 10.9 to Registrant's 1990 Form 10-K. (8) Incorporated herein by reference to exhibit 10.7 to Registrant's 1992 Form 10-K. (9) Incorporated herein by reference to exhibit 10.12 to Registrant's Registration Statement. (10) Incorporated herein by reference to exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (SEC File No. 0-16345). (11) Incorporated herein by reference to exhibit 10.25 to Registrant's 1990 Form 10-K. (12) Incorporated herein by reference to exhibit 10.12 to Registrant's 1992 Form 10-K. (13) Incorporated herein by reference to exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (SEC File No. 0-16345). (14) Incorporated herein by reference to exhibit 10.26 to Registrant's 1990 Form 10-K. (15) Incorporated herein by reference to exhibit 10.15 to Registrant's 1992 Form 10-K. (16) Incorporated herein by reference to Annex A to Registrant's definitive Supplemental Proxy Statement dated October 18, 1991 (SEC File No. 0-16345). (17) Incorporated herein by reference to exhibit 10.17 to Registrant's 1992 Form 10-K. (18) Incorporated herein by reference to exhibit 10.18 to Registrant's 1992 Form 10-K. (19) Incorporated herein by reference to exhibit 10.19 to Registrant's 1992 Form 10-K. (20) Incorporated herein by reference to Exhibit 6(a) to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1989 (SEC File No. 0-16345). (21) Incorporated herein by reference to exhibit 10.13 to Registrant's 1991 Form 10-K. (22) Incorporated herein by reference to exhibit 10.14 to Registrant's 1991 Form 10-K. (23) Incorporated herein by reference to exhibit 10.15 to Registrant's 1991 Form 10-K. (24) Incorporated herein by reference to exhibit 10.16 to Registrant's 1991 Form 10-K. (25) Incorporated herein by reference to exhibit 10.24 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993 (SEC File No. 0-16345) ("1993 Form 10-K"). (26) Incorporated herein by reference to exhibit 10.25 to Registrant's 1993 Form 10-K. (27) Incorporated herein by reference to exhibit 21 to Registrant's 1993 Form 10-K. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of fiscal 1995. INDEPENDENT AUDITORS' REPORT We have audited the consolidated financial statements of Southern Electronics Corporation and subsidiary as of June 30, 1995 and 1994, and for each of the three years in the period ended June 30, 1995, and have issued our report thereon dated August 18, 1995; such consolidated financial statements and report are included in your 1995 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Southern Electronics Corporation listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Atlanta, Georgia August 18, 1995 SOUTHERN ELECTRONICS CORPORATION AND SUBSIDIARY SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions(1) of Period Year ended June 30, $664,000 $1,143,000 $ 962,000 $ 845,000 1995; Allowance for doubtful accounts Year ended June 30, 931,000 1,225,000 1,492,000 664,000 1994; Allowance for doubtful accounts Year ended June 30, 728,000 425,000 220,000 931,000 1993; Allowance for doubtful accounts 1 Deductions represent actual write-offs of specific accounts receivable charged against the allowance account, net of amounts recovered. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOUTHERN ELECTRONICS CORPORATION Date: September 28, 1995 By: /s/ Larry G. Ayers Larry G. Ayers, Vice President - Finance POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Gerald Diamond and Larry G. Ayers and each of them as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to the Annual Report on Form 10-K of Southern Electronics Corporation, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and other appropriate agencies, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 28 day of September, 1995. /s/ Gerald Diamond Gerald Diamond, Chairman of the Board, Chief Executive Officer and Director (principal executive officer) /s/ Larry G. Ayers Larry G. Ayers, Vice President - Finance and Treasurer (principal financial and accounting officer) /s/ Stewart I. Aaron Stewart I. Aaron, Director /s/ Ray D. Risner Ray D. Risner, Director /s/ Cary Rosenthal Cary Rosenthal, Director /s/ G. William Speer G. William Speer, Director /s/ Michel Zaleski Michel Zaleski, Director EXHIBIT INDEX Sequentially Exhibit Numbered Number Description Page 3.1 Certificate of Incorporation, as amended, of the Registrant. ___ 3.2 Amended and Restated By-Laws of the Registrant.(1) N/A 4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation, as amended, and Amended and Restated By-Laws of the Registrant defining rights of holders of Common Stock of the Registrant. N/A 10.1 Form of Lease Agreement dated as of January 1, 1991 between Royal Park Company and Southern Electronics Distributors, Inc.(2) N/A 10.2 Consulting and Financial Advisory Agreement dated July 2, 1986 between SED Acquisition Corp. and the ZS Fund L.P.(3), as amended as of July 2, 1991.(2)* N/A 10.3 Letter Agreement dated July 2, 1986 among Southern Electronics Distributors, Inc., the shareholders of Southern Electronics Distributors, Inc., SED Acquisition Corp. and the Registrant regarding tax liability indemnification and ERISA matters.(4)* N/A 10.4 Lease Agreement dated May 16, 1990 between The Equitable Life Assurance Society of the United States and Southern Electronics Distributors, Inc.(5), as amended March 20, 1992.(6) N/A 10.5 Lease Agreement dated September 16, 1989 between Industrial Distribution Group, Inc. and Southern Electronics Distributors, Inc.(7), as amended August 19, 1991.(3) N/A 10.6 Lease Agreement dated January 15, 1992 between Southern Electronics Distributors, Inc. and RW Building One Associates.(8) N/A 10.7 Revolving Credit Agreement dated as of June 29, 1995 among National City Bank, Columbus, Wachovia Bank of Georgia, N.A., the Registrant and SED. ___ 10.8 Southern Electronics Corporation 1986 Stock Option Plan dated September 3, 1986, together with related forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement.(9)* N/A 10.9 Form of First Amendment dated September 14, 1989 to Southern Electronics Corporation 1986 Stock Option Plan.(10)* N/A 10.10 Second Amendment dated November 7, 1989 to Southern Electronics Corporation 1986 Stock Option Plan.(11)* N/A 10.11 Third Amendment dated July 17, 1992 to Southern Electronics Corporation 1986 Stock Option Plan.(12)* N/A 10.12 Southern Electronics Corporation 1988 Restricted Stock Plan, together with related form of Restricted Stock Agreement.(13)* N/A 10.13 First Amendment dated November 7, 1989 to Southern Electronics Corporation 1988 Restricted Stock Plan.(14)* N/A 10.14 Second Amendment dated July 17, 1992 to Southern Electronics Corporation 1988 Restricted Stock Plan.(15)* N/A 10.15 Form of Southern Electronics Corporation 1991 Stock Option Plan, together with related forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement.(16)* N/A 10.16 First Amendment dated July 17, 1992 to Southern Electronics Corporation 1991 Stock Option Plan.(17)* N/A 10.17 Form of Non-Qualified Stock Option Agreement dated as of August 28, 1992 between the Registrant and Cary Rosenthal.(18)* N/A 10.18 Form of Non-Qualified Stock Option Agreement dated as of August 28, 1992 between the Registrant and G. William Speer.(19)* N/A 10.19 Employment Agreements dated November 7, 1989, between the Registrant, SED and each of Gerald Diamond, Jean Diamond, Barry Diamond and Larry G. Ayers(20)*, each as amended by form of Amendment No. 1 dated September 24, 1991.(21)* N/A 10.20 Form of Employment Agreement dated September 24, 1991, among the Registrant, SED and Mark Diamond.(22)* N/A 10.21 Southern Electronics Distributors, Inc. Savings Plan effective as of January 1, 1991, together with Savings Plan Trust and Savings Plan Adoption Agreement.(23)* N/A 10.22 Form of Indemnification Agreement entered into with each of the directors and officers of the Registrant and Southern Electronics Distributors, Inc.(24)* N/A 10.23 Form of Indemnification Agreement entered into with each of the directors and officers of the Registrant and Southern Electronics Corporation. ___ 10.24 Lease Agreement dated November 1992 between H.G. Pattillo and Elizabeth M. Pattillo and Southern Electronics Distributors, Inc.(25) N/A 10.25 Lease Agreement dated August 9, 1993 between New World Partners Joint Venture and Southern Electronics Distributors, Inc.(26) N/A 10.26 Amendment to Lease for 4775 N. Royal Atlanta Drive. ___ 10.27 Form of Non-Qualified Stock Option Agreement dated as of May 21, 1993 between the Registrant and Cary Rosenthal (see form referenced herein as Exhibit 10.17).* N/A 10.28 Form of Non-Qualified Stock Option Agreement dated as of May 21, 1993 between the Registrant and G. William Speer (see form referenced herein as Exhibit 10.18).* N/A 10.29 Form of Non-Qualified Stock Option Agreement for Directors. ___ 10.30 Subscription and Stockholders Agreement dated as of July 2, 1986 by and among the Registrant, ZS SED L.P., ZS Southern L.P. and SED Associates. ___ 11.1 Statement regarding computation of per share earnings. ___ 13 Form of Southern Electronics Corporation 1995 Annual Report to Stockholders (only the portions incorporated by reference into this report are deemed "filed" with the Securities and Exchange Commission). ___ 21 Subsidiaries of the Registrant.(27) N/A 23 Independent Auditors' Consent. ___ 24 Power of Attorney. See signature page to this Registration Statement. N/A 27 Financial Data Schedule. ___ __________________ Notes *Management contract or compensatory plan or arrangement with one or more directors or executive officers. (1) Incorporated herein by reference to exhibit of same number to Registrant's Registration Statement ("Registration Statement") on Form S-1, filed September 5, 1986 (Reg. No. 33-8494). (2) Incorporated herein by reference to exhibit of same number to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1991 (SEC File No. 0-16345) ("1991 Form 10-K"). (3) Incorporated herein by reference to exhibit 10.6 to Registrant's Registration Statement. (4) Incorporated herein by reference to exhibit 10.7 to Registrant's Registration Statement. (5) Incorporated herein by reference to exhibit 10.8 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990 (SEC File No. 0-16345) ("1990 Form 10-K"). (6) Incorporated herein by reference to exhibit 10.5 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 (SEC File No. 0-16345) ("1992 Form 10-K"). (7) Incorporated herein by reference to exhibit 10.9 to Registrant's 1990 Form 10-K. (8) Incorporated herein by reference to exhibit 10.7 to Registrant's 1992 Form 10-K. (9) Incorporated herein by reference to exhibit 10.12 to Registrant's Registration Statement. (10) Incorporated herein by reference to exhibit 10.22 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (SEC File No. 0-16345). (11) Incorporated herein by reference to exhibit 10.25 to Registrant's 1990 Form 10-K. (12) Incorporated herein by reference to exhibit 10.12 to Registrant's 1992 Form 10-K. (13) Incorporated herein by reference to exhibit 10.21 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (SEC File No. 0-16345). (14) Incorporated herein by reference to exhibit 10.26 to Registrant's 1990 Form 10-K. (15) Incorporated herein by reference to exhibit 10.15 to Registrant's 1992 Form 10-K. (16) Incorporated herein by reference to Annex A to Registrant's definitive Supplemental Proxy Statement dated October 18, 1991 (SEC File No. 0-16345). (17) Incorporated herein by reference to exhibit 10.17 to Registrant's 1992 Form 10-K. (18) Incorporated herein by reference to exhibit 10.18 to Registrant's 1992 Form 10-K. (19) Incorporated herein by reference to exhibit 10.19 to Registrant's 1992 Form 10-K. (20) Incorporated herein by reference to Exhibit 6(a) to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1989 (SEC File No. 0-16345). (21) Incorporated herein by reference to exhibit 10.13 to Registrant's 1991 Form 10-K. (22) Incorporated herein by reference to exhibit 10.14 to Registrant's 1991 Form 10-K. (23) Incorporated herein by reference to exhibit 10.15 to Registrant's 1991 Form 10-K. (24) Incorporated herein by reference to exhibit 10.16 to Registrant's 1991 Form 10-K. (25) Incorporated herein by reference to exhibit 10.24 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993 (SEC File No. 0-16345) ("1993 Form 10-K"). (26) Incorporated herein by reference to exhibit 10.25 to Registrant's 1993 Form 10-K. (27) Incorporated herein by reference to exhibit 21 to Registrant's 1993 Form 10-K. EX-3 2 CERTIFICATE OF INCORPORATION OF SEC HOLDING COMPANY, INC. The undersigned, for the purposes of forming a corporation pursuant to Section 101 and 102 of the General Corporation Law of Delaware, does hereby certify as follows: First: The name of the corporation is SED Holding Company, Inc. (the "Corporation"). Second: The address of the Corporation's registered office in Delaware is 229 South State Street, City of Dover, County of Kent, Delaware 19901. The name of the Corporation's registered agent at that address is The Prentice-Hall Corporation System, Inc. Third: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. Fourth: The Corporation is authorized to issue two classes of shares to be designated respectively "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is two million (2,000,000) shares. The number of shares of Common Stock authorized is one million (1,000,000) shares, and the par value of each share is $0.01. The number of shares of Preferred Stock authorized is one million (1,000,000) shares, and the par value of each share is $1.00. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock as Preferred Stock of one or more series and in connection with the creation of any such series to fix by the resolution or resolutions providing for the issue of shares thereof the designation, powers, preferences and relative, participating, optional or other special rights of such series, and the qualifications, limitations or restrictions thereof. Such authority of the Board of Directors with respect to each such series shall include, but not be limited to, the determination of the following: (a) the distinctive designation of, and the number of shares comprising, such series, which number may be increased (except where otherwise provided by the Board of Directors in creating such series) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (b) the dividend rate or amount for such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or any other series of any class or classes of stock, and whether such dividends shall be cumulative, and if so, from which date or dates for such series; (c) whether or not the shares of such series shall be subject to redemption by the Corporation and the times, prices, and other terms and conditions of such redemption; (d) whether or not the shares of such series shall be subject to the operation of a sinking fund or purchase fund to be applied to the redemption or purchase of such shares and if such a fund be established, the amount thereof and the terms and provisions relative to the application thereof; (e) whether or not the shares of such series shall be convertible into or exchangeable for shares of any other class or classes of stock of the Corporation and if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (f) whether or not the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if they are to have such additional voting rights, the extent thereof; (g) the rights of the shares of such series in the event of any liquidation, dissolution or winding up of the Corporation or upon any distribution of its assets; and (h) any other powers, preferences, and relative, participating, optional, or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof, to the full extent now or hereinafter permitted by law and not inconsistent with the provisions hereof. All shares of any one series of Preferred Stock shall be identical in all respects except as to the dates from which dividends thereon may be cumulative. All series of the Preferred Stock shall rank equally and be identical in all respects except as otherwise provided in the resolution or resolutions providing for the issue of any series of Preferred Stock. Whenever dividends upon the Preferred Stock at the time outstanding, to the extent of the preference to which such stock is entitled, shall have been paid in full or declared and set apart for payment for all past dividend periods, and after the provisions for any sinking or purchase fund or funds for any series of Preferred Stock shall have been complied with, the Board of Directors may declare and pay dividends on the Common Stock, payable in cash, stock, or otherwise, and the holders of shares of Preferred Stock shall not be entitled to share therein, subject to the provisions of the resolution or resolutions creating any series of Preferred Stock. In the event of any liquidation, dissolution, or winding up of the Corporation or upon the distribution of the assets of the Corporation remaining, after the payment to the holders of the Preferred Stock of the full preferential amounts to which they shall be entitled as provided in the resolution or resolutions creating any series thereof, shall be divided and distributed among the holders of the Common Stock ratably, except as may otherwise be provided in any such resolution or resolutions. Nether the merger or consolidation of the Corporation with another corporation nor the sale or lease of all or substantially all the assets of the Corporation shall be deemed to be a liquidation, dissolution, or winding up of the Corporation or a distribution of its assets. Fifth: The name and mailing address of the incorporator is: Name Mailing Address Steven A. Hobbs 400 Park Avenue New York, New York 10022 Sixth: The Board of Directors is expressly authorized to adopt, amend, or repeal the By-Laws of the Corporation. Seventh: Pursuant to Section 211(e) of the General Corporation Law of Delaware, the directors of the Corporation shall not be required to be elected by written ballots. IN WITNESS WHEREOF, the undersigned, being the sole incorporator hereinabove named, hereby further certifies that the facts herein stated are true and, accordingly, has signed this Certificate of Incorporation this 11th day of June, 1986. /s/ Steven A. Hobbs Steven A. Hobbs CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SED HOLDING COMPANY, INC. SED Holding Company, Inc., a Delaware corporation (the "Corporation"), pursuant to Section 241 of the General Corporation Law of the State of Delaware, certifies that: 1. The Certificate of Incorporation of the Corporation is hereby amended by striking out the first paragraph of Article Fourth thereof and by substituting in lieu thereof the following: "The Corporation is authorized to issue two classes of shares to be designated respectively 'Common Stock' and 'Preferred Stock.' The total number of shares which the Corporation is authorized to issue is one million one hundred twenty-nine thousand five hundred (1,129,500) shares. The number of shares of Common Stock authorized is one million (1,000,000) shares, and the par value of each share is $0.01. The number of shares of Preferred Stock authorized is one hundred twenty-nine thousand five hundred (129,500) shares, and the par value of each share is $1.00." 2. The Corporation has not received any payment for any of its capital stock and the Amendment of Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 241 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned hereby certifies that the facts herein stated are true and, accordingly, has signed this Certificate of Amendment this 27th day of June, 1986. /s/ Michel Zaleski Michel Zaleski Vice President Attest: /s/ Robert Johnson Robert Johnson Assistant Secretary CERTIFICATE OF DESIGNATION, POWERS, PREFERENCES AND RIGHTS OF THE SERIES OF PREFERRED STOCK OF SED HOLDING COMPANY, INC. TO BE DESIGNATED 6% CUMULATIVE PREFERRED STOCK, SERIES A SED HOLDING COMPANY, INC., a Delaware corporation (the "Company"), pursuant to Section 151 of the General Corporation Law of the State of Delaware, certifies that the Board of Directors of the Corporation has duly adopted the resolution attached hereto as Appendix I providing for the issuance of a Series A Preferred Stock to be designated "6% Cumulative Preferred Stock, Series A" and to consist of One Hundred Twenty-Nine Thousand Five Hundred (129,500) shares. IN WITNESS WHEREOF, said SED Holding Company, Inc., has caused its corporate seal to be hereunto affixed and this certificate to be signed by Michael Zaleski, its Vice President, and attested by Robert Johnson its Assistant Secretary, this 27th day of June, 1986. SED HOLDING COMPANY, INC. By /s/ Michel Zaleski Vice President Attest: /s/ Robert Johnson Assistant Secretary Appendix I RESOLUTION OF THE BOARD OF DIRECTORS OF SED HOLDING COMPANY, INC. RELATING TO 6% CUMULATIVE PREFERRED STOCK, SERIES A WHEREAS, the Certificate of Incorporation of the Company provides that the Company shall have authority to issue shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"); and WHEREAS, the Certificate of Incorporation of the Company provides that the Board of Directors is authorized to provide for the issuance of the Preferred Stock in one or more series and to fix for each such series the number of shares to be included in such series, the dividends payable on the shares of such series, the redemption price of the shares of such series, if any, and the terms and conditions of such redemption, the terms and conditions under which the shares of such series are convertible, if they are convertible, the other rights, preferences and limitations pertaining to such series; BE IT RESOLVED, that a series of 129,500 shares of Preferred Stock of the Company be and the same is hereby created, to be designated as "6% Cumulative Preferred Stock, Series A" (such Preferred Stock hereinafter being referred to as the "Series A Preferred Stock"). Unless otherwise defined herein or unless the context otherwise requires all terms used herein which are defined in the Certificate of Incorporation of the Company shall have the same meanings as specified in such Certificate of Incorporation; and the term "Certificate of Incorporation" of the Company, as used herein, means, as of any date, unless the context otherwise requires, the Certificate of Incorporation of the Company, as amended or as amended and restated as of such date. The designation, powers, preferences and relative, participating, optional and other special rights with respect to the Series A Preferred Stock and qualifications, limitations and restrictions thereof, are as set forth below: 6% CUMULATIVE PREFERRED STOCK, SERIES A (1) Designation of the Series. There shall be a series of Preferred Stock to be known as "6% Cumulative Preferred Stock, Series A," consisting of 129,500 shares of Preferred Stock having a par value of $1.00 per share (the "Shares"). The holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors to the extent funds are legally available therefor in accordance with the Delaware General Corporation Law, cash dividends at the rate of six percent (6%) of the Redemption Price per annum, and no more, payable annually on the second day of July (unless such day is not a business day, in which event on the next business day) in each year, commencing on the second day of July 1987, to the holders of record as they appear on the register for the Series A Preferred Stock of the Company on the last day of the calendar month next preceding the calendar month of such dividend payment day. Dividends shall be cumulative and shall accrue on the Series A Preferred Stock from and after the date of issuance. No dividend or distribution, whether in cash, stock or other property, shall be paid, declared and set apart for payment or made, on any date on or in respect to the Common Stock or any other class or series of stock of the Company ranking junior to (a "Junior Stock") or on a parity with (a "Parity Stock") the Series A Preferred Stock as to dividends or distributions of assets upon liquidation, dissolution or winding up, and no redemption, purchase or other acquisition for value by the Company shall be made on any date of shares of any Junior Stock or any Parity Stock, unless all dividends accumulated and unpaid on all outstanding shares of Series A Preferred Stock up to the end of the dividend period coinciding with or next preceding such date shall have been paid; provided, however, that the foregoing provisions of this sentence shall not prohibit (i) a dividend payable solely in shares of Common Stock or (ii) the acquisition of any shares of any Common Stock or any other Junior Stock upon conversation or exchange thereof into or for any shares of any other Junior Stock. (2) Liquidation. In the event of any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of outstanding shares of Series A Preferred Stock shall be entitled to receive for each such share, as a liquidation preference, payment in cash equal to $15.444015 per share, plus an amount equal to the dividends accrued and unpaid thereon to the date fixed for such payment, and no more, before any distribution of assets shall be made to the holders of shares of Common Stock or any other Junior Stock, but if the distributable assets are insufficient to make such payment in full to the holders of all outstanding shares of Series A Preferred Stock and any Parity Stock on a parity with the Series A Preferred Stock a to distributions of assets upon liquidation, dissolution or winding up, such assets shall be distributed among the holders of outstanding shares of Series A Preferred Stock and any such Parity Stock ratably per share in proportion to the full per share amounts to which they respectively are entitled. The voluntary sale, conveyance, lease, exchange or transfer of all or substantially all the property or assets of the Company or the merger or consolidation of the Company or the merger or consolidation of the Company into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the Company of any class or series, shall not be deemed to be a dissolution, liquidation or winding up of the Company for the purpose of this paragraph 2. (3) (a) Optional Redemption by Company. The Company shall have the right to redeem shares of Series A Preferred Stock, in whole or in part, at any time or from time to time by giving notice of redemption to all holders of shares of Series A Preferred Stock to be redeemed. The redemption price for such optional redemption shall be $15.444015 per share (the "Redemption Price") of Series A Preferred Stock outstanding to be redeemed plus an amount equal to all dividends accrued and unpaid thereon to the date of redemption. Each date on which shares are redeemed pursuant to this subparagraph 3(a) is referred to herein as the "Redemption Date." (b) Mandatory Redemption by Company. The Company (unless prevented from doing so by law or by applicable restrictive provisions in these resolutions, in the Certificate of Incorporation or in any mortgage, deed of trust, indenture or loan agreement of the Company, as in effect from time to time, or for any other reason) shall purchase for cash out of funds legally available therefor at the Redemption Price on the second day of July (unless such day is not a business day, in which event on the next business day) in each year commencing with the year 1993 (each such date being herein called the "Mandatory Redemption Date") redeem 20% of the Shares until all the Shares shall be redeemed or otherwise acquired by the Company. Shares of Series A Preferred Stock acquired or redeemed by the Company otherwise than through operation of this subparagraph 3(b) may, at the option of the Company, be credited, at the Redemption Price per share of the Series A Preferred Stock, against one or more redemption requirements which the Company may designate and shall reduce the number of Shares required to be redeemed on the Mandatory Redemption Date. If on any Mandatory Redemption Date there shall be insufficient funds of the Company legally available for such redemption, or, for any reason herein stated, the funds legally available shall not otherwise be available to discharge the redemption requirement in full (after taking into account any shares voluntarily redeemed or acquired and credited against the redemption requirement), such amount of the funds as is legally available and not restricted from such application by the terms of this subparagraph 3(b) shall be used for the redemption requirement. Such redemption requirement shall be cumulative so that if, for any year or years, such requirement shall not be fully discharged for any reason as it accrues, funds legally available therefor and not restricted from such application by the terms of this subparagraph 3(b) shall be applied thereto until all such requirements are discharged. On each Mandatory Redemption Date the amount set aside on such date shall be used to redeem Series A Preferred Stock in the manner provided in paragraph (e) of this resolution, at the Redemption Price for the Series A Preferred Stock. (c) Payment of Redemption Price. On each Redemption Date and on each Mandatory Redemption Date, the Company shall pay to the holder of each Share being redeemed, upon surrender by such holder at the Company's principal executive office of the certificate representing such Share duly endorsed in blank or accompanied by an appropriate form of assignment, an amount in cash equal to the Redemption Price per Share. The obligation of the Company to provide money in accordance with the preceding sentence shall be deemed fulfilled if on or before the Redemption Date or the Mandatory Redemption Date, as the case may be, the Company shall deposit with a bank or trust company having an office in the City of New York the securities of which (or of the holding company of such bank or trust company) are rated in one of the two highest rating categories by a nationally recognized rating agency, the funds necessary for such redemption, in trust for the holders of the Shares called for redemption together with irrevocable instructions that such funds be applied solely to the redemption of such Shares. Any interest accrued on such funds shall be paid to the Company from time to time. Any funds so deposited and unclaimed at the end of six years from such Redemption Date or such Mandatory Redemption Date, as the case may be, shall be released or repaid to the Company, after which the holder or holders of such Shares so called for redemption shall look only to the Company for payment of the Redemption Price. (d) Redeemed or Otherwise Acquired Shares Not to be Reissued. All shares of Series A Preferred Stock redeemed or purchased by the Company pursuant to this paragraph 3 or otherwise shall be retired and shall, upon any action required by applicable law, be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be reissued pursuant to the terms of the Certificate of Incorporation and the General Corporation Law of the State of Delaware. (e) Determination of Number of Each Holder's Shares to be Redeemed. If less than all of the outstanding shares of Series A Preferred Stock are to be redeemed pursuant to subparagraph 3(a) or subparagraph 3(b), the Company shall determine the Shares held by each holder of Shares to be redeemed as hereinafter provided. The number of Shares to be redeemed from each holder thereof shall be the number of Shares determined by multiplying the total number of Shares to be redeemed times a fraction, the numerator of which will be the total number of Shares then held by such holder and the denominator of which shall be the total number of Shares then outstanding. (f) Notice of Redemption. Notice of any redemption of Series A Preferred Stock pursuant to paragraph 3, specifying the time and place of redemption and the redemption price, shall be mailed by certified or registered mail, return receipt requested, to each holder of record of Shares to be redeemed, at the address for such holder shown on the Company's records, not more than 30 nor less than 15 days prior to the date on which such redemption is to be made. Such notice shall also specify the number of Shares of each holder thereof and the certificate numbers thereof which are to be redeemed. In case less than all the Shares represented by any certificate are redeemed, a new certificate representing the unredeemed Shares shall be issued to the holder thereof without cost to such holder. (g) Dividends After Redemption Date. No Share shall be entitled to any dividends accruing after its Redemption Date or Mandatory Redemption Date, as the case may be, and on such Redemption Date or Mandatory Redemption Date, as the case may be, unless the Company shall default in making the Redemption Price available, all rights of the holder of such Share, as a stockholder of the Company by reason of the ownership of such Share, shall cease, except the right to receive the Redemption Price of such Share upon the presentation and surrender of the certificate representing such Share, and such Share shall not after such Redemption Date or Mandatory Redemption Date, as the case may be, be deemed to be outstanding for any purpose. (h) Other Redemptions or Acquisitions. The Company shall neither redeem nor otherwise acquire any Series A Preferred Stock except as expressly authorized in this paragraph 3. (4) Shareholder Reports. The Company will, or will cause the registrar to, transmit to the holders of the Series A Preferred Stock all reports and communications from the Company that are generally mailed to holders of its Common Stock. (5) Voting. The holder of each Share shall be entitled to vote on all matters as to which holders of Common Stock may be so entitled and shall be entitled to one vote per Share. Except as otherwise expressly provided for herein or as required by law, the holders of shares of Series A Preferred Stock and Common Stock shall vote together and not as separate classes. (6) Class Voting upon Certain Events. In addition to such other voting rights, if any, as may be required by law, the consent of the holders of at least 67% of the total number of outstanding Shares, voting separately as a class, shall be required to effect or validate each of the following. (a) The amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation so as to effect adversely the preferences, special rights or powers of the Series A Preferred Stock; (b) The modification of any of the terms, special rights or preferences of the Series A Preferred Stock; or (c) The merger or consolidation of the Company with or into any other corporation having an effect on the Series A Preferred Stock substantially similar to the effect of any action described in subparagraphs (a) or (b) above. (7) Creation of Certain Other Series of Preferred Stock or Classes of Stock. So long as any shares of Series A Preferred Stock remain outstanding, the Company will not authorize or create any class of stock or series of Preferred Stock which ranks, or which could rank, prior to the Series A Preferred Stock as to dividends or as to distribution upon dissolution, liquidation or winding up. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SED HOLDING COMPANY, INC. The undersigned hereby certifies that: 1. The name of the corporation (hereinafter called the "Corporation") is SED Holding Company, Inc. 2. The Certificate of Incorporation of the Corporation is hereby amended by deleting Article First in its entirety and substituting in lieu thereof the following new Article First which shall read as follows: "First: The name of the corporation (the "Corporation") is Southern Electronics Corporation" 3. The Certificate of Incorporation of the Corporation is hereby further amended by adding the following new Article Eighth which shall read as follows: "Eighth: To the fullest extent permitted by the General Corporation Law of Delaware, as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director." 4. The Amendments of Certificate of Incorporation herein certified have been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned hereby certifies that the facts herein stated are true and, accordingly, has signed this Certificate of Amendment this 20th day of August, 1986. /s/ Michel Zaleski Michel Zaleski Vice President Attest: /s/ Steven A. Hobbs Steven A. Hobbs Assistant Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SOUTHERN ELECTRONICS CORPORATION The undersigned hereby certifies that: 1. The name of the corporation (hereinafter called the "Corporation") is Southern Electronics Corporation 2. The Certificate of Incorporation of the Corporation is hereby amended by deleting the first paragraph of Article Fourth in its entirety and substituting in lieu thereof the following new paragraph which shall read as follows: "The Corporation is authorized to issue two classes of shares to be designated respectively as `Common Stock' and `Preferred Stock.' The total number of shares which the Corporation is authorized to issue is ten million one hundred twenty-nine thousand five hundred (10,129,500) shares. The number of shares of Common Stock authorized is ten million (10,000,000) shares, and the par value of each share is $.01. The number of shares of Preferred Stock authorized is one hundred twenty-nine thousand five hundred (129,500) shares, and the par value of each share is $1.00." 3. The amendment of Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 228 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned hereby certifies that the facts herein stated are true and, accordingly, has signed this Certificate of Amendment this 2nd day of September, 1986. /s/ Ned L. Sherwood Ned L. Sherwood Vice President Attest: /s/ Steven A. Hobbs Steven A. Hobbs Assistant Secretary CERTIFICATE OF ELIMINATION OF SOUTHERN ELECTRONICS CORPORATION Southern Electronics Corporation, a corporation organized and existing under The General Corporation Law of the State of Delaware (the "Company"), DOES HEREBY CERTIFY: FIRST: That by Consent Action of the Board of Directors of the Company, dated as of March 26, 1991, a resolution was duly adopted which identified shares of the capital stock of the Company, which, to the extent hereinafter set forth, had the status of retired shares. SECOND: The shares of capital stock of the Company which are retired are identified as being 129,500 shares of 6% Cumulative Preferred Stock, series A, par value $1 per share, which shares represent all of the authorized shares of 6% Cumulative Preferred Stock, Series A. THIRD: That the Certificates of Incorporation of the Company prohibits the reissue of the shares of 6% Cumulative Preferred Stock, Series A when so retired and provides that such shares shall be restored to the status of authorized but unissued shares of preferred stock, without designation as to series; and pursuant to the provisions of Section 243 of the General Corporation Law of the State of Delaware, upon the effective date of the filing of this certificate as therein provided, the Certificate of Incorporation of the Company shall be amended so as to eliminate from such Certificate all references to 6% Cumulative Preferred Stock, Series A. IN WITNESS WHEREOF, the undersigned hereby certifies that the facts herein are true and accordingly, has signed this Certificate of Elimination this 11th day of April, 1991. By: /s/ Gerald Diamond Gerald Diamond President Attest: /s/ Larry G. Ayers Secretary (Corporate Seal) Date: 4-12-91 Sworn to and subscribed before me this 12th day of April, 1991. /s/ Angela W. Aiken NOTARY PUBLIC Notary Public DeKalb County Georgia My Commission Expires June 20, 1994 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION, AS AMENDED, OF SOUTHERN ELECTRONICS CORPORATION 1. The name of the Corporation is SOUTHERN ELECTRONICS CORPORATION (the "Corporation"). 2. Effective upon the date of filing of this Certificate of Amendment, the Certificate of Incorporation of the Corporation, as amended, (the "Certificate of Incorporation") shall be further amended as follows: The first paragraph of Article Fourth is hereby amended by deleting the first paragraph of Article Fourth in its entirety and substituting in lieu thereof the following new paragraph which shall read as follows: "The Corporation is authorized to issue two classes of shares to be designated respectively as `Common Stock' and `Preferred Stock.' The total number of shares which the Corporation is authorized to issue is Twenty Five Million One Hundred and Twenty-Nine Thousand (25,129,000) shares. The number of shares of Common Stock authorized is Twenty-Five Million (25,000,000) shares, and the par value of each share is $.01. The number of shares of Preferred Stock authorized is One Hundred Twenty-Nine Thousand Five Hundred (129,500) shares, and the par value of each share if $1.00." 3. All other terms and provisions of Article Fourth and the other Articles of the Certificate of Incorporation shall remain in full force and effect. 4. This amendment was duly adopted by the stockholders of the Corporation on November 8, 1993 in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by its duly authorized officers this 8th day of November, 1993. Signed, sealed and delivered in the presence of: Unofficial Witness /s/ Angela W. Aiken Notary Public My Commission expires: Notary Public DeKalb County Georgia My commission Expires June 20, 1994 [Affix Notarial Seal] CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION, AS AMENDED, OF SOUTHERN ELECTRONICS CORPORATION SOUTHERN ELECTRONICS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Southern Electronics Corporation resolutions were duly adopted setting forth a proposed amendment to the Certificate of Incorporation, as amended (the "Certificate of Incorporation:), of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, That the Certificate of Incorporation of this corporation be amended to add a new Article Ninth thereof, which Article Ninth thereof, which Article shall be and read as follows: "NINTH: At the 1994 Annual Meeting of Stockholders, the Board of Directors shall be divided into three classes, designated as Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1994 Annual Meeting of Stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding Annual Meeting of Stockholders beginning in 1995, successors to the class of directors whose term expires at that Annual Meeting of Stockholders shall be elected for a three-year term. If the number of directors has changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class at as nearly as equal a number as possible, and each additional director of any class number as possible, and each additional director of any class elected to fill a vacancy resulting from an increase in the size of such class shall hold office for a term that shall coincide with the remaining term of that class, unless otherwise required by law, but in no case shall a decrease in the number of directors within a class shorten the term of an incumbent director. Notwithstanding any other provisions of the Certificate of Incorporation or the Bylaws (and notwithstanding the fact that a lesser percentage for separate class votes for certain actions may be permitted by law, by the Certificate of Incorporation or by the Bylaws), the affirmative vote of the holders of not less than 80% of the votes entitled to be cast by the holders of all then outstanding shares of voting stock, voting together as a single class, will be required to amend or repeal any provision of the Certificate of Incorporation or the Bylaws to the extent that such action is inconsistent with the purpose of this Article Ninth; provided, however, that the provisions of this paragraph shall not apply to amendments to the Bylaws or Certificate of Incorporation that are recommended by not less than 75% of the members of the Board of Directors." SECOND: That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of the stockholders of said 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 amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has caused the Certificate of Amendment to the Certification of Incorporation to be executed, this 10th day of November, 1994. SOUTHERN ELECTRONICS CORPORATION By: /s/ Larry G. Ayers Larry G. Ayers, Vice President-Finance SOUTHERN ELECTRONICS CORPORATION By: /s/ Gerald Diamond Gerald Diamond, President Attest: /s/ Larry G. Ayers Larry G. Ayers, Secretary [CORPORATE SEAL] EX-10.7 3 SOUTHERN ELECTRONICS CORPORATION SOUTHERN ELECTRONICS DISTRIBUTORS, INC. REVOLVING CREDIT AGREEMENT Dated as of June 29, 1995 NATIONAL CITY BANK, COLUMBUS WACHOVIA BANK OF GEORGIA, N.A. TABLE OF CONTENTS Page Introduction . . . . . . . . . . . . . . . . . . . . . . . . . .1 SECTION I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . .1 Subsection 1.01 Definitions . . . . . . . . . . . . . .1 Subsection 1.02 Accounting Terms and Determinations . 10 SECTION II - COMMITMENT AND LOANS. . . . . . . . . . . . . . . 11 Subsection 2.01 Commitment. . . . . . . . . . . . . . 11 Subsection 2.02 Revolving Nature of Credit. . . . . . 11 Subsection 2.03 Types of Loans. . . . . . . . . . . . 11 Subsection 2.04 Procedures With Respect to Prime Loans and Offered Rate Loans . . . . 11 Subsection 2.05 Conversion of Certain Loans . . . . . 12 Subsection 2.06 Procedures With Respect to Eurodollar Loans . . . . . . . . . . . . . . . . 12 Subsection 2.07 Certain Matters With Respect to Loans 13 Subsection 2.08 Conditions to Each Loan . . . . . . . 13 Subsection 2.09 Warranty. . . . . . . . . . . . . . . 14 Subsection 2.10 Notes . . . . . . . . . . . . . . . . 14 Subsection 2.11 Recordkeeping . . . . . . . . . . . . 14 Subsection 2.12 Interest Rates. . . . . . . . . . . . 14 Subsection 2.13 Interest Payment Dates. . . . . . . . 15 Subsection 2.14 Interest Periods. . . . . . . . . . . 15 Subsection 2.15 Commitment and Administration Fees. . 15 Subsection 2.16 Termination or Reduction of Loan Commitment. . . . . . . . . . . . . . 16 Subsection 2.17 Optional Prepayments of Prime Loans . 16 Subsection 2.18 Computation of Interest and Fees. . . 16 Subsection 2.19 Payments. . . . . . . . . . . . . . . 17 Subsection 2.20 Use of Proceeds of Loans. . . . . . . 17 Subsection 2.21 Increased Taxes or Costs. . . . . . . 17 Subsection 2.22 Changes in Circumstances. . . . . . . 18 Subsection 2.23 Funding Losses. . . . . . . . . . . . 19 SECTION III - LETTERS OF CREDIT. . . . . . . . . . . . . . . . 19 Subsection 3.01 Letters of Credit . . . . . . . . . . 19 Subsection 3.02 Letter of Credit Applications . . . . 20 Subsection 3.03 Payments Under Letters of Credit. . . 20 Subsection 3.04 Payments by Banks . . . . . . . . . . 21 Subsection 3.05 Obligations Absolute. . . . . . . . . 21 Subsection 3.06 Increased Costs . . . . . . . . . . . 22 Subsection 3.07 Letter of Credit Compensation . . . . 22 Subsection 3.08 Uses of Letters of Credit . . . . . . 23 SECTION IV - CONDITIONS PRECEDENT. . . . . . . . . . . . . . . 23 Subsection 4.01 Documents Required for Closing. . . . 23 Subsection 4.02 Certificate Required for Subsequent Disbursements and Letters of Credit . 25 Subsection 4.03 Certain Events. . . . . . . . . . . . 25 Subsection 4.04 Legal Matters . . . . . . . . . . . . 25 Subsection 4.05 Additional Conditions to Issuance of Each Letter of Credit . . . . . . . . 25 SECTION V - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 26 Subsection 5.01 Original Representations and Warranties . . . . . . . . . . . . . 26 Subsection 5.02 Survival of Representations and Warranties. . . . . . . . . . . . . . 28 SECTION VI - BORROWERS' COVENANTS. . . . . . . . . . . . . . . 28 Subsection 6.01 Affirmative Covenants . . . . . . . . 29 Subsection 6.02 Negative Covenants. . . . . . . . . . 35 SECTION VII - EVENT OF DEFAULT . . . . . . . . . . . . . . . . 36 Subsection 7.01 Event of Default. . . . . . . . . . . 36 Subsection 7.02 Acceleration. . . . . . . . . . . . . 37 Subsection 7.03 Remedies. . . . . . . . . . . . . . . 37 SECTION VIII - ADMINISTRATIVE BANK . . . . . . . . . . . . . . 37 Subsection 8.01 Authorization . . . . . . . . . . . . 37 Subsection 8.02 Delegation of Duties. . . . . . . . . 38 Subsection 8.03 Exculpatory Provisions. . . . . . . . 38 Subsection 8.04 Reliance by Administrative Bank . . . 38 Subsection 8.05 Notice of Event of Default. . . . . . 39 Subsection 8.06 Non-Reliance on Administrative Bank and Other Banks . . . . . . . . . . . 39 Subsection 8.07 Indemnification . . . . . . . . . . . 39 Subsection 8.08 Administrative Bank in Its Individual Capacity. . . . . . . . . . . . . . . 39 SECTION IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . 40 Subsection 9.01 Construction. . . . . . . . . . . . . 40 Subsection 9.02 Further Assurances. . . . . . . . . . 40 Subsection 9.03 Enforcement and Waiver by Banks . . . 40 Subsection 9.04 Expenses of Banks . . . . . . . . . . 40 Subsection 9.05 Notices . . . . . . . . . . . . . . . 40 Subsection 9.06 Waiver and Release by Borrowers . . . 41 Subsection 9.07 Applicable Law. . . . . . . . . . . . 41 Subsection 9.08 Binding Effect, Assignment and Entire Agreement . . . . . . . . . . . . . . 42 Subsection 9.09 Severability. . . . . . . . . . . . . 42 Subsection 9.10 Counterparts. . . . . . . . . . . . . 42 Subsection 9.11 Setoffs; Sharing of Setoffs . . . . . 42 Subsection 9.12 Waiver of Jury Trial. . . . . . . . . 43 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 43 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . . . 44 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT, dated as of June 29, 1995, by and among (A) Southern Electronics Corporation, a Delaware corporation, and Southern Electronics Distributors, Inc., a Delaware corporation (collectively, the "Borrowers"), and (B) National City Bank, Columbus, a national banking association ("NCB"), and Wachovia Bank of Georgia, N.A., a national banking association ("WB") (collectively, the "Banks"). RECITAL: The Borrowers have requested that the Banks lend to them up to the sum provided for herein on a revolving loan basis, and the Banks are willing to do so, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the covenants herein contained, and each intending to be legally bound hereby, the parties agree as follows: SECTION I. DEFINITIONS 1.01 Definitions. As used herein: "Administrative Bank" means whichever of the Banks the Borrowers elect from time to time to have perform the functions of the Administrative Bank hereunder. Unless and until the Borrowers elect otherwise, WB shall perform the functions of the Administrative Bank. "Administration Fee" shall have the meaning assigned to it in subsection 2.15(B). "Administrative Bank Fee" shall have the meaning assigned to it in subsection 2.15(B). "Affected Bank" shall have the meaning assigned to it in subsection 2.22(A). "Affiliate" of any relevant Person means (A) any Person that directly, or indirectly through one or more intermediaries, controls the relevant Person (a "Controlling Person"), (B) any Person (other than the relevant Person or a Subsidiary of the relevant Person) which is controlled by or is under common control with a Controlling Person, or (C) any Person (other than a Subsidiary of the relevant Person) of which the relevant Person owns, directly or indirectly, 20% or more of the common stock or equivalent entity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Revolving Credit Agreement, as the same may from time to time be amended, modified or supplemented. "Applicable Margin" means, with respect to any Performance Pricing Determination Date, the percentage set forth below as the Applicable Margin based upon the L/TNW Ratio of the Borrowers set forth below, determined pursuant to subsection 2.12(E). Applicable L/TNW Ratio Margin Not more than .80 to 1 .75% Greater than .80 to 1 but not more than 1 to 1 1.00% Greater than 1 to 1 but not more than 1.33 to 1 1.25% Greater than 1.33 to 1 but not more than 1.6 to 1 1.50% Greater than 1.6 to 1 1.75% "Banks" shall have the meaning assigned to it in the introductory paragraph of this Agreement. "Borrowers" shall have the meaning assigned to it in the introductory paragraph of this Agreement. "Borrowing Date" means the date of any borrowing by the Borrowers pursuant to this Agreement. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in Columbus, Ohio or Atlanta, Georgia are authorized or required by law to close. "Closing" shall have the meaning assigned to it in subsection 4.01. "Code" shall have the meaning assigned to it in subsection 6.01(L)(1). "Commitment Fee" shall have the meaning assigned to it in subsection 2.15(A). "Consolidated Net Profit After Tax" shall have the meaning assigned to it in subsection 6.01(F)(4). "Controlling Person" shall have the meaning assigned to it in the definition of "Affiliate" contained in this subsection 1.01. "Current Assets" means, at any time, all assets that, in accordance with generally accepted accounting principles consistently applied, should be classified as current assets on a consolidated balance sheet of the Borrowers. "Current Liabilities" means, at any time, all liabilities that, in accordance with generally accepted accounting principles consistently applied, should be classified as current liabilities on a consolidated balance sheet of the Borrowers, including without limitation Indebtedness incurred hereunder and under the Notes. "Current Loan Documents" shall have the meaning assigned to it in subsection 9.08. "Documentary Letter of Credit" means a Letter of Credit which (A) is issued by the Issuing Bank for the account of either of the Borrowers, (B) expires not later than the earlier to occur of the then scheduled Loan Commitment maturity Date or 12 months from the date of issuance thereof and (C) supports payment for the purchase of inventory, merchandise and other property held for resale in the ordinary course of business of the Borrowers. "Documentary Letter of Credit Commission" shall have the meaning assigned to it in subsection 3.07(B). "Dollars" means the lawful currency of the United States. "Environmental Laws" shall have the meaning assigned to it in subsection 5.01(Q). "ERISA" shall have the meaning assigned to it in subsection 5.01(O). "Eurocurrency Reserve Percentage" means, with respect to any day, the then applicable maximum percentage (expressed as a decimal) prescribed by the Federal Reserve Board for determining reserve requirements (including without limitation any marginal, emergency, supplemental, special or other reserves) applicable generally to member banks of the Federal Reserve System in respect of "Eurocurrency Liabilities" pursuant to Regulation D or any other then applicable regulation of the Federal Reserve Board which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in said Regulation D. "Eurodollar Business Day" means a day on which banks are open for business in Columbus, Ohio and Atlanta, Georgia and on which dealings are carried on in the London interbank eurodollar market. "Eurodollar Loan" means a Loan accruing interest at a rate based on the Eurodollar Rate (Reserve Adjusted). "Eurodollar Rate" means, with respect to any Eurodollar Loan for any Interest Period, the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Eurodollar Loan offered for a term comparable to such Interest Period, which rates appear on the Reuters Screen LIBO Page effective as of 11:00 A.M., London time, two Eurodollar Business Days prior to the first day of such Interest Period, provided that (A) if more than one such offered rate appears on the Reuters Screen LIBO Page, the "Eurodollar Rate" will be the offered rate which is used in the majority of such quotations, if there is a majority, and otherwise the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of such offered rates; (B) if no such offered rates appear on such page, the "Eurodollar Rate" for such Interest Period will be the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than two major banks in New York City, selected by the Administrative Bank at approximately 10:00 A.M., New York City time, two Eurodollar Business Days prior to the first day of such Interest Period, for deposits in Dollars offered to leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Eurodollar Loan. "Eurodollar Rate (Reserve Adjusted)" means, with respect to any Eurodollar Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16%), determined pursuant to the following formula: Eurodollar Rate = Eurodollar Rate (Reserve Adjusted) 1 - Eurocurrency Reserve Percentage "Event of Default" shall have the meaning assigned to it in subsection 7.01. "FDIC" means the Federal Deposit Insurance Corporation or any successor thereto. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Financial Statements" means the audited consolidated financial statements of the Borrowers as of June 30, 1994 and the Unaudited Financial Statements. "Fixed Charges" means the sum of the Borrowers' (A) interest expense (including interest expense with respect to capitalized leases), plus (B) capital expenditures, plus (C) lease expense with respect to non-capitalized leases, plus (D) current maturities with respect to long term Indebtedness, all as determined on a consolidated basis in accordance with generally accepted accounting principles consistently applied. "Fixed Charges Coverage Ratio" means the ratio of the Income Available for Fixed Charges to the Fixed Charges of the Borrowers. "Income Available for Fixed Charges" means the Borrowers' (A) earnings before interest expense (including interest expense with respect to capitalized leases), income taxes, depreciation expense and amortization of property rights related to properties owned or held other than pursuant to capitalized leases, plus (B) lease expense with respect to non-capitalized leases, all as determined on a consolidated basis in accordance with generally accepted accounting principles consistently applied. "Indebtedness" means, as to the Borrowers, all items of indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct or contingent, joint or several, including without limitation: (A) All indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse; (B) All indebtedness in effect guaranteed, directly or indirectly, through agreements, contingent or otherwise: (1) to purchase such indebtedness; (2) to purchase, sell or lease (as lessee or lessor) property, products, materials or supplies or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such indebtedness or to assure the owner of the indebtedness against loss; or (3) to supply funds to or in any other manner invest in the debtor; (C) All indebtedness secured by (or for which the holder of such indebtedness has a right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon property owned or acquired subject thereto, whether or not the liabilities secured thereby have been assumed; and (D) All indebtedness incurred as the lessee of goods or services under leases that, in accordance with generally accepted accounting principles, should not be reflected on the lessee's balance sheet. "Interest Period" shall have the meaning assigned to it in subsection 2.14(A). "Issuing Bank" means (A) NCB with respect to the Pre-Existing Letters of Credit and (B) the Administrative Bank at the time of issuance with respect to each other Letter of Credit. "Laws" means all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any government or political subdivision or agency thereof, or any court or similar entity established by any thereof. "LC Amount" shall have the meaning assigned to it in subsection 3.01. "LC Share" means, as to each Bank, its participating share of a Letter of Credit issued pursuant to Section III determined by multiplying the LC Amount for such Letter of Credit by the Bank's Percentage. "Letter of Credit Application" shall have the meaning assigned to it in subsection 3.02. "Letters of Credit" shall have the meaning assigned to it in subsection 3.01. "Letters of Credit Maximum" means Five Million Dollars ($5,000,000). "Liabilities" means all Indebtedness that, in accordance with generally accepted accounting principles consistently applied, should be classified as liabilities on a consolidated balance sheet of the Borrowers. "Loans" shall have the meaning assigned to it in subsection 2.01. "Loan Commitment" means the sum of Thirty Million Dollars ($30,000,000) or such lesser amount as shall hereafter be determined from time to time pursuant to subsection 2.16. "Loan Commitment Maturity Date" means August 31, 1997; provided, however, that during the month of May in each year prior to the year in which the then Loan Commitment Maturity Date falls (thus, in May of 1996 when the then Loan Commitment Maturity Date is August 31, 1997), the Borrowers may request in writing to the Banks that the then Loan Commitment Maturity Date be extended for an additional period of one (1) year and the Banks, in their sole discretion, may elect to honor or not honor such request. The Banks shall notify in writing the Borrowers of the decision of the Banks, and in the event an extension is agreed upon it shall be reflected in an amendment to this Agreement which appropriately changes this definition of Loan Commitment Maturity Date to reflect the new such Loan Commitment Maturity Date. "Loan Commitment Period" means the period from and including the date hereof to but not including the Loan Termination Date. "Loan Termination Date" means the earliest of (A) the Loan Commitment Maturity Date, (B) the date on which the Loan Commitment is terminated or reduced to zero pursuant to the terms of subsection 2.16 or (C) the date of any acceleration pursuant to subsection 7.02. "L/TNW Ratio" shall have the meaning assigned to it in subsection 6.01(F)(2). "Material Ownership Change" means any change or series of changes in ownership of either of the Borrowers which causes the ownership of any shareholder or affiliated group of shareholders in either of the Borrowers to exceed the greater of (A) 5% of the outstanding shares of voting stock of either of the Borrowers or (B) such percentage of the outstanding shares of voting stock of either of the Borrowers as is equal to 110% of their percentage of ownership of the outstanding shares of voting stock of either of the Borrowers on the date hereof. "NCB" shall have the meaning assigned to it in the introductory paragraph of this Agreement. "Net Working Capital" means, at any time, the amount by which Current Assets exceed Current Liabilities. "New Loan" shall have the meaning assigned to it in subsection 2.05. "Note" shall have the meaning assigned to it in subsection 2.10. "Obligations" means the obligations of the Borrowers: (A) To pay the principal of and interest on the Notes in accordance with the terms thereof and to satisfy all of their other liabilities to the Banks hereunder and under the Notes, whether now existing or hereafter incurred, matured or unmatured, direct or contingent, joint or several, including any extensions, modifications or renewals thereof and substitutions therefor; (B) To repay to the Banks all amounts advanced by the Banks hereunder or under the Notes on behalf of the Borrowers, including without limitation advances pursuant to the Letters of Credit and advances for principal or interest payments to prior secured parties, mortgagees or lienors; and (C) To reimburse the Banks, on demand, for all of the Banks' expenses and costs, including the reasonable fees and expenses of their counsel, in connection with the preparation, administration, amendment, modification or enforcement of this Agreement and the documents required hereunder, including without limitation any proceeding brought or threatened to enforce payment of any of the obligations referred to in the foregoing clauses (A) and (B). "Offered Base Rate" means, with respect to any Interest Period for any Offered Rate Loan, that rate per annum which the Banks have jointly established as the then Offered Base Rate. "Offered Rate Loan" means a Loan accruing interest at a rate based on the Offered Base Rate. "Old Loan" shall have the meaning assigned to it in subsection 2.05. "Outstanding LC Amounts" means the aggregate of all outstanding LC Amounts for Letters of Credit. "PBGC" shall have the meaning assigned to it in subsection 6.01(L). "Percentage" means, in the case of each Bank, the percentage which the Bank's Share of the Commitment is of the Loan Commitment. "Performance Pricing Determination Date" shall have the meaning assigned to it in subsection 2.12(E). "Permitted Liens" means: (A) Liens for taxes, assessments or similar charges incurred in the ordinary course of business that are not yet due and payable; (B) Pledges or deposits made in the ordinary course of business to secure payment of workers' compensation, or to participate in any fund in connection with workers' compensation, unemployment insurance, old-age pensions or other social security programs; (C) Liens of mechanics, materialmen, warehousemen, carriers or other like liens, securing obligations incurred in the ordinary course of business that are not yet due and payable; (D) Good faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of ten percent (10%) of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (E) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially detracts from the value of or impairs the use of such property by the Borrowers in the operation of their business, and none of which is violated in any material respect by existing or proposed structures or land use; (F) Existing liens set forth or described on Schedule 1.01-1 attached hereto; (G) Purchase money liens aggregating not more than Two Hundred Fifty Thousand Dollars ($250,000) for capital expenditures in connection with purchases after the date of this Agreement; and (H) The following, if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings, so long as levy and execution thereon have been stayed and continue to be stayed and they do not, in the aggregate, materially detract from the value of the property of the Borrowers, or materially impair the use thereof in the operation of their business: (1) Claims or liens for taxes, assessments or charges due and payable and subject to interest or penalty; (2) Claims, liens and encumbrances upon, and defects of title to, real or personal property, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits; (3) Claims or liens of mechanics, materialmen, warehousemen, carriers or other like liens; and (4) Adverse judgments on appeal. "Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof. "Plan" shall have the meaning assigned to it in subsection 5.01(O). "Pre-Existing Letters of Credit" shall have the meaning assigned to it in subsection 3.01. "Prime Loan" means a Loan accruing interest at a rate based on the Prime Rate. "Prime Rate" means the rate of interest in effect from time to time which is publicly announced by the Administrative Bank from time to time as its prime rate. Said prime rate is not necessarily nor is it intended to be the lowest rate of interest charged by the Administrative Bank in connection with extensions of credit. "Records" means correspondence, memoranda, tapes, discs, papers, books and other documents, or transcribed information of any type, whether expressed in ordinary or machine language. Redeemable Preferred Stock" means, with respect to any Person, any preferred stock issued by such Person which is at any time prior to the Loan Termination Date either (A) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (B) redeemable at the option of the holder thereof. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder with respect to which the 30-day notice requirements to PBGC has not been waived. "Restricted Payment" means (A) any dividend on any shares of either Borrower's capital stock (except dividends payable solely in shares of its capital stock) or (B) any payment on account of the purchase, redemption, retirement or acquisition of (1) any shares of either Borrower's capital stock (except shares acquired upon the conversion thereof into other shares of its capital stock) or (2) any option, warrant or other right to acquire shares of either Borrower's capital stock. "Senior Management" means all officers having the title of Vice President and above. "Share of the Borrowing" means, as to each Bank, the amount determined by multiplying the amount of the borrowing by the Bank's Percentage. "Share of the Commitment" means 50% of the Loan Commitment in the case of NCB and 50% of the Loan Commitment in the case of WB. "Share of the Outstanding LC Amounts" means, as to each Bank, the amount determined by multiplying the Outstanding LC Amounts by the Bank's Percentage. "Stand-By Letter of Credit" means a Letter of Credit which (A) is issued by the Issuing Bank for the account of either of the Borrowers, (B) expires not later than the earlier to occur of the then scheduled Loan Commitment Maturity Date or 12 months from the date of issuance thereof and (C) supports payment for any Indebtedness permitted under this Agreement. "Stand-By Letter of Credit Commission" shall have the meaning assigned to it in subsection 3.07(C). "Stockholders' Equity" means, at any time, the stockholders' equity of the Borrowers, as set forth or reflected on the most recent consolidated balance sheet of the Borrowers prepared in accordance with generally accepted accounting principles consistently applied, but excluding any Redeemable Preferred Stock of the Borrowers. Stockholders' equity generally includes, but is not limited to, (A) the par or stated value of all outstanding capital stock, (B) capital surplus, (C) retained earnings and (D) various deductions such as (1) purchases of treasury stock, (2) valuation allowances, (3) receivables due from an employee stock ownership plan, (4) employee stock ownership plan debt guarantees and (5) translation adjustments for foreign currency transactions. "Subsidiary" means any corporation or partnership of which more than 50% of the outstanding voting securities or partnership interests shall, at the time of determination, be owned directly, or indirectly through one or more intermediaries, by either of the Borrowers. "Tangible Net Worth" means, at any time, Stockholders' Equity, less the sum of: (A) Any surplus resulting from any write-up of assets subsequent to the Unaudited Financial Statements Date; (B) All assets which would be treated as intangible assets for balance sheet presentation purposes under generally accepted accounting principles consistently applied, including without limitation goodwill (whether representing the excess of cost over book value of assets acquired, or otherwise), trademarks, tradenames, copyrights, patents and technologies, and unamortized debt discount and expense; (C) Any amount at which shares of capital stock of either of the Borrowers appear as an asset on the Borrowers' consolidated balance sheet; (D) Loans and advances to stockholders, directors, officers or employees of the Borrowers; and (E) Deferred expenses. "Unaudited Financial Statements" means the unaudited consolidated financial statements of the Borrowers as of the Unaudited Financial Statements Date. "Unaudited Financial Statements Date" means March 31, 1995. "WB" shall have the meaning assigned to it in the introductory paragraph of this Agreement. 1.02 Accounting Terms and Determinations. Unless otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles, applied on a basis consistent with the most recent audited consolidated financial statements of the Borrowers delivered to the Banks, except for changes concurred in by the Borrowers' independent public accountants or otherwise required by a change in generally accepted accounting principles unless with respect to any such change: (A) the Borrowers shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (B) the Banks shall so object in writing within thirty (30) days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made. SECTION II. COMMITMENT AND LOANS 2.01 Commitment. Subject to the terms and conditions of this Agreement, each Bank severally agrees to make loans to the Borrowers on a revolving basis, from time to time during the Loan Commitment Period, in such amounts as the Borrowers may from time to time request in accordance with subsection 2.04, subsection 2.05 or subsection 2.06 (such loans are herein called "Loans"); provided that the aggregate principal amount which any Bank shall have outstanding hereunder on loan to the Borrowers (including for this purpose such Bank's Share of the Outstanding LC Amounts) shall not at any time exceed such Bank's Share of the Commitment. 2.02 Revolving Nature of Credit. The Loans are revolving in nature and, within the limits set forth in subsection 2.01 and subject to the other terms and conditions of this Agreement, the Borrowers may borrow under subsection 2.01, prepay and reborrow at any time during the Loan Commitment Period and prior to the Loan Termination Date. 2.03 Types of Loans. Each Loan shall be a Prime Loan, an Offered Rate Loan or a Eurodollar Loan, it being understood that: (A) any such Loans shall be made by each Bank pro rata according to its respective Percentage, (B) Prime Loans and Offered Rate Loans shall be made as provided in subsections 2.04, 2.05 and 2.07 and (C) Eurodollar Loans shall be made as provided in subsections 2.05, 2.06 and 2.07. 2.04 Procedures With Respect to Prime Loans and Offered Rate Loans. For Prime Loans and Offered Rate Loans, the Borrowers shall give the Administrative Bank notice (which notice must be in substantially the form of Exhibit 2.04, with appropriate insertions, and received by the Administrative Bank prior to 12:00 noon in the time zone of the Administrative Bank on the requested Borrowing Date), which notice shall state: (A) Whether the Loan comprising such borrowing is to be a Prime Loan or an Offered Rate Loan; (B) The requested Borrowing Date, which shall be a Business Day; (C) The aggregate principal amount of such borrowing, which shall be in an amount equal to an integral multiple of $50,000 for a Prime Loan or $100,000 for an Offered Rate Loan but shall not, for any Offered Rate Loan, be less than $1,000,000; and (D) In the case of an Offered Rate Loan borrowing, the duration of the Interest Period with respect thereto, which shall be 30, 60 or 90 calendar days and which shall not end after the Loan Commitment Maturity Date in any event. The Administrative Bank shall promptly advise each Bank of any such notice. Upon fulfillment of the applicable conditions set forth herein, each Bank shall provide to the Borrowers, at the Administrative Bank's office at the address applicable for notices under subsection 8.05, immediately available funds covering such Bank's Share of the Borrowing. No notice of borrowing given pursuant to this subsection 2.04 shall be revocable by the Borrowers at any time after its receipt by the Administrative Bank, provided that the Administrative Bank may, in its discretion, consent to any revocation given before the Administrative Bank has notified the Banks of such notice. 2.05 Conversion of Certain Loans. The Borrowers may convert all or any part of any outstanding Prime Loan, Offered Rate Loan or Eurodollar Loan (herein in this subsection 2.05 called an "Old Loan") into another Prime Loan, Offered Rate Loan or Eurodollar Loan of the same type or of another of such types (herein in this subsection 2.05 called a "New Loan"), by giving advance notice thereof in accordance with the procedures set forth in subsection 2.04 or subsection 2.06, whichever is applicable (which notice shall, in addition to the matters specified in subsection 2.04 or subsection 2.06, specify the type and amount of the Old Loan that is to be converted into the New Loan which is requested pursuant to subsection 2.04 or subsection 2.06); provided that: (A) no Offered Rate Loan or Eurodollar Loan shall be converted on any day other than the last day of the then-current Interest Period relating to such Loan, (B) no Offered Rate Loan or Eurodollar Loan shall in any event have (and the Borrowers shall not in any event designate) an Interest Period ending after the Loan Commitment Maturity Date, (C) no New Loan of a particular type shall be less than the amount specified in subsection 2.04(C) or subsection 2.06(C) applicable to such type and (D) no conversion shall be permitted hereunder when an Event of Default has occurred and is continuing. If, with respect to any Old Loan which is an Offered Rate Loan or Eurodollar Loan, the Borrowers do not give the notice provided for above in this subsection 2.05, or no conversion with respect thereto shall be permitted pursuant to the preceding sentence, the Borrowers shall be deemed to have requested that such Old Loan be converted to a Prime Loan in the same principal amount. In effecting each conversion, each Bank shall, on the Borrowers' behalf, directly apply the proceeds of the New Loan to the payment of the Old Loan, and only the excess (if any) of the proceeds of the New Loan over the amount being repaid shall be directly paid over to the Borrowers. 2.06 Procedures With Respect to Eurodollar Loans. Eurodollar Loans may be made from and after the date hereof in accordance with the terms of this Agreement, provided that the maturity of any such Eurodollar Loans shall not extend past the Loan Commitment Maturity Date in any event. For a Eurodollar Loan, the Borrowers shall give the Administrative Bank notice (which notice must be in substantially the form of Exhibit 2.06, with appropriate insertions, and received at least three Eurodollar Business Days before each requested Eurodollar Loan borrowing), which notice shall state: (A) That the Loan comprising such borrowing is to be a Eurodollar Loan; (B) The requested Borrowing Date, which shall be a Eurodollar Business Day; (C) The aggregate principal amount of such borrowing, which shall be in an amount equal to an integral multiple of $100,000 but shall not, in any event, be less than $1,000,000; and (D) The duration of the Interest Period with respect thereto, which shall be 1, 2 or 3 months and which shall not end after the Loan Commitment Maturity Date in any event. The Administrative Bank shall promptly advise each Bank of any such Eurodollar Loan notice. Upon fulfillment of the applicable conditions set forth herein, each Bank shall provide to the Borrowers, at such Bank's office at the address applicable for notices under subsection 8.05, immediately available funds covering such Bank's Share of the Borrowing. No notice of borrowing given pursuant to this subsection 2.06 shall be revocable by the Borrowers at any time after its receipt by the Administrative Bank, provided that the Administrative Bank may, in its discretion, consent to any revocation given before the Administrative Bank has notified the Banks of such notice. 2.07 Certain Matters With Respect to Loans. (A) All borrowings, conversions and repayments of the Prime Loans, Offered Rate Loans and Eurodollar Loans shall be effected so that, after giving effect thereto, each type and all types of Prime Loans, Offered Rate Loans and Eurodollar Loans shall be in existence pro rata among the Banks according to their respective Percentages. (B) The Borrowers shall not request and no Bank shall make any Loan of any type if, as a result of the making of such Loan, the aggregate principal amount of all Loans of any Bank outstanding hereunder (including for this purpose the Bank's Share of the Outstanding LC Amounts) would exceed such Bank's Share of the Commitment. 2.08 Conditions to Each Loan. No Bank shall have any obligation to make (whether initially, pursuant to subsection 2.04, pursuant to subsection 2.05, pursuant to subsection 2.06 or otherwise) any Loan if the conditions precedent to the making of such Loan specified herein shall have not been satisfied or if an Event of Default shall have occurred and be continuing or will result therefrom, and any Loan made in the discretion of the Banks during the continuance of any Event of Default shall be made as a Prime Loan, and not as an Offered Rate Loan or a Eurodollar Loan, subject to the provisions of subsection 2.12(D). 2.09 Warranty. Each notice of borrowing referred to in subsection 2.04, subsection 2.05 or subsection 2.06 shall constitute a representation and warranty by the Borrowers to each Bank that on the requested Borrowing Date no Event of Default shall have occurred and be continuing or will result therefrom. 2.10 Notes. The Loans of each Bank shall be evidenced by a joint and several promissory note of the Borrowers (a "Note") substantially in the form set forth in Exhibit 2.10, with appropriate insertions, dated the date hereof, payable to the order of such Bank in a principal amount equal to such Bank's Share of the Commitment, it being expressly agreed that all principal and all interest shall be payable at maturity (whether by acceleration or otherwise). 2.11 Recordkeeping. Each Bank may record on the schedule attached to its Note or elsewhere in its Records the date and amount of each Loan made by such Bank, each repayment thereof and, in the case of each Loan other than a Prime Loan, the dates on which the Interest Period for such Loan shall begin and end. The amounts so recorded shall be rebuttable presumptive evidence of the amounts owing and unpaid on such Note. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the obligations of the Borrowers hereunder or under any Note to repay the principal amount of the Loans together with all interest accruing thereon. 2.12 Interest Rates. The unpaid principal amount from time to time outstanding of each Note shall bear interest as follows: (A) As to any unpaid principal amount representing Prime Loans: on and from the date hereof to the Loan Termination Date, at a rate per annum equal to the Prime Rate; (B) As to any unpaid principal amount representing Offered Rate Loans: during each applicable Interest Period, at a rate per annum equal to the sum of (1) the Offered Base Rate applicable to such Interest Period, plus (2) the Applicable Margin; (C) As to any unpaid principal amount representing Eurodollar Loans: during each applicable Interest Period, at a rate per annum equal to the sum of (1) the Eurodollar Rate (Reserve Adjusted) applicable to such Interest Period, plus (2) the Applicable Margin; (D) Notwithstanding the provisions of the preceding clauses (A), (B) or (C), all unpaid principal of any Loan shall bear interest after maturity (whether by acceleration or otherwise) at a rate per annum equal to the higher of the rate in effect prior to such maturity or the sum of (1) the Prime Rate plus (2) 2% (but not in any event less than the Prime Rate in effect as at such maturity); and (E) In determining the Applicable Margin and any interest rate to which it applies for purposes of this subsection 2.12, the Borrowers and the Banks shall refer to the Borrowers' most recent consolidated quarterly and annual (as the case may be) financial statements delivered pursuant to subsection 6.01(B). If such financial statements require a change in the Applicable Margin and any interest rate to which it applies pursuant to this subsection 2.12, the Borrowers shall deliver to the Banks, along with such financial statements, a notice to that effect, which notice shall set forth in reasonable detail the calculations establishing the required change. The date which is ten (10) Business Days after receipt by the Banks of such financial statements and notice, commencing with the financial statements for the fiscal quarter ending June 30, 1995, is the "Performance Pricing Determination Date." Any such required change in the Applicable Margin and any interest rate to which it applies shall become effective on such Performance Pricing Determination Date and shall be in effect until the next Performance Pricing Determination Date; provided, however, that: (1) changes in the Applicable Margin and any interest rate to which it applies shall only be effective for Interest Periods commencing on or after the Performance Pricing Determination Date; and (2) no Applicable Margin or any interest rate to which it applies shall be decreased pursuant to this subsection 2.12 if, as of the Performance Pricing Determination Date, an Event of Default, or an event which, with the giving of notice or passage of time or both, would become an Event of Default, has occurred. 2.13 Interest Payment Dates. Subject to subsection 2.19, all accrued interest on all Prime Loans shall be payable monthly, on the last day of each month, and at maturity (whether by acceleration or otherwise), commencing July 31, 1995. Subject to subsection 2.19, all accrued interest on each Offered Rate Loan and each Eurodollar Loan shall be payable on the last day of each Interest Period relating to such Loan and at maturity (whether by acceleration or otherwise). 2.14 Interest Periods. (A) Except as is hereinafter provided in this subsection 2.14, each period for the payment of interest on a Loan (the "Interest Period") shall commence on the date the Loan is made, continued or converted and shall end in the case of an Offered Rate Loan on the date which is 30, 60 or 90 calendar days thereafter and in the case of a Eurodollar Loan on the date which is 1, 2 or 3 months thereafter, in each case as the Borrowers shall have specified in the Borrowers' related notice of borrowing given pursuant to subsection 2.04, subsection 2.05 or subsection 2.06. (B) Each Interest Period which would otherwise end on a day which is not a Business Day or Eurodollar Business Day, as the case may be, shall end on the next succeeding Business Day in the case of an Offered Rate Loan or Eurodollar Business Day in the case of a Eurodollar Loan (unless the result of the foregoing would be to extend the Interest Period of a Eurodollar Loan to the next succeeding calendar month, in which case with respect to such Eurodollar Loan such Interest Period shall end on the next preceding Eurodollar Business Day). 2.15 Commitment and Administration Fees. The following fees shall be applicable: (A) The Borrowers agree to pay to the Administrative Bank for the ratable account of the Banks (in accordance with each Bank's Share of the Commitment) a commitment fee (the "Commitment Fee") accruing from the date hereof computed at the rate of .25% per annum on the average daily unused portion of the Share of the Commitment of each Bank. In computing the Commitment Fee, the unused portion shall not be reduced by a Bank's Share of the Outstanding LC Amounts. The Commitment Fee shall be payable quarterly in arrears on the last day of each September, December, March and June, commencing with September 30, 1995, and ending on the Loan Termination Date. (B) The Borrowers agree to pay to the Administrative Bank (1) for the ratable account of the Banks (in accordance with each Bank's Share of the Commitment) an administration fee (the "Administration Fee") accruing from the date hereof in an aggregate amount of $2,500 per calendar quarter and (2) for the account of the Administrative Bank only an Administrative Bank fee (the "Administrative Bank Fee") in the amount of $1,000 per calendar quarter, in each case pro rated for any partial calendar quarter hereunder. The Administration Fee and the Administrative Bank Fee shall be payable quarterly in arrears on the last day of each September, December, March and June, commencing with September 30, 1995. 2.16 Termination or Reduction of Loan Commitment. The Borrowers shall have the right, upon not less than three Business Days' prior notice to the Administrative Bank, to terminate, or from time to time ratably reduce, the Loan Commitment, provided that (A) any reduction shall be accompanied by the ratable prepayment of the Notes, together with accrued interest thereon to the date of such prepayment, to the extent, if any, that the aggregate unpaid principal amount thereof then outstanding exceeds the amount of the Loan Commitment as then reduced, together with the payment of any unpaid Commitment Fee then accrued hereunder in respect of the Loan Commitment, and (B) any termination shall be accompanied by prepayment in full of the unpaid principal amount of the Notes, together with accrued interest thereon to the date of such prepayment and the payment of any unpaid Commitment Fee then accrued hereunder in respect of the Loan Commitment; provided that any prepayment of any Offered Rate Loans or Eurodollar Loans pursuant to this subsection 2.16 shall be subject to the provisions of subsection 2.23. Any such reduction of the Loan Commitment shall be in an aggregate amount of $1,000,000, or a whole multiple thereof. Any such reduction shall ratably reduce permanently the Share of the Commitment allocable to each Bank then in effect. If not terminated earlier, the Loan Commitment shall automatically terminate on the Loan Commitment Maturity Date. 2.17 Optional Prepayments of Prime Loans. The Borrowers may, at their option, ratably prepay the Prime Loans, without premium or penalty, in whole or in part, upon notice to the Administrative Bank, not later than 12:00 noon in the time zone of the Administrative Bank on the date of prepayment, specifying the amount of prepayment. Upon receipt of such notice the Administrative Bank shall promptly notify each Bank thereof. Such notice shall be irrevocable and the payment amount specified in such notice shall be due and payable on the date specified, together with accrued interest to such date on the amount prepaid. Partial optional prepayments of the Prime Loans shall be in an aggregate principal amount of at least $50,000 or a whole multiple thereof. 2.18 Computation of Interest and Fees. Interest on the Loans and the Notes and all fees payable pursuant hereto shall be calculated on the basis of a year of 360 days for the actual days elapsed. Any change in the interest rate on the Loans resulting from a change in the Prime Rate shall become effective as of the opening of business on the day on which such change in the Prime Rate shall become effective. The Administrative Bank shall as soon as practicable notify the Borrowers and the Banks of the effective date and the amount of each such change in the Prime Rate. 2.19 Payments. All payments (including prepayments) to be made by the Borrowers on account of principal of and interest on the Notes and fees payable pursuant hereto shall be made without set-off or counterclaim and shall be made to the Administrative Bank at its address in effect from time to time for notices under subsection 8.05, in each case in Dollars and in immediately available funds and for the ratable account of each Bank. If any payment hereunder becomes due and payable on a day other than a Business Day or Eurodollar Business Day, whichever is applicable, the due date for such payment shall be extended to the next succeeding Business Day or Eurodollar Business Day, whichever is applicable, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension, unless the result of the foregoing would be to extend the due date of a Eurodollar Loan to the next succeeding calendar month, in which case, with respect to such Eurodollar Loan, such due date shall end on the next preceding Eurodollar Business Day. 2.20 Use of Proceeds of Loans. The proceeds of the Loans shall be used by the Borrowers initially to repay in full all revolving credit loan amounts outstanding under the Current Loan Documents (if any) and thereafter for their working capital requirements, capital expenditures and other general corporate purposes, but in any case subject to the provisions of subsection 6.02(I). 2.21 Increased Taxes or Costs. If any Bank shall have determined that (A) Regulation D of the Federal Reserve Board, (B) the adoption of any applicable law, rule or regulation, whether domestic or foreign, after the date hereof, (C) any change after the date hereof in any applicable law, rule or regulation, whether domestic or foreign, whether now or hereafter in effect, and whether or not presently applicable to any Bank, or any change after the date hereof in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or (D) compliance by any Bank with any request or directive issued after the date hereof including any such request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency: (1) Shall subject any Bank to any tax, duty or other charge with respect to its Loans, its Note or its obligation to make or maintain Loans, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its Loans or any other amounts due under this Agreement in respect of its Loans or its obligation to make or maintain Loans (except for a change in the rate of tax on the overall net income of such Bank); (2) Shall impose, modify or deem applicable any reserve (including without limitation any reserve imposed by the Federal Reserve Board), special deposit, minimum capital, capital ratio or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank or its holding company; or (3) Shall impose on any Bank any other condition affecting its Loans, its Note or its obligation to make or maintain Loans; and the result of any of the foregoing is to increase the cost to or impose a cost on such Bank of making or maintaining any Loan (other than Prime Loans) or its Share of the Commitment, or reduce the amount of any rate of return on such Bank's capital as a consequence thereof or any sum received or receivable by such Bank under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then from time to time, within 30 days after demand by such Bank (which demand shall have been made within six (6) months after such Bank first has knowledge of an occurrence entitling such Bank to compensation pursuant to this subsection 2.21), the Borrowers shall pay to such Bank such additional amount or amounts as will compensate such Bank for such costs, increased costs or reduction less the amount, if any, of such costs, increased costs or reduction that (i) is reasonably attributable to unsafe or unsound banking practices of such Bank or (ii) is an amount which such Bank is not generally charging to other similarly situated borrowers from such Bank. Each Bank shall promptly notify the Borrowers of any event of which it has knowledge, occurring after the date hereof, which shall entitle such Bank to compensation pursuant to this subsection 2.21. In determining such amount, such Bank may use any reasonable averaging and attribution methods. 2.22 Changes in Circumstances. (A) If any of the matters described in clause (B), (C) or (D) of the introductory portion of subsection 2.21 shall make it unlawful or impossible for a Bank (the "Affected Bank") to make, maintain or fund a type of Loan, then (1) the Affected Bank shall promptly notify each of the other parties hereto of that fact (which notification shall be accompanied by a statement from the Affected Bank setting forth the basis therefor), (2) the obligation of all Banks to make or effect conversions into the type of Loans made unlawful for the Affected Bank shall, upon the effectiveness of such event, be suspended for the duration of such unlawfulness, and (3) on the last day of the current Interest Period for Loans of such type or, in any event, if the Affected Bank so requests, on such earlier date as may be required by the relevant law, regulation or interpretation, the Loans of such type then made by the Affected Bank shall, unless then repaid in full, together with accrued interest thereon, automatically convert to Prime Loans. (B) If, with respect to any Interest Period relating to a Loan: (1) The Administrative Bank determines that deposits in Dollars in the applicable amounts are not being offered in the relevant market for such Interest Period; or (2) Any Bank determines that the interest rate applicable to its Loan or Loans relating to such Interest Period will not adequately and fairly reflect the cost to such Bank of maintaining or funding such Loan or Loans; such Bank shall give notice thereof to the other parties hereto (which notice shall be accompanied by a statement from such Affected Bank or Banks setting forth the basis therefor), whereupon the obligations of the Affected Bank or Banks to make Loans of the affected type shall be suspended until it notifies the other parties hereto that the circumstances giving rise to such suspension no longer exist. 2.23 Funding Losses. The Borrowers hereby agree that, upon demand by any Bank (which demand shall be accompanied by a statement from the Bank or Banks in question setting forth the basis for such demand), the Borrowers shall indemnify any Bank furnishing such statement against any reasonable amount of loss or expense which such Bank may reasonably sustain or incur (including without limitation lost profits or any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain Offered Rate Loans or Eurodollar Loans), as reasonably determined by such Bank, as a result of (A) any payment (including after acceleration pursuant to subsection 7.02), prepayment or conversion of any such Loan of such Bank on a date other than the last day of an Interest Period for such Loan, or (B) any failure of the Borrowers to borrow or convert any such Loan on the date specified therefor in a notice of borrowing or conversion pursuant to this Agreement; provided, however, that the Borrowers shall indemnify the Banks against lost profits only if such loss occurred as a result of an Event of Default or an action or failure to act of the Borrowers, and not if such loss occurred as a result of any change in the law rendering certain such Loans unlawful. Prepayment of such Loans may be negotiated with the Banks with respect to premium and payment of verified lost profits. SECTION III. LETTERS OF CREDIT 3.01 Letters of Credit. Subject to the terms and conditions of this Agreement, the Issuing Bank agrees to issue irrevocable Stand-By Letters of Credit and Documentary Letters of Credit (collectively, the "Letters of Credit") for the account of either Borrower as account party from time to time until the Loan Termination Date in an aggregate amount at any one time not to exceed the lesser of (A) the Letters of Credit Maximum or (B) the excess of the Loan Commitment then in effect over the sum of (1) the aggregate principal amount of the then outstanding Loans, (2) the Outstanding LC Amounts and (3) the aggregate amount of any unreimbursed drawings under the Letters of Credit which have not been funded by Loans. The issuance of any Letter of Credit in accordance with the provisions of this Section III shall be given effect in the calculation of and thereby reduce the remaining Loan Commitment available for Loans, with each Bank's Share of the Commitment available for Loans being reduced by such Bank's LC Share of such Letter of Credit due to the participation in such Letters of Credit provided for below, and shall require the satisfaction of the conditions herein as if such issuance were the making of a Loan. Immediately upon the issuance of each Letter of Credit, each Bank hereby agrees to irrevocably purchase, and shall be deemed to have irrevocably purchased, from the Issuing Bank a participation in such Letter of Credit and drawing thereunder in an amount equal to such Bank's LC Share determined on the maximum amount which is or at any time may become available to be drawn thereunder (the "LC Amount"). Further, and consistent therewith, as of the date hereof each pre-existing Letter of Credit then outstanding issued by the Issuing Bank and listed on Schedule 3.01 (the "Pre-Existing Letters of Credit") shall become and thereafter be deemed a Letter of Credit issued hereunder with each Bank hereby agreeing to irrevocably purchase, and being deemed to have irrevocably purchased, from the Issuing Bank a participation in each such Letter of Credit and drawing thereunder in an amount equal to such Bank's LC Share (it being understood that the Issuing Bank under the Pre-Existing Letters of Credit will share with the other Bank on a reasonable basis determined by such Issuing Bank the commissions previously received by the Issuing Bank upon issuance of thePre-Existing Letters of Credit). In determining whether to pay under a Letter of Credit, the Issuing Bank shall be responsible only to determine that the documents and certificates required to be delivered under that Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit. Each Letter of Credit may provide that the Issuing Bank may (but shall not be required to) pay the beneficiary thereof upon the occurrence of an Event of Default and the acceleration of the maturity of the Loans or, if payment is not then due to the beneficiary, provide for the deposit of funds in an account to secure payment to the beneficiary and that any funds so deposited shall be paid to the beneficiary of the Letter of Credit if conditions to such payment are satisfied or returned to the Issuing Bank for distribution to the Banks (or, if all obligations of the Borrowers under this Agreement and the Notes shall have been indefeasibly paid in full, to the Borrowers) if no payment to the beneficiary has been made and the final date available for drawings under the Letter of Credit has passed. Each payment or deposit of funds by the Issuing Bank as provided in this paragraph shall be treated for all purposes of this Agreement as a drawing duly honored by the Issuing Bank under the related Letter of Credit. 3.02 Letter of Credit Applications. Each Letter of Credit shall be issued pursuant to an appropriate Letter of Credit Application executed and delivered by the desired Borrower for such Letter of Credit on the standard form of the Issuing Bank from time to time (or on such other form as may be approved by the Issuing Bank) (a "Letter of Credit Application"), and each Letter of Credit shall (A) expire not later than the earlier to occur of the then scheduled Loan Commitment Maturity Date or 12 months from the date of issuance thereof and (B) be denominated in Dollars or any other currency agreed to by the Issuing Bank and the Banks. 3.03 Payments Under Letters of Credit. In the event of any request for drawing under any Letter of Credit by the beneficiary thereof, the Issuing Bank shall notify the Borrowers on or before the date on which the Issuing Bank intends to honor such drawing, and the Borrowers shall reimburse the Issuing Bank on the day on which such drawing is honored in an amount in same day funds equal to the amount of such drawing; provided that, anything contained in this Agreement to the contrary notwithstanding, unless the Borrowers shall have notified the Issuing Bank prior to 11:00 A.M. in the time zone of the Issuing Bank on the Business Day immediately prior to the date of such drawing that the Borrowers intend to reimburse the Issuing Bank for the amount of such drawing with funds other than the proceeds of Loans, the Borrowers shall be deemed to have timely given a notice of borrowing to the Administrative Bank pursuant to subsection 2.04 requesting the Banks to make Loans which are Prime Loans on the date on which such drawing is honored in an amount equal to the amount of such drawing, and, subject to satisfaction or waiver of the conditions specified herein for Loans, the Banks shall, on the date of such drawing, make Loans which are Prime Loans on the date on which such drawing is honored in amount equal to the amount of such drawing, the proceeds of which shall be applied directly by the Administrative Bank to reimburse the Issuing Bank for the amount of such drawing; and provided, further, that, in such case, if for any reason proceeds of Loans are not received by the Issuing Bank on such date in an amount equal to the amount of such drawing, the Borrowers shall reimburse the Issuing Bank, on the Business Day immediately following the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Loans, if any, which are so received, plus accrued interest on such amount at a rate per annum equal to the Prime Rate plus 2%. 3.04 Payments by Banks. In the event that the Borrowers shall fail to reimburse the Issuing Bank as provided in subsection 3.03 in an amount equal to the amount of any drawing honored by the Issuing Bank under a Letter of Credit issued by it, the Issuing Bank shall promptly notify each Bank of the unreimbursed amount of such drawing and of such Bank's respective participation therein. Each Bank shall make available to the Issuing Bank an amount equal to its respective participation in same day funds, at the office of the Issuing Bank specified in such notice, not later than 1:00 P.M. in the time zone of the Issuing Bank on the Business Day after the date notified by the Issuing Bank. In the event that any Bank fails to make available to the Issuing Bank the amount of such Bank's participation in such Letter of Credit as provided in this subsection 3.04, the Issuing Bank shall be entitled to recover such amount on demand from such Bank together with interest at the customary rate set by the Issuing Bank for the correction of errors among banks. Nothing in this subsection 3.04 shall be deemed to prejudice the right of any Bank to recover from the Issuing Bank any amounts made available by such Bank to the Issuing Bank pursuant to this subsection 3.04 in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit by the Issuing Bank in respect of which payment was made by such Bank constituted gross negligence or willful misconduct on the part of the Issuing Bank. The Issuing Bank shall distribute to each other Bank which has paid all amounts payable by it under this subsection 3.04 with respect to any Letter of Credit issued by the Issuing Bank such other Bank's pro rata share (determined based on the Bank's Percentage) of all payments received by the Issuing Bank from the Borrowers in reimbursement of drawings honored by the Issuing Bank under such Letter of Credit when such payments are received. 3.05 Obligations Absolute. The obligations of the Borrowers to reimburse the Issuing Bank for drawings made under the Letters of Credit issued by it and the obligations by the Banks under subsection 3.04 shall, other than in the case of gross negligence or willful misconduct on the part of the Issuing Bank, be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including without limitation the following circumstances: (A) Any lack of validity or enforceability of any Letter of Credit; (B) The existence of any claim, set-off, defense or other right which any of the Borrowers may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), the Issuing Bank, any Bank or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction; (C) Any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (D) Payment by the Issuing Bank under any Letter of Credit against presentation of a demand, draft, certificate or other document which does not comply with the terms of the Letter of Credit; (E) Any other circumstance or happening whatsoever which is similar to any of the foregoing; or (F) The fact that an Event of Default shall have occurred and be continuing. 3.06 Increased Costs. If any change in any law, regulation, treaty or directive or in the final interpretation thereof by any court or administrative or other governmental authority, agency or instrumentality charged with the administration thereof, or compliance with any request or directive (whether or not having the force of law) of any of the foregoing, shall either (A) impose, modify or deem applicable any reserve, premium, special assessment, special deposit or similar requirement, or regarding adequacy of capital, against letters of credit issued by, or the assets or deposits maintained by the Borrowers with, the Issuing Bank or (B) impose on the Issuing Bank any other condition regarding the Letters of Credit, and the result of any event referred to in clause (A) or (B) above shall be to increase the cost to the Issuing Bank of issuing or maintaining the Letters of Credit (which increase in cost shall be the result of the Issuing Bank's reasonable allocation of the aggregate of such cost increases resulting from such events), then, upon demand by the Issuing Bank, the Borrowers shall promptly pay to the Issuing Bank from time to time as specified by the Issuing Bank additional amounts which shall be sufficient to compensate the Issuing Bank for such increased cost. A certificate as to the fact (in sufficient detail to describe the material terms of the fact) and amount of such increased cost incurred by the Issuing Bank as a result of any event mentioned in clause (A) or (B) above, submitted by the Issuing Bank to the Borrowers, shall be conclusive and binding on the Borrowers absent manifest error. The Borrowers further agree to pay any applicable levies or other taxes imposed in connection with any Letters of Credit, other than net income taxes payable by the Banks, and otherwise comply with all domestic and foreign laws and regulations applicable to all transactions under or in connection with any Letter of Credit. 3.07 Letter of Credit Compensation. The following compensation shall be payable by the Borrowers with respect to Letters of Credit: (A) With respect to each Letter of Credit, an administrative fee established by and payable solely to the Issuing Bank, payable on the date of issuance of each Letter of Credit. (B) In lieu of any other letter of credit commissions and fees provided for in any Letter of Credit Application, the Borrowers agree to pay to the Issuing Bank for the account of the Banks (pro rata based upon their respective Percentages) a commission (the "Documentary Letter of Credit Commission") on the face amount of each Documentary Letter of Credit at a rate of .50% or at such other rate as agreed to in writing by the Banks and the Borrowers from time to time (provided that the Borrowers shall pay to the Issuing Bank for the account of the Banks in each case a minimum Documentary Letter of Credit Commission equal to $250.00), plus reimbursement of any and all reasonable fees and out-of-pocket costs and expenses incurred by the Issuing Bank in connection with the issuance of each such Documentary Letter of Credit. The Documentary Letter of Credit Commission and such reimbursement shall be payable on the date of issuance of each such Documentary Letter of Credit. (C) In lieu of any other letter of credit commissions and fees provided for in any Letter of Credit Application, the Borrowers agree to pay to the Issuing Bank for the account of the Banks (pro rata based upon their respective Percentages) a commission (the "Stand-By Letter of Credit Commission") on the undrawn and unexpired amount of each irrevocable Stand-By Letter of Credit at a rate of 1.25% per annum or at such other rate as agreed to in writing by the Banks and the Borrowers from time to time (provided that the Borrowers shall pay to the Issuing Bank for the account of the Banks in each case a minimum Stand-By Letter of Credit Commission equal to $250.00), plus reimbursement of any and all reasonable fees and out-of-pocket costs and expenses incurred by the Issuing Bank in connection with the issuance of each Stand-By Letter of Credit. The Stand-By Letter of Credit Commission and such reimbursement shall be payable on the date of issuance of each such Stand-By Letter of Credit. 3.08 Uses of Letters of Credit. The uses by the Borrower of the Letters of Credit shall be as provided in the definitions of Documentary Letters of Credit and Stand-By Letters of Credit in Section I. SECTION IV. CONDITIONS PRECEDENT The obligations of the Banks to make the Loans and the Issuing Bank to issue the Letters of Credit hereunder are subject to the following conditions precedent: 4.01 Documents Required for Closing. The Borrowers shall have delivered to the Banks, prior to the initial disbursement of the Loans or the issuance of the initial Letter of Credit (the "Closing"), the following: (A) The Notes; (B) A certified (as of the date of the Closing) copy of resolutions of the Borrowers' boards of directors authorizing the execution, delivery and performance of this Agreement, the Notes and each other document to be delivered pursuant hereto; (C) A certified (as of the date of the Closing) copy of each of the Borrowers' by-laws; (D) A certificate (dated as of the date of the Closing) of each of the Borrowers' corporate secretary as to the incumbency and signatures of the officers of such Borrower signing this Agreement, the Notes and each other document to be delivered pursuant hereto; (E) A copy, certified as of the most recent date practicable, by the Secretary of State of Delaware, of each of the Borrowers' certificate of incorporation, together with a certificate (dated as of the date of the Closing) of each of the Borrowers' corporate secretary to the effect that such certificate of incorporation has not been amended since the date of the aforesaid certification; (F) Certificates, as of the most recent dates practicable, of the aforesaid secretary of state, the secretary of state of each state in which the Borrowers are qualified as a foreign corporation and the department of revenue or taxation of each of the foregoing states, as to the good standing or valid existence of each of the Borrowers; (G) A written opinion of Messrs. Powell, Goldstein, Frazer & Murphy, the Borrowers' counsel, dated the date of the Closing and addressed to the Banks, substantially in form satisfactory to the Banks, to the effect that: (1) Each of the Borrowers is a corporation duly organized, existing and in good standing under the Laws of the State of Delaware and is qualified to transact business and validly exists in the State of Georgia and, to the knowledge of such counsel, is not required to be qualified as a foreign corporation in any other jurisdiction; (2) Each of the Borrowers has the power to execute and deliver this Agreement, to borrow money hereunder, to execute and deliver the Notes and to perform its obligations hereunder and thereunder; (3) All corporate action by each of the Borrowers, and all consents and approvals of any Persons, necessary to the validity of this Agreement, the Notes and each other document to be delivered hereunder have been duly obtained, and this Agreement, the Notes and such other documents do not conflict with any provision of the certificate of incorporation or by-laws of either of the Borrowers, or of any applicable Laws or any other material agreement binding upon either of the Borrowers or its property of which such counsel has knowledge; and (4) This Agreement, the Notes and all other documents to be delivered hereunder have been duly executed by and each is a valid and binding obligation of each of the Borrowers, enforceable in accordance with its terms. (H) A certificate, dated as of the date of the Closing, signed by the president or a vice president of each of the Borrowers to the effect that: (1) The representations and warranties set forth in subsection 5.01 are true in all material respects as of the date of the Closing; and (2) No Event of Default hereunder, and no event which, with the giving of notice or passage of time or both, would become an Event of Default, has occurred as of such date. 4.02 Certificate Required for Subsequent Disbursements and Letters of Credit. The Borrowers shall have duly delivered to the Banks, prior to any subsequent disbursement of the Loans or issuances of Letters of Credit, a borrowing certificate, substantially in the form of Exhibit 4.02, dated the date on which such disbursement is to be made, signed by the president or a vice president and the secretary or an assistant secretary of each of the Borrowers. 4.03 Certain Events. At the time of the Closing and of each subsequent disbursement or issuance of a Letter of Credit: (A) No Event of Default shall have occurred and be continuing, and no event shall have occurred and be continuing that, with the giving of notice or passage of time or both, would be an Event of Default; and (B) No material adverse change shall have occurred in the operations, financial condition, property, prospects or business of either of the Borrowers since the date of this Agreement or the Closing, as applicable. 4.04 Legal Matters. At the time of the Closing and of each subsequent disbursement of Loans or issuance of a Letter of Credit, all legal matters incidental thereto shall be satisfactory in all material respects to Messrs. Squire, Sanders & Dempsey. 4.05 Additional Conditions to Issuance of Each Letter of Credit. The obligation of the Issuing Bank to issue each Letter of Credit (including the initial Letter of Credit) shall be subject to (A) the conditions precedent set forth in subsections 4.01, 4.02, 4.03 and 4.04, (B) the payment by the Borrowers to the Banks of any fees in connection with the issuance of such Letter of Credit and (C) the additional condition precedent that the Issuing Bank shall have received a completed Letter of Credit Application in respect thereof. SECTION V. REPRESENTATIONS AND WARRANTIES 5.01 Original Representations and Warranties. To induce the Banks to enter into this Agreement, each of the Borrowers jointly and severally represents and warrants to the Banks as follows: (A) Neither of the Borrowers is in default with respect to any of its existing Indebtedness, and the making and performance of this Agreement and the Notes will not (immediately, with the passage of time or the giving of notice, or any one or more of them): (1) Violate the certificate of incorporation or by-laws of either of the Borrowers, or violate any Laws or result in a default under any contract, agreement or instrument to which either of the Borrowers is a party or by which either of the Borrowers or its property is bound; or (2) Result in the creation or imposition of any security interest in, or lien or encumbrance upon, any of the assets of either of the Borrowers; (B) Each of the Borrowers has the power and authority to enter into and perform this Agreement and the Notes, and to incur the obligations herein and therein provided for, and has taken all corporate action necessary to authorize the execution, delivery and performance of this Agreement and the Notes; (C) This Agreement is, and the Notes when delivered will be, the valid, binding and enforceable obligations of each of the Borrowers in accordance with their respective terms; (D) Except as disclosed in Schedule 5.01(D) attached hereto, there is no pending order, notice, claim, litigation, proceeding or investigation against or affecting either of the Borrowers, whether or not covered by insurance, that would involve the payment of $100,000 or more individually if adversely determined; (E) Each of the Borrowers has good and marketable title to all of its assets, subject to no security interest, encumbrance or lien or the claim of any third person except for Permitted Liens; (F) The Financial Statements, including any schedules and notes pertaining thereto, have been prepared in accordance with generally accepted accounting principles consistently applied and fully and fairly present the consolidated financial condition of the Borrowers at the date thereof, and there have been no material adverse changes in the operations, financial condition, property, prospects or business of the Borrowers from the date thereof to the date hereof; (G) As at the Unaudited Financial Statements Date the Borrowers had no material Indebtedness of any nature, including without limitation liabilities for taxes and any interest or penalties relating thereto, except to the extent reflected (in a footnote or otherwise) and reserved against in the Unaudited Financial Statements or as disclosed in or permitted by this Agreement; and neither of the Borrowers knows or has reasonable ground to know of any basis for the assertion against it as of the Unaudited Financial Statements Date of any material Indebtedness of any nature not fully reflected and reserved against in the Unaudited Financial Statements; (H) Except as otherwise permitted herein, each of the Borrowers has filed all federal, state and local tax returns and other reports it is required by Laws to file prior to the date hereof and which are material to the conduct of its business, has paid or caused to be paid all taxes, assessments and other governmental charges that are due and payable prior to the date hereof unless an extension has been granted and has made adequate provision for the payment of such taxes, assessments or other charges accruing but not yet payable; and neither of the Borrowers has knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments or charges not provided for on its books; (I) Except to the extent that the failure to comply would not materially interfere with the conduct of the business of either of the Borrowers, each of the Borrowers has complied with all applicable Laws with respect to: (1)any restrictions, specifications or other requirements pertaining to products that such Borrower sells or to the services it performs; (2) the conduct of its business; and (3) the use, maintenance and operation of the real and personal properties owned or leased by it in the conduct of its business; (J) No representation or warranty by either of the Borrowers contained herein or in any certificate or other document furnished by either of the Borrowers pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made; (K) Each consent, approval or authorization of, or filing, registration or qualification with, any Person required to be obtained or effected by either of the Borrowers in connection with the execution and delivery of this Agreement and the Notes or the undertaking or performance of any obligation hereunder or thereunder has been duly obtained or effected; (L) All existing Indebtedness of each of the Borrowers: (1) for money borrowed, or (2) under any security agreement, mortgage or agreement covering the lease by such Borrower as lessee of real or personal property, is described in Schedule 5.01(L) attached hereto; (M) Except as described in Schedule 5.01(M) attached hereto, with respect to all material leases, contracts and commitments of any kind of either of the Borrowers (such as employment agreements, collective bargaining agreements, powers of attorney, distribution arrangements, patent license agreements, contracts for future purchase or delivery of goods or rendering of services, bonus, pension and retirement plans, or accrued vacation pay, insurance and welfare agreements), to the best of each of the Borrowers' knowledge all parties (including each of the Borrowers) to all such material leases, contracts and other commitments to which either of the Borrowers is a party have complied with the provisions of such leases, contracts and other commitments, and to the best of each of the Borrowers' knowledge no party is in default under any thereof and no event has occurred which, but for the giving of notice or the passage of time, or both, would constitute a default; (N) Neither of the Borrowers has made any agreement or taken any action which may cause anyone to become entitled to a commission or finder's fee as a result of the making of the Loans or the issuance of the Letters of Credit other than fees and commissions payable hereunder; (O) Neither of the Borrowers has ever had or presently has any employee benefit plan ("Plan") within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), established and/or maintained and/or contributed to by either of the Borrowers; (P) Southern Electronics Corporation has no Subsidiaries, other than Southern Electronics Distributors, Inc., and Southern Electronics Distributors, Inc. has no Subsidiaries; and (Q) No release, emission or discharge into the environment of hazardous substances, as defined under the Comprehensive Environmental Response, Compensation, and Liability Act, or hazardous waste as defined under the Solid Waste Disposal Act, or air pollutants as defined under the Clean Air Act, or toxic pollutants as defined under the Clear Air Act, or the Toxic Substances and Control Act, have occurred or are presently occurring in excess of federally permitted releases or reportable quantities, or other concentrations, standards or limitations under the foregoing laws or under any other federal, state or local law or regulations, in connection with any aspect of the business of the Borrowers; and the Borrowers have no knowledge of any past or existing violations of any environmental laws, ordinances or regulations issued by any federal, state or local governmental authority ("Environmental Laws"). 5.02 Survival of Representations and Warranties. All of the representations and warranties set forth in subsection 5.01 shall survive until all Obligations are satisfied in full. SECTION VI. BORROWERS' COVENANTS Each of the Borrowers jointly and severally does hereby covenant and agree with the Banks that, so long as any of the Obligations remain unsatisfied, it will comply with the following covenants: 6.01 Affirmative Covenants. (A) The Borrowers will use the proceeds of the Loans only for the purposes permitted under subsection 2.20, and will furnish each of the Banks such evidence as they may reasonably require with respect to such use. (B) The Borrowers will furnish each of the Banks: (1) Within sixty (60) days after the close of each fiscal quarter of the Borrowers commencing with the fiscal quarter ending June 30, 1995: (a) a consolidated statement of stockholders' equity and a consolidated statement of cash flows of the Borrowers for such quarterly period and the year to date; (b) a consolidated income statement of the Borrowers for such quarterly period and the year to date; and (c) a consolidated balance sheet of the Borrowers as of the end of such quarterly period--all in reasonable detail, subject to year-end audit adjustments and certified by each of the Borrowers' president or chief financial officer to have been prepared in accordance with generally accepted accounting principles consistently applied by each of the Borrowers, except for any inconsistencies explained in such certificate; (2) Within ninety (90) days after the close of each fiscal year of the Borrowers commencing with the fiscal year ending June 30, 1995: (a) a consolidated statement of stockholders' equity and a consolidated statement of cash flows of the Borrowers for such fiscal year; (b) a consolidated income statement of the Borrowers for such fiscal year; and (c) a consolidated balance sheet of the Borrowers as of the end of such fiscal year--all in reasonable detail, including all supporting schedules and comments; the consolidated statements and balance sheet to be audited by Deloitte & Touche or another firm of independent certified public accountants selected by the Borrowers and acceptable to the Banks, and certified by such accountants to have been prepared in accordance with generally accepted accounting principles consistently applied by the Borrowers, except for any inconsistencies explained in such certificate; in addition, the Borrowers will obtain from such independent certified public accountants and deliver to the Banks, within ninety (90) days after the close of each fiscal year of the Borrowers, their written statement that in making the examination necessary to their certification they have obtained no knowledge of any Event of Default by the Borrowers, or disclosing all Events of Default of which they have obtained knowledge; provided, however, that in making their examination such accountants shall not be required to go beyond the bounds of generally accepted auditing procedures for the purpose of certifying financial statements; and the Banks shall have the right, from time to time, to discuss the Borrowers' affairs directly with the Borrowers' independent certified public accountants after reasonable notice to the Borrowers and opportunity of the Borrowers to be present at any such discussions; (3) Contemporaneously with providing each set of quarterly and year-end financial statements required by the foregoing paragraphs (1) and (2), a certificate of the president or chief financial officer of each of the Borrowers stating (a) the results, as of the ending date of the period to which such statements relate, of the calculations with respect to each of the financial tests set forth in subsection 6.01(F), and (b) that he has individually in his corporate capacity reviewed the provisions of this Agreement and that a review of the activities of the Borrowers during the year or quarterly and year-to-date period to which such statements relate, as the case may be, has been made by him or under his supervision, with a view to determining whether such Borrower has fulfilled all of its obligations under this Agreement, and that, to the best of his knowledge, such Borrower has observed and performed each undertaking contained in this Agreement and is not in default in the observance or performance of any of the provisions hereof, or if such Borrower shall be so in default, specifying all such defaults and events of which he may have knowledge; (4) Within sixty (60) days after the close of each fiscal quarter of the Borrowers, a quarterly accounts receivable aging report as of the end of each such fiscal quarter, which report shall be in a form satisfactory to the Banks; (5) Within sixty (60) days after the close of each fiscal quarter of the Borrowers, a quarterly inventory aging report as of the end of each such fiscal quarter, which report shall be in a form satisfactory to the Banks; (6) Promptly upon their becoming available, copies of all press releases and all financial statements, reports, notices and proxy statements sent or made available generally by either of the Borrowers to its security holders, and all regular and periodic reports and all final registration statements and final prospectuses, if any, filed by either of the Borrowers with any securities exchange or with the Securities and Exchange Commission; and (7) Promptly upon request, such additional financial and other information as either of the Banks may from time to time reasonably request. (C) Each of the Borrowers will maintain the inventory, equipment, real estate and other properties material to its business in good condition and repair (normal wear and tear excepted), and will pay and discharge or cause to be paid and discharged when due the cost of repairs to or maintenance of the same, and will pay or cause to be paid all rental or mortgage payments due on such real estate. (D) Each of the Borrowers will maintain, or cause to be maintained, public liability insurance and fire and extended coverage insurance on all assets owned by it, all in such form and amounts as are consistent with industry practices and with such insurers as may be satisfactory to the Banks. Such policies shall contain a provision whereby they cannot be cancelled except after thirty (30) days' written notice to the Banks. Each of the Borrowers will furnish to the Banks such evidence of insurance as the Banks may require. (E) Each of the Borrowers will pay or cause to be paid when due all taxes, assessments and charges or levies imposed upon it or on any of its property or which it is required to withhold and pay over, except where contested in good faith by appropriate proceedings with adequate reserves therefor having been set aside on its books. But each of the Borrowers shall pay or cause to be paid all such taxes, assessments, charges or levies forthwith whenever foreclosure on any lien that attaches (or security therefor) appears imminent. (F) The Borrowers will: (1) Maintain at all times Net Working Capital in the minimum amount of Twenty Million Dollars ($20,000,000). (2) Maintain at all times a ratio of Liabilities to Tangible Net Worth (the "L/TNW Ratio") of not more than 2 to 1. (3) Maintain at all times a ratio of Current Assets to Current Liabilities of not less than 1.5 to 1. (4) Maintain at all times a minimum Tangible Net Worth of not less than (a) Thirty Million Dollars ($30,000,000) plus (b) Seventy-Five Percent (75%) of Consolidated Net Profit After Tax for each fiscal quarter of the Borrowers completed after the Unaudited Financial Statements Date. As used herein, "Consolidated Net Profit After Tax" means the Borrowers' current consolidated earnings (excluding extraordinary items) less the amount of consolidated income tax that the Borrowers paid with respect to such earnings. (5) Maintain at all times a minimum Consolidated Net Profit After Tax for the four immediately preceding fiscal quarters of the Borrowers of not less than Two Million Five Hundred Thousand Dollars ($2,500,000), and not experience in any fiscal quarter of the Borrowers, beginning with the fiscal quarter of the Borrowers immediately following the fiscal quarter of the Borrowers ended on the Unaudited Financial Statements Date, a Consolidated Net Profit After Tax of less than zero. (6) Maintain a minimum Fixed Charges Coverage Ratio, as of the end of each fiscal quarter of the Borrowers, commencing with the fiscal quarter ending June 30, 1995, for such fiscal quarter and the three immediately preceding fiscal quarters of the Borrowers, of 2 to 1. (7) Be prohibited from making Restricted Payments at any time during the Loan Commitment Period and while any obligations are outstanding hereunder or under the Notes, which in the aggregate exceed 25% of the aggregate Consolidated Net Profit After Tax earned after the Unaudited Financial Statements Date, excluding dividends paid by Southern Electronics Distributors, Inc. to Southern Electronics Corporation. (G) Each of the Borrowers will, when requested so to do, make available for inspection by duly authorized representatives of the Banks any of its books and Records, and will furnish to the Banks within a reasonable time after written request therefor any information regarding its business affairs and financial condition. The Banks shall keep all such information confidential and shall not disclose to any third party (other than (1) bank regulatory authorities, (2) upon the order of any court or administrative agency, (3) to the extent reasonably required in connection with any litigation involving the Borrowers or their Affiliates to which the Administrative Bank, any Bank or their respective Affiliates may be a party, (4) to the extent reasonably required in connection with the exercise of any remedy hereunder and (5) to any Bank's legal counsel and independent auditors) any such information received by them that is not otherwise available to the public from sources other than the Banks. (H) Each of the Borrowers will take all necessary steps to preserve the corporate existence and franchises material to its business and comply with all present and future Laws applicable to it in the operation of its business and all material agreements to which it is subject. (I) Each of the Borrowers will give immediate notice to the Banks of: (1) any litigation or proceeding in which it is a party if a final judgment has been entered requiring it to pay over more than $75,000 or deliver assets the value of which exceeds such sum (whether or not the claim is considered to be covered by insurance); and (2) the institution of any other suit or proceeding involving it that might materially and adversely affect its operations, financial condition, property, prospects or business. (J) Within ten (10) days of either Bank's request therefor, each of the Borrowers will furnish such Bank with copies of federal income tax returns filed by it. (K) Each of the Borrowers will pay when due (or within applicable grace periods) all Indebtedness due third Persons, except when the amount thereof is being contested in good faith by appropriate proceedings and with adequate reserve therefor being set aside on its books. If default be made by either of the Borrowers or any Subsidiary in the payment of any principal (or installment thereof) of, or interest on, any such Indebtedness, the Banks shall have the right, in their discretion, upon forty-eight (48) hours' notice to the Borrowers, to pay such interest or principal for the account of either of the Borrowers and be reimbursed without penalty or premium by the Borrowers therefor. (L) Each of the Borrowers: (1) Has not and will not incur any material accumulated funding deficiency within the meaning of Section 302 of ERISA and Section 412 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code"), or any material liability to the Pension Benefit Guaranty Corporation ("PBGC") in connection with any Plan. (2) Will furnish to the Banks the following: (a) Simultaneously with a filing with the PBGC of notice regarding any Reportable Event, and in any event within sixty (60) days after such Borrower knows or has reason to know that any Reportable Event with respect to any Plan has occurred, a statement of the chief financial officer of such Borrower setting forth details as to such Reportable Event and the action which such Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event filed with the PBGC; (b) Promptly after the filing thereof with the Internal Revenue Service, copies of each annual report with respect to each Plan established or maintained by such Borrower for each plan year, including (i) where required by law, a statement of assets and liabilities of such Plan as of the end of such plan year and statements of changes in fund balance and in financial position, or a statement of changes in net assets available for plan benefits, for such plan year, certified by an independent public accountant satisfactory to the Banks, and (ii) an actuarial statement of such Plan applicable to such plan year, certified by an enrolled actuary of recognized standing acceptable to the Banks; (c) Promptly after receipt thereof a copy of any notice such Borrower may receive from the PBGC or the Internal Revenue Service or the United States Department of Labor with respect to any Plan maintained or administered by such Borrower; and (d) Promptly after the filing thereof with the Internal Revenue Service and/or the PBGC, copies of Form 5310 relating to the termination of any Plan. (3) Has not and will not engage in any transaction with which such Borrower could be subject to either a material civil penalty assessed pursuant to Section 502(i) of ERISA or a material tax imposed by Code Section 4975; (4) Has paid and will pay all premiums (and all penalties and interest, if applicable) not being contested in good faith that are due the PBGC with respect to any Plan; (5) Has not and will not cease operations at a facility so as to become subject to Section 4062(e) of ERISA; (6) Has not and will not withdraw as a substantial employer so as to become subject to Section 4063 of ERISA; (7) Has not and will not make a complete or partial withdrawal from a "multiemployer plan" as defined in Section 3(37) of ERISA so as to incur material "withdrawal liability" as defined in Section 4201 of ERISA, without regard to subsequent reduction or waiver of such liability under Sections 4207 or 4208 of ERISA; and (8) Has not and will not terminate any Plan or have termination proceedings instituted with respect to any Plan pursuant to Sections 4041(c) or 4042 of ERISA. (M) The Borrowers will comply in all material respects with any and all Environmental Laws, including without limitation all Environmental Laws in jurisdictions in which the Borrowers own or operate a facility or site, arrange for disposal or treatment of hazardous substances, solid wastes or other wastes, accept for transport any hazardous substances, solid waste or other waste or hold any interest in real property or otherwise. The Borrowers will not allow the release or disposal of hazardous waste, solid waste or other waste on, under or to any real property in which the Borrowers hold any interest or perform any of their operations, in violation of any Environmental Law. The Borrowers shall defend, indemnify and hold the Banks harmless from and against all costs, expenses, claims, damages, penalties and liabilities of every kind or nature whatsoever (including attorney's fees) arising out of or resulting from the non-compliance of the Borrowers with any Environmental Law. 6.02 Negative Covenants. (A) Neither of the Borrowers will dissolve or liquidate, or enter into any merger, consolidation, reorganization or recapitalization or reclassify its capital stock, except that either Borrower may merge into or consolidate with the other Borrower. (B) Neither of the Borrowers will sell, transfer, lease or otherwise dispose of all or (except in the ordinary course of business) any material part of its assets except to the other Borrower. (C) Neither of the Borrowers will mortgage, pledge, grant or permit to exist a security interest in or lien upon any of its assets of any kind, now owned or hereafter acquired, except for Permitted Liens. (D) Neither of the Borrowers will become liable, directly or indirectly, as guarantor or otherwise, for any obligation of any other Person other than the other Borrower. (E) Neither of the Borrowers will incur, create, assume or permit to exist any Indebtedness except: (1) the Loans; (2) the Letters of Credit; (3) existing Indebtedness as set forth in Schedule 5.01(L); (4) trade Indebtedness incurred in the ordinary course of business; (5) contingent Indebtedness permitted by subsection 6.02(D); and (6) Indebtedness secured by Permitted Liens. (F) Neither of the Borrowers will form any Subsidiary or make any investment in or make any loan in the nature of any investment to any Person. (G) Neither of the Borrowers will acquire any stock in, or all or substantially all of the assets of, any Person. (H) Neither of the Borrowers will furnish the Bank any certificate or other document that will contain any untrue statement of a material fact or that will omit to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished. (I) Neither of the Borrowers will directly or indirectly apply any part of the proceeds of any of the Loans to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Federal Reserve Board, or any regulations, interpretations or rulings thereunder. (J) Neither Borrower shall enter into, or be a party to, any transaction with any Affiliate of the Borrowers (which Affiliate is not the other Borrower), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which are fully disclosed to the Banks, consented to in writing by the Banks and are no less favorable to such Borrower than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate. SECTION VII. EVENT OF DEFAULT 7.01 Event of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (A) Either of the Borrowers shall fail to pay when due (1) any installment of principal payable hereunder or (2) any interest or fee payable hereunder and such failure to pay interest or fees shall continue for a period of ten (10) days. (B) Either of the Borrowers shall fail to observe or perform any other obligation to be observed or performed by it hereunder and such failure shall continue for a period of ten (10) days after: (1) notice of such failure from any Bank; or (2) any Bank is notified of such failure by the Borrowers or should have been so notified by the Borrowers pursuant to the provisions of this Agreement, whichever is earlier. (C) Either of the Borrowers shall fail to pay any Indebtedness due either Bank under a separate agreement or any third Person and such failure shall continue beyond any applicable grace period, or either of the Borrowers shall suffer to exist any other event of default under any agreement binding on such Borrower; provided, however, it shall not be an Event of Default if such Borrower is contesting in good faith such Indebtedness which is not for money borrowed with adequate reserve therefor being set aside on the books of such Borrower. (D) Any financial statement, representation, warranty or certificate made or furnished by either of the Borrowers to the Banks in connection with this Agreement, or as an inducement to the Banks to enter into this Agreement, or in any separate statement or document to be delivered hereunder to the Banks, shall be materially false, incorrect or incomplete when made. (E) Either of the Borrowers shall fail, or admit its inability or failure, to pay its debts generally as they become due, or shall make an assignment for the benefit of any of its creditors. (F) A case or proceeding in bankruptcy, or for reorganization of either of the Borrowers, or for the readjustment of any of its debts, under the Bankruptcy Code or any part thereof, or under any other Laws, whether state or federal, for the relief of debtors, now or hereafter existing, shall be commenced by either of the Borrowers, or shall be commenced against either of the Borrowers and shall not be dismissed or discharged within sixty (60) days of their commencement, or an order for relief is entered at any time in a case under the Bankruptcy Code. (G) A receiver or trustee shall be appointed for either of the Borrowers or for any substantial part of its assets, or any proceedings shall be instituted for the dissolution or the full or partial liquidation of either of the Borrowers, and such receiver or trustee shall not be discharged within sixty (60) days of his appointment, or such proceedings shall not be discharged within sixty (60) days of their commencement, or either of the Borrowers shall discontinue business or materially change the nature of its business. (H) Either of the Borrowers shall suffer final judgments for payment of money aggregating in excess of $250,000 not covered by insurance and shall not discharge or bond the same within a period of thirty (30) days unless, pending further proceedings, execution has not been commenced or if commenced has been effectively stayed. (I) If (1) any Reportable Event occurs and the Banks determine in good faith that there is a substantial possibility that such Reportable Event constitutes grounds (a) for the termination of any Plan by the PBGC or (b) for the appointment by the appropriate United States district court of a trustee to administer any Plan and such Reportable Event shall not have been fully corrected or remedied to the full satisfaction of the Banks within sixty (60) days after giving of written notice of such determination to the Borrowers by any Bank; or (2) any Plan shall be terminated within the meaning of Title IV of ERISA; or (3) a trustee shall be appointed by the appropriate United States district court to administer any Plan; or (4) the PBGC shall institute proceedings to terminate any Plan or to appoint a trustee to administer any Plan. Notwithstanding the foregoing, the occurrence of a Reportable Event under (1) shall not be an Event of Default if the Borrowers establish to the reasonable satisfaction of the Banks either (x) that the Plan is sufficiently funded to meet all "benefit commitments" as such term is currently defined in ERISA or (y) that the Reportable Event does not materially and adversely impair either of the Borrowers' ability to satisfy and discharge its Obligations in accordance with their terms. (J) Either of the Borrowers fails to maintain Senior Management reasonably acceptable to the Banks (for this purpose, the Banks acknowledge that current Senior Management of the Borrowers is acceptable). (K) Either of the Borrowers has a Material Ownership Change. 7.02 Acceleration. Immediately and without notice upon the occurrence of an Event of Default specified in clause (E), (F), (G) or (H) of subsection 7.01, or at the option of the Banks, but only upon notice to the Borrowers, upon the occurrence of any other Event of Default, all Obligations, whether hereunder or otherwise, shall immediately become due and payable without further action of any kind, and the Borrowers shall immediately provide each Issuing Bank with cash collateral in the amount of 105% of the Outstanding LC Amounts under Letters of Credit issued by it. 7.03 Remedies. After any acceleration, as provided for in subsection 7.02, the Banks shall have, in addition to the rights and remedies given them by this Agreement and the Notes, all those allowed by all applicable Laws. SECTION VIII. ADMINISTRATIVE BANK 8.01 Authorization. Each Bank hereby authorizes the Administrative Bank to exercise such powers and perform such duties as are expressly delegated to the Administrative Bank by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Bank shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement, or otherwise exist against the Administrative Bank. 8.02 Delegation of Duties. The Administrative Bank may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Bank shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.03 Exculpatory Provisions. Neither the Administrative Bank nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (A) liable for any action lawfully taken or omitted to be taken by it or such person under or in connection with this Agreement (except for its or such person's own gross negligence or willful misconduct) or (B) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Borrowers or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Bank under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Borrowers to perform their obligations hereunder. The Administrative Bank shall be under no obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrowers. 8.04 Reliance by Administrative Bank. The Administrative Bank shall be entitled to rely, and shall be fully protected in relying, upon any note, guaranty, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper person and upon advice and statements of legal counsel (including without limitation counsel to the Borrowers), independent accountants and other experts selected by the Administrative Bank. The Administrative Bank may deem and treat the payee of any note as the owner thereof for all purposes. In making payments to the Banks and taking other action with respect to the Banks, the Administrative Bank shall be entitled to rely on the participation of each Bank therein on the basis provided herein and in the Notes unless and until it has received written notice otherwise as provided in subsection 9.05. The Administrative Bank shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Banks as it deems appropriate or it shall first be indemnified to its satisfaction by all Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Bank shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Banks and all future holders of the Notes. 8.05 Notice of Event of Default. The Administrative Bank shall not be deemed to have knowledge or notice of the occurrence of any Event of Default hereunder unless the Administrative Bank has received notice from any Bank or the Borrowers referring to this Agreement, describing such Event of Default and stating that such notice is a "notice of default." If the Administrative Bank receives such a notice, the Administrative Bank shall give notice thereto to the Banks. The Administrative Bank shall take such action with respect to such Event of Default as shall be reasonably directed by the Banks; provided that, unless and until the Agent shall have received such directions, the Administrative Bank may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable in the best interests of the Banks. 8.06 Non-Reliance on Administrative Bank and Other Banks. Each Bank expressly acknowledges that neither the Administrative Bank nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Bank hereinafter taken, including any review of the affairs of the Borrowers, shall be deemed to constitute any representation or warranty by the Administrative Bank to any Bank. Each Bank represents to the Administrative Bank that it has, independently and without reliance upon the Administrative Bank or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrowers. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Administrative Bank hereunder, the Administrative Bank shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Borrowers which may come into the possession of the Administrative Bank or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 8.07 Indemnification. Each Bank agrees to indemnify the Administrative Bank in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so), ratably according to the respective amounts of its Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Bank in any way relating to or arising out of this Agreement or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Bank under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Bank's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 8.08 Administrative Bank in Its Individual Capacity. The Administrative Bank and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrowers as though the Administrative Bank were not the administrative bank hereunder. With respect to its loans made or renewed by it and any note issued to it and with respect to any Letters of Credit issued by it, the Administrative Bank shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Administrative Bank, and the terms "Bank" and "Banks" shall include the Administrative Bank in its individual capacity. SECTION IX. MISCELLANEOUS 9.01 Construction. The provisions of this Agreement shall be in addition to those of any guaranty, pledge or security agreement, note or other evidence of liability held by the Banks, all of which shall be construed as complementary to each other. Nothing herein contained shall prevent the Banks from enforcing any or all other notes, guaranty, pledge or security agreements in accordance with their respective terms. 9.02 Further Assurances. From time to time, the Borrowers will execute and deliver to the Banks such additional documents and will provide such additional information as the Banks may reasonably require to carry out the terms of this Agreement and be informed of the Borrowers' status and affairs. 9.03 Enforcement and Waiver by Banks. The Banks shall have the right at all times to enforce the provisions of this Agreement and the Notes in strict accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of the Banks in refraining from so doing at any time or times. The failure of the Banks at any time or times to enforce their rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived the same. All rights and remedies of the Banks are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 9.04 Expenses of Banks. The Borrowers will, on demand, reimburse the Banks for all expenses, including the reasonable fees and expenses of legal counsel for the Banks, incurred by the Banks in connection with the preparation, administration, amendment, modification or enforcement of this Agreement and the collection or attempted collection of the Notes. 9.05 Notices. Any notices or consents required or permitted by this Agreement shall be in writing (including by telecopier) and shall be deemed delivered if delivered in person or if sent by certified mail, postage prepaid, return receipt requested, or sent by telecopier, as follows, unless such address or telecopier number is changed by written notice hereunder: (A) If to the Borrowers: Southern Electronics Corporation and Southern Electronics Distributors, Inc. 4916 North Royal Atlanta Drive Tucker, Georgia 30084 Attention: Larry G. Ayers Vice President-Finance Telecopier: 404-938-2814 Confirmation: 404-491-8962 (B) If to NCB: National City Bank, Columbus 155 East Broad Street Columbus, Ohio 43251 Attention: Ralph A. Kaparos Senior Vice President Telecopier: 614-463-6770 Confirmation: 614-463-7296 (C) If to WB: Wachovia Bank of Georgia, N.A. 191 Peachtree Street 30th Floor Mail Code 212 Corporate Banking Atlanta, Georgia 30303-1757 Attention: Kevin B. Harrison Vice President Telecopier: 404-332-6920 Confirmation: 404-332-5269 9.06 Waiver and Release by Borrowers. To the maximum extent permitted by applicable Laws, the Borrowers: (A) Waive: (1) protest of all commercial paper at any time held by the Banks on which the Borrowers are in any way liable; and (2) notice and opportunity to be heard, after acceleration in the manner provided in subsection 7.02, before exercise by the Banks of the remedies of self-help, set-off or other summary procedures permitted by any applicable Laws or by any agreement with the Borrowers, and, except where required hereby or by any applicable Laws, notice of any other action taken by the Banks; and (B) Release the Banks and their officers, attorneys, agents and employees from all claims for loss or damage caused by any act or omission on the part of any of them except willful misconduct or gross negligence. 9.07 Applicable Law. The substantive Laws of the State of Georgia shall govern the construction of this Agreement and the rights and remedies of the parties hereto. 9.08 Binding Effect, Assignment and Entire Agreement. This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of the parties hereto. The Borrowers have no right to assign any of their rights or obligations hereunder without the prior written consent of the Banks. This Agreement, and the documents executed and delivered pursuant hereto, supersede the Revolving Credit Agreement dated February 23, 1993 between the Borrowers and NCB and all documents executed and delivered pursuant thereto (the "Current Loan Documents"), constitute the entire agreement between the parties and may be amended only by a writing signed on behalf of each party. 9.09 Severability. If any provision of this Agreement shall be held invalid under any applicable Laws, such invalidity shall not affect any other provision of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions hereof are severable. 9.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. 9.11 Setoffs; Sharing of Setoffs. (A) Each Borrower agrees that each Bank shall have a lien for all indebtedness and obligations owing to them from such Borrower upon all deposits or deposit accounts, of any kind, or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to such Bank or otherwise in the possession or control of such Bank for any purpose for the account or benefit of such Borrower and including any balance of any deposit account or of any credit of such Borrower with such Bank, whether now existing or hereafter established hereby authorizing each Bank at any time or times with or without prior notice to apply such balances or any part thereof to such of the indebtedness and obligations owing by such Borrower to the Banks then past due and in such amounts as they may elect, and whether or not the collateral, if any, or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this subsection all remittances and property shall be deemed to be in the possession of any Bank as soon as the same may be put in transit to it by mail or carrier or by other bailee. (B) Each Bank agrees that if it shall, by exercising any right of setoff or counterclaim or resort to collateral security or otherwise, receive payment of a proportion of the aggregate amount of principal and interest owing with respect to the Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of all principal and interest owing with respect to the Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks owing to such other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks owing to such other Banks shall be shared by the Banks pro rata; provided that (1) nothing in this subsection shall impair the right of any Bank to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of either Borrower other than its indebtedness under the Notes, and (2) if all or any portion of such payment received by the purchasing Bank is thereafter recovered from such purchasing Bank, such purchase from each other Bank shall be rescinded and such other Bank shall repay to the purchasing Bank the purchase price of such participation to the extent of such recovery together with an amount equal to such other Bank's ratable share (according to the proportion of (x) the amount of such other Bank's required repayment to (y) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. 9.12 Waiver of Jury Trial. Each Borrower and each of the Banks irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of this Agreement or the Notes. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. SOUTHERN ELECTRONICS SOUTHERN ELECTRONICS CORPORATION DISTRIBUTORS, INC. By: By: Name: Larry G. Ayers Name: Larry G. Ayers Title: Vice President-Finance Title: Vice President-Finance NATIONAL CITY BANK, COLUMBUS WACHOVIA BANK OF GEORGIA, N.A. By: By: Name: Ralph A. Kaparos Name: Kevin B. Harrison Title: Senior Vice President Title: Vice President EXHIBITS AND SCHEDULES Exhibit Subject Matter 2.04 Prime Loan/Offered Rate Loan Borrowing Notice 2.06 Eurodollar Loan Borrowing Notice 2.10 Form of Revolving Credit Notes 4.02 Borrowing Certificate Schedule Subject Matter 1.01-1 Liens 3.01 Pre-Existing Letters of Credit 5.01(D) Litigation 5.01(L) Indebtedness 5.01(M) Certain Contracts Schedule 1.01-1 LIENS [To Be Completed] Schedule 3.01 PRE-EXISTING LETTERS OF CREDIT . Irrevocable Standby Letter of Credit No. 28861 Dated May 26, 1995 in the Amount of $800,000 Issued by National City Bank, Columbus to NEC America, Inc. for the Benefit of Southern Electronics Distributors, Inc. . Irrevocable Standby Letter of Credit No. 28914 Dated June 1, 1995 in the Amount of $250,000 Issued by National City Bank, Columbus to Sharp Electronics Corporation for the Benefit of Southern Electronics Distributors, Inc. Schedule 5.01 (D) LITIGATION [To Be Completed] Schedule 5.01 (L) INDEBTEDNESS [To Be Completed] Schedule 5.01(M) CERTAIN CONTRACTS [To Be Completed] Exhibit 2.04 NOTICE OF BORROWING FOR [PRIME LOAN] [OFFERED RATE LOAN] [Name and Address of Administrative Bank Per Section 9.05 of Revolving Credit Agreement] Subject: Revolving Credit Agreement (as amended and modified from time to time, the "Credit Agreement") dated as of June 29, 1995 by and among Southern Electronics Corporation and Southern Electronics Distributors, Inc., National City Bank, Columbus and Wachovia Bank of Georgia, N.A. Gentlemen: Unless otherwise defined herein, capitalized terms used herein shall have the meanings attributable thereto in the Credit Agreement. This Notice of Borrowing is delivered to you pursuant to subsection 2.04 of the Credit Agreement. The Borrowers hereby request [a Prime Loan] [an Offered Rate Loan] in the aggregate principal amount of $____________ to be made on _______________, 19___, and for interest to accrue thereon at the rate established by the Credit Agreement for [Prime Loans] [Offered Rate Loans]. [The duration of the Interest Period for such Offered Rate Loan shall be [30] [60] [90] days.] The Borrowers have caused this Notice of Borrowing to be executed and delivered by their duly authorized officers this ___ day of _____________, ______. SOUTHERN ELECTRONICS COMPANY By: Name: Title: SOUTHERN ELECTRONICS DISTRIBUTORS, INC. By: Name: Title: Exhibit 2.06 NOTICE OF BORROWING FOR EURODOLLAR LOAN [Name and Address of Administrative Bank Per Section 9.05 of Revolving Credit Agreement] Subject: Revolving Credit Agreement (as amended and modified from time to time, the "Credit Agreement") dated as of June 29, 1995 by and among Southern Electronics Corporation and Southern Electronics Distributors, Inc., National City Bank, Columbus and Wachovia Bank of Georgia, N.A. Gentlemen: Unless otherwise defined herein, capitalized terms used herein shall have the meanings attributable thereto in the Credit Agreement. This Notice of Borrowing is delivered to you pursuant to subsection 2.06 of the Credit Agreement. The Borrowers hereby request a Eurodollar Loan in the aggregate principal amount of $____________ to be made on _______________, 19___, and for interest to accrue thereon at the rate established by the Credit Agreement for Eurodollar Loans. The duration of the Interest Period for such Eurodollar Loan shall be [1] [2] [3] months[s]. The Borrowers have caused this Notice of Borrowing to be executed and delivered by their duly authorized officers this ___ day of _____________, ______. SOUTHERN ELECTRONICS COMPANY By: Name: Title: SOUTHERN ELECTRONICS DISTRIBUTORS, INC. By: Name: Title: Exhibit 4.02 BORROWING CERTIFICATE This Certificate is made pursuant to subsection 4.02 of the Revolving Credit Agreement, dated as of June 29, 1995, between SOUTHERN ELECTRONICS CORPORATION ("SEC") and SOUTHERN ELECTRONICS DISTRIBUTORS, INC. ("SED"), on the one hand, and NATIONAL CITY BANK, COLUMBUS and WACHOVIA BANK OF GEORGIA, N.A., on the other hand (the "Credit Agreement"). Capitalized terms used herein shall have the same meanings as set forth in the Credit Agreement, unless otherwise defined herein. SEC or SED (the "Requesting Party") hereby requests a loan under the Credit Agreement in the sum of _____________________________________ Dollars ($_______________). The undersigned President or Vice President of the Requesting Party hereby certifies as follows: 1. The representations and warranties of the Borrowers set forth in the Credit Agreement or which are contained in any certificate, document or financial or other statement furnished pursuant to or in connection with the Credit Agreement are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof; and 2. Immediately prior to and immediately after the making of the loans requested to be made and the issuance of the Letters of Credit requested to be issued on the date hereof, no Event of Default will be continuing under the Credit Agreement; and the undersigned Secretary or Assistant Secretary of the Requesting Party hereby certifies as follows: 3. There are no liquidation or dissolution proceedings pending or to my knowledge threatened against the Borrowers nor has any other event occurred affecting or threatening the corporate existence of the Borrowers; and 4. Each of the Borrowers is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. IN WITNESS WHEREOF, the undersigned have hereunto set their names on the date set forth below. President or Vice President Secretary or Assistant Secretary Date: Exhibit 2.10 REVOLVING CREDIT NOTE $15,000,000.00 Columbus, Ohio June 29, 1995 FOR VALUE RECEIVED, the undersigned, SOUTHERN ELECTRONICS CORPORATION and SOUTHERN ELECTRONICS DISTRIBUTORS, INC., jointly and severally hereby unconditionally promise to pay on the Loan Termination Date, to the order of ___________________________ (the "Lender") at the office of the Administrative Bank located at 191 Peachtree Street, 30th Floor, Mail Code 212, Corporate Banking, Atlanta, Georgia 30303-1757, Attn: Kevin B. Harrison, Vice President, in lawful money of the United States of America and in immediately available funds, the principal amount of the lesser of (a) FIFTEEN MILLION DOLLARS ($15,000,000.00) and (b) the aggregate unpaid principal amount of all loans made by the Lender to the undersigned and the aggregate amount of all advances made by the Lender pursuant to letters of credit issued by the Banks in favor of the undersigned pursuant to the Revolving Credit Agreement, dated as of June 29, 1995, as amended, between the undersigned and the Banks (the "Credit Agreement"). Capitalized terms used herein shall have the same meanings as set forth in the Credit Agreement, unless otherwise defined herein. The undersigned further agree to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof until such amount shall be come due and payable (whether at the stated maturity, by acceleration or otherwise) on the dates and at the applicable rate per annum as provided in subsection 2.12 of the Credit Agreement. The holder of this Note is authorized to endorse the date and amount of each loan pursuant to the Credit Agreement, the date and amount of each payment or prepayment of principal thereof and the unpaid principal amount under this Note on the schedule annexed hereto and made a part hereof or on a continuation thereof, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. If any payment on this Note becomes due and payable on a day other than a business day, the maturity thereof shall be extended to the next succeeding business day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. This Note is one of the Notes referred to in the Credit Agreement and is entitled to the benefits thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided therein. This Note shall be governed by and construed in accordance with the laws of the State of Georgia. SOUTHERN ELECTRONICS CORPORATION By: Name: Title: SOUTHERN ELECTRONICS DISTRIBUTORS, INC. By: Name: Title: Schedule to Revolving Credit Note Amount Amount of Unpaid of Principal Principal Date Loan Payments Balance ___________ $__________ $________ $_________ ___________ $__________ $________ $_________ ___________ $__________ $________ $_________ ___________ $__________ $________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ ___________ $__________ $_________ $_________ EX-10.23 4 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT is made and entered into as of _______________, 199__, by and between SOUTHERN ELECTRONICS CORPORATION, a Delaware corporation (the "Corporation"), and ________________________, a member of the Board of Directors of the Corporation ("Indemnitee"). WHEREAS, the Corporation desires that Indemnitee oppose and defend against what Indemnitee may consider to be unjustified investigations, claims, actions, suits and proceedings which have arisen or may arise in the future as a result of Indemnitee's service to the Corporation notwithstanding that conditions in the insurance markets may make directors' and officers' liability insurance coverage unavailable or available only at premium levels which the Corporation may deem inappropriate to pay; and WHEREAS, the parties believe it appropriate to memorialize and reaffirm the Corporation's indemnification obligation to Indemnitee and, in addition, set forth the indemnification agreements contained herein; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties agree as follows: 1. Indemnification. (a) Indemnitee shall be indemnified and held harmless by the Corporation to the fullest extent permitted by its Certificate of Incorporation, By-laws and the General Corporation Law of the State of Delaware, as the same exists or as may hereafter be amended, against all expenses, liabilities and losses (including attorneys' fees, judgments, fines and amounts paid or to be paid in any settlement approved in advance by the Corporation, such approval not to be unreasonably withheld) (collectively, "Indemnifiable Expenses") actually and reasonably incurred or suffered by Indemnitee in connection with any present or future threatened, pending or contemplated investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (collectively, "Indemnifiable Litigation"), (i) to which Indemnitee is or was a party or is threatened to be made a party by reason of any action or inaction in Indemnitee's capacity as a director or officer of the Corporation, or (ii) with respect to which Indemnitee is otherwise involved by reason of the fact that Indemnitee is or was serving as a director, officer, employee or agent of the Corporation, or of any subsidiary or division, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. (b) In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. (c) The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against the Indemnitee: (i) for which payment is actually made to the Indemnitee under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; (ii) for which the Indemnitee is entitled to indemnity and/or payment by reason of having given notice of any circumstance which might give rise to a claim under any policy of insurance, the terms of which have expired prior to the effective date of this Agreement; (iii) for which the Indemnitee is indemnified by the Corporation otherwise than pursuant to this Agreement; (iv) based upon or attributable to the Indemnitee gaining in fact any personal profit or advantage to which he was not legally entitled; (v) for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory law; or (vi) brought about or contributed to by the dishonesty of the Indemnitee seeking payment hereunder; however, notwithstanding the foregoing, the Indemnitee shall be protected under this Agreement as to any claims upon which suit may be brought against him by reason of any alleged dishonesty on his part, unless a judgment or other final adjudication thereof adverse to Indemnitee shall establish that he committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated. 2. Interim Expenses. The Corporation agrees to pay Indemnifiable Expenses incurred by Indemnitee in connection with any Indemnifiable Litigation in advance of the final disposition thereof, provided that the Corporation has received an undertaking from or on behalf of Indemnitee, substantially in the form attached hereto as Annex I, to repay the amount so advanced to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Corporation under this Agreement or otherwise. 3. Procedure for Making Demand. Payments of Indemnifiable Expenses and advances provided for in Sections 1 and 2 hereof shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee, and Indemnitee shall be deemed to have met the applicable standard of conduct required for indemnification unless a determination is made within said 45-day period by (i) the Corporation's Board of Directors by a majority vote of a quorum consisting of disinterested directors who are not parties to the Indemnification Litigation giving rise to the demand, (ii) if such a quorum of disinterested directors is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the Corporation's stockholders, that Indemnitee has not met the relevant standard of conduct for indemnification set forth in Section 1 hereof. Indemnitee may contest the determination that Indemnitee has not met the relevant standard of indemnification by petitioning a court to make an independent determination with respect to the right of indemnification, in accordance with the terms of Section 4 hereof. 4. Failure to Indemnify. (a) If a claim under this Agreement, or any statute, or under any provision of the Corporation's Certificate of Incorporation or By-laws providing for indemnification, is not paid in full by the Corporation within forty-five (45) days after a written request for payment thereof has been received by the Corporation, Indemnitee may, but need not, at any time thereafter bring an action against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, Indemnitee shall also be entitled to be paid for the expense (including attorneys' fees) of bringing such action. (b) It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Corporation to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Corporation and Indemnitee shall be entitled to receive interim payments of interim expenses pursuant to Section 2 hereof unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Corporation contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Corporation (including its Board of Directors, any committee of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Corporation (including its Board of Directors, any committee of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. 5. Successors. This Agreement establishes contract rights which shall be binding upon, and shall inure to the benefit of, the successors, assigns, heirs and legal representatives of the parties hereto. 6. Contract Rights Not Exclusive. The contract rights conferred by this Agreement shall be in addition to, but not exclusive of, any other right which Indemnitee may have or may hereafter acquire under any statute, provision of the Corporation, Certificate of Incorporation or By-laws, agreement, vote of stockholders or disinterested directors, or otherwise. 7. Indemnitee's Obligations. The Indemnitee shall promptly advise the Corporation in writing of the institution of any investigation, claim, action, suit or proceeding which is or may be subject to this Agreement and keep the Corporation generally informed of, and consult with the Corporation with respect to, the status of any such investigation, claim, action, suit or proceeding. Notices to the Corporation shall be directed to Southern Electronics Corporation, 4916 N. Royal Atlanta Drive, Tucker, Georgia 30084, Attn: Secretary (or such other address as the Corporation shall designate in writing to Indemnitee). Notice shall be deemed received when personally delivered or three days after the date postmarked if sent by certified or registered mail, properly addressed. In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 8. Severability. Should any provision of this Agreement, or any clause thereof, be held to be invalid, illegal or unenforceable, in whole or in part, the remaining provisions and clauses of this Agreement shall remain fully enforceable and binding on the parties. 9. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 10. Choice of Law. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the state of Delaware. 11. Change in Position. Notwithstanding any change in the position(s) shown below as held by the Indemnitee with the Corporation, this Agreement shall continue in full force and effect, and a new agreement between the parties hereto need not be executed and delivered as long as Indemnitee continues to serve as an officer and/or member of the Board of Directors of the Corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. SOUTHERN ELECTRONICS CORPORATION By:______________________________ Name:_________________________ Title:________________________ INDEMNITEE By:______________________________ Director ANNEX I UNDERTAKING AGREEMENT This AGREEMENT is made and entered into as of _______________, 199__, by and between SOUTHERN ELECTRONICS CORPORATION, a Delaware corporation (the "Corporation"), and _______________, a member of the Board of Directors of the Corporation ("Indemnitee"). WHEREAS, Indemnitee has become involved in investigations, claims, actions, suits or proceedings which have arisen as a result of Indemnitee's service to the Corporation; and WHEREAS, Indemnitee desires that the Corporation pay any and all expenses (including, but not limited to, attorneys' fees and court costs) actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or investigating any such suits or claims and that such payment be made in advance of the final disposition of such investigations, claims, actions, suits or proceedings to the extent that Indemnitee has not been previously reimbursed by insurance; and WHEREAS, the Corporation is willing to make such payments but, in accordance with Section 145 of the General Corporation Law of the State of Delaware, the Corporation may make such payments only if it receives an undertaking to repay from Indemnitee; and WHEREAS, Indemnitee is willing to give such an undertaking. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto agree as follows: 1. In regard to any payments made by the Corporation to Indemnitee pursuant to the terms of the Indemnification Agreement dated as of February 12, 1992 between the Corporation and Indemnitee, Indemnitee hereby undertakes and agrees to repay to the Corporation any and all amounts so paid promptly and in any event within thirty (30) days after the disposition, including any appeals, of any litigation or threatened litigation on account of which payments were made; provided, however, that Indemnitee shall not be required to repay the amount as to which he is determined to be entitled to be indemnified by the Corporation under Article Eighth of the Certificate of Incorporation and Article XI of the By-laws of the Corporation and Section 145 of the General Corporation Law of the State of Delaware or other applicable law. 2. This Agreement shall not affect in any manner the rights which Indemnitee may have against the Corporation, any insurer or any other person to seek indemnification for or reimbursement of any expenses referred to herein or any judgment which may be rendered in any litigation or proceeding. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. SOUTHERN ELECTRONICS CORPORATION By:______________________________ Name:_________________________ Title:________________________ INDEMNITEE By:______________________________ Director EX-10.26 5 FIRST AMENDMENT TO LEASE THIS AMENDMENT TO LEASE made this 14th day of July, 1995, by and between H.G. & ELIZABETH M. PATILLO, First Party, hereinafter referred to as "Lessor," and SOUTHERN ELECTRONICS DISTRIBUTORS, INC., Second Party, hereinafter referred to as "Lessee;" WITNESSETH WHEREAS, Lessor and Lessee have previously entered into a Lease dated November 6, 1992, covering the 98,854 square foot space located at 4775 North Royal Atlanta Drive, Tucker, Georgia 30084, the term of said Lease having commenced on February 1, 1993; and WHEREAS, the Lease was for an initial term of three (3) years with the Lease scheduled to terminate January 31, 1996; and WHEREAS, both parties are desirous of extending the term of said Lease for three (3) years past said expiration of January 31, 1996. NOW, THEREFORE, in consideration of the mutual covenants and conditions herein, acknowledged by both parties to be adequate and sufficient, the parties hereto agree as follows: 1. The term of the Lease shall be extended to run for an additional three (3) year term from February 1, 1996 through January 31, 1999. 2. Lessee shall pay to Lessor as rental for this three (3) year extension, promptly on the first day of each month in advance without demand during the term of this Lease extension, a monthly rental as follows: February 1, 1996 through January 31, 1998 $21,830.00 per month February 1, 1998 through January 31, 1999 $22,654.00 per month 3. Option to Extend Lessee shall have the option to extend this Lease for one additional one-year term commencing February 1, 1999 at $23,478.00 per month under the same terms and conditions provided Lessee has fulfilled in a timely manner all of the terms and conditions of this Lease. Notice of Lessee's intent to exercise this option must be received by July 31, 1998 if this option is to be exercised. Furthermore, Lessee shall have a second extension option to extend this Lease for one additional one-year term commencing at the expiration of the first extension option at a rental of $23,478.00 per month under the same terms and conditions provided Lessee has fulfilled in a timely manner all of the terms and conditions of the Lease. Notice of Lessee's intent to exercise this option must be received by July 31, 1999. 4. Except as expressly amended herein, the Lease is in all respects ratified and confirmed and all the covenants, agreements, terms, provisions and conditions thereof shall be and remain in full force and effect. IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Amendment to Lease as of the day and year first above written. H.G. PATILLO BY ELIZABETH M. PATILLO BY LESSEE Signed, sealed and delivered in the presence of: Witness SOUTHERN ELECTRONICS DISTRIBUTORS, INC. (SEAL) BY LESSOR Signed, sealed and delivered in the presence of: Witness EX-10.29 6 NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the _____day of ___________, ____, is by and between SOUTHERN ELECTRONICS CORPORATION (the "Company") and ____________________________________ (the "Optionee"). W I T N E S S E T H: WHEREAS, on ________________ (the "Grant Date"), the Board of Directors of the Company granted a non-qualified stock option to purchase _____ shares of the common stock, $.01 par value per share ("Common Stock"), of the Company to the Optionee at an exercise price of $_____ per share; WHEREAS, the Company and the Optionee wish to confirm the terms and conditions of the option; NOW, THEREFORE, in consideration of the mutual covenants contained herein, it is hereby agreed between the parties hereto as follows: 1. Grant of Option. Subject to the terms, restrictions, limitations and conditions stated herein, the Company hereby grants to the Optionee a non-qualified stock option (the "Option") to purchase all or any part of _____ shares of Common Stock of the Company. 2. Term and Exercise of Option. Subject to the provisions of this Agreement: (a) The Option shall be exercisable during the Option Period (as defined in Section 4 hereof) only to the extent of the number of Vested Shares determined pursuant to the vesting schedule attached hereto as Schedule I. (b) The Option may be exercised with respect to all or any portion of the Vested Shares at any time during the Option Period by the delivery to the Company, at its principal place of business, of (i) a written notice of exercise in substantially the form attached hereto as Exhibit 1, which shall be actually delivered to the Company no earlier than thirty (30) days and no later than ten (10) days prior to the date upon which Optionee desires to exercise all or any portion of the Option; (ii) payment to the Company of the Exercise Price, as defined in Section 3 below, multiplied by the number of shares of Common Stock being purchased (the "Purchase Price") in the manner provided in Subsection (c) hereof; and (iii) a certified check representing payment of all withholding tax obligations (whether federal, state or local), imposed by reason of the exercise of the Option. Upon acceptance of such notice, receipt of payment in full of the Purchase Price, and receipt of payment of all withholding tax obligations, the Company shall cause to be issued a certificate representing the shares of Common Stock so purchased. (c) The Purchase Price shall be paid in full upon the exercise of all or any portion of the Option and no shares of Common Stock shall be issued or delivered until full payment therefor has been made. Payment of the Purchase Price for all shares of Common Stock purchased pursuant to the exercise of all or any portion of the Option shall be made in cash or, alternatively, in combination with any or all of the following: (i) by delivery to the Company of a number of shares of Common Stock which have been owned by the Optionee for at least six months prior to the date of the Option's exercise, having a fair market value on the date of exercise, as determined by the Board of Directors in its sole discretion, either equal to the Purchase Price or, in combination with cash, equal to the Purchase Price; (ii) by receipt of the Purchase Price in cash from a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System following delivery by the Optionee to the Board of Directors of instructions in a form acceptable to the Board of Directors regarding delivery to such broker, dealer or other creditor of that number of shares of Common Stock with respect to which the Option is exercised; or (iii) by such other consideration as the Board of Directors, in its sole discretion, allows. 3. Exercise Price. The exercise price for each share of Common Stock for which the Option is exercised shall be $_____, subject to adjustment as set forth in Section 7 hereof (the "Exercise Price"). 4. Term and Termination of Option. Except as otherwise provided below, the term of the Option (the "Option Period") shall commence on the Grant Date and terminate on the date of the first to occur of the following events: (a) the ten-year anniversary of the Grant Date; (b) if the Optionee's service as a director of the Company terminates because of his disability as defined in Code Section 72(m)(7), the Optionee shall be vested in all of the Common Stock granted by this Option, and may fully (100%) exercise this Option, less any portion previously exercised, at any time, or from time to time, within twelve months after termination of service; (c) if the Optionee dies (1) while a director of the Company or (2) within twelve months after termination of his service as a director of the Company because of disability as defined in Code Section 72(m)(7), this Option shall become fully vested and may be fully (100%) exercised (less any portion previously exercised) by the person or persons to whom the Optionee's rights under this Option pass by will or applicable law, or if no such person has such right, by his executors or administrators, at any time, or from time to time, until the first anniversary of the Optionee's death; or (d) the date the Optionee's service as a director of the Company shall terminate for any reason other than by death or disability as aforesaid. Upon the expiration of the Option Period, this Option, and all unexercised rights granted to Optionee hereunder shall terminate, and thereafter be null and void. 5. Rights as Shareholder. Until the stock certificates reflecting the Common Stock accruing to the Optionee upon exercise of the Option are issued to the Optionee, the Optionee shall have no rights as a shareholder with respect to such Common Stock. The Company shall make no adjustment for any dividends or distributions or other rights on or with respect to shares of Common Stock purchased pursuant to the exercise of all or any portion of the Option for which the record date is prior to the issuance of that stock certificate, except as this Agreement otherwise provides. 6. Restriction on Transfer of Option. The Option evidenced hereby is nontransferable other than by will or the laws of descent and distribution, and, shall be exercisable during the lifetime of the Optionee only by the Optionee (or in the event of his disability, by his personal representative) and after his death, only by his personal representative. 7. Change in Capitalization. If the number of shares of the Common Stock of the Company shall be increased or reduced by a change in par value, split-up, stock split, reverse stock split, reclassification, merger, consolidation, distribution of stock dividends or similar capital adjustment, an appropriate adjustment shall be made by the Board of Directors in the number and kind of shares as to which the Option, or the portion thereof then unexercised, shall be or become exercisable, to the end that the Optionee's proportionate interest shall be maintained as before the occurrence of the event. The adjustment shall be made without change in the total price applicable to the unexercised portion of the Option and with a corresponding adjustment in the Exercise Price. No fractional shares shall be issued or optioned in making the adjustment. All adjustments made by the Board of Directors under this Section shall be conclusive. In the event of a Change of Control (as defined below), all of the Option then outstanding and unexercised shall be exercisable immediately in full, and shall remain exercisable for the remaining term of the Option, regardless of any provisions with respect to the Option that limit the exercisability of the Option for any length of time. For purposes of the foregoing paragraph, the following terms shall have the following meanings: A "Change of Control" shall be deemed to have occurred if and when (1) any individual, corporation, partnership, Group, association or other person or entity, together with his, its or their Affiliates or Associates, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, hereafter becomes the Beneficial Owner of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors; (2) the Continuing Directors of the Company shall at any time fail to constitute a majority of the members of the Board of Directors of the Company; (3) all or substantially all of the assets of the Company are sold, conveyed, transferred or otherwise disposed of, whether through one event or a series of related events, without being Duly Approved by the Continuing Directors of the Company; (4) any individual, corporation, partnership, Group, association or other person or entity, together with his, its or their Affiliates or Associates, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Subsidiary, becomes the Beneficial Owner of securities of the Subsidiary representing thirty percent (30%) or more of the combined voting power of the Subsidiary's then outstanding securities entitled to vote generally in the election of directors; or (5) all or substantially all of the assets of the Subsidiary are sold, conveyed, transferred or otherwise disposed of, whether through one event or a series of related events, without being Duly Approved by the Continuing Directors of the Subsidiary. "Affiliate" or "Affiliated" means any person, firm, corporation, partnership, association or entity, either directly or indirectly, that controls, is controlled by, or is under common control with a specified person, firm, corporation, partnership, association or entity. "Associate" means (1) any corporation, partnership or other entity of which a specified person is an officer or partner, or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities thereof, (2) any trust or estate in which the specified person has a substantial beneficial interest or as to which the specified person serves as trustee or in a similar fiduciary capacity, (3) any relative or spouse of such specified person, or any relative of such spouse, who has the same home as such specified person, and (4) any person who is a trustee, officer or partner of such specified person or of any corporation, partnership or other entity that is an Affiliate of such specified person. "Beneficial Owner" shall be defined by reference to Rule 13d-3 under the Act as such Rule is in effect on the date hereof; provided, however, that any individual, corporation, partnership, Group, association or other person or entity which, directly or indirectly, owns or has the right to acquire any of the Company's or the Subsidiary's outstanding securities entitled to vote generally in the election of directors at any time in the future, whether such right is contingent, absolute, direct or indirect, pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options or otherwise, shall be deemed the Beneficial Owner of such securities. "Continuing Director" means a director who either was a member of the Board of Directors of either the Company or the Subsidiary, as the case may be, on the date hereof, or who becomes a member of the Board of Directors of either the Company or the Subsidiary, as the case may be, subsequent to such date and whose election or nomination for election by the Board of Directors of that company was Duly Approved by the Continuing Directors of that company at the time of such election or nomination, either by a specific vote or by approval of the proxy statement issued by that company on behalf of the Board of Directors of that company in which such person is named as a nominee for director. "Duly Approved by the Continuing Directors" means an action approved by the vote of at least a majority of the Continuing Directors then on the Board of Directors of either the Company or the Subsidiary, as the case may be; provided, however, if the votes of such Continuing Directors in favor of such action would be insufficient to constitute an act of the entire Board of Directors of that company as if a vote by all of its members had been taken, or if the number of persons constituting the Continuing Directors of that company shall be equal to or less than three, then the term Duly Approved by the Continuing Directors shall mean an action approved by the unanimous vote of the Continuing Directors then on the Board of Directors of that company. "Group" means persons who act in concert as described in Section 13(d)(3) of the Act as in effect on the date hereof. "Subsidiary" only for purposes of defining a Change of Control means Southern Electronics Distributors, Inc. 8. Special Limitation on Exercise. Notwithstanding anything contained herein to the contrary, no purported exercise of the Option shall be effective without the written approval of the Board of Directors of the Company, which may be withheld to the extent that its exercise, either individually or in the aggregate together with the exercise of other previously exercised stock options and/or offers and sales pursuant to any prior or contemplated offering of securities, would, in the sole and absolute judgment of the Board of Directors of the Company, require the filing of a registration statement with the United States Securities and Exchange Commission, or with the securities commission of any state. The Company shall avail itself of any exemptions from registration contained in applicable federal and state securities laws which are reasonably available to the Company on terms which, in the sole and absolute discretion of the Board of Directors, it deems reasonable and not unduly burdensome or costly. If the Option cannot be exercised at the time it would otherwise expire due to the restrictions contained in this Section, the exercise period shall be extended for successive one-year periods until it can be exercised in accordance with this Section. The Optionee shall deliver to the Company, prior to the exercise of the Option, such information, representations and warranties as the Company may reasonably request in order for the Company to be able to satisfy itself that the Common Stock to be acquired pursuant to the exercise of the Option is being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and state securities laws. 9. Legend on Stock Certificates. Certificates evidencing Common Stock to be distributed pursuant to the Agreement shall, to the extent appropriate at the time, have noted conspicuously on the certificates a legend substantially to the following effect, which is intended to give all persons full notice of the existence of the conditions, restrictions, rights and obligations set forth in this Agreement: (a) That the securities evidenced by the certificate were issued without registration under the Securities Act of 1933, as amended (the "1933 Act"), or under the applicable laws of any state or states (collectively referred to as the "State Acts"), in reliance upon certain exemptive provisions of the 1933 Act or any applicable State Acts; (b) That the securities cannot be sold or transferred unless, in the opinion of counsel reasonably acceptable to the Company, the sale or transfer would be: (1) Pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption form registration; and (2) A transaction which is exempt under any applicable State Acts or pursuant to an effective registration statement under or in a transaction which is otherwise in compliance with the State Acts; and (c) That the securities evidenced by the certificate were issued in accordance with the provisions of the Agreement and are subject to the provisions thereof and may not be sold or transferred except in compliance with said provisions. 10. Governing Laws. This Agreement shall be construed, administered and enforced according to the laws of the State of Delaware; provided, however, no option may be exercised except, in the reasonable judgment of the Board of Directors, in compliance with exemptions under applicable state securities laws of the state in which the Optionee resides, and/or any other applicable securities laws. 11. Successors. This Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and permitted assigns of the parties. 12. Notice. Except as otherwise specified herein, all notices and other communications under this Agreement shall be in writing and shall be deemed to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested, postage prepaid, addressed to the proposed recipient at the last known address of the recipient. Any party may designate any other address to which notices shall be sent by giving notice of the address to the other parties in the same manner as provided herein. 13. Severability. In the event that any one or more of the provisions or portion thereof contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein. 14. Entire Agreement. This Agreement expresses the entire understanding and agreement of the parties. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 15. Violation. Any transfer, pledge, sale, assignment, or hypothecation of the Option or any portion thereof shall be a violation of the terms of this Agreement and shall be void and without effect. 16. Headings. Paragraph headings used herein are for convenience of reference only and shall not be considered in construing this Agreement. 17. Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the party or parties who are thereby aggrieved shall have the right to specific performance and injunction in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. IN WITNESS WHEREOF, the parties have executed and sealed this Agreement on the day and year first set forth above. SOUTHERN ELECTRONICS CORPORATION By: Title: ATTEST: _________________________ Title: __________________ [CORPORATE SEAL] OPTIONEE (SEAL) EXHIBIT 1 NOTICE OF EXERCISE OF STOCK OPTION TO PURCHASE COMMON STOCK OF SOUTHERN ELECTRONICS CORPORATION Name Address Date Southern Electronics Corporation 4916 North Royal Atlanta Drive Tucker, Georgia 30084 Re: Exercise of Non-Qualified Stock Option Gentlemen: Subject to acceptance hereof in writing by Southern Electronics Corporation (the "Company"), I hereby give at least ten days but not more than thirty days prior notice of my election to exercise options granted to me to purchase ______________ shares of Common Stock of the Company under the Southern Electronics Corporation Non-Qualified Stock Option Agreement dated August ___, 1992. The purchase shall take place as of __________, 199_ (the "Exercise Date"). On or before the Exercise Date, I will pay the applicable purchase price as follows: [ ] By delivery of a certified check for $___________ for the full purchase price payable to the order of Southern Electronics Corporation. [ ] By delivery of a certified check for $___________ representing a portion of the purchase price with the balance to consist of shares of Common Stock that I have owned for at least six months and that are represented by a stock certificate I will surrender to the Company with my endorsement. If the number of shares of Common Stock represented by such stock certificate exceed the number to be applied against the purchase price, I understand that a new stock certificate will be issued to me reflecting the excess number of shares. [ ] By delivery of a stock certificate representing shares of Common Stock that I have owned for at least six months which I will surrender to the Company with my endorsement as payment of the purchase price. If the number of shares of Common Stock represented by such certificate exceed the number to be applied against the purchase price, I understand that a new certificate will be issued to me reflecting the excess number of shares. [ ] By delivery of the purchase price by ________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System. I hereby authorize the Company to issue a stock certificate representing the number of shares indicated above in the name of said broker, dealer or other creditor or its nominee pursuant to instructions received by the Company and to deliver said stock certificate directly to that broker, dealer or other creditor (or to such other party specified in the instructions received by the Company from the broker, dealer or other creditor) upon receipt of the purchase price. The required federal, state and local income tax withholding, if any, on the exercise of the option shall be paid on or before the Exercise Date. As soon as the stock certificate is registered in my name, please deliver it to me at the above address. If the Common Stock being acquired is not registered for issuance to and resale by the Optionee pursuant to an effective registration statement on Form S-8 (or successor form) filed under the Securities Act of 1933, as amended (the "1933 Act"), I hereby represent, warrant, covenant, and agree with the Company as follows: The shares of the Common Stock being acquired by me will be acquired for my own account without the participation of any other person, with the intent of holding the Common Stock for investment and without the intent of participating, directly or indirectly, in a distribution of the Common Stock and not with a view to, or for resale in connection with, any distribution of the Common Stock, nor am I aware of the existence of any distribution of the Common Stock; I am not acquiring the Common Stock based upon any representation, oral or written, by any person with respect to the future value of, or income from, the Common Stock but rather upon an independent examination and judgment as to the prospects of the Company; The Common Stock was not offered to me by means of publicly disseminated advertisements or sales literature, nor am I aware of any offers made to other persons by such means; I am able to bear the economic risks of the investment in the Common Stock, including the risk of a complete loss of my investment therein; I understand and agree that the Common Stock will be issued and sold to me without registration under any state law relating to the registration of securities for sale, and will be issued and sold in reliance on the exemptions from registration under the 1933 Act, provided by Sections 3(b) and/or 4(2) thereof and the rules and regulations promulgated thereunder; The Common Stock cannot be offered for sale, sold or transferred by me other than pursuant to: (A) an effective registration under the 1933 Act or in a transaction otherwise in compliance with the 1933 Act; and (B) evidence satisfactory to the Company of compliance with the applicable securities laws of other jurisdictions. The Company shall be entitled to rely upon an opinion of counsel satisfactory to it with respect to compliance with the above laws; The Company will be under no obligation to register the Common Stock or to comply with any exemption available for sale of the Common Stock without registration or filing, and the information or conditions necessary to permit routine sales of securities of the Company under Rule 144 under the 1933 Act are not now available and no assurance has been given that it or they will become available. The Company is under no obligation to act in any manner so as to make Rule 144 available with respect to the Common Stock; I have and have had complete access to and the opportunity to review and make copies of all material documents related to the business of the Company, including, but not limited to, contracts, financial statements, tax returns, leases, deeds and other books and records. I have examined such of these documents as I wished and am familiar with the business and affairs of the Company. I realize that the purchase of the Common Stock is a speculative investment and that any possible profit therefrom is uncertain; I have had the opportunity to ask questions of and receive answers from the Company and any person acting on its behalf and to obtain all material information reasonably available with respect to the Company and its affairs. I have received all information and data with respect to the Company which I have requested and which I have deemed relevant in connection with the evaluation of the merits and risks of my investment in the Company; I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the purchase of the Common Stock hereunder and I am able to bear the economic risk of such purchase; and The agreements, representations, warranties and covenants made by me herein extend to and apply to all of the Common Stock of the Company issued to me pursuant to this Option. Acceptance by me of the certificate representing such Common Stock shall constitute a confirmation by me that all such agreements, representations, warranties and covenants made herein shall be true and correct at that time. I understand that the certificates representing the shares being purchased by me in accordance with this notice shall bear a legend referring to the foregoing covenants, representations and warranties and restrictions on transfer, and I agree that a legend to that effect may be placed on any certificate which may be issued to me as a substitute for the certificates being acquired by me in accordance with this notice. Very truly yours, AGREED TO AND ACCEPTED: SOUTHERN ELECTRONICS CORPORATION By:_____________________________ Title:__________________________ Number of Shares Exercised:______________________ Number of Shares Remaining:______________________ Date: SCHEDULE I TO SOUTHERN ELECTRONICS CORPORATION NON-QUALIFIED STOCK OPTION AGREEMENT Vesting Schedule "Vested Shares" means the percent of shares granted by the Option which is exercisable pursuant to the following schedule: Years of Service Vested Shares Construction (a) For purposes of the Vesting Schedule, the Optionee shall be granted a year of service for each consecutive twelve-consecutive-month period following the Grant Date and during which the Optionee remains, at all times, a director of the Company. (b) The right of the Optionee to vest in Common Stock shall cease upon the termination of the Optionee's service as a director of the Company other than by death or disability, as provided in the Non-Qualified Stock Option Agreement between Southern Electronics Corporation and _________________________ dated as of _______________ (the "Agreement"), and thereafter, no further shares shall become Vested Shares. (c) Upon death or disability as provided in the Agreement, 100% of all shares of Common Stock granted by this Option shall become Vested Shares. EX-10.30 7 SUBSCRIPTION AND STOCKHOLDERS AGREEMENT AGREEMENT dated as of July 2, 1986 (the "Agreement") by and among SED HOLDING COMPANY, INC., a Delaware corporation ("Holding"), ZS SED L.P., a Delaware limited partnership ("ZS/SED"), ZS SOUTHERN L.P. a Delaware limited partnership ("ZS Southern"), and SED Associates, a Georgia general partnership (the "Diamond Partnership") (ZS/SED, ZS Southern and the Diamond partnership are herein sometimes referred to collectively as the "Subscribers"). WHEREAS, SED Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Holding ("Newco"), and Holding have entered into an Asset Purchase Agreement dated as of June 27, 1986 (the "Purchase Agreement") with Southern Electronics Distributors, Inc., a Georgia corporation ("SED"), and the shareholders of SED, providing for the purchase by Newco of substantially all of the assets, properties, rights and business of SED; and WHEREAS, the authorized capital stock of Holding consists of 1,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), and 129,500 shares of 6% Cumulative Preferred Stock, par value $1.00 per share (the "Preferred Stock"); and WHEREAS, Holding intends to issue and sell to the Diamond Partnership 39,900 shares of Common Stock, to ZS/SED 30,100 shares of Common Stock and 70,707 shares of Preferred Stock and to ZS Southern 30,000 shares of Common Stock and 58,793 shares of Preferred Stock, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, the parties hereto agree as follows: 1. Purchase of Shares. 1.1. Issuance of Stock. At the Closing, Holding shall sell to: (a) Each Subscriber, and each Subscriber shall purchase from Holding, that number of shares of Common Stock set forth opposite such Subscriber's name on Schedule I to this Agreement (the "Subscription Amount") at a purchase price of $21.05263 per share of Common Stock payable in cash except that ZS Southern shall purchase said shares of the Common Stock for consideration to include a promissory note in the principal amount of $105,263.00 bearing interest at the rate of 7-1/4% per annum made in favor of Holding; (b) ZS/SED, and ZS/SED shall purchase from Holding, 70,707 shares of Preferred Stock for an aggregate purchase price of $1,092,559 payable in cash; and (c) ZS Southern, and ZS Southern shall purchase from Holding, 58,793 shares of Preferred Stock for an aggregate purchase price of $907,441 payable in cash. 1.2. Definition of "Shares". The shares of Common Stock to be acquired by the Subscribers pursuant to this Agreement are hereinafter sometimes referred to as the "Common Shares". The shares of Preferred Stock to be acquired by ZS/SED and ZS Southern pursuant to this Agreement are hereinafter sometimes referred to as the "Preferred Shares". The Common shares and the Preferred Shares are hereinafter sometimes collectively referred to as the "Shares". 2. Closing; Time and Date. The issuance and delivery of the Common Shares to the Subscribers and the Preferred Shares to ZS/SED and ZS Southern and all other transactions contemplated hereby and by the Purchase Agreement shall take place at a closing (the "Closing") at the offices of Wender Murase & White, 400 Park Avenue, New York, New York, at 10:00 A.M. New York time, on June 30, 1986, or at such other place or such other time or date as Holding and the Subscribers may agree in writing. The time and date upon which the Closing occurs is herein called the "Closing Date". 3. Representations and Warranties of Holding. Holding represents and warrants to the Subscribers that: 3.1. Business of Holding; Newco. At the time of the Closing, Holding will own all of the issued and outstanding shares of stock of Newco. Neither Holding nor Newco will have any liabilities of any nature whatsoever at the time of the Closing, except for (i) the expenses which each has paid or incurred in connection with its incorporation, organization and financing, and for legal and audit services and any other miscellaneous expenses incident to its pre-operating period; (ii) the liabilities of Newco and Holding under the Purchase Agreement; and (iii) the liability of Holding to repay indebtedness evidenced by Notes issued to Drexel Burnham Lambert Incorporated (or an affiliate thereof) ("DBL"), and other certain investors selected by DBL. Neither Holding nor Newco owns as of the date hereof any real or tangible personal property and neither of them has entered into, or intends to enter into before or at the Closing, any material contract or agreement other than this Agreement and the agreements and instruments described above in this Section 3.1 or provided for in such agreements or instruments or contemplated thereby. 3.2. Due Incorporation. Each of Holding and Newco is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and each of them has all requisite corporate power and authority to effectuate the transactions contemplated by this Agreement. 3.3. Subscriptions, Options, Etc. Other than as provided in this Agreement, no subscription, warrant, option or other right to purchase or acquire any shares of any class of stock of Holding, any security convertible into or exchangeable for any such shares, is outstanding or will be outstanding on the Closing Date. 3.4. Authority to Execute and Perform Agreement. Holding has full power.and authority to (i) enter into this Agreement, (ii) issue and deliver the Shares and (iii) incur and perform fully the obligations provided for herein, all of which have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered and is the valid and binding obligation of Holding enforceable in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally and by principles of equity regarding the availability of remedies. The execution and delivery of this Agreement and the performance by Holding of this Agreement in accordance with its terms and conditions will not: (x) require the approval or consent of any governmental or regulatory body or the approval or consent of any other person except for approvals or consents required pursuant to securities laws of any State within the United States or any jurisdiction outside of the United States; or (y) conflict with or result in any breach or violation of any of the terms and conditions of, or constitute (or with notice or lapse of time or both constitute) a default under, any certificate of incorporation, by-law, statute, regulation, order, judgment or decree of or applicable to Holding, or any instrument, contract or other agreement to which Holding is a party or by or to which Holding is bound or subject. 3.5. Authorized Capital Stock. The authorized capital stock of Holding at the time of Closing will consist of 1,000,000 shares of Common Stock, 100,000 of which will be issued at the Closing pursuant hereto, and 129,500 shares of Preferred Stock, 129,500 of which will be issued at the Closing pursuant hereto. The Common Stock and the Preferred Stock shall have the rights and preferences set forth in the Certificate of Incorporation of Holding (including the Certificate of Designation, Powers, Preferences and Rights of the Preferred Stock), a copy of which, together with the By-Laws of Holding, is attached as Exhibit A hereto. 3.6. Valid Issuance. The Shares, when issued and delivered pursuant to this Agreement, will be validly issued, fully paid and non-assessable. 3.7. Proceedings. There is no action, proceeding or investigation pending or, to the knowledge of Holding, threatened, nor is there any basis, to its knowledge, for any action, proceeding or investigation, against it or any of its properties or assets. 3.8. Compliance with Laws. Holding and Newco are in compliance with all applicable laws, rules and regulations other than laws, rules or regulations the failure to comply with which cannot reasonably be expected to have consequences which would materially and adversely affect the business, operations or condition (financial or otherwise) of Holding and Newco, taken as a whole. 3.9. Confidential Memorandum, etc. The Confidential Memorandum was prepared, and each amendment or supplement to the Confidential Memorandum (as defined in Section 4.2.4), will be prepared, with reasonable care on the basis set forth therein. The Confidential Memorandum does not contain, and no amendment or supplement thereto will contain, any untrue statement of a material fact, and does not omit, and no amendment or supplement thereto will omit, to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading (it being understood that no representation or warranty is made concerning any financial projections contained therein except that such projections were reasonably based upon past financial performance and reasonable estimates and assumptions at the time made as to future performance). Subsequent to the date of the Confidential Memorandum, there has been no material adverse change in the financial conditions, business or operation of Holding or Newco. 4. Representations and Warranties of Subscribers. Each Subscriber for itself represents and warrants to Holding that: 4.1. Securities Act Restrictions. Such Subscriber will not sell, assign, transfer, pledge or otherwise dispose of any of the Shares acquired by such Subscriber hereunder unless and until the same are registered under the Securities Act of 1933, as amended (the "Securities Act"), or unless an exemption from such registration is available and until Holding shall have received a written opinion of counsel satisfactory to Holding that the disposition is in compliance with the requirements of the Securities Act and any applicable state securities laws. 4.2. Investor Status 4.2.1. Such Subscriber is fully aware that the Shares subscribed for hereunder have not been registered under the Securities Act, or under any applicable State securities laws. Such Subscriber further understands that the Shares being sold to him are being sold in reliance on the exemptions from the registration requirements of the Securities Act provided by Section 4(2) thereof, or Regulation D promulgated thereunder, and in reliance on exemptions from the registration requirements of certain State securities laws, on the grounds that the offering involved has been limited to a limited number of sophisticated potential investors, thirty-five or fewer of which do not qualify as accredited investors under the requirements of Section 501(a) of Regulation D. If so indicated on Schedule I hereto such Subscriber is such an accredited investor under Section 501(a). 4.2.2. Such Subscriber is acquiring the Shares for his own account as principal and not with a view to resale or distribution in violation of applicable securities laws. 4.2.3. Such Subscriber is able to bear the economic risk of the investment in the Shares and has such knowledge and experience in financial and business matters, and knowledge of the business of Holding and Newco after giving effect to the transactions contemplated by the Purchase Agreement, as to be capable of evaluating the merits and risks of the prospective investment. 4.2.4. Such Subscriber: (i) has been furnished, has carefully read, and has relied solely (except as indicated in subparagraph (ii) below) on the information contained in the Memorandum Relative to the Purchase of Southern Electronics Distributors, Inc. dated June, 1986 (including all exhibits and all amendments or supplements thereto, if any) (the "Confidential Memorandum"); and (ii) has been given the opportunity to ask questions of, and receive answers from, officers of Holding concerning the terms and conditions of the offering and to obtain such additional information which Holding possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information contained in the Confidential Memorandum or information that was otherwise provided, and he has not been furnished any offering literature or prospectus other than the Confidential Memorandum. 4.2.5. Such Subscriber has received all information he has requested. 4.2.6. Such Subscriber recognizes that the purchase of the Shares involves substantial risks, including those set forth in the Confidential Memorandum. In deciding whether to purchase the Shares subscribed for herein, such Subscriber has weighed these risks against the potential return. Considering all relevant factors in his financial and personal circumstances, such Subscriber is able to bear the economic risk of the investment. Such Subscriber has adequate means of providing for his current needs and possible personal contingencies and has no need in the foreseeable future for liquidity of his investment in the Shares. 4.2.7. Such Subscriber has sought such accounting, legal and tax advice as he has considered necessary to an informed investment decision with respect to his investment in the Shares. 4.2.8. Such Subscriber is aware that no Federal or State agency has (i) made any finding or determination as to the fairness of any aspect of the investment in the Shares or (ii) passed on or endorsed the merits of the offering of the Shares as contemplated by the Confidential Memorandum or the accuracy or adequacy of the Confidential Memorandum. 4.2.9. Such Subscriber understands that transfer of the Shares is further restricted by the provisions of Section 5.3. 4.3. Legend, Etc. Such Subscriber acknowledges and agrees that (i) the certificates representing the Shares will contain the legend referred to in Section 5.1, (ii) that, except as provided in Section 9, such Subscriber will have no right to require registration of the Shares and must bear the economic risks of such Subscriber's investment for an indefinite period of time, and (iii) that there is not now and there may never be any public market for the Shares and such Subscriber cannot now and may never be able to avail itself of the benefits of Rule 144 adopted by the Securities and Exchange Commissi on with respect to the resale of the Shares. 4.4. Authority to Execute and Perform Agreement. Such Subscriber has the full legal right and power and all authority and approval required to enter into, execute and deliver this Agreement and to perform fully his obligations hereunder. This Agreement has been duly executed and delivered and is the valid and binding obligation of such Subscriber enforce- able in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally and by principles of equity regarding the availability of remedies. The execution and delivery of this Agreement and the performance by such Subscriber of this Agreement in accordance with its terms and conditions will not: (i) require the approval or consent of any governmental or regulatory body or the approval of or consent of any other person; or (ii) conflict with or result in any breach or violation of any of the terms and conditions of, or constitute (or with notice or lapse of time or both constitute) a default under, any, statute, regulation, order, judgment or decree of or applicable to such Subscriber, or any instrument, contract or other agreement to which such Subscriber is a party or by or to which such Subscriber is bound or subject. 5. Transfer of Shares. 5.1. Securities Act Legend. Each stock certificate evidencing the Shares, including any such stock certificate representing shares issued to subsequent transferees as permitted hereunder, shall (unless otherwise permitted by this Agreement) be stamped or otherwise imprinted with a legend in substantially the following form: "The securities represented hereby have not been registered under the Securities Act of 1933, as amended, or under the securities laws of any State; and may not be sold, assigned, transferred, pledged or otherwise disposed of except in compliance with the requirements of such Act or such laws and until the Corporation shall have received the written opinion of counsel to the Corporation to that effect." 5.2. Securities Act Compliance. Each Subscriber and subsequent transferee of a Subscriber who is a holder of a stock certificate evidencing the Shares which bears the restrictive legend set forth in Section 5.1 above (the "Restricted Shares"), and who proposes to transfer any Restricted Shares, shall give written notice to Holding of such Subscriber's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed sale or other disposition in sufficient detail and may be accompanied by an opinion of counsel to the Subscriber. Promptly upon receipt of such notice, Holding shall present a copy thereof (together with any accompanying opinion of counsel to the Subscriber) to its counsel, and, subject to Section 5.3, the following provisions shall apply: 5.2.1. If, in the opinion of counsel to such Subscriber, satisfactory in form and substance to Holding and its counsel, or if such notice was not accompanied by an opinion of counsel to the Subscriber, then, if, in the opinion of counsel to Holding, the proposed sale or other disposition may be effected without registering the Restricted Shares involved under the Securities Act or under State securities laws, such Subscriber shall be entitled to transfer such Restricted Shares in accordance with the terms of the notice delivered to Holding. Holding will advise the Subscriber, within 10 business days after submission of such notice, whether such Subscriber is entitled to so transfer the Restricted Shares. If the Subscriber is entitled to so transfer, he shall submit the stock certificates or certificates evidencing the Restricted Shares to be transferred to Holding in proper form for transfer and accompanied by appropriate instruments of transfer. Restricted Shares thus transferred (and each of the stock certificates evidencing any untransferred balance of the Shares not so transferred) shall bear the restrictive legend set forth in Section 5.1, unless, in the opinion of both such counsel (or counsel to Holding if the Subscriber did not present an opinion of his counsel), such legend is not required by the applicable provisions of the Securit ies Act or State securities laws; and 5.2.2. If in the opinion of either of such counsel (or counsel to Holding if the Subscriber did not present an opinion of his counsel), the proposed sale of other disposition cannot be effected without registering the Shares involved under the Securities Act or State securities laws, such Subscriber shall not offer to sell, sell or otherwise dispose of such Restricted Shares unless and until such Restricted Shares have been registered under the Securities Act or State securities laws for such purpose. 5.3. Restrictions on Transfer; Legend. No Subscriber shall transfer any Common Shares to any person unless such transfer is made: (i) to a Permissible Transferee in accordance with the terms and provisions of Section 5.4; (ii) in accordance with the terms and provisions of Section 9; or (iii) in accordance with the terms and provisions of Sections 6, 7 and 8. Any transferee of Common Shares who receives Common Shares pursuant to Section 5.4, Section 6, Section 7 or Section 8 shall take and hold such Common Shares subject to this Agreement and to all the obligations and restrictions upon the transferor Subscriber, shall observe and comply with this Agreement and with such obligations and restrictions and shall, as a condition of transfer, execute and deliver to Holding an agreement in form and substance satisfactory to Holding pursuant to which such transferee agrees to be bound by all of the provisions hereof. Each certificate evidencing Common Shares shall bear a legend in substantially the following form: "The securities represented hereby are subject to restrictions on transfer contained in a Subscription and Stockholders Agreement dated as of July 2, 1986, a copy of which is on file at the principal office of the Corporation." 5.4. Permissible Transfers. Notwithstanding any provision to the contrary contained in this Agreement: 5.4.1. Any Subscriber (which term includes Permissible Transferees) may transfer Restricted Shares to: (i) a spouse or any lineal ancestor or descendant; (ii) the trustee or trustees of a trust or trusts at any time established for the primary benefit of any one or more of the Subscribers, any limited or general partner of any of the Subscribers or the spouse or any lineal ancestor or descendant of such Subscriber or any limited or general partner of such Subscriber, provided that each and every trustee who may vote any Restricted Shares shall be such Subscriber or a person referred to in this Section 5.4.1 or a bank or trust company in its capacity as a trustee permitted hereunder; (iii) a partnership or partnerships, all of the general and limited partners of which are Subscribers, limited or general partners of the Subscribers and/or one or more of the persons referred to in this Section 5.4.1 (other than a bank or trust company in its capacity as a trustee permitted hereunder); or (iv) any other Subscriber; provided, that (x) any such trust or partnership shall have no terms inconsistent with the obligations of a Subscriber under this Agreement, and (y) as a condition of transfer, the Permissible Transferee executes and delivers to Holding an agreement in form and substance reasonably satisfactory to Holding pursuant to which such Permissible Transferee agrees to be bound by all of the provisions hereof. Any person receiving any Restricted Shares in a transaction pursuant to this Section 5.4.1 is herein referred to as a "Permissible Transferee" with respect to such transaction. If any Restricted Shares are transferred to a Permissible Transferee, such Permissible Transferee shall take and hold such Restricted Shares, and such Restricted Shares shall be, subject to this Agreement and to the rights, obligations and restrictions provided herein with respect to the original Subscriber of such Restricted Shares as of the date of this Agreement, as if such Permissible Transferee were such original Subscriber. 5.4.2. Any transfer of Restricted Shares otherwise permitted by this Section 5.4 shall not be made unless in compliance with all applicable laws, including, without limitation, the securities laws of the United States and the States thereof. 5.5. Failure to Comply. No purported transfer of any Restricted Shares in violation of this Agreement shall be of any force or effect, and no such transfer shall be made or recorded on the books of Holding. 6. Rights of First Refusal. 6.1. Right of First Refusal. Except as provided in Section 5.3 and until Holding shall have become a reporting company pursuant to Section 12 or Section 15 of the Securities Exchange Act of 1934, as amended (the "1934 Act") (hereinafter referred to as a "Reporting Company"), no Subscriber shall transfer, or accept an offer to transfer any Common Shares to any person unless : 6.1.1. The proposed transferor Subscriber shall have received a bona fide offer in writing from a third party (a "Bona Fide Offer"), which Bona Fide Offer shall provide for the purchase of the transferor Subscriber's Common Shares in exchange for cash or notes or a combination of both, and shall have first given written notice (the "Transfer Notice") to Holding and the non-selling Subscribers stating (i) such Subscriber's intention to transfer all or a portion of his Common Shares, (ii) the number of Common Shares that such Subscriber proposes to transfer, (iii) the name and address of the proposed transferee, and (iv) the offered purchase price per share of the Common Shares to be transferred, expressed solely as a dollar amount, and the manner of payment thereof. If the proposed transferor Subscriber fails to give the Transfer Notice with respect to any such proposed transfer of his Common Shares, then any such purported transfer shall be void and shall not be made or recorded on the books of Holding. 6.1.2. Subject to Section 6.1.4, upon the giving of a Transfer Notice, Holding shall have the irrevocable and exclusive option, but not the obligation, to purchase all or less than all of the Common Shares to be transferred. Such option shall be exercised by so notifying the proposed transferor Subscriber, with copies to all other Subscribers, within 30 days of the delivery of the Transfer Notice. 6.1.3. Subject to Section 6.1.4, in the event that Holding shall fail to give a notice provided for in Section 6.1.2 or Holding shall elect to purchase less than all of the Common Shares to be transferred, each non-selling Subscriber shall have the irrevocable and exclusive option, but not the obligation, to purchase the Common Shares to be transferred which Holding shall not have elected to purchase (the "Remaining Common Shares"). Such option shall be exercised by notifying the proposed transferor Subscriber as to such number of the Remaining Common Shares which the notifying Subscriber intends to purchase, with copies to all other Subscribers, within 60 days of the delivery of the Transfer Notice. If the non-selling Subscribers shall have elected to purchase a number of the Remaining Common Shares which, in the aggregate, exceeds the number of the Remaining Common Shares available, such Remaining Common Shares shall be allocated, pro rata, in the same proportion that the number of Common Shares owned by each such non-selling Subscriber bears to the total number of Common Shares owned by all such non-selling Subscribers on the date of delivery of the Transfer Notice; provided, however, that no non-selling Subscriber shall be required or entitled to purchase a number of the Remaining Common Shares greater than the number of the Remaining Common Shares which such non-selling Subscriber shall have elected to purchase pursuant to the notice required to be delivered under this Section 6.1.3. Failure by any non-selling Subscriber to deliver the notice required by this Section 6.1.3 shall be deemed an election not to purchase the Remaining Common Shares. 6.1.4. In the event that the parties hereto fail to elect to purchase all of the Common Shares to be transferred by the proposed transferor Subscriber in accordance with Section 6.1.2 and Section 6.1.3, the elections, if any, made pursuant to said Sections shall be void and shall have no force and effect; whereupon, subject to Sections 7 and 8, the proposed transferor Subscriber may accept the Bona Fide Offer and effect the proposed transfer with respect to said Common Shares on the terms of such Bona Fide Offer within a period of 90 days following the delivery of the Transfer Notice (the "Third Party Closing Date"). If the proposed transfer is not completed on or before the Third Party Closing Date, then the Bona Fide Offer shall be deemed withdrawn and no transfer shall be effected except pursuant to a new Bona Fide Offer and other wise in accordance with this Section 6. 6.1.5. Unless the transferor Subscriber and the party or parties hereto exercising an option to purchase the Common Shares otherwise agree, if the Common Shares to be transferred are purchased by a party hereto pursuant to this Section 6, then such purchase or purchases shall be completed (the "Section 6 Closing") at the offices of Wender Murase & White at 400 Park Avenue, New York, New York 10022, at 10:00 A.M. local time on the date 90 days following the delivery of the Transfer Notice or at such other time as agreed in writing by all parties to the Agreement (the "Section 6 Closing Date"). 6.2. First Refusal Price. Any Common Shares purchased by a party hereto pursuant to this Section 6 shall be purchased at a purchase price per share equal to the purchase price per share set forth in the proposed transferor Subscriber's Bona Fide Offer. 6.3. Payment, Delivery of Certificates, etc. 6.3.1. If any party hereto purchases any Common Shares pursuant to the provisions of this Section 6, at the Section 6 Closing such party shall pay the purchase price in the manner set forth in the Bona Fide Offer as disclosed in the Transfer Notice (if notes are provided for in the Bona Fide Offer then the notes shall be the notes of such party hereto). 6.3.2. At the Section 6 Closing, the transferor Subscriber shall deliver to the party hereto, duly endorsed for transfer with all required stock transfer tax stamps affixed thereto, certificates for all of the Common Shares being purchased by such party and sold at such closing and, in addition, such signature guarantees and other documents as may be reasonably requested in order to confirm the transferor Subscriber's title to such Common Shares and his authority to act in connection with the sale thereof. 7. Tag-Along. 7.1. Transfers Subject Hereto. Except as provided in Section 5.3 and until the date that Holding shall have become a Reporting Company, no Subscriber shall voluntarily transfer any Common Shares to any person unless such transfer is made in accordance with this Section 7. 7.2. Right of Tag-Along. In the event that any Subscriber intends to transfer all or any portion of such Subscriber's Common Shares to any person not a party hereto pursuant to a Bona Fide Offer in accordance with Section 6: 7.2.1. The proposed transferor Subscriber shall afford each of the other Subscribers (the "Other Subscribers") the opportunity to sell, in the same transaction contemplated by the Bona Fide Offer, at the same price and on the same terms, the same proportion of the number of Common Shares being sold pursuant to the Bona Fide Offer as the total number of Common Shares owned by each such Other Subscriber bears to the total number of outstanding shares of Common Stock on such date. 7.2.2. The Other Subscribers shall, within 60 days of the date of delivery of the Transfer Notice pursuant to Section 6, notify the proposed transferor Subscriber of their election to sell their Common Shares pursuant to Section 7.2.1. The failure by any of the Other Subscribers to deliver a notice pursuant to this Section 7.2.2 shall be deemed an election by such Other Subscriber not to sell the Common Shares owned by him. 8. Right of Approval. 8.1. Transfers Subject Hereto. Except as provided in Section 5.3, during the period commencing on the date of Closing and ending on the earlier of (i) the sixth anniversary thereof or (ii) the date that Holding shall have become a Reporting Company, the Diamond Partnership shall not voluntarily transfer any Common Shares to any person unless such transfer is made in accordance with this Section 8. 8.2. Right of Approval. In the event that the Diamond Partnership intends to transfer all or any portion of such Subscriber's Common Shares to any person not a party hereto pursuant to a Bona Fide Offer in accordance with Section 6, such transfer shall be subject to the prior written consent and approval of Holding. The Diamond Partnership shall provide such information regarding the proposed purchaser, including, without limitation, such purchaser's financial status, as Holding may reasonably request. Holding shall deliver a notice of consent and approval or denial of consent and approval under this Section 8.2 to the Diamond Partnership within 70 days of the date of delivery of the Transfer Notice pursuant to Section 6. The failure by Holding to deliver a notice pursuant to this Section 8.2 shall be deemed to be a consent and approval by Holding to the proposed transfer of Common Shares with respect to which such notice is required. If Holding delivers a notice of denial of consent and approval pursuant to this Section 8.2, any purported transfer in violation thereof shall be void and shall not be made or recorded on the books of Holding. For the purposes of this Section 8, the term "Diamond Partnership" shall be deemed to include Permissible Transferees of the party included in such term. 9. Registrations Under the Securities Act. 9.1. Registration by Holding. In the event that at any time while Restricted Shares are outstanding, Holding proposes to file a Registration Statement under the Securities Act registering shares of its Common Stock of any class on a form other than Form S-4, Form S-8 or Form S-18 (or such other forms as the Securities Exchange Commission may hereafter promulgate for registration of securities in transactions for which Form S-4, Form S-8 or Form S-18 may be used as of the date hereof), it will give written notice to each holder of Common Shares at least 30 days prior to the date of filing of the proposed Registration Statement. Upon written request by any such holder within 15 days after receipt of such notice, Holding will include in the securities to be registered by such Registration Statement all of the Common Shares of Holding that such holder desires to sell, subject to the following: 9.1.1. Holding will pay the expense of such registration, except that each holder of Common Shares whose securities are included in such registration shall pay all underwriting discounts and commissions applicable to his securities and all legal fees and expenses of his own counsel, if any; provided that if the expense of such registration is being borne by a person other than Holding, each holder of Common Shares whose securities are included in such registration shall pay his pro-rata share of the incremental expense of his securities being included in such registration. 9.1.2. Holding shall have received (i) an opinion of counsel to such holder or of counsel to Holding stating that, in connection with a public sale of the securities proposed to be sold or otherwise disposed of by the holder of Common Shares, registration under the Securities Act of such securities is required as a matter of law or (ii) an opinion of an underwriter of recognized national standing that, in order to effect the proposed sale or disposition of the holder's securities, registration is desirable even if not legally necessary. 9.1.3. If such Registration Statement is for a prospective underwritten offering, the Subscriber agrees to sell his securities, if Holding so requests, on the same basis as the other securities of the same class covered by such Registration Statement are being sold. 9.1.4. Holding may withdraw any such Registration Statement before it becomes effective or postpone the offering of securities contemplated by such Registration Statement without any obligation to the holder of any Restricted Shares. If such Registration Statement is for a prospective underwritten offering by Holding for its own account and in the reasonable opinion of the prospective underwriters or Holding the inclusion in the Registration Statement of part or all of the securities requested by the holder or holders of Common Shares would be detrimental to the proposed offering, Holding may (i) reduce the amount of securities to be included from all holders who requested to be included (in making such reduction, each holder requesting inclusion shall have Common Shares owned by him included in the Registration Statement in the same proportion that his total holdings at the time of Common Shares bears to the total holdings of Common Shares of all other holders requesting inclusion; provided, however, that such holder shall not be required or entitled to have included in the Registration Statement a number of Common Shares greater than the number of Common Shares which such holder requested to be included pursuant to Section 9.1) or (ii) refuse to include the securities held by all such holders. 9.2. Amendments. In connection with any Registration Statement filed pursuant to Section 9.1, Holding shall file any post-effective amendment or amendments to the Registration Statement which may be required under the Securities Act during the period reasonably required to effect the distribution contemplated thereby, provided that Holding shall not be required to file any post-effective amendment to any Registration Statement described in Section 9.1 more than 90 days after the effective date of the Registration Statement. 9.3. Notification of Certain Events. During the period for which Holding is required to file and keep effective a Registration Statement pursuant to this Agreement, Holding shall furnish each selling security holder with the number of copies of the Registration Statement (including exhibits) and Prospectuses that he reasonably requests for the purposes contemplated by the Securities Act. Holding shall notify each selling security holder selling securities covered by such Registration Statement during the period such Registration Statement is required to remain effective, or at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Registration Statement or the Prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of circumstances then existing. Each selling security holder agrees, upon receipt of such notice, forthwith to cease making offers and sales of such securities pursuant to such Registration Statement or deliveries of the Prospectus contained therein for any purpose and to return to Holding the copies of such Prospectus not theretofore delivered by such selling security holder. Subject to Section 9.2, at the request of such selling security holder, Holding shall prepare and furnish to such selling security holder a reasonable number of copies of any supplement to or amendment of such Prospectus that may be necessary so that, as thereafter delivered to the purchaser of such shares, such Prospectus shall not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the state- ments therein not misleading in the light of circumstances then existing. Holding shall promptly notify all selling security holders of any stop order or similar proceeding initiated by state or federal regulatory bodies and, subject to Section 9.2, use its best efforts to take all necessary steps expeditiously to remove such stop order or similar proceeding. 9.4. Provision of Information. As a condition to Holding's obligation under Section 9.1 and Section 9.2 to cause the Registration Statement or an amendment to be filed or shares to be included in the Registration Statement, the holders of any Common Shares that are to be included in such Registration Statement shall provide such information and execute such documents (including any customary agreement or undertaking relating to expenses, indemnification or other matters contemplated by this Agreement), as may reasonably be required by Holding in connection with such registration. 9.5. Reports. After the first Registration Statement under the Securities Act for any securities of Holding shall have become effective, Holding will use its best efforts to file in timely fashion all reports required to be filed by it pursuant to the 1934 Act and, upon the request of any Subscriber, to furnish such Subscriber such information as may be necessary to enable him to effect sales of his securities pursuant to Rule 144 of the Securities and Exchange Commission, as such rule may from time to time be amended or supplemented. 9.6. New Certificates. As expeditiously as possible after the effectiveness of any Registration Statement provided for in this Section 9, Holding will deliver in exchange for any certificate evidencing Common Shares so registered, new stock certificates not bearing the legends set forth in Section 5.1 and Section 5.3 of this Agreement. In the event that any of such securities remain unsold when such Registration Statement ceases to be effective, the stock certificates not bearing such legends evidencing such unsold securities shall be delivered to Holding in exchange for stock certificates bearing such legends. 9.7. State Securities Laws. In connection with the offering of any securities registered pursuant to this Section 9, Holding shall use its best efforts to qualify or register the securities to be sold under the securities or "Blue Sky" laws of such jurisdictions as may be reasonably requested by the holder of any securities so registered; provided, however, that Holding shall not be obligated to qualify as a foreign corporation to do business under the laws of any such jurisdiction in which it is not then qualified or to file any general consent to service of process. The expense of such qualification or registration shall be borne by the party or parties bearing the expenses of the related registration under the Securities Act. 9.8. Earnings Statement. Holding will, at its first quarterly reporting date at which it can do so, make generally available to its security holders an earnings statement covering a period of at least twelve months beginning after the effective date of each Registration Statement including any Common Shares. 9.9. Indemnification. In connection with any registration of securities pursuant to this Agreement, to the extent permitted by law, Holding shall indemnify the offering security holders and the offering security holders shall indemnify Holding in the manner provided in this Section 9.9. 9.9.1. Holding shall indemnify and hold harmless each offering security holder, each officer, and each director, if any, of such offering security holder, each underwriter, if any, for the sale or distribution of such offering security holder's shares, and each person, if any, who controls such offering security holder or underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which such offering security holder, officer, director, underwriter or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, Prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and, subject to Section 9.9.3 of this Agreement, Holding shall reimburse each offering security holder, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by such offering security holder, officer, director, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that Holding shall not be required to indemnify and hold harmless or reimburse an offering security holder, officer, director, underwriter or controlling person, as the case may be, to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in any document made in reliance upon and in conformity with written information furnished to Holding by or on behalf of such offering security holder, officer, director, underwriter or controlling person for use in the preparation of such documents. 9.9.2. Each offering security holder shall indemnify and hold harmless Holding, each of its directors and officers, each person, if any, who controls Holding within the meaning of the Securities Act, and each other offering security holder against all losses, claims, damages or liabilities to which Holding or any such director or officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in any Registration Statement, Prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information furnished to Holding by and on behalf of such offering security holder for use in the preparation thereof; and subject to Section 9.9.3, such offering security holder shall reimburse Holding for any legal or other expenses reasonably incurred by Holding or any such director or officer or controlling person in connection with investigating or defending against any such loss, claim, damage, liability or action. 9.9.3. Promptly after receipt by an indemnified party under Section 9.9.1 or Section 9.9.2, of notice of the commencement of any action, the indemnified party shall notify the indemnifying party. The failure to so notify the indemnifying party shall relieve the indemnifying party from any liability hereunder with respect to the action if such failure prevents the indemnifying party from contesting such action; provided, however, that any such failure shall not relieve the indemnifying party from any other liability which it may have to any other party. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party shall be entitled to assume and control the defense of the action at its expense and if the indemnifying party gives notice to such indemnified party of its election to assume and control the defense, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense or investiga- tion of the action. 9.9.4. If for any reason the indemnification provided for in Sections 9.9.1 and 9.9.2 is unavailable to an indemnified party as contemplated by said Sections, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. 9.10. Standby. 9.10.1. Each of the Subscribers and Holding agree that, with respect to any Registration Statement under the Securities Act that Holding may file (other than on Form S-8), neither such Subscriber nor Holding will sell any securities of Holding (whether or not such securities are Restricted Shares, and however acquired) other than securities, if any, of such Subscriber or Holding included in such Registration Statement, for a period of at least 10 days before, and until 90 days after, the date such Registration Statement is declared effective, provided that such Subscriber shall be so limited only if notice of the effective date of such Registration Statement has been given to such Subscriber. 9.10.2. Holding agrees that any registration rights that it may grant with respect to its securities subsequent to the date of this Agreement will provide that upon receipt of a request from a holder or holders of Common Shares pursuant to Section 9.1 of this Agreement, Holding shall not be obligated to file a Registration Statement under the Securities Act at the request of any holder or holders of subsequently issued securities of Holding until at least 90 days after the date on which the Registration Statement filed pursuant to Section 9.1 of this Agreement becomes effective. 9.11. Mergers, etc. Holding agrees that, as a condition to any merger, consolidation or the sale of all or substantially all of its assets in exchange for securities of another company, it will use its reasonable efforts in light of the circumstances then existing to require the surviving, consolidated or purchasing corporation to enter into an agreement to register the securities of such surviving, consolidated or purchasing corporation, to be received by the Subscribers, on substantially the same terms and provisions as are provided in this Agreement. 9.12. Assignment. The registration rights contained in this Agreement shall be transferable by a Subscriber or transferee of a Subscriber to any person who acquired Common Shares from such Subscriber or transferee (including any pledgee but excluding any person who acquires such shares in a transaction with respect to which a Registration Statement under the Securities Act is effective at the time or in a sale complying with Regulation A or Rule 144 of the Securities and Exchange Commission), provided that (a) the transfer of the Common Shares was not in violation of this Agreement and (b) such person agrees to be bound by the terms and provisions of this Agreement. 10. Other Agreements. 10.1. Corporate Governance. The Board of Directors of Holding (the "Board") shall consist of not less than three (3) directors, the total of which shall at all times be an odd number (the "Directors"). The Subscribers each agree that (i) so long as ZS/SED and ZS Southern together continue to own shares of Common Stock in the aggregate representing at least 10 percent of the voting power of the capital stock of Holding, such number of Directors as shall be the minimum necessary to constitute a majority of all Directors shall be designees of ZS/SED and ZS Southern, (ii) so long as the Diamond Partnership continues to own shares of Common Stock representing at least 10 percent of the voting power of the capital stock of Holding, the Directors other than the designees of ZS/SED and ZS Southern shall be designees of the Diamond Partnership, (iii) the Subscribers will vote all shares of capital stock of Holding held by them in favor of the designees of ZS/SED and ZS Southern and the Diamond Partnership which each shall be entitled to designate pursuant to the preceding clauses (i) and (ii), and (iv) any executive committee of such Board will be constituted to give ZS/SED and ZS Southern and the Diamond Partnership representation thereon at least proportionate to their representation on the Board; provided, however, that the agreement embodied in this Section 10 shall only be effective for a term of 10 years commencing on the Closing Date. For the purposes of this Section 10, the terms "ZS/SED", "ZS Southern", and "Diamond Partnership" shall be deemed to include Permissible Transferees of the parties included in such terms. 10.2. Employee Equity Incentive. Notwithstanding anything to the contrary contained in this Agreement, the parties hereto acknowledge and agree that as soon as practicable after the Closing Date, Holding will establish an equity investment arrangement pursuant to which certain employees of Holding and Newco designated by Gerald Diamond shall be entitled to purchase from Holding shares of Holding's Common Stock not to exceed 5% of the sum of the aggregate number of shares of Holding's Common Stock issued to the Subscribers on the Closing Date (the "Employee Common Stock"), and that in connection therewith ZS Southern shall enter into an agreement with Holding on or before the Closing Date pursuant to which Holding shall be entitled to purchase from ZS Southern shares of Holding's Common Stock in an amount not to exceed 5% of the sum of the aggregate number of shares of Holding's Common Stock issued to the Subscribers on the Closing Date, such purchases to be effected without compliance with any of the restrictions on transfer contained in this Agreement. Gerald Diamond and Jean Diamond shall not be eligible to receive Employee Common Stock. 10.3. Protection Against Dilution. Until Holding shall have become a Reporting Company, Holding shall not, without the consent of the holders of 85 percent of the outstanding shares of the Common Stock and the Preferred Stock (considered as one class), issue any shares of its capital stock other than (i) in a transaction pursuant to which Holding offers to each holder of capital stock of Holding the right to participate proportionately according to their Pro Rata Share (as hereinafter defined) as of the date of such proposed issuance and on the same terms and conditions, (ii) at any time in connection with the issuance of any capital stock of Holding under a Registration Statement as provided for in Section 9, or (iii) at any time pursuant to Section 10.2. Any right granted pursuant to clause (i) of the preceding sentence shall be exercisable by written notice to Holding given within 30 days after receipt by each holder of Common Stock of written notice of such proposed issuance. If a holder of capital stock of Holding shall fail to respond to Holding within the 30-day notice period, such failure shall be deemed to be a rejection of his right to participate in the purchase of the securities to be issued. "Pro Rata Share" shall mean the ratio of the number of shares of capital stock of Holding held by each holder thereof to the number of shares of all classes of stock of Holding (considered as one class). 11. Books, Records and Reports. 11.1. Holding shall cause to be kept on an appropriate basis, and each stockholder of Holding shall have access to, appropriate books, records and accounts. The books and records of Holding shall each be audited as of the end of each calendar year by a firm of independent public accountants of national standing selected by Holding. 11.2. Within 100 days of the end of each fiscal year, Holding shall mail to each of its stockholders a report setting forth an audited balance sheet as at the end of such fiscal year and audited statements of income and source and use of funds for such fiscal year of Holding, and any other information Holding deems necessary or desirable. Holding will furnish quarterly financial statements to its stockholders as requested. 11.3. Holding also will furnish to each of its stockholders such other non-confidential information as such stockholder may from time to time reasonably request. 12. Conditions of Closing. 12.1. Conditions of Holding. The obligation of Holding to issue and sell the Common Shares to the Subscribers and the Preferred Shares to ZS/SED and ZS Southern pursuant to this Agreement is subject to the fulfillment as of the Closing of the following conditions precedent: 12.1.1. At the Closing, the representations and warranties of the Subscribers contained in Section 4 shall be true and correct with the same effect as if such representations and warranties had been made at and as of that time, and Holding shall have received a certificate to that effect, dated the Closing Date, and signed by each of the Subscribers. 12.1.2. Simultaneously with the Closing, the transactions contemplated by the Purchase Agreement shall have been consummated. 12.2. Subscribers' Conditions. The obligation of the Subscribers to purchase the Common Shares and ZS/SED and ZS Southern to purchase the Preferred Shares pursuant to this Agreement is subject to the fulfillment as of the Closing of the following conditions precedent: 12.2.1. At the Closing, the representations and warranties of Holding contained in Section 3 shall be true and correct with the same effect as though such representations and warranties had been made at and as of that time, and each Subscriber shall have received a certificate to that effect, dated the Closing Date, and signed by an officer of Holding. 12.2.2. Simultaneously with the Closing, the transactions contemplated by the Purchase Agreement shall have been consummated. 13. Expenses. Each party shall bear its own expenses in connection with this Agreement and the transactions contemplated herein. 14. Notices. All notices, requests, demands and other communications hereunder to a party hereto shall be in writing and shall be deemed to have been duly given when delivered by hand or sent by telegram or telex (which shall be confirmed in writing) to such party at his address set forth below, or such person or address as such party may specify by similar notice to the other parties hereto: (a) If to the Diamond Partnership: c/o SED Acquisition Corp. 4916 North Royal Atlanta Drive Tucker, Georgia 30084 Attention: Gerald Diamond with a copy to Powell, Goldstein, Frazer & Murphy Sixteenth Floor 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Attention: G. William Speer, Esq. (b) If to Holding, ZS/SED or ZS Southern: c/o Zaleski, Sherwood & Co., Inc. 1270 Avenue of the Americas Rockefeller Center, Suite 1400 New York, New York 10020 Attention: Michel Zaleski with a copy to: Wender Murase & White 400 Park Avenue New York, New York 10022 Attention: Samuel M. Feder 15. Entire Agreement. This Agreement sets forth the final and entire agreement between the parties hereto with respect to its subject matter, and may not be changed or terminated except by an agreement in writing. 16. Gender and Person. Words used herein, regardless of the number or gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context shall require. 17. Governing Law; Jurisdiction. This Agreement (other than Section 8 and Section 10.1) shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State. Section 8 and Section 10.1 hereof shall be governed by and construed in accordance with the laws of the State of Delaware. 18. Sections. All references in this Agreement to Sections shall be deemed to be references to sections or subsections of this Agreement unless otherwise specifically stated. 19. Counterparts. This Agreement may be executed in counterparts, and such counterparts shall constitute one and the same agreement. 20. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the legal representative, successors and permissible assigns of the parties hereto, whether so expressed or not, except as specifically otherwise provided. In addition, whether or not any express assignment shall have been made, the provisions of this Agreement shall also be binding upon, for the benefit of, and enforceable by any subsequent holder of any of the Common Stock other than a holder who acquired his shares (i) in a transaction for which a Registration Statement under the Securities Act was effective at the time or in a sale complying with Regulation A or Rule 144 of the Securities and Exchange Commission or (ii) in contravention of the provisions hereof. 21. Headings; Severability. Headings in this Agreement are inserted for convenience of reference only and shall not affect the interpretation hereof. Each and every provision of this Agreement shall be treated as separate and distinct and, in the event of any provision hereof being declared invalid, such invalid provision shall be deemed to be severable and all other provisions hereof shall remain in full force and effect. IN WITNESS WHEREOF, the several parties hereto have executed this Agreement as of the day and year first above written. SED HOLDING COMPANY, INC. By: Name: Title: ZS SED L.P. By: Name: Title: ZS SOUTHERN L.P. By: Name: Title: SED ASSOCIATES By: Gerald Diamond, individually and as Attorney-in-Fact for: Bernard J. Dubler Jack Dubler Michael H. Dubler Larry Sarner Susan D. Sarner James W. Buckler, Jr. SCHEDULE I Name and address Section 4.2 Subscription Common of Subscriber Investor Status Amount Shares ZS SED L.P. unaccredited $633,684 30,100 c/o Zaleski, Sherwood Co., Inc. 1270 Avenue of the Americas Rockefeller Center, Suite 1400 New York, New York 10020 ZS Southern L.P. unaccredited $631,579 30,000 c/o Zaleski, Sherwood Co., Inc. 1270 Avenue of the Americas Rockefeller Center, Suite 1400 New York, New York 10020 SED Associates unaccredited $840,000 39,900 c/o SED Acquisition Corp. 4916 North Royal Atlanta Drive Tucker, Georgia 30084 EX-11.1 8 EXHIBIT 11.1 SOUTHERN ELECTRONICS CORPORATION AND SUBSIDIARY COMPUTATION OF EARNINGS PER SHARE Year Ended 1995 1994 1993 EARNINGS PER SHARE (based on weighted average: Average outstanding shares 6,961,518 6,985,468 6,993,985 Net earnings for per-share computation(A) 5,222,000 $5,944,000 $8,386,000 Net earnings per common share $.75 $.85 $1.20 PRIMARY EARNINGS PER SHARE: Average outstanding shares, including common stock equivalents(1)(B) 7,068,512 7,354,858 7,427,300 Net earnings per common share (A-B) $.74 $.81 $1.13 FULLY DILUTED EARNINGS PER SHARE: Average outstanding shares, including common stock equivalents(1)(C) 7,070,182 7,361,578 7,441,408 Net earnings per common share (A-C) $.74 $.81 $1.13
(1) Average shares outstanding include stock options as common stock equivalents. The dilutive effect of stock options was determined using the treasury stock method. Under that method of calculation, stock options are valued market prices for the primary calculation, and at average or month-end market prices (whichever are higher) for the fully diluted calculation. EX-13 9 Selected Income Statement Data Year Ended June 30, (in thousands, except per share data) 1995 1994 1993 1992 1991 Net sales $398,753 $296,173 $249,472 $178,666 $139,151 Cost of sales, including buying and occupancy expenses 370,548 271,982 223,122 158,957 124,478 Gross profit 28,205 24,191 26,350 19,709 14,673 Selling, general and administrative expenses 18,652 14,448 13,015 10,919 8,450 Special charge 452 - - - - Earnings from operations 9,101 9,743 13,335 8,790 6,223 Interest expense (income)-net 688 193 20 (35) 47 Earnings before income taxes 8,413 9,550 13,315 8,825 6,176 Income taxes 3,191 3,606 4,929 3,960 1,965 Net earnings $ 5,222 $ 5,944 $ 8,386 $ 4,865 $ 4,211 Net earnings per common share $ .74 $ .81 $ 1.13 $ .71 $ .65 Weighted average number of common and common equivalent shares outstanding 7,069 7,355 7,427 6,804 6,324
Selected Balance Sheet Data June 30, (in thousands) 1995 1994 1993 1992 1991 Working capital $ 41,355 $25,489 $ 20,099 $ 12,818 $ 4,037 Total assets 87,375 65,572 59,690 42,504 28,051 Long-term obligations less current portion 11,500 - - - 635 Total stockholders' equity 34,633 29,348 23,281 14,500 5,326
1 Southern Electronics Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth, for the years indicated, the percentage of net sales represented by selected items from the Company's Consolidated Statements of Earnings. Year Ended June 30, 1995 1994 1993 1992 1991 Net sales 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales, including buying and occupancy expenses 92.9 91.8 89.4 89.0 89.5 Gross profit 7.1 8.2 10.6 11.0 10.5 Selling, general and administrative expenses 4.7 4.9 5.2 6.1 6.1 Special charge .1 - - - - Interest expense-net .2 .1 - - - Earnings before income taxes 2.1 3.2 5.4 4.9 4.4 Income taxes .8 1.2 2.0 2.2 1.4 Net earnings 1.3% 2.0% 3.4% 2.7% 3.0%
Any trends that may be derived from the above table are not necessarily indicative of the Company's future operations. Consolidated Results of Operations Fiscal 1995 Compared with Fiscal 1994 Net sales for the year ended June 30, 1995 increased by 34.6% compared to the year ended June 30, 1994. Because the cost of the Company's products typically decreased during 1995, the increase was primarily due to an increased volume of sales to value-added resellers (VARs) and dealers served by the Company. Sales of microcomputers and computer peripheral products represented approximately 91% of the Company's net sales for the years ended June 30, 1995 and 1994. Sales of cellular telephone products accounted for approximately 9% of the net sales for the years ended June 30, 1995 and 1994. Gross profit as a percentage of net sales was 7.1% for year ended June 30, 1995 as compared to 8.2% for the year-earlier period. This decrease is primarily attributable to more competitive pricing in fiscal 1995 compared to fiscal 1994. Selling, general, and administrative expenses as a percentage of net sales decreased to 4.7% for the year ended June 30, 1995 compared with 4.9% for the year ended June 30, 1994. This decrease is due primarily to greater revenue coverage of expenses and the Company's efforts to contain expense increases. The Company incurred $452,000 of expenses in fiscal 1995 in connection with an attempted merger. These expenses were recorded as a special charge when the related merger discussions were terminated. Income tax expense was recorded in the year ended June 30, 1995 at an effective annual rate of 37.9% as compared to 37.8% in the year ended June 30, 1994. Fiscal 1994 Compared with Fiscal 1993 Net sales for the year ended June 30, 1994 increased by 18.7% compared to the year ended June 30, 1993. Because the cost of the Company's products typically decreased during fiscal 1994, the increase was due primarily to an increased volume of sales to value-added resellers (VARs) and dealers served by the Company. Sales of microcomputers and computer peripheral products represented approximately 91% of the Company's net sales for the year ended June 30, 1994 as compared to approximately 88% for the year ended June 30, 1993. Sales of cellular telephone products accounted for approximately 9% of the net sales for the year ended June 30, 1994 as compared to 12% for the year-earlier period, primarily due to the Company's greater emphasis on sales of microcomputers and related peripheral products. Gross profit as a percentage of net sales was 8.2% for year ended June 30, 1994 as compared to 10.6% for the year-earlier period. This decrease is primarily attributable to more competitive pricing in fiscal 1994 compared to fiscal 1993. 6 Southern Electronics Corporation Selling, general, and administrative expenses as a percentage of net sales decreased to 4.9% for the year ended June 30, 1994 compared with 5.2% for the year ended June 30, 1993. This decrease is due primarily to greater revenue coverage of expenses and the Company's efforts to contain expense increases, offset by expenses associated with the Company's start-up of its Miami, Florida distribution and sales facility. Income tax expense was recorded in the year ended June 30, 1994 at an effective annual rate of 37.8% as compared to 37.0% in the year ended June 30, 1993. Liquidity and Capital Resources The Company and its wholly-owned operating subsidiary, Southern Electronics Distributors, Inc. ("SED"), are parties to a revolving credit loan agreement (the "Revolving Credit Agreement") with National City Bank, Columbus, Ohio, and Wachovia Bank of Georgia, N.A. which provides for an unsecured line of credit of $30,000,000. This agreement was entered into on June 29, 1995. The Company may borrow at the prime rate offered by Wachovia Bank of Georgia, N.A., 9.0% at June 30, 1995, or the Company may fix the interest rate for periods of 30 to 180 days under various interest rate options. The Revolving Credit Agreement requires a commitment fee of 1/4% of the unused commitment. The Revolving Credit Agreement requires maintenance of certain minimum working capital and other financial ratios and has certain dividend restrictions. This agreement expires on August 31, 1997. At June 30, 1995, the Company had borrowings of $11,500,000 and irrevocable standby letters of credit of $1,050,000 outstanding under the Revolving Credit Agreement. The Company's liquidity requirements arise primarily from the funding of working capital needs, including inventories and trade accounts receivable. The Company funded its increases in accounts receivable and inventories with internally generated funds and, at times, borrowings under its Revolving Credit Agreement. Management continually evaluates the Company's product mix and the needs of its customers in order to minimize inventory obsolescence and carrying costs. The Company's rapid delivery terms are available to all of its customers, and the Company seeks to pass through its shipping and handling costs to its customers. The Company also provides trade credit to certain of its customers, typically net 10 days. Based on past experience, management does not believe that its policies of offering a broad range of products, rapid delivery, and providing trade credit to certain of its customers will have a material adverse effect on the Company's liquidity or results of operations. Management believes that the Revolving Credit Agreement, together with vendor lines of credit and internally generated funds, will be sufficient to satisfy its working capital needs during fiscal 1996. Inflation and Price Levels Management believes that inflation has not had a significant impact on the Company's business because of the typically decreasing cost of products sold by the Company. The Company also receives vendor price protection for a significant portion of its inventory. In the event a vendor reduces its prices for goods purchased by the Company prior to the Company's sale of such goods, the Company generally has been able either to receive a credit from the vendor for the price differential or to return the goods to the vendor for a credit against the purchase price. At this time, management does not expect that inflation will have a material impact on its business in the immediate future. 7 Southern Electronics Corporation Consolidated Balance Sheets JUNE 30, 1995 1994 Assets Current assets: Cash and cash equivalents $ 790,000 $ 741,000 Trade accounts receivable, less allowance for doubtful accounts of $845,000 (1995) and $664,000 (1994) 26,459,000 19,893,000 Inventories 53,688,000 38,972,000 Deferred income taxes 910,000 1,402,000 Prepaid income taxes 479,000 542,000 Other current assets 271,000 163,000 Total current assets 82,597,000 61,713,000 Property and equipment - net 4,452,000 3,521,000 Intangibles 326,000 338,000 Total assets $87,375,000 $65,572,000 Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $37,922,000 $33,440,000 Accrued and other current liabilities 3,320,000 2,784,000 Total current liabilities 41,242,000 36,224,000 Revolving bank debt 11,500,000 - Commitments Stockholders' equity: Preferred stock; 129,500 shares authorized, none issued Common stock, $.01 par value; 10,000,000 shares authorized, 7,121,492 (1995) and 7,063,947 (1994) and shares issued 71,000 71,000 Additional paid-in capital 10,579,000 10,127,000 Retained earnings 25,640,000 20,418,000 Treasury stock at cost, 125,590 (1995) and 105,304 (1994) shares (1,390,000) (1,268,000) Prepaid compensation - stock awards (267,000) - Total stockholders' equity 34,633,000 29,348,000 Total liabilities and stockholders' equity $87,375,000 $65,572,000
See notes to consolidated financial statements 8 Southern Electronics Corporation Consolidated Statements of Earnings YEAR ENDED JUNE 30, 1995 1994 1993 Net sales $398,753,000 $296,173,000 $249,472,000 Cost of sales, including buying and 370,548,000 271,982,000 223,122,000 28,205,000 24,191,000 26,350,000 Other costs and expenses (income): Selling, general and administrative 18,652,000 14,448,000 13,015,000 Special charge 452,000 - - Interest expense 688,000 207,000 79,000 Interest income - (14,000) (59,000) 19,792,000 14,641,000 13,035,000 Earnings before income taxes 8,413,000 9,550,000 13,315,000 Income taxes 3,191,000 3,606,000 4,929,000 Net earnings $ 5,222,000 $ 5,944,000 $ 8,386,000 Net earnings per common share $ .74 $ .81 $ 1.13 Weighted average number of common and common equivalent shares outstanding 7,069,000 7,355,000 7,427,000
See notes to consolidated financial statements 9 Southern Electronics Corporation Consolidated Statements of Stockholders' Equity Common Stock Additional Prepaid Par Paid-In Retained Treasury Stock Compensation- Shares Value Capital Earnings Shares Cost Stock Awards BALANCE, JUNE 30,1992 4,632,526 $46,000 $8,472,000 $ 6,088,000 $ - $(106,000) Amortization of stock awards 67,000 Stock options exercised 79,770 1,000 224,000 Tax benefit of stock options exercised 449,000 Stock awards cancelled (375) (1,000) 1,000 Treasury stock purchased 21,804 (346,000) Net earnings 8,386,000 Three-for-two stock split 2,335,151 23,000 (23,000) BALANCE, JUNE 30, 1993 7,047,072 70,000 9,121,000 14,474,000 21,804 (346,000) (38,000) Amortization of stock awards 34,000 Stock options exercised 18,450 1,000 88,000 Tax benefits of stock awards and options 922,000 Stock awards cancelled (1,575) (4,000) 4,000 Treasury stock purchased 83,500 (922,000) Net earnings 5,944,000 BALANCE, JUNE 30, 1994 7,063,947 71,000 10,127,000 20,418,000 105,304 (1,268,000) - Stock awards issued to employees 54,500 294,000 (294,000) Amortization of stock awards 23,000 Stock options exercised 4,045 Tax benefits of stock awards and options 162,000 Stock awards cancelled (1,000) (4,000) 4,000 Treasury stock purchased 20,286 (122,000) Net earnings 5,222,000 BALANCE, JUNE 30, 1995 7,121,492 $71,000 $10,579,000 $25,640,000 125,590 $(1,390,000) $(267,000)
See notes to consolidated financial statements 10 Southern Electronics Corporation Consolidated Statements of Cash Flows YEAR ENDED JUNE 30, 1995 1994 1993 Operating Activities Net earnings $ 5,222,000 $5,944,000 $ 8,386,000 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 569,000 484,000 370,000 Loss on disposal of equipment - - 484,000 Compensation-stock awards 23,000 34,000 67,000 Provision for losses on accounts receivable 1,143,000 1,225,000 425,000 Changes in assets and liabilities providing (using) cash: Trade accounts receivable (7,709,000) (2,780,000) (9,858,000) Inventories (14,716,000) (3,339,000) (10,177,000) Deferred income taxes 492,000 (114,000) (253,000) Other current assets (108,000) (23,000) 124,000 Trade accounts payable 4,482,000 10,612,000 (305,000) Accrued and other current liabiliti 536,000 (133,000) 656,000 Income taxes payable 63,000 (1,948,000) (984,000) Net cash provided by (used in) operating activities. (10,003,000) 9,962,000 (11,065,000) Investing Activities Purchase of equipment (1,488,000) (1,161,000) (2,354,000) Financing Activities Revolving bank debt proceeds (payments) 11,500,000 (9,258,000) 9,258,000 Tax benefit from stock awards and options 162,000 922,000 449,000 Proceeds from issuance of common stock - 89,000 225,000 Purchase of treasury stock (122,000) (922,000) (346,000) Payments under capital lease obligations - - (220,000) Net cash provided by (used in) financing activities. 11,540,000 (9,169,000) 9,366,000 Increase (decrease) in cash and cash equivalents 49,000 (368,000) (4,053,000) Cash and cash equivalents, beginning of year 741,000 1,109,000 5,162,000 Cash and cash equivalents, end of year $ 790,000 $ 741,000 $ 1,109,000 Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ 688,000 $ 207,000 $ 282,000 Income taxes 2,473,000 4,685,000 5,716,000
See notes to consolidated financial statements 11 Southern Electronics Corporation Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies a. Principles of Consolidation -- The consolidated financial statements include the accounts of Southern Electronics Corporation (the "Company") and its wholly owned subsidiary, Southern Electronics Distributors, Inc. ("SED"). Intercompany accounts and transactions have been eliminated. b. Description of Business -- SED is a wholesale distributor of microcomputers, computer peripheral products, and cellular telephone products, serving value- added resellers and dealers. c. Inventories -- Inventories are stated at the lower of cost (first-in, first-out method) or market and include in-transit inventory of $16,900,000 at June 30, 1995 and $9,800,000 at June 30, 1994. d. Property and Equipment -- Property and equipment are recorded at cost. Depreciation is computed principally by the straight-line method over the estimated useful lives, 5 to 7 years, of the related assets or the lease term, whichever is shorter. e. Intangibles -- Intangibles are being amortized on a straight-line basis over 40 years. f. Income Taxes -- Effective at the beginning of its fiscal year ended June 30, 1993, the Company adopted Statement of Financial Accounting Standards ("SEAS") No. 109, "Accounting for Income Taxes." The statement requires, among other things, a change from the deferred to the liability method of computing deferred income taxes. In all years prior to fiscal 1993, the Company accounted for income taxes under the provision of Accounting Principles Board Opinion No. 11. g. Common Stock Splits -- The average number of shares outstanding, per share amounts, stock option and restricted stock data appearing in these financial statements have been restated for the 3-for-2 stock splits effected in the form of a stock dividend distributed in February 1993 and 1992. h. Earnings Per Common Share -- Earnings per common share have been calculated based on the weighted average number of common shares and common share equivalents outstanding during each period using the treasury stock method. i. Cash Equivalents -- Cash equivalents are short-term investments purchased with a maturity of three months or less. 2. Property and Equipment As of June 30, 1995 and 1994, property and equipment was comprised of the following: June 30, 1995 1994 Furniture and equipment $ 4,972,000 $ 3,588,000 Leasehold improvements 902,000 798,000 Other 216,000 216,000 6,090,000 4,602,000 Less accumulated depreciation (1,638,000) (1,081,000) $ 4,452,000 $ 3,521,000 3. Revolving Bank Debt The Company and SED have a revolving credit loan agreement with two banks which provide for an unsecured line of credit of $30,000,000. At June 30,1995, SED had borrowings of $11,500,000 and irrevocable standby letters of credit of $1,050,000 outstanding under the line, leaving $17,450,000 available under the borrowing commitment. The Company may borrow at the prime rate offered by Wachovia Bank of Georgia, N.A., 9.0% at June 30, 1995, or the Company may fix the interest rate for periods of 30 to 180 days under various interest rate options. The Company pays a commitment fee of 1/4% of the unused loan commitment. The loan agreement requires maintenance of certain minimum working capital and other financial ratios and has certain dividend restrictions.The Company was in compliance with such covenants at June 30, 1995. This agreement expires on August 31, 1997. 4. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising the Company's current deferred tax asset are as follows: June 30, 1995 1994 Reserves not currently deductible $519,000 $ 955,000 Inventory valuation 138,000 179,000 Depreciation 179,000 183,000 Other 74,000 85,000 $910,000 $1,402,000 12 Southern Electronics Corporation During fiscal 1995, 1994 and 1993, a tax benefit of $162,000, $922,000 and $449,000, respectively, was allocated to additional paid-in capital for tax deductions on employee stock awards and options. Components of income tax expense are as follows: Year Ended June 30, 1995 1994 1993 Current: Federal $2,143,000 $2,379,000 $4,159,000 State 394,000 419,000 574,000 2,537,000 2,798,000 4,733,000 Deferred (Benefit): Federal 426,000 (104,000) (223,000) State 66,000 (10,000) (30,000) 492,000 (114,000) (253,000) Tax deductions on employee stock awards and options 162,000 922,000 449,000 $3,191,000 $3,606,000 $4,929,000 The Company's effective tax rates for the years ended June 30, 1995, 1994, 1993 differ from statutory rates as follows: Year Ended June 30, 1995 1994 1993 Statutory federal rate 34.0% 34.0% 34.0% State income taxes net of U.S. Federal income tax benefit 3.6 3.3 3.0 Additional basis assigned to assets for tax purposes - - (.6) Other 0.3 .5 .6 37.9% 37.8% 37.0% 5. Lease Obligations SED leases its main office facility under an operating lease with a partnership comprised of certain minority stockholders of the Company. The lease currently provides for an annual rent of $163,000 through October 1, 1999, subject to increase based upon periodic increases in the Consumer Price index. The Company leases additional distribution center and sales office space under operating leases. Rent expense under all operating leases for the years ended June 30, 1995, 1994, and 1993 was $565,000, $486,000, and $344,000, respectively. As of June 30, 1995, the future minimum rental commitments under noncancellable operating leases were: Year Ending June 30, 1996 416,000 1997 451,000 1998 434,000 1999 186,000 2000 41,000 $1,528,000 6. Common Stock The Company maintains stock option plans under which incentive and non-qualified stock options may be granted to officers and key employees to purchase up to 877,175 shares of common stock of the Company. Incentive stock options must be granted at not less than the fair market value of the common stock at the date of grant and expire 10 years from the date of grant. Non-qualified stock options may be granted at a price of not less than 85% of the fair market value of the common stock at the date of grant and expire 10 years from the date of grant. Stock option activity and related information under these plans was as follows: Year Ended June 30, 1995 1994 1993 Shares under options at beginning of year 835,765 882,365 712,290 Options granted 117,450 16,850 272,200 Options exercised (4,045) (18,450) (98,905) Options cancelled (79,575) (45,000) (3,220) Shares under options at end of year 869,595 835,765 882,365 Average price of options exercised $ .55 $ 4.78 $ 2.29 At June 30: Price range of outstanding options From $ .54 $ .54 $ .54 To $ 6.00 $ 5.75 $ 17.12 Options exercisable 420,555 294,095 109,340 13 Southern Electronics Corporation Notes to Consolidated Financial Statements (continued) Options granted under the plans are exercisable in installments ranging from 20% to 33.3% per year. Upon the occurrence of a "change of control" (as defined), however, all outstanding options become immediately exercisable in full, and remain exercisable for the remaining term of the option. During fiscal 1995, the Board of Directors authorized the grant of non-qualified options to purchase up to 30,000 shares of common stock at an exercise price ranging from $5.00 to $6.00 per share to certain directors of the Company. During fiscal 1993, the Board of Directors authorized the grant of non-qualified options to purchase up to 6,000 shares of common stock at an exercise price of $6.00 per share to certain directors of the Company. During fiscal 1992, the Board of Directors authorized the grant of non-qualified options to purchase up to 27,000 shares of common stock at an exercise price of $6.00 per share to certain directors of the Company. These options are exercisable under the same terms as those under the Company's stock option plans. At June 30, 1995, 18,600 shares were exercisable. No shares have been exercised under these grants. 8. Restricted Stock In February 1988, the Company's Board of Directors approved a restricted stock plan which permits the granting of 337,500 shares of restricted stock awards to directors, officers, and key employees. Such persons have shares issued in their name which are restricted as to the right of resale and other disposition until certain predetermined employment time requirements are met. The individual awards become vested after periods ranging from three to five years. Restricted stock activity was as follows: Year Ended June 30, 1995 1994 1993 Shares of restricted stock at beginning of year 69,634 71,209 241,646 Issued 54,500 - - Vested (69,634) - (169,875) Cancelled (1,000) (1,575) (562) Shares of restricted stock at end of year 53,500 69,634 71,209 The value of restricted stock awards is determined using the price of the Company's common stock on the grant date, and is amortized over the vesting period. The unamortized portion of such awards is deducted from stockholders' equity. 9. Savings Plan and Trust The Company has a voluntary retirement program, the Southern Electronics Distributors Savings Plan and Trust. All employees of SED who have attained the age of 21 are eligible to participate after completing one year of service. SED matches a portion of employee contributions to the savings plan. Employees are immediately vested in their own contributions. Vesting in SED's matching contributions are based on years of continuous service. SED's matching contribution expense for the years ended June 30, 1995, 1994 and 1993 were $79,000, $55,000, and $72,000, respectively. 10. Significant Vendors During the year ended June 30, 1995, SED purchased approximately 15% of its inventory from one vendor. During the year ended June 30, 1994, no vendor represented 10% or more of SED's inventory purchases. During the year ended June 30, 1993, SED purchased approximately 25% of its inventory from two vendors. 11. Special Charge During the year ended June 30, 1995, the Company incurred $452,000 of expenses in connection with an attempted merger. These expenses were recorded as a special charge when the related merger discussions were terminated. 14 Southern Electronics Corporation 12. Unaudited Interim Financial Information Fourth Third Second First Quarter Quarter Quarter Quarter Fiscal 1995: Net sales $106,196,000 $101,132,000 $100,783,000 $90,642,000 Gross profit 7,283,000 6,963,000 7,260,000 6,699,000 Net earnings 1,215,000 1,418,000 1,323,000 1,266,000 Net earnings per common share $ .17 $ .20 $ .19 $ .18 Fiscal 1994: Net sales $ 70,208,000 $ 75,776,000 $ 74,818,000 $75,371,000 Gross profit 5,465,000 6,183,000 6,147,000 6,396,000 Net earnings 901,000 1,536,000 1,640,000 1,867,000 Net earnings per common share $ .13 $ .21 $ .22 $ .25 Fiscal 1993: Net sales $ 69,287,000 $ 65,436,000 $ 60,946,000 $53,803,000 Gross profit 6,722,000 6,993,000 6,684,000 5,951,000 Net earnings 2,108,000 2,315,000 2,120,000 1,843,000 Net earnings per common share $ .28 $ .31 $ .29 $ .25
15 Southern Electronics Corporation Independent Auditors' Report The Board of Directors of Southern Electronics Corporation We have audited the accompanying consolidated balance sheets of Southern Electronics Corporation and subsidiary as of June 30, 1995 and 1994, and the related statements of earnings, stockholders' equity, and cash flows for the three years in the period ended June 30, 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Southern Electronics Corporation and subsidiary as of June 30, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Atlanta, Georgia August 18, 1995 16 Southern Electronics Corporation Price Range of Common Stock The following table sets forth the high and low sales prices for Southern Electronics Corporation's common shares as reported for each quarter of fiscal 1995 and 1994. The quotations are inter-dealer prices without retail mark-ups, mark-downs or commissions and may not represent actual transactions. 1995 Fiscal Quarter High Low Fourth . . . . . . . . . . . . . . . . . $ 6.50 $ 4.88 Third . . . . . . . . . . . . . . . . . $ 7.50 $ 4.50 Second . . . . . . . . . . . . . . . . . $ 6.88 $ 4.75 First . . . . . . . . . . . . . . . . . $ 6.88 $ 4.75 1994 Fiscal Quarter High Low Fourth . . . . . . . . . . . . . . . . . $ 8.25 $ 5.25 Third . . . . . . . . . . . . . . . . . $12.50 $ 8.00 Second . . . . . . . . . . . . . . . . . $13.25 $ 9.75 First . . . . . . . . . . . . . . . . . $17.25 $10.13 There were 6,995,902 shares of common stock outstanding and approximately 3,500 holders of common stock of the Company (including individual participants in securities position listings) as of September 13, 1995. The Company did not pay any cash dividends to its stockholders during the periods presented. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a description of certain restrictions on the Company's payment of dividends. EX-23 10 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-55730 and 33-33882 of Southern Electronics Corporation on Form S-8 of our reports dated August 18, 1995, appearing in and incorporated by reference in the Annual Report on Form 10-K of Southern Electronics Corporation for the year ended June 30, 1995. DELOITTE & TOUCHE LLP Atlanta, Georgia September 27, 1995 EX-27 11
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SOUTHERN ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 12-MOS JUN-30-1995 JUN-30-1995 790,000 0 26,459,000 845,000 53,688,000 82,597,000 4,452,000 0 87,375,000 41,242,000 0 71,000 0 0 34,562,000 87,375,000 398,753,000 398,753,000 370,548,000 370,548,000 19,104,000 0 688,000 8,413,000 3,191,000 5,222,000 0 0 0 5,222,000 0.74 0.74 -----END PRIVACY-ENHANCED MESSAGE-----