EXHIBIT 2.1
ELCOM HEADS OF AGREEMENT
Subject to Contract
1. The acquisition by Specialist Computer Holdings Limited ("SCH") of certain
parts of the business and specific assets of Elcom International Limited
("Elcom").
2. The businesses to be acquired to include those operations described in the
Management Accounts as (known as the transferring businesses):
Major Accounts
Enterprise Accounts
Nets and Comms
ERP
Technical Services
Elite Distribution
For the avoidance of doubt, it is the intention to acquire the core
businesses of Elcom excluding those classified as Corporate Accounts in
Elcom's Management Accounts. Also to be excluded is Elcom Systems Limited
(Xxxxx.Xxx) (known as the retained businesses).
3. The assets to be acquired to include the stock of the business of Elcom to
the extent that it falls within the description of clean stock received
direct from manufacturer or supplier still in original packaging and to be
a current supported product line. This description to specifically exclude
product returned from customers and any product held for repair, warranty
or otherwise. In addition, certain fixed assets to be transferred as
defined more exactly in paragraph 23 where they are required for the use of
the people to be transferred (to include personal computing equipment,
mobile phones, desks and furniture and the physical fixtures and fittings
and leasehold improvements at Xxxxxxx). For the avoidance of doubt debtors
and creditors will not be purchased.
4. The people to transfer (under TUPE as appropriate) to be those people
agreed as being employed solely by the transferring businesses which will
include the sales and support staff as well as the technical staff (the
intention is to include within the transferring people the Bid Manager,
certain Product Marketing and other Marketing personnel, leaving an option
open to discuss whether it would be practical from both parties' point of
view to also transfer certain Accounts and MIS staff). For the avoidance of
doubt this will exclude those people classified and charged in the
management accounts under the heading "overheads" otherwise than as
referred to above which are understood to include warehouse, configuration,
finance, MIS, personnel, customer services, purchasing and senior
management. It is, however, a prerequisite that the technical management
wherever they are currently charged to include, but not be limited to,
Group Director - Major and Enterprise Business and Group Director -
Technical Services, (which Elcom confirm are still working in the business,
have not handed in their notice or resigned nor expressed any intention to
do so) to transfer with the transferring businesses.
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5. Elcom will obtain the assignment of the Xxxxxxx lease to SCH on existing
terms, but will retain all other leases and freehold premises. Elcom to
assign contract hire agreements on cars in relation to transferring
employees plus any required leased office equipment at Xxxxxxx.
6. Elcom to commit to provision of suitable exclusivity clauses on the
customers of the transferring businesses sufficient to maintain their value
to SCH for a period of at least three years.
7. Elcom to commit to provision of suitable clauses to prohibit them
approaching / soliciting or employing staff of the businesses to be
transferred and the key technical management referred to above for a period
of one year.
8. SCH to be awarded supply contracts (for those products it is able to
supply) for at least three years in respect of IT products and services to
be sold through any of the retained businesses (retained businesses to be
obliged to purchase under these contracts where SCH are able to supply and
can supply competitively). Suitable Service Level Agreements to be
concluded between SCH and Elcom. The intention is for ordering to be via an
automated electronic ordering link.
9. Elcom International Limited and Elcom International Inc. to warrant that,
for a period of three years, they will not compete with any of the current
activities of SCH or the enlarged activities of SCH in the UK and Europe,
other than through the retained businesses, either themselves or through
any subsidiaries or affiliates. For the avoidance of doubt, SCH would not
permit the retained business to compete for business / trade with customers
and prospects of the transferring businesses (customers to be defined as
those companies or organisations that have purchased from the transferring
businesses within the last twelve months. Prospects to be defined as
companies or organisations with whom the transferring businesses have had
substantive contact with, either written or verbal including but not
limited to response by bid or through tender processes or via presentations
in the last twelve months). SCH would not, however, restrict their
activities to other potential prospects in the market.
10. Elcom to warrant in respect of their collection of debtors and funds /
rebates that this will not be done in a manner which could prejudice the
transferring businesses or SCH's ability to continue to transact business
with these customers.
Elcom to observe normal credit control procedures as currently operated in
collection of the debt.
With regard to debt from dealers in the Distribution operation, SCH would
be prepared to advise customers where reasonably requested by Elcom that
they are aware of overdue debts owed to Elcom and that failure to satisfy
this may impact future credit limits.
With regard to debt due from end user customers, where the debt is in
excess of 90 days and is a proven and valid debt, where Elcom advises they
wish to pursue this debt and prior to either legal action or use of an
external collection agency, SCH will be offered the option but not the
obligation to buy the debt from Elcom.
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11. Elcom to warrant that it will meet all proven and reasonable claims of the
suppliers of the stock to be acquired by SCH and to indemnify SCH against
any claims by these suppliers including but not limited to any issues of
retention of title. Elcom to indemnify SCH against claims made by staff
retained by Elcom (e.g. not transferring) but who may subsequently be made
redundant or consider they have any claim for compensation.
12. Elcom to warrant that it will not hold itself out as continuing to operate
any of the transferred businesses or interfere in those transferring
businesses, future business and activities.
13. Elcom to undertake to make the best endeavours to secure the transfer,
assignment or novation of current customers' contracts and, where relevant,
supplier and service contracts.
14. Elcom International Inc to agree for SCH to continue to use and to licence
the product (under free of charge licence) currently known as PECOS
Commerce Manager and the web enabled version, and any future derivations of
this, produced by Elcom Systems Inc. (xxxxx.xxx Inc) and Elcom Systems
Limited (xxxxx.xxx Limited) in Elcom's current customer base and SCH's
customer base (the enlarged customer base) for a period of three years,
necessary support for the product to be provided at agreed rates.
Post completion of this transaction, we would expect to discuss with Elcom
International the mutual benefits of SCH being granted exclusive
distribution rights for an agreed minimum period of time on all current and
future Elcom E-commerce products in the UK on an agent basis.
15. An appropriate charging / crediting mechanism to be constructed between the
parties to allow for:
(a) SCH to charge Elcom the deferred revenue element against revenues
already invoiced by Elcom in respect of services to be performed by
SCH post completion;
(b) Charges or credits to be made between the parties with regard to
pre-payments and accruals in respect of items such as rent, rates and
service charges on relevant properties, salaries and wages,
commissions, utility bills, other leases and contract hire
arrangements on cars etc.
16. Arrangements to be agreed with regard to returns that will not unfairly
prejudice either party.
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Transitional Arrangements
17. Elcom to warrant that it will make best endeavours to facilitate an orderly
transfer of the businesses' assets and people referred to above to SCH.
Suitable transitional arrangements to be defined to include provision at
cost where relevant if so required by SCH of accounting services, warehouse
services, personnel services, systems use and support (including Warehouse
Boss, PRMS and PECOS) during the transition period. Elcom will grant to SCH
licences to occupy existing premises including but not limited to Slough
for a period to be defined but up to six months at cost. SCH to grant to
Elcom licences to occupy Xxxxxxx for the staff and computer equipment
currently based there for a period of up to six months. Access to be
granted to Elcom's internal systems as required by SCH in conducting the
ongoing and transferred business.
18. To the extent that any other tangible, intangible operating assets, rights
and licences are necessary for the continuing operation of the transferring
businesses, these to be transferred at cost by Elcom. All customer files
and information relating to both customers and suppliers to be transferred
to SCH or appropriate access is granted where Elcom is required to keep
documentation for statutory or legal requirements without cost as well as
any intellectual property utilised by the transferring businesses,
excluding PECOS and PECOS Procurement Manager.
19. SCH to have an option to continued use of the name or combining the name of
Elcom with SCH's existing trading names during the transition period of up
to six months.
20. Elcom to make available on a consultancy basis to SCH any key members of
management not transferred with the transferring businesses at cost on a
consultancy basis during the transition period.
21. The transaction to be constructed as a business transfer as a going concern
for VAT purposes.
22. SCH to have first option to purchase the retained businesses (for this
purpose solely to mean the existing businesses described as corporate
accounts in Elcom's Management Accounts) and for the avoidance of doubt to
exclude Elcom Systems (xxxxx.xxx) in the event that Elcom choose to dispose
of these in the next three years.
23. In consideration for the above SCH are prepared to offer in cash on
completion the following:
A payment in respect of Goodwill and (pound)8M
defined fixed assets:
An estimated payment in respect
of stock transferred assumed for the purpose
of this offer to amount to stock of(pound)7.2M (pound)7.2M
but in any case not to exceed(pound)10M.
This to comprise stock as defined in para 3
to be subject to physical verification
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on completion. To be valued in accordance
with normal UK GAAP at the lower of cost and net
realisable value subject to appropria
provisioning in respect of aged stock (based
on the provisioning policy of SCH previously
disclosed to Elcom)and for the avoidance of
doubt to be valued net of price protection claims
or credits or other manufacturer credits relating
to stock but excluding special bid rebates in
respect of previous sales which are customer
specific and do not relate to existing stock. In
the event stock falling outside the description in
paragraph 3 is offered to SCH by Elcom, SCH
will, at its sole discretion, offer to purchase this at its
reasonable valuation).
(the estimate of (pound)7.2M to be adjusted (pound)1 for (pound)1
in relation to the final physical verification and
valuation)
The fixed assets to transfer known as the defined fixed assets to comprise:
Xxxxxxx - All fixtures, fittings and furniture including but not limited to
warehouse equipment and fittings (previously estimated at a written down
value of (pound)0.3M).
Slough - All furniture and equipment on site.
Redditch - All engineering equipment, benches, etc. utilised in and around
the returns and warranty departments.
Personal Equipment - All personal computers including peripherals whether
desktop or laptop used by the transferring employees as well as any other
individual assets.
Stationery - Existing stocks of stationery on the sites occupied by the
transferring staff.
24. (pound)0.5M of the initial consideration will be held on retention in
respect of the physical verification, valuation and reconciliation of
stock. This will be held for a period of a maximum of 90 days, and released
earlier in the event that the above reconciliations can be completed and it
can be demonstrated that all relevant creditors have been paid.
A further (pound)0.5M will be held on retention to be released after one
year unless there is a valid claim (as accepted by Gouldens) outstanding,
in which case the value of such valid claims will remain in Escrow. If a
claim is not accepted by Gouldens, this will be passed to arbitration which
will be binding, the cost of which will follow with the unsuccessful party.
Any such claims outstanding one year from completion will remain in Escrow
until the arbitrator has made a decision.
All monies to be held in Escrow with interest to follow reward of money.
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In addition, a full parent company guarantee from Elcom International Inc.
will be provided to SCH in respect of warranties and indemnities to be
agreed.
25. Financing of the Offer
The offer would be funded by existing cash resources and bank facilities of
SCH.
26. Announcement
Elcom and SCH to agree an appropriate announcement with regard to the
parties having signed a Heads of Agreement relating to the acquisition by
SCH of certain business and assets of Elcom.
27. Exclusivity
Elcom to extend the previously agreed exclusivity to the end of July.
28. Proposed Timetable
1. Suggested contract signature and completion 23rd July 1999
2. Operation of the transferred businesses under
SCH's control and utilising SCH's systems 26th July 1999
3. Commencement of staff and customer communication
programme subject to mutual agreement
(access will be required to Xxxxxxx
and systems the weekend 24th / 25th July
1999 to load orders from Elcom systems
To SCH systems to enable trade to resume
on 26th July 1999 and to enable
counting and moving of stock).
Validity of Offer
The terms and conditions contained above to be open to acceptance until midnight
of the 9th July 1999 after which discussions and negotiations will be assumed to
have lapsed.
SIGNED ON BEHALF
OF THE SAID PARTIES: /s/ Xxxxxx X. Xxxxxxx July 9, 1999
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X X Xxxxxxx Date
Chairman & Chief Executive
Elcom International Inc.
SIGNED ON BEHALF
OF THE SAID PARTIES: /s/ X. X. Xxxxxxx July 8, 1999
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X X Xxxxxxx Date
Group Finance Director
Specialist Computer Holdings Limited
