AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996
SEC FILE NO. 333-12689
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MIAMI COMPUTER SUPPLY CORPORATION
(Exact name of registrant as specified in its articles of incorporation)
Ohio 5110 31-1001529
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3884 INDIAN RIPPLE ROAD
DAYTON, OHIO 45440
(937) 429-5211
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALBERT L. SCHWARZ
PRESIDENT
MIAMI COMPUTER SUPPLY CORPORATION
3884 INDIAN RIPPLE ROAD
DAYTON, OHIO 45440
(937) 429-5211
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Timothy B. Matz, Esq. George O'Sullivan, Esq.
Jeffrey A. Koeppel, Esq. O'Sullivan Graev & Karabell, LLP
Elias, Matz, Tiernan & Herrick L.L.P. 30 Rockefeller Plaza
734 15th Street, N.W., 12th Floor New York, New York 10112
Washington, D.C. 20005
________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
________________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CROSS REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
REGISTRATION STATEMENT ITEM AND CAPTION PROSPECTUS HEADINGS
- --------------------------------------------------------------------------------
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus............ ... Outside Front Cover Page; Cross
Reference Sheet
2. Inside Front and Outside Back Cover
Page of the Prospectus............ Inside Front and Outside Back Cover
Pages of the Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds..................... Use of Proceeds
5. Determination of Offering Price..... Underwriting
6. Dilution............................ Dilution
7. Selling Security Holders ........... Not applicable
8. Plan of Distribution................ Outside Front Cover Page of the
Prospectus; Underwriting
9. Description of Securities to be
Registered........................ Description of Capital Stock
10. Interests of Named Experts and
Counsel........................... Legal Matters
11. Information with Respect to the
Registrant........................ Outside Front Cover Page; Summary;
Risk Factors; Dividend Policy;
Capitalization; Selected
Consolidated Financial and
Operating Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Stockholders; Description of
Capital Stock; Restrictions on
Acquisition of the Company;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities................... Certain Transactions
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1996
PROSPECTUS
1,000,000 SHARES
[LOGO] MIAMI COMPUTER SUPPLY CORPORATION
COMMON STOCK
All of the shares of Common Stock, without par value (the 'Common Stock'),
offered hereby are being offered by Miami Computer Supply Corporation (the
'Company'). Prior to this offering (the 'Offering'), there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $7.00 and $9.00 per share. See 'Underwriting' for
a discussion of the factors to be considered in determining the initial public
offering price. The Company has submitted an application for the Common Stock to
be quoted and traded on the Nasdaq National Market under the symbol 'MCSC.'
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE 'RISK FACTORS' BEGINNING
ON PAGE 8.
________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
PRICE
TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS (1) COMPANY (2)
- --------------------------------------------------------------------------------
Per Share.... $ $ $
- --------------------------------------------------------------------------------
Total(3)..... $ $ $
================================================================================
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities. See 'Underwriting.'
(2) Before deducting estimated expenses of $360,000.00 payable by the Company.
(3) The Company has granted the Underwriter a 30-day over-allotment option to
purchase up to 150,000 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriter, the total Price to Public, Underwriting Discounts and Proceeds
to Company will be $________, $________ and $________, respectively. See
'Underwriting.'
________________________
The shares of Common Stock are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter, and subject
to its right to withdraw, modify, correct and reject orders in whole or in part.
It is expected that delivery of the certificates representing the shares of
Common Stock will be made against payment therefor at the offices of Friedman,
Billings, Ramsey & Co., Inc., Arlington, Virginia or in book entry form through
the book entry facilities of the Depository Trust Company on or about
______________, 1996.
________________________
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
THE DATE OF THIS PROSPECTUS IS _______________, 1996
<PAGE>
[Photo of products the Company sells.]
MIAMI COMPUTER SUPPLY CORPORATION SELLS MORE THAN 12,900 PRODUCTS FROM OVER
500 ORIGINAL EQUIPMENT MANUFACTURERS TO ITS CUSTOMERS IN THE UNITED STATES AND
OVERSEAS.
________________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
________________________
The Company claims a service mark in, and has filed an application for,
federal registration of the name 'Miami Computer Supply InternationalSM,' the
logo design, the slogan 'Computer Supplies. Right. Now.SM' and the symbol
'MCSISM' on October 23, 1996 and of the name 'Miami Computer Supply
CorporationSM' on October 24, 1996. The service mark applications are currently
pending at the U.S. Patent and Trademark Office. All other trademarks or
registered trademarks or service marks appearing herein are trademarks or
registered trademarks or service marks of the respective companies that utilize
them.
________________________
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent
accountants, together with an opinion thereon expressed by such accountants, and
quarterly reports containing unaudited interim consolidated financial statements
for each of the first three quarters of each fiscal year.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and the notes thereto appearing elsewhere in this Prospectus. Except
as otherwise indicated herein, the information in this Prospectus: (i) has been
adjusted to reflect the recapitalization (the 'Recapitalization') of the
Company's common equity from no par voting and no par non-voting common stock to
a single class of Common Stock; (ii) has been adjusted to reflect the increase
in the number of shares of authorized capital stock, from 12,000 shares of
voting and non-voting common stock to 30,000,000 shares of Common Stock and
5,000,000 shares of preferred stock, without par value (the 'Preferred Stock');
(iii) has been adjusted to reflect a 200-for-1 stock split (the 'Stock Split');
(iv) assumes an initial public offering price of $8.00 per share, the mid- point
of the range set forth on the cover page of this Prospectus; and (v) assumes no
exercise of the Underwriter's overallotment option. The Recapitalization and the
Stock Split were effected on September 25, 1996. See 'Description of Capital
Stock.' Unless the context otherwise requires, references to Miami Computer
Supply Corporation include its wholly owned subsidiaries.
THE COMPANY
Miami Computer Supply Corporation (the 'Company'), which was incorporated
in September 1980 and commenced its business operations in 1981, is a
distributor of computer and office automation supplies and accessories,
including a line of computer projection presentation products, principally in
the midwest and northeast regions of the United States and in certain foreign
countries. The Company distributes over 1,800 different core products primarily
to middle market and smaller companies and to governmental, educational and
institutional customers, including federal, state and local governmental
agencies, universities and hospitals and, to a lesser extent, to computer supply
dealers. The Company's net sales increased from $19.6 million in fiscal year
1991 to $43.3 million in fiscal year 1995, a compound annual growth rate of
22.0%, while operating income has increased from $.5 million to $1.6 million
over the same period, a compound annual growth rate of 34.0%.
The Company's growth in sales is due primarily to the acquisition of four
computer and office automation supply companies over the past five years as well
as the high level of customer satisfaction which the Company attributes to the
following factors: personal service using a highly knowledgeable and motivated
sales force; fulfillment of customer orders on an overnight basis; use of the
most economic and expeditious shipping routes; and automated procedures for
inventory control, order picking and billing which are supported by the
Company's proprietary computer software applications. The Company plans to
continue to focus on achieving a high level of customer satisfaction and intends
to emphasize the acquisition of other end-user computer and office automation
supply companies to increase its sales growth and expand its presence in other
markets.
The Company believes that it has a lower selling and administrative expense
structure due to its ability to sell without the use of retail locations and its
ability to limit its product line solely to computer and office automation
supplies and projection presentation products. The Company believes that its
lower selling and expense structure afford it a competitive advantage over
traditional contract stationers and large office suppliers. Based upon annual
revenues, management believes that the Company is the largest independent
end-user computer and office automation supply distributor in the country.
The Company sells primarily nationally known, name-brand products
manufactured by approximately 500 original equipment manufacturers, including
Hewlett-Packard Company ('Hewlett-Packard'), Lexmark International, Inc.
('Lexmark') and Imation Corp. ('Imation') (formerly a division of 3M
Corporation) for computer supplies, and by Proxima Corporation ('Proxima'),
Epson America, Inc. ('Epson') and LightWare, Inc. ('LightWare') for projection
presentation products. The Company's products include consumable supplies such
as laser toner, copier toner, facsimile machine supplies, ink jet cartridges,
printer ribbons, diskettes, computer tape cartridges and accessories, including
cleaning kits and media storage files, as well as computer projection
presentation hardware which permits the large-scale, high resolution projection
of computer
3
<PAGE>
generated slides for presentation at meetings, seminars, lectures, training
rooms and other similar multiple person gatherings. The Company's products are
used in, or in conjunction with, a broad range of computer and office automation
products such as mainframes, intranets, mini, personal, laptop and notebook
computers, laser and ink jet printers, photocopiers, fax machines and data
storage products.
The Company operates one centralized distribution center in Dayton, Ohio
and four smaller regional distribution centers in Rochester, New York,
Louisville, Kentucky, Ann Arbor, Michigan and Leeds, England. Each of the
Company's other 15 sales offices also maintain a limited inventory of frequently
ordered products in order to facilitate same day delivery.
The Company estimates that the U.S. computer and office automation supply
market totaled approximately $25.1 billion (at retail) in 1995 and that the U.S.
market for projection presentation products totaled approximately $3.0 billion
in 1995. Industry sources indicate that the U.S. computer supply market will
grow at a compound annual rate of approximately 6.8% over the next three years.
The Company believes that the current size of the industry and its potential for
future growth can be attributed, in part, to the increasing automation of the
workplace and the corresponding increase in the demand for computer and office
automation supplies. In addition, newer laser and ink jet printing technologies,
particularly color printers, require significantly more consumable supplies than
older, impact printing technologies.
Unlike the computer hardware or office equipment industry, the Company
believes that the computer and office automation supplies industry is not
generally subject to the risk of rapid technological advances and subsequent
product obsolescence. The demand for consumable goods is not dependent on the
level or type of computer hardware or office equipment sales in any particular
year, but rather reflects the amount and type of equipment already in use. As a
result, the consumable needs for any particular computer or item of office
equipment will often continue for an extended period of time, even after the
manufacture of such computer or office equipment is discontinued. Moreover,
computer hardware is relatively homogeneous, except for different power sources;
computer printers sold in the U.S. are substantially similar to, and use the
same supplies as, printers sold elsewhere in the world. Thus, the Company's
products typically may be sold transnationally without modification.
The Company's business strategy is to increase sales and earnings growth
by:
o Acquiring other computer supply companies in the U.S. and
internationally. With more than 15 years of experience serving the large and
expanding niche computer and office automation supply market, the Company has
garnered specific knowledge regarding the customer base, its competitors and its
suppliers. Accordingly, the Company believes that the domestic and certain
foreign computer supply markets are highly fragmented and consist primarily of
relatively smaller companies which typically sell within limited geographical
areas. The Company has acquired four smaller regional computer and office
automation supply companies including Diversified Data Products, Inc. ('DDP'),
since 1991, which companies accounted for $8.1 million of the Company's $43.3
million in revenues for the year ended December 31, 1995 and for $6.5 million of
the Company's $26.2 million in revenues for the six months ended June 30, 1996.
The Company believes that there is a significant consolidation opportunity
within the industry and, thus, intends to aggressively pursue acquisitions of
other end-user computer and office automation supply companies in the future.
The Company has identified potential acquisition candidates and has had
preliminary discussions with several of such candidates. There are, however, as
of the date of this Prospectus, no understandings, agreements or arrangements
between the Company and any other entity with respect to such an acquisition.
Although other larger, better financed companies are currently engaged in a
rapid consolidation of the office supply industry, and to a lesser extent,
computer supply distributors, the Company believes that it can effectively
compete for acquisitions due to its niche market strategy, its knowledge of, and
existing relationships with, many of the potential acquisition targets and its
ability to offer such targets growth potential and a management philosophy which
is clearly different from the large contract stationer consolidators. The
Company believes that it is currently the only company focusing strictly on
acquiring computer and office automation supply distribution companies and that
such focus offers it the ability to increase revenues through such acquisitions
at a faster rate than that of the large
4
<PAGE>
consolidators. In addition, the Company believes that it will be able to
integrate acquired companies into its business by, among other things, retaining
existing senior management whenever possible while expanding the Company's
revenue base and centralizing administrative functions, purchasing and
information systems to achieve economies of scale. See 'Risk Factors --
Integration of Acquisitions,' 'Risk Factors -- Ability to Manage Growth' and
'Business -- Business Strategy -- Acquisition Strategy.'
o Increasing revenues by initiating relationships with new customers,
increasing international sales, emphasizing sales of additional products to
existing customers and selling higher margin, state-of-the-art liquid crystal
display ('LCD') projection presentation products.
o Improving operating efficiencies with its in-house computer
programming staff through the use of its advanced computerized inventory system,
electronic data interchange ('EDI') and continued management information system
('MIS') enhancements to its order processing and financial management systems.
o Adding value to its customer relationships by providing personal
customer contact with its direct sales force and customer service
representatives, special priority and customized service to its very important
customers (those who purchase $40,000 or more of the Company's products in any
year), precise picking and packaging of customer orders, prompt next-day
delivery with reputable couriers at the most economical price, EDI, order
tracking and free technical advice from its highly trained and knowledgeable
sales force and customer service representatives.
o Strengthening its relationships with manufacturers by increasing
sales and related product offerings which, to date, has resulted, and is
expected to result, in larger discounts and rebates and more cooperative
advertising support.
To enhance the ability of the Company to obtain additional capital to
finance future growth, the stockholders of the Company sold 70.0% of the issued
and outstanding common stock of the Company to an investor group, which includes
three directors and one officer of the Company, a general partnership composed
of certain members of the Company's special counsel and an affiliate of the
Underwriter, on May 30, 1996. See 'Business -- Overview.'
The Company's principal executive offices are currently located at 3884
Indian Ripple Road, Dayton, Ohio 45440, and its telephone number is (937)
429-5211. The Company anticipates that it will complete the relocation of its
principal executive offices in the fourth quarter of 1996 to 4750 Hempstead
Station, Dayton, Ohio, 45429 and its new telephone number will be (937)
291-8282.
THE OFFERING
Common Stock offered.................. 1,000,000 shares
Common Stock to be outstanding
after the Offering(1)(2)............ 3,388,000 shares
Use of proceeds....................... To repay indebtedness, for working
capital and general corporate purposes
and to finance the expansion of the
Company's business, including
acquisitions.
Nasdaq National Market symbol......... 'MCSC'
- ----------
(1) Excludes 150,000 shares of Common Stock that may be issued pursuant to the
Underwriter's over-allotment option. See 'Underwriting.'
(2) Based on shares outstanding as of June 30, 1996. Excludes 350,000 shares of
Common Stock reserved for future issuance under the Company's stock option
plans. See 'Management -- Executive Compensation -- Employee Benefit Plans
-- Stock Plans.'
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The summary historical consolidated financial and operating data set forth
below for the years ended December 31, 1993, 1994 and 1995 and for the six
months ended June 30, 1996 have been derived from consolidated financial
statements of the Company which have been audited by Price Waterhouse LLP,
independent accountants whose report is included elsewhere in this Prospectus.
The summary historical consolidated financial and operating data set forth for
the years ended December 31, 1991 and 1992 and the six months ended June 30,
1995 have been derived from the unaudited consolidated financial statements of
the Company, which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results to be obtained for the full fiscal
year. The summary historical consolidated and unaudited pro forma financial data
set forth below should be read in conjunction with 'Selected Consolidated
Financial and Operating Data,' 'Unaudited Pro Forma Financial Data,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated Financial Statements of the Company and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA
1991 1992 1993 1994 1995 1995(1) 1995
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF
OPERATIONS DATA:
Net sales............. $ 19,567 $ 23,982 $ 29,045 $ 35,690 $ 43,321 $ 56,678 $ 21,735
Cost of sales......... 15,401 19,128 23,308 28,250 34,642 46,781 17,505
--------- --------- --------- --------- --------- --------- ---------
Gross profit.......... 4,166 4,854 5,737 7,440 8,679 9,897 4,230
Selling, general and
administrative
expenses............ 3,716 4,199 5,221 6,219 7,125 8,141 3,530
Non-cash compensation
expense............. -- -- -- -- -- 280 --
--------- --------- --------- --------- --------- --------- ---------
Operating income...... 450 655 516 1,221 1,554 1,476 700
Interest expense...... 138 101 142 204 274 -- 142
Other income.......... 11 6 12 11 22 27 5
--------- --------- --------- --------- --------- --------- ---------
Income before income
taxes............... 323 560 387 1,028 1,302 1,503 563
Provision for income
taxes............... 145 243 165 418 509 594 220
--------- --------- --------- --------- --------- --------- ---------
Net income............ $ 178 $ 317 $ 222 $ 610 $ 793 $ 909 $ 343
========= ========= ========= ========= ========= ========= =========
Earnings per share of
common stock........ $ 0.07 $ 0.13 $ 0.09 $ 0.26 $ 0.33 $ 0.14
Weighted average
number of common
shares
outstanding......... 2,400,000 2,400,000 2,356,000 2,320,000 2,388,000 2,388,000
Pro forma earnings per
share of common
stock(4)............ $ 0.29
Pro forma weighted
average number of
shares of common
stock
outstanding(4)...... 3,146,465
OPERATING DATA:
Sales per
employee(5)......... $ 264.4 $ 307.5 $ 299.4 $ 336.7 $ 401.1 $ 480.3 $ 201.3
Selling, general and
administrative
expenses as a
percentage of net
sales............... 19.0% 17.5% 18.0% 17.4% 16.4% 14.4 % 16.3%
<CAPTION>
<S> <C> <C>
PRO FORMA
1996(2) 1996(3)
--------- ---------
STATEMENT OF
OPERATIONS DATA:
Net sales............. $ 26,247 $ 31,465
Cost of sales......... 21,162 25,978
--------- ---------
Gross profit.......... 5,085 5,487
Selling, general and
administrative
expenses............ 4,033 4,368
Non-cash compensation
expense............. -- --
--------- ---------
Operating income...... 1,052 1,119
Interest expense...... 142 --
Other income.......... 11 11
--------- ---------
Income before income
taxes............... 921 1,130
Provision for income
taxes............... 382 473
--------- ---------
Net income............ $ 539 $ 657
--------- ---------
--------- ---------
Earnings per share of
common stock........ $ 0.23
Weighted average
number of common
shares
outstanding......... 2,388,000
Pro forma earnings per
share of common
stock(4)............ $ 0.21
Pro forma weighted
average number of
shares of common
stock
outstanding(4)...... 3,146,465
OPERATING DATA:
Sales per
employee(5)......... $ 222.4 $ 266.7
Selling, general and
administrative
expenses as a
percentage of net
sales............... 15.4% 13.9 %
</TABLE>
<TABLE>
<CAPTION>
JUNE
DECEMBER 31, 30,1996
-------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 ACTUAL(2)
------ ------ ------ ------ ------ ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (at end of period):
Working capital.................................... $ 405 $ 660 $ 621 $ 944 $1,510 $ 1,904
Total assets....................................... 4,232 4,975 6,033 8,782 9,544 13,021
Long-term debt..................................... -- 124 72 6 -- --
Total debt......................................... 1,761 1,828 2,831 3,005 3,537 5,309
Stockholders'
equity........................................... 705 1,023 1,174 1,839 2,632 3,170
<CAPTION>
<S> <C>
AS
ADJUSTED(6)
-----------
BALANCE SHEET DATA (at end of period):
Working capital.................................... $ 7,214
Total assets....................................... 13,021
Long-term debt..................................... --
Total debt......................................... --
Stockholders'
equity........................................... 8,480
</TABLE>
(Footnotes on next page)
6
<PAGE>
- ----------
(1) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds from the sale of
shares of Common Stock sold the proceeds of which would be necessary to
repay the Company's outstanding indebtedness as if such events had occurred
on January 1, 1995. The pro forma data do not purport to represent what the
Company's results of operations actually would have been if the foregoing
transactions had actually occurred as of such date or what such results will
be for any future periods. See 'Unaudited Pro Forma Financial Data.'
(2) Gives effect to the acquisition of DDP by the Company on May 30, 1996.
(3) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds from the sale of
shares of Common Stock sold the proceeds of which would be necessary to
repay the Company's outstanding indebtedness as if such transactions had
occurred on January 1, 1995. See 'Unaudited Pro Forma Financial Data.'
(4) Gives pro forma effect to the sale by the Company of 758,465 shares of
Common Stock pursuant to the Offering as if such transaction had occurred at
the beginning of the fiscal period. The number of shares of Common Stock
sold represents the number of shares the proceeds of which would be
necessary to repay the Company's outstanding indebtedness at June 30, 1996.
(5) Sales per employee are based on 74, 78, 97, 106, 108, 118, 108, 118 and 118
employees for the years ending 1991, 1992, 1993, 1994, 1995, pro forma 1995,
for the six months ended June 30, 1995 and 1996, and for the pro forma six
months ended June 30, 1996, respectively.
(6) Gives pro forma effect to the sale by the Company of 758,465 shares of
Common Stock pursuant to the Offering and the application of the net
proceeds therefrom as described under 'Use of Proceeds' as if such
transactions had occurred on such date. The number of shares of Common Stock
sold represents the number of shares the proceeds of which would be
necessary to repay the Company's outstanding indebtedness at June 30, 1996.
See 'Unaudited Pro Forma Financial Data.'
RECENT DEVELOPMENTS
The following table summarizes certain financial information of the Company
for the three months and nine months ended September 30, 1995 and 1996. The data
for such periods has been derived from unaudited information which, in the
opinion of management, reflect all adjustments, consisting only of normally
recurring adjustments, necessary for a fair presentation of results for the
periods covered.
NINE MONTHS
THREE MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1995 1996 1995 1996
------- ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
DATA)
Net sales............................ $10,442 $17,823 $32,178 $44,070
Operating income..................... 363 733 1,062 1,785
Income before income taxes........... 299 639 861 1,560
Provision for income taxes........... 117 265 337 647
------- ------- ------- -------
Net income........................... $ 182 $ 374 $ 524 $ 913
======= ======= ======= =======
Earnings per share of common stock... $ 0.08 $ 0.16 $ 0.22 $ 0.38
======= ======= ======= =======
Net sales increased by $7.4 million, or 70.7%, and $11.9 million, or 37.0%,
for the three months and nine months ended September 30, 1996, respectively,
compared to net sales for the corresponding 1995 periods. Approximately 78.0%
and 59.8% of the increases for the three and nine month periods were due to the
DDP acquisition and the remainder was due to increased sales to existing
customers as the Company's sales force continued to strengthen relationships
with the Company's customer base. During the third quarter of 1996, DDP's sales
were higher than normal due to several sales transactions that are not expected
to recur in the fourth quarter.
Net income increased by $192,000, or 105.5%, and $389,000, or 74.2%, for
the three months and nine months ended September 30, 1996, respectively,
compared to net income for the corresponding 1995 periods. These increases were
the result of higher operating income which was due to increased sales and the
Company's ability to support increased sales volumes without significant
increases in its overhead structure.
7
<PAGE>
RISK FACTORS
In addition to other information in this Prospectus, the following factors
should be considered carefully by prospective investors before purchasing any of
the Common Stock offered by this Prospectus.
FINANCING FOR ACQUISITIONS; ADDITIONAL DILUTION
If acquisitions are funded by the issuance of additional Common Stock, such
issuance will be without stockholder approval and will dilute current
stockholders and stockholders who purchase shares of Common Stock in this
Offering. Stockholders have no preemptive rights and, therefore, no stockholder
has the right to acquire additional Common Stock in such a circumstance in order
to prevent such dilution. The Company presently intends to register an
additional 6,000,000 shares of its Common Stock with the Securities and Exchange
Commission (the 'Commission') under Rule 415 of the Securities Act of 1933, as
amended (the 'Securities Act'), as soon as possible after the completion of this
Offering for use by the Company as all or a portion of the consideration to be
paid in future acquisitions. These shares will generally be freely tradeable
after their issuance, unless the sale thereof is contractually restricted. There
can be no assurance that holders of the Common Stock will not be significantly
diluted by future issuances of Common Stock as a result of the Company's
acquisition strategy. Moreover, the issuance of additional shares of Common
Stock may have a negative impact on earnings per share and may negatively impact
the market price of the Common Stock.
FINANCING FOR ACQUISITIONS; LEVERAGE
If acquisitions are consummated for cash, it is likely that the Company
will borrow the necessary funds and, accordingly, the Company may become highly
leveraged as a result thereof. If it becomes highly leveraged, the Company may
be more vulnerable to extended economic downturns and its flexibility in
responding to changing economic and industry conditions may be limited. The
degree to which the Company is leveraged could have important consequences to
purchasers of the Common Stock, including the impairment of the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes. The Company's ability
to make principal and interest payments on its current and future indebtedness
and to repay its current and future indebtedness at maturity will be dependent
on the Company's future operating performance, which is itself dependent on a
number of factors, many of which are beyond the Company's control, and may be
dependent on the availability of borrowings under the Credit Facility (defined
below) or other financings. A substantial portion of the Company's current
borrowing capacity under the Credit Facility could be consumed by increased
working capital needs, including future acquisitions.
POSSIBLE NEED FOR ADDITIONAL FINANCING TO IMPLEMENT ACQUISITION STRATEGY
A substantial portion of the net proceeds of the Offering will be used by
the Company to repay its indebtedness under the Credit Facility, leaving
approximately $1.7 million for working capital to finance inventory and
receivables and for general corporate purposes. See 'Use of Proceeds.' No
portion of this amount has been set aside for the specific purpose of funding
future acquisitions and, therefore, the Company may require additional funds to
implement its acquisition strategy. While the Company's Credit Facility may be
utilized to finance acquisitions, the amount which may be drawn upon by the
Company may be limited. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Credit Facility.' Accordingly, the
Company may require additional debt or equity financing for future acquisitions.
There can be no assurance that the Company will be able to obtain additional
debt or equity financing on terms favorable to the Company, or at all, or if
obtained, there can be no assurance that such debt or equity financing will be
sufficient for the financing needs of the Company.
8
<PAGE>
RESTRICTIONS IMPOSED BY DEBT ARRANGEMENTS
The Company's outstanding indebtedness consists primarily of borrowings
under the $15.0 million secured revolving credit facility (the 'Credit
Facility') provided by National City Bank of Dayton (the 'Bank'). The Credit
Facility contains restrictive covenants which may have an adverse effect on the
Company's operations in the future. These covenants include, among other
restrictions: (i) the maintenance of certain financial ratios; (ii) prior notice
to the Bank with respect to (a) the purchase or sale of assets; (b) any merger,
sale or consolidation activity; (c) the creation or acquisition of any
subsidiary or the investment in any equity securities; (d) the entering into any
partnership or joint venture; or (e) the issuance of any equity securities; and
(iii) certain limitations on the incurrence of other indebtedness. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Credit Facility.' These provisions may constrain the Company's
acquisition strategy, may delay, deter, or prevent a takeover attempt that a
shareholder might consider in its best interests and may have an adverse effect
on the market price of the Company's Common Stock. In addition, the Credit
Facility restricts the payment of dividends to no more than 50.0% of the net
income of the Company in the year that the dividend is to be paid. See 'Dividend
Policy.'
FAILURE TO IMPLEMENT ACQUISITION STRATEGY
Competition for desirable new acquisitions in attractive major metropolitan
markets is expected to increase. No assurance can be given that the Company will
be able to find attractive acquisition candidates or that such acquisitions can
be effected at reasonable prices or in a timely manner, or that once acquired,
the Company will be able to profitably manage such companies. The failure to
complete acquisitions and continue the Company's expansion could have a material
adverse effect on its financial performance.
RISKS RELATING TO INTERNATIONAL ACQUISITIONS
Expansion into international markets may involve additional risks relating
to such things as currency exchange rates, new and different legal and
regulatory requirements, political and economic risks relating to the stability
of foreign governments and their trading relationship with the United States,
difficulties in staffing and managing foreign operations, differences in
financial reporting, differences in the manner in which different cultures do
business, operating difficulties and other factors.
INTEGRATION OF ACQUISITIONS
The Company has acquired four computer and office automation supply
businesses in the past five years and intends to actively pursue additional
acquisitions. No assurance can be given that the Company will be able to
successfully integrate its future acquisitions with the Company's existing
systems and operations. The integration of acquired businesses may also lead to
the resignation of key employees of the acquired companies and diversion of
management attention from other ongoing business concerns. The costs of
integration could have an adverse effect on short-term operating results. Any or
all of these factors could have a material adverse effect on the Company's
operations in the future.
ABILITY TO MANAGE GROWTH
The Company expects to experience rapid growth that will likely result in
new and increased responsibilities for management personnel and which will
challenge the Company's management, operating and financial systems and
resources. To compete effectively and manage future growth, if any, the Company
will be required to continue to implement and improve its operational, financial
and management information systems, procedures and internal controls on a timely
basis and to expand, train, motivate and manage its work force. There can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's future operations. Any failure to implement
and improve the Company's operational, financial and management systems or to
9
<PAGE>
expand, train motivate or manage employees could have a material adverse effect
on the Company's operating results and financial condition. See 'Business.'
DEPENDENCE ON KEY PERSONNEL
The Company relies on certain key executives, including its President and
other senior management, with whom it has entered into employment agreements
which expire on December 31, 1999, subject to renewal (except for three
executives whose agreements expire on December 31, 1996) and which contain
non-competition provisions which expire 12 months after such executive's
employment is terminated. The agreements with the President and Chief Financial
Officer entitles such individuals to receive a cash bonus based on the Company's
annual income before taxes, limited, however, beginning in 1997, to no more than
100.0% of their respective base salaries, assuming that pre-tax profit goals are
met. The loss of services of one or more of the Company's key executives could
disrupt and have a material adverse effect on the operations of the Company. As
the Company continues to grow, it will continue to hire, appoint or otherwise
retain and/or change senior managers and other key executives. There can be no
assurance that the Company will be able to retain its executive officers and key
personnel or attract additional qualified management in the future. In addition,
the success of certain of the Company's acquisitions may depend, in part, on the
Company's ability to retain management personnel of the acquired companies. The
loss of services of senior executive officers could have a material adverse
effect upon the Company's business.
EXCHANGE RATE FLUCTUATIONS
Although the Company's operations are not currently subject to material
operational risks associated with fluctuations in exchange rates, because the
Company intends to expand the size and scope of its international operations,
its exposure to fluctuations in exchange rates will be increased. Accordingly,
no assurance can be given that the Company's results of operations will not be
adversely affected in the future by fluctuations in foreign currency exchange
rates. The Company has, at times, entered into forward foreign currency exchange
contracts in order to hedge the Company's accounts receivable and accounts
payable. At June 30, 1996, the Company had no foreign currency exchange
contracts outstanding. In the future, the Company may, from time to time,
consider entering into other forward foreign currency exchange contracts,
although no assurances can be given that the Company will do so, or will be able
to do so, or that such arrangements will adequately protect the Company from
fluctuations in foreign currency exchange rates.
DEPENDENCE ON CERTAIN KEY SUPPLIERS
Although the Company regularly carries products and accessories
manufactured by approximately 500 original equipment manufacturers, 58.6% of the
Company's net sales in fiscal year 1995 were derived from products supplied by
the Company's ten largest suppliers, with the sale of products supplied by
Hewlett-Packard, Lexmark and Imation accounting for approximately 18.9%, 10.9%
and 7.2% of total net sales, respectively, for the year ended December 31, 1995.
In addition, the Company's business is dependent upon terms provided by its key
suppliers, including pricing and related provisions, product availability and
dealer authorizations. While the Company considers its relationships with its
key suppliers, including Hewlett-Packard, Lexmark and Imation to be good, there
can be no assurance that these relationships will not be terminated or that such
relationships will continue as presently in effect. In addition, changes by one
or more of such key suppliers of their policies regarding distributors or volume
discount schedules or other marketing programs applicable to the Company may
have a material adverse effect on the Company's business. Certain distribution
agreements require the Company to make minimum annual purchases. Under its
distribution agreements with Hewlett-Packard, Lexmark and Imation, the Company
is required to make minimum annual purchases of $5.0 million, $250,000 and
$50,000, respectively. See 'Business -- Suppliers.'
10
<PAGE>
HIGHLY COMPETITIVE INDUSTRY
The computer and office automation product supply industry is highly
competitive. The Company competes with major full-service office products
distributors, other national and regional computer supply distributors, office
products superstores, direct mail order companies, and, to a lesser extent,
non-specialized retailers. Certain of the Company's competitors, such as office
products superstores and major full-service office products distributors, are
larger and have substantially greater financial and other resources and
purchasing power than the Company. The Company believes that the computer supply
industry will become more consolidated in the future and consequently more
competitive. Increasing competition will result in greater price discounting
which will continue to have a negative impact on the industry's gross margins.
There can be no assurance that the Company will not encounter increased
competition in the future, which could have a material adverse effect on the
Company's business. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and 'Business -- Competition.'
CONTROL OF EXISTING MANAGEMENT AND CERTAIN STOCKHOLDERS
Upon completion of the Offering, management of the Company will own 672,520
shares of Common Stock representing approximately 19.9% of the outstanding
shares of Common Stock and Pittsburgh Investment Group LLC ('LLC') will own
1,613,480 shares of Common Stock representing approximately 47.6% of the
outstanding shares of Common Stock. Consequently, management or LLC, acting
together or independently, will be in a position to exert significant influence
over all matters relating to the Company's business, including decisions
regarding the election of the Company's Board of Directors, the acquisition or
disposition of assets (in the ordinary course of the Company's business or
otherwise), future issuances of Common Stock or other securities of the Company,
and the declaration and payment of dividends on the Common Stock. Management or
LLC, acting together or independently, also may be able to delay, make more
difficult or prevent any business combination involving the Company not approved
by them. See 'Principal Stockholders' and 'Restrictions on Acquisition of the
Company.'
DEPENDENCE ON COMPUTER SYSTEMS
The Company's operations are generally dependent on its proprietary
software applications. Modifications to the Company's computer systems and
applications software will be necessary as the Company executes its expansion
plans and responds to customer needs, technological developments, electronic
commerce requirements and other factors. Such modifications may cause
disruptions in the operations of the Company, delay the schedule for
implementing the integration of newly acquired companies, or cost more to
design, implement or operate than currently budgeted. Such disruptions, delays
or costs could have a material adverse effect on the Company's operations and
financial performance.
The Company does not currently have redundant computer systems or redundant
dedicated communication lines linking its computers to its warehouses, although
all data is stored on two separate hard drives on a continual basis. The Company
has taken precautions to protect itself from events that could interrupt its
operations, including back-up power supplies that allow the Company's computer
system to function in the event of a power outage, off-site storage of back-up
data, fire protection, physical security systems and an early warning detection
and fire extinguishing system. The occurrence of any of these events could have
a material adverse effect on the Company's operations and financial performance.
See 'Business -- Management Information System.'
POTENTIAL VOLATILITY OF STOCK PRICE
Stock prices of many growth companies fluctuate widely, often for reasons
that are unrelated to their actual operating performance. Announcement of new
acquisitions by the Company or its competitors, variations in quarterly
operating results, litigation involving the Company, general conditions
affecting all participants in the computer supply industry, regulatory
developments, and
11
<PAGE>
economic or other external factors, may have a significant impact on the market
price and liquidity of the Common Stock. See 'Underwriting.'
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
New investors in the Common Stock in this Offering will experience
immediate dilution in the net tangible book value of their shares. At the
initial public offering price of $8.00 per share, dilution to new investors will
be $5.06 per share. In the Offering, new investors will purchase 29.5% of the
total outstanding shares and will contribute 99.7% of the total consideration
therefore. See 'Dilution.' Additional dilution will occur as a result of future
acquisitions by the Company of other computer supply businesses in exchange for
the Common Stock. See '-- Financing for Acquisitions; Additional Dilution.'
NO DIVIDENDS
The Company has never paid a dividend on its capital stock and currently
expects to retain its future earnings, if any, for use in the operation and
expansion of its business and does not anticipate paying any such cash dividends
in the foreseeable future. See 'Dividend Policy.'
AVAILABILITY OF COMMON STOCK AND PREFERRED STOCK FOR ISSUANCE
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of the Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions thereof, including voting rights of the Preferred
Stock, without any further vote or action by the Company's stockholders. The
voting and other rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The Company's Board may similarly issue
additional shares of Common Stock without any further vote or action by
stockholders. Such an issuance could occur in the context of another public or
private offering of shares of Common Stock or Preferred Stock or in a situation
where the Common Stock or Preferred Stock is used to acquire the assets or stock
of another company. The issuance of Common Stock or Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no current plans
to issue any shares of Common Stock or Preferred Stock other than as described
herein. See 'Description of Capital Stock.'
ANTITAKEOVER PROVISIONS
The Amended and Restated Articles of Incorporation ('Articles') and Amended
and Restated Code of Regulations ('Code of Regulations') of the Company contain
certain provisions which, among other things, permit the establishment of a
'staggered' Board of Directors, limit the personal liability of, and provide
indemnification for, the directors of the Company, require that stockholders
comply with certain requirements before they can nominate someone for director
or submit a proposal before a meeting of stockholders, limit the ability of
stockholders to act by written consent and require a supermajority vote of
stockholders in the event that a 'related person' (as defined) attempts to
engage in a business combination with the Company. The Ohio General Corporation
Law, which is applicable to the Company, has certain other provisions which may
be deemed to have antitakeover effects, including statutes which deal with
control share acquisitions, transactions involving interested stockholders,
control bids and the disgorgement of trading profits. See 'Restrictions on
Acquisition of the Company.'
IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing stockholders could adversely affect the prevailing
market price of the Common Stock. Upon completion of the Offering, the Company
will have 3,388,000 shares of Common Stock outstanding. All of the 1,000,000
shares offered hereby will be freely tradeable by persons other than
'affiliates' of the Company, as that term is defined in the Securities Act. Upon
12
<PAGE>
expiration of a lock-up agreement between the Company, its officers, directors
and stockholders, and the Underwriter, beginning 270 days after the date of this
Prospectus, or earlier if the Underwriter consents, approximately 716,000 of
additional shares will be eligible for immediate sale in the public market,
subject to compliance with Rule 144.
NO PRIOR TRADING MARKET FOR COMMON STOCK
Prior to this Offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that an active trading
market will develop or be sustained after this Offering. The initial public
offering price will be determined through negotiations between the Company and
the Underwriter based on several factors and may not be indicative of the market
price of the Common Stock after this Offering. The Company has submitted an
application for the Common Stock to be quoted and traded on the Nasdaq National
Market. The approval of such application is conditioned upon the Company's
demonstration of full compliance with all Nasdaq criteria for initial listing at
the closing of the Offering. See 'Underwriting.'
USE OF PROCEEDS
The net proceeds to the Company from the Offering after deducting estimated
Offering expenses and underwriting discounts are estimated to be approximately
$7.0 million, (or approximately $8.1 million if the Underwriter's over-allotment
option is exercised in full). The Company intends to use the net proceeds to
repay its outstanding indebtedness under the Company's Credit Facility with the
Bank which, at June 30, 1996, approximated $5.3 million, and for working
capital, in the amount of approximately $1.7 million, to finance inventory and
receivables and for general corporate purposes. The proceeds held for general
corporate purposes may be used, in whole or in part, to finance the expansion of
the Company's business, including possible future acquisitions. Pending such
uses, the net proceeds will be invested in short-term, interest-bearing
investment grade securities.
The Company continues to evaluate potential acquisitions and to identify
and have preliminary discussions with potential acquisition candidates, although
there are, as of the date of this Prospectus, no agreements, arrangements or
understandings between the Company and any other party relating thereto. There
can be no assurance that any acquisition can or will be consummated on terms
favorable to the Company, or at all.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock. The Company
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business and for general corporate purposes. Any payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, level of indebtedness, general business conditions,
contractual restrictions with respect to the payment of dividends and other
relevant factors. The Credit Facility provides that the payment of dividends is
an event of default unless the dividend is payable solely in cash, no other
event of default is existing and, after giving effect to the proposed dividend,
the aggregate of all dividends paid during any fiscal year of the Company would
not exceed 50.0% of the net income (as defined in the Credit Facility) of the
Company for that fiscal year to the date of such dividend.
13
<PAGE>
DILUTION
At June 30, 1996, the net tangible book value of the Company was $2.9
million or $1.23 per share of Common Stock outstanding. The net tangible book
value per share represents the amount of total assets (excluding intangible
assets) less total liabilities, divided by the total number of shares of Common
Stock outstanding. At June 30, 1996, after giving effect to the sale of the
1,000,000 shares of the Common Stock in the Offering at an assumed initial
public offering price of $8.00 per share and after deduction of estimated
underwriting discounts and Offering expenses payable by the Company and the
application of the net proceeds therefrom as described under 'Use of Proceeds,'
the Company would have had 3,388,000 shares of Common Stock outstanding
(3,538,000 shares if the Underwriter's over-allotment option is exercised in
full), and the pro forma net tangible book value would have been $9.9 million
($11.0 million if the Underwriter's over-allotment option is exercised in full)
or $2.94 per share ($3.12 per share if the Underwriter's over-allotment option
is exercised in full). This represents an immediate increase in net tangible
book value of $1.71 per share to existing stockholders and an immediate dilution
in net tangible book value of $5.06 per share to the new investors purchasing
shares of Common Stock in this Offering. The following table illustrates this
per share dilution:
Assumed initial public offering price per share........... $8.00
Net tangible book value per share before Offering(1)...... $1.23
Increase in net tangible book value per share
attributable to new investors........................... 1.71
------
Pro forma net tangible book value per share after
the Offering............................................ 2.94
------
Dilution per share to new investors....................... $5.06
======
- ----------
(1) Based upon 2,388,000 shares of Common Stock outstanding as of June 30, 1996.
Does not include 350,000 shares of Common Stock reserved for future issuance
under the Company's Stock Option Plans. See 'Management -- Executive
Compensation -- Employee Benefit Plans -- Stock Plans.'
The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased by existing stockholders, the
total consideration paid for such shares and the average price per share paid
for such shares by such persons and by the new investors purchasing shares of
Common Stock in this Offering (based on an assumed initial public offering price
of $8.00 per share and before deduction of estimated underwriting discounts and
Offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT(1) AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 2,388,000 70.5% $ 25,225 00.3% $0.01
New investors............ 1,000,000 29.5 8,000,000 99.7 $8.00
--------- ------- ---------- -------
Total.................... 3,388,000 100.0% $8,025,225 100.0%
========= ======= ========== =======
</TABLE>
- ----------
(1) Assumes no exercise of stock options after June 30, 1996. As of the date of
the consummation of this Offering, there will be outstanding options to
purchase 111,000 shares of Common Stock with an exercise price equal to the
initial public offering price, which options will vest at the rate of 37,000
shares upon the closing of this Offering and 37,000 shares per year in 1997
and 1998. It is also anticipated that options to purchase 45,000 shares will
be issued to non-employee directors immediately after the Company's 1997
annual meeting of stockholders. To the extent that any shares reserved for
future issuance under the Company's stock option plans are issued, there
will be further dilution to new investors. See 'Management -- Executive
Compensation -- Employee Benefit Plans -- Stock Plans.'
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company, at June
30, 1996, on an actual basis (after giving effect to the Recapitalization and
the Stock Split) and as adjusted to give effect to the Offering (assuming an
initial public offering price of $8.00 per share, the mid-point of the price
range as set forth on the cover page of this Prospectus) and the application of
the estimated net proceeds therefrom. See 'Use of Proceeds.' This table should
be read in conjunction with the Consolidated Financial Statements of the Company
and the notes related thereto included elsewhere in this Prospectus.
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
Short-term debt:
Credit Facility................................... $5,300,000 $ --
Current portion of long-term debt................. 9,252 --
---------- -----------
Total short-term debt............................. 5,309,252 --
---------- -----------
Stockholders' equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; none outstanding actual; 5,000,000
shares authorized; none outstanding as adjusted -- --
Common stock, no par value, 30,000,000 shares
authorized; 2,388,000 shares issued and
outstanding actual; 30,000,000 shares
authorized; 3,388,000 shares issued and
outstanding as adjusted(1)..................... -- --
Additional paid-in capital........................ 304,951 7,304,951
Retained earnings................................. 3,160,196 2,880,470
Unearned compensation............................. (279,726) --
Less: Treasury stock.............................. (15,000) (15,000)
---------- -----------
Total stockholders' equity..................... 3,170,421 10,170,421
---------- -----------
Total capitalization........................ $8,479,673 $10,170,421
========== ===========
- ----------
(1) Excludes 350,000 shares of Common Stock reserved for future issuance under
the Company's stock option plans. See 'Management -- Executive Compensation
-- Employee Benefit Plans -- Stock Option Plans.'
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected historical consolidated financial and operating data set forth
below for the years ended December 31, 1993, 1994 and 1995 and for the six
months ended June 30, 1996 have been derived from consolidated financial
statements of the Company which have been audited by Price Waterhouse LLP,
independent accountants whose report is included elsewhere in this Prospectus.
The selected historical consolidated financial and operating data set forth for
the years ended December 31, 1991 and 1992 and the six months ended June 30,
1995 have been derived from the unaudited consolidated financial statements of
the Company, which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results to be obtained for the full fiscal
year. The selected consolidated and unaudited pro forma financial data set forth
below should be read in conjunction with 'Unaudited Pro Forma Financial Data,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated Financial Statements of the Company, and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------------------------------- ----------------------
PRO FORMA
1991 1992 1993 1994 1995 1995(1) 1995 1996(2)
--------- --------- --------- --------- --------- ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 19,567 $ 23,982 $ 29,045 $ 35,690 $ 43,321 $ 56,678 $ 21,735 $ 26,247
Cost of sales........... 15,401 19,128 23,308 28,250 34,642 46,781 17,505 21,162
--------- --------- --------- --------- --------- ------------ --------- ---------
Gross profit.......... 4,166 4,854 5,737 7,440 8,679 9,897 4,230 5,085
Selling, general and
administrative
expenses.............. 3,716 4,199 5,221 6,219 7,125 8,141 3,530 4,033
Non-cash compensation
expense............... -- -- -- -- -- 280 -- --
--------- --------- --------- --------- --------- ------------ --------- ---------
Operating income...... 450 655 516 1,221 1,554 1,476 700 1,052
Interest expense........ 138 101 141 204 274 -- 142 142
Other income............ 11 6 12 11 22 27 5 11
--------- --------- --------- --------- --------- ------------ --------- ---------
Income before income
taxes............... 323 560 387 1,028 1,302 1,503 563 921
Provision for income
taxes................. 145 243 165 418 509 594 220 382
--------- --------- --------- --------- --------- ------------ --------- ---------
Net income............ $ 178 $ 317 $ 222 $ 610 $ 793 $ 909 $ 343 $ 539
========= ========= ========= ========= ========= ============ ========= =========
Earnings per share of
common stock.......... $ 0.07 $ 0.13 $ 0.09 $ 0.26 $ 0.33 $ 0.14 $ 0.23
Weighted average number
of shares of common
stock outstanding..... 2,400,000 2,400,000 2,356,000 2,320,000 2,388,000 2,388,000 2,388,000
Pro forma earnings per
share of common
stock(4).............. $ 0.29
Pro forma weighted
average number of
shares of common stock
outstanding(4)........ 3,146,465
OPERATING DATA:
Sales per employee(5)... $ 264.4 $ 307.5 $ 299.4 $ 336.7 $ 401.1 $ 480.3 $ 201.3 $ 222.4
Selling, general and
administrative
expenses as a
percentage of net
sales................. 19.0% 17.5% 18.0% 17.4% 16.4% 14.4% 16.3% 15.4%
<CAPTION>
PRO FORMA
1996(3)
------------
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 31,465
Cost of sales........... 25,978
------------
Gross profit.......... 5,487
Selling, general and
administrative
expenses.............. 4,368
Non-cash compensation
expense............... --
------------
Operating income...... 1,119
Interest expense........ --
Other income............ 11
------------
Income before income
taxes............... 1,130
Provision for income
taxes................. 473
------------
Net income............ $ 657
============
Earnings per share of
common stock..........
Weighted average number
of shares of common
stock outstanding.....
Pro forma earnings per
share of common
stock(4).............. $ 0.21
Pro forma weighted
average number of
shares of common stock
outstanding(4)........ 3,146,465
OPERATING DATA:
Sales per employee(5)... $ 266.7
Selling, general and
administrative
expenses as a
percentage of net
sales................. 13.9%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, ---------
----------------------------------------------
1991 1992 1993 1994 1995 ACTUAL(2)
------ ------ ------ ------ ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at end of period):
Working capital................................ $ 405 $ 660 $ 621 $ 944 $1,510 $ 1,904
Total assets................................... 4,232 4,975 6,033 8,782 9,544 13,021
Long-term debt................................. -- 124 72 6 -- --
Total debt..................................... 1,761 1,828 2,831 3,005 3,537 5,309
Stockholders' equity........................... 705 1,023 1,174 1,839 2,632 3,170
<CAPTION>
AS
ADJUSTED(6)
-----------
<S> <C>
Balance Sheet Data (at end of period):
Working capital.............................................. $ 7,214
Total assets................................................. 13,021
Long-term debt............................................... --
Total debt................................................... --
Stockholders' equity......................................... 8,480
</TABLE>
(Footnotes on following page)
16
<PAGE>
- ----------
(1) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds from the sale of
shares of Common Stock sold the proceeds of which would be necessary to
repay the Company's outstanding indebtedness as if such events had occurred
on January 1, 1995. The pro forma data do not purport to represent what the
Company's results of operations actually would have been if the foregoing
transactions had actually occurred as of such date or what such results will
be for any future periods. See 'Unaudited Pro Forma Financial Data.'
(2) Gives effect to the acquisition of DDP by the Company on May 30, 1996.
(3) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds from the sale of
shares of Common Stock sold the proceeds of which would be necessary to
repay the Company's outstanding indebtedness as if such transactions had
occurred on January 1, 1995. See 'Unaudited Pro Forma Financial Data.'
(4) Gives pro forma effect to the sale by the Company of 758,465 shares of
Common Stock pursuant to the Offering as if such transaction had occurred at
the beginning of the fiscal period. The number of shares of Common Stock
sold represents the number of shares the proceeds of which would be
necessary to repay the Company's outstanding indebtedness at June 30, 1996.
(5) Sales per employee are based on 74, 78, 97, 106, 108, 118, 108, 118 and 118
employees for the years ending 1991, 1992, 1993, 1994, 1995, pro forma 1995,
for the six months ended June 30, 1995 and 1996, and for the pro forma six
months ended June 30, 1996, respectively.
(6) Gives pro forma effect to the sale by the Company of 758,465 shares of
Common Stock pursuant to the Offering and the application of the net
proceeds therefrom as described under 'Use of Proceeds' as if such
transactions had occurred on such date. The number of shares of Common Stock
sold represents the number of shares the proceeds of which would be
necessary to repay the Company's outstanding indebtedness at June 30, 1996.
See 'Unaudited Pro Forma Financial Data.'
17
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1995 gives effect to (i) the acquisition of DDP by the
Company, and (ii) the Offering and the application of the net proceeds from the
sale of shares of Common Stock sold the proceeds of which would be necessary to
repay the Company's outstanding indebtedness at June 30, 1996 as if such
transactions had occurred on January 1, 1995. The Unaudited Pro Forma
Consolidated Statement of Operations for the six months ended June 30, 1996
gives effect to (i) the acquisition of DDP by the Company, and (ii) the Offering
and the application of the net proceeds from the sale of shares of Common Stock
sold the proceeds of which would be necessary to repay the Company's outstanding
indebtedness at June 30, 1996. as if such transactions had occurred on January
1, 1995. The unaudited pro forma financial data are based on the historical
financial statements of the Company and DDP and the assumptions and adjustments
described in the accompanying notes. The Unaudited Pro Forma Consolidated
Statements of Operations do not purport to represent what the Company's results
of operations actually would have been if the foregoing transactions occurred as
of the dates indicated or what such results will be for any future periods.
The Unaudited Pro Forma Consolidated Balance Sheet at June 30, 1996 gives
effect to the Offering and the application of the net proceeds therefrom as
described under 'Use of Proceeds' as if it had occurred on June 30, 1996.
The unaudited pro forma financial statements are based upon assumptions
that the Company believes are reasonable and should be read in conjunction with
the Consolidated Financial Statements of the Company and the accompanying notes
thereto included elsewhere in this Prospectus.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
TRANSACTIONS
THE HISTORICAL AND OTHER
COMPANY DDP ADJUSTMENTS
------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net sales.............................. $43,321 $ 13,357 $ --
Cost of sales.......................... 34,642 12,139 --
------- ---------- -----
Gross profit......................... 8,679 1,218
Selling, general and administrative
expenses.. 7,125 1,016 --
Non-cash compensation expense.......... -- -- 280(1)
------- ---------- -----
Operating income....................... 1,554 202 280
Interest expense....................... 274 167 (441)(2)
Other income........................... 22 5 --
------- ---------- -----
Income before income taxes............. 1,302 40 161
Provision for income taxes............. 509 21 64(3)
------- ---------- -----
Net income........................... $ 793 $ 19 $ 97
======= ========== =====
Pro forma net earnings per
share of common stock(4).............
Pro forma weighted average
number of shares of
common stock outstanding(4)..........
THE
COMPANY
PRO FORMA
---------
Net sales.......................................................... $ 56,678
Cost of sales...................................................... 46,781
---------
Gross profit..................................................... 9,897
Selling, general and administrative expenses....................... 8,141
Non-cash compensation expense...................................... 280
---------
Operating income................................................... 1,476
Interest expense................................................... --
Other income....................................................... 27
---------
Income before income taxes......................................... 1,503
Provision for income taxes......................................... 594
---------
Net income....................................................... $ 909
=========
Pro forma net earnings per
share of common stock(4)......................................... $ 0.29
=========
Pro forma weighted average
number of shares of
common stock outstanding(4)...................................... 3,146,465
=========
- ----------
(1) Represents the non-cash compensation expense related to the stock awards
granted by LLC to certain employees which vest immediately upon the
Offering. See 'Business -- Overview.'
(2) Represents the elimination of interest expense due to the use of the
proceeds from the Offering to repay the Company's indebtedness.
(3) Represents the increase in the provision for income taxes required as a
result of increased pro forma income before taxes as a result of the above
adjustment. The effective tax rate applied to the pro forma adjustments
approximates 39.8%.
(4) Pro forma net earnings per share has been computed using the weighted
average number of common shares outstanding during the period presented,
adjusted for the number of shares of Common Stock the proceeds of which
would be necessary to repay the Company's outstanding indebtedness at June
30, 1996.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL DDP
FOR THE PERIOD
JANUARY 1, TRANSACTIONS THE
THE 1996 TO MAY AND OTHER COMPANY
COMPANY(1) 30, 1996 ADJUSTMENTS PRO FORMA
---------- -------------- ------------ ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................ $ 26,247 $5,363 $ (145)(2) $ 31,465
Cost of sales.................... 21,162 4,934 (118)(2) 25,978
---------- -------------- ------------ ---------
Gross profit................... 5,085 429 (27) 5,487
Selling, general and
administrative expenses........ 4,033 335 -- 4,368
---------- -------------- ------------ ---------
Operating income................. 1,052 94 (27) 1,119
Interest expense................. 142 63 (205)(3) --
Other income..................... 11 -- -- 11
---------- -------------- ------------ ---------
Income before income taxes....... 921 31 178 1,130
Provision for income taxes....... 382 16 75(4) 473
---------- -------------- ------------ ---------
Net income....................... $ 539 $ 15 $ 103 $ 657
========== ============== ============ =========
Pro forma net earnings per
share of common stock(5)....... $ 0.21
=========
Pro forma weighted average
number of shares of common
stock outstanding(5)........... 3,146,465
=========
</TABLE>
- ----------
(1) Includes the results of operations of DDP from the date of acquisition, May
30, 1996.
(2) Represents the elimination of net sales and cost of sales activity between
the Company and DDP for the period January 1, 1996 to May 30, 1996.
(3) Represents the elimination of interest expense due to the use of the
proceeds from the Offering to repay the Company's indebtedness.
(4) Represents the increase in the provision for income taxes required as a
result of increased pro forma income before taxes as a result of the above
adjustments. The effective tax rate applied to the pro forma adjustments
approximates 42.1%.
(5) Pro forma net earnings per share has been computed using the weighted
average number of common shares outstanding during the period presented,
adjusted for the the number of shares of Common Stock the proceeds of which
would be necessary to repay the Company's outstanding indebtedness at June
30, 1996.
19
<PAGE>
UNAUDITED PRO FORMA AS ADJUSTED BALANCE SHEET
JUNE 30, 1996
--------------------------------------------
TRANSACTIONS THE COMPANY
THE COMPANY ADJUSTMENTS PRO FORMA
----------- ------------ -----------
Assets
Current assets:
Cash............................ $ 17,074 $ -- $ 17,074
Accounts receivable--net........ 7,403,110 -- 7,403,110
Inventories..................... 4,004,950 -- 4,004,950
Prepaid expenses................ 91,067 -- 91,067
Deferred tax assets............. 70,752 -- 70,752
----------- ----------- -----------
Total current assets......... 11,586,953 -- 11,586,953
Property and equipment -- net of
accumulated depreciation........ 577,890 577,890
Other assets:
Deposits........................ 204,181 -- 204,181
Cash surrender value officers'
life insurance................ 426,582 -- 426,582
Intangible assets............... 225,280 -- 225,280
----------- ----------- -----------
Total........................ $13,020,886 $ -- $13,020,886
=========== =========== ===========
Liabilities And Stockholders' Equity
Current liabilities:
Line of credit.................. $ 5,300,000 $(5,300,000)(1) $ --
Accounts payable -- trade....... 3,522,609 -- 3,522,609
Accrued expenses, payroll taxes
and withholdings.............. 850,815 -- 850,815
Accrued income taxes............ -- -- --
Current portion of long-term debt 9,252 (9,252)(1) --
----------- ----------- -----------
Total current liabilities.... 9,682,676 (5,309,252) 4,373,424
Long-term debt.................... -- -- --
Other long-term liabilities....... 103,400 -- 103,400
Deferred taxes.................... 64,389 -- 64,389
----------- ----------- -----------
Total liabilities............ 9,850,465 (5,309,252) 4,541,213
Stockholders' equity:
Common stock.................... -- -- --
Additional paid-in capital...... 304,951 5,309,252(2) 5,614,203
Retained earnings............... 3,160,196 (279,726)(3) 2,880,470
Unearned compensation........... (279,726) 279,726(3) --
----------- ----------- -----------
Treasury common stock............. (15,000) -- (15,000)
----------- ----------- -----------
Total stockholders' equity...... 3,170,421 5,309,252 8,479,673
----------- ----------- -----------
Total liabilities and
stockholders' equity.......... $13,020,886 $ -- $13,020,886
=========== =========== ===========
- ----------
(1) Represents the repayment of the Company's indebtedness resulting from the
use of the proceeds from the Offering.
(2) Represents the estimated net proceeds from the Offering to the Company to be
used to repay the Company's indebtedness. See 'Use of Proceeds.'
(3) Represents the non-cash compensation expense related to the stock awards
granted by LLC to certain employees which vest immediately upon the
Offering. See 'Business -- Overview.'
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company and the notes thereto,
included elsewhere in this Prospectus.
OVERVIEW
The Company's past sales growth has been due, in part, to the acquisition
of four computer and office automation supply companies over the past five
years. The acquisition of DDP in May 1996 is expected to contribute to an
increase in the Company's net sales for the second half of 1996. The Company
intends to significantly increase the scope of its operations through additional
acquisitions. The Company continues to evaluate potential acquisitions and to
identify and have preliminary discussions with potential acquisition candidates,
although there are, as of the date of this Prospectus, no agreements,
arrangements or understandings between the Company and any other party relating
thereto. There can be no assurance that any acquisition can or will be
consummated on terms favorable to the Company, or at all.
Further competition in the non-impact printing supplies and projection
presentation products markets is expected to continue to have a negative effect
on the Company's gross profit percentage. While overall gross profit is expected
to increase as a result of the DDP acquisition, the Company's gross profit
percentage is expected to be lower as a result of increased competition and the
fact that DDP's profit margins are anticipated to be lower than that of the
Company's other core products.
LLC agreed to provide the three selling stockholders of DDP a stock
incentive so long as such stockholders remain employees of the Company. However,
all shares of Common Stock of the Company to be issued by LLC in connection with
this incentive will become immediately vested upon an initial public offering of
the Company's Common Stock. Accordingly, operating income will be negatively
affected by a non-cash compensation charge of $.3 million associated with such
awards at the closing of the Offering.
In the second half of 1996, the Company's interest expense is expected to
be reduced as a result of the reduction in outstanding debt from the use of the
proceeds of the Offering. However, the Company's debt levels are expected to
increase to the extent the Company borrows funds to finance future growth,
particularly through acquisitions.
RESULTS OF OPERATIONS
As an aid to understanding the Company's operations on a comparative basis,
the following table has been prepared to set forth certain statement of
operations and other data for 1993, 1994 and 1995 and for the six months ended
June 30, 1995 and June 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................................. $29,045 100.0% $35,690 100.0% $43,321 100.0%
Cost of sales.......................................... 23,308 80.2 28,250 79.2 34,642 80.0
------- ------- ------- ------- ------- -------
Gross profit......................................... 5,737 19.8 7,440 20.8 8,679 20.0
Selling, general and administrative expenses........... 5,221 18.0 6,219 17.4 7,125 16.4
------- ------- ------- ------- ------- -------
Operating income..................................... 516 1.8 1,221 3.4 1,554 3.6
Interest expense....................................... 141 .5 204 .5 274 .6
Other income........................................... 12 -- 11 -- 22 --
------- ------- ------- ------- ------- -------
Income before income taxes........................... 387 1.3 1,028 2.9 1,302 3.0
Provision for income taxes............................. 165 .5 418 1.2 509 1.2
------- ------- ------- ------- ------- -------
Net income........................................... $ 222 .8% $ 610 1.7% $ 793 1.8%
======= ======= ======= ======= ======= =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1995 1996(1)
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales......................................................... $21,735 100.0% $26,247 100.0%
Cost of sales..................................................... 17,505 80.5 21,162 80.6
------- ------- ------- -------
Gross profit.................................................... 4,230 19.5 5,085 19.4
Selling, general and administrative expenses...................... 3,530 16.3 4,033 15.4
------- ------- ------- -------
Operating income................................................ 700 3.2 1,052 4.0
Interest expense.................................................. 142 .6 142 .5
Other income...................................................... 5 -- 11 --
------- ------- ------- -------
Income before income taxes...................................... 563 2.6 921 3.5
Provision for income taxes........................................ 220 1.0 382 1.4
------- ------- ------- -------
Net income...................................................... $ 343 1.6% $ 539 2.1%
======= ======= ======= =======
</TABLE>
- ----------
(1) Includes the results of operations of DDP from the date of acquisition, May
30, 1996.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net sales. Net sales for the six months ended June 30, 1996 increased by
$4.5 million, or 20.8%, to $26.2 million from $21.7 million for the six months
ended June 30, 1995. Approximately 59.8% of this increase resulted from
increased sales to existing customers as the Company's sales force continued to
strengthen relationships with the Company's customers, while 29.9% resulted from
to the acquisition of DDP on May 30, 1996. The remainder of the increase was due
to sales of presentation products.
Gross profit. Gross profit for the six months ended June 30, 1996 increased
by $0.9 million, or 20.2%, to $5.1 million from $4.2 million for the six months
ended June 30, 1995. Gross profit as a percentage of net sales for the six
months ended June 30, 1996 was 19.4% compared to 19.5% for the six months ended
June 30, 1995. The decrease in the gross profit percentage was due primarily to
increased sales of lower margin non-impact supplies (laser and ink jet supplies)
and increased price competition for presentation products.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended June 30, 1996 increased by $0.5
million, or 14.2%, to $4.0 million from $3.5 million for the six months ended
June 30, 1995. Approximately 43.1% of the increase resulted from higher
commission expense relating to the increased sales activity. As a percentage of
net sales, selling, general and administrative expenses was 15.4% for the six
months ended June 30, 1996 compared to 16.3% for the six months ended June 30,
1995. This decrease as a percentage of sales reflects the Company's ability to
support increased sales volumes without a significant increase in its overhead
structure.
Operating income. Operating income for the six months ended June 30, 1996
increased by $0.4 million to $1.1 million from $0.7 million for the six months
ended June 30, 1995 for the reasons stated above.
Other income. Other income for the six months ended June 30, 1996 increased
by $5,628 to $11,114 from $5,486 for the six months ended June 30, 1995. This
increase was due primarily to a gain on the disposal of a fixed asset.
Interest Expense. Interest expense for the six months ended June 30, 1996
increased by $785 or .6% to $142,587 from $141,802 for the six months ended June
30, 1995.
Provision for income taxes. The provision for income taxes for the six
months ended June 30, 1996 increased $0.2 million to $0.4 million from $0.2
million for the six months ended June 30, 1995.
22
<PAGE>
The Company's effective tax rate was 41.5% for the six months ended June 30,
1996 as compared to 39.1% for the corresponding period of the prior year.
YEARS ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales. Net sales for the year ended December 31, 1995 increased by $7.6
million, or 21.4%, to $43.3 million from $35.7 million for the year ended
December 31, 1994. Of this net sales increase, 31.6% of the increase was
attributable to the Company's acquisition of Paper Rolls in June 1994, while
19.0% was attributable to increased sales of presentation products. The
remaining increase was primarily a result of increased sales penetration and
product offerings to existing customers.
Gross profit. Gross profit for the year ended December 31, 1995 increased
by $1.2 million, or 16.7%, to $8.7 million from $7.4 million for the year ended
December 31, 1994. Gross profit as a percentage of net sales for the year ended
December 31, 1995 was 20.0% compared to 20.8% for the year ended December 31,
1994. The decrease in the gross profit percentage was due primarily to increased
sales of non-impact printer supplies (laser and ink jet supplies) which have
lower gross margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1995 increased by $0.9
million, or 14.6%, to $7.1 million from $6.2 million for the year ended December
31, 1994. Approximately 37.0% of this increase was do to increased commissions
resulting from the Company's increased sales volume while approximately 14.3%
was due to increased salary and profit sharing expenses. As a percentage of net
sales, selling, general and administrative expenses was 16.4% for the year ended
December 31, 1995 compared to 17.4% for the year ended December 31, 1994. This
decrease as a percentage of sales reflects the Company's ability to support
increased sales volumes without a significant increase in its overhead
structure.
Operating income. Operating income for the year ended December 31, 1995
increased by $0.3 million to $1.6 million from $1.2 million for the year ended
December 31, 1994 for the reasons stated above.
Other income. Other income for the year ended December 31, 1995 increased
to $21,722 from $10,767 in 1994. This increase was due primarily to interest
income.
Interest expense. Interest expense for the year ended December 31, 1995
increased by $0.1 million, or 34.3%, to $0.3 million from $0.2 million for the
year ended December 31, 1994. This increase was due primarily to an increase in
the interest rate associated with the Company's short-term line of credit and to
a lesser extent an increase in amounts outstanding under the line of credit.
Provision for income taxes. The provision for income taxes for the year
ended December 31, 1995 increased $0.1 million to $0.5 million from $0.4 million
for the year ended December 31, 1994. The Company's effective tax rate was 39.1%
for the year ended December 31, 1995 compared to 40.7% for the year ended
December 31, 1994.
YEARS ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales. Net sales for the year ended December 31, 1994 increased by $6.6
million, or 22.9%, to $35.7 million from $29.0 million for the year ended
December 31, 1993. Of this net sales increase, $1.6 million or 24.2% of this
increase was attributable to the acquisition of Paper Rolls and Computer
Supplies, Inc. ('Paper Rolls') in June 1994 and $1.1 million or 16.7% of this
increase was related to the acquisition of Datron Computer Products, Inc.,
Rochester, New York ('Datron') in May 1993. The remaining increase was related
primarily to increased sales to the Company's current customer base for both
existing products and new product offerings.
Gross profit. Gross profit for the year ended December 31, 1994 increased
by $1.7 million, or 29.7%, to $7.4 million from $5.7 million for the year ended
December 31, 1993. Gross profit as a percentage of net sales for the year ended
December 31, 1994 was 20.8% compared to 19.8% for the
23
<PAGE>
year ended December 31, 1993. The increase in gross profit was attributable
primarily to the acquisitions of Paper Rolls and Datron and the additional
products that the Company was able to offer, as well as an increase in the sale
of presentation products.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1994 increased by $1.0
million, or 19.1%, to $6.2 million from $5.2 million for the year ended December
31, 1993. Approximately 88.0% of this increase was due to increased sales
commissions and higher salaries related to the increased number of employees
resulting from the acquisition of Paper Rolls and Datron. As a percentage of net
sales, selling, general and administrative expenses were 17.4% for the year
ended December 31, 1994 compared to 18.0% for the year ended December 31, 1993.
This decrease as a percentage of net sales was due primarily to improvements
made to the Company's information systems which allowed the Company to support
its increased sales activity with existing staffing levels.
Operating income. Operating income for the year ended December 31, 1994
increased by $0.7 million to $1.2 million from $0.5 million for the year ended
December 31, 1993.
Other income. Other income for the year ended December 31, 1994 decreased
$973 or 8.3% to $10,767 from $11,740 for the year ended December 31, 1993.
Interest expense. Interest expense for the year ended December 31, 1995
increased 44.7% to $0.2 million from $0.1 million in 1993. The increase was
attributable primarily to increased amounts outstanding under the Company's
short-term line of credit and to a lesser extent to an increase in the related
interest rate.
Provision for income taxes. Income tax expense for the year ended December
31, 1994 increased $0.3 million to $0.4 million from $0.2 million for the year
ended December 31, 1993. The Company's effective tax rate was 40.7% for the year
ended December 31, 1994 compared to 42.6% for the year ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended June 30,
1996 was $0.2 million and was primarily due to an increase in accounts
receivable, partially offset by a decrease in inventories and an increase in
accounts payable excluding the effects of the DDP acquisition.
Net cash used in operating activities for the year ended December 31, 1995
was $0.1 million compared to cash provided by operating activities for the year
ended December 31, 1994 of $0.7 million. The net cash used in operating
activities for the year ended December 31, 1995 resulted primarily from an
increase in inventories of $0.6 million and accounts receivable of $0.1 million
as a result of increased working capital requirements resulting from increased
sales activity. Additionally, a decrease of $0.4 million in accounts payable was
due primarily to greater utilization of favorable discounts provided by the
Company's vendors. The net cash provided by operating activities for the year
ended December 31, 1994 resulted primarily from an increase of $0.1 million in
accounts payable, offset by an increase of $0.1 million in accounts receivable
and of $0.7 million in inventories due to increased sales activity. The use of
cash in operating activities for the year ended December 31, 1993 resulted from
an increase of $0.5 million in accounts receivable and a decrease of $0.3
million in accounts payable.
Cash provided by investing activities for the six months ended June 30,
1996 was $.04 million due primarily to cash obtained in connection with the
acquisition of DDP. Cash used in investing activities for the years ended
December 31, 1993, 1994 and 1995 was $0.3 million, $0.7 million and $0.4
million, respectively. The use of cash for the years December 31, 1993 and 1994
was due primarily to the acquisition of Datron and Paper Rolls, respectively.
The use of cash for the year ended December 31, 1995 was due to capital
expenditures and investments in officer life insurance policies.
Cash provided by financing activities for the six months ended June 30,
1996 was $0.2 million and was $0.7 million, $0.1 million and $0.4 million for
the years ended December 31, 1993, 1994 and
24
<PAGE>
1995, respectively. Cash provided by financing activities for such periods
resulted primarily from borrowings under the Company's line of credit.
For fiscal 1996, the Company expects capital expenditures of approximately
$0.3 million (comprised of approximately $0.1 million to be used for upgrading
and enhancing the Company's MIS and approximately $0.2 million for maintenance
capital items). Actual capital expenditures for fiscal 1996 may be greater than
budgeted amounts depending on the level of acquisition activity and other
factors.
The Company believes that its cash on hand, borrowing capacity under the
Credit Facility, capital resources, cash flows and the proceeds from the
Offering will be sufficient to fund its ongoing operations and budgeted capital
expenditures for the remainder of 1996 and 1997, although actual capital needs
may change, particularly in connection with acquisitions which the Company may
make in the future. The Company's long-term requirements including capital
expenditures and acquisitions, are expected to be financed by a combination of
internally generated funds, additional borrowings and other sources of external
financing as needed.
CREDIT FACILITY
In September 1996, the Company increased its line of credit with the Bank
from $6.5 million to $15.0 million in order to facilitate the planned expansion
of the Company's business activities, including acquisitions. The Credit
Facility matures on September 11, 1998.
The amount of the Credit Facility that will be available to the Company may
not exceed the lesser of $15.0 million or an amount equal to the sum of: (i)
85.0% of the net book value of all eligible receivables (i.e., those receivables
less than 90 days old, except that all receivables from any particular customer
will be ineligible if more than 15.0% of the total due from such customer are
aged 90 days or more) plus (ii) an amount equal to the lesser of either 50.0% of
the then value of all inventory, not to exceed 45.0% of the aggregate unpaid
principal balance less the amount secured by inventory acquired by the Company
from Hewlett-Packard and not yet paid for, or if advances are made against
foreign account receivables, not to exceed $2.0 million (the 'Borrowing Base').
The Borrowing Base may be changed by the Bank, in its sole discretion, from
time to time. Borrowings under the Credit Facility bear interest, at the
Company's option, (i) on amounts in excess of $500,000, at the applicable London
Interbank Offered Rate ('LIBOR') per annum determined by the Bank plus 2.0%,
adjustable at the end of each contract period (one, two, three, four or six
months), as defined in the Credit Facility, or (ii) at the Bank's applicable
prime rate (as defined in the Credit Facility). Interest on the Credit Facility
is payable in arrears on the last day of each month and at maturity, except that
interest on loans bearing interest utilizing the LIBOR option is payable on the
last day of the contract period and at maturity, unless the contract period is
longer than 90 days in which case interest is payable every three months.
The Company's ability to utilize the LIBOR option is subject to certain
conditions set forth in the Credit Facility, including the condition that the
LIBOR option must adequately compensate the Bank for making such loan. If the
interest option selected by the Company is deemed ineffective by the Bank, the
Company will be required to pay the Bank interest at the prime rate until an
effective LIBOR election is made. Amounts under the Credit Facility are
available for borrowings and stand-by letters of credit to finance the Company's
working capital requirements and acquisitions. The Company believes that the
amount currently available for borrowing by the Company is $10.2 million, which
the Company believes to be sufficient to fund its current operations. Under the
terms of the Credit Facility, the Company must pay the Bank a quarterly
commitment fee of .25% of the daily difference between $15.0 million and the
aggregate unpaid principal outstanding balance under the Credit Facility.
The principal amount of the Credit Facility may be prepaid without premium
or penalty unless the amount prepaid is subject to the LIBOR option, in which
event the Company would be obligated to pay to the Bank accrued interest, if
any, and a premium based on the principal amount paid and computed for the
period from the date of the last day of the contract period for the amount
subject to the LIBOR
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option at a rate equal to the excess, if any, of the LIBOR rate over the bond
equivalent yield for U.S. Treasury debt securities for a term similar to the
contract period. Moreover, if, in the Bank's opinion, any event has occurred
which increases the cost of funding or maintaining the LIBOR option or reduces
the amount of any payment to be made to the Bank in respect thereof, the Company
will be obligated to pay to the Bank an amount equal to such cost increase or
reduced payment, as the case may be, and the Company must also pay to the Bank
any amount which reduces the Bank's rate of return and requires the Bank to
increase its capital.
The indebtedness under the Credit Facility is secured by substantially all
of the assets of the Company, including accounts receivable, equipment and
inventory. In addition, the Credit Facility requires that the Company maintain a
tangible net worth of $2.7 million until December 31, 1996, increasing to $3.2
million and thereafter increasing by an amount equal to 50.0% of the Company's
net income annually thereafter, maintain a debt to tangible net worth ratio of
450.0% and annual pre-tax interest coverage (net income plus interest expense
plus income tax) of 150.0% or more of the Company's annual interest expense. The
Company was, at June 30, 1996, and is as of the date hereof, in compliance with
these financial covenants.
Events of default under the Credit Facility include, among other things,
the failure to pay interest and/or principal when due, the failure of the
representations or warranties of the Company to be true and correct, the failure
or repudiation of the performance of the Credit Facility by the Company, any
default of the Company on any other indebtedness where such creditor has the
right to accelerate the maturity of such indebtedness, the entry of any judgment
against the Company, the failure of the Company to provide information to the
Bank, the use of the proceeds of the Credit Facility for any purpose not in the
ordinary course of the Company's business or the occurrence of any event which,
in the Bank's judgment, is likely to have a material adverse effect on the
financial condition, properties or business operations of the Company, or if the
Bank believes that the prospect of payment or the performance of any obligation
evidenced by the Credit Facility is impaired. The occurrence of an event of
default will give the Bank the right to immediately terminate the Credit
Facility and declare any indebtedness outstanding thereunder immediately due and
payable.
The Credit Facility further states that it will be an event of default if
the Company, without first providing to the Bank prior written notice: (i) uses
advances under the Credit Facility to acquire less than a majority interest in
any company or venture; (ii) becomes a party to any merger or consolidation,
purchases all of the assets or business of any corporation or business
enterprise, creates or acquires any subsidiary or makes any investment in any
stock or other equity securities of any kind; or (iii) becomes a party to any
joint venture or partnership, sells or transfers any equity interest in any
subsidiary, or issues any equity interest. Moreover, the Company may not, except
in connection with certain acquisition transactions, without the Bank's prior
consent, make loans or advances to others or borrow any money unless it is
subordinated to borrowings under the Credit Facility, or become a guarantor of
any kind.
INFLATION
Certain of the Company's product offerings, particularly paper products,
have been and are expected to continue to be subject to significant price
fluctuations due to inflationary and other market conditions. The Company is
generally able to pass such increased costs on to its customers through price
increases, although the Company may not be able to adjust its prices
immediately. In general, the Company does not believe that inflation has had a
material effect on its results of operations in recent years, and the Company
believes that technological advances have caused its prices on certain products
to decrease.
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INVENTORY MANAGEMENT
The Company manages its inventory by maintaining sufficient quantities of
the most frequently ordered products to achieve high order fill rates while at
the same time attempting to maximize inventory turnover rates. The Company does
not maintain any inventory of certain items, which items, when ordered from the
Company are drop-shipped (i.e., shipped from the manufacturer's loading dock)
directly to the Company's customers. While the Company sells more than 12,900
stock keeping units ('SKUs') or items of merchandise, approximately 1,800 SKUs
account for approximately 70.0% of the Company's revenues. Consequently, the
Company is continually attempting to identify slow moving inventory by use of
its computer software applications and delete those SKUs whenever possible in
order to maximize inventory turns. Inventory balances will fluctuate as the
Company adds new product lines, when it makes large purchases from suppliers to
take advantage of attractive terms and when certain inventory items are deleted.
Inventory turnover on an annual basis has declined from 14.7 times for the year
ended December 31, 1994 to 12.2 times for the six months ended June 30, 1996.
This decrease reflects the Company's purchases during such periods in larger
quantities in order to take advantage of volume purchasing pricing structures
from its vendors. The Company's purchasing decisions are made from time to time
based upon prices offered by its vendors.
The Company permits its customers to return defective products (most of
which are then returned by the Company to the manufacturer) and incorrect
shipments for credit against other purchases. During the last three years and
for the six months ended June 30, 1996, the Company's net expense for returns of
the Company's consumable supply products has not been material. To reduce the
risk of loss to the Company due to manufacturer price reductions and slow moving
or obsolete inventory, the Company's agreements with certain manufacturers,
including most of its major suppliers, contain provisions which permit 'stock
balancing' (the return of certain products) and price protection, subject to
certain restrictions, pursuant to which the Company obtains credit against
future purchases if the inventory is not sold or if the manufacturer lowers
prices on previously purchased inventory. See 'Business -- Suppliers.'
RECENT ACCOUNTING CHANGES
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('SFAS No. 123'). SFAS No. 123 established standards for
accounting for stock-based compensation but also allows companies to continue to
account for stock-based compensation under the provisions of Accounting
Principles Board ('APB') Opinion No. 25 'Accounting for Stock Issued to
Employees' and make certain additional disclosures in the notes to their
financial statements. The new standard is effective for fiscal years beginning
after December 15, 1995. It is the Company's intention to continue to account
for stock-based compensation in accordance with APB Opinion No. 25 and provide
the additional required disclosure in the notes to the consolidated financial
statements.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.' ('SFAS No. 121')
This standard requires that long-lived assets and certain intangibles be
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the aggregate
estimated future cash flows to be derived from an asset are less than its
carrying amount, an impairment must be recognized. SFAS No. 121 is effective for
fiscal years beginning after December 15, 1995. The adoption of SFAS No. 121 by
the Company did not have any effect on the Company's financial position, results
of operations or cash flows.
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BUSINESS
OVERVIEW
The Company is a distributor of computer and office automation supplies and
accessories, including a line of computer projection presentation products,
principally in the midwest and northeast regions of the United States and in
certain foreign countries. The Company distributes over 1,800 different core
products to middle market and smaller companies and to governmental, educational
and institutional end-user customers, including federal, state and local
governmental agencies, universities and hospitals and, to a lesser extent, to
computer supply dealers. An end-user is the final customer in the chain of
distribution who will utilize the product sold by the Company.
The Company's growth in sales is due primarily to the acquisition of four
computer and office automation supply companies over the past five years as well
as the high level of customer satisfaction which the Company attributes to the
following factors: personal service using a highly knowledgeable and motivated
sales force; fulfillment of customer orders on an overnight basis; use of the
most economic and expeditious shipping routes; and automated procedures for
inventory control, order picking and billing which are supported by the
Company's proprietary computer software applications. The Company plans to
continue to focus on achieving a high level of customer satisfaction and intends
to emphasize the acquisition of other computer and office automation supply
companies to increase its sales growth and expand its presence in other markets.
The Company believes that it has a lower selling and administrative expense
structure due to its ability to sell without the use of retail locations and its
ability to limit its products line solely to computer supplies. The Company
believes that its lower selling and expense structure afford it a competitive
advantage over traditional contract stationers and large office suppliers. Based
upon annual revenues, management believes that the Company is the largest
independent end-user computer and office automation supply distributor in the
country.
The Company sells primarily nationally known, name-branded products
manufactured by approximately 500 original equipment manufacturers, including
Hewlett-Packard, Lexmark and Imation for computer supplies and by Proxima, Epson
and LightWare for projection presentation products. The Company's products
include consumable supplies such as laser toner, copier toner, facsimile machine
supplies, ink jet cartridges, printer ribbons, diskettes, computer tape
cartridges and accessories, including cleaning kits and media storage files, and
computer projection presentation hardware which permits the large-scale, high
resolution projection of computer generated slides for presentation at meetings,
seminars, lectures and other similar multiple person gatherings. The Company's
products are used in, or in conjunction with, a broad range of computer and
office automation products such as mainframe, mini, personal, laptop and
notebook computers, laser and ink jet printers, photocopiers, fax machines and
data storage products.
The Company's customers place orders directly with one of the Company's
sales representatives, by telephone, facsimile or by EDI, utilizing the
Company's customized facsimile order forms or its comprehensive catalog. Very
Important Customers ('VICs') are given priority treatment by the Company.
The Company operates one centralized distribution center in Dayton, Ohio
and four smaller regional distribution centers in Rochester, New York,
Louisville, Kentucky, Ann Arbor, Michigan and Leeds, England. Each of the
Company's other 15 sales offices also maintain a limited inventory of frequently
ordered products in order to facilitate same day delivery. Most of the Company's
U.S. shipments are shipped via either United Parcel Service ('UPS') or Roadway
Package System ('RPS'), both of which provide a discounted rate to the Company
which enables the Company to offer to its customers next business day or second
business day delivery. The Company charges its customers delivery rates based on
the customer's purchase and on competition on a local and national level.
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The Company was incorporated in September 1980 and commenced business
operations in March 1981. The Company was founded by Thomas C. Winstel and
Richard A. Newkold, both of whom were previously employed as computer supply
salesmen with another company. Net sales in 1981 were $187,000. By 1987, annual
sales had reached approximately $3.5 million and the Company hired Albert L.
Schwarz to provide the Company with professional executive guidance. The
Company's first acquisition was an asset purchase in 1991. In April 1993, the
Company acquired for cash 100.0% of the outstanding shares of Datron. At that
time, Datron's annual net sales were approximately $2.5 million. In June 1994,
the Company acquired for cash the assets and assumed certain liabilities of
Paper Rolls. At that time, Paper Rolls' annual net sales were approximately $3.2
million. For continuity and local name recognition purposes, each of Datron and
Paper Rolls is represented to the public to be a 'division' of the Company,
although there are no internal consequences of such nomenclature. In both
acquisitions, the Company was able to retain existing senior management by
entering into non-competition and employment agreements, although in the Datron
acquisition, the chief executive officer and sole stockholder of Datron did not
remain. In May 1996, the Company acquired DDP, a computer and office automation
supply company, which purchases and sells products in the domestic and
international wholesale marketplace. The Company intends to implement an
aggressive acquisition program after the Offering. See '-- Business Strategy --
Acquisition Strategy.'
Prior to May 30, 1996, the Company was closely held by ten stockholders,
including Messrs. Albert L. Schwarz, Thomas C. Winstel, Richard A. Newkold,
Roger E. Turvy, and John C. Huffman, III, all of whom are officers of the
Company, and by five other individuals, four of whom were employees of the
Company and one of whom was the Company's corporate counsel. On April 25, 1996,
the Company, the above-named officers and the corporate counsel entered into a
Stock Purchase Agreement (the 'Agreement') with LLC to sell 70.0% of the
Company's issued and outstanding common stock to LLC for $8.0 million,
consisting of cash in the amount of $4.0 million to be paid at the closing of
the Agreement and two year, 8.0% senior promissory notes of LLC (the 'LLC
Notes') aggregating $4.0 million, secured by the common stock of the Company.
The LLC Notes provide that they will become immediately due and payable on the
date that the Company consummates an initial public offering of its Common
Stock. The Agreement was closed on May 30, 1996, and, at that time, three
nominees of LLC became members the Board of Directors of the Company.
LLC is a Maryland limited liability company whose members include Anthony
W. Liberati, the Manager -- President and Chief Executive Officer of LLC and the
Chairman of the Board of the Company, Robert G. Hecht, Vice Chairman of the
Board and a director of the Company, Harry F. Radcliffe, the Manager --
Secretary of LLC and a director of the Company, Michael E. Peppel, the Manager
- -- Treasurer of LLC, the Chief Financial Officer of the Company and a former
stockholder and officer of DDP, the FBR Private Equity Fund, L.P., an affiliate
of the Underwriter, and the EMTH Partner Investment Fund I, a general
partnership composed of certain members of the Company's special counsel.
On May 20, 1996, LLC executed a Stock Purchase Agreement (the 'DDP
Agreement') with DDP and its three stockholders, Messrs. Joseph R. Hollenshead,
III, David J. White and Peppel (who also were the directors and executive
officers of DDP) to acquire 100.0% of the issued and outstanding shares of DDP
common stock. The DDP Agreement provided that LLC would acquire the business of
DDP and that at the time of such acquisition the assets of DDP would be equal to
its liabilities. In consideration therefor, LLC agreed to loan to each of
Messrs. Hollenshead and White $125,000 for a term of one year with interest at
5.0%, the principal and interest to be due at maturity. Pursuant to the DDP
Agreement, if DDP generates pre-tax income of $250,000 during the year ended
December 31, 1996, LLC will cancel such loans.
It was the intent of LLC to combine the businesses of DDP and the Company.
Accordingly, LLC provided the DDP stockholders an opportunity to invest in LLC
on the same terms as other LLC investors and negotiated with the management of
the Company to hire the officers of DDP as officers of the Company. In addition,
LLC agreed to provide the three officers of DDP with a stock incentive in the
Company so long as such officers remain employees of the Company (or of DDP, as
a subsidiary
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of the Company, as applicable), for the years ended December 31, 1996, 1997 and
1998. Under the DDP Agreement, LLC agreed to transfer to each of the officers of
DDP 4,180 shares of Common Stock of the Company at December 31, 1996, 6,855
shares of Common Stock at December 31, 1997, and 5,685 shares of Common Stock to
each of Messrs. Hollenshead and White, and 14,045 shares of Common Stock to Mr.
Peppel, at December 31, 1998. Upon the consummation of this Offering, all of
such shares will become immediately vested in such individuals. The DDP
Agreement was also consummated on May 30, 1996. On that date, LLC contributed
100.0% of the common stock of DDP to the Company, resulting in DDP becoming a
wholly owned subsidiary of the Company.
THE COMPUTER SUPPLY INDUSTRY
The Company estimates that the U.S. computer and office automation supply
market totaled approximately $25.1 billion (at retail) in 1995 and that the U.S.
market for projection presentation products totaled approximately $3.0 billion
in 1995. Industry sources indicate that the U.S. market for computer and office
automation supplies will grow at a compound annual rate of approximately 6.8%
over the next three years. The Company believes that the current size of the
industry and its potential for future growth can be attributed to: (i) the
increasing automation of the workplace as evidenced by the widespread use of
personal computers ('PCs'), printers and computer network systems, (ii) the
decline in unit prices of computer hardware and peripherals, making them more
affordable to small and medium sized business and individuals, and (iii) the
growth in business presentation and graphic software, which results in more
frequent and repeated use of printers, which typically require a greater amount
of consumable products, and in the use of projection presentation hardware.
The Company believes that advances in printing technologies will further
increase the demand for consumable computer supplies. Printer manufacturers have
lowered the prices of their printers in order to establish a large installed
base. Such companies have come to view the sale of the printer as the
commencement of a relationship with the customer who typically must spend, over
the life of the printer, twice as much on consumable goods as the cost of the
printer itself. Further, color printing, which is expected to grow by
approximately 27.0% per year over the next five years, will further drive the
consumption of supplies. The page coverage or amount of ink used on a
traditional black and white printed page of text is approximately 5.0% of the
page. In contrast, color printing typically covers at least 40.0% of the page,
using significantly more color toner or ink jet supplies which are approximately
25.0% more expensive than black toner or inkjet cartridges.
Industry sources estimate that the market for projection presentation
products was approximately $3.0 billion in 1995 and was growing at a rate of
approximately 30.0% per year. While advances in technology continue to exert
downward pricing pressure on the manufacturers who compete in this market, the
projection presentation products are priced at retail in the range of $2,000 to
$8,000 and currently provide for gross margins higher than other products sold
by the Company.
The Company believes that the role of distributors in the computer and
office automation supply industry has increased in importance in recent years as
an increasing number of end-users find that their need for computer supplies
have increased dramatically and the number of products to choose from and issues
of compatibility of products have proliferated. The Company is able to serve
such users by maintaining a knowledgeable and skilled direct and telephone
marketing sales force and by maintaining the capability of filling most orders
on the same or next business day with delivery on the next business day.
THE COMPANY'S MARKET
The Company believes that its primary market consists of small and medium
size businesses and, to a lesser extent, large businesses, governments and
institutions. The small business segment consists of small businesses having 20
or fewer white-collar employees which has traditionally been served by small
independent retailers located in close proximity to these customers and who
generally sell at the manufacturer's suggested list prices. More recently, this
segment has been targeted by the retail office products superstores and direct
mail order companies, seeking to increase market share by offering
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lower prices and a wider product selection. The medium size business segment of
this market consists of a broad range of business and other office automation
product users having 20 to 100 white collar employees. This segment has been
historically serviced by traditional contract stationers and full-service office
products distributors, and to a lesser extent by small local retailers and
direct mail order companies. The Company believes that such companies do not
provide all of the services that these small and medium size businesses need or
desire, such as customized account histories which can tell customers about
their order histories, customized billing and customized packing and shipping to
achieve the most economical and efficient mode of transport and processing
prioritization for the Company's VICs, all of which are offered by the Company.
See '-- Products' and '-- Management Information Systems.'
The large business segment of the market consists of businesses,
governments and institutions having more than 100 white-collar employees which
have historically been served primarily by traditional contract stationers and
full service office products distributors. These customers, many of which
operate at multiple locations, seek competitively priced products, a high level
of value-added service including next day delivery and account relationship
management, credit terms and other information services. Although many of these
organizations have a centralized purchasing function for office and computer
supplies, the Company has found through experience, that such function does not
always serve all departments of these organizations and that certain purchasing
authority has become decentralized. As a result, the Company's sales force
attempts to visit the central purchasing manager as well as the computer network
manager at the subject organization, the PC coordinator, the facilities manager
and the office manager at the subject organization, each of whom may have
different computer supply needs and may have a budget to fulfill such needs.
The Company operates in all business segments of the computer and office
automation supply distribution industry, which the Company believes will
generate approximately $26.8 billion in total U.S. annual sales in 1996.
Historically, the corporate computer supply and office automation distribution
segment has been populated by numerous contract stationers and computer supply
companies, most of which operate in only one metropolitan area and have annual
sales of less than $15.0 million. However, as the computer and office automation
supply distribution industry continues to rapidly consolidate, in large measure
as a result of the consolidation of the office products industry, the Company
believes that many smaller companies will be unable to effectively compete and
will stagnate, be acquired by larger companies or will be closed. Based upon
annual revenues, the Company believes that it is the largest independent
computer and office automation supply company in the United States. See '--
Competition.'
Unlike the computer hardware or office equipment industry, the Company
believes that the computer and office automation supply industry is not
generally subject to the risk of rapid technological advances and subsequent
product obsolescence. In general, the demand for computer supplies is not
dependent on the level or type of computer hardware or office equipment sales in
any particular year, but rather reflects the amount and type of equipment
already in use (the 'installed base'). As a result, the consumable needs for any
particular computer or office equipment will often continue for an extended
period of time, even after the manufacture of such computer or office equipment
is discontinued. For example, the Company expects that sales of all-in-one toner
cartridges for the Hewlett-Packard Series II laser printer engine are projected
to continue through 1997 even though this particular laser printer engine was
discontinued by the manufacturer in late 1992. Nevertheless, the Company
attempts to insulate itself from the risk of technological obsolescence faced by
manufacturers by: (i) distributing a wide range of brand-name products so that
the Company is not dependent upon the success of any particular computer or
office equipment manufacturer, (ii) carrying primarily consumable supplies for
computer or office equipment which the Company believes has a substantial
installed base, and (iii) entering into agreements with major suppliers under
which the Company can return slow-moving inventory.
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BUSINESS STRATEGY
The Company believes that its growth has been primarily attributable to the
Company's acquisition strategy as well as the efforts of its highly trained and
highly motivated direct sales force which engages, on a daily basis, in
face-to-face sales calls with the Company's customers, and to a lesser extent,
in telephone direct marketing. Using the Company's sophisticated, on-line data
base, the Company's salespeople are able to access their customer's sales
history (which includes quantity, price and margin information) and provide the
customer with individualized price and quantity quotations at the time of the
call. This system allows the salesperson maximum flexibility when responding to
customer inquiries and concerns, especially those relating to pricing and
delivery. The Company believes that this ability to be immediately responsive to
the customer's needs provides the Company with a competitive advantage. The
Company also attributes its growth to its wide selection of popular products at
competitive prices, its precise, double-checked picking and packing ability,
same day order processing and shipment, same or next business day delivery and
the quality and breadth of its value-added customer services, such as its VIC
priority treatment, customized billing, customer-dedicated account
representatives, and automated order tracking.
The Company business strategy seeks to build on its strengths as a sales
and service oriented business to increase its market share and achieve continued
sales and earnings growth. In particular, the Company intends to implement its
strategy by: (i) expanding the scope of its operations, primarily through
strategic acquisitions of computer and office automation supply distribution
companies in metropolitan markets in the United States and overseas; (ii)
increasing its revenues from its existing and new customer base; and (iii)
decreasing its expenses by utilizing technology to enhance the efficiency of its
operations.
Acquisition Strategy. Since 1991, the Company has acquired three operating
computer and office automation supply companies and the assets of a fourth such
business. In August 1991, the Company purchased for $125,000 the inventory of
Datawares Computer and Word Processing Supplies, Inc., Pittsburgh, Pennsylvania
('Datawares') from Datawares' lender. In that transaction, the Company acquired
Datawares' right to distribute products for Hewlett-Packard and obtained
Westinghouse Electric Corporation as a customer. On May 1, 1993, the Company
purchased the stock of Datron for cash in the amount of $133,917 and assumed
liabilities of $394,268 plus payments totaling $512,400 over a five year period
ending on May 1, 1999 for an agreement with the former owner not to compete. If
the Datron gross margin exceeds $931,636 on an annual basis through June 15,
1999, the Company is obligated to make additional annual payments equal to 11.0%
of such excess, not to exceed $17,520 in any one year. No additional payments
were made in 1994 or 1995. In addition, the Company entered into a one year
employment agreement with Datron's sole stockholder for a salary of $121,000.
Datron's revenues for the 12 months ended April 30, 1993 were approximately $2.7
million. The Company purchased the assets of Paper Rolls on July 1, 1994 for
cash of $505,986 and agreed to pay $72,000 over a four year period beginning
July 1, 1994 for agreements with the former owners not to compete and for
goodwill. In addition, the Company entered into four year employment agreements
with the owners of Paper Roll, including, John Schwarz, Jr. and Robert Schwarz,
requiring annual payments, beginning July 1, 1994, of $112,000. Revenues for
Paper Rolls for the twelve months ended June 30, 1994 totaled approximately $3.3
million. In May 1996, LLC acquired DDP from its stockholders and contributed
100.0% of the stock of DDP to the Company. The Company received assets of DDP
totaling $2.7 million and assumed liabilities of DDP totaling $2.7 million.
Revenues for DDP for the 12 months ended May 30, 1996 were $12.6 million. See
'Certain Transactions -- Related Party Transactions -- Other Transactions.'
The Company intends to implement an aggressive acquisition strategy of
entering new markets domestically and internationally on an opportunistic basis
and to acquire end-user computer supply and office automation supply companies.
The typical target company profile for the Company's acquisition strategy is a
computer and office automation supply distributor with a large middle-market
corporate end-user business in a major metropolitan area with sales of between
$5.0 to $50.0 million. Such companies are attractive acquisition candidates
because: (i) the Company believes that such companies have limited growth
potential at their current revenue size in such markets; (ii) of the Company's
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knowledge of, and existing personal or business relationships with, many of the
potential acquisition targets; (iii) the Company's strategy differs
significantly from the strategy of the large office products consolidators in
that the Company does not plan major employee terminations upon acquisition but
expects to maintain the target company's sales force while integrating the
acquired company's operating and financial systems; (iv) of the Company's
ability to provide such target company's sales force with expanded product lines
to increase their commission income due to the Company's in-house technical
support, broad supplier relationships and the breadth of its product line; (v)
of the Company's intention to utilize the target company's niche markets and
expertise in areas not focused on by the Company to cross-sell to existing
customers; and (vi) of the Company's management style which provides its sales
representatives with significant autonomy. The Company believes that it is
currently the only company focusing strictly on acquiring end-user computer
supply and office automation distribution companies.
The Company intends to utilize its Common Stock to fund acquisitions
because it believes that such shares will be valued by the market to reflect the
Company's sales and earnings growth potential, the use of Common Stock is
tax-advantaged to the seller because no income tax is due until such shares are
sold and the public market should provide sellers with sufficient liquidity for
their personal and estate planning purposes. As soon as practical after the
closing of this Offering, the Company intends to register up to 6,000,000 shares
of its Common Stock under the Securities Act for use by the Company in
connection with future acquisitions. These shares will generally be freely
tradeable after their issuance, unless the sale thereof is contractually
restricted. The Company may also use cash for some or all of the purchase
consideration. Such cash will be borrowed by the Company under the Credit
Facility, or, to a lesser extent, generated from operations. See 'Risk Factors
Financing for Acquisitions; Additional Dilution,' '-- Financing for
Acquisitions; Leverage' and '-- Possible Need for Additional Financing to
Implement Acquisition Strategy' for additional information relating to the
considerations concerning the financing of such acquisitions.
Revenue Strategy. Another element of the Company's strategy to increase
sales revenues is the initiation of relationships with new customers. This
strategy involves the expansion of the Company's direct sales force through the
acquisition of businesses in different markets and by providing greater
training, support and sales leads to its existing sales force to permit them to
work more efficiently and obtain new customers. Sales growth will also depend
upon the Company having its sales force emphasize vertical marketing,
cross-selling and add-on sales in order to increase its current average order
size. This will be accomplished by learning more about the customer's needs and
purchase habits and making such information available to the sales force at the
time of the sales call through the Company's information management system. The
Company will also emphasize the sales of the higher margin, state-of-the-art LCD
projection presentation products, which have transformed the art of presentation
graphics from transparencies and 35mm slides to highly complex, multi-colored
computer generated presentations. The Company typically does not sell such
products at the lowest price, but offers substantial post-sale technical support
to its customers, free of charge. Such support includes, for the LCD projection
presentation products, set-up and personal operating instruction demonstrations,
telephone technical support and the maintenance of an inventory of hard to find
but commonly needed parts, such as cables and bulbs. The Company believes that
its post-sale service distinguishes it from its competitors who market such
products as commodities and fail to assist the customer if complications arise
after the sale.
The Company further intends to continue to emphasize cost savings by
strengthening its relationship with manufacturers by increasing sales of such
manufacturer's products, which is expected to result in better discounts and
rebates and more cooperative advertising support and purchasing computer
supplies from foreign and domestic sources when the price offered makes it
attractive to do so. Prices on products carried by the Company may vary from
market to market based on the supply and demand for such products on a global
basis. Management of the Company has been able to take advantage of temporary
over-supply situations in one market by purchasing inventory at what might be
considered 'below market' prices in another country. The Company utilizes these
market inefficiencies in order to increase its operating income.
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Technology Strategy. The Company also intends to improve its operating
efficiencies, cost control and profit margin monitoring through continuous
enhancements to its customized computer system which provides a link between
management, the sales force and the warehouses. The Company's current MIS and
telephone system have significant upgrade and growth potential. It has been the
Company's practice to increase MIS and telecommunication capacity as the
Company's sales increase. In 1995, the Company invested $206,000 in hardware (a
portion of which was financed by the vendor) in order to upgrade the MIS and
telecommunications systems in contemplation of the Company's expansion plans.
The upgrade was designed to enhance the Company's ability to improve efficiency,
monitor its operations, manage its inventory and offer faster and increased
levels of service to its customers. This emphasis on technology has contributed
to a decline in selling, general and administrative expense as a percentage of
net sales from 19.0% in 1991 to 16.4% in 1995 and 15.4% for the six months ended
June 30, 1996.
The Company utilizes its MIS and distribution efficiency to identify its
VICs. The Company awards a VIC designation to customers who purchase $40,000 or
more product in any year. If a VIC calls the Company to ask a question or to
order products, that customer is directed to a customer service representative
who can immediately obtain on the representative's computer screen the
customer's past purchase history with the Company. If the customer desires to
order a product, the customer service representative has computer access to
information on, among other things, all prior purchases made by that customer
and the items and quantities ordered and prices paid, the customer's payment
history, and special billing or delivery instructions. If the item desired is
not in stock, the representative's computer screen will display a list of other
products which may be substituted for the specific out-of-stock item. Once the
order is taken, the computer will display complementary items which the customer
may need or which the customer has forgotten about or may want to acquire in
addition to the ordered product. All VICs are given priority service by the
Company whereby the order is processed in accordance with the specific
instructions of the customer as to billing, packaging and shipping and before
non-VIC orders are processed.
PRODUCTS
The Company distributes an aggregate of over 12,940 different computer and
office automation supplies and related products and regularly updates its
product line to reflect advances in technology and to avoid product
obsolescence. The Company's major product categories can generally be classified
as follows:
Non-Impact Printer Supplies. Non-impact printer supplies include
toner cartridges, ink jet cartridges, optical photo conductor kits, copier
supplies and fax supplies. Non-impact printers, such as laser printers,
copiers and fax machines, are rapidly growing in popularity and have a wide
range of applications. Sales of non-impact printer supplies accounted for
approximately 35.1% of the Company's total net sales in 1995 and 32.1% of
the Company's total net sales for the six months ended June 30, 1996. The
Company also sells specialized all-in-one toner cartridges for laser
printers produced by manufacturers such as Hewlett-Packard and Lexmark.
Impact Printer Supplies. Impact printer supplies include printwheels,
ribbons, elements, fonts and other consumable supplies used in impact
printers ranging from electronic typewriters to high speed dot matrix
printers. While new technology is moving toward non-impact printing, the
Company believes that a substantial installed base of impact printers, such
as dot matrix printers, is still in use and requires a continuing amount of
consumable computer supplies. Sales of impact printer supplies accounted
for approximately 11.9% of the Company's total net sales in 1995 and 10.4%
of the Company's total net sales for the six months ended June 30, 1996.
Magnetic Media Products. Magnetic media products include computer
tapes, data cartridges, diskettes, optical disks, recordable compact disks
and other products which store or record computer information and are used
in a variety of computers ranging from notebook and personal computers to
large mainframe computer systems. Sales of magnetic media products
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accounted for approximately 13.2% of the Company's total net sales in 1995
and 14.6% for the six months ended June 30, 1996.
Projection Presentation Products. Projection presentation products
sold by the Company include overhead projectors, LCD projection panels, LCD
portable projectors, laser pointers, projection screens and other
projection presentation accessories. Sales of projection presentation
products accounted for approximately 9.2% of the Company's total net sales
in 1995 and 9.9% of the Company's total net sales for the six months ended
June 30, 1996.
Accessories and Other Products. Accessories sold by the Company
include cleaning supplies, disk storage boxes, data cartridge storage,
point of sale and bar code supplies, racks, surge protection devices,
workstation accessories and anti-glare screens. The Company also sells a
limited number of other products such as transparencies, banking supplies
and selected business machines. Sales of accessories and other products
accounted for approximately 30.6% of the Company's total net sales in 1995
and 33.0% of the Company's total net sales for the six months ended June
30, 1996.
SUPPLIERS
The Company's computer supply and office automation products are
manufactured by approximately 500 original equipment manufacturers, including
Hewlett-Packard, Lexmark, Imation, Proxima and Epson. During 1995, and for the
six months ended June 30, 1996, approximately 58.6% and 55.2%, respectively, of
the Company's total net sales were derived from products supplied by the
Company's ten largest suppliers. The sale of products supplied by
Hewlett-Packard, Lexmark and Imation accounted for approximately 18.9%, 10.9%
and 7.2%, respectively, of total net sales for 1995 and 20.1%, 8.6% and 6.4%,
respectively, of total net sales for the six months ended June 30, 1996. The
Company's projection presentation products are manufactured by five original
equipment manufacturers, including Proxima, Epson and LightWare. The Company is
obligated to purchase products from Hewlett-Packard, Lexmark and Imation based
on its distribution agreements with such suppliers in the annual amounts of $5.0
million, $250,000 and $50,000, respectively.
The Company has entered into written distribution agreements with
Hewlett-Packard, Lexmark, Imation and Proxima and a majority of the other major
suppliers of the products it distributes. As is customary in the industry, these
agreements generally provide non-exclusive distribution rights, have one year
renewable terms, are terminable by either party at any time, with or without
cause, and require notice of certain events such as a change in control of the
Company. In May 1996, LLC acquired 70.0% of the Company from its then current
stockholders. The Company has notified its major suppliers of such change with
no resulting adverse consequences. The Company considers its relationships with
its major suppliers, including Hewlett-Packard, Lexmark and Imation, to be good
and has recently renewed its direct purchasing agreements with Hewlett-Packard
and several other suppliers. The Company is also discussing with several major
suppliers expanded direct purchasing arrangements in order to provide the
Company with a broader product line and increased customer base. There can be no
assurance, however, that a material change in the Company's relationship with
one or more of its major suppliers will not occur and if it does occur, that it
will not have a material adverse effect on the Company's business. See 'Risk
Factors -- Dependence on Certain Key Suppliers.'
Although the Company purchases most of its products directly from
authorized U.S. manufacturers, the Company also purchases products from foreign
and domestic sources. Depending upon product pricing and availability, the
Company also purchases products from secondary sources, such as wholesalers and
selected dealers, other than from the direct manufacturer. During 1995 and for
the six months ended June 30, 1996, approximately 8.2% and 10.1%, respectively,
of the Company's total net sales were derived from the sale of products
purchased from sources other than the direct manufacturer. The Company utilizes
its ability to purchase imported and secondary source products in order to
increase its operating income and provide its customers with competitive prices.
In order to ensure that such imported and secondary source products are not
produced by unauthorized
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<PAGE>
manufacturers, the Company has established various steps and procedures which it
believes enable it to identify unauthorized products and the Company does not
purchase from such sources. There can be no assurance, however, that the Company
will be completely successful in such efforts or that such imported and
secondary source products will continue to be available.
Certain of the Company's major suppliers offer rebate programs under which,
subject to the Company purchasing certain predetermined amounts of product, the
Company receives rebates of the dollar volume of total rebate program purchases.
The Company also takes advantage of several other programs offered by
substantially all of its suppliers. These programs include price protection
plans under which the Company receives credits against future purchases if the
supplier lowers prices on previously purchased inventory and stock rotation or
stock balancing privileges under which the Company can return slow moving
inventory in exchange for other products.
SALES AND MARKETING
The Company sells its products to approximately 9,000 middle-market and
smaller companies and to governmental, educational, wholesale and retail
customers, including federal, state and local governmental agencies,
universities and hospitals and, to a lesser extent, to computer supply dealers.
The Company's typical customer is a small to medium sized corporate end-user who
relies on distributors like the Company, that provide high levels of value-added
service. No single customer accounts for more than 5.0% of the Company's sales.
On a pro forma basis, the Company's international sales accounted for
approximately 6.5% of the Company's total net sales for the six months ended
June 30, 1996.
The Company's sales force, as of June 30, 1996, consisted of 51 full-time
sales representatives that work out of the Company's headquarters in Dayton,
Ohio and from its seven sales offices in Ohio, located in Akron/Canton,
Cincinnati, Cleveland, Columbus, Toledo, Zanesville and Youngstown, its four
sales offices in Pennsylvania, located in Erie/Meadville, Davidsville,
Pittsburgh and Philadelphia, its two offices in New York, located in Buffalo and
Rochester and its offices in Indianapolis, Indiana, Louisville, Kentucky and Ann
Arbor and Detroit, Michigan in the United States, and its sales offices in
Leeds, England and Dubai, United Arab Emirates. The Company relies on its direct
sales force to initiate sales contacts, follow up on leads provided by
manufacturers and to engage in face-to-face contact with its customers to
solicit orders and provide service.
The Company's direct sales force markets the Company's products and
services utilizing the Company's full-color catalog and the sales
representative's ability to quote a price to the customer within a range which
maintains the Company's margins but gives the sales representative the
flexibility to price products competitively. The sales force works with the
Company's customers to simplify and reduce the cost of the computer supply
product procurement process by providing customized facsimile order forms, EDI
processing and customized billing and shipping, and product technical expertise.
Outbound telemarketing sales are primarily directed to federal government and
other corporate customers which have the authority to make their own purchases
or are purchasing specific products under master contracts with specific
manufacturers and which, in part, represent sales in markets in which the
Company does not have an office. The Company ships products to every state in
the United States.
The Company believes that its ability to maintain and grow its customer and
revenue base will depend, in part, on its ability to maintain a high level of
customer satisfaction, as well as competitive prices. The Company believes that
its customers typically purchase computer supply and office automation products
based on an established long-term business relationship with one primary
supplier. The Company establishes and maintains its relationships with customers
by assigning a sales and an in-house customer service representative to most
customers. Sales representatives are compensated almost exclusively on a
commission basis based on the gross margin of sales consummated (which may be
augmented by sales bonus programs offered by certain of the Company's suppliers
in connection with a specific product sales campaign) and receive Company
benefits such as incentive recognition trips if quotas are met. Sales
representatives have frequent contact with their
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customers and share responsibility for increasing account penetration and
providing customer service. Sales representatives also are responsible for
marketing efforts directed to prospective customers and for responding to all
bid and/or contract requests for their existing and prospective customers. The
Company believes that its personalized marketing strategy offers it a
competitive advantage in responding to the needs of each customer.
The Company also has an in-house marketing department which assists its
sales representatives by generating leads and sales from existing accounts
resulting from direct mail advertisements and questionnaires and from direct
telephone solicitations.
The Company intends to focus its marketing efforts on the small- and
middle-market segments of the computer supply and office automation products
industry. The Company believes that a significant opportunity exists in these
segments and that the larger office products companies have focused more on the
large corporate segment. The Company sells primarily through direct contact with
customers and does not conduct significant mass market advertising. The Company
utilizes manufacturer cooperative advertising support for direct mail
solicitations, product exhibitions and product gifts.
The Company provides extensive training for new sales personnel with
special emphasis on the need for regular customer contact, response to
customers' demands for product information and the need to inform customers of
technological advancements by the Company's suppliers. The Company's Vice
President -- Training and Development provides the Company's sales personnel
with ongoing product-specific training and education emphasizing computer
supplies as well as new technologies, new products and new product applications.
The Vice President -- Training and Development trains new employees, provides
sales training at Company sales meetings which are held approximately three
times a year, conducts 'ride alongs' where he accompanies sales representatives
on sales calls and provides a post-meeting critique, and coordinates sales
training with the Company's major suppliers. Prior to employment, all job
applicants take an 'employment test' which was specifically designed by a human
resources consulting company to determine whether the prospective employee has
the personality which will be conducive to maintaining a successful career as a
salesperson for the Company. The results of this test is considered as one of
many factors in determining whether to hire the applicant.
In order to ensure that the sales force is performing to its potential, the
Company and each individual salesperson annually reviews and sets sales goals.
The Company regularly monitors the performance of its sales staff by reviewing
sales and margin profitability. The average length of service by the Company's
sales personnel is approximately seven years due, in part, to the fact that the
Company pre-screens qualified applicants, emphasizes continuing training, sets
realistic sales goals and maintains a consistent uniform commission structure.
MANAGEMENT INFORMATION SYSTEM
Since 1992, the Company has invested approximately $0.5 million in
hardware, software and programming upgrades to its MIS, which is run from an IBM
AS/400 computer located at its Dayton, Ohio headquarters, and has automated a
large number of key business functions using on-line, real time systems. These
on-line systems provide management with information concerning sales, inventory
levels, customer payments and other operations which are essential for the
Company to operate as a low cost, high efficiency distributor. Nine of the
Company's offices, which represented 80.5% of the Company's sales volume for
1995 and 81.0% of the Company's sales volume for the six months ended June 30,
1996, have a direct, full-time dedicated link to the Company's in-house computer
system. Non-linked offices dial in daily. The Company maintains two full-time
computer programmers who work on a continual basis to upgrade the Company's
software capability. The 'down time' for the Company's computer system has been
negligible to date.
The implementation of these systems has allowed the Company to offer an
advanced EDI program to its customers so that the Company can communicate
directly with their computer systems and automatically process, send and receive
purchase orders, invoices and acknowledgements. The Company is also able to
offer 'customer links' to provide customers with direct access to a
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specialized Company database to examine pricing, credit information, product
description and availability and promotions information. This link also allows
customers to place orders directly into the Company's order processing system.
The Company has also invested in advanced telecommunications, voice
response equipment, electronic mail and messaging, automated fax technology,
scanning, bar coding, and automated inventory management.
DISTRIBUTION
The Company distributes its products from its five warehouse facilities,
located in Dayton, Ohio, Louisville, Kentucky, Rochester, New York, Ann Arbor,
Michigan and Leeds, England, although most products are shipped from the primary
warehouse located in Dayton, Ohio. Once an order is input into the Company's
computer system, a picking ticket is printed in the appropriate warehouse where
the inventory is located. This significantly decreases 'stock-outs' and
backorders since products may be shipped from more than one warehouse location
to arrive at the customer's office on the next business day. The picking ticket
tells the warehouse personnel where the merchandise is located. The stock is
then picked and sent to the packing department where the items are
double-checked against the picking ticket, packaged and assigned the most
economical and efficient mode of transport, based upon the customer's desires.
The Company believes that the automation brought about by advances in its
MIS have resulted in: (i) more efficient management of its inventory which, in
turn, has reduced the Company's working capital borrowings; (ii) a consistent
picking accuracy rate of approximately 99.5%, thereby reducing shipping errors
and the associated costs of returned merchandise; (iii) significant savings to
its customers as a result of customizing packaging which takes advantage of
weight discounts and provides for less frequent deliveries; and (iv) improved
customer service through later order acceptance times (currently 6:00 p.m.
Eastern Time) and next business day delivery.
When the Company ships packages with UPS or RPS, it will label the package
with the UPS or RPS bar code for tracking purposes. The Company is then able to
track a customer's package from the time it is put on the courier's vehicle
until delivery. The Company's arrangements with UPS and RPS enable the Company
to offer to its customers a discounted shipping rate and next business day
delivery to most U.S. geographic areas. The Company charges its customers
delivery rates based upon the customer's purchase and competition on a local and
national level offered to the Company by UPS on RPS or, if that rate is
unavailable, the local ground delivery rates for this service. However, in
certain markets where the cost of delivery is highly competitive or free to the
customer, the Company will match its delivery charges with those of its direct
competitors. The Company ships virtually all orders for products in stock on the
same day.
The Company's principal executive offices are currently located in Dayton,
Ohio. The Company leases all of its office and warehouse space for use in the
ordinary course of business. The leases expire at various times through 2004 and
some of the Company's leases contain options to renew. The Company expects that
it will be able to renew leases expiring in 1996 at rents which are
substantially similar to current rent payments on a square footage basis.
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The Company's sales and warehouse locations are described in the table
below:
LEASE
LOCATION SQUARE FEET EXPIRATION DATE
- -------------------------------------------- ----------- ---------------
Ann Arbor, Michigan*........................ 5,500 1998
Akron, Ohio................................. 500 1997
Buffalo, New York........................... 500 1997
Cincinnati, Ohio............................ 2,400 1999
Cleveland, Ohio............................. 120 1997
Cleveland, Ohio............................. 95 1997
Columbus, Ohio.............................. 1,478 1999
Dayton, Ohio*............................... 7,000 1996
Dayton, Ohio................................ 6,500 1996
Detroit, Michigan........................... 1,075 1997
Indianapolis, Indiana....................... 800 1997
Louisville, Kentucky*....................... 7,500 2004
Pittsburgh, Pennsylvania.................... 1,725 1996
Rochester, New York*........................ 12,032 1997
Toledo, Ohio................................ 256 1998
Leeds, England*............................. 500 1996
Dubai, United Arab Emirates................. 600 1996
- ----------
* All locations listed above are sales offices except those designated with an
asterisk, which locations include Company warehouses.
The Company has entered into a lease with a partnership composed of certain
executive officers of the Company (the 'Draft Partnership') to move its Dayton,
Ohio offices and warehouse to a newly constructed site also located in Dayton,
Ohio. The lease will commence on November 1, 1996 and expire on October 31,
2006, unless renewed, at the Company's option, for up to two successive five
year periods. See 'Certain Transactions -- Related Party Transactions.' The new
facility will provide the Company a total of 30,000 square feet of space,
expandable by build-out to 62,000 square feet, of which 15,000 square feet will
be used as warehouse space and the remainder of which will be used for offices
and other business purposes. The Company expects that the Company's operations
will not be unduly interrupted by the move to the new Dayton location. The
Company anticipates that it will invest approximately $250,000 for furniture and
fixtures for the new facility. The cost of the relocation is estimated to be
approximately $30,000.
The Company's trade name is 'Miami Computer Supply International.' The
Company has applied for a Federal service mark registration of 'Miami Computer
Supply Corporation,' 'Miami Computer Supply International,' 'MCSI,' the
associated Company logo and the Company's slogan 'Computer Supplies. Right.
Now.' No assurance can be given that any such registration will be granted or
that if granted, such registration will be effective to prevent others from: (i)
using the service mark concurrently; or (ii) preventing the Company from using
the service mark in certain locations.
SUBSIDIARIES
The Company has one wholly owned subsidiary, DDP, which has two
subsidiaries, Diversified Data Products (U.K.) Limited ('DDP-UK') and CEM
(Overseas) Limited ('CEM'). DDP-UK is a United Kingdom private limited company
and CEM is a British Virgin Islands International Business Company. Both DDP-UK,
whose sales office is located in Leeds, England, and CEM, whose sales office is
located in Dubai, United Arab Emirates, engage in the computer supply and office
automation supply distribution business and purchase and sell computer and
office automation supplies internationally. DDP-UK operates in England and DDP
and DDP-UK sell in Germany, France,
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Australia, New Zealand, Hong Kong, Indonesia and Singapore, while CEM operates
in the United Arab Emirates and sells product in Kuwait and Saudi Arabia. See
'Risk Factors -- Risks Relating to International Acquisitions' and '-- Exchange
Rate Fluctuations.' All financial results of the subsidiaries are reflected in
DDP's Consolidated Financial Statements.
EMPLOYEES
As of June 30, 1996, the Company had 115 full-time employees and three
part-time employees, of which 48 were in executive and administrative positions,
including accounting, purchasing, credit and management information systems, 53
were in sales and marketing and 14 were in warehousing and related functions.
None of the Company's employees are represented by a labor union, and the
Company has never suffered an interruption of business as a result of a labor
dispute. The Company considers its relations with its employees to be excellent.
COMPETITION
The Company believes that most, if not all, of its customers maintain
several sources of supply for their product requirements. Accordingly, the
Company competes with major full-service office products distributors, other
national and regional computer supply distributors, office products superstores,
direct mail order companies, and, to a lesser extent, non-specialized retailers.
Certain of the Company's competitors, such as office products superstores and
major full-service office products distributors, are larger and have
substantially greater financial and other resources and purchasing power than
the Company. Competition in the Company's industry is generally based on price,
breadth of product lines, product and credit availability, a knowledgeable sales
force, delivery time and the level and quality of customer services. The Company
believes that the computer supply industry will become more consolidated in the
future and thereby more competitive. Increasing competition will result in
greater price discounting which will continue to have a negative impact on the
industry's gross margins. The Company has experienced relatively consistent
gross profit margins while experiencing continuing price competition. The effect
of such competition has been offset primarily by increased gross profit margins
from new product offerings.
The Company believes its competitive advantage over other distributors
includes its ability to efficiently maintain a wide selection of name brand
products in stock ready to be shipped on a same day basis and delivered
overnight, to efficiently distribute its products, to provide innovative and
high quality value-added customer service programs and to respond to changing
customer demand and product development. However, there can be no assurance that
the Company will not encounter increased competition in the future, which could
have a material adverse effect on the Company's business.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that: (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous wastes, or (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances.
The Company currently is not aware of any environmental conditions relating
to present or past waste generation at or from its facilities or operations,
that would be likely to have a material adverse effect on the financial
condition or results of operations of the Company. However, there can be no
assurance that environmental liabilities in the future will not have a material
adverse effect on the financial condition or results of operations of the
Company.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings incidental to the
conduct of its business as of the date hereof. The Company maintains general
liability and business interruption insurance coverage in amounts which it
believes to be adequate.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------------------------
<S> <C> <C>
Anthony W. Liberati................. 64 Chairman of the Board and Director
Albert L. Schwarz................... 56 President and Director
Robert G. Hecht..................... 55 Vice Chairman of the Board and Director
Harry F. Radcliffe.................. 46 Treasurer and Director
Thomas C. Winstel................... 50 Director, Secretary and Vice President -- Presentation
Products
Richard A. Newkold.................. 62 Vice President -- Training and Development
Roger E. Turvy...................... 56 Vice President -- Product Sales and Development
Michael E. Peppel................... 29 Vice President -- Chief Financial Officer
John C. Huffman, III................ 38 Vice President -- National Sales Manager
Mary A. Stewart..................... 39 Vice President -- Operations
Joseph R. Hollenshead, III.......... 26 President of DDP
David J. White...................... 33 Vice President of International Operations of DDP
</TABLE>
Anthony W. Liberati. Mr. Liberati has been Chairman of the Board since May
1996, when LLC, of which he is the Manager -- President and Chief Executive
Officer and a member, acquired a majority interest in the Company. Commencing in
1982 and until his retirement in August 1995, Mr. Liberati was employed by the
Edward J. DeBartolo Corporation, Youngstown, Ohio (the 'DeBartolo Corporation'),
the nation's largest shopping center developer and the owner of the San
Francisco 49ers professional football team. At the time of his retirement, Mr.
Liberati was the Chief Operating Officer of the DeBartolo Corporation. Prior to
his appointment as the Chief Operating Officer, he was the DeBartolo
Corporation's Chief Financial Officer for ten years. Mr. Liberati is a director
of Hawthorne Financial Corporation, Los Angeles, California, a savings
institution holding company which is traded on the Nasdaq National Market, and
is a former member of the Board of Directors of DeBartolo Realty Corporation,
Youngstown, Ohio, a New York Stock Exchange-traded real estate investment trust.
He is a current member of the Board of Directors of Imperial Land Company,
Pittsburgh, Pennsylvania, a privately held land-bank company and Pennsylvania
Capital Bank, Pittsburgh, Pennsylvania, a privately held Pennsylvania commercial
bank. He attended Duquesne University, Pittsburgh, Pennsylvania.
Albert L. Schwarz. Mr. Schwarz joined the Company in 1987 as President and
a Director. He is the Chairman of the Company's Executive Management Committee,
a committee composed of management which deals with Company operating issues.
Mr. Schwarz was a division controller of Amcast Industries Corp., a New York
Stock Exchange-traded Company which manufactures metal castings located in
Dayton, Ohio from 1984 to 1987. Mr. Schwarz received his MBA from the University
of Dayton, Dayton, Ohio, and his undergraduate degree in accounting from Wright
State University, Fairborn, Ohio. Mr. Schwarz is the brother-in-law of Mr.
Turvy.
Robert G. Hecht. Mr. Hecht became a Director of the Company in May 1996
and is also a member of LLC. Mr. Hecht is the Chief Executive Officer of
Trumbull Corporation, a privately held highway construction company, the
President of Allegheny Asphalt Manufacturing, Inc., a privately held material
supply company and is the Executive Vice President for P.J. Dick Incorporated, a
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<PAGE>
privately held construction company, all of which are located in Pittsburgh,
Pennsylvania. Mr. Hecht is also a director of Essex Bancorp, Virginia Beach,
Virginia, a savings institution holding company which is traded on the Nasdaq
National Market and of First Home Bancorp, Inc. and First Home Savings Bank,
FSB, a privately held savings institution holding company and federally
chartered savings bank located in Pittsburgh, Pennsylvania. Mr. Hecht received
his Juris Doctor degree from the University of Pittsburgh, Pittsburgh,
Pennsylvania and his undergraduate degree in engineering from the U.S. Naval
Academy. Mr. Hecht is the Co-Chairman of the Washington County Southwestern
Pennsylvania Growth Alliance and a member of the Board of Directors of the
Children's Home of Pittsburgh.
Harry F. Radcliffe. Mr. Radcliffe, an officer and member of LLC, was
elected as a Director in May 1996. Mr. Radcliffe is the President and Chief
Executive Officer of First Home Bancorp, Inc., a privately held savings
institution holding company, and First Home Savings Bank, FSB, a federally
chartered savings bank headquartered in Pittsburgh, Pennsylvania. He is a
director of Essex Bancorp, Virginia Beach, Virginia, a savings institution
holding company which is traded on the Nasdaq National Market and of Hawthorne
Financial Corporation, Los Angeles, California, a savings institution holding
company which is also traded on the Nasdaq National Market. From 1989 to 1993,
Mr. Radcliffe was the President and Chief Executive Officer of First South
Savings Association, a Pennsylvania-chartered stock savings association located
in Pittsburgh, Pennsylvania. Mr. Radcliffe received his degree in economics from
Ohio Wesleyan University.
Thomas C. Winstel. Mr. Winstel co-founded the Company in 1981 and has been
a Director and Vice President of the Company since that time. Mr. Winstel is a
member of the Company's Executive Management Committee. Mr. Winstel received his
marketing degree from the University of Dayton, Ohio.
Richard A. Newkold. Mr. Newkold co-founded the Company in 1981 and has
been a Vice President -- Training and Development of the Company since that
time. Mr. Newkold now acts as the Company's full-time sales trainer. He is a
member of the Company's Executive Management Committee.
Roger E. Turvy. Mr. Turvy joined the Company in 1981 and has been the Vice
President -- Product Sales and Development since that time. Mr. Turvy is a
member of the Company's Executive Management Committee. Mr. Turvy received his
degree in mathematics and business from Miami University, Oxford, Ohio and his
MBA from Ohio State University. Mr. Turvy is the brother-in-law of Mr. Schwarz.
Michael E. Peppel. Mr. Peppel joined the Company in May 1996 and is an
officer and member of LLC. Mr. Peppel is also a member of the Company's
Executive Management Committee. Prior thereto, from November 1990 to May 1996,
he was a director and Chief Financial Officer of Diversified Data Products, Inc.
which was acquired by LLC and contributed to the Company. From April 1987 to
October 1990, he was the money desk manager for the DeBartolo Corporation,
Youngstown, Ohio. Mr. Peppel received his degree in economics and finance from
the University of Notre Dame.
John C. Huffman, III. Mr. Huffman joined the Company in 1981 and is the
Company's National Sales Manager and is a member of the Company's Executive
Management Committee. Mr. Huffman was the General Manager of the Company from
1985 to 1987, the Dayton Sales Manager from 1987 to 1989 and has been the
National Sales Manager since 1989. Mr. Huffman received his degree in business
management from Wright State University, Fairborn, Ohio.
Mary A. Stewart. Ms. Stewart joined the Company in 1989 as a staff
accountant and is currently the Company's Vice President -- Operations. From
1991 to May 1996, Ms. Stewart served the Company as Controller.
Joseph R. Hollenshead, III. Mr. Hollenshead joined the Company in May 1996
and is a member of LLC. He founded DDP in 1988 and has been a director and the
President of DDP since that time. Mr. Hollenshead attended Eastern Michigan
University in Ypsilanti, Michigan.
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David J. White. Mr. White joined the Company in May 1996 and is a member
of LLC. He is currently based in Leeds, England as DDP's Vice President of
International Operations. Mr. White was previously a director of DDP from March
1993 to May 1996. Prior thereto, in September 1991 he founded and was the Chief
Operating Officer of CEM (Overseas), Ltd. in Leeds, England and Dubai, United
Arab Emirates, which was acquired by DDP in March 1993. Mr. White was the Export
General Manager of ISA International PLC, a large European computer supply
company, from March 1989 to September 1991 after spending seven years in the
Middle East in the freight forwarding business. Mr. White attended Nunthorpe
College in York, England.
The Board of Directors is elected annually. However, the Articles and Code
of Regulations of the Company provide that the Board may, by resolution of a
majority of the Continuing Directors then in office, divide the Board into two
or three classes as nearly equal in number as possible, each class having not
less than three directors, with one class to be elected annually for a term of
two or three years, respectively. Such 'staggering' of the terms of the members
of the Board of Directors could make it easier for incumbent Board members to
retain their status and make it more difficult for stockholders to replace the
entire Board of Directors at one meeting of stockholders. For certain other
terms and conditions in the Articles and the Code of Regulations which also may
have an antitakeover effect, see 'Restrictions on Acquisition of the Company.'
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. The Company anticipates that it will continue to hire,
appoint or otherwise change senior managers and other key executives as it
continues to grow.
The Board of Directors has an Executive Committee, Compensation Committee
and Audit Committee. The Executive Committee is composed of all members of the
Board of Directors and has the authority to act as the Board of Directors when
the Board is not in session. Actions of the Executive Committee may be taken
upon the affirmative vote of any three of the five directors provided that of
the three directors who are so acting, one must be a non-employee director.
Executive Committee decisions must be ratified by the Board of Directors at its
next regularly scheduled meeting. The Compensation Committee, currently
comprised of Messrs. Liberati, Hecht and Radcliffe, has the authority to approve
salaries and bonuses and other compensation matters for executive officers of
the Company and reviews and approves employee health and benefit plans. The
Audit Committee, currently comprised of Messrs. Liberati, Hecht and Radcliffe
has the authority to recommend the appointment of the Company's independent
auditors and review the results and scope of audits, internal accounting
controls and tax and other accounting-related matters.
The Board of Directors currently meets monthly and is required to meet not
less than quarterly. Non-employee directors currently receive a retainer of
$2,500 per quarter, $1,000 per Board meeting attended and $250 per committee
meeting attended for serving on the Board or any committee of the Board, and are
reimbursed for their out-of-pocket expenses arising from attendance at Board or
committee meetings. They will also participate in the Non-employee Directors
Stock Option Plan. See '-- Executive Compensation -- Employee Benefit Plans --
Stock Plans -- Non-employee Directors Stock Option Plan.' Directors who are also
employees receive no compensation for attending such meetings other than their
base salary.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth individual
compensation paid or accrued by the Company to the President and to each of the
four most highly compensated executive officers (other than the President) of
the Company (the 'Named Executive Officers') for all services rendered in all
capacities to the Company and its subsidiaries for the year ended December 31,
1995.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------------- ALL OTHER
NAME AND POSITION SALARY BONUS(1) COMPENSATION(2)
- ----------------- -------- -------- ---------------
<S> <C> <C> <C>
Albert L. Schwarz..................................................... $102,000 $164,149 $17,400
President
Thomas C. Winstel..................................................... 176,586 52,920 14,400
Vice President -- Presentation Products
Richard A. Newkold.................................................... 93,600 40,320 14,400
Vice President -- Training and Development
Roger E. Turvy........................................................ 73,577 33,860 14,400
Vice President -- Product Sales and Development
John C. Huffman, III.................................................. 90,000 5,000 14,400
Vice President -- National Sales Manager
</TABLE>
- ----------
(1) Bonuses shown for 1994 were paid during 1995. Mr. Schwarz's bonus was based
upon an agreement with the Company pursuant to which he received 10.0% of
the total sum of (i) the pre-tax net income, before taxes, (ii) other
officers' bonus expenses, and (iii) the accrued profit sharing expense.
Messrs. Winstel's, Newkold's and Turvy's bonuses were determined by the
President of the Company. Mr. Huffman's bonus was based upon attaining
business plan margin goals. Mr. Schwarz's and Mr. Huffman's previous
employment agreements were terminated on May 30, 1996.
(2) All Other Compensation includes director's fees and expense reimbursement,
car allowance, premiums for split dollar life insurance coverage, sporting
event tickets, annual medical examination expenses, taxable relocation,
temporary housing and/or other executive or employee benefits. There was no
stock option plan in effect during 1995 or the years prior thereto.
Effective May 30, 1996, the annual base salary for each of Messrs. Schwarz,
Winstel, Newkold, Turvy and Huffman was increased. See '-- Employment
Contracts.' Mr. Peppel became the Company's Vice President -- Chief Financial
Officer on May 30, 1996.
EMPLOYMENT CONTRACTS
On May 30, 1996, in conjunction with the acquisition of the controlling
interest in the Company by LLC, the Company entered into employment contracts
with Messrs. Schwarz, Winstel, Newkold, Turvy, Peppel, Huffman, Hollenshead and
White (the 'Executives'), which agreements are substantially similar except for
compensation provisions. Each such agreement terminates on December 31, 1999,
except for the agreements of Messrs. Newkold, Hollenshead and White which
terminate on December 31, 1996, unless sooner terminated for death, physical or
mental incapacity or cause (which is defined as the uncured refusal to perform,
or substantial neglect of, or an intentional failure to perform, a material
portion of the Executive's duties, willful misconduct, breach of a fiduciary
duty involving personal gain, a material breach of the employment agreement, or
a felony conviction), or terminated by the Executive for the failure of the
Company to provide the resources necessary to the fulfillment of the Executive's
responsibilities, the express direction by the Board of Directors to have the
Executive perform any illegal action, the threatened or actual insolvency of the
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Company or the failure of the Company to perform its obligations to the
Executive under the employment agreement.
Each Executive's monthly base salary is as set forth in the table below:
<TABLE>
<CAPTION>
MONTHLY BASE SALARY
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Albert L. Schwarz*................................................. $ 9,200 $15,000 $15,900 $16,854
Thomas C. Winstel.................................................. 9,000 9,800 10,300 10,800
Richard A. Newkold................................................. 8,200 -- -- --
Roger E. Turvy..................................................... 7,000 7,800 8,600 9,500
Michael E. Peppel*................................................. 6,667 10,871 11,523 12,214
John C. Huffman, III............................................... 10,100 10,700 11,300 12,000
Joseph R. Hollenshead, III......................................... 6,667 -- -- --
David J. White..................................................... 6,667 -- -- --
</TABLE>
- ----------
* The increases in the base salary shown in the table will occur if targeted
pre-tax profit goals are not achieved in every prior year. If such goals are
achieved, the base salaries will be $15,000 in 1997, $19,950 in 1998 and
$24,938 in 1999 for Mr. Schwarz, and $10,871 in 1997, $14,428 in 1998 and
$18,072 in 1999 for Mr. Peppel, assuming that targeted pre-tax profit goals
are attained in each prior year.
In addition to, or in lieu of, a base salary, each such Executive is
entitled to a bonus, or commission, as follows: (i) Mr. Schwarz will receive a
bonus of 10.0% of pre-tax profits before employee profit sharing or any other
bonuses, which, beginning in 1997, will not exceed the amount of his base salary
in any year; (ii) Mr. Winstel will receive a monthly commission in the amount of
40.0% of the Gross Margin (as defined below) of all sales to certain accounts
set forth in Mr. Winstel's agreement plus the sum of $3,000 plus 5% of the Gross
Margin on sales of all presentation products, which commission will be paid only
when the amount of commission exceeds his monthly base salary and will be paid
in lieu of a monthly base salary; (iii) Mr. Newkold will receive a bonus as
determined by the Board of Directors in good faith in consideration of his work
on acquisitions during the year and the performance of his other duties; (iv)
Mr. Turvy will receive a commission in the amount of 40.0% of the Gross Margin
of the sales to accounts assigned to him, as maintained in the Company's
records, which commission will be paid only when the amount of commission
exceeds his base salary and will be paid in lieu of a base salary; (v) Mr.
Peppel will receive a bonus equal to 9.0% of the pre-tax profits of the Company
before employee profit sharing or any other bonuses, 60.0% of which shall be
paid quarterly, which cash bonus, beginning in 1997, will not exceed the amount
of his base salary in any year; (vi) Mr. Huffman will be paid a bonus of 0.5% of
Gross Margin over $9.0 million in any calendar year; (vii) Mr. Hollenshead will
receive a bonus equal to 15.0% of the pre-tax income of DDP in excess of
$250,000; and (viii) Mr. White will receive a bonus equal to 15.0% of the
pre-tax income of DDP in excess of $250,000. 'Gross Margin' is defined by the
employment agreements to mean the difference of the unit sales price of the
product and the actual cost of the product to the Company. Messrs. Peppel,
Hollenshead and White will also receive certain stock compensation from LLC. See
'Certain Transactions -- Related Party Transactions -- Other Transactions.'
In addition, each of the Executives (except Messrs. Peppel, Hollenshead and
White) utilizes a Company automobile for Company business having a retail value
of up to $35,000, for which the Company pays rent, insurance, repairs, gas, oil
and fees, of up to $1,200 per month.
The Executives are granted up to six weeks vacation annually and are
entitled to participate in and receive the benefits of any pension or other
retirement benefit plan, profit sharing, stock options, employee stock
ownership, or other plans, benefits and privileges given to employees and
executives of the Company, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors. Moreover, the Executive
will be eligible to participate in and be covered by all plans effective
generally for executives of the Company with respect to life, accident or health
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<PAGE>
insurance, hospitalization, disability and other benefits. If Mr. Newkold is
terminated other than for cause, the Company has agreed to continue to pay for
health insurance for him and his spouse until he reaches age 65 and thereafter
to pay premiums for Medicare Supplemental Insurance for him and his spouse on a
policy selected by Mr. Newkold until he becomes 70 years old. The Company will
pay or reimburse the Executive for all reasonable out-of-pocket expenses
incurred or paid by him in connection with the performance of his duties under
the agreement. The contracts also provide for the indemnification of the
Executives to the extent permitted by the Company's Articles, Code of
Regulations and applicable law, and the valuation and purchase of the
Executive's shares of Common Stock of the Company if he is terminated for cause
prior to December 31, 1999 (or December 31, 1996 in the case of Messrs. Newkold,
White and Hollenshead) and the Common Stock is not, at the time of termination,
publicly traded.
In consideration of the above, the Executive also has agreed, during the
term of the agreement and for 12 months after the termination of the agreement,
not to compete with the Company in any area which is within a 100-mile radius of
any existing office of the Company. All disputes are to be resolved using
alternative dispute resolution procedures (such as arbitration) rather than
litigation.
The Company has, in the past, entered into employment and non-competition
agreements with the senior management of the companies it has acquired and may
do so in the future.
EMPLOYEE BENEFIT PLANS
Stock Plans.
1996 Stock Option Plan. Effective September 19, 1996, the Board of
Directors of the Company adopted the 1996 Stock Option Plan (the 'Stock Option
Plan') which was approved by the stockholders of the Company by the unanimous
written consent of the stockholders as of October 25, 1996. Options will be
awarded under the Stock Option Plan after the Offering is completed.
The Stock Option Plan is designed to attract and retain qualified personnel
in key positions, provide officers and key employees with a proprietary interest
in the Company as an incentive to contribute to the success of the Company and
to reward key employees for outstanding performance and the attainment of
targeted goals. The Stock Option Plan provides for the grant of incentive stock
options intended to comply with the requirements of Section 422 of the Internal
Revenue Code, as amended (the 'Code'). The Company has reserved 250,000 shares
of Common Stock for issuance pursuant to the exercise of Options granted under
the Stock Option Plan, subject to adjustment. In the event of a stock split,
reverse stock split or stock dividend, the number of shares of Common Stock
under the Stock Option Plan, the number of shares to which any Option relates
and the exercise price per share under any option will be adjusted to reflect
such increase or decrease in the total number of shares of the Common Stock
outstanding.
The Stock Option Plan will be administered and interpreted by a committee
of the Board of Directors ('Option Committee') composed of non-employee
directors. Unless sooner terminated, the Stock Option Plan will be in effect
until September 19, 2006, ten years from the date of the adoption of the Stock
Option Plan by the Board of Directors.
Under the Stock Option Plan, the Option Committee will determine, among
other things, which officers and key employees will be granted Options, the
performance goals which must be met to receive Options, the number of shares
subject to each Option, the exercise price of the Option, whether such Options
may be exercised by delivering other shares of Common Stock or other
consideration and when such Options become exercisable. The per share exercise
price of all Options is required by the Code to be at least equal to the fair
market value of a share of Common Stock on the date the Option is granted. The
Code also requires that the aggregate fair market value of the Common Stock with
respect to which the Options are exercisable for the first time by the Optionee
during any calendar year cannot exceed $100,000. Moreover, any person who owns
10.0% or more of the voting power of the Common Stock may not receive Options
whose exercise price is less than 110.0% of the fair market value of a share of
Common Stock of the Company on the date of grant.
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<PAGE>
Options will become vested and exercisable in the manner specified by the
Option Committee and all Options will become fully vested and exercisable in the
event of a change in control of the Company, as defined in the Stock Option
Plan. Each Option or portion thereof will be exercisable at any time on or after
it vests and is exercisable until ten years after its date of grant or three
months after the date on which the optionee's employment terminates, unless
extended by the Option Committee to a period not to exceed five years from such
termination. However, failure to exercise Options within three months after the
date on which the optionee's employment terminates may result in adverse tax
consequences to the optionee. Options are non-transferable except by will or the
laws of descent and distribution.
Under current provisions of the Code, the federal income tax treatment of
incentive stock options is as follows. An optionee who meets certain holding
period requirements will not recognize income at the time the option is granted
or at the time the option is exercised, and a federal income tax deduction
generally will not be available to the Company at any time as a result of such
grant or exercise.
Immediately after the closing of this Offering, the following number of
Options will be granted to the following executive officers of the Company with
an exercise price equal to the initial public offering price: 51,000 to Mr.
Schwarz, 45,000 to Mr. Peppel and 15,000 to Mr. Winstel. These Options are
subject to a three year vesting schedule which provides that one-third of such
Options will vest annually.
Non-employee Directors Stock Option Plan. The Company's Non-employee
Directors Stock Option Plan (the 'Directors Plan') will provide for automatic
grants of non-qualified stock options on the date of each annual meeting of
stockholders, commencing with the 1997 annual stockholders meeting, to each
non-employee director of the Company, so long as shares of Common Stock remain
available under the Directors Plan. The Directors Plan calls for the grant of
options covering 15,000 shares of Common Stock to each person who is then a
non-employee director at the first annual meeting of shareholders following the
closing of this Offering, which options will vest in 5,000 share increments. The
first increment will vest immediately, the second will vest on the date of the
second annual meeting of shareholders following the closing of this Offering and
the last increment will vest on the date of the third annual meeting of
shareholders following this Offering, except that all such options shall become
immediately vested if the Company engages in a Business Combination, as defined
by the Articles. See 'Restrictions or Acquisition of the Company -- Amended and
Restated Articles of Incorporation, Code of Regulations and Other Provisions.'
Commencing on the date of the second annual meeting of shareholders held
following the closing of this Offering, and on the date of each such meeting
thereafter, each person who is a non-employee director, other than the non-
employee directors who received the 15,000 share grants at the first such
meeting, will be automatically granted a non-qualified stock option to purchase
5,000 shares of the Common Stock, not to exceed 15,000 shares for any director.
All of the options granted hereunder, except for the options granted on the date
of the first annual meeting, shall become immediately exercisable in full on the
date of grant. The exercise price of each option is the fair market value of the
Common Stock on the date of grant. These options are also subject to a three
year vesting schedule which provides that one-third of such options will vest
annually. Each option expires upon the earlier of ten years after grant or one
year after the death of the recipient director. A total of 100,000 shares of
Common Stock has been reserved for future grants of options under the Directors
Plan. No options have yet been granted under the Directors Plan.
401(k) Plan. The Company has a 401(k) plan for all employees (the '401(k)
Plan'), age 21 or older, with one year of service. The 401(k) Plan is a
contributory defined contribution plan which is intended to qualify under
Section 401(k) of the Code. Participants may contribute to the 401(k) Plan by
salary reduction up to 20.0% of annual compensation for the year. Such
contribution defers the employee's earnings up to a maximum of $9,500 in each
plan year, indexed annually. The Company may, in its discretion, determine each
year to make a matching contribution out of current or accumulated pre-tax
profit equal to up to 50.0% of the amount deferred by the employee, with a
maximum contribution of 1.5% of the employee's compensation. An employee's
contributions to the 401(k) Plan as well as all employer matching contributions
are vested immediately. All funds
47
<PAGE>
contributed to the 401(k) Plan are held in a trust fund, which are invested at
the direction of the employee in any one or more of five separate mutual funds:
a stock growth fund, an aggressive stock growth fund, a growth and income equity
fund, an income fund and a money market fund. Contributions by the Company to
the 401(k) Plan were $55,083 and $33,573, respectively, for the year ended
December 31, 1995 and the six months ended June 30, 1996.
Section 125 C Cafeteria Plan. All Company employees are eligible to
participate in the Company's Section 125 C Cafeteria Plan which permits
employees to deduct all or a portion of their gross wages prior to the
calculation of federal income tax, FICA and Medicare deductions and state income
tax, to be used to pay for the following permissible benefits: group health
insurance, long and/or short-term disability insurance, child care or dental
insurance.
Profit Sharing Plan. All Company employees (excluding sales personnel and
officers) who have been employed for the calendar year and through the date of
distribution (March 15 of the following year) are eligible to participate in the
Company's profit sharing plan (the 'Profit Sharing Plan') which was inaugurated
in 1995. Assuming that the Company achieves projected pre-tax income for the
year, 3.0% of the Company's pre-tax income is set aside for distribution (the
'Profit Sharing Pool') under the Profit Sharing Plan. Employees are entitled to
a portion of the Profit Sharing Pool based on the employee's number of years of
service as of the end of the Profit Sharing Plan year (a 'Unit'). Managers of
the Company, who are designated annually, have their Units multiplied times
three, and part-time employees who work an average of 30 hours per week earn
fractions of Units based on the number of hours worked in a 2,080 hour year.
Under the Profit Sharing Plan, one-third of the Profit Sharing Pool is awarded
based on Units and two-thirds is awarded based on the employee's individual
performance as determined by the employee's immediate supervisor. The Company
recorded an expense of $44,852 for the Profit Sharing Plan in 1995.
Split Dollar Life Insurance Agreements. In December 1995, the Company
entered into 'split dollar' life insurance agreements, which were amended on May
30, 1996 in conjunction with the acquisition of control of the Company by LLC
(the 'Split Dollar Agreements'), with Messrs. Schwarz, Winstel, Newkold and
Turvy (the 'Insureds') pursuant to which the Company purchased, and currently
pays the premiums on, and the income tax gross-up at a 40.0% tax rate for, term
life insurance policies in the face amounts of $1,550,000, $2,300,000,
$1,600,000 and $1,050,000, respectively. While the Company is the owner of the
policies, the Split Dollar Agreements state that the beneficiaries of the
Insureds will be entitled to receive the face value of the policies upon the
death of the Insureds, less the policies' cash value, which, at June 30, 1996,
approximated $112,810, $76,725, $117,864 and $80,316, respectively. The Insureds
have the right to purchase the policies from the Company when they reach age 65
for their then cash surrender values. The cost to the Company for the premiums
for 1995 (the tax gross-up amount was not paid during 1995 for any of the
Insureds) was $40,000 for Mr. Schwarz, $30,000 for Mr. Winstel, $30,000 for Mr.
Newkold and $30,000 for Mr. Turvy and in 1996 will be $44,415 for Mr. Schwarz,
$33,560 for Mr. Winstel, $36,235 for Mr. Newkold and $32,979 for Mr. Turvy. The
Split Dollar Agreements will terminate during the Insureds' lifetimes upon: (i)
the total cessation of the Company's business, or (ii) the bankruptcy,
receivership or dissolution of the Company, and (iii) the Insureds may terminate
the Split Dollar Agreements at any time upon written notice.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board established a Compensation Committee on August 13, 1996. The
Compensation Committee is currently comprised of Messrs. Liberati, Hecht and
Radcliffe. None of the executive officers of the Company currently serves on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions. The only
transaction which effected the members of the Compensation Committee, or their
affiliates, during 1996 (there were none in 1995) was the Stock Split of the
Company's Common Stock effected on September 25, 1996.
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<PAGE>
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
Lease Agreements. The Company has entered into a lease with Draft
Partnership ('Lessor') for a 30,000 square foot office and warehouse building in
Dayton, Ohio. The general partners of Draft Partnership are James F. Rowland,
the lessor of the Company's current Dayton executive office and warehouse
location and the builder of the new facility (owning a 50% partnership
interest), and Messrs. Schwarz, Winstel, Newkold and Turvy, each of whom own a
12.5% partnership interest. The lease is for a term of ten years commencing on
November 1,1996 for a base monthly rental of $20,000 plus the difference between
$1.5 million and the total cost of construction, subject to a proportionate
increase each year after July 1999 based on the increase in the Consumer Price
Index ('CPI'). The Company is responsible for paying all taxes, public liability
insurance but not fire and property damage insurance, and all utilities on the
leased premises. Provided that the Company is not in default under the lease, it
has the option to renew the term of the lease for two successive terms of five
years each, commencing on the expiration of the initial term. The Lessor has
agreed to maintain the exterior of the building, all structural components and
the parking lot, while the Company has agreed to maintain the interior,
including glass, mechanical, electrical, plumbing, heating and air conditioning,
as well as grounds maintenance. In addition, the Company has indemnified the
Lessor against any claims which may arise out of the Company's occupancy of the
leased premises or any act of the Company or its employees, agents, invitees or
licensees.
Management of the Company believes that the terms and conditions of such
lease are no less favorable than those that could be obtained from a
non-affiliated third party in the local real estate market for similar
office/warehouse structures and, although the Company has not obtained a third
party opinion regarding the fairness of the above-described transaction, the
Company believes that the rental and other payments under the lease are at or
below current comparable rates in the local market.
John Schwarz and Robert Schwarz, two employees and stockholders of the
Company who are brothers (but not related to Albert L. Schwarz) and who were
stockholders of Paper Rolls at the time of the acquisition by the Company of the
assets of Paper Rolls in June 1994, and their parents are among the lessors of
the Company's 7,500 square foot office/warehouse facility in Louisville,
Kentucky. This lease is for a ten year term, expiring in June 2004, at a rental
of $2,000 per month, plus an annual increase based on the CPI with the base
month being July 1994. Rent adjusts annually on the first day of July. The
Company, as lessee, is obligated to pay the taxes, insurance and utilities for
the property and has indemnified the lessors against all liability arising from
injury or damage during the term of the lease to any person or property
occasioned wholly or in part by any act or omission of the Company or any guest,
servant, assign or sub-tenant of the Company.
Management of the Company believes that the terms and conditions of such
lease are no less favorable than those that could be obtained from a
non-affiliated third party in the local real estate market for similar
office/warehouse structures and, although the Company has not obtained a third
party opinion regarding the fairness of the above-described transaction, the
Company believes that the rental and other payments under the lease are at or
below current comparable rates in the local market.
Other Transactions. In connection with the acquisition of control of the
Company in May 1996, LLC purchased 70.0% of the issued and outstanding shares of
voting and non-voting common stock of the Company for $8.0 million in cash and
notes (which notes are due and payable on the effective date of such offering)
or $4.78 per share. Messrs. Liberati, Hecht, Radcliffe, Peppel, Hollenshead and
White (and an investment fund of the Underwriter and of the special counsel to
the Company) are members of LLC. The stockholders of the Company who sold shares
to LLC included Messrs. Schwarz, Winstel, Newkold, Turvy, Huffman and a family
limited partnership affiliated with Mr. Schwarz.
In addition, at the same time, LLC purchased 100.0% of the issued and
outstanding common stock of DDP for a $250,000 loan to Messrs. Hollenshead and
White, stockholders of DDP, which loan is completely cancelable if DDP generates
pre-tax income of $250,000 for the year ended December 31, 1996 and partially
cancelable based upon the amount of pre-tax income generated by DDP which is
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<PAGE>
less than $250,000. Mr. Peppel was a director and the Chief Financial Officer
and a selling stockholder of DDP, but received no cash consideration in the
transaction. LLC contributed all of the shares of common stock of DDP to the
Company on May 30, 1996. See 'Summary -- Recent Change of Control of the
Company,' 'Risk Factors -- Control of Existing Management and Certain
Stockholders' and 'Dilution.'
In conjunction with the purchase of DDP by LLC, LLC agreed to provide the
three selling stockholders of DDP a stock incentive so long as such stockholders
remain employees of the Company or DDP, as a subsidiary of the Company, for the
years ended December 31, 1996, 1997 and 1998. Under the Stock Purchase Agreement
by and among LLC, DDP and the selling stockholders of DDP (Messrs. Hollenshead,
Peppel and White), LLC has agreed to transfer to each of the selling
stockholders 4,180 shares of Common Stock of the Company at December 31, 1996,
6,855 shares of Common Stock at December 31, 1997, and 5,685 shares to two of
the selling stockholders, and 14,045 shares of Company Common Stock to Mr.
Peppel, at December 31, 1998. If this Offering is consummated, all of such
shares will become immediately vested in the DDP selling stockholders as of the
date of such consummation. See 'Business -- Overview' and 'Principal
Stockholders.'
Limitations on Liability and Indemnification Matters. The Company has
adopted provisions in its Articles that eliminate to the fullest extent
permissible under Ohio law the liability of its directors to the Company or its
stockholders for monetary damages except to the extent that it is proved by
clear and convincing evidence that the director took or failed to take action,
and that such action or failure to act involved an act or omission undertaken
with the deliberate intent to cause injury to the Company or was undertaken with
reckless disregard for the best interests of the Company. The Articles do not,
however, affect the liability of directors for the granting of unlawful loans,
dividends or distributions of assets. Under Ohio law, directors will not be
found to have violated their duties to the corporation unless it is proved by
clear and convincing evidence that the director has not acted in good faith, in
a manner he reasonably believes to be in, or not opposed to, the best interests
of the corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances, in any action brought against
the director. However, a director will not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
reliance on information, opinions or reports prepared by counsel or the
Company's auditors to be unwarranted. A director, in determining what he
reasonably believes to be in the best interests of the Company, is allowed by
the General Corporation Law of the State of Ohio ('OGCL') to consider the
interests of the Company's stockholders, and may, in his discretion, consider:
(i) the interests of the Company's employees, suppliers, creditors and
customers; (ii) the local and national economy; (iii) community and societal
considerations; and (iv) the long-term as well as the short-term interests of
the Company and its stockholders, including the possibility that these interests
may be best served by the continued independence of the Company. This limitation
of liability provision is designed to ensure that the ability of the Company's
directors to exercise their best business judgment in managing the Company's
affairs, subject to their continuing fiduciary duties to the Company and its
stockholders, is not unreasonably impeded by exposure to potentially high
personal costs or other uncertainties of litigation.
The Articles also provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, because such person is or was a director, officer, employee or
agent of the Company. Under the terms of the Company's Articles, such
indemnification also will be provided to any person who is or was serving at the
request of the Company as a director, officer, employee, agent or in certain
other capacities of another corporation, partnership, joint venture, trust or
certain other enterprises. Such indemnification is furnished to the full extent
provided by law against expenses (including attorneys' fees), judgments, fines,
excise taxes and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding; if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to a criminal action, if he had no
reasonable cause to believe his conduct was unlawful. However, in an action by
or in the right of the
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Company, no indemnification will be made if such person is adjudged liable for
negligence or misconduct in the performance of his duty to the Company unless
the court determines that despite such liability, but in view of all of the
circumstances, such person is fairly and reasonably entitled to indemnity for
expenses as determined by the court, or unless such action is for an unlawful
loan, dividend or distribution of assets. The indemnification provisions also
permit the Company to pay reasonable expenses in advance of the final
disposition of any action, suit or proceeding as authorized by the Company's
Board of Directors, provided that the indemnified person provides an undertaking
to repay the Company if it is ultimately proved by clear and convincing evidence
in court that his action or failure to act involved an act or omission
undertaken with the deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company and to
reasonably cooperate with the Company concerning the action, suit or proceeding.
The rights of indemnification provided in the Company's Articles are not
exclusive of any other rights which may be available under the Articles or Code
of Regulations of the Company, any insurance or other agreement, by vote of
stockholders or disinterested directors or otherwise. In addition, the Articles
authorize the Company to maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Company or with another entity
at the request of the Company, whether or not the Company would have the power
to provide indemnification to such person. The Company intends to obtain
director and officer liability insurance coverage.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, it is the published opinion of the
Commission that such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
At the present time, there is no pending litigation or proceedings
involving a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not presently
aware of any other threatened litigation or proceeding which may result in a
claim for such indemnification.
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PRINCIPAL STOCKHOLDERS
At October 29, 1996, the Company had 2,388,000 shares of its Common Stock
outstanding which were held by 11 stockholders of record.
The following table sets forth as of October 29, 1996 certain information
with respect to the beneficial ownership of the Common Stock, and as adjusted to
reflect the sale of the shares offered hereby, for (i) each person or entity
(including any 'group' as defined by Section 13(d)(3) of the Securities Exchange
Act of 1934) known to the Company to be the beneficial owner of more than 5.0%
of the issued and outstanding shares of Common Stock of the Company, (ii) each
director and each Named Executive Officer (See 'Management -- Executive
Compensation'), and (iii) all current directors and executive officers as a
group. The address for all directors and executive officers of the Company is
3884 Indian Ripple Road, Dayton, Ohio 45440.
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY NUMBER OF SHARES
OWNED BEFORE THE BENEFICIALLY OWNED
OFFERING(1) AFTER OFFERING
-------------------- ---------------------
<S> <C> <C> <C> <C>
NAME AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------- --------- ------- --------- --------
Pittsburgh Investment Group LLC(2)......... 1,672,000 70.0% 1,613,480 47.6%
Anthony W. Liberati(3)..................... -- -- -- --
Albert L. Schwarz(4)....................... 17,600 * 17,600 *
Robert G. Hecht(5)......................... -- -- -- --
Harry F. Radcliffe(6)...................... -- -- -- --
Thomas C. Winstel.......................... 176,000 7.4 176,000 5.2
Richard A. Newkold......................... 106,000 4.4 106,000 3.1
Roger E. Turvy(7).......................... 136,000 5.7 136,000 4.0
Michael E. Peppel(8)....................... -- -- 25,080 *
John C. Huffman, III....................... 20,000 * 20,000 *
Mary A. Stewart............................ -- -- -- --
Joseph R. Hollenshead, III(9).............. -- -- 16,720 *
David J. White(10)......................... -- -- 16,720 *
The Schwarz Family Limited
Partnership(11)............................ 158,400 6.6 158,400 4.7
All directors and executive officers
as a group (12 persons)(12)................ 614,000 25.7 672,520 19.9
</TABLE>
- ------------------
* Less than 1.0%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
that are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) The business address of LLC is Birmingham Towers, Suite 701, 2100 Wharton
Street, Pittsburgh, Pennsylvania 15203. An investment fund sponsored by the
Underwriter and an investment fund composed of certain of the members of
the Company's special counsel are members of LLC. The decrease in the
number of shares after the Offering results from the granting of such
shares to Messrs. Peppel, Hollenshead and White pursuant to the Stock
Purchase Agreement by and between DDP, the selling stockholders of DDP and
LLC, which grants are effective upon the consummation of the Offering.
(3) Does not include the shares of Common Stock owned by LLC. Mr. Liberati is
the Manager -- President and Chief Executive Officer of LLC and, as such,
may be deemed to have the power to
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vote or direct the voting of, and to dispose and direct the disposition of,
the shares of Company Common Stock owned by LLC.
(4) Does not include the shares owned by the Schwarz Family Limited
Partnership. The general partner of the Schwarz Family Partnership is the
Albert L. Schwarz Family Trust, of which Mr. Schwarz is the sole trustee
and members of his immediate family are the beneficiaries. See footnote
(11), below. Mr. Schwarz disclaims beneficial ownership of the shares owned
by the Schwarz Family Limited Partnership.
(5) Does not include the shares of Common Stock owned by LLC. Mr. Hecht is a
member, but not an officer of, LLC.
(6) Does not include the shares of Common Stock owned by LLC. Mr. Radcliffe is
the Manager -- Secretary of LLC and, as such, may be deemed to have the
power to vote or direct the voting of, and to dispose and direct the
disposition of, the shares of the Common Stock owned by LLC.
(7) Includes 24,000 shares of Common Stock owned by Mr. Turvy's spouse who is
an employee of the Company.
(8) Includes the 25,080 shares which will be vested in Mr. Peppel pursuant to
the Stock Purchase Agreement by and between DDP, the selling stockholders
of DDP (including Mr. Peppel) and LLC upon the consummation of this
Offering. See 'Certain Transactions -- Related Party Transactions -- Other
Agreements.' Does not include the shares of Common Stock owned by LLC. Mr.
Peppel is the Manager -- Treasurer of LLC and, as such, may be deemed to
have the power to vote or direct the voting of, and to dispose or direct
the disposition of, the shares of Company Common Stock owned by LLC.
(9) Does not include the shares of Common Stock owned by LLC. Mr. Hollenshead
is a member, but not an officer of LLC. Includes the 16,720 shares which
will be vested in Mr. Hollenshead pursuant to the Stock Purchase Agreement
by and between DDP, the selling stockholders of DDP (including Mr.
Hollenshead) and LLC upon the Consummation of this Offering. See 'Certain
Transactions -- Related Party Transactions -- Other Agreements.'
(10) Does not include the shares of Common Stock owned by LLC. Mr. White is a
member, but not an officer of LLC. Includes the 16,720 shares which will be
vested in Mr. White pursuant to the Stock Purchase Agreement by and between
DDP, the selling stockholders of DDP (including Mr. White) and LLC upon the
consummation of this Offering. See 'Certain Transactions -- Related Party
Transactions -- Other Agreements.'
(11) Does not include shares of Common Stock owned individually by Albert L.
Schwarz, who is the trustee of the Schwarz Family Trust, an inter vivos
revocable Ohio trust, which is the general partner of the Schwarz Family
Limited Partnership, an Ohio limited partnership. The address for the
Schwarz Family Limited Partnership is 453 Rolling Timber Trail, Kettering,
Ohio 45429.
(12) Does not include shares of Common Stock owned by LLC. Includes shares held
by the Schwarz Family Limited Partnership.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 30,000,000 shares of Common Stock, and
5,000,000 shares of Preferred Stock. The amount of authorized shares of Common
Stock and Preferred Stock reflects the Recapitalization of the Company's equity
from two classes of common stock (voting common stock, without par value, and
non-voting common stock, without par value) to a single class of Common Stock,
without par value, and the Preferred Stock, without par value, as well as the
Stock Split which increased the number of authorized shares from 12,000 shares
of common stock to the number of authorized shares of Common Stock and Preferred
Stock set forth above. The Recapitalization resulted from the filing by the
Company of the Amended and Restated Articles of Incorporation on September 25,
1996. Both the Recapitalization and the Stock Split were effective as of
September 25, 1996. All outstanding shares of Common Stock are fully paid and
nonassessable. Upon the consummation of the Offering, there will be 3,388,000
shares of Common Stock outstanding and no shares of Preferred Stock outstanding.
The Board of Directors may issue additional shares of Common Stock or Preferred
Stock from time to time without the approval of the stockholders.
The following summary description of the Company's capital stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
description of the Company's capital stock contained in the Company's Articles,
a copy of which has been filed with the Commission. Reference is made to the
Articles for a detailed description of the provisions summarized below.
COMMON STOCK
Dividends. Subject to the prior rights of the holders of any shares of
preferred stock that may be outstanding, the Company may pay dividends as
declared from time to time by the Board of Directors out of funds legally
available therefor. The holders of Common Stock will be entitled to receive and
share equally in such dividends as may be declared by the Board of Directors.
Voting Rights. Except as provided in any resolution or resolutions adopted
by the Board of Directors establishing any series of preferred stock, the
holders of Common Stock possess exclusive voting rights in the Company. Each
holder of shares of Common Stock is entitled to one vote for each share held on
all matters voted upon by stockholders. No holder of the capital stock of the
Company shall be permitted to cumulate his votes in the election of directors.
Liquidation. Subject to the prior rights of the holders of any shares of
Company Preferred Stock that may be outstanding, in the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of the Common Stock would generally be entitled to
receive pro rata, after payment of all debts and liabilities of the Company, all
remaining assets of the Company available for distribution.
Preemptive Rights; Redemption. Holders of the Common Stock do not have any
preemptive rights with respect to any shares of capital stock of the Company. In
addition, the Common Stock is not subject to any redemption provisions.
PREFERRED STOCK
None of the Company's authorized Preferred Stock is issued or outstanding.
The Company is authorized to issue 5,000,000 shares of Preferred Stock. The
Board of Directors has the authority to issue the Preferred Stock in one or more
series and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. The Preferred
Stock may be issued in distinctly designated series, may be convertible into
Common Stock and may rank prior to the Common Stock as to dividend rights,
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<PAGE>
liquidation preferences, or both, and may have full or limited voting rights.
Accordingly, the issuance of Preferred Stock could adversely affect the voting
and other rights of holders of Common Stock.
The authorized but unissued shares of Preferred Stock and the authorized
but unissued and unreserved shares of Common Stock are available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as otherwise
required to approve a transaction in which the additional authorized shares of
Preferred Stock would be issued or as may be required by the National
Association of Securities Dealers, Inc. (the 'NASD') to maintain the quotation
of the Common Stock on the Nasdaq National Market, no stockholder approval would
be required for the issuance of these shares. The issuance of Common or
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price of,
and the voting and other rights of, the holders of Common Stock. Except as
described herein, the Company has no current plans to issue any shares of Common
or Preferred Stock.
TRANSFER AGENT
The transfer agent for the Common Stock is the Registrar and Transfer
Company, Cranford, New Jersey.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AMENDED AND RESTATED ARTICLES OF INCORPORATION, CODE OF REGULATIONS AND OTHER
PROVISIONS
General. The following discussion is a general summary of certain
provisions of the Articles and Code of Regulations relating to nominations and
stockholder proposals, special meetings of stockholders, business combinations
and amendments to the Articles and Code of Regulations, which may be deemed to
have an anti-takeover effect. The following description of certain of the
provisions of the Articles and Code of Regulations of the Company is necessarily
general and reference should be made in each case to such Articles and Code of
Regulations, each of which is set forth as an exhibit to the Company's
Registration Statement filed with the Commission. See 'Additional Information.'
Capitalized terms not otherwise defined shall have the meanings set forth in the
Articles and Code of Regulations.
Nominations and Stockholder Proposals. Article VII.D. of the Articles
governs nominations for election to the Board of Directors, and requires all
nominations for election to the Board of Directors other than those made by the
Board to be made by a stockholder who has complied with the notice provisions in
that section. Article IX.C. of the Articles provides that only such business as
shall have been properly brought before an annual meeting of stockholders shall
be conducted at the annual meeting. Business may be brought before the meeting
by or at the direction of the Board of Directors or otherwise must be properly
brought before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Company. In both
instances, written notice of a stockholder nomination or stockholder proposal
must be communicated to the attention of the Company's Secretary and either
delivered to, or mailed and received at, the principal executive offices of the
Company for the first such annual meeting after the filing of the Articles, at
the close of business on the tenth day following the date on which notice of
such meeting is first given to stockholders and, thereafter, not less than 60
days prior to the anniversary date of the mailing of proxy materials by the
Company in connection with the immediately preceding annual meeting of
stockholders of the Company. Each such notice shall include specified matters
set forth in the Articles, including information relating to the proposal or the
nominee or nominees and to the stockholder who has made the nomination or
proposal and any stockholder known to be supporting such nomination or proposal.
The procedures regarding stockholder nominations and stockholder proposals
will provide the Board of Directors with the information which will be necessary
to evaluate a stockholder nominee to
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<PAGE>
the Board and stockholder proposals and other relevant information, such as
existing stockholder support for the nominee or business proposal, as well as
the time necessary to consider and evaluate such information in advance of the
applicable meeting. The proposed procedures, however, will provide incumbent
directors advance notice of a dissident slate of nominees for director or of a
business proposal not favored by the Board, and will make it easier for the
Board to solicit proxies resisting such nominees or business proposal. This may
make it easier for the incumbent directors to retain their status as directors
or to defeat a stockholder proposal, even when certain stockholders view the
dissident nominations or business proposal as in the best interests of the
Company or its stockholders. In this sense, this provision can be seen as
advantageous to incumbent management and may discourage takeover attempts.
Special Meetings of Stockholders. Article IX.A. of the Company's Articles
provides that special meetings of the Company's stockholders, for any purpose or
purposes, may only be called by the Chairman of the Board, the President or a
majority of the Whole Board of Directors and a majority of the Continuing
Directors, as defined below, or by holders of not less than 50.0% of all votes
entitled to be cast on any issue proposed to be considered at such special
meeting. The provisions in the Articles accordingly effectively require a
majority vote of the stockholders or enable the Chairman of the Board, the
President or a majority of the Whole Board of Directors and a majority of the
Continuing Directors to determine if it is appropriate for the Company to incur
the expense of a special meeting in order to present a proposal to stockholders.
Business Combinations. Article X of the Articles governs any proposed
'Business Combination' (defined generally to include certain sales, purchases,
exchanges, leases, transfers, dispositions or acquisitions of assets, mergers or
consolidations, or certain reclassifications of securities of the Company)
between the Company, on the one hand, and a Related Person, on the other hand. A
'Related Person' is defined generally to include any person, partnership,
corporation, group or other entity (other than the Company or LLC) which is the
Beneficial Owner (as defined) of 10.0% or more of the shares of the Company
entitled to vote ('Voting Shares') generally in an election of directors (i.e.,
control).
Under Article X.B., if certain specified conditions (discussed in the
following four paragraphs) are not met, the Company may not become a party to
any Business Combination without the prior affirmative vote at a meeting of the
Company's stockholders by the holders of at least 80.0% of the Voting Shares,
voting separately as a class, and by an Independent Majority of Stockholders,
which is defined to mean the holders of a majority of the outstanding Voting
Shares that are not Beneficially Owned (as defined), directly or indirectly, by
a Related Person. If such approval were obtained, the specified conditions would
not have to be met. Such conditions also would not have to be met if the Board
of Directors approved the Business Combination at times and by votes specified
in the Articles.
The conditions necessary to avoid the vote of 80.0% of the Company's
outstanding Voting Shares and of an Independent Majority of Stockholders include
conditions providing that, upon consummation of the Business Combination, all of
the Company's stockholders would receive at least a certain minimum price per
share for their shares. The ratio of the price to be received by the
stockholders (other than the Related Person) in the Business Combination to the
market price of the Company's shares immediately before the announcement of the
Business Combination would have to be at least as great as the ratio of (i) the
highest per share price paid by the Related Person in acquiring any of the
Company Common Stock prior to the Business Combination to (ii) the market price
per share of the Company Common Stock immediately before the initial acquisition
of any shares by the Related Person. A similar condition would apply in the case
of the price to be paid for any outstanding shares of the Company's Preferred
Stock. These requirements generally are designed to ensure that the stockholders
receive the benefit of any premium paid by the Related Person in acquiring any
of its holdings. The price to be received by stockholders in the Business
Combination also would have to be not less than the highest per share price paid
by the Related Person in acquiring any of its holdings.
Another condition necessary to avoid the increased vote requirements is
that the consideration to be received in the Business Combination by holders of
stock must be in the same form and of the same
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kind as the consideration paid by the Related Person in acquiring stock already
owned by it (except to the extent that each individual stockholder might agree
to accept consideration of a different form or kind in exchange for all or part
of the shares which he or she owns). Thus, for example, if the Related Person
had acquired his or her initial share interest for cash, the remaining
stockholders would have to be offered cash in the Business Combination and would
not have to accept stock or debt of another corporation or institution.
In order to avoid the supermajority voting requirements of Article X.B.,
the Related Person also would have to comply with certain other conditions after
he or she acquired his or her 10.0% interest in the Company. These conditions
include the following: (i) the Related Person must ensure that the Company's
Board of Directors included representation by 'Continuing Directors' (generally,
those directors at the time of effectiveness of the Articles, whether or not a
Related Person or Associate or Affiliate (as defined) of a Related Person, and
those directors who are not affiliated with the Related Person and who are
elected as directors prior to the time the Related Person became such or with
the recommendation of a majority of other Continuing Directors) in proportion to
the holdings of the other stockholders; (ii) the Related Person must have
refrained from acquiring additional capital stock of the Company with certain
limited exceptions, and must have refrained from acquiring additional Voting
Shares, or securities convertible into or exchangeable for Voting Shares, after
he or she became a Related Person; (iii) the Related Person must not have
received certain specified benefits from the Company, such as loans or
guarantees, and, except with the approval of a majority of the directors and a
majority of the Continuing Directors, must not have made any major change in the
Company's business or equity capital structure or entered into any contract with
the Company; and (iv) except as approved by a majority of the directors and a
majority of the Continuing Directors, there must have been no failure to pay
dividends on any outstanding Company Preferred Stock, no reduction in annual
dividends paid on the Company Common Stock, and increases in annual dividends as
necessary to reflect any reclassification, recapitalization, reorganization or
similar transaction which has the effect of reducing the number of outstanding
shares of stock. Finally, a proxy statement must have been sent to stockholders
in connection with the Business Combination. Such proxy statement must contain
the recommendations, if any, of the Continuing Directors, and of any investment
banking firm selected by a majority of the Continuing Directors, as to the
fairness of the Business Combination from the point of view of the stockholders.
If all of the foregoing conditions are met, the increased voting
requirements described above would be dispensed with and the Business
Combination would require only such approval, if any, as would otherwise be
required by Ohio law.
Article X is intended to provide minimum safeguards for stockholders who do
not accept a takeover attempt and continue to hold their shares after the
attempt succeeds and the control of the Company is acquired by a Related Person.
The requirement of an 80.0% stockholder vote probably means that a Business
Combination which fails to meet the minimum price and other conditions might not
be accomplished against the opposition of the incumbent Board of Directors,
members of which, along with the executive officers of the Company and LLC, will
beneficially own 2,286,000 shares or 67.4% of the Common Stock after the
Offering, which amount does not include shares of Common Stock which may be
immediately acquired upon the vesting of outstanding stock rights. See
'Principal Stockholders.'
The provisions would not restrict another company which merely desired to
exercise control over the Company and did not intend to effect a subsequent
Business Combination. Moreover, these provisions may not apply to an attempted
combination with a person not a Related Person. On the other hand, if another
company obtaining control over the Company were not willing to meet the price
and other conditions of Articles X.B., the holders of just over one-fifth of the
outstanding Voting Shares could block a Business Combination supported by the
remaining stockholders. The result is that Business Combinations favored by a
majority of stockholders might not be approved. Article X.B. might also
discourage a tender offer for the Company's stock because of the resulting need
either to observe the minimum price requirements or to obtain an 80.0%
stockholder vote as a precondition to any subsequent Business Combination. This
might have the effect of preventing temporary fluctuations
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in the market price of the stock of the Company which could result from actual
or rumored takeover attempts.
Amendment of Articles and Code of Regulations. Article XI of the Company's
Articles provides that any amendment of the Articles must be first approved by a
majority of the Board of Directors and thereafter by the holders of two-thirds
of the shares of the Company entitled to vote in an election of directors, but
the approval of 75.0% of the shares of the Company entitled to vote in an
election of directors is required for any amendment to Articles VI (pre-emptive
rights), VII (directors), VIII (indemnification), IX (relating to meetings of
stockholders), and XI (amendments). In addition, Article X.E. of the Company's
Articles provides that Article X may not be changed, amended or repealed without
the affirmative vote of the holders of at least 80.0% of the Voting Shares and
by an Independent Majority of Stockholders (as such terms are defined, see '--
Business Combinations'). However, any such change, amendment or repeal to
Article X of the Company's Articles approved by two-thirds of the Whole Board of
Directors and a majority of the Continuing Directors, as defined, is not subject
to the approval requirements of Article X.E.
Article XI of the Articles provides that the Code of Regulations of the
Company may be adopted, altered, amended or repealed by the affirmative vote of
a majority of the stockholders of the Company at any regular or special meeting
of the stockholders called for that purpose.
Ohio General Corporation Law. The General Corporation Law of the State of
Ohio, the state in which the Company is incorporated and maintains its principal
executive office, contains certain provisions that may have the effect of
delaying, deterring or preventing a change in control of the Company. All
information set forth below regarding the OGCL is necessarily general in nature
and reference should be made to the OGCL for more specific, detailed
information.
Control Share Acquisition. Because the Articles are silent on this matter,
Section 1701.831 of the OGCL regarding shareholder review of control share
acquisitions will apply to the Company. A 'control share acquisition' is defined
as the acquisition, directly or indirectly, by any person of shares of an Ohio
corporation having fifty or more stockholders (an 'Ohio Public Company') that,
when added to all other shares of the corporation in respect of which such
person may exercise or direct the exercise of voting power, would entitle such
person, immediately after such acquisition, directly or indirectly, alone or
with others, to exercise or direct the exercise of the voting power of the
corporation in the election of directors within any of the following ranges of
voting power: (i) one fifth or more, but less than one third; (ii) one third or
more, but less than a majority; or (iii) a majority or more. No person may make
a control share acquisition unless: (i) the shareholders of the corporation by a
majority vote (excluding the shares held by the person proposing the control
share acquisition), at a special meeting held for such purpose, authorize such
acquisition, and (ii) such acquisition is consummated no later than 360 days
following such shareholder authorization. The special meeting of shareholders
must be preceded by the filing by the person proposing the control share
acquisition of a statement which details the proposed acquisition and notice of
the special meeting.
Transactions Involving Interested Shareholders. Chapter 1704 of the OGCL
regulates certain transactions by Ohio Public Companies and a person who,
directly or indirectly, alone or with others, can exercise or direct the
exercise of 10.0% of the voting power of the Ohio Public Company in an election
of directors (the 'Interested Shareholder'). Although the Articles of the
Company have been amended to make Chapter 1704 inapplicable to the Company,
Section 1704.05(F)(2) requires that the Company be precluded from engaging in a
Chapter 1704 transaction until September 25, 1997. A 'Chapter 1704 transaction'
is a merger, consolidation, combination or majority share acquisition between
the Ohio Public Company and the Interested Shareholder, a purchase, lease, sale,
distribution, dividend, mortgage, pledge or other disposition of at least 5.0%
of the assets, or 5.0% of the outstanding shares or 10.0% of the earnings power
or income of the Ohio Public Company by, to or with an Interested Shareholder,
the issuance or transfer to an Interested Shareholder of any shares, or rights
to acquire shares, of the Ohio Public Company if the shares or rights have an
aggregate fair market value equal to 5.0% of all outstanding shares of the Ohio
Public Company, the adoption of a plan for the dissolution or liquidation of the
Ohio Public Company by or on behalf of an Interested
58
<PAGE>
Shareholder, or a reclassification, recapitalization, merger or consolidation of
the Company, the effect of which is to increase the proportionate shares of the
Ohio Public Company's outstanding shares owned by the Interested Shareholder.
After September 25, 1997, any such transactions will be governed by Article X of
the Company's Articles. See '-- Business Combinations.'
Control Bids. No person may make a control bid for the Common Stock of the
Company pursuant to a tender offer or a request or invitation for tenders until
such person has filed with the Ohio Division of Securities (the 'Division') and
the Company a control bid information statement. A 'control bid' is defined by
Section 1707.01 of the OGCL as the purchase or offer to purchase any equity
security of a company located in Ohio, which has more than 10.0% of its record
equity security holders who are residents of such state, from a resident of Ohio
where, after such purchase, the offeror would own more than 10.0% of any class
of the issued and outstanding equity securities of such issuer. Within three
calendar days of the filing of the control bid information statement, the
Division may summarily suspend the continuation of the control bid if the
Division determines that the information given in the information statement does
not provide full disclosure to offerees of all material information relating to
the control bid. A hearing will be scheduled on such suspension. In addition, no
offeror may make a control bid that is not made to all holders residing in Ohio,
or that is not made to such holders on the same terms as the control bid made to
holders residing outside of the state of Ohio. Further, no offeror may acquire
from any resident of Ohio any equity security within two years following the
last acquisition of any security of the same class pursuant to a control bid by
such offeror unless the resident is afforded, at the time of the later
acquisition, a reasonable opportunity to dispose of the security to the offeror
upon substantially the same terms as those provided in the earlier control bid.
Disgorgement. For the purpose of preventing manipulative practices by a
person who makes a proposal, or publicly discloses the intention or possibility
of making a proposal, to acquire control of the Company, Section 1707.043 of the
OGCL states that any profit in excess of $250,000 realized, directly or
indirectly, from the disposition of any equity securities of the Company by a
person who, within 18 months before the disposition, directly or indirectly,
alone or in concert with others, made a proposal, or publicly disclosed the
intention or possibility of making a proposal, to acquire control of the
Company, inures to the Company and is recoverable by the Company by an action
brought within two years after the date of the disposition of such securities.
Anti-Takeover Effects. The Board of Directors believes that the foregoing
provisions in the Articles of the Company are prudent and, together with
applicable state law, will reduce vulnerability to takeover attempts and certain
other transactions that are not negotiated with and approved by the Board of
Directors of the Company. The Board of Directors believes that these provisions
are in the best interests of the Company and its current and future
stockholders. In the Board of Directors' judgment, the Board of Directors is in
the best position to determine the true value of the Company and to negotiate
more effectively for what may be in the best interests of its stockholders.
Accordingly, the Board of Directors believes that it is in the best interests of
the Company and its current and future stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors and that these
provisions will encourage such negotiations and discourage hostile takeover
attempts. It is also the Board of Directors' view that these provisions should
not discourage persons from proposing a merger or other transaction at prices
reflective of the true value of the Company and where the transaction is in the
best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to the Company's
stockholders of the foregoing provisions, these provisions also may have the
effect of discouraging a future takeover attempt in which stockholders might
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. The Board of Directors, however, has
concluded that the potential benefits of these provisions outweigh their
possible disadvantages. The Board of Directors of the Company is not aware of
any present effort that might be made to acquire control of the Company.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of
the Company. Sales of substantial shares of Common Stock in the public market
following this Offering could adversely affect the market price of the Common
Stock prevailing from time to time.
Upon completion of this Offering, the Company will have 3,388,000 shares of
Common Stock outstanding. Of these shares, all of the shares sold in this
Offering will be freely transferable without restriction or registration under
the Securities Act, except for any shares purchased by an existing 'affiliate'
of the Company as that term is defined in the Securities Act (an 'Affiliate'),
which shares will be subject to the resale limitations of Rule 144 adopted under
the Securities Act ('Rule 144'). On the date of this Prospectus, 2,388,000
'restricted shares' as defined in Rule 144 will be outstanding. Of such shares,
and without consideration of the contractual restrictions described below,
680,000 shares would be available for immediate sale in the public market
without restriction pursuant to Rule 144(k). Beginning 90 days after the date of
this Prospectus, and without consideration of the contractual restrictions
described below, 36,000 additional shares would be eligible for sale in reliance
upon Rules 144 or Rule 701 promulgated under the Securities Act. An additional
1,672,000 shares will become available for sale in reliance upon Rule 144 at
various dates after May 30, 1998.
All stockholders of the Company have agreed not to directly or indirectly,
offer, sell, agree to sell, grant any option for the sale of, or otherwise
dispose (or announce any offer, sale, grant of an option for sale or other
disposition) of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
the Common Stock, for a period of 270 days after the consummation of the
Offering, without the prior written consent of the Underwriter. The Underwriter
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. As a result of
these contractual restrictions and the provisions of Rules 144 and 701, all of
the restricted shares will be available for sale in the public market after
November , 1998.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least two years
(including the holding period of any prior owner except an Affiliate of the
Company) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding; or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an Affiliate at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
except an Affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Subject to the contractual restrictions described above, '144(k)
shares' may therefore be sold immediately upon the completion of this Offering.
The Commission has published a notice of proposed rulemaking that, if
adopted as proposed, would shorten the applicable holding periods under Rule
144(d) and Rule 144(k) to one and two years, respectively (from the current two-
and three-year periods). The Company cannot predict whether such amendments will
be adopted or the effect thereof on the trading market for its Common Stock.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Exchange Act, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired
60
<PAGE>
upon exercise of such options (including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this Prospectus, may be sold by persons other than Affiliates
subject only to the manner of sale provisions of Rule 144 and by Affiliates
under Rule 144 without compliance with its two-year minimum holding period
requirements. As soon as practical after the closing of the Offering, the
Company intends to register under Rule 415 of the Securities Act up to 6,000,000
shares of its Common Stock under the Securities Act for use by the Company in
connection with future acquisitions. These shares will generally be freely
tradeable after their issuance, unless the sale thereof is contractually
restricted.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Company and Friedman, Billings, Ramsey & Co., Inc. (the
'Underwriter'), the Underwriter has agreed to purchase, and the Company has
agreed to sell, all of the shares of Common Stock offered hereby.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all of the shares of Common Stock if any are purchased.
The Underwriter proposes initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share of Common Stock. After the initial public offering, the
offering price and concession may be changed.
The Company has granted the Underwriter an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an aggregate of 150,000
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price less the underwriting discount. If the Underwriter
exercises such over-allotment option, then the Underwriter will have a firm
commitment, subject to certain conditions, to purchase such of the additional
shares as it may require.
At the request of the Company, up to 100,000 shares of Common Stock in the
Offering have been reserved for sale at the initial public offering price to the
Company's officers, directors, employees and customers. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such shares. Any reserved shares not purchased will
be offered by the Underwriter to the general public on the same basis as the
other shares available in the Offering.
The Company, its directors, executive officers and stockholders, including
LLC, have agreed that they will not, directly or indirectly, offer, sell, agree
to sell, grant any option for the sale of, or otherwise dispose (or announce any
offer, sale, grant of an option for sale or other disposition) of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock for a period of 270 days after the consummation of the Offering
without the prior written consent of the Underwriter except that the Company may
issue shares of Common Stock in connection with acquisitions.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make in respect thereof.
The Underwriter has informed the Company that the Underwriter does not
intend to confirm sales to accounts over which it exercises discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock. There can be no assurance that any active trading market will develop for
the Common Stock or as to the price at which the Common Stock may trade in the
public market from time to time subsequent to the Offering. The initial offering
price will be determined through negotiations between the Company and the
61
<PAGE>
Underwriter. Among the factors to be considered in making such determination
will be prevailing market conditions, the Company's financial and operating
history and condition, its prospects and the prospects for its industry in
general, the management of the Company and recent market prices of securities of
companies in industries similar to that of the Company.
The Company has applied to have the Common Stock quoted and traded on the
Nasdaq National Market under the symbol 'MCSC.'
The Company has agreed to pay the Underwriter a non-accountable expense
allowance equal to 100.0% of the Underwriter's out-of-pocket expenses in excess
of $75,000 up to a maximum of $75,000, 100.0% of such expenses in excess of
$187,500 up to a maximum of $37,500, and 50.0% of such expenses in excess of
$225,000. The Company has also granted the Underwriter the right to act as a
financial advisor and participate as a co-manager in connection with certain
financings, sales, transfers, mergers, consolidations, or other similar
transactions involving the Company during the period ending 24 months after the
closing of the Offering. In connection with such engagement, the Company has
paid the Underwriter a retainer fee of $25,000 which will be credited against
the underwriting discount paid to the Underwriter upon the closing of the
Offering.
As of the date of this Prospectus, FBR Private Equity Fund, L.P., a
Delaware limited partnership and an affiliate of the Underwriter, beneficially
owned 11.5% of LLC, the controlling stockholder of the Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. Certain legal
matters will be passed upon for the Underwriter by O'Sullivan Graev & Karabell,
LLP, New York, New York. As of the date of this Prospectus, a general
partnership composed of certain members of Elias, Matz, Tiernan & Herrick L.L.P.
beneficially owned 12.6% of LLC.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and June 30, 1996 and for each of the three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996 included in
this Prospectus have been so included and in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of DDP, as of December 31, 1995 and
1994 and May 30, 1996 and for each of the two years in the period ended December
31, 1995 and for the period January 1, 1996 through May 30, 1996 included in
this Prospectus have been so included and in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (which includes all amendments thereto) under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted from the Prospectus as permitted by the rules
and regulations promulgated by the Commission. For further information
pertaining to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules thereto, which may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission, Washington, D.C. 20549.
62
<PAGE>
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
Upon consummation of this Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act') and in accordance therewith will file reports and other
information with the Commission. Such reports and other information (including
proxy and information statements) filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10007; and Chicago Regional Office, 500
West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed
rates. In addition, the Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company. If the Company is listed on the National Association of Securities
Dealers, Inc. Automated Quotation ('Nasdaq') National Market System after the
Offering, such information may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.,
20006.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
<TABLE>
<S> <C>
Report of Independent Accountants......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996............................ F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and for the six
months ended June 30, 1996.............................................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for the six
months ended June 30, 1996.............................................................................. F-5
Notes to Consolidated Financial Statements................................................................ F-6
DIVERSIFIED DATA PRODUCTS, INC.
Report of Independent Accountants......................................................................... F-15
Consolidated Balance Sheets as of December 31, 1994 and 1995 and May 30, 1996............................. F-16
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and for the period
from January 1, 1996 to May 30, 1996.................................................................... F-17
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the period
from January 1, 1996 to May 30, 1996.................................................................... F-18
Notes to Consolidated Financial Statements................................................................ F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of
Miami Computer Supply Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Miami Computer Supply
Corporation and its subsidiaries (the Company) at June 30, 1996, December 31,
1995 and 1994, and the results of their operations and their cash flows for the
six months ended June 30, 1996, and for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
August 21, 1996,
except for Note 17
which is as of September 25, 1996.
F-2
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1995, AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash............................................................. $ 97,081 $ 1,900 $ 17,074
Accounts receivable (Note 4)..................................... 5,008,301 5,155,236 7,403,110
Inventories...................................................... 2,332,005 2,943,504 4,004,950
Prepaid expenses................................................. 30,094 37,155 91,067
Deferred tax assets (Note 10).................................... 70,184 69,052 70,752
---------- ---------- -----------
Total current assets.......................................... 7,537,665 8,206,847 11,586,953
---------- ---------- -----------
Property and equipment -- net of accumulated depreciation (Note
6)............................................................... 477,506 535,241 577,890
---------- ---------- -----------
Other assets:
Deposits......................................................... 101,663 96,749 204,181
Cash surrender value officers' life insurance.................... 258,880 419,779 426,582
Intangible assets................................................ 406,600 285,520 225,280
---------- ---------- -----------
767,143 802,048 856,043
---------- ---------- -----------
Total assets.................................................. $8,782,314 $9,544,136 $13,020,886
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line-of-credit (Note 5).......................................... $2,932,661 $3,531,467 $ 5,300,000
Accounts payable -- trade........................................ 2,503,839 2,132,480 3,522,609
Accrued expenses, payroll taxes and withholdings................. 806,725 805,796 850,815
Accrued income taxes............................................. 283,910 221,414 --
Current portion of long-term debt (Note 5)....................... 66,585 5,413 9,252
---------- ---------- -----------
Total current liabilities..................................... 6,593,720 6,696,570 9,682,676
Long-term debt (Note 5)............................................ 5,890 477 --
Other long-term liabilities........................................ 284,120 163,640 103,400
Deferred taxes (Note 10)........................................... 59,669 51,661 64,389
---------- ---------- -----------
Total liabilities............................................. 6,943,399 6,912,348 9,850,465
Stockholders' equity (Note 12):
Common stock, no par value; 30,000,000 shares authorized,
2,388,000 shares outstanding at December 31, 1994, 2,388,000
shares outstanding at December 31, 1995, and June 30, 1996,
respectively.................................................. -- -- --
Additional paid-in capital....................................... 25,225 25,225 304,951
Retained earnings................................................ 1,828,690 2,621,563 3,160,196
Unearned compensation (Note 12).................................. -- -- (279,726)
---------- ---------- -----------
1,853,915 2,646,788 3,185,421
Less -- Treasury common stock, at cost (shares 1994 -- 1,200;
1995 -- 1,200; 1996 -- 1,200).............................. 15,000 15,000 15,000
---------- ---------- -----------
Total stockholders' equity................................. 1,838,915 2,631,788 3,170,421
---------- ---------- -----------
Total liabilities and stockholders' equity................. $8,782,314 $9,544,136 $13,020,886
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales...................................... $29,044,731 $35,690,105 $43,320,922 $26,247,459
Operating costs:
Cost of sales................................ 23,307,988 28,249,947 34,641,904 21,161,836
Selling, general and administrative
expenses.................................. 5,221,024 6,219,104 7,124,661 4,033,438
----------- ----------- ----------- -----------
Total operating costs..................... 28,529,012 34,469,051 41,766,565 25,195,274
----------- ----------- ----------- -----------
Operating income............................... 515,719 1,221,054 1,554,357 1,052,185
Interest expense............................... (141,081) (204,406) (274,077) (142,587)
Other income................................... 11,740 10,767 21,722 11,114
----------- ----------- ----------- -----------
Income before income taxes..................... 386,378 1,027,415 1,302,002 920,712
Provision for income taxes (Note 10)........... 164,743 417,680 509,129 382,079
----------- ----------- ----------- -----------
Net income..................................... $ 221,635 $ 609,735 $ 792,873 $ 538,633
=========== =========== =========== ===========
Earnings per share of common stock............. $ .09 $ .26 $ .33 $ .23
=========== =========== =========== ===========
Weighted average number of common shares
outstanding.................................. 2,356,000 2,320,000 2,388,000 2,388,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SIX
YEAR ENDED DECEMBER 31, MONTHS ENDED
-------------------------------------- JUNE 30,
1993 1994 1995 1996
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows (used in) provided by operating activities:
Net income............................................... $221,635 $ 609,735 $ 792,873 $ 538,633
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization.......................... 179,691 244,439 292,211 144,679
Provision for obsolete inventory....................... 91,651 24,491 11,791 --
Deferred income taxes.................................. (36,780) 2,097 (6,876) --
Changes in assets and liabilities net of effects of
acquisitions of businesses:
Accounts receivable.................................. (523,495) (975,350) (146,935) (1,363,445)
Inventories............................................ 53,131 (696,691) (623,290) 262,765
Prepaid expenses....................................... (8,737) 23,201 (7,061) (35,953)
Deposits............................................... (2,782) (23,543) 4,914 (107,432)
Accounts payable -- trade.............................. (349,415) 1,021,975 (371,359) 563,953
Accrued expenses....................................... 153,466 176,526 (929) (17,752)
Accrued income taxes................................... (92,110) 278,019 (62,496) (215,064)
-------- ----------- ----------- ------------
Cash (used in) provided by operating activities...... (313,745) 684,899 (117,157) (229,616)
-------- ----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures..................................... (122,269) (125,769) (228,866) (62,530)
Investment in cash surrender value officers' life
insurance.............................................. (84,239) (75,871) (160,899) (6,803)
Purchase of Datron Products, Inc......................... (130,611) -- -- --
Purchase of Paper Rolls & Computer Supplies, Inc......... -- (505,986) -- --
Cash included in the acquisition of Diversified Data
Products, Inc.......................................... -- -- -- 109,467
-------- ----------- ----------- ------------
Cash (used in) provided by investing activities........ (337,119) (707,626) (389,765) 40,134
-------- ----------- ----------- ------------
Cash flows from financing activities:
Borrowings under line-of-credit.......................... 850,942 9,682,562 12,707,419 6,041,274
Payments under line-of-credit............................ -- (9,441,469) (12,108,613) (5,772,741)
Principal payments on long-term debt..................... (60,858) (66,905) (66,585) (3,637)
Payments under non-competition agreements................ (68,320) (111,480) (120,480) (60,240)
Purchase of treasury stock............................... (70,000) (95,000) -- --
Proceeds from sale of treasury stock..................... -- 150,000 -- --
-------- ----------- ----------- ------------
Cash provided by financing activities.................. 651,764 117,708 411,741 204,656
-------- ----------- ----------- ------------
Net increase (decrease) in cash............................ 900 94,981 (95,181) 15,174
Cash -- Beginning of year.................................. 1,200 2,100 97,081 1,900
-------- ----------- ----------- ------------
Cash -- End of year........................................ $ 2,100 $ 97,081 $ 1,900 $ 17,074
======== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND OPERATIONS
Miami Computer Supply Corporation (the 'Company') sells a wide variety of
computer supplies to corporate customers, governmental agencies, universities,
hospitals and, to a lesser extent, computer supply dealers. Its primary sales
products include laser printer supplies, printer cartridges, ribbons,
presentation products and paper. The Company operates one centralized
distribution center in Dayton, Ohio and three smaller distribution centers in
Rochester, New York, Louisville, Kentucky and Ann Arbor, Michigan. The Company
also maintains 15 sales offices primarily in the midwest and northeast regions
of the United States. The Company provides next-day delivery of ordered items.
Effective May 30, 1996, Pittsburgh Investment Group LLC (LLC) acquired 70
percent of the outstanding shares of the Company for $4.0 million in cash and
$4.0 million in promissory notes. Concurrent with this acquisition, LLC also
acquired from third parties 100 percent of the outstanding common stock of
Diversified Data Products, Inc., a Michigan corporation (DDP) and contributed
its stock in DDP to the Company. As a result, DDP, a computer supply and office
automation distributor, became a wholly-owned subsidiary of the Company on May
30, 1996. DDP maintains two wholly-owned subsidiaries, Diversified Data
Products, U.K., Ltd., located in the United Kingdom and Compass Export Marketing
(CEM) Overseas Limited, located in Dubai, United Arab Emirates.
The operating results and cash flows of DDP have been included in the
consolidated statement of operations and the consolidated statement of cash
flows for the six months ended June 30, 1996 from the date of acquisition.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONSOLIDATION
All subsidiaries which are wholly-owned are included in the consolidated
financial statements. Intercompany accounts and transactions are eliminated.
REVENUE RECOGNITION
Revenues from the sale of products are recognized upon passage of title to
the customer which coincides with shipment.
INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined using
a weighted average method. Inventories consist primarily of products held for
resale.
FOREIGN CURRENCY TRANSACTIONS
For the Company's subsidiaries located in the United Kingdom and the United
Arab Emirates, the functional currency is the U.S. dollar.
F-6
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
DERIVATIVE INSTRUMENTS
Forward foreign currency contracts are used to manage currency risks
relating to existing assets or liabilities denominated in a foreign currency.
Gains or losses are recognized in income in the current period. Net contract
values are included in receivables or payables as appropriate.
FAIR VALUE OF FINANCIAL INSTRUCTIONS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and deposits -- The carrying amount reported in the balance sheet
approximates fair value.
Foreign currency exchange contracts -- The fair value of the Company's
foreign exchange contracts is estimated based on quoted market prices of
comparable contracts.
Short- and long-term debt -- The carrying amounts of the Company's
borrowings approximate their fair value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the assets. Depreciation and amortization periods are as follows:
ESTIMATED
USEFUL LIVES
------------
Furniture and fixtures.................. 5 to 7 years
Equipment............................... 3 to 7 years
Leasehold improvements.................. 3 to 5 years
Vehicles................................ 5 years
RETIREMENT AND DISPOSAL OF PROPERTIES
The cost of properties retired or otherwise disposed of, together with the
accumulated depreciation provided thereon, is eliminated from the accounts. This
net gain or loss is recognized in other income and expense.
LONG-LIVED ASSETS
The Company assesses impairment of assets on an annual basis using a
discounted cash flow approach.
INCOME TAXES
Income taxes are recognized during the year in which transactions enter
into the determination of financial statement income. Deferred tax assets and
liabilities are recognized for the future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets and
liabilities.
F-7
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INSURANCE
The Company maintains life insurance policies on its key employees which
are recorded at the net cash surrender value.
EARNINGS PER SHARE
Earnings per common share is calculated based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. See also Notes 12 and 17.
ADVERTISING COSTS
Costs of advertising are expensed as incurred.
NOTE 3. ACQUISITIONS
Effective May 30, 1996, LLC contributed its stock in DDP to the Company.
See also discussion in Note 1. The acquisition of DDP by the Company has been
accounted for using the purchase method of accounting; and accordingly, the
purchase price has been allocated to the assets based upon the fair value of the
liabilities assumed as of May 30, 1996.
The purchase price was allocated as follows:
Cash.......................................... $ 109,467
Accounts receivable -- net.................... 1,152,626
Inventories................................... 1,327,685
Other assets.................................. 79,484
-----------
Purchase price........................... $2,669,262
===========
The operating results of DDP have been included in the statement of
operations from the date of acquisition. The following unaudited pro forma
information has been prepared assuming that this acquisition had taken place at
the beginning of the respective periods. This pro forma financial information is
presented for information purposes only and may not be indicative of what the
actual results of operations might have been if the acquisition had been
effective at the beginning of 1995.
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(Unaudited)
Net sales....................... $ 56,677,622 $31,466,073
Net income...................... $ 811,969 $ 537,339
Earnings per share.............. $.34 $.23
Effective June 30, 1994, the Company acquired the assets and the ongoing
business of Paper Rolls & Computer Supplies, Inc. ('Paper Rolls'), a computer
supply distributor located in Louisville, Kentucky for cash of $505,986. In
addition, the Company agreed to pay $72,000 over a 4-year period beginning July
1, 1994, for agreements with the former owners not to compete and for goodwill.
The acquisition has been accounted for using the purchase method of
accounting; and accordingly, the purchase price has been allocated to the assets
purchased based upon the fair values at the date of acquisition.
F-8
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. ACQUISITIONS -- (CONTINUED)
The purchase price was allocated as follows:
Accounts receivable -- net............................... $295,530
Inventories.............................................. 155,185
Property and equipment................................... 55,271
Intangible asset -- Noncompetition agreement............. 32,000
Goodwill................................................. 40,000
---------
Purchase price...................................... $577,986
=========
The operating results of Paper Rolls have been included in the statement of
operations from the date of acquisition. The following unaudited pro forma
information has been prepared assuming that this acquisition had taken place at
the beginning of the respective periods. This pro forma financial information is
presented for information purposes only and may not be indicative of what the
actual results of operations might have been if the acquisition had been
effective at the beginning of 1993.
YEAR ENDED
DECEMBER 31,
--------------------------
1993 1994
----------- -----------
(Unaudited)
Net sales.......................... $32,580,767 $37,362,867
Net income......................... $ 238,212 $ 610,601
Earnings per share................. $.10 $.26
In connection with the acquisition, employment agreements were entered into
with certain of the former owners. As part of the employment agreement, two of
these officers were granted an option to purchase up to 30 shares of the
Company's stock for a period of four years from the acquisition date at book
value as determined by the Company's Board of Directors on an annual basis. The
exercise price of the options was equivalent to the determined book value. These
options were exercised in 1994.
On May 3, 1993, the Company acquired all of the outstanding shares of
Datron Computer Products, Inc. ('Datron'), a computer supply distributor located
in Rochester, New York, for a cash payment of $133,917 and assumption of
$394,268 in liabilities. In addition, the Company agreed to pay $512,400 over a
5-year period beginning on May 1, 1994, for an agreement with the former owner
not to compete.
The acquisition has been accounted for using the purchase method of
accounting; and accordingly, the purchase price has been allocated to the assets
purchased based upon the fair value at the date of acquisition.
The purchase price was allocated as follows:
Accounts receivable -- net............................. $302,371
Inventories............................................ 110,658
Property and equipment................................. 57,065
Intangible asset -- Noncompetition agreement........... 512,400
Other assets........................................... 58,091
-----------
Purchase price.................................... $1,040,585
===========
The Company's obligations under the purchase agreement with Datron are
guaranteed by certain officers of the Company (see Note 5).
F-9
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. ACQUISITIONS -- (CONTINUED)
The operating results of Datron have been included in the statement of
operations from the date of acquisition. On the basis of a pro forma
consolidation of the results of operations as if the acquisition had taken place
at the beginning of the fiscal 1993 rather than at April 30, 1993, net sales
would have been $29,248,282 for the year ended December 31, 1993. Net income
would have been $219,229 and earnings per share would have been $.09,
respectively, for the year ended December 31, 1993. Such pro forma amounts are
unaudited and are not necessarily indicative of what the actual results of
operations might have been if the acquisition had been effective at the
beginning of 1993.
NOTE 4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ----------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Trade customers............................... $4,763,109 $5,071,100 $7,187,569
Other......................................... 251,192 90,136 226,541
---------- ---------- ----------
5,014,301 5,161,236 7,414,110
Less -- Allowance for doubtful accounts..... (6,000) (6,000) (11,000)
---------- ---------- ----------
$5,008,301 $5,155,236 $7,403,110
========== ========== ==========
</TABLE>
NOTE 5. BORROWING ARRANGEMENTS
The following is a summary of the Company's borrowings:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Short-term debt:
Line-of-credit................................ $932,661 $3,531,467 $5,300,000
-------- ---------- ----------
Long-term debt:
Agreement dated January 27, 1993, maturing on
January 26, 1997; interest rate 10.25%..... $ 10,777 $ 5,890 $ 3,252
Agreement dated November 10, 1992, maturing on
November 10, 1995; interest rate 6.75%..... 61,698 -- --
Agreement dated November 30, 1993, maturing on
November 30, 1996; interest rate at prime
rate plus 2%............................... -- -- 6,000
Less -- Current portion.............. (66,585) (5,413) (9,252)
-------- ---------- ----------
Total long-term debt............... $ 5,890 $ 477 $ --
======== ========== ==========
</TABLE>
The Company's line-of-credit agreements allow borrowings up to $6,500,000.
The line-of-credit agreements bear interest at either the LIBOR rate plus 2
percent (7.5 percent at June 30, 1996) or the prime rate (8.25 percent at June
30, 1996). These agreements are collateralized by all assets of the Company, and
guaranteed by certain officer shareholders. $4,500,000 of the line-of-credit
matures on May 30, 1997, while $1,500,000 matures on April 30, 1997. See Note 15
regarding an increase to its line-of-credit agreement.
An irrevocable letter of credit in the amount of $390,000 was delivered by
the Company to the former owner of Datron Computer Products, Inc., on May 3,
1993, as security for the performance of
F-10
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. BORROWING ARRANGEMENTS -- (CONTINUED)
all of the Company's obligations under the purchase agreement (see Note 3). The
letter of credit expires on April 30, 1999, and may be drawn upon if the Company
fails to make any payment under the purchase agreement. The face amount of the
letter of credit is reduced $78,000 annually beginning on May 1, 1995. A one
percent annual commitment fee is payable on the letter of credit. No amounts
have been drawn against the letter of credit.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ----------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Furniture and fixtures......................... $ 245,460 $ 252,894 $ 393,134
Equipment...................................... 740,962 952,173 1,012,828
Leasehold improvements......................... 48,059 48,059 48,059
Vehicles....................................... 98,717 98,113 110,681
---------- ---------- ----------
1,133,198 1,351,239 1,564,702
Less -- Accumulated depreciation.......... 655,692 815,998 986,812
---------- ---------- ----------
$ 477,506 $ 535,241 $ 577,890
========== ========== ==========
</TABLE>
NOTE 7. RETIREMENT PLAN
The Company has an employee savings plan (the Savings Plan) that qualifies
as a deferred salary arrangement under Section 401(k) of the Internal Revenue
Code. All employees 21 years of age with one year or more of service are
eligible to participate in the Savings Plan. The Company matches 50 percent of
the employee contributions, with a maximum contribution of 1.5 percent of the
employee's compensation. Contributions to the Savings Plan were $30,118, $41,940
and $55,083 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $33,573 for the six months ended June 30, 1996.
NOTE 8. PROFIT SHARING PLAN
The Company established a profit sharing plan (Profit Plan) January 1,
1995, that covers administrative employees. Contributions to the Profit Plan are
based on three percent of the Company's pre-tax profit and are distributed to
the employees according to the provisions of the agreement. Contributions to the
Profit Plan by the Company were $44,852 for the year ended December 31, 1995,
and $26,878 for the six months ended June 30, 1996.
NOTE 9. INTANGIBLE ASSETS
Intangible assets include noncompetitive agreements with the former owners
of Datron Computer Products, Inc., and Paper Rolls & Computer Supplies, Inc. The
agreements have terms of 4 to 5 years. The gross value assigned is $544,400.
Accumulated amortization was $174,800 and $285,280 at December 31, 1994 and
1995, respectively, and $340,520 at June 30, 1996. Amortization expense
approximated $106,480 and $110,480 for the years ended December 31, 1994 and
1995, respectively, and $55,240 for the six months ended June 30, 1996.
NOTE 10. INCOME TAXES
The provision (benefit) for taxes on income consists of the following:
F-11
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. INCOME TAXES -- (CONTINUED)
1993 1994 1995
-------- -------- --------
Current:
Federal................................... $139,315 $322,000 $395,085
State..................................... 62,208 93,583 120,920
-------- -------- --------
201,523 415,583 516,005
Deferred:
Federal................................... (36,773) (363) (6,296)
State..................................... (7) 2,460 (580)
-------- -------- --------
(36,780) 2,097 (6,876)
-------- -------- --------
Total tax provision................. $164,743 $417,680 $509,129
======== ======== ========
Deferred tax assets and liabilities comprise the following:
1994 1995
-------- --------
Deferred tax assets:
Inventory............................................ $ 46,387 $ 40,951
State tax accrual.................................... 21,401 25,704
Other................................................ 5,032 10,305
-------- --------
Total deferred tax assets...................... 72,820 76,960
Deferred taxes:
Depreciation......................................... (62,305) (59,569)
-------- --------
Total deferred taxes........................... (62,305) (59,569)
-------- --------
Net deferred tax asset......................... $ 10,515 $ 17,391
======== ========
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
1993 1994 1995
-------- -------- --------
U.S. federal statutory rate
applied to income before tax.............. $131,369 $349,321 $442,681
State income taxes,
net of federal income tax effect.......... 41,053 63,388 79,424
Permanent differences....................... 5,114 10,617 14,860
Adjustment to prior year tax accruals....... (12,793) (5,941) (27,869)
Other....................................... -- 295 33
-------- -------- --------
$164,743 $417,680 $509,129
======== ======== ========
The effective tax rates for the six months approximates the federal and
state statutory rate of 35 percent and 6 percent, respectively.
NOTE 11. OPERATING LEASES
The Company leases certain office space and automobiles under various
operating leases. Lease terms range from 1 to 5 years. Leases which expire are
generally renewed or replaced by similar leases and renewal options.
At December 31, 1995, the Company's future minimum rental payments with
respect to noncancelable operating leases with terms in excess of one year were
as follows:
F-12
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. OPERATING LEASES -- (CONTINUED)
1996........................................... $239,215
1997........................................... 192,663
1998........................................... 84,646
1999........................................... 47,006
2000........................................... 24,000
Later years.................................... 84,000
---------
Total future minimum lease payments....... $671,530
=========
NOTE 12. COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
SHARES UNEARNED PAID-IN RETAINED TREASURY
OUTSTANDING COMPENSATION CAPITAL EARNINGS STOCK
----------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993....... 1,200 $ -- $ 25,225 $ 997,320 $ --
Stock dividend................. 10,746 -- -- -- --
200-for-1 stock split (Note
17).......................... 2,377,254 -- -- -- --
Purchase of treasury stock..... (5,600) -- -- -- (70,000)
Net income..................... -- -- -- 221,635 --
----------- ------------ ---------- ---------- --------
Balance, December 31, 1993..... 2,383,600 -- 25,225 1,218,955 (70,000)
Net income..................... -- -- -- 609,735 --
Purchase of treasury stock..... (7,600) -- -- -- (95,000)
Sale of treasury stock......... 12,000 -- -- -- 150,000
----------- ------------ ---------- ---------- --------
Balance, December 31, 1994..... 2,388,000 -- 25,225 1,828,690 (15,000)
Net income..................... -- -- -- 792,873 --
----------- ------------ ---------- ---------- --------
Balance, December 31, 1995..... 2,388,000 -- 25,225 2,621,563 (15,000)
Stock awards issued............ -- (279,726) 279,726 -- --
Net income..................... -- -- -- 538,633 --
----------- ------------ ---------- ---------- --------
Balance, June 30, 1996......... 2,388,000 $ (279,726) $ 304,951 $3,160,196 $(15,000)
=========== ============ ========== ========== ========
</TABLE>
On December 1, 1995, the Articles of Incorporation of the Company were
amended and restated to provide for voting and nonvoting shares. As of the same
date, the Board of Directors approved a stock dividend of nine nonvoting shares
for each voting share outstanding as of that date. All applicable share and per
share data have been adjusted for the stock dividend.
In conjunction with the purchase of DDP by LLC, LLC agreed to provide the
three selling stockholders of DDP a stock incentive so long as such stockholders
remain employees of the Company. LCC agreed to transfer a total of 58,520 shares
of the Company's common stock owned by LLC to the employees over a three year
period ending December 31, 1998. However, upon an initial public offering of the
Company's common stock, all such shares will become immediately vested. The
market value of the stock award is recognized as compensation expense over the
vesting period. The value of the awards not yet recognized as compensation
expense is reflected as unearned compensation in stockholders' equity.
F-13
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for the following items amounted to:
DECEMBER 31, JUNE 30,
-------------------------------- --------
1993 1994 1995 1996
-------- -------- -------- --------
Interest....................... $141,249 $204,377 $263,846 $133,458
Income taxes................... $295,567 $140,733 $578,501 $648,189
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company sells its products to corporate customers, governmental
agencies, universities, hospitals and, to a lesser extent, computer supply
dealers primarily in the Midwest and Northeast regions of the United States.
Credit risk with respect to trade accounts receivable is generally diversified
due to the large number of entities comprising the Company's customer base.
In connection with the Datron acquisition, the Company is obligated to make
income participation payments to the former owner based on the Company's gross
profits for the five years ending April 30, 1999. The annual payment under this
provision shall not exceed $17,520 in any one year. For 1995 and 1994, no
payments were made. Under purchase accounting principles, purchase consideration
that is payable upon the outcome of a contingency is not recorded at the
acquisition date unless the outcome of the contingency is determinable beyond
reasonable doubt. At such time, as the payments of amounts under the provision
becomes finally determined, the additional liability will be recorded, and the
value of the assets acquired will be increased in like amount.
In connection with the acquisition of DDP, LLC issued a loan to certain of
the former stockholders in an amount of $250,000. This amount is subject to
repayment based upon DDP generating specified income levels. To the extent such
levels are achieved, the loan will be forgiven. However, if such levels are not
achieved, partial repayment of the loans is required. When repayment of the loan
becomes finally determined, if any, the value of the assets acquired will be
increased in like amount.
NOTE 15. INSURANCE
The Company has a self-insurance medical plan which covers $37,000 per
individual insured per year for the policy year ended March 1, 1997. Medical
claims in excess of this amount are insured with a commercial insurance carrier.
In connection with this plan, the Company maintains cash and short term U.S.
treasury notes on deposit totaling $84,526 and $79,409 at December 31, 1994 and
1995, respectively, and $38,788 at June 30, 1996, to fund claims.
The Company recorded expenses under the self-insurance medical plan of
$235,328, $193,771 and $176,850 for the years ended December 31, 1993, 1994 and
1995, respectively, and $137,589 for the six-months ended June 30, 1996.
NOTE 16. SUBSEQUENT EVENT
On September 11, 1996, Miami increased its line-of-credit from $6,500,000
to $15,000,000. The credit agreement matures on September 11, 1998. This
agreement provides borrowings up to an amount determined pursuant to a borrowing
base formula which includes various categories of collateral. The interest rate
on the credit facility is selected by the Company and can fluctuate between the
prime rate and LIBOR plus 2 percent. The facility also contains covenants to
maintain a minimum tangible net worth (as defined by the agreement) and certain
interest coverage rates.
NOTE 17. COMMON STOCK SPLIT
On September 25, 1996, the Stockholders approved a recapitalization of the
Company's common equity and 200-for-1 stock split as of that date. All
applicable share and per share data have been adjusted to reflect the stock
split.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Diversified Data Products, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Diversified Data Products,
Inc. and its subsidiaries (the Company), at May 30, 1996, and December 31, 1995
and 1994, and the results of their operations and their cash flows for the
period January 1, 1996 through May 30, 1996, and for each of the two years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 12 to the consolidated financial statements, all of
the Company's outstanding common stock was acquired by a third party on May 30,
1996.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
July 31, 1996
F-15
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1995, AND MAY 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MAY 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $ 9,389 $ 11,760 $ 109,467
Accounts receivable, less allowance for doubtful accounts of
$2,038, $5,000 and $5,000...................................... 1,601,559 1,125,958 1,152,626
Inventories....................................................... 1,463,223 2,212,249 1,327,685
Prepaid expenses.................................................. 8,453 23,271 17,959
Deferred tax asset................................................ 693 1,700 1,700
---------- ---------- ----------
Total current assets..................................... 3,083,317 3,374,938 2,609,437
Property and equipment -- Net of accumulated depreciation (Note
4)................................................................ 137,217 95,512 81,512
Goodwill -- net of accumulated amortization (Note 3)................ 128,171 124,820 123,424
---------- ---------- ----------
Total assets............................................. $3,348,705 $3,595,270 $2,814,373
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................................................... $ 171,819 $ 39,084 $ 256,398
Line-of-credit (Note 5)........................................... 1,500,000 1,500,000 1,500,000
Accounts payable.................................................. 1,023,730 1,369,544 839,860
Accrued income taxes.............................................. 26,234 6,868 --
Accrued liabilities............................................... 3,711 50,984 53,274
Current portion of long-term debt................................. 12,000 12,000 7,000
---------- ---------- ----------
Total current liabilities................................ 2,737,494 2,978,480 2,656,532
Deferred taxes (Note 7)............................................. 14,247 12,730 12,730
Long-term debt (Note 5)............................................. 12,000 -- --
---------- ---------- ----------
Total liabilities........................................ 2,763,741 2,991,210 2,669,262
Stockholders' equity (Note 8 and Note 12):
Common stock, $1 par value, 50,000 shares authorized, 8,250 shares
issued and outstanding at December 31, 1994, December 31, 1995,
and May 30, 1996............................................... 8,250 8,250 8,250
Additional paid-in capital.......................................... 139,095 139,095 136,861
Retained earnings................................................. 437,619 456,715 --
---------- ---------- ----------
Total stockholders' equity............................... 584,964 604,060 145,111
---------- ---------- ----------
Total liabilities and stockholders' equity............... $3,348,705 $3,595,270 $2,814,373
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995,
AND THE PERIOD JANUARY 1, 1996 THROUGH MAY 30, 1996
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 30,
-------------------------- -------------
<S> <C> <C> <C>
1994 1995 1996
----------- ----------- -------------
Net sales......................................................... $18,068,615 $13,356,700 $ 5,363,269
Operating costs:
Cost of sales................................................... 16,388,187 12,138,992 4,933,563
Selling, general and administrative expenses.................... 1,469,235 1,015,270 335,420
----------- ----------- -------------
Total operating costs..................................... 17,857,422 13,154,262 5,268,983
----------- ----------- -------------
Operating income.................................................. 211,193 202,438 94,286
Interest expense.................................................. 142,508 167,150 63,384
Other income (expense) -- net..................................... 2,003 4,918 5
----------- ----------- -------------
Income before income taxes........................................ 70,688 40,206 30,907
Provision for income taxes (Note 7)............................... 35,757 21,110 16,150
----------- ----------- -------------
Net income........................................................ $ 34,931 $ 19,096 $ 14,757
=========== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995,
AND THE PERIOD JANUARY 1, 1996 THROUGH MAY 30, 1996
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 30,
---------------------- -------------
<S> <C> <C> <C>
1994 1995 1996
-------- ---------- -------------
Cash flows (used in) provided by operating activities:
Net income.......................................................... $ 34,931 $ 19,096 $ 14,757
Adjustments to reconcile net income to cash (used in) provided by
operating activities:
Depreciation and amortization.................................... 29,238 36,076 15,396
Gain on disposition of furniture, fixtures and
equipment..................................................... -- (335) --
Deferred taxes................................................... 13,554 (2,524) --
Changes in assets and liabilities:
Accounts receivable........................................... (575,318) 427,060 (26,668)
Inventories................................................... (145,844) (700,495) 884,564
Prepaid expenses.............................................. (8,453) (14,818) 5,312
Other assets.................................................. 5,300 -- --
Accounts payable.............................................. 338,862 345,814 (529,684)
Accrued liabilities........................................... 2,460 47,273 2,290
Accrued income taxes.......................................... (46,766) (19,366) (6,868)
-------- ---------- -------------
Cash (used in) provided by operating activities............ (352,036) 137,781 359,099
-------- ---------- -------------
Cash flows from investing activities:
Proceeds from sale of property and equipment........................ -- 9,315 --
Purchases of furniture, fixtures and equipment...................... (86,277) -- --
-------- ---------- -------------
Cash (used in) provided by investing activities............ (86,277) 9,315 --
-------- ---------- -------------
Cash flows from financing activities:
Dividend payment.................................................... -- -- (473,706)
Proceeds from line of credit........................................ 766,807 1,500,000 450,000
Payments under line of credit....................................... (500,000) (1,500,000) (450,000)
Payments of notes payable........................................... (12,000) (12,000) (5,000)
Proceeds (payments) of bank overdraft............................... 171,819 (132,725) 217,314
-------- ---------- -------------
Cash provided by (used in) financing activities............ 426,626 (144,725) (261,392)
-------- ---------- -------------
(Decrease) increase in cash and cash equivalents...................... (11,687) 2,371 97,707
Cash and cash equivalents at beginning of period...................... 21,076 9,389 11,760
-------- ---------- -------------
Cash and cash equivalents at end of period............................ $ 9,389 $ 11,760 $ 109,467
======== ========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND OPERATIONS
The accompanying consolidated financial statements include the accounts of
Diversified Data Products, Inc. (the 'Company'), its wholly owned subsidiaries,
Diversified Data Products U.K., Ltd., located in the United Kingdom and Compass
Export Marketing (CEM) Overseas, Limited located in Dubai, United Arab Emirates.
The Company is engaged in the purchase and distribution of computer supplies on
a domestic and international basis. Substantially all of the Company's sales are
to companies engaged in the retail distribution of computer supplies.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The period ended May 30, 1996, as referred to throughout the consolidated
financial statements comprises January 1, 1996 through May 30, 1996 ('period
ended May 30, 1996').
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CONSOLIDATION
All subsidiaries which are wholly owned and under common control are
included in the consolidated financial statements. Intercompany accounts and
transactions are eliminated.
REVENUE RECOGNITION
Revenues from the sale of products are recognized upon passage of title to
the customer, which coincides with shipment.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit and highly liquid
investments with original maturities of 3 months or less.
INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined using
a weighted average method. Inventories consist primarily of purchased goods held
for resale.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the assets. Depreciation and amortization periods are as follows:
ESTIMATED
USEFUL LIVES
------------
Furniture and fixtures.................................... 5 to 7
Equipment................................................. 5
Vehicles.................................................. 5
F-19
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RETIREMENT AND DISPOSAL OF PROPERTIES
The cost of properties retired or otherwise disposed of, together with the
accumulated depreciation provided thereon, is eliminated from the accounts. The
net gain or loss is recognized in other income and expense.
LONG-LIVED ASSETS
The Company assesses impairment of assets on an annual basis using a
discounted cash flow approach.
INCOME TAXES
Income taxes are recognized in the year in which transactions enter into
the determination of financial statement income. Deferred tax assets and
liabilities are recognized for the future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets and
liabilities.
FOREIGN CURRENCY TRANSACTIONS
For the Company's subsidiaries located in the United Kingdom and the United
Arab Emirates, the functional currency is the U.S. dollar.
DERIVATIVE INSTRUMENTS
Forward foreign currency contracts are used to manage currency risks
relating to existing assets or liabilities denominated in a foreign currency.
Gains or losses are recognized in income in the current period. Net contract
values are included in receivables or payables as appropriate.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents -- The carrying amount reported in the
balance sheet approximates fair value.
Foreign currency exchange contracts -- The fair value of the Company's
foreign exchange contracts is estimated based on quoted market prices of
comparable contracts.
Short- and long-term debt -- The carrying amounts of the Company's
borrowings approximate their fair value.
NOTE 3. PURCHASE OF COMPASS EXPORT MARKETING
On March 31, 1993, the Company purchased Compass Export Marketing U.K. (CEM
U.K.) and a company under common control of CEM U.K., CEM-Overseas. The
transaction was accounted for as a purchase in accordance with Accounting
Principles Board (APB) Opinion No. 16. CEM U.K. became a wholly owned subsidiary
of the Company and changed its name to Diversified Data Products U.K., Ltd. The
purchase price for CEM U.K. and CEM--Overseas totaled approximately $710,000,
including the assumption of liabilities. DDP issued 2,750 shares of DDP common
stock to the shareholder of CEM in exchange for 100 percent ownership of CEM
U.K. and CEM--Overseas. Goodwill of approximately $134,000 was recorded in
connection with this acquisition and is being amortized on a straight-line basis
over 40 years.
F-20
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. PURCHASE OF COMPASS EXPORT MARKETING -- (CONTINUED)
Accumulated amortization was $5,864, $9,215 and $10,611 at December 31,
1994, December 31, 1995 and May 30, 1996, respectively. The amortization life
chosen was based upon the long-term business plan of the Company to expand
operations internationally.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, MAY 30,
---------------------- ----------
1994 1995 1996
-------- ---------- ----------
Furniture and fixtures................. $153,122 $ 153,122 $ 153,122
Vehicles............................... 44,130 35,150 35,150
-------- ---------- ----------
197,252 188,272 188,272
Less -- Accumulated depreciation..... (60,035) (92,760) (106,760)
-------- ---------- ----------
$137,217 $ 95,512 $ 81,512
======== ========== ==========
NOTE 5. BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 30,
------------------------ ----------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Short-term debt:
Line-of-credit, due on demand.......................... $1,500,000 $1,500,000 $1,500,000
---------- ---------- ----------
Long-term debt: Agreement dated October 6, 1993,
maturing on November 30, 1996....................... $ 24,000 $ 12,000 $ 7,000
Less -- Current portion.......................... (12,000) (12,000) (7,000)
---------- ---------- ----------
Total long-term debt.......................... $ 12,000 $ -- $ --
========== ========== ==========
</TABLE>
The Company's line-of-credit allows borrowings up to $1,500,000. The
line-of-credit bears interest at the prime rate plus 1.75 to 2.0 percent (10.0
percent at May 30, 1996, and 9.75 percent at December 31, 1995, payable
monthly). This line-of-credit is collateralized by all the assets of the
Company, and is guaranteed by the officer shareholders. The line-of-credit
expired on April 30, 1996, and was extended on substantially similar terms
through July 31, 1996. See also Note 12 regarding repayment of the
line-of-credit.
The note payable bears interest at the prime rate plus 2.5 percent (10.75
percent at May 30, 1996). Payments are due in monthly installments of $1,000
plus interest. The note is collateralized by certain assets of the Company and
is due November 30, 1996.
In connection with the line-of-credit agreement, the Company has agreed to
certain covenants including, but not limited to, maintenance of specified levels
of current assets in excess of current liabilities and maintenance of specified
levels of debt-to-equity ratios. At December 31, 1995, the Company was not in
compliance with certain covenants. A waiver of covenant compliance was received
for the related violations at December 31, 1995, extending through December 31,
1996.
NOTE 6. OPERATING LEASES
The Company leases office space and vehicles under various operating
leases. Leases which expire are generally renewed or replaced by similar leases
and renewal options.
F-21
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. OPERATING LEASES -- (CONTINUED)
The approximate minimum annual lease payments for noncancelable lease
agreements with terms in excess of one year are approximately as follows:
1996................................. $74,000
1997................................. 51,000
1998................................. 39,000
--------
$164,000
========
NOTE 7. INCOME TAXES
The provision for income taxes consists of the following:
1994 1995
------- -------
Current federal.................................. $22,203 $11,134
Current foreign.................................. -- 12,500
Deferred federal (benefit) expense............... 13,554 (2,524)
------- -------
Total tax expense........................... $35,757 $21,110
======= =======
Deferred tax assets and liabilities include the following:
DECEMBER 31,
--------------------
1994 1995
-------- --------
Deferred tax assets:
Receivables................................. $ 693 $ 1,700
Deferred taxes:
Property, plant and equipment............... (14,247) (12,730)
-------- --------
Net deferred taxes............................ $(13,554) $(11,030)
======== ========
The difference between the U.S. federal income tax statutory rate and the
Company's effective income tax rate is as follows:
1994 1995
-------- --------
U.S. federal statutory rate
applied to income before tax................... $ 24,035 $ 13,670
Graduated tax rates.............................. (11,527) (10,809)
Permanent differences............................ 8,388 8,056
Foreign tax rates................................ 10,405 10,039
Adjustment to prior year tax accrual............. 3,518 --
Other............................................ 938 154
-------- --------
Provision for income taxes....................... $ 35,757 $ 21,110
======== ========
The 1996 provision for income taxes was recorded using an estimated
effective tax rate of approximately 50 percent.
NOTE 8. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 50,000 shares of
common stock, $1.00 par value, of which 8,250 shares were outstanding as of
December 31, 1994, December 31, 1995, and May 30, 1996. A liquidating dividend
was paid to the shareholders prior to the close of business on May 30, 1996. See
Note 12.
F-22
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY -- (CONTINUED)
Changes in stockholders' equity are as follows:
<TABLE>
<CAPTION>
ADDITIONAL
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS
----------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994........................... 8,250 $8,250 $ 139,095 $ 402,688
Net income......................................... -- -- -- 34,931
----------- ------ ---------- ----------
Balance, December 31, 1994......................... 8,250 $8,250 $ 139,095 $ 437,619
Net income......................................... -- -- -- 19,096
----------- ------ ---------- ----------
Balance, December 31, 1995......................... 8,250 $8,250 $ 139,095 $ 456,715
Net income......................................... -- -- -- 14,757
Dividend payment................................... -- -- (2,234) (471,472)
----------- ------ ---------- ----------
Balance, May 30, 1996.............................. 8,250 $8,250 $ 136,861 $ --
=========== ====== ========== ==========
</TABLE>
NOTE 9. CASH FLOWS
Cash paid during 1994, 1995 and for the period ended May 30, 1996, for
interest and income taxes was as follows:
DECEMBER 31, MAY 30,
-------------------- --------
1994 1995 1996
-------- -------- --------
Interest................................ $133,509 $152,590 $ 63,384
Income taxes............................ $ 68,976 $ 43,000 $ 25,000
During the year ended December 31, 1995, the Company accepted $48,531 of
inventory in satisfaction of an account receivable of the same amount. The value
of the inventory accepted was based upon negotiated terms between the parties.
NOTE 10. DERIVATIVE INSTRUMENTS -- FORWARD FOREIGN CURRENCY CONTRACTS
The Company remains at risk for possible changes in the market value of the
derivative instrument; however, such risk should be mitigated by changes in the
underlying hedged item. The Company is also exposed to credit risk in the event
of nonperformance by counter parties. The creditworthiness of counter parties is
subject to continuing review and full performance is anticipated.
The following table sets forth quantitative information of the derivative
instruments:
<TABLE>
<CAPTION>
FAIR VALUE CARRYING AMOUNT RECORDED AGGREGATE
ASSETS ASSETS DEFERRED CONTRACT
(LIABILITIES)(A) (LIABILITIES) GAIN OR (LOSS) VALUES(B)
---------------- --------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995:
Forward foreign currency contracts (c)
Payables................................................ $ (203) $ (1) $ -- $ 202
------ ----- ------ -----
Total........................................... $ (203) $ (1) $ -- $ 202
====== ===== ====== =====
May 30, 1996:
Forward foreign currency contracts (c)
Payables................................................ $ (403) $ (4) $ -- $ 399
Receivables............................................. 110 (2) -- 112
------ ----- ------ -----
Total........................................... $ (293) $ (6) $ -- $ 511
====== ===== ====== =====
</TABLE>
- ----------
F-23
<PAGE>
DIVERSIFIED DATA PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. DERIVATIVE INSTRUMENTS -- FORWARD FOREIGN CURRENCY
CONTRACTS -- (CONTINUED)
(a) The fair value amounts for currency contracts are based on dealer quotes of
forward prices covering the remaining duration of the foreign exchange
contract.
(b) Contract or notional amounts do not quantify risk exposure, but are used in
the calculation of cash settlements under the contracts. The contract or
notional amounts do not reflect the extent to which positions may offset one
another.
(c) The forward foreign currency contracts mature in 1996.
The Company had no outstanding forward foreign currency contracts at
December 31, 1994.
NOTE 11. BUSINESS SEGMENT INFORMATION -- RESULTS OF FOREIGN OPERATIONS
The Company operates in one business segment that sells computer and office
automation supplies. Included in the segment information are U.S. operations and
two non-U.S. operations which are wholly owned subsidiaries located in Leeds,
United Kingdom and Dubai, United Arab Emirates.
<TABLE>
<CAPTION>
U.S. NON-U.S.
1994 TOTAL OPERATIONS OPERATIONS
- ----------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Net sales.......................... $18,068,615 $13,041,663 $5,026,952
Identifiable assets................ $ 3,348,705 $ 2,098,227 $1,250,478
Income before taxes................ $ 70,688 $ 101,292 $ (30,604)
</TABLE>
<TABLE>
<CAPTION>
U.S. NON-U.S.
1995 TOTAL OPERATIONS OPERATIONS
- ----------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Net sales.......................... $13,356,700 $ 8,382,644 $4,974,056
Identifiable assets................ $ 3,595,270 $ 2,106,760 $1,488,510
Income before taxes................ $ 40,206 $ 38,061 $ 2,145
</TABLE>
<TABLE>
<CAPTION>
U.S. NON-U.S.
PERIOD ENDED MAY 30, 1996 TOTAL OPERATIONS OPERATIONS
- ----------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Net sales.......................... $ 5,363,269 $ 3,812,154 $1,551,115
Identifiable assets................ $ 2,814,373 $ 1,718,828 $1,095,545
Income before taxes................ $ 30,907 $ 56,662 $ (25,755)
</TABLE>
Export sales from the U.S. approximated 16% of the total consolidated net
sales for the year ended December 31, 1995. Such sales were made primarily to
customers in Asia. Export sales for the year ended December 31, 1994 and the
period January 1, 1996 through May 30, 1996 were not significant.
NOTE 12. CHANGE IN OWNERSHIP
May 30, 1996, the Company's stockholders sold their interest in the Company
to Pittsburgh Investment Group (LLC). Immediately thereafter, LLC contributed
all of such shares of DDP to Miami Computer Supply Corporation, an Ohio
corporation (MCSC), resulting in DDP becoming a wholly owned subsidiary of MCSC.
Prior to the stockholders of DDP selling their investment in the Company, a
liquidating dividend totaling $473,706 was distributed.
In June 1996, MCSC advanced the Company the funds necessary to repay the
line-of-credit balance.
F-24
<PAGE>
[Company corporate headquarters drawing.]
MIAMI COMPUTER SUPPLY CORPORATION'S NEW CORPORATE HEADQUARTERS LOCATED IN
DAYTON, OHIO.
<PAGE>
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ...................................................... 3
Risk Factors ............................................................ 8
Use of Proceeds ......................................................... 13
Dividend Policy ......................................................... 13
Dilution ................................................................ 14
Capitalization .......................................................... 15
Selected Consolidated Financial and Operating
Data .................................................................. 16
Unaudited Pro Forma Financial Data ...................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................................................ 21
Business ................................................................ 28
Management .............................................................. 41
Certain Transactions .................................................... 49
Principal Stockholders .................................................. 52
Description of Capital Stock ............................................ 54
Restrictions on Acquisition of the Company .............................. 55
Shares Eligible for Future Sale ......................................... 60
Underwriting ............................................................ 61
Legal Matters ........................................................... 62
Experts ................................................................. 62
Additional Information .................................................. 62
Index to Financial Statements ........................................... F-1
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
1,000,000 SHARES
[LOGO]
MIAMI COMPUTER SUPPLY
CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
, 1996
---------------------
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following statement sets forth the estimated amount of expenses (other
than underwriting discounts and commissions) to be borne by the Registrant in
connection with the Offering.
SEC filing fees.................................... $ 3,569.00
NASD filing fees................................... 1,535.00
Nasdaq filing fees................................. 5,000.00
Printing, postage and mailing...................... 20,000.00
Legal fees and expenses............................ 120,000.00
Blue Sky fees and expenses......................... 19,896.00
Accounting fees and expenses....................... 190,000.00
-----------
Total................................... $360,000.00
===========
- ----------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is an Ohio corporation. Section 1701.59 of the Ohio General
Corporation law (the 'OGCL') states:
'(B) A director shall perform his duties as a director, including his
duties as a member of any committee of the directors upon which he may
serve, in good faith, in a manner he reasonably believes to be in or not
opposed to the best interests of the corporation, and with the care that an
ordinarily prudent person in a like position would use under similar
circumstances. In performing his duties, a director is entitled to rely on
information, opinions, reports, or statements, including financial
statements and other financial data, that are prepared or presented by:
(1) One or more directors, officers, or employees of the
corporation who the director reasonably believes are reliable and
competent in the matters prepared or presented;
(2) Counsel, public accountants, or other persons as to matters
that the director reasonably believes are within the person's
professional or expert competence;
(3) A committee of the directors upon which he does not serve, duly
established in accordance with a provision of the articles or the
regulations, as to matters within its designated authority, which
committee the director reasonably believes to merit confidence.
(C) For purposes of division (B) of this section:
(1) A director shall not be found to have violated his duties under
division (B) of this section unless it is proved by clear and convincing
evidence that the director has not acted in good faith, in a manner he
reasonably believes to be in or not opposed to the best interests of the
corporation, or with the care that an ordinarily prudent person in a
like position would use under similar circumstances in any action
brought against a director, including actions involving or affecting any
of the following:
(a) A change or potential change in control of the corporation,
including a determination to resist a change or potential change in
control made pursuant to division (F)(7) of section 1701.13 of the
Revised Code.
(b) A termination or potential termination of his service to
the corporation as a director;
(c) His service in any other position or relationship with the
corporation.
II-1
<PAGE>
(2) A director shall not be considered to be acting in good faith
if he has knowledge concerning the matter in question that would cause
reliance on information, opinions, reports, or statements that are
prepared or presented by the persons described in divisions (B)(1) to
(3) of this section to be unwarranted.
(3) Nothing contained in this division limits relief available
under section 1701.60 of the Revised Code.
(D) A director shall be liable in damages for any action he takes or
fails to take as a director only if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to
act involved an act or omission undertaken with deliberate intent to cause
injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation. Nothing contained in this division
affects the liability of directors under section 1701.95 of the Revised
Code or limits relief available under section 1701.60 of the Revised Code.
This division does not apply if, and only to the extent that, at the time
of a director's act or omission that is the subject of complaint, the
articles for the regulations of the corporation state by specific reference
to this division that the provisions of this division do not apply to the
corporation.
(E) For purposes of this section, a director, in determining what he
reasonably believes to be in the best interests of the corporation, shall
consider the interests of the corporation's shareholders and, in his
discretion, may consider any of the following:
(1) The interests of the corporation's employees, suppliers,
creditors, and customers;
(2) The economy of the state and nation;
(3) Community and societal considerations;
(4) The long-term as well as short-term interests of the
corporation and its shareholders, including the possibility that these
interests may be best served by the continued independence of the
corporation.
(F) Nothing contained in division (C) or (D) of this section affects
the duties of either of the following:
(1) A director who acts in any capacity other than his capacity as
a director;
(2) A director of a corporation that does not have issued and
outstanding shares that are listed on a national securities exchange or
are regularly quoted in an over-the-counter market by one or more
members of a national or affiliated securities association, who votes
for or assents to any action taken by the directors of the corporation
that, in connection with a change in control of the corporation,
directly results in the holder or holders or a majority of the
outstanding shares of the corporation receiving a greater consideration
for their shares than other shareholders.'
Section 1701.13(E) of the OGCL states:
'(E)(1) A corporation may indemnify or agree to indemnify any person
who was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, other than an action by
or in the right of the corporation, by reason of the fact that he is or was
a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, member, manager, or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit or proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful. The termination of
II-2
<PAGE>
any action, suit, or proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of it self, create a presumption that the person did not act in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was
unlawful.
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation
to procure a judgment in its favor, by reason of the fact that he is or was
a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation, as a director, trustee, officer,
employee, member, manager, or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is adjudged
to be liable for negligence or misconduct in the performance of his duty
to the corporation unless, and only to the extent that, the court of
common pleas of the court in which such action or suit was brought
determines, upon application, that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses as the
court of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against
a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense
of any action, suit, or proceeding referred to in division (E)(1) or (2) of
this section, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as
authorized in the specific case, upon a determination that indemnification
of the director, trustee, officer, employee, member, manager or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in division (E)(1) or (2) of this section. Such
determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are to parties to or
threatened with the action, suit, or proceeding referred to in division
(E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this section
is not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel
other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the
corporation or any person to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the action,
suit, or proceeding referred to in division (E)(1) or (2) of this
section was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and, within ten days after receipt of such notification, such
person shall have the right to
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<PAGE>
petition the court of common pleas or the court in which such action or suit was
brought to review the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division (E)(1) or
(2) of this section, the articles or the regulations of a corporation
state, byspecific reference to this division, that the provisions of this
division do not apply to the corporation and unless the only liability
asserted against a director in an action, suit, or proceeding referred to
in division (E)(1) or (2) of this section, the articles or the regulations
of a corporation state, by specific reference to this division, that the
provisions of this division do not apply to the corporation and unless the
only liability asserted against a director in an action, suit, or
proceeding referred to in division (E)(1) or (2) of this section is
pursuant to section 1701.95 of the Revised Code, expenses, including
attorney's fees, incurred by a director in defending the action, suit, or
proceeding shall be paid by the corporation as they are incurred, in
advance of the final disposition of the action, suit, or proceeding, upon
receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is provided by clear and convincing
evidence in a court of competent jurisdiction that his action or failure
to act involved an act or omission undertaken with deliberate intent to
cause injury to the corporation or undertaken with reckless disregard
for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in defending any
action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, may be paid by the corporation as they are incurred, in advance of
the final disposition of the action, suit, or proceeding, as authorized by
the directors in the specific case, upon the receipt of an undertaking by
or on behalf of the director, trustee, officer, employee, member, manager,
or agent to repay such amount, if it ultimately is determined that he is
not entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to
those seeking indemnification under the articles, the regulations, any
agreement, a vote of shareholders or disinterested directors, or otherwise,
both as to action in their official capacities and as to action in another
capacity while holding their offices or positions, and shall continue as to
a person who has ceased to be a director, trustee, officer, employee,
member, manager, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including, but not limited to, trust funds, letters of
credit, or self-insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, member, manager, or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust, or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under this section.
Insurance may be purchased from or maintained with a person in which the
corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and (7)
of this section. Divisions (E)(1) and (2) of this section do not create any
obligation to repay or return payments made by the corporation pursuant to
division (E)(5)(6), or (7).
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<PAGE>
(9) As used in division (E) of this section, 'corporation' includes
all constituent entities in a consolidation or merger and the new or
surviving corporation, so that any person who is or was a director,
officer, employee, trustee, member, manager, or agent of such a constituent
entity, or is or was serving at the request of such constituent entity as a
director, trustee, officer, employee, member, manager, or agent or another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with
respect to the new or surviving corporation as he would if he had served
the new or surviving corporation in the same capacity.'
The Amended and Restated Articles of Incorporation ('Articles') of the
Company also limit the liability of, and provide indemnification to, directors
and officers of the Company. Article VIII of the Company's Articles states:
'A. Limitation of Liability. No director shall be personally liable
to the Corporation or its stockholders for monetary damages for any act or
omission by such director as a director; provided that a director's
liability shall not be limited or eliminated to the extent that it is
proved by clear and convincing evidence in a court of competent
jurisdiction that his action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the Corporation, or
was undertaken with reckless disregard for the best interests of the
Corporation. No amendment to or repeal of this Article VIII.A. shall apply
to or have any effect on the liability or alleged liability of any director
of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
B. Indemnification. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, by reason of the fact that
such person is or was a director, trustee, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as
a director, trustee, officer, employee, member, manager or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, partnership, joint venture, trust or other enterprise or
employee benefit plan, against liability and expenses (including court
costs and attorney's fees), judgments, fines, excise taxes and amounts paid
in satisfaction, settlement or compromise actually and reasonably incurred
by such person in connection with such action, suit or proceeding to the
full extent authorized by Section 1701.13 of the OGCL or any successor
provision thereto.
C. Advancement of Expenses. Reasonable expenses incurred by a
director, officer, employee or agent of the Corporation in defending an
action, suit or proceeding described in Article VIII.B. shall be paid by
the Corporation as they are incurred, in advance of the final disposition
of such action, suit or proceeding, as authorized by the Board of Directors
only upon receipt of written affirmation by or on behalf of such person in
which he agrees to do both of the following: (i) repay such amount if it is
proved by clear and convincing evidence in a court of competent
jurisdiction that his action or failure to act involved an act or omission
undertaken with the deliberate intent to cause injury to the Corporation or
undertaken with reckless disregard for the best interests of the
Corporation, and (ii) reasonably cooperate with the Corporation concerning
the action, suit or proceeding.
D. Other Rights and Remedies. The indemnification provided by this
Article VIII shall not be deemed to exclude any other rights to which those
seeking indemnification or advancement of expenses may be entitled under
the Corporation's Articles of Amendment, any insurance or other agreement,
trust fund, letter of credit, surety bond, vote of stockholders or
disinterested directors or otherwise, both as to actions in their official
capacity and as to actions in another capacity while holding such office,
and shall continue as to a person who has ceased to be a director, officer,
employee, member, manager or agent and shall inure to the benefit of the
heirs, executors and administrators of such person; provided that no
indemnification shall be made to or on behalf of an individual in respect
of any of the following: (i) any claim, issue, or matter as to which such
person is adjudged to be liable for negligence or misconduct in the
performance of his duty to the
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<PAGE>
Corporation unless, and only to the extent that, a court of competent
jurisdiction determines that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper; or (ii) any action or suit in which the only liability asserted
against a director is pursuant to Section 1701.95 of the OGCL or any
successor thereto.
E. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee, or agent of the Corporation, or
was serving at the request of the Corporation as a director, officer,
employee, member, manager or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, partnership,
joint venture, trust or another enterprise or employee benefit plan,
against any liability asserted against him or incurred by him in any such
capacity, or arising out of his status, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or the OGCL.
F. Modification. The duties of the Corporation to indemnify and to
advance expenses to a director, officer, employee or agent provided in this
Article VIII shall be in the nature of a contract between the Corporation
and each such director, officer, employee or agent and no amendment or
repeal of any provision of this Article VIII shall alter, to the detriment
of such director, officer, employee or agent, the right of such person to
the advance of expenses or indemnification related to a claim based on an
act or failure to act which took place prior to such amendment or repeal.'
Article X of the Company's Code of Regulations states:
'(a) A director of the Corporation shall not be personally liable for
monetary damages for action taken, or any failure to take action, as a
director, to the extent set forth in the Corporation's Amended and Restated
Articles of Incorporation, which provisions are incorporated herein with
the same affect as if they were set forth herein.
(b) The Corporation shall indemnify any person who is a director,
officer, employee or agent of the Corporation to the extent set forth in
the Corporation's Amended and Restated Articles of Incorporation, which
provisions are incorporated herein with the same affect as if they were set
forth herein.'
In addition, the Company intends to obtain a directors and officers
liability insurance policy relating to certain actions or omissions which may be
taken, or omitted to be taken, by the directors and officers of the Company, as
well as a policy which insures against errors and omissions in the offering
documents relating to the offer and sale of the Common Stock to the public.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
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<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules are filed as a part of this
Registration Statement are as follows:
(a) LIST OF EXHIBITS
1.0 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Miami Computer
Supply Corporation.
3.2 Amended and Restated Code of Regulations of Miami Computer Supply
Corporation.*
4.0 Form of Stock Certificate of Miami Computer Supply Corporation.*
5.0 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality.
10.1 Lease by and between Rowland Investments and Miami Computer Supply,
Inc. dated January 16, 1991.*
10.2 Lease by and between Draft Partnership and Miami Computer Supply,
Inc. dated October 26, 1995.*
10.3 Lease by and between John Schwarz, Sr., Marcella Schwarz, John
Schwarz, Jr. and Robert T. Schwarz and Miami Computer Supply, Inc.
dated June 30, 1994.*
10.4 Miami Computer Supply, Inc. Profit Sharing Plan.
10.5 Miami Computer Supply, Inc. Section 125C Cafeteria Plan.
10.6 Commercial Note: Revolving Credit Line by and between Miami Computer
Supply, Inc. and National City Bank of Dayton dated September 11,
1996.*
10.7 Epson Authorized Reseller Agreement dated June 28, 1995.*
10.8 Proxima Reseller Agreement dated May 29, 1996.*
10.9 Hewlett Packard U.S. Reseller Channel Agreement as amended January 1,
1996.*
10.10 Lexmark Dealer Agreement dated November 1986.*
10.11 3M Authorized Distributor Agreement dated January 27, 1987, as
amended on March 4, 1992 and August 24, 1992.
10.12 Employment Agreement by and between Miami Computer Supply, Inc. and
Albert L. Schwarz dated May 30, 1996.*
10.12(a) Amendment to Employment Agreement dated as of September 23, 1996.
10.13 Employment Agreement by and between Miami Computer Supply, Inc. and
Thomas C. Winstel dated May 30, 1996.*
10.13(a) Amendment to Employment Agreement dated as of September 23, 1996.
10.14 Employment Agreement by and between Miami Computer Supply, Inc. and
Richard A. Newkold dated May 30, 1996.*
10.14(a) Amendment to Employment Agreement dated October 22, 1996.
10.15 Employment Agreement by and between Miami Computer Supply, Inc. and
Roger E. Turvy dated May 30, 1996.*
10.16 Employment Agreement by and between Miami Computer Supply, Inc. and
Michael E. Peppel dated May 30, 1996.*
10.16(a) Amendment to Employment Agreement dated as of September 23, 1996.
10.17 Employment Agreement by and between Miami Computer Supply, Inc. and
John Huffman, III dated May 30, 1996.*
10.18 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Albert L. Schwarz dated December 1, 1995.*
10.19 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Thomas C. Winstel dated December 1, 1995.*
10.20 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Richard A. Newkold dated December 1, 1995.*
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<PAGE>
(a) LIST OF EXHIBITS--(CONTINUED)
10.21 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Roger E. Turvy dated December 1, 1995.*
10.22 Letter from Pittsburgh Investment Group LLC to Albert L. Schwarz
dated May 30, 1995 regarding the split dollar agreements.*
10.23 Miami Computer Supply Corporation 1996 Stock Option Plan.*
10.24 Miami Computer Supply Corporation Non-employee Director Stock Option
Plan.*
21.0 Subsidiaries of the registrant.*
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibit
5.0)
23.2 Consent of Price Waterhouse LLP.
24.0 Power of Attorney.*
27.0 Financial Data Schedule.*
- ----------
* Previously filed.
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Form S-1 Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dayton, Ohio on October 28, 1996.
MIAMI COMPUTER SUPPLY CORPORATION
By: /s/ ALBERT L. SCHWARZ
------------------------------
Albert L. Schwarz
President
NAME TITLE DATE
- ------------------------- ----------------------------- ------------------
/s/ ANTHONY W. LIBERATI October 28, 1996
Anthony W. Liberati* Chairman of the Board
/s/ ALBERT L. SCHWARZ Director and President October 28, 1996
Albert L. Schwarz (Principal executive officer)
/s/ ROBERT G. HECHT Director and Vice Chairman October 28, 1996
Robert G. Hecht* of the Board
/s/ HARRY F. RADCLIFFE October 28, 1996
Harry F. Radcliffe* Director and Treasurer
/s/ THOMAS C. WINSTEL Director, Secretary and Vice October 28, 1996
Thomas C. Winstel President
/s/ MICHAEL E. PEPPEL Vice President -- Chief October 28, 1996
Michael E. Peppel Financial Officer
(Principal financial officer
and principal accounting
officer)
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*By Albert L. Schwarz, Attorney-in-Fact
II-9
Exhibit 1.0
MIAMI COMPUTER SUPPLY CORPORATION
(an Ohio corporation)
1,000,000 Shares of Common Stock
(No Par Value Per Share)
UNDERWRITING AGREEMENT
November __, 1996
FRIEDMAN, BILLINGS, RAMSEY & COMPANY, INC.
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
Dear Sirs:
Miami Computer Supply Corporation, a corporation organized and
existing under the laws of Ohio (the "Company"), proposes, subject to the terms
and conditions stated herein, to issue and sell to Friedman, Billings, Ramsey &
Company, Inc. (the "Underwriter") an aggregate of 1,000,000 shares (the "Firm
Shares") of its common stock, no par value per share (the "Common Stock"), and,
for the sole purpose of covering over-allotments in connection with the sale of
the Firm Shares, at the option of the Underwriter, up to an additional 150,000
shares (the "Additional Shares") of Common Stock. The Firm Shares and any
Additional Shares purchased by the Underwriter are referred to herein as the
"Shares". The Shares are more fully described in the Registration Statement
referred to below.
I. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, the
Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-1 (No. 333-12689), for the
registration of the Shares under the Securities Act of 1933, as amended (the
"Act"). Such registration statement, including the prospectus, financial
statements a d schedules, exhibits and all other documents filed as a part
thereof, as amended at the time of effectiveness of the registration statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement" and the prospectus, in the form first filed
with the Commission
<PAGE>
pursuant to Rule 424(b) of the Regulations or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is required, is
herein called the "Prospectus". The term "preliminary prospectus" as used herein
means a preliminary prospectus as described in Rule 430 of the Regulations. If
the Company has filed an abbreviated registration statement to register
additional securities pursuant to Rule 462(b) under the Act (the "Rule 462
Registration Statement") then any reference herein to "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
(b) At the time of the effectiveness of the Registration
Statement or the effectiveness of any post-effective amendment to the
Registration Statement, when the Prospectus is first filed with the Commission
pursuant to Rule 424(b) of the Regulations, when any supplement to or amendment
of the Prospectus is filed with the Commission and at the Closing Date and the
Additional Closing Date, if any (as hereinafter respectively defined), the
Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply in all material respects with the
applicable provisions of the Act and the Regulations and does not or will not
contain an untrue statement of a material fact and does not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the circumstances
under which they were made, not misleading. When any related preliminary
prospectus was first filed with the Commission (whether filed as part of the
Registration Statement for the registration of the Shares or any amendment
thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by you as herein stated expressly for use in connection with the
preparation thereof.
(c) Price Waterhouse L.L.P, who have certified the financial
statements and supporting schedules included in the Registration Statement, are
independent public accountants as required by the Act and the Regulations.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has not been (A) any
material adverse change or any development involving a prospective material
adverse change in the business, prospects, properties, operations, condition
(financial or other) or results of operations of the Company and its
Subsidiaries (as defined below) taken as a whole (a "Material Adverse Change"),
whether or not arising from transactions in the ordinary course of business, or
(B) any dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock; and since the date of the latest
balance sheet presented in the Registration Statement and the Prospectus,
neither the Company nor any of its Subsidiaries has incurred or undertaken any
liabilities or
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<PAGE>
obligations, direct or contingent, which are material to the Company and its
Subsidiaries taken as a whole, except for liabilities or obligations which are
reflected in the Registration Statement and the Prospectus.
(e) This Agreement and the transactions contemplated herein
have been duly and validly authorized by the Company and this Agreement has been
duly and validly executed and delivered by the Company and is a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
(f) The Execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach or violation, of any of the terms and
provisions of, or constitute a default (or an event which with notice or lapse
of time, or both, would constitute a default) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its Subsidiaries pursuant to, any indenture, mortgage,
deed of trust, loan or credit agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or their respective properties or assets may be bound
or (ii) violate or conflict with any provision of the Amended and Restated
Articles of Incorporation (the "Articles") or the Amended and Restated Code of
Regulations (the "Code of Regulations") of the Company or any of its
Subsidiaries or any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective properties or assets. No consent, approval, authorization, order,
registration, filing, qualification, license or permit of or with any court or
any public, governmental or regulatory agency or body having jurisdiction over
the Company or any of its Subsidiaries or any of their respective properties or
assets is required for the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby, including the
issuance, sale and delivery of the Shares to be issued, sold and delivered by
the Company hereunder, except the registration under the Act of the Shares and
such consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the Shares
by the Underwriter and the listing of the Common Stock to be sold by the Company
on the Nasdaq Stock Market.
(g) All of the outstanding shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid and
nonassessable and were not issued and are not now in violation of or subject to
any preemptive or other similar rights of any stockholder of the Company arising
by operation of law, under the Articles or Code of Regulations of the Company or
under any agreement to which the Company or any of its Subsidiaries is a party.
The Shares, when issued, delivered and sold in accordance with this Agreement,
will be duly and validly issued and outstanding, fully paid and nonassessable,
and will not have been issued in violation of or be subject to any preemptive or
other similar rights of any stockholder of the Company arising by operation of
law, under the Articles or Code of Regulations of the Company or under any
agreement to which the Company or any of its Subsidiaries is a party. The
Company had, at June 30, 1996, an authorized and outstanding capitalization as
set forth in the Registration Statement and the Prospectus. The Shares conform
to the description thereof contained under the caption "Description of Capital
Stock" in the Prospectus.
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(h) The Company's only subsidiaries are listed on Schedule I
hereto (collectively, the "Subsidiaries"). Each of the Company and its
Subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation. Each of the
Company and its Subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not have a material adverse effect on the business,
prospects, properties, operations, condition (financial or other) or results of
operations of the Company and its Subsidiaries taken as a whole (a "Material
Adverse Effect").
(i) The Company owns 100% of the outstanding shares of capital
stock of its Subsidiaries and all of such shares of capital stock are duly
authorized and validly issued and are fully paid and nonassessable. All of the
shares of capital stock of the Company's Subsidiaries are owned by the Company
free and clear of any security interest, claim, lien or encumbrance.
(j) There is no action, suit or proceeding before or by any
government, governmental instrumentality or court, domestic or foreign, to which
the Company or any of its Subsidiaries is a party or to which any property of
the Company or any of its Subsidiaries is subject or which is pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries which might result in a Material Adverse Change.
(k) Neither the Company nor any of its Subsidiaries nor any of
their respective directors, officers or controlling persons has taken or will
take, directly or indirectly, any action designed to cause or result in, or
which constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares; and neither the Company nor any of
its affiliates has distributed or will distribute any prospectus (as such term
is defined in the Act and the Regulations) in connection with the offering and
sale of the Shares other than any preliminary prospectus filed with the
Commission or the Prospectus or other material permitted by the Act or the
Regulations.
(l) The consolidated financial statements included in the
Registration Statement and the Prospectus, together with the related schedules
and notes, present fairly the financial position of the Company and its
Subsidiaries as of the dates indicated and the consolidated results of
operations, stockholders' equity and cash flows of the Company and its
Subsidiaries for the periods specified. Such financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved. The financial
statement schedules, if any, included in the Registration Statement present
fairly the information required to be stated therein. The selected financial
data included in the Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited consolidated
financial statements included in the Registration Statement. The pro forma
financial statements and other pro forma financial information included in the
Prospectus present fairly the information shown therein, have been prepared in
all material respects in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements, have been properly compiled on
the pro forma bases described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are
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<PAGE>
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(m) There are no contracts, agreements or understandings
between the Company or any of its Subsidiaries and any person granting such
person the right to require the Company or any of its Subsidiaries to file a
registration statement under the Act with respect to any securities owned or to
be owned by such person or to require the Company or any of its Subsidiaries to
include such securities in any securities being registered pursuant to any
registration statement filed by the Company or any of its Subsidiaries under the
Act.
(n) Neither the Company nor any of its Subsidiaries is in
breach or violation of any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of the properties or assets
of the Company or any of its Subsidiaries are subject, nor is the Company or any
of its Subsidiaries in violation of the provisions of its respective charter,
articles of incorporation, by-laws or code of regulations or similar
organizational documents or any statute or any judgment, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company, any of its Subsidiaries or any of their properties or assets
(except to the extent any such conflict, breach, violation or default is cured
at or prior to the Closing Date and within the grace period applicable thereto
or would not have a Material Adverse Effect).
(o) Except as described in the Registration Statement and the
Prospectus, there are no outstanding options, warrants or other rights calling
for the issuance of, and no commitments, plans or arrangements to issue, any
shares of capital stock of the Company or any of its Subsidiaries or any
security convertible into or exchangeable for capital stock of the Company or
any of its Subsidiaries.
(p) The Company and each of its Subsidiaries has good and
marketable title in fee simple to all real property and good title to all
personal property owned by each of them, in each case free and clear of all
liens, encumbrances and defects except (i) such as are described in the
Registration Statement or (ii) such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company and its Subsidiaries; and all real
property and buildings held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
Subsidiaries. The Company and its Subsidiaries enjoy peaceful and undisturbed
possession under all leases to which they are parties as lessee, except for such
leases that, singly or in the aggregate, would not have a Material Adverse
Effect. The Company and each of its Subsidiaries maintains such insurance as may
be required by law and such other insurance, to such extent and against such
hazards and liabilities, as is customarily maintained by companies similarly
situated (which may include self-insurance in the same form as is customarily
maintained by companies similarly situated).
(q) There are no contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not so described or
filed.
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(r) The Company and each of its Subsidiaries own or possess
all foreign and domestic governmental licenses, permits, certificates, consents,
orders, approvals and other authorizations (collectively, "Governmental
Licenses") necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as presently conducted, except where the
failure to own or possess such Governmental Licenses could reasonably be
expected to not have a Material Adverse Effect; all of the Governmental Licenses
are valid and in full force and effect, except where the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
revocation or modification of any such Governmental Licenses that, singly or in
the aggregate, would have a Material Adverse Effect.
(s) The Company and each of its Subsidiaries own or possess,
or can acquire on reasonable terms, adequate foreign and domestic patents,
patent rights, licenses, trademarks, service marks, trade names, inventions,
copyrights and know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures)
(collectively, "intellectual property") necessary to carry on their business as
presently conducted, and neither the Company nor any of its Subsidiaries has
received any notice of any infringement of or conflict with asserted rights of
others with respect to any intellectual property which would render any
intellectual property invalid or inadequate to protect the interest of the
Company or any Subsidiaries therein and which infringement or conflict, singly
or in the aggregate, would have a Material Adverse Effect.
(t) The Company and each of its Subsidiaries comply in all
material respects with all Environmental Laws (as defined below) except to the
extent that failure to comply with such Environmental Laws would not have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries (i) is
the subject of any pending or, to the knowledge of the Company, threatened
federal, state or local investigation evaluating whether any remedial action by
the Company or any Subsidiary is needed to respond to a release of any Hazardous
Materials (as defined below) into the environment, resulting from the Company's
or any of its Subsidiaries' business operations or ownership or possession of
any of their properties or assets or (ii) is in contravention of any
Environmental Laws that in the case of (i) or (ii), would have a Material
Adverse Effect. Neither the Company nor any Subsidiary has received any notice
or claim, nor are there pending or, to the knowledge of the Company, threatened
lawsuits against them, with respect to violations of any Environmental Law or in
connection with any release of any Hazardous Material into the environment that,
in the aggregate, if the subject of any unfavorable decision, ruling or finding,
would have a Material Adverse Effect. As used herein, "Environmental Laws" means
any foreign, federal, state or local law or regulation applicable to the
Company's or any of its Subsidiaries' business operations or ownership or
possession of any of their properties or assets relating to environmental
matters, and "Hazardous Materials" means those substances that are regulated by
or form the basis of liability under any Environmental Laws.
(u) No labor dispute exists with the Company's employees or
with employees of its Subsidiaries or, to the knowledge of the Company, is
imminent that might reasonably be expected to have a Material Adverse Effect.
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<PAGE>
(v) All United States federal income tax returns of the
Company and its Subsidiaries required by law to be filed have been filed and all
taxes shown by such returns or otherwise assessed, which are due and payable,
have been paid, except for such taxes or tax assessments, if any, as are being
contested in good faith and as to which adequate reserves, to the extent
required by GAAP, have been provided. All other franchise and income tax returns
of the Company and its Subsidiaries required to be filed pursuant to applicable
foreign, state or local law have been filed, except insofar as the failure to
file such returns would not have a Material Adverse Effect, and all taxes shown
on such returns or otherwise assessed which are due and payable have been paid,
except for such taxes or tax assessments, if any, as are being contested in good
faith and as to which adequate reserves, to the extent required by GAAP, have
been provided.
(w) The Company has obtained the written agreements of the
holders of all of its outstanding securities on the date hereof, in the forms
previously furnished to you, that, for a period of 270 days from the date
hereof, such parties will not, without the prior written consent of the
Underwriter, directly or indirectly, offer, sell, agree to sell, grant any
option for the sale of, or otherwise dispose (or announce any offer, sale, grant
of an option for sale or other disposition) of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of Common
Stock.
(x) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general and specific
authorizations; (ii) transactions are recorded as necessary to permit
preparations of financial statements in conformity with GAAP and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) There are no business relationships or related party
transactions of the nature described in Item 404 of Regulation S-K involving the
Company or its Subsidiaries and any person described in such Item that are
required to be disclosed in the Prospectus that have not been so disclosed.
(z) The Company and its Subsidiaries are in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or any of its Subsidiaries would have any
liability; neither the Company nor any of its Subsidiaries has incurred or
expects to incur liability under (i) Title IV ERISA with respect to termination
of, or withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company and its Subsidiaries would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
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<PAGE>
(aa) Neither the Company nor any of its Subsidiaries, nor, to
the Company's or any Subsidiary's knowledge, any director, officer, agent,
employee or other person associated with or acting on behalf of the Company or
any of its Subsidiaries, has used any corporate funds during the last five years
for any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(ab) Neither the Company nor any of its Subsidiaries is (i) an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or (ii) a "holding company" or a "subsidiary company" or an
"affiliate" of a holding company within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(ac) The Company and each of its Subsidiaries has complied
with all provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws
of Florida).
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, at a purchase price per share of $_____,
the Firm Shares.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at a closing held at the offices of
Friedman, Billings, Ramsey & Company, Inc., Potomac Tower, 1001 19th Street
North, 18th Floor, Arlington, Virginia 22209, or at such other place as shall be
agreed upon by you and the Company, at 10:00 A.M. on the third business day
following the date of the effectiveness of the Registration Statement (or, if
the Company has elected to rely upon Rule 430A of the Regulations, the third
business day after the determination of the initial public offering price of the
Shares), or such other time not later than ten business days after such date as
shall be agreed upon by you and the Company (such time and date of payment and
delivery being herein called the "Closing Date"). Payment shall be made to the
Company by wire transfer in federal (same-day) funds, against delivery to you of
certificates for the Shares to be purchased by them. Certificates for the Shares
shall be registered in such name or names and in such authorized denominations
as you may request in writing at least two full business days prior to the
Closing Date. The Company will permit you to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
(c) In addition, the Company hereby grants to the Underwriter
the option to purchase up to 150,000 Additional Shares at the same purchase
price per share to be paid by the Underwriter to the Company for the Firm Shares
as set forth in this Section 2, for the sole purpose of covering over-allotments
in the sale of Firm Shares by the Underwriter. This option may be exercised at
any ime, in whole or in part, on or before the thirtieth day following the date
of the Prospectus, by written notice by you to the Company. Such notice shall
set forth the aggregate number of Additional Shares as to which the option is
being exercised and the date and time, as reasonably determined by you, when the
Additional Shares are to be delivered (such date and time being herein sometimes
referred to as the "Additional Closing Date"); provided,
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<PAGE>
however, that the Additional Closing Date shall not be earlier than the Closing
Date or earlier than the second full business day after the date on which the
option shall have been exercised nor later than the eighth full business day
after the date on which the option shall have been exercised. Certificates for
the Additional Shares shall be registered in such name or names and in such
authorized denominations as you may request in writing at least two full
business days prior to the Additional Closing Date. The Company will permit you
to examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date.
Payment for the Additional Shares shall be made by wire
transfer of federal (same-day) funds at a closing held at the offices of
Friedman, Billings, Ramsey & Company, Inc., Potomac Tower, 1001 19th Street
North, 18th Floor, Arlington, Virginia 22209 or such other location as may be
mutually acceptable, upon delivery of the certificates for the Additional
Shares.
3. Offering.
The Company understands that you propose to make a public
offering of the Shares, upon the terms and conditions set forth herein, as soon
as you deem advisable after the Registration Statement becomes effective.
The Company and the Underwriter agree that up to 100,000 of
the Shares to be purchased by the Underwriter (the "Reserved Shares") shall be
reserved for sale by the Underwriter to directors, officers, employees ,
customers and suppliers of the Company, as part of the distribution of the
Shares by the Underwriter, in accordance with the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved Shares are not so purchased by such eligible
purchasers, such Reserved Shares may be offered to the public as part of the
public offering contemplated hereby.
4. Covenants of the Company.
The Company covenants and agrees with the Underwriter that:
(a) If the Registration Statement has not yet been declared
effective, the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b), the Company will file the Prospectus (properly
completed if Rule 430A has been used) pursuant to Rule 424(b) within the
prescribed time period and will provide evidence satisfactory to you of such
timely filing.
The Company will promptly notify you (and, if requested by
you, will confirm such notice in writing) (i) when the Registration Statement
and any amendments thereto become effective, (ii) of any request by the
Commission for any amendment of or supplement to the Registration Statement or
the Prospectus or for any additional information, (iii) of the mailing or the
delivery to the Commission for filing of any amendment of or supplement to the
Registration Statement or the Prospectus, (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto or of the initiation or, when known by the
Company, the threatening, of any proceedings
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<PAGE>
therefor, (v) of the receipt of any comments from the Commission, and (vi) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction or the initiation
or, when known by the Company, the threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time, the
Company will make every reasonable effort to prevent the issuance of any such
stop order and, if issued, to obtain the lifting of such order as soon as
possible. The Company will not file any amendment to the Registration Statement
or any amendment of or supplement to the Prospectus (including the prospectus
required to be filed pursuant to Rule 424(b)) that differs from the prospectus
on file at the time of the effectiveness of the Registration Statement after the
effective date of the Registration Statement to which you shall reasonably
object in writing after being timely furnished in advance a copy thereof.
(b) The Company will comply to the best of its ability with
the Act and the Regulations, and the Securities and Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations") so as to permit he completion of the
distribution of the Shares as contemplated in this Agreement and the Prospectus.
If at any time when a prospectus is required by the Act to be delivered in
connection with sales of the Shares any event shall occur or condition exist as
a result of which it is necessary, in the opinion of counsel for the
Underwriter, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances existing at
the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the Act or the Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 4(c), such amendment or supplement as may be
necessary to correct such untrue statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements.
(c) The Company will not at any time file or make any
amendment to the Registration Statement, or any amendment or supplement (i) if
the Company has not elected to rely upon Rule 430A, to the Prospectus or (ii) if
the Company has elected to rely upon Rule 430A, to either the prospectus includ
d in the Registration Statement at the time it becomes effective or to the
Prospectus, of which you shall not have previously been advised and furnished a
copy or to which you or counsel to the Underwriter shall have promptly and
reasonably objected in writing.
(d) The Company will promptly deliver to you two signed copies
of the Registration Statement, including exhibits and all amendments thereto,
and the Company will promptly deliver to you such number of copies of any
preliminary prospectus, the Prospectus, the Registration Statement, and all
amendments of and supplements to such documents, if any, as you may reasonably
request.
(e) The Company will endeavor in good faith, in cooperation
with you or your counsel, at or prior to the time of effectiveness of the
Registration Statement, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares of such
jurisdictions as you may designate and to maintain such qualification in effect
for so long
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<PAGE>
as required for the distribution thereof; except that in no event
shall the Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process.
(f) The Company will make generally available (within the
meaning of Section 11(a) of the Act) to its security holders and to you as soon
as practicable, but not later than 45 days after the end of its fiscal quarter
in which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement (in form complying with the provisions
of Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(g) During the period of 270 days from the date of the
Prospectus, the Company will not, without your prior written consent, issue,
offer, sell, grant any option for the sale of, or otherwise dispose of, directly
or indirectly, any Common Stock (or any securities convertible into or
exercisable or exchangeable for Common Stock), and the Company will obtain the
undertaking of each of its officers, directors and stockholders not to engage in
any of the aforementioned transactions on their own behalf, other than the
Company's sale of Shares hereunder and except that the Company may issue shares
of Common Stock as consideration for acquisitions and pursuant to its 1996 Stock
Option Plan and the Non-employee Directors Stock Option Plan without such
consent.
(h) During a period of five years from the effective date of
the Registration Statement, the Company will furnish to you copies of (i) all
reports to its shareholders and (ii) all reports, financial statements and proxy
or information statements f led by the Company with the Commission or any
national securities exchange.
(i) The Company will apply the proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to cause the Shares
to be authorized for quotation on the Nasdaq National Market.
(k) The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 of the Regulations.
(l) If the Company has elected to rely upon Rule 430A, it will
take such steps as it deems necessary to ascertain promptly whether the forms of
prospectus transmitted for filing under Rule 424(b) was received for filing by
the Commission and, in the event that it was not, it will promptly file such
prospectus.
(m) The Company, during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, will file all
documents required to be filed with the Commission pursuant to Sections 13, 14
or 15 of the 1934 Act within the time periods required by the 1934 Act and the
1934 Act Regulations.
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5. Payment of Expenses.
Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, the Company hereby agrees to
pay all costs and expenses incident to the performance of the obligations of the
Company hereunder, including those in connection with (i) preparing, printing,
duplicating, filing and distributing the Registration Statement, as originally
filed and all amendments thereto (including all exhibits thereto), any
preliminary prospectus, the Prospectus and any amendments or supplements thereto
(including, without limitation, fees and expenses of the Company's accountants
and counsel), the underwriting documents (including this Agreement) and all
other documents related to the public offering of the Shares (including those
supplied to the Underwriter in quantities stated in Section 4 above), (ii) the
issuance, transfer and delivery of the Shares to the Underwriter, including any
transfer or other taxes payable thereon, (iii) the qualification of the Shares
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing a preliminary and final "Blue Sky Survey" and the fees of
counsel for the Underwriter and such counsel's disbursements in relation
thereto, (iv) quotation of the Shares on the Nasdaq National Market, (v) filing
fees of the Commission and the National Association of Securities Dealers, Inc.,
(vi) the cost of printing certificates representing the Shares, (vii) the cost
and charges of any transfer agent or registrar and (viii) upon demand, the
reasonable documented out-of-pocket expenses of the Underwriter, including but
not limited to, costs such as printing, facsimile, courier service, direct
computer expenses, accommodations, travel and the fees and expenses of the
Underwriter's counsel, consultants and accountants; provided, that the aggregate
amount of out-of-pocket expenses of the Underwriter that the Company shall be
obligated to reimburse pursuant to this clause (viii) shall be equal to the sum
of (A) 100% of the out-of-pocket expenses in excess of $75,000 up to a maximum
of $75,000, (B) 100% of the out-of-pocket expenses in excess of $187,500 up to a
maximum of $37,500 and (C) 50% of the out-of-pocket expenses in excess of
$225,000.
6. Conditions of Underwriter's Obligations.
The obligations of the Underwriter to purchase and pay for the
Firm Shares and the Additional Shares, as provided hereto, shall be subject to
the accuracy of the representations and warranties of the Company herein
contained, as of the date hereof and as of the Closing Date (for purposes of
this Section 6 "Closing Date" shall refer to the Closing Date for the Firm
Shares and the "Additional Closing Date" shall refer to the closing date for the
Additional Shares), to the absence from any certificates, opinions, written
statements or letters furnished to you or to O'Sullivan Graev & Karabell, LLP
("Underwriter's Counsel") pursuant to this Section 6 of any misstatement of a
material fact or omission to state a material fact, to the performance by the
Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York time, on the date of this Agreement, or at such
later time and date as shall have been consented to in writing by you; if the
Company shall have elected to rely upon Rule 430A of the Regulations, the
Prospectus shall have been filed with the Commission in a timely fashion in
accordance with Section 4(a) hereof; and, at or rior to the Closing Date no stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereof shall have been issued and no proceedings
therefor shall have been initiated or, to the Company's knowledge, threatened by
the Commission.
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(b) At the Closing Date you shall have received the opinion of
Elias, Matz, Tiernan & Herrick, L.L.P., counsel for the Company, dated the
Closing Date, made pursuant to the BA Accord on Legal Opinions, addressed to the
Underwriter and in form and substance satisfactory to Underwriter's Counsel, to
the effect that:
(i) Each of the Company and its Subsidiaries has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation. Each of
the Company and its Subsidiaries is duly qualified and in good
standing as a foreign corporation in eac jurisdiction in which the
character or location of its properties (owned, leased or licensed)
or the nature or conduct of its business makes such qualification
necessary, except for those failures to be so qualified or in good
standing which will not in the aggregate have a Material Adverse
Effect. Each of the Company and its Subsidiaries has all requisite
corporate authority to own, lease and license its properties and
conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus.
(ii) All of the outstanding shares of capital stock of
the Company have been duly and validly authorized and issued, are
fully paid and nonassessable and were not issued and are not now in
violation of or subject to any preemptive or other similar rights of
any stockholder of the Company arising by operation of law, under the
Amended and Restated Articles of Incorporation or the Amended and
Restated Code of Regulations o the Company or under any agreement to
which the Company or any of its Subsidiaries is a party. The Shares,
when issued, delivered and sold in accordance with this Agreement,
will be validly issued and outstanding, fully paid and nonassessable,
and will not have been issued in violation of or be subject to any
preemptive or other similar rights of any stockholder of the Company
arising by operation of law, under the Articles of Incorporation or
Code of Regulations of the Company or under any agreement to which
the Company or any of its Subsidiaries is a party. The Company had,
at June 30, 1996, an authorized and outstanding capitalization as set
forth under the caption "Capitalization" in the Registration
Statement and the Prospectus. The Shares conform to the description
thereof contained under the caption "Description of Capital Stock" in
the Prospectus.
(iii) All of the issued and outstanding capital stock of
each Subsidiary of the Company has been duly authorized and validly
issued and is fully paid and nonassessable and was not issued in
violation of preemptive or similar rights of any stockholder of the
Company arising by operation of law, under the Articles of
Incorporation or Code of Regulations of the Company or under any
agreement to which the Company or any of its Subsidiaries is a party,
and is owned directly or indirectly by the Company, free and clear of
any lien, encumbrance, claim, security interest, restriction on
transfer, shareholders' agreement, voting trust or other defect of
title whatsoever.
(iv) The Shares to be sold under this Agreement to the
Underwriters have been approved for quotation on the Nasdaq National
Market.
(v) This Agreement and the transactions contemplated
hereby have been duly and validly authorized by the Company and this
Agreement has been duly and validly executed and delivered by the Com
any and is a valid and binding agreement
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of the Company, enforceable against the Company in accordance with
its terms, except that (i) enforcement hereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws, regulations or procedures of
general applicability now or hereafter in effect relating to or
affecting creditors' or other obligees' rights generally and (B)
general principles of equity and the discretion of the court
(regardless of whether enforceability is considered in a proceeding
in equity or at law) and (ii) the enforceability of any
indemnification or contribution provisions hereof may be limited
under applicable securities laws or the public policies underlying
such laws.
(vi) To such counsel's actual knowledge, there is no
action, suit or proceeding before or by any government, governmental
instrumentality or court, domestic or foreign, to which the Company
or any of it Subsidiaries is a party or which any property of the
Company or any of its Subsidiaries is subject or which is pending or,
to the actual knowledge of the Company, threatened against the
Company or any of its Subsidiaries which might result in a Material
Adverse Change or any development involving a Material Adverse
Change.
(vii) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated here-
by do not and will not (i) conflict with or result in a breach or
violation, of any of the terms and provisions of, or constitute a
default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its Subsidiaries pursuant to, any
indenture, mortgage, deed of trust, loan or credit agreement or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries or their respective properties or assets may be bound
and which is set forth as an exhibit to the Registration Statement or
(ii) violate or conflict with any provision of the Articles of
Incorporation or Code of Regulations of the Company or any of its
Subsidiaries or any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its
Subsidiaries or any of their respective properties or assets, except
where any such violation, conflict, breach or default would not have
a Material Adverse Effect. No consent, approval, authorization,
order, registration, filing, qualification, license or permit of or
with any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company or any of its Subsidiaries
or any of their respective properties or assets is required for the
execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the
issuance, sale and delivery of the Shares to be issued, sold and
delivered by the Company hereunder, except the registration under the
Act of the Shares and such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriter and the listing of the Shares on the Nasdaq National
Market.
(viii) The Registration Statement and the Prospectus and
any amendments thereof or supplements thereto (other than the
financial statements, the notes
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thereto and schedules and other financial and statistical data
included or incorporated by reference therein, as to which no opinion
need to be rendered) comply as to form in all material respects with
the requirements of the Act and the Regulations.
(ix) The statements under the captions "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Credit Facility," "Management," "Certain
Transactions," "Description of Capital Stock," "Restrictions on
Acquisition of the Company," "Shares Eligible for Future Sale" and
"Underwriting" in the Prospectus, and Item 14 of Part II of the
Registration Statement, insofar as such statements onstitute
summaries of legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to
such legal matters, documents and proceedings.
(x) The Registration Statement is effective under the
Act and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereof has
been issued and no proceedings therefor have been initiated or, to
such counsel's actual knowledge, threatened by the Commission and all
filings required by Rule 424(b) of the Regulations have been made.
(xi) Delivery of certificates for the Shares against
payment therefor will transfer valid and marketable title thereto to
the Underwriter, assuming that the Underwriter has purchased such
Shares in good faith and without knowledge of an adverse claim, and
to counsel's actual knowledge, such Shares are free and clear of all
lien , encumbrances and claims.
(xii) To such counsel's actual knowledge, there are no
contracts, agreements or other documents of a type required to be
described or referred to in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
other than those described or referred to therein or filed as
exhibits thereto, and the description in the Prospectus of such
contracts, agreements or other documents therein fairly presents in
all material respects the information shown.
(xiii) To the actual knowledge of such counsel, after
due inquiry, there are no contracts, agreements or understandings
between the Company or any of its Subsidiaries and any person
granting such person the right to require the Company or any of its
Subsidiaries to file a registration statement under the Act with
respect to any securities owned or to be owned by such person or to
requir the Company or any of its Subsidiaries to include such
securities in any securities being registered pursuant to any
registration statement filed by the Company or any of its
Subsidiaries under the Act.
(xiv) To the actual knowledge of such counsel, after due
inquiry, there are no outstanding options, warrants or other rights
calling for issuance of, and no commitments, plans or arrangements to
issue, any shares of capital stock of the Company or any of its
Subsidiaries or any security convertible into or exchangeable for
capital stock of the Company or any of its Subsidiaries, except as
described in the Registration Statement and the Prospectus.
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(xv) To the actual knowledge of such counsel, after due
inquiry, there are no business relationships or related party
transactions of the nature described in Item 404 of Regulation S-K
involving the Company or its Subsidiaries and any person described in
such Item that are required to be disclosed in the Prospectus that
have not been so disclosed, except as described in the Registration
Statement and Prospectus.
(xvi) Neither the Company nor any of its Subsidiaries is
(i) an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or (ii) a "holding company" or a
"subsidiary company" or an "affiliate" of a holding company within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
In rendering such opinion, such counsel may rely solely (A) as
to matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriter's Counsel) of other counsel reasonably acceptable to Underwriter's
Counsel, familiar with the applicable laws; (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and Subsidiaries and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting,
among other things, the corporate existence or good standing of the Company and
its Subsidiaries, provided that copies of any such statements or certificates
shall be delivered to Underwriter's Counsel. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and, in their opinion, you and they are justified
in relying thereon. Such counsel's opinion shall be limited to matters governed
by federal securities laws and, where specifically noted, the laws of the State
of Ohio. In rendering such opinions, counsel may rely on the opinion of
__________, special Ohio counsel to the Company, and such counsel state that
they are not licensed to practice in, and are not to be considered experts on,
the law of the State of Ohio and that since they have acted only as special
counsel to the Company and the Subsidiaries, and that in the preparation of
their letter to you, they have made no independent investigation or special
inquiry or review concerning any facts except as necessary for their opinion nor
have they reviewed compliance with governmental or corporate requirements by the
Company or the Subsidiaries except as necessary for their opinion. Whenever
counsel renders their opinion with respect to the existence or absence of facts
to their actual knowledge, such language shall indicate that: (i) they are
referring to the actual present knowledge of those attorneys who have given
substantive attention to the representation of the Company or the Subsidiaries;
(ii) they have not undertaken any independent investigation with respect to such
matter other than as set forth in their opinion; and (iii) no inference that
they have actual knowledge concerning such matter beyond that set forth in their
opinion should be drawn from the fact of their representation of the Company as
special counsel or from their expression of such opinion.
Such counsel shall also state in a separate letter that no
facts have come to such counsel's attention that would lead such counsel to
believe that the Registration Statement, at the time it was declared effective
by the Commission (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if
applicable) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as of its date and as
of the Closing Date, contained or contains any untrue statement of a material
fact or omitted to state a material fact required to be
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<PAGE>
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, it being understood
that such counsel need make no comment with respect to the financial statements,
the notes thereto, financial tables or any other financial or statistical data
included in the Registration Statement or Prospectus, and provided, further,
that such counsel may state that (i) they have not independently verified the
accuracy, completeness or fairness of the financial statements and the notes
thereto contained in the Registration Statement and the Prospectus or in any
amendments or supplements thereto, and (ii) the limitations inherent in their
participation in the preparation of the Registration Statement and the
Prospectus and the knowledge available to them are such that they are unable to
assume, and do not assume, any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus or any amendment or supplement thereof.
(c) All proceedings taken in connection with the sale of the
Firm Shares and the Additional Shares as herein contemplated shall be
satisfactory in form and substance to you and to Underwriter's Counsel, and the
Underwriter shall have received from said Underwriter's Counsel a favorable
opinion, dated as of the Closing Date wit respect to the issuance and sale of
the Shares, the Registration Statement and the Prospectus and such other related
matters as you may reasonably require, and the Company shall have furnished to
Underwriters' Counsel such documents as they reasonably request for the purpose
of enabling them to pass upon such matters.
(d) At the Closing Date you shall have received a certificate
of the Chief Executive Officer and Chief Financial Officer of the ompany, dated
the Closing Date to the effect that (i) the condition set forth in subsection
(a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of
the Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are true and correct in all material respects (disregarding any
materiality qualifiers in such representations and warranties), (iii) as of the
Closing Date, the obligations of the Company to be performed hereunder on or
prior thereto have been duly performed and (iv) subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, the Company and its Subsidiaries have not sustained any material
loss or interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any Material Adverse Change, except in each case as
described in or contemplated by the Prospectus.
(e) At the time this Agreement is executed and the Closing
Date, you shall have received a letter, from Price Waterhouse L.L.P.,
independent public accountants for the Company, dated, respectively, as of the
date of this Agreement and as of the Closing Date addressed to the Underwriter
and in form and substance satisfactory to you, to the effect that: (i) they are
independent certified public accoun ants with respect to the Company within the
meaning of the Act and the Regulations and stating that the answer to Item 10 of
the Registration Statement is correct insofar as it relates to them; (ii)
stating that, in their opinion, the consolidated financial statements of the
Company, and schedules and notes thereto, included in the Registration Statement
and the Prospectus and covered by their opinion therein comply as to
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form in all material respects with the applicable accounting requirements of the
Act and the applicable published rules and regulations of the Commission
thereunder; (iii) on the basis of procedures consisting of a reading of the
latest available unaudited interim consolidated financial statements of the
Company and its Subsidiaries, a reading of the minutes of meetings and consents
of the shareholders and boards of directors of the Company and its Subsidiaries
and the committees of such boards subsequent to June 30, 1996, inquiries of
officers and other employees of the Company and its Subsidiaries who have
responsibility for financial and accounting matters of the Company and its
Subsidiaries with respect to transactions and events subsequent to June 30, 1996
and other specified procedures and inquiries to a date not more than five days
prior to the date of such letter, nothing has come to their attention that would
cause them to believe that: (A) the unaudited consolidated financial statements
and schedules of the Company presented in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder or that such unaudited financial
statements are not fairly presented in conformity with GAAP applied on a basis
substantially consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus; (B) with respect to the period
subsequent to June 30, 1996, there were, as of the date of the most recent
available monthly consolidated financial statements of the Company and its
Subsidiaries, if any, and as of a specified date not more than five days prior
to the date of such letter, any changes in the capital stock or long-term
indebtedness of the Company or any decrease in the net current assets or
stockholders' equity of the Company, in each case as compared with the amounts
shown in the most recent balance sheet presented in the Registration Statement
and the Prospectus, except for changes or decreases which the Registration
Statement and the Prospectus disclose have occurred or may occur or which are
set forth in such letter; or (C) that during the period from June 30, 1996 to
the date of the most recent available monthly consolidated financial statements
of the Company and its Subsidiaries, if any, and to a specified date not more
than five days prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in total
revenues, or total or per share net income, except for decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur or
which are set forth in such letter; (iv) stating that they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company and its
Subsidiaries set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company and its Subsidiaries or
from schedules furnished by the Company, and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
specified by you set forth in such letter, and found them to be in agreement;
and (v) on the basis of a reading of the pro forma combined financial
information included in the Registration Statement and the Prospectus, carrying
out certain specified procedures that would not necessarily reveal matters of
significance with respect to the comments set forth in this clause (v),
inquiries of certain officials of the Company who have responsibility for
financial and accounting matters and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in the pro
forma combined financial information, nothing came to their attention that
caused them to believe that the pro forma combined financial information does
not comply in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro
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forma adjustments have not been properly applied to the historical amounts in
the compilation of such statements.
(f) Prior to the Closing Date the Company shall have furnished
to yo such further information, certificates and documents as you may reasonably
request.
(g) You shall have received from each person who is a
director, officer or stockholder of the Company an agreement to the effect that
such person will not, directly or indirectly, without your prior written
consent, offer, sell, agree to sell, grant any option for the sale of, or
otherwise dispose (or announce any offer, sale, grant of an option for sale or
othe disposition) of any shares of Common Stock (or any securities convertible
into or exercisable or exchangeable for shares of Common Stock) for a period of
270 days from the date hereof.
(h) At the Closing Date, the Shares shall have been approved
for quotation on the Nasdaq National Market.
If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriter's Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriter's Counsel, all of your obligations hereunder may be canceled by you
at, or at any time prior to, the Closing Date and your obligation to purchase
the Additional Shares may be canceled by you at, or at any time prior to, the
Additional Closing Date. Notice of such cancellation shall be given to the
Company in writing, or by telephone, telex or telegraph, confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwrite and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the 1934 Act against any
and all losses, liabilities, claims, damage and expenses whatsoever as incurred
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the 1934 Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any supplement thereto or amendment thereof, 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 not misleading;
provided, however, that the Company will not be liable in any such case to the
extent but only to the extent that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by the
Underwriter expressly for use therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have including under
this Agreement.
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(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of the directors of the Company, each of the officers of the
Company who shall have signed the Registration Stat ment, and each other person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the 1934 Act, against any losses, liabilities, claims, damages
and expenses whatsoever as incurred (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), jointly or several, to which they or any of them may become subject
under the Act, the 1934 Act or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement for the registration of the Shares, as
originally filed or any amendment thereof, or any related preliminary prospectus
or the Prospectus, or in any amendment thereof 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 not misleading, in each case to the extent but only to the extent, that
any such loss, liability, claim, damage or expense arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use
therein; provided, however, that in no such case shall the Underwriter be liable
or responsible for any amount in excess of the underwriting discount applicable
to the Shares purchased by the Underwriter hereunder. This indemnity will be in
addition to any liability which the Underwriter may otherwise have including
under this Agreement. The Company acknowledges that the statements set forth in
the last paragraph of the cover page, the stabilization legend on the inside of
the front cover page and in the third and eighth paragraphs under the caption
"Underwriting" in the Prospectus constitute the only information furnished in
writing by the Underwriter expressly for use in the registration statement
relating to the Shares as originally filed or in any amendment thereof, any
related preliminary prospectus or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 [except to the extent it was
unaware of such action and has been prejudiced in any material respect by such
failure or otherwise forfeits substantive rights or defenses by reason of such
failure or from any liability which it may have to any indemnified 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 will
be entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such
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action, (ii) the indemnifying parties shall not have employed counsel to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action or (iii) such indemnified party or parties shall have
been advised by counsel that there may be defenses available to it or them which
are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne by the
indemnifying parties, it being understood that the indemnifying party shall not
be liable for the expenses of more than one separate counsel in any one action
or in any separate but substantially similar actions arising out of the same or
similar general allegations or circumstances. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent.
8. Contribution.
In order to provide for contribution in circumstances in which
the indemnification provided for in Section 7 hereof is for any reason held to
be unavailable from any indemnifying party or is insufficient to hold harmless a
party indemnified thereunder, the Company and the Underwriter shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company any contribution received by the Company from persons,
other than the Underwriter, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the 1934 Act, officers of the Company who signed the
Registration Statement and directors of the Company) as incurred to which the
Company and the Underwriter may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Company and the
Underwriter from the offering of the Shares or, if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to above but also the relative fault of the
Company and the Underwriter in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Underwriter shall be deemed to be in the same proportion as
(x) the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) actually received by the Company and
(y) the total underwriting discounts and commissions actually received by the
Underwriter, respectively, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and of the Underwriter
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriter and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriter agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) in no case shall the Underwriter be liable or responsible
for any amount in excess of the underwriting
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discount applicable to the Shares purchased by the Underwriter hereunder and
(ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. Notwithstanding the
provisions of this Section 8, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that the Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the 1934 Act shall have the same rights to contribution as the
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the 1934 Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 8. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution maybe made against another party or parties,
notify each party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise [except to the extent it was unaware of
such action and has been prejudiced in any material respect by such failure or
otherwise forfeits substantive rights or defenses by reason of such failure or
from any liability which it may have to any party entitled to contribution]. No
party shall be liable for contribution with respect to any action or claim
settled without its consent.
9. Survival of Representations and Agreements.
All representations and warranties, covenants and agreements
of the Underwriter and the Company contained in this Agreement, including the
agreements contained in Section 5, the indemnity agreements contained in Section
7 and the contribution agree ents contained in Section 8, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Underwriter or any controlling person thereof or by or on behalf
of the Company, any of its officers and directors or any controlling person
thereof, and shall survive delivery of and payment for the Shares to and by the
Underwriter. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 10(d) hereof shall survive the termination of
this Agreement, including termination pursuant to Section 10 hereof.
10. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of
when (i) you and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement. If either the initial public offering price) or the purchase price
per Share has not been agreed upon prior to 5:00 P.M., Eastern time, on the
[third] full business day after the Registration Statement shall have become
effective, this Agreement shall thereupon terminate without liability to the
Company or the Underwriter except as herein expressly provided. Until this
Agreement becomes effective as aforesaid, it may be terminated by the Company by
notifying you or by you by notifying the Company. Notwithstanding the
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<PAGE>
foregoing, the provisions of this Section 10 and of Sections 1, 5, 7 and 8
hereof shall at all times be in full force and effect.
(b) After this Agreement has become effective, you shall have
the right to terminate this Agreement at any time prior to the Closing Date or
the obligations to purchase the Additional Shares at any time prior to the
Additional Closing Date, as the case may be; if (A) any domestic or
international event or act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, the market for the
Company's securities or securities in general; or (B) if trading on the New York
or American Stock Exchanges shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required, on the New York or American Stock Exchanges
by the New York or American Stock Exchanges or the Nasdaq National Market or by
order of the Commission or any other governmental authority having jurisdiction;
or (C) a banking moratorium has been declared by a state or federal authority or
if any new restriction materially adversely affecting the distribution of the
Firm Shares or the Additional Shares, as the case may be, shall have become
effective; or (D) (i) if the United States becomes engaged in hostilities or
there is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States or (ii) if there
shall have been such change in political, financial or economic conditions if
the effect of any such event in clause (b)(D)(i) or (b)(D)(ii) as in your
judgment makes it impracticable or inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Additional Shares, as the case may
be, on the terms contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 10
shall be by telephone, telex, facsimile or telegraph, confirmed in writing by
letter.
(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 10(a) hereof or (ii) Section 10(b) hereof), or if the sale
of the Shares provided for herein is not consummated because any condition to
the obligations of the Underwriter set forth herein is not satisfied or because
of any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof, the Company will, subject
to demand by you, reimburse you for all documented out-of-pocket expenses
(including the fees and expenses of their counsel), incurred by you in
connection herewith, as set forth in Section 5 hereof.
11. Notice.
All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the
Underwriter, shall be mailed, delivered, facsimiled or telexed or telegraphed
and confirmed in writing, to Friedman, Billings, Ramsey & Company Inc., Potomac
Tower, 1001 19th Street North, 18th Floor, Arlington, Virginia 22209, Attention:
Joseph R. Nardini, with a copy to O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York 10112, Attention: Michael J. W. Rennock,
Esq., if sent to the Company, shall be mailed, delivered, or telegraphed and
confirmed in writing to the Company, 3884 Indian Ripple Road, Dayton, Ohio 45440
(or, if after October 31, 1996, to: 4750 Hempstead Station, Dayton, Ohio
45429,), Attention: Albert L. Schwarz, with a copy to Elias, Matz, Tiernan &
Herrick L.L.P., 734 15th Street, N.W., 12th Floor, Washington, D.C. 20005,
Attention: Timothy B. Matz, Esq.
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<PAGE>
12. Parties.
This Agreement shall inure solely to the benefit of, and shall
be binding upon, the Underwriter and the Company and the controlling persons,
directors, officers, employees and agents referred to in Section 7 and 8, and
their respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
term "successors and assigns" shall not include a purchaser, in its capacity as
such, of Shares from the Underwriter.
13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.
14. General.
This Agreement may be executed in several counterparts, each
one of which shall be an original, and all of which constitute one and the same
document. The section headings in this Agreement are for the convenience of the
parties only and will not effect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and the Underwriter.
If the foregoing correctly sets forth the understanding
between you and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
MIAMI COMPUTER SUPPLY
CORPORATION
By:_____________________________________
Name: Albert L. Schwartz
Title: President
Accepted as of the date first above written
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By:_______________________________________
Name:
Title:
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<PAGE>
SCHEDULE I
Subsidiaries
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Diversified Data Products, Inc. Michigan, USA
Diversified Data Products (U.K.), Ltd. United Kingdom
CEM (Overseas) Limited British Virgin Islands
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Exhibit 3.1
ARTICLES
OF
AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
MIAMI COMPUTER SUPPLY, INC.
The undersigned, Albert L. Schwarz, President, and Thomas C. Winstel,
Secretary, of Miami Computer Supply, Inc., an Ohio corporation for profit, do
hereby certify to the Secretary of State of the State of Ohio (the "Secretary")
as follows that:
The following Articles of Amendment and Restatement ("Articles of
Amendment") hereby amend and completely restate the Amended and Restated
Articles of Incorporation ("Articles of Incorporation") of Miami Computer
Supply, Inc. (the "Corporation"), as filed with the Secretary on December 8,
1995.
Upon the filing (the "Effective Time") of these Articles of Amendment
pursuant to the Ohio General Corporation Law (the "OGCL"), (i) the 1,194 shares
of the Corporation's Voting Common Shares without par value, issued and
outstanding immediately prior to the Effective Time (the "Old Voting Common
Stock") shall be reclassified as and changed into 238,800 validly issued, fully
paid and non-assessable shares of Common Stock authorized by Article V hereof,
and (ii) the 10,746 shares of the Corporation's Nonvoting Common Shares without
par value, issued and outstanding immediately prior to the Effective Time (the
"Old Nonvoting Common Stock") shall be reclassified as and changed into
2,149,200 validly issued, fully paid and non-assessable shares of Common Stock
authorized by Article V hereof. This recapitalization shall represent a 200 for
1 stock split. Each certificate that heretofore represented a share or shares of
Old Voting Common Stock or Old Nonvoting Common Stock shall, immediately after
the Effective Time, represent the number of shares of Common Stock into which
the shares of Old Voting Common Stock and Old Nonvoting Common Stock represented
by such certificates shall have been reclassified.
The Articles of Amendment were unanimously adopted by a resolution of
the Board of Directors of the Corporation on August 13, 1996, which resolution
set forth the proposed amendment and restatement and declared it advisable and
directed that the proposed amendment and restatement be submitted for
consideration by the stockholders of the Corporation. The Articles of Amendment
were approved by all of the stockholders of the Corporation who would be
entitled to notice of a meeting held for that purpose by unanimous written
consent on September 18, 1996.
The Corporation desires to restate its Articles of Incorporation as
currently in effect and the provisions set forth in the Articles of Amendment
include each and every charter provision currently in effect. The following
Articles of Amendment hereby amend and
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Miami Computer Supply, Inc.
Articles of Amendment
Page 2
restate the Articles of Incorporation in its entirety and were adopted to
supersede and take the place of the Articles of Incorporation and all amendments
thereto, as follows:
ARTICLE I
NAME; PURPOSE OF AMENDMENT AND RESTATEMENT
A. Name. The name of the corporation is Miami Computer Supply
Corporation (hereinafter referred to as the "Corporation").
B. Purpose of Amendment and Restatement. These amended and restated
Articles of Incorporation take the place and supersede the Corporation's
existing Articles of Incorporation as heretofore amended.
ARTICLE II
DURATION
Duration. The period of duration of the existence of the Corporation is
perpetual.
ARTICLE III
PURPOSE; EFFECTIVE DATE
Purpose and Effective Date. The purpose of the Corporation is to sell
computer equipment, accessories and supplies in the United States of America and
in other countries at such times and places and in such manner as may be
permitted under the applicable laws of the United States, the State of Ohio and
the several states and to engage in any other lawful activity or business for
which a corporation may be incorporated under the OGCL. The Corporation shall
have all of the general powers of a corporation as provided by the OGCL. These
Articles of Amendment shall become effective upon the date that they are
accepted by the Secretary for record.
ARTICLE IV
PRINCIPAL OFFICE
Principal Office. The address of the principal office of the Corporation
in the State of Ohio, Dayton, Ohio, Montgomery County, until such time as the
Board of Directors shall direct the establishment of a different principal
office in compliance with the Corporation's Code of Regulations (the
"Regulations") and applicable Ohio law.
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Miami Computer Supply, Inc.
Articles of Amendment
Page 3
ARTICLE V
CAPITAL STOCK
Capital Stock. Immediately before the filing of these Articles of
Amendment, the Corporation had the authority to issue up to twelve thousand
(12,000) common shares without par value, of which one thousand two hundred
(1,200) were Voting Common Shares and ten thousand eight hundred (10,800) were
Nonvoting Common Shares. Pursuant to these Articles of Amendment, the total
number of shares of capital stock which the Corporation has authority to issue
is thirty five million (35,000,000), of which thirty million (30,000,000) shall
be common stock, no par value per share (hereinafter the "Common Stock") and of
which five million (5,000,000) shall be preferred stock, no par value per share
(hereinafter the "Preferred Stock"). The Board of Directors shall have the
authority to establish series of unissued shares of any class of capital stock
by fixing and determining the number, designations, preferences, limitations and
relative rights, including voting rights, of the shares of any series so
established to the same extent that such number, designations, preferences,
limitations and relative rights could be stated if fully set forth in these
Articles of Amendment. Except to the extent required by governing law, the
shares of capital stock may be issued from time to time by resolution of the
Board of Directors without further approval of stockholders. The Corporation
shall have the authority to purchase its capital stock out of funds lawfully
available therefor, which capital stock, unless otherwise stated herein or in
any resolution relating to the Preferred Stock, shall constitute authorized but
unissued shares and may then be issued by the Corporation as set forth herein.
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations, and the
relative rights, preferences and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Article V (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, the holders
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Corporation. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, holders of Common Stock shall be entitled to
receive pro rata the remaining assets of the Corporation after the payment or
provision for payment of the Corporation's debts and liabilities and after the
holders of any class of stock having preference over the Common Stock have been
paid in full any sums to which they may be entitled.
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Miami Computer Supply, Inc.
Articles of Amendment
Page 4
B. Preferred Stock. The Board of Directors is hereby expressly
authorized to provide, by resolution or resolutions, out of the unissued shares
of Preferred Stock, for series of Preferred Stock. Before any shares of any such
series are issued, the Board of Directors shall fix, and hereby is expressly
empowered to fix, by resolution or resolutions, the following provisions of the
shares thereof:
(a) The designation of such series, the number of shares to
constitute such series and the stated value thereof;
(b) Whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(c) The dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of this class;
(d) Whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) The amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any distribution of
the assets, of the Corporation;
(f) Whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other series of
this class or any other securities, and, if so, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued;
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Miami Computer Supply, Inc.
Articles of Amendment
Page 5
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of preferred
stock and whether such shares may be reissued as shares of the same or any other
series of preferred stock;
(j) The limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(k) The conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(l) Any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, shall be identical, except that
there may be variations in respect of: the dividend or distribution rate; the
dates from which dividends thereon shall accrue and/or be cumulative; the dates
of the payment of dividends; redemption rights and price; liquidation price;
sinking fund requirements; conversion rights; and restrictions on the issuance
of shares of the same series or of any other class or series.
Prior to the issuance of any shares of a series of capital stock
established by resolution adopted by the Board of Directors, if such issuance is
the first issuance of shares of such series since the resolution was adopted,
the Corporation shall file with the Secretary for record articles of amendment
as required by the OGCL. Upon the filing of such articles of amendment with the
Secretary, the resolution establishing and designating the series and fixing and
determining the preferences, limitations and relative rights thereof shall
become an amendment of these Articles of Amendment.
ARTICLE VI
NO PREEMPTIVE RIGHTS
No Preemptive Rights. No holder of the capital stock of the Corporation
shall be entitled as such, as a matter of right or otherwise, to subscribe for
or purchase any part of any new or additional issue of equity or debt of any
class or series whatsoever, of the Corporation, or of securities convertible
into equity or debt of any class whatsoever, whether now or hereafter
authorized, or whether issued for cash or other consideration or by way of a
dividend.
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Miami Computer Supply, Inc.
Articles of Amendment
Page 6
ARTICLE VII
BOARD OF DIRECTORS
Directors. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors. The current number of
directors of the Corporation is five (5). The names of the current members of
the Board of Directors of the Corporation are: Robert G. Hecht, Anthony W.
Liberati, Harry F. Radcliffe, Albert L. Schwarz and Thomas C. Winstel. The
business address of each member of the Board of Directors of the Corporation is
3884 Indian Ripple Road, Dayton, Ohio 45440.
Except as otherwise fixed pursuant to the provisions of Article V hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors, the number of directors shall be determined by resolution
of the majority of the entire Board of Directors as provided in the
Corporation's Regulations, as may be amended from time to time, provided,
however, that the number of directors shall not be less than three nor greater
than twenty-one. Directors shall be elected by a plurality of the votes cast by
the holders of shares entitled to vote in the election of directors at a meeting
of stockholders at which a quorum is present. No holder of the capital stock of
the Corporation shall be permitted to cumulate his votes in the election of
directors.
A. Classification and Term. The Board of Directors, other than those
directors who may be elected by the holders of any class or series of stock
having preference over the Common Stock as to dividends or upon liquidation,
may, by resolution of the majority of the Whole Board of Directors and a
majority of the Continuing Directors then in office (as defined by Article X) be
divided into two or three classes as nearly equal in number as possible, each
class having not less than three directors, with one class to be elected
annually, as set forth in the Regulations of the Corporation. The terms of all
of the current directors shall expire at the annual meeting of stockholders to
be held in 1997 and, unless the Board is divided into classes as permitted
hereby, all Directors shall be elected annually.
B. Vacancies. Except as otherwise fixed pursuant to the provisions of
Article V hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors, any vacancy occurring in the Board of Directors,
whether due to an increase in the number of directors or otherwise, shall be
filled by a majority vote of the Whole Board of Directors and a majority of the
Continuing Directors then in office (as defined by Article X) though less than a
quorum of the Board of Directors, or by a sole remaining director, and any
director so chosen shall be elected until the expiration of such unexpired term
and until such director's successor shall have been elected and qualified.
Whenever the holders of any class or series of shares or group of classes or
series of shares are entitled to elect one or
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Miami Computer Supply, Inc.
Articles of Amendment
Page 7
more directors by the provisions of these Articles of Amendment, any vacancies
in such directorships and any newly created directorships of such class or
series to be filled by reason of increase in the number of such directors shall
be filled by the affirmative vote of a majority vote of the Whole Board of
Directors and a majority of the Continuing Directors then in office (as defined
by Article X), though less than a quorum of the Board of Directors, or by a sole
remaining director, and any director so chosen shall be elected until the
expiration of such unexpired term and until such director's successor shall have
been elected and qualified. When the number of directors is changed, the Board
of Directors shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided that no decrease in
the number of directors shall shorten the term of any incumbent director.
C. Removal. Subject to the rights of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation to elect
directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office (i) by the Board
of Directors, if by order of court he has been found to be of unsound mind, or
if he is adjudicated bankrupt, or if, within sixty (60) days from the date of
his election he does not qualify as a director by accepting in writing his
election or by acting at a meeting of directors, or (ii) with or without cause
by an affirmative vote of not less than two-thirds of the votes eligible to be
cast by stockholders at a duly constituted meeting of stockholders called
expressly for such purpose. Whenever the holders of any class or series of
capital stock of the Corporation are entitled to elect one or more directors by
the provisions of these Articles of Amendment or any amendment or supplement
thereto, only the holders of shares of that class or series of capital stock
shall be entitled to vote for or against the removal of any director elected by
the holders of the shares of that class or series. At least thirty (30) days
prior to such meeting of stockholders, written notice shall be sent to the
director whose removal will be considered at the meeting.
D. Nominations of Directors. Nominations of candidates for election as
directors of the Corporation at any annual meeting of stockholders may be made
(i) by, or at the direction of, a majority of the Board of Directors, or (ii) by
any stockholder entitled to vote at such annual meeting. Only persons nominated
in accordance with the procedures set forth in this Article VII.D. shall be
eligible for election as directors at an annual meeting. Ballots bearing the
names of all the persons who have been nominated for election as directors at an
annual meeting in accordance with the procedures set forth in this Article
VII.D. shall be provided for use at the annual meeting.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Article VII.D. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
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Miami Computer Supply, Inc.
Articles of Amendment
Page 8
principal office of the Corporation not less than (i) with respect to an
election to be held at any annual meeting of stockholders of the Corporation,
(a) for the first such annual meeting after the filing of these Articles of
Amendment, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders, and (b) thereafter, sixty
(60) days prior to the anniversary date of the mailing of proxy materials by the
Corporation in connection with the immediately preceding annual meeting of
stockholders of the Corporation; and (ii) with respect to a special meeting of
stockholders for the election of directors, the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director and as to the stockholder giving the notice (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Corporation
stock which are beneficially owned by such person on the date of such
stockholder notice, and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies with respect to nominees
for election as directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, but not
limited to, information required to be disclosed by Items 4, 5, 6 and 7 of
Schedule 14A (or any successors of such items); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such stockholder and any other stockholders known by such stockholder
to be supporting such nominees and (ii) the class and number of shares of
Corporation stock which are beneficially owned by such stockholder on the date
of such stockholder notice and, to the extent known, by any other stockholders
known by such stockholder to be supporting such nominees on the date of such
stockholder notice. At the request of the Board of Directors, any person
nominated by, or at the direction of, the Board for election as a director at an
annual or special meeting of stockholders shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Article VII.D. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article VII.D. in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of the
deficiency in the notice. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary within such
period of time, not to exceed five (5) days from the date such deficiency notice
is given to the stockholder, as the Board of Directors or such committee thereof
shall reasonably determine. If the deficiency is not cured within such period,
or if the Board of Directors or such committee thereof reasonably determines
that the additional information provided by the stockholder, together with
information previously provided, does not satisfy the requirements of this
Article VII.D. in any material respect, then the Board of Directors may reject
such stockholder's
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Miami Computer Supply, Inc.
Articles of Amendment
Page 9
nomination. The Secretary of the Corporation shall notify a stockholder in
writing whether his nomination has been made in accordance with the time and
informational requirements of this Article VII.D. Notwithstanding the procedures
set forth in this paragraph, if neither the Board of Directors nor such
committee thereof makes a determination as to the validity of any nominations by
a stockholder, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the nomination was made in accordance with
the terms of this Article VII.D. If the presiding officer determines that a
nomination was made in accordance with the terms of this Article VII.D., he
shall so declare at the annual meeting and ballots shall be provided for use at
the meeting with respect to such nominee. If the presiding officer determines
that a nomination was not made in accordance with the terms of this Article
VII.D., he shall so declare at the annual meeting and the defective nomination
shall be disregarded.
Notwithstanding the foregoing, and except as otherwise required by law
or by further articles of amendment of these Articles of Amendment, whenever the
holders of any one or more series of Preferred Stock shall have the right,
voting separately as a class, to elect one or more directors of the Corporation,
the provisions of this Article VII.D. shall not apply with respect to the
director or directors elected by such holders of Preferred Stock.
E. Discharge of Duties. In discharging the duties of their respective
positions, the Board of Directors, committees of the Board and individual
directors shall, in considering the best interests of the Corporation, consider
the effects of any action upon the Corporation's stockholders, employees,
suppliers, creditors, customers, the economy of the State of Ohio and of the
United States of America, the communities in which offices or other
establishments of the Corporation or any subsidiary are located, the long-term
as well the short-term interests of the Corporation and its stockholders,
including the possibility that these interests may be best served by the
continued independence of the Corporation, and all other pertinent factors.
ARTICLE VIII
INDEMNIFICATION, ETC. OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS
A. Limitation of Liability. No director shall be personally liable to
the Corporation or its stockholders for monetary damages for any act or omission
by such director as a director; provided that a director's liability shall not
be limited or eliminated to the extent that it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Corporation, or was undertaken with reckless disregard for the best
interests of the Corporation. No amendment to or repeal of this Article VIII.A.
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation
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Miami Computer Supply, Inc.
Articles of Amendment
Page 10
for or with respect to any acts or omissions of such director occurring prior to
such amendment.
B. Indemnification. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, by reason of the fact that such person is or was a
director, trustee, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee, officer,
employee, member, manager or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, partnership, joint
venture, trust or other enterprise or employee benefit plan, against liability
and expenses (including court costs and attorney's fees), judgments, fines,
excise taxes and amounts paid in satisfaction, settlement or compromise actually
and reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent authorized by Section 1701.13 of the OGCL or any
successor provision thereto.
C. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, employee or agent of the Corporation in defending an action, suit or
proceeding described in Article VIII.B. shall be paid by the Corporation as they
are incurred, in advance of the final disposition of such action, suit or
proceeding, as authorized by the Board of Directors only upon receipt of written
affirmation by or on behalf of such person in which he agrees to do both of the
following: (i) repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with the deliberate intent to cause
injury to the Corporation or undertaken with reckless disregard for the best
interests of the Corporation, and (ii) reasonably cooperate with the Corporation
concerning the action, suit or proceeding.
D. Other Rights and Remedies. The indemnification provided by this
Article VIII shall not be deemed to exclude any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Corporation's Articles of Amendment, any insurance or other agreement, trust
fund, letter of credit, surety bond, vote of stockholders or disinterested
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, member, manager or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person; provided that no indemnification shall be made to or on behalf
of an individual in respect of any of the following: (i) any claim, issue, or
matter as to which such person is adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless, and only to
the extent that, a court of competent jurisdiction determines that, despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court
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shall deem proper; or (ii) any action or suit in which the only liability
asserted against a director is pursuant to Section 1701.95 of the OGCL or any
successor thereto.
E. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the Corporation, or was
serving at the request of the Corporation as a director, officer, employee,
member, manager or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, partnership, joint venture, trust or
another enterprise or employee benefit plan, against any liability asserted
against him or incurred by him in any such capacity, or arising out of his
status, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article or the OGCL.
F. Modification. The duties of the Corporation to indemnify and to
advance expenses to a director, officer, employee or agent provided in this
Article VIII shall be in the nature of a contract between the Corporation and
each such director, officer, employee or agent and no amendment or repeal of any
provision of this Article VIII shall alter, to the detriment of such director,
officer, employee or agent, the right of such person to the advance of expenses
or indemnification related to a claim based on an act or failure to act which
took place prior to such amendment or repeal.
ARTICLE IX
MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS
A. Special Meetings of Stockholders. Except as otherwise required by law
and subject to the rights of the holders of any class or series of Preferred
Stock, special meetings of the stockholders of the Corporation may be called
only by (i) the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the Whole Board of Directors and a majority of
the Continuing Directors then in office (as defined by Article X), (ii) the
Chairman of the Board, (iii) the President, or (iv) the holders of not less than
50 percent of all votes outstanding and entitled to be cast on any issue
proposed to be considered at such special meeting. A request for a special
meeting of stockholders by stockholders of the Corporation shall state the
purpose of the meeting and the matters proposed to be acted on. The Secretary of
the Corporation shall inform the stockholders who make the request for the
special meeting of the reasonably estimated cost of preparing and mailing a
notice of the meeting and on payment of such costs to the Corporation, the
Secretary shall notify each stockholder entitled to notice of the special
meeting.
B. Action Without a Meeting. Any action permitted to be taken by the
stockholders at a meeting may be taken without a meeting if consent in writing
setting forth the action
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so taken shall be signed by all of the stockholders who would be entitled to
vote at a meeting for such purpose and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it, and both are filed with the Secretary of the Corporation as part of
the corporate records.
C. Stockholder Proposals. At an annual meeting of stockholders, only
such business shall be conducted, and only such proposals shall be acted upon,
as shall have been brought before the annual meeting by, or at the direction of,
(a) the Board of Directors or (b) any stockholder of the Corporation who
complies with all the requirements set forth in this Article IX.C.
Proposals, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Article IX.C. For stockholder proposals
to be included in the Corporation's proxy materials, the stockholder must comply
with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act (or any successor regulation). With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in the
Corporation's proxy materials, the stockholder's notice shall be delivered to,
or mailed and received at, the principal office of the Corporation (a) for the
first such annual meeting after the filing of these Articles of Amendment, at
the close of business on the tenth day following the date on which notice of
such meeting is first given to stockholders, and (b) thereafter not less than
sixty (60) days prior to the anniversary date of the mailing of proxy materials
by the Corporation in connection with the immediately preceding annual meeting
of stockholders of the Corporation. Such stockholder's notice shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business and, to the extent known, any other
stockholders known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the Corporation stock which are beneficially owned
by the stockholder on the date of such stockholder notice and, to the extent
known, by any other stockholders known by such stockholder to be supporting such
proposal on the date of such stockholder notice, and (d) any financial interest
of the stockholder in such proposal (other than interests which all stockholders
would have).
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Article IX.C. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Article IX.C. in any material respect, the Secretary of the
Corporation shall promptly notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five (5)
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days from the date such deficiency notice is given to the stockholder, as the
Board of Directors or such committee thereof shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or such
committee thereof determines that the additional information provided by the
stockholder, together with information previously provided, does not satisfy the
requirements of this Article IX.C. in any material respect, then the Board of
Directors may reject such stockholder's proposal. The Secretary of the
Corporation shall notify a stockholder in writing whether his proposal has been
made in accordance with the time and informational requirements of this Article
IX.C. Notwithstanding the procedures set forth in this paragraph, if neither the
Board of Directors nor such committee thereof makes a determination as to the
validity of any stockholder proposal, the presiding officer of the annual
meeting shall determine and declare at the annual meeting whether the
stockholder proposal was made in accordance with the terms of this Article IX.C.
If the presiding officer determines that a stockholder proposal was made in
accordance with the terms of this Article IX.C., he shall so declare at the
annual meeting and ballots shall be provided for use at the meeting with respect
to any such proposal. If the presiding officer determines that a stockholder
proposal was not made in accordance with the terms of this Article IX.C., he
shall so declare at the annual meeting and any such proposal shall not be acted
upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
ARTICLE X
CERTAIN BUSINESS COMBINATIONS AND ACQUISITIONS OF STOCK
A. Definitions and Related Matters.
(a) Affiliate. An "Affiliate" of, or a Person "affiliated with,"
a specified Person means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
(b) Associate. The term "Associate" when used to indicate a
relationship with any Person means:
(i) Any corporation or organization (other than the
Corporation or a Subsidiary of the Corporation) of which such
Person is an officer or partner or is, directly or indirectly,
the beneficial owner of 10 percent or more of any class of
equity securities;
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(ii) Any trust or other estate in which such Person
has a 10 percent or greater beneficial interest or as to which
such Person serves as trustee or in a similar fiduciary
capacity;
(iii) Any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person;
or
(iv) Any investment company registered under the
Investment Company Act of 1940 for which such Person or any
Affiliate or Associate of such Person serves as investment
advisor.
(c) Beneficial Owner. A Person shall be considered the
"Beneficial Owner" of any shares of stock (whether or not owned of record):
(i) With respect to which such Person or any
Affiliate or Associate of such Person directly or indirectly
has or shares (1) voting power, including the power to vote or
to direct the voting of such shares of stock and/or (2)
investment power, including the power to dispose of or to
direct the disposition of such shares of stock;
(ii) Which such Person or any Affiliate or Associate
of such Person has (1) the right to acquire (whether such
right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, and/or (2) the right to
vote pursuant to any agreement, arrangement or understanding
(whether such right is exercisable immediately or only after
the passage of time); or
(iii) Which are Beneficially Owned within the meaning
of (i) or (ii) of this Article X.A.(c) by any other Person
with which such first-mentioned Person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding, written or oral, with respect to acquiring,
holding, voting or disposing of any shares of stock of the
Corporation or any Subsidiary of the Corporation or acquiring,
holding or disposing of all or substantially all, or any
Substantial Part, of the assets or businesses of the
Corporation or a Subsidiary of the Corporation.
For the purpose only of determining whether a Person is the Beneficial
Owner of a percentage specified in this Article X of the outstanding Voting
Shares, such shares shall be deemed to include any Voting Shares which may be
issuable pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights,
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warrants, options or otherwise and which are deemed to be Beneficially Owned by
such Person pursuant to the foregoing provisions of this Article X.A.(c).
(d) Business Combination. A "Business Combination"
means:
(i) The sale, exchange, lease, transfer or other
disposition to or with a Related Person or any Affiliate or
Associate of such Related Person by the Corporation or any of
its Subsidiaries (in a single transaction or a series of
related transactions) of all or substantially all, or any
Substantial Part, of its or their assets or businesses
(including, without limitation, any securities issued by a
Subsidiary);
(ii) The purchase, exchange, lease or other
acquisition by the Corporation or any of its Subsidiaries (in
a single transaction or a series of related transactions) of
all or substantially all, or any Substantial Part, of the
assets or business of a Related Person or any Affiliate or
Associate of such Related Person;
(iii) Any merger or consolidation of the Corporation
or any Subsidiary thereof into or with a Related Person or any
Affiliate or Associate of such Related Person or into or with
another Person which, after such merger or consolidation,
would be an Affiliate or an Associate of a Related Person, in
each case irrespective of which Person is the surviving entity
in such merger or consolidation;
(iv) Any reclassification of securities,
recapitalization or other transaction (other than a redemption
in accordance with the terms of the security redeemed) which
has the effect, directly or indirectly, of increasing the
proportionate amount of Voting Shares of the Corporation or
any Subsidiary thereof which are Beneficially Owned by a
Related Person, or any partial or complete liquidation,
spinoff or splitup of the Corporation or any Subsidiary
thereof; provided, however, that this Article X.A.(d)(iv)
shall not relate to any transaction of the types specified
herein that have been approved by the affirmative vote of at
least two-thirds of the Whole Board of Directors and a
majority of the Continuing Directors; or
(v) The acquisition upon the issuance thereof of
Beneficial Ownership by a Related Person of Voting Shares or
securities convertible into Voting Shares or any voting
securities or securities convertible into voting securities of
any Subsidiary of the Corporation, or the acquisition upon the
issuance thereof of Beneficial Ownership by a Related Person
of any rights,
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warrants or options to acquire any of the foregoing or any
combination of the foregoing Voting Shares or voting
securities of a Subsidiary.
As used in this definition, a "series of related transactions" shall be
deemed to include not only a series of transactions with the same Related Person
but also a series of separate transactions with a Related Person or any
Affiliate or Associate of such Related Person.
Anything in this definition to the contrary notwithstanding, this
definition shall not be deemed to include any transaction of the type set forth
in Article X.A.(d)(i) through X.A.(d)(iii) between or among any two or more
Subsidiaries of the Corporation or the Corporation and one or more Subsidiaries
of the Corporation if such transaction has been approved by the affirmative vote
of at least two-thirds of the Whole Board of Directors and a majority of the
Continuing Directors on or prior to the Date of Determination.
(e) Continuing Director. A "Continuing Director" shall mean:
(i) Each of the present directors of the Corporation
as set forth in Article VII, whether or not such person is a
Related Person or an Affiliate or Associate of a Related
Person, except that such designation shall in no way be deemed
to affect or change or diminish the fiduciary duties of such
person to the Corporation;
(ii) An individual who is unaffiliated with a Related
Person and who was a member of the Board of Directors prior to
the time that a Related Person acquired 10% or more of the
Voting Shares; or,
(iii) An individual who is unaffiliated with a
Related Person and who is designated before his or her initial
election as a Continuing Director by a majority of the then
Continuing Directors.
(f) Date of Determination. The term "Date of Determination"
means:
(i) The date on which a binding agreement (except for
the fulfillment of conditions precedent, including, without
limitation, votes of stockholders to approve such transaction)
is entered into by the Corporation, as authorized by its Board
of Directors, and another Person providing for any Business
Combination; or,
(ii) If such an agreement as referred to in Article
X.A.(f)(i) above is amended so as to make it less favorable to
the Corporation and its stockholders, the date on which such
amendment is approved by the Board of Directors of the
Corporation; or,
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(iii) In cases where neither Article X.A.(f)(i) nor
(ii) shall be applicable, the record date for the
determination of stockholders of the Corporation entitled to
notice of and to vote upon the transaction in question.
A majority of the Continuing Directors shall have the power and duty to
determine the Date of Determination as to any transaction under this Article X.
Any such determination shall be conclusive and binding for all purposes of this
Article X.
(g) Fair Market Value. The term "Fair Market Value" shall
mean:
(i) In the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for
New York Stock Exchange - Listed Stocks, or, if such stock is
not quoted on the Composite Tape, on the New York Stock
Exchange or the American Stock Exchange, or, if such stock is
not listed on such exchanges, on the principal United States
securities exchange registered under the Exchange Act on which
such shares are listed, or, if such shares are not listed on
any such exchange, the highest closing price with respect to a
share of such stock during the 30-day period preceding the
date in question on the National Market System of the National
Association of Securities Dealers Automated Quotations
("NASDAQ") System, or, if not listed on the National Market
System, the highest mean of the closing bid and asked
quotations on the NASDAQ System during such 30-day period or
any system then in use, or, if no such quotations are
available, the fair market value on the date in question of a
share as determined by a majority of the Continuing Directors
in good faith; and
(ii) In the case of property other than cash or
stock, the fair market value of such property on the date in
question as determined by a majority of the Continuing
Directors in good faith.
(h) Independent Majority of Stockholders. The term
"Independent Majority of Stockholders" shall mean the holders of a majority of
the outstanding Voting Shares that are not Beneficially Owned or controlled,
directly or indirectly, by a Related Person.
(i) Offer. The term "Offer" shall mean every offer to buy or
otherwise acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a security for
value; provided that the term "Offer" shall not include: (a) inquiries directed
solely to the management of the Corporation and not intended to be communicated
to stockholders which are designed to elicit an indication of management's
receptivity to the basic structure of a potential acquisition with respect to
the amount of cash and/or securities, manner of acquisition and formula for
determining price,
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or (b) non-binding expressions of understanding or letters of intent with the
management of the Corporation regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
(j) Person. The term "Person" shall mean any person,
partnership, corporation, or group or other entity (other than the Corporation,
any Subsidiary of the Corporation or a trustee holding stock for the benefit of
employees of the Corporation or its Subsidiaries, or any one of them, pursuant
to one or more employee benefit plans or arrangements). When two or more Persons
act as a partnership, limited partnership, syndicate, association or other group
for the purpose of acquiring, holding or disposing of shares of stock, such
partnership, syndicate, association or group shall be deemed a "Person."
(k) Related Person. The term "Related Person" shall mean any
Person who or which is (a) the Beneficial Owner, as of the Date of
Determination, or immediately prior to the consummation of a Business
Combination, of 10% or more of the Voting Shares; or (b) an Affiliate of the
Corporation and at any time within the two-year period immediately prior to the
announcement of a Business Combination was the Beneficial Owner, directly or
indirectly, of 10% or more of the then outstanding Voting Shares; or (c) an
assignee of or has otherwise succeeded to any Voting Shares which were at any
time within the two-year period immediately prior to the announcement of a
Business Combination Beneficially Owned by any Related Person, if such
assignment or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning of the
Securities Act of 1933, but shall not include Pittsburgh Investment Group LLC or
any successor thereto.
(l) Substantial Part. The term "Substantial Part" as used with
reference to the assets of the Corporation, of any Subsidiary or of any Related
Person means assets having a value of more than 10% of the total consolidated
assets of the Corporation and its Subsidiaries as of the end of the
Corporation's most recent fiscal year ending prior to the time the determination
is being made.
(m) Subsidiary. The term "Subsidiary" shall mean any
corporation or other entity of which the Person in question owns not less than
50 percent of any class of equity securities, directly or indirectly.
(n) Voting Shares. The term "Voting Shares" shall mean shares
of the Corporation entitled to vote generally in the election of directors.
(o) Whole Board of Directors. The term "Whole Board of
Directors" shall mean the total number of directors which the Corporation would
have if there were no vacancies.
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(p) Certain Determinations with Respect to Article X.
(i) A majority of the Continuing Directors shall have
the power to determine for the purposes of this Article X, on
the basis of information known to them: (1) the number of
Voting Shares of which any Person is the Beneficial Owner, (2)
whether a Person is an Affiliate or Associate of another, (3)
whether a Person has an agreement, arrangement or
understanding with another as to the matters referred to in
the definition of "Beneficial Owner" as hereinabove defined,
(4) whether the assets subject to any Business Combination
constitute a "Substantial Part" as hereinabove defined, (5)
whether two or more transactions constitute a "series of
related transactions" as hereinabove defined, (6) any matters
referred to in Article X.A.(p)(ii) below, and (7) such other
matters with respect to which a determination is required
under this Article X.
(ii) A Related Person shall be deemed to have
acquired a share of the Corporation at the time when such
Related Person became a Beneficial Owner thereof. With respect
to shares owned by Affiliates, Associates or other Persons
whose ownership is attributable to a Related Person under the
foregoing definition of Beneficial Owner, if the price paid by
such Related Person for such shares is not determinable, the
price so paid shall be deemed to be the higher of (1) the
price paid upon acquisition thereof by the Affiliate,
Associate or other Person or (2) the market price of the
shares in question (as determined by a majority of the
Continuing Directors) at the time when the Related Person
became the Beneficial Owner thereof.
(q) Fiduciary Obligations. Nothing contained in this Article X
shall be construed to relieve any Related Person from any fiduciary obligation
imposed by law.
B. Approval of Business Combination.
(a) Except as provided in Article X.B.(b), neither the
Corporation nor any of its Subsidiaries shall become party to any Business
Combination without the prior affirmative vote at a meeting of the Corporation's
stockholders of:
(i) The holders of not less than 80 percent of the
outstanding Voting Shares, voting separately as a class, and
(ii) An Independent Majority of Stockholders.
Such favorable votes shall be in addition to any stockholder vote which
would be required without reference to this Article X.B.(a) and shall be
required notwithstanding the
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fact that no vote may be required, or that some lesser percentage may be
specified by law or otherwise.
(b) The provisions of Article X.B.(a) shall not apply to a
particular Business Combination, and such Business Combination shall require
only such stockholder vote (if any) as would be required without reference to
this Article X.B., if all of the conditions set forth in subparagraphs (i)
through (vii) below are satisfied:
(i) The ratio of (1) the aggregate amount of the cash
and the Fair Market Value of the other consideration to be
received per share of Common Stock (as defined in Article V)
of the Corporation in such Business Combination by holders of
Common Stock other than the Related Person involved in such
Business Combination, to (2) the market price per share of the
Common Stock immediately prior to the announcement of the
proposed Business Combination, is at least as great as the
ratio of (x) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees)
which such Related Person has theretofore paid in acquiring
any Common Stock prior to such Business Combination, to (y)
the market price per share of Common Stock immediately prior
to the initial acquisition by such Related Person of any
shares of Common Stock; and
(ii) The aggregate amount of the cash and the Fair
Market Value of other consideration to be received per share
of Common Stock in such Business Combination by holders of
Common Stock, other than the Related Person involved in such
Business Combination, is not less than the highest per share
price (including brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by such Related Person in
acquiring any of its holdings of Common Stock; and
(iii) If applicable, the ratio of (1) the aggregate
amount of the cash and the Fair Market Value of other
consideration to be received per share of Preferred Stock (as
defined in Article V) of the Corporation in such Business
Combination by holders of Preferred Stock other than the
Related Person involved in such Business Combination, to (2)
the market price per share of the Preferred Stock immediately
prior to the announcement of the proposed Business
Combination, is at least as great as the ratio of (x) the
highest per share price (including brokerage commissions,
transfer taxes and soliciting dealers' fees) which such
Related Person has theretofore paid in acquiring any Preferred
Stock prior to such Business Combination to (y) the market
price per share of Preferred Stock immediately prior to the
initial acquisition by such Related Person of any shares of
Preferred Stock; and
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(iv) If applicable, the aggregate amount of the cash
and the Fair Market Value of other consideration to be
received per share of Preferred Stock in such Business
Combination by holders of Preferred Stock, other than the
Related Person involved in such Business Combination, is not
less than the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by such Related Person in acquiring any of its holdings of
Preferred Stock; and
(v) The consideration (if any) to be received in such
Business Combination by holders of stock other than the
Related Person (whether Common Stock or Preferred Stock)
involved shall, except to the extent that a stockholder agrees
otherwise as to all or part of the shares which he owns, be in
the same form and of the same kind as the consideration paid
by the Related Person in acquiring Common Stock already owned
by it; and
(vi) After such Related Person became a Related
Person and prior to the consummation of such Business
Combination:
(1) such Related Person shall vote his
shares in such a manner as to cause, to the extent
necessary and within his power as a stockholder, the
Board of Directors of the Corporation to include at
all times representation by Continuing Directors
proportionate to the ratio that the number of Voting
Shares of the Corporation from time to time owned by
stockholders who are not Related Persons bears to all
Voting Shares of the Corporation outstanding at the
time in question (with a Continuing Director to
occupy any resulting fractional position among the
directors);
(2) such Related Person shall not have
acquired from the Corporation, directly or
indirectly, any shares of the Corporation (except (x)
upon conversion of convertible securities acquired by
it prior to becoming a Related Person or (y) as a
result of a pro rata stock dividend, stock split or
division of shares or (z) in a transaction which
satisfied all applicable requirements of this Article
X);
(3) such Related Person shall not have
acquired any additional Voting Shares of the
Corporation or securities convertible into or
exchangeable for Voting Shares except as a part of
the transaction which resulted in such Related Person
becoming a Related Person;
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(4) such Related Person shall not have
(x) received the benefit, directly or indirectly
(except proportionately as a stockholder), of any
loans, advances, guarantees, pledges or other
financial assistance or tax credits provided by the
Corporation or any Subsidiary, or (y) made any major
change in the Corporation's business or equity
capital structure or entered into any contract,
arrangement or understanding with the Corporation
except any such change, contract, arrangement or
understanding as may have been approved by the
favorable vote of not less than a majority of the
Whole Board of Directors and a majority of the
Continuing Directors of the Corporation; and
(5) except as approved by a majority of
the Whole Board of Directors and a majority of the
Continuing Directors, there shall have been: (x) no
failure to declare and pay at the regular date
therefor any dividends (whether or not cumulative) on
any outstanding Preferred Stock; (y) no reduction in
the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of
the Common Stock); and (z) an increase in such annual
rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the
number of outstanding shares of the stock; and
(vii) A proxy statement complying with the
requirements under the Exchange Act shall have been mailed to
all holders of Voting Shares for the purpose of soliciting
stockholder approval of such Business Combination. Such proxy
statement is not required to be filed with or approved by the
Securities and Exchange Commission unless otherwise required
by law. Such proxy statement shall contain at the front
thereof, in a prominent place, any recommendations as to the
advisability (or inadvisability) of the Business Combination
which the Continuing Directors, or any of them, may have
furnished in writing and, if deemed advisable by a majority of
the Continuing Directors, an opinion of a reputable investment
banking firm as to the fairness (or lack of fairness) of the
terms of such Business Combination from the point of view of
the holders of Voting Shares other than any Related Person
(such investment banking firm to be selected by a majority of
the Continuing Directors, to be furnished with all information
it reasonably requests, and to be paid a reasonable fee for
its services upon receipt by the Corporation of such opinion).
(c) For purposes of Article X.B.(b)(i) through X.B.(b)(iv)
hereof, in the event of a Business Combination upon consummation of which the
Corporation would be
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 23
the surviving corporation or company or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination or
within one year after consummation thereof a plan of liquidation or dissolution
of the Corporation will be effected), the term "other consideration to be
received" shall include (without limitation) Common Stock retained by the
stockholders of the Corporation other than Related Persons who are parties to
such Business Combination.
(d) The provisions of this Article X.B. shall not apply to (i)
any Business Combination approved by two-thirds of the Whole Board of Directors
of the Corporation at a time prior to the acquisition of 10 percent or more of
the outstanding Voting Shares of the Corporation by the Related Person, or (ii)
any Business Combination approved by two-thirds of the Whole Board of Directors
and a majority of the Continuing Directors after such acquisition.
C. Evaluation of Business Combinations, Etc. In connection with the
exercise of its judgment in determining what is in the best interest of the
Corporation and its stockholders when evaluating a Business Combination or a
proposal by another Person or Persons to make a Business Combination or a tender
or exchange offer, the Board of Directors of the Corporation shall, in addition
to considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant: (i) the social and economic effects of the transaction on the
Corporation and its Subsidiaries and their respective employees, customers,
creditors and other elements of the communities in which the Corporation and its
Subsidiaries operate or are located; (ii) the business and financial condition
and earnings prospects of the acquiring Person or Persons, including, but not
limited to, debt service and other existing or likely financial obligations of
the acquiring Person or Persons, and the possible effect of such conditions upon
the Corporation and its Subsidiaries and the elements of the communities in
which the Corporation and its Subsidiaries operate or are located; and (iii) the
competence, experience and integrity of the acquiring Person or Persons and its
or their management.
D. Voting Rights of Certain Control Shares. The Corporation shall be
governed by Section 1701.831 of the OGCL "Shareholder Review of Proposed Control
Share Acquisitions," or its successor, and hereby adopts such language and
provisions and incorporates the same herein by reference as though it were
written out herein in full.
E. Amendments, Etc. of this Article X. Notwithstanding any other
provisions of these Amended and Restated Articles of Incorporation or the
Regulations of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law, these Amended and Restated Articles of
Incorporation or the Regulations of the Corporation), this Article X shall not
be amended, altered, changed, or repealed without the affirmative vote of (i)
the holders of 80% or more of the outstanding Voting Shares, voting
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 24
separately as a class, and (ii) an Independent Majority of Stockholders;
provided, however, that this Article X.E. shall not apply to, and such vote
shall not be required for, any such amendment, change or repeal recommended to
stockholders by the favorable vote of not less than two-thirds of the Whole
Board of Directors, including a majority of the Continuing Directors, and any
such amendment, change or repeal so recommended shall require only the vote, if
any, required under the applicable provisions of the Act, these Amended and
Restated Articles of Incorporation and the Regulations of the Corporation.
F. Election Under Chapter 1704 the OGCL. Pursuant to Section
1704.05(F)(1)(a), the Corporation has expressly elected not to be governed by
the provisions of Chapter 1704 of the OGCL.
ARTICLE XI
AMENDMENT OF ARTICLES OF INCORPORATION AND REGULATIONS
A. Articles of Incorporation. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in these Articles of
Amendment, in the manner now or hereafter prescribed by law, and all rights
conferred upon stockholders herein are granted subject to this reservation. No
amendment, addition, alteration, change or repeal of these Articles of Amendment
shall be made unless it is first approved by the Board of Directors of the
Corporation pursuant to a resolution adopted and declared advisable by the
affirmative vote of a majority of the directors then in office, and thereafter
is approved, at an annual or special meeting, by the holders of two-thirds of
the shares of the Corporation entitled to vote generally in an election of
directors, voting together as a single class, unless any class or series of
shares is entitled to vote thereon as a class, in which event the proposed
amendment shall be adopted upon receiving the affirmative vote of the holders of
a majority of the shares within each class or series of outstanding shares
entitled to vote thereon as a class and of at least two-thirds of the total
outstanding shares entitled to vote thereon, provided that, notwithstanding
anything contained in these Articles of Amendment to the contrary, (i) the
affirmative vote of the holders of at least 75 percent of the shares of the
Corporation entitled to vote generally in an election of directors, voting
together as a single class, unless any class or series of shares is entitled to
vote thereon as a class, in which event the proposed amendment shall be adopted
upon receiving the affirmative vote of the holders of 75 percent of the shares
within each class or series of outstanding shares entitled to vote thereon as a
class and of at least 75 percent of the total outstanding shares entitled to
vote thereon, shall be required to amend, adopt, alter, change or repeal any
provision inconsistent with Articles VI (relating to preemptive rights), VII
(relating to the Board of Directors), VIII (relating to indemnification), IX
(relating to meetings of stockholders), and this Article XI, and (ii) Article X
shall be amended in the manner specified in Article X.E.
<PAGE>
Miami Computer Supply, Inc. Articles of Amendment Page 25 B. Code of
Regulations. The stockholders may adopt, alter, amend or repeal the Regulations
of the Corporation pursuant to Section 1701.11 of the OGCL or any successor
thereto.
WE, THE UNDERSIGNED, being the duly authorized President and Secretary
of Miami Computer Supply, Inc. for the purpose of amending and restating the
Articles of Incorporation of the Corporation pursuant to the Ohio General
Corporation Law, do make these Articles of Amendment and Restatement of the
Articles of Incorporation of Miami Computer Supply, Inc., hereby acknowledging
and certifying, under the penalties of perjury, that this is the act and deed of
Miami Computer Supply, Inc. and that, to the best of our knowledge, information
and belief, the matters and the facts herein stated are true in all material
respects, and accordingly, we have hereunto set our hands this 24th day of
September, 1996.
MIAMI COMPUTER SUPPLY, INC.
WITNESSED: /s/Thomas C. Winstel By: /s/Albert L. Schwarz
-------------------- ---------------------
Thomas C. Winstel Albert L. Schwarz
Secretary President
Exhibit 5.0
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
-----
TIMOTHY B. MATZ Telephone: (202) 347-0300 JEFFREY D. HAAS
STEPHEN M. EGE Facsimile: (202) 347-2172 KEVIN M. HOULIHAN
RAYMOND A. TIERNAN KENNETH B. TABACH
W. MICHAEL HERRICK PATRICIA J. WOHL
GERARD L. HAWKINS JEFFREY R. HOULE
NORMAN B. ANTIN SCOTT H. RICHTER
JOHN P. SOUKENIK*
GERALD F. HEUPEL, JR. ____________
JEFFREY A. KOEPPEL
DANIEL P. WEITZEL OF COUNSEL
PHILIP ROSS BEVAN
HUGH T. WILKINSON ALLIN P. BAXTER
JACK I. ELIAS
October 25, 1996 SHERYL JONES ALU
JACQUELINE R. SCOTT
*NOT ADMITTED IN D.C. VIA EDGAR
Board of Directors
Miami Computer Supply Corporation
3884 Indian Ripple Road
Dayton, Ohio 45440
Gentlemen:
We have acted as special counsel to Miami Computer Supply Corporation
(the "Company") in connection with the preparation and filing by the Company
with the Securities and Exchange Commission ("SEC") of a Registration Statement
on Form S-1, as amended (the "Form S-1") under the Securities Act of 1933, as
amended (the "Act"), relating to the issuance of up to an aggregate of 1,150,000
shares of common stock, no par value per share (the "Common Stock"), of the
Company, of which (a) 1,000,000 shares will be sold in a public offering by
Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia, the underwriter
(the "Underwriter") named in the form of the underwriting agreement filed in
Amendment No. 1 to the Registration Statement (the "Underwriting Agreement"), on
a firm commitment basis, and (b) 150,000 shares will be purchased by the
Underwriter from the Company solely to cover over-allotments, if any.
Capitalized terms defined in the Form S-1 and not otherwise defined herein are
used herein with the meanings as so defined.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Form S-1 and such corporate
records, agreements, documents and other instruments, including the Underwriting
Agreement, and such certificates or comparable documents of public officials and
of officers and representatives of the Company, and have made such inquiries of
such officers and representatives, as we have deemed relevant or necessary as a
basis for the opinions hereinafter set forth.
<PAGE>
Miami Computer Supply Corporation
October 25, 1996
Page 2
In such examination, we have assumed without independent verification
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such latter documents. As to all questions of fact material to this opinion
that have not been independently established, we have relied upon certificates
or comparable documents of officers of the Company, and we have also relied upon
the representations and warranties of the Company contained in the Underwriting
Agreement and have relied upon the accuracy and completeness thereof without
independent verification. Certain partners of this firm are members of an
investment partnership which owns 12.6% of Pittsburgh Investment Group LLC
("LLC"). LLC owns, as of the date of this letter 70.0% of the issued and
outstanding Common Stock of the Company.
Based on the foregoing, and subject to the qualifications stated herein,
as of the date hereof, we are of the opinion that:
i. The 1,000,000 shares of Common Stock of the Company to be issued and
sold by the Company have been duly authorized and, when issued and sold as
contemplated in the Form S-1 and the Underwriting Agreement upon receipt of the
required consideration therefor, will be validly issued, fully paid and
non-assessable.
ii. The 150,000 shares of Common Stock of the Company to be sold by the
Company upon exercise of the Underwriter's over-allotment option have been duly
authorized and, when issued and sold as contemplated in the Form S-1 and the
Underwriting Agreement upon receipt of the required consideration therefor, will
be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Form
S-1 and to the reference to our firm under the caption "Legal Matters" in the
Prospectus included therein.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/Timothy B. Matz
--------------------------------
Timothy B. Matz, a Partner
EXHIBIT 10.5
MIAMI COMPUTER SUPPLY, INC.
SECTION 125 PLAN
ARTICLE I
PURPOSE OF THE PLAN
1.01 The purpose of this Plan is to provide eligible Employees of
Miami Computer Supply, Inc., with a choice of receiving certain
tax-free welfare benefits provided by the Employer in lieu of
taxable Compensation. This Plan is intended to qualify as a
"cafeteria plan" within the meaning of Section 125 of the
Internal Revenue Code of 1954, as amended. The Plan is to be read
in a manner consistent with the terms of Code Section 125.
ARTICLE II
DEFINITIONS
2.01 "ADMINISTRATOR" means the Employer or such other person or
committee as may be appointed from time to time by the Employer
to supervise the administration of the Plan.
2.02 "ANNIVERSARY DATE" means the first day of each Plan Year.
2.03 "CODE" means the Internal Revenue Code of 1954, as amended from
time to time. Reference to any section or subsection includes
reference to any comparable or succeeding provisions of any
legislation which amends, supplements or replaces such section or
subsection.
2.04 "COMPENSATION" means the total wages and salary, including
overtime payments and bonus payments, which are paid by the
Employer to a Participant during the Plan Year.
2.05 "EFFECTIVE DATE" means January 1, 1991.
2.06 "EMPLOYEE" means any person employed by the Employer on a full
time basis.
2.07 "EMPLOYER" means Miami Computer Supply, Inc. (MCSI).
2.08 "KEY EMPLOYEE" means any person who is a key employee as defined
in Section 416(i)(1) of the Code.
2.09 "PARTICIPANT" means any Employee who participates in the Plan in
accordance with Article III.
1
<PAGE>
2.10 "PLAN" means the cafeteria plan as set forth herein, together
with any amendments and supplements thereto.
2.11 "PLAN YEAR" means the twelve consecutive month period commencing
on each Plan Anniversary Date, except that the first Plan Year
shall be the period commencing on the Plan Effective Date and
ending on the day preceding the first Plan Anniversary Date.
A pronoun or adjective in the masculine gender includes the feminine gender, and
the singular includes the plural, unless the context clearly indicates
otherwise.
ARTICLE III
PARTICIPATIONS
3.01 ELIGIBILITY AND DATE OF PARTICIPATION.
Each Employee of the Employer shall become eligible to become a
Participant hereunder on the date the Employee becomes a
participant under one or more of the Employer's welfare benefit
plans providing the benefits described in Article IV.
Each eligible Employee of the Employer on the Effective Date
shall become a Participant on the Effective Date.
Employees who become eligible after the Effective Date of the
Plan shall become participants on the Plan Anniversary Date
coincident with or next following the date of their eligibility.
Any re-employed eligible Employee shall become a Participant on
the Plan Anniversary Date coincident with or next following his
or her date of re-employment.
3.02 TERMINATION OF PARTICIPANT.
Participation will automatically terminate on the earlier to
occur of the following dates:
(a) the date the Plan is terminated; or
(b) the date the Participant is no longer a participant in one of
the Employer's welfare benefit plans providing benefits described
in Article IV.
ARTICLE IV
PLAN BENEFITS
4.01 AVAILABLE PLAN BENEFITS.
A Participant may choose to receive his or her full Compensation
for any Plan Year in cash or have the Employer apply a part of
such Compensation to the cost of the following benefits:
--- (EMPLOYEE DEDUCTION)
--- LONG TERM DISABILITY BENEFITS (EMPLOYEE DEDUCTION)
--- SHORT TERM DISABILITY BENEFITS (EMPLOYEE DEDUCTION)
2
<PAGE>
4.02 SOURCES OF WELFARE BENEFITS.
While the Participant may choose under this Plan to have the
Employer apply a part of his or her Compensation to the cost of
the benefits listed in Section 4.01, the welfare plan benefits
will not be provided by this Plan but by the applicable
plans themselves. The applicable welfare benefit plan as amended
from time to time will govern the terms and conditions of
coverage and benefits available. The Employer's welfare benefit
plans, as amended from time to time, are hereby incorporated by
reference into this Plan.
4.03 LIMITATION ON BENEFITS.
If the Administrator determines at any time that the Plan may
fail to satisfy any nondiscrimination requirement imposed by the
Code or any limitation on benefits provided to highly compensated
or Key Employees, the Administrator shall take such
action as the Administrator deems appropriate, under the rules
uniformly applicable to similarly situated Participants, to
assure compliance with such requirement or limitation. Such
action may include without limitation, a modification of
elections by highly compensated Participants or Key Employees
with or without the consent of such Participants or Key
Employees.
ARTICLE V
COMPENSATION REDUCTION
5.01 ELECTION OF OPTIONAL BENEFITS IN LIEU OF CASH.
A Participant may elect under this Plan to receive
the optional benefits described in Section 4.01 in accordance
with the procedure described in Section 5.02. If a Participant
elects any such optional benefit under this Plan, the
Participant's cash Compensation will be reduced, and an amount
equal to the reduction will be contributed by the Employer under
the appropriate welfare benefit plan to cover the Participant's
share of such benefit as determined by the Employer. The balance
of the cost of each such benefit shall be paid by the Employer.
5.02 ELECTION PROCEDURE.
Approximately 30 days prior to the commencement of each Plan
Year, the Administrator shall provide a written election form
(which shall include a Compensation reduction agreement) to each
Participant and to each other Employee who is expected to become
a Participant at the beginning of the Plan Year. The election
form shall be effective as of the first day of the Plan year.
Each Participant who desires the optional benefit coverage
described in Section 4.01 for the Plan Year shall so
specify on the election form and shall agree to a reduction in
his or her Compensation. The amount of the reduction in the
Participant's Compensation for the Plan Year shall equal the
Participant's share of the cost of each optional benefit elected
by the Participant, and shall
3
<PAGE>
be adjusted automatically in the event of a charge in such
cost. Each election form must be completed and returned to the
Administrator on or before such date as the Administrator shall
specify which date shall be no later than the beginning of the
first pay period for which the Participant's Compensation
reduction agreement will apply.
5.03 FAILURE TO ELECT.
A Participant failing to return a completed election form to the
Administrator on or before the specified due date for the initial
Plan Year of the Plan, or the Plan Year in which he or she
becomes a Participant, shall be deemed to have elected to receive
his or her full Compensation in cash. A Participant failing to
return a completed election form to the Administrator on or
before the specified due date for any subsequent Plan Year shall
be deemed to have made the same election as was in effect just
prior to the end of the preceding Plan Year.
5.04 IRREVOCABILITY OF PARTICIPANT ELECTIONS.
Elections made under the Plan (or deemed to be made under Section
5.03) shall be irrevocable by the Participant during the Plan
Year, subject to change in family status. A Participant may
revoke a benefit election for the balance of a Plan Year and
file a new election only if both the revocation and the new
election are on account of and consistent with a change in family
status. A change of family status for this purpose includes
marriage, divorce, death of a spouse or child, birth or adoption
of a child, termination of employment of a spouse and other such
events the Administrator determines will permit a change or
revocation of an election during a Plan Year under Rules and
Regulations of the Internal Revenue Service. Any new election
under this Section 5.04 shall be effective at such time as the
Administrator shall prescribe, but not earlier than the first pay
period beginning after the election form is completed and
returned to the Administrator.
5.05 AUTOMATIC TERMINATION OF ELECTION.
Elections made under this Plan (or deemed to be made under
Section 5.03) shall automatically terminate on the date on which
the Participant ceases to be a Participant in the Plan, although
coverage of benefits under the Employer's welfare benefit plans
shall continue if and to the extent provided by such plans.
ARTICLE VI
ADMINISTRATION
6.01 The Plan shall be administered by the Administrator in accordance
with its terms, for the exclusive benefit of persons entitled to
participate in the Plan without discriminating among them. The
Administrator will have full power to administer the Plan in
accordance of its details, subject to applicable
4
<PAGE>
requirements of law. For this purpose, the Administrator's power
will include, but will not be limited to, the following powers,
in addition to all other powers provided by law and this Plan:
(a) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the
Plan;
(b) To interpret the Plan, its interpretation thereof in good
faith to be final and conclusive on all persons claiming
benefits under the Plan;
(c) To decide all questions concerning the Plan and the
eligibility of any person to participate in the Plan;
(d) To appoint such agents, counsel, accountants, consultants
and other persons as may be required to assist in
administering the Plan; and
(e) To allocate and delegate its responsibilities under the Plan
and to designate other persons to carry out any of its
responsibilities under the Plan, any such allocation,
delegation or designation to be in writing.
Notwithstanding the foregoing any claim which arises under the
Employer's welfare benefit plan will not be subject to review
under this Plan, and the Administrator's authority under this
Section shall not exceed to any matter as to which an
administrator under such plans is empowered to make
determinations under such plans.
6.02 The Administrator will make available to each Participant such
Plan records, as pertain to the Participant, for examination at
reasonable times during normal business hours.
6.03 Whenever, in the administration of the Plan, any discretionary
action by the Administrator is required, the Administrator shall
exercise its authority in a nondiscriminatory manner so that
persons similarly situated will receive substantially the same
treatment.
6.04 The Employer agrees to indemnify and to defend to the fullest
extent permitted by law any Employee serving as the Administrator
or as a member of a committee designated as Administrator
(including any Employee or former Employee who formerly served as
Administrator or as a member of such committee) against all
liabilities, damages, costs and expenses (including attorneys'
fees and amounts paid in settlement of any claims approved by the
Employer) occasioned by an act or omission to act in connection
with the Plan, if such act or omission is in good faith.
5
<PAGE>
ARTICLE VII
AMENDMENT AND TERMINATION OF THE PLAN
7.01 AMENDMENTS.
The Employer may amend the Plan at any time from time to time.
Any Plan amendment shall be filed with the Plan documents.
7.02 TERMINATION.
The Employer intends the Plan to be permanent, but reserves the
right to terminate the Plan at any time. In the event of a Plan
termination, Compensation reduction will cease. Thereafter
neither the Employer or any of its Employees shall have any
further financial obligations hereunder except such that have
accrued up to the date of termination and have not been
satisfied.
ARTICLES VIII
MISCELLANEOUS
8.01 NO GUARANTEE OF EMPLOYMENT.
The adoption and maintenance of the Plan shall not be deemed to
be a contract of employment between the Employer and any
Employee. Nothing contained herein shall give any Employee the
right to be retained in the employ of the Employer or to
interfere with the right of the Employer to discharge any
Employee at any time. Nor shall it give the Employer the right to
require any Employee to remain in its employ or to interfere with
the Employee's right to terminate his or her employment at any
time.
8.02 NON-ALIENATION.
To the extent permitted by law, no benefit payable at any time
under this Plan shall be subject to any manner to alienation,
sale, transfer, assignment, pledge, attachment, or encumbrance of
any kind.
8.03 APPLICABLE LAW.
The Plan and all rights hereunder shall be governed by and
construed according to the laws of the State of Ohio, except to
the extent such laws are preempted by the laws of the United
States of America.
6
<PAGE>
MIAMI COMPUTER SUPPLY, INC
BOARD OF DIRECTORS RESOLUTION
The undersigned, being all of the members of the Board of Directors of Miami
Computer Supply, Inc., an Ohio Corporation, do hereby consent to the adoption of
the following resolutions without a meeting pursuant to the Bylaws of the
Corporation.
RESOLVED, that the Corporation establish a Cafeteria Plan, qualified under
Section 125 of the Internal Revenue Code, to be known as the Miami Computer
Supply, Inc., Section 125 C Plan and that the provisions of the Plan shall read,
and they hereby are adopted to read, as set forth in the form examined by each
of the undersigned.
FURTHER RESOLVED, that the President or any Vice President and the Secretary of
the Corporation be and they hereby are authorized and directed to execute, in
the name and on behalf of the Corporation, the Plan in the form examined by each
of the undersigned.
FURTHER RESOLVED, that the officers of the Corporation be and they hereby are
authorized and directed to execute and deliver all such contracts, agreements,
certificates, documents and other instructions, to do such other acts or
things, as may be necessary or advisable, to give effect to the foregoing
resolutions and the matters provided herein.
DATE 2-28-90
-------------------------------------
AL SCHWARZ - PRESIDENT
--------------------------------------
TOM WINSTEL - VICE PRESIDENT
--------------------------------------
RICHARD NEWKOLD - VICE PRESIDENT
--------------------------------------
ROGER TURVY - VICE PRESIDENT
--------------------------------------
DAVID PECK - SECRETARY
7
Exhibit 10.4
[MIAMI COMPUTER SUPPLY, INC.]
March 12, 1996
Support Employees
Re: Profit Sharing
MCSI recorded record sales and profits in 1995. We thank everyone for their
efforts and look forward to a solid performance in 1996.
[Redacted sentence.] We are counting on each of you to make the move as smooth
as possible. Target move in date is Labor Day Weekend, August 31st, September
1st, and September 2nd.
We also are anticipating one or more acquisitions in 1996. There will be one
change in 1996 regarding profit sharing. One third will be based on longevity
and two thirds on performance instead of the other way around.
Results will be tracked as they were last year.
Let's all pull together again for a prosperous 1996.
/s/Al
Al Schwarz
President
Exhibit 10.11
Magnetic Media Division 3M
Authorized Distributor Agreement
THIS AGREEMENT is between MINNESOTA MINING AND MANUFACTURING COMPANY, a Delaware
corporation, acting through its Magnet Media Division with its principal place
of business at the 3M Center, St. Paul, Minnesota 56144-1000 (hereinafter
referred to as "3M"), and
- --------------------------------------
Account Name
Miami Computer Sply
- --------------------------------------
Business Headquarters Address
3884 Indian Ripple Rd.
- --------------------------------------
City, State - Zip
Dayton, OH 45440
- --------------------------------------
Key Contact Name
John Huffman - Gen. Mgr.
- --------------------------------------
Telephone Number
(513) 429-5211
- --------------------------------------
(hereinafter referred to as "DISTRIBUTOR"). (3M and DISTRIBUTOR are hereinafter
referred to jointly as the "Parties" and Individually as "Party").
1. Scope of Appointment.
(A) 3M appoints the DISTRIBUTOR, on a nonexclusive basis, to sell and
promote the sale of 3M computer products and accessories set forth on the
current 3M published price pages listed in Exhibit A (hereinafter referred to as
"Products") to commercial and consumer end-users.
(B) DISTRIBUTOR recognizes that 3M may sell Products to any customer,
including direct sales to dealers or sales to distributors for resale.
2. Acceptance. This Agreement is not binding on 3M until it has been
accepted in writing by the signature of an authorized 3M representative at 3M
Center, St. Paul, Minnesota. This is the sole and exclusive manner of
acceptance. Any other promise or act, including a promise to ship or the prompt
shipment of Product, shall not constitute acceptance by 3M of this Agreement.
3. 3M's Obligations to Distributor. 3M agrees to:
(A) Use its best efforts to promptly fill DISTRIBUTOR's proper orders
for Products.
(B) Make available the services of a 3M sales representative to provide
Product information, merchandising and general sales support.
(C) Provide DISTRIBUTOR with Product information, literature and sales
materials (in quantities agreed to by 3M and DISTRIBUTOR) designed to aid
DISTRIBUTOR in the introduction and sale of Products.
4. Distributor's Obligations to 3M. DISTRIBUTOR agrees to:
(A) Vigorously and enthusiastically promote the sale of the full line of
Products and will maintain a well-trained and well-managed sales force capable
of and committed to maximizing the demand for Products through every proper
means. DISTRIBUTOR promises to devote at least the same vigor and resources in
promoting Products as it devotes to other suppliers' product lines.
(B) Not misrepresent either directly or by omission the capabilities,
qualities, or characteristics of the Products. Neither DISTRIBUTOR nor its
representatives will disparage the Products or cast the Production in an
unfavorable light.
<PAGE>
(C) Purchase a minimum of $50,000.00 of assorted Products, net of
discounts and returns, during the term of this Agreement. Every sixty (60) days
3M and DISTRIBUTOR agree to review DISTRIBUTOR's performance in reaching its
minimum purchase requirements and other obligations under this Agreement.
(D) Maintain an adequate inventory of the full line of Products so that
DISTRIBUTOR can promptly fill orders from stock.
(E) Supply promptly all financial information required by 3M's Credit
Department to assess DISTRIBUTOR's credit worthiness. DISTRIBUTOR will make
prompt payment of all 3M invoices in accordance with current payment terms.
DISTRIBUTOR agrees not to make any deductions of any kind from 3M invoices
unless DISTRIBUTOR has received an official credit memorandum from 3M
authorizing such deduction.
(F) Hold in confidence and not disclose to others 3M's marketing plans,
promotional programs and other 3M confidential information.
(G) Use the name "3M," "Scotch", or any other trademark, trade name, or
service mark owned by 3M, in strict accordance with the guidelines furnished by
3M.
The parties have signed this Agreement on the day indicated below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C>
Distributor Minnesota Mining and Manufacturing Company
Magnetic Media Division
- -----------------------------------------------------------------------------------------
By /s/Thomas C. Winstel By R.D. Zinke /s/R.D. Zinke
- -----------------------------------------------------------------------------------------
Title PRESIDENT Date 1/27/87 Title National Sales Manager Date 4-13-87
- -----------------------------------------------------------------------------------------
</TABLE>
5. Prices and Terms and Conditions of Sale.
(A) Prices. The price of Products and other terms and conditions of sale
(including payment terms, F.O.B. point, minimum order requirements) are as
stated in 3M's published price pages. DISTRIBUTOR acknowledges that it has
received a copy of those price pages current as of the date DISTRIBUTOR signs
this Agreement.
(B) Price Changes. Prices may be increased and other terms and
conditions of sale may be changed by 3M at any time with thirty (30) days prior
written notice to DISTRIBUTOR, but the change will not affect any order properly
placed with 3M and ready for immediate shipment before the effective date of the
change. Prices may be decreased without prior notice to DISTRIBUTOR and
DISTRIBUTOR will be invoiced at the new lower price on all orders scheduled for
shipment after the effective date of the price decrease. If the regular
(non-promotion) price of any Product decreases, 3M will credit the price
difference for those Products shipped to DISTRIBUTOR within thirty (30) days of
the effective date of the price decrease upon request to the appropriate sales
branch made within fifteen (15) days of the announced price decrease. The
foregoing does not apply to periodic promotions that may be offered by 3M in
which prices of Products may be directly or indirectly reduced for fixed periods
of time.
(C) Taxes. Prices listed on 3M's price pages do not include sales, use,
excise, or similar taxes. The amount of any present, retroactive, or future
sales, use, excise or similar tax applicable to DISTRIBUTOR's purchase of
Products shall be added to the 3M invoice and paid by DISTRIBUTOR unless
DISTRIBUTOR provides 3M with tax exemption certificates acceptable to the
appropriate taxing authorities.
(D) Purchase Orders. Products may be ordered pursuant to purchase orders
submitted to 3M by DISTRIBUTOR. Acceptance of any purchase orders placed by
DISTRIBUTOR, either by written acknowledgement or by shipment of Products, shall
NOT constitute acceptance by 3M of any of the terms and conditions of such
purchase orders except as to identification and quantity of the Products
involved. All such purchase orders shall be governed by the provisions of this
Agreement.
- Continued on reverse side -
SEE REVERSE SIDE FOR IMPORTANT ADDITIONAL TERMS AND CONDITIONS INCLUDING
DISCLAIMER OF WARRANTIES AND LIABILITIES.
<PAGE>
(E) Allocation. If any Product is in short supply, 3M may allocate the
available supply of Product among its customers in the manner that 3M considers
most equitable.
(F) Credit. 3M may change or limit the amount or duration of credit to
be allowed DISTRIBUTOR. 3M may cancel any purchase orders accepted by 3M or to
delay the shipment thereof, if DISTRIBUTOR fails to meet payment schedules or
other credit or financial requirements established by 3M.
(G) Security Interest. For the purpose of securing payment to 3M of the
purchase price of the Products, DISTRIBUTOR hereby grants to 3M a purchase money
security interest under the Uniform Commercial Code in any and all Products
purchased by DISTRIBUTOR under this Agreement and the proceeds thereof,
including all insurance proceeds. DISTRIBUTOR shall execute, and 3M is hereby
authorized as attorney-in-fact to execute and delivery on behalf of DISTRIBUTOR,
any and all financing statements and other instruments which 3M may deem
necessary or desirable to protect or perfect any such security interest.
(H) Product Discontinuance. 3M may discontinue the production or sale
of any Product at any time during the term of this Agreement.
(I) Resale Prices. DISTRIBUTOR shall be free to unilaterally establish
its own resale prices and terms with respect to the resale of Products. 3M and
its employees have no authority to instruct the DISTRIBUTOR as to what its
resale prices must be, nor to interfere with the DISTRIBUTOR's independent
establishment of resale prices.
6. Warranty and Limitation of Remedies and Disclaimer.
(A) 3M warrants that its Products are free of defects in material and
manufacture at the time of shipment. Individual Products may have additional or
different warranties as stated on Product packaging, package inserts, prices
pages, or literature. If any Product is found to be defective in material and
manufacture during the applicable warranty period, 3M's entire liability and
DISTRIBUTOR's exclusive remedy, shall be at 3M's option either (a) repair, or
(b) replacement of the Product, or (c) refund of the purchase price paid by
DISTRIBUTOR for each defective Product, within a reasonable time after written
notification thereof and return of the defective Product to 3M.
(B) THIS WARRANTY IS MADE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTY OF MERCHANTABILITY,
THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, ANY IMPLIED WARRANTY
ARISING OUT OF A COURSE OF DEALING OR OF PERFORMANCE, CUSTOM OR USAGE OF TRADE
EXCEPT OF TITLE AND AGAINST PATENT INFRINGEMENT.
(C) If DISTRIBUTOR offers express or implied warranties and limited
remedies which differ from those set forth above, DISTRIBUTOR agrees to assume
full responsibility for all liability, loss, cost, and expense arising out of,
or in connection with the different warranties and limited remedies offered by
DISTRIBUTOR.
(D) 3M shall have no obligations under this warranty with respect to
Products that have been modified or damaged through misuse, abuse accident,
neglect, or mishandling by DISTRIBUTOR.
7. Exclusion of Consequential and Incidental Damages. 3M SHALL NOT UNDER ANY
CIRCUMSTANCES BE LIABLE FOR AN INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, REVENUE OR BUSINESS) IN
ANYWAY RELATED TO THE PRODUCTS, ANY OF DISTRIBUTOR'S PURCHASE ORDERS, THIS
AGREEMENT, OR THE TERMINATION OF NONRENEWAL OF THIS AGREEMENT. This exclusion
applies regardless of whether such damages are sought based on breach of
warranty, breach of contract, negligence, strict liability in tort, or any other
legal theory. This exclusion does not apply to claims for personal injury by a
third party.
8. Term and Termination.
(A) This Agreement has an initial Term of one year beginning on the date
3M signs this Agreement. After the initial Term, the Agreement will be
automatically renewed for one year periods, provided DISTRIBUTOR has met or
exceeded the minimum purchase requirement set forth in Paragraph 4(C) for the
then current annual term and has performed all other obligations under this
Agreement. Either Party may elect not to renew this Agreement for any reason by
sending the other Party written notice of its intention not to renew at least
thirty (30) days prior to the expiration of the then current annual term.
(B) Any order placed by DISTRIBUTOR and accepted by 3M after the
expiration or termination of this Agreement is governed by the provisions of
this Agreement, but this place or acceptance of post-expiration orders does NOT
otherwise extend the term of this Agreement.
(C) This Agreement may be terminated by either Party, upon written
notice to the other Party, in the event the other Party fails to fulfill any
provisions of this Agreement. The Party receiving such notice shall have thirty
(30) days, or in the case of late invoice payments, ten (10) days from the date
of receipt thereof, to cure the failure, at which time this Agreement shall
terminate if such failure has not been cured.
<PAGE>
(D) The termination or nonrenewal of this Agreement shall not release
DISTRIBUTOR from the obligation to pay any sum that my be owing to 3M (whether
then or thereafter due 3M) or operate to discharge any liability that had been
incurred by DISTRIBUTOR prior to any such termination or nonrenewal.
9. Obligations Upon Termination or Nonrenewal, Upon or in connection with
any termination or nonrenewal of this Agreement, the following provisions shall
apply:
(A) DISTRIBUTOR shall immediately cease to represent itself as an
authorized distributor of 3M with respect to the Products and cease using any
trade name or trademark of 3M. DISTRIBUTOR shall take all appropriate steps to
remove and cancel its listings in telephone books, and other directories or
elsewhere containing any 3M trade name or trademark.
(B) During the period between the giving of the notice of termination or
nonrenewal in paragraph 8(A) or (C) and the effective date of the termination as
set forth in such notice, all Products shall be delivered to DISTRIBUTOR upon a
cash with order basis.
(C) 3M has the option for thirty (30) days after the effective date of
termination or nonrenewal to repurchase from the DISTRIBUTOR all or any part of
the DISTRIBUTOR's inventory of Products at 3M's current published prices.
DISTRIBUTOR may sell, in accordance with the provisions of this Agreement, those
Products in its inventory on the date of such termination or nonrenewal for
which 3M has not exercised its option to repurchase.
10. Excused Performance. 3M shall not be liable for nor be deemed to be in
default on account of any failure to perform or deliver Products if due to any
cause or condition beyond 3M's reasonable control.
11. Relationship of the Parties. The relationship established between 3M and
DISTRIBUTOR by this Agreement is that of a vendor to its vendee. DISTRIBUTOR is
not an agent of 3M and has no authority to bind 3M, transact any business in
3M's name or on its behalf in any manner, or make any promises or
representations on behalf of 3M. DISTRIBUTOR agrees to represent itself only as
an independent business who is an "authorized 3M DISTRIBUTOR." The employees and
agents of DISTRIBUTOR are NOT for any purpose the employee or agents of 3M.
12. No Assignment. DISTRIBUTOR shall not assign its rights or delegate its
duties under this Agreement without 3M's prior written approval.
13. No Waiver. Any failure or delay by either Party in exercising any right
or remedy in one or many instances will not prohibit a Party from exercising it
at a later time or from exercising any other right or remedy.
14. Governing Law. This Agreement and any questions, claims, disputes, or
litigation concerning or arising from this Agreement shall be governed by the
laws of Minnesota.
15. Entire Agreement. This Agreement and the Exhibits referred to in this
Agreement, which Exhibits are incorporated herein and made a part hereof by this
reference, supersede and terminate any and all prior agreements, if any, whether
written or oral, between the Parties with respect to the subject matter
contained herein. Each Party agrees that it has not relied on any
representation, warranty, or provision not explicitly stated in this Agreement
and that no oral statement has been made to either Party that in any way tends
to waive any of the terms or conditions of this Agreement. This Agreement
constitutes the final written expression of all terms of the Agreement, and it
is a complete and exclusive statement of those terms. No part of this Agreement
may be waived, modified, or supplemented in any manner whatsoever (including a
course of dealing or of performance or usage of trade) except by a written
instrument signed by duly authorized officers of the Parties.
<PAGE>
AMENDMENT NO. 1 TO AUTHORIZED DISTRIBUTOR AGREEMENT
This Amendment is between MINNESOTA MINING AND MANUFACTURING COMPANY, acting
through its Data Storage Products Division, with its principal place of business
at the 3M Center, St. Paul, Minnesota 55144-1000 (3M) and the undersigned
distributor of 3M's DATA STORAGE PRODUCTS DIVISION (DISTRIBUTOR).
1. SCOPE AND PURPOSE.
(A) 3M and International Business Machines Corporation (IBM) have
entered into an agreement for the distribution by 3M of certain media products
containing the IBM trademark within the United States.
(B) 3M and DISTRIBUTOR desire to amend the Authorized Distributor
Agreement (Agreement) as set forth in this Amendment No. 1 to the Agreement.
2. IBM PRODUCTS.
(A) 3M will make available to DISTRIBUTOR the IBM Enhanced Capacity
Cartridge System Tape (IBM Product), subject to the conditions set forth in this
Amendment No. 1. 3M may from time to time make other media products with the IBM
trademark available to DISTRIBUTOR. The availability of additional media
products containing the IBM trademark, if any, will be communicated to
DISTRIBUTOR through product announcements and/or additions to 3M's price pages
that are periodically sent to DISTRIBUTOR (IBM Products). The inclusion of such
additional IBM Products in 3M's price pages and the ordering of such products by
DISTRIBUTOR will make such products subject to this Amendment No. 1 and to the
Agreement.
(B) DISTRIBUTOR agrees to devote at least the same vigor and resources
to the promotion and sale of IBM Products as DISTRIBUTOR devotes to the
promotion and sale of Products.
3. TERRITORY.
(A) 3M agrees to make IBM Product(s) available to DISTRIBUTOR for resale
to commercial, consumer and governmental end-users located in the United States.
DISTRIBUTOR agrees not to sell, ship or distribute in any manner, IBM Products
to any customer located outside of the United States.
(B) DISTRIBUTOR agrees that any resale, shipment or distribution by
DISTRIBUTOR or its agents or employees to any customer located outside of the
United States may result in discontinuance of the sale of the IBM Product to
DISTRIBUTOR in addition to other remedies available to 3M or IBM.
(C) DISTRIBUTOR understands that IBM is a third party beneficiary of
this Amendment No. 1 and may enforce adherence to its terms.
4. IBM PRODUCT DISCONTINUANCE. 3M may discontinue the sale of any IBM
Product to DISTRIBUTOR at any time during the term of the Agreement upon sixty
(60) days notice to DISTRIBUTOR.
5. ENTIRE AGREEMENT. This Amendment contains the entire understanding of
the parties with respect to the changes to the Agreement. Except as expressly
modified by this Amendment, all other terms and conditions of the Agreement are
unchanged by this Amendment.
The Parties have signed this Amendment No. 1 to the Agreement on the date
indicated below.
DISTRIBUTOR MINNESOTA MINING AND MANUFACTURING CO.
By /s/John C. Huffman, III By ___________________________________
____________________________
Name (print) John C. Huffman, III Name (print)__________________________
____________________________
Title National Sales Manager Title ________________________________
___________________________
Date 3/4/92 Date _________________________________
____________________________
MENDIST.GL1 Miami Computer Supply
<PAGE>
AMENDMENT NO. 2 TO AUTHORIZED DISTRIBUTOR AGREEMENT
This Amendment is between MINNESOTA MINING AND MANUFACTURING COMPANY, acting
through its Data Storage Products
Division, with its principal place of business at the 3M Center, St. Paul,
Minnesota 55144-1000 (3M) and the undersigned distributor of 3M's Data Storage
Products Division (DISTRIBUTOR).
1. SCOPE AND PURPOSE
(A) 3M has made available to DISTRIBUTOR special pricing programs
which provide additional discounts (in the form of rebates) from
those prices in 3M's distributor price pages or special prices
under a drop ship arrangement to a customer location. Current
examples of these special pricing programs include Commercial
Account Bid (CAB) Program, MAPP and GSA.
(B) In order to help ensure that the terms and conditions of the
special pricing programs are followed and that 3M and DISTRIBUTOR
comply with the law, 3M and DISTRIBUTOR desire to amend the
Authorized Distributor Agreement (Agreement) as set forth in this
Amendment No.2 to the Agreement.
2. SPECIAL PRICING PROGRAMS.
(A) The terms and conditions of 3M's special pricing programs are
contained in (i) 3M's "Operating Handbook for Sales and Marketing
Programs," copies and periodic updates of which have been sent to
DISTRIBUTOR; (ii) 3M's applicable Rebate Summary form submitted
by DISTRIBUTOR to 3M in order to obtain the rebate; and (iii)
this Amendment No.2. SALES, SHIPMENT OR DISTRIBUTION OF 3M DATA
STORAGE PRODUCTS BY DISTRIBUTOR OR ITS CUSTOMER OR AGENT IN
VIOLATION OF THE TERMS AND CONDITIONS OF 3M'S SPECIAL PRICING
PROGRAMS DO NOT QUALIFY FOR SPECIAL PRICES UNDER ANY SPECIAL
PRICING PROGRAM.
(B) 3M's special pricing programs are available to DISTRIBUTOR only
for resale of certain 3M data storage products to commercial
end-users; federal, state and local governments; and educational
institutions, which commercial end-users, governments and
educational institutions must be located in the United States.
SALES, SHIPMENT OR DISTRIBUTION OF 3M DATA STORAGE PRODUCTS BY
DISTRIBUTOR OR ITS CUSTOMER OR AGENT TO ANY ACCOUNTS LOCATED
OUTSIDE OF THE UNITED STATES DO NOT QUALIFY FOR SPECIAL
PRICES UNDER ANY SPECIAL PRICING PROGRAM.
3. AUDIT. DISTRIBUTOR agrees to maintain accurate records for all products
shipped under any of 3M's special pricing programs. DISTRIBUTOR agrees that 3M
may confirm adherence to the terms and conditions of 3M's special pricing
programs and the accuracy of the information supplied by DISTRIBUTOR on the
applicable Rebate Summary form or other documents submitted to 3M in order to
obtain a special price, by auditing DISTRIBUTOR'S records at DISTRIBUTOR'S
office during normal business hours after giving DISTRIBUTOR reasonable notice.
DISTRIBUTOR agrees to cooperate with 3M in any such audit.
4. REMEDIES AVAILABLE TO 3M. In the event that (i) 3M finds any violation of the
terms and conditions of any special pricing program by DISTRIBUTOR or its
customer or (ii) DISTRIBUTOR fails to cooperate with 3M in any audit to
determine compliance with the terms and conditions of 3M's special pricing
programs, DISTRIBUTOR agrees that 3M may pursue any or all of the following
remedies, in addition to other remedies available to 3M:
(A) Charge the DISTRIBUTOR the reasonable costs of 3M's audit.
DISTRIBUTOR agrees that 3M may offset the costs of 3M's audit
against the monies otherwise available to DISTRIBUTOR under any
promotional allowance fund from 3M;
(B) Immediately withdraw the availability of the special price;
(C) Disqualify sales by DISTRIBUTOR under any promotional payment
program (e.g., Performance Allowance Fund - PAF or Profit
Enhancement Program - PEP) for those sales in violation of the
terms of any special pricing program;
(D) Invoice DISTRIBUTOR any monies received from 3M under any
promotional payment program (e.g., Performance Allowance Fund -
PAF or Profit Enhancement Program - PEP) for any sales in
violation of the terms of any special pricing program.
DISTRIBUTOR agrees to pay all such invoices within thirty (30)
days after the invoice date;
(continued on the reverse side)
<PAGE>
(E) Disqualify DISTRIBUTOR from participation under any future
special pricing programs;
(F) Invoice DISTRIBUTOR the difference between any special price
received by DISTRIBUTOR and the normal distributor price stated
in 3M's DISTRIBUTOR price pages. DISTRIBUTOR agrees to pay all
such invoices within thirty (30) days after the invoice date;
and/or
(G) Terminate the Agreement.
5. ENTIRE AGREEMENT. This Amendment contains the entire understanding of
the parties with respect to the changes to the Agreement. Except as expressly
modified by this Amendment, all other terms and conditions of the Agreement are
unchanged by this Amendment.
The Parties have signed this Amendment No. 2 to the Agreement on the date
indicated below.
DISTRIBUTOR MINNESOTA MINING AND MANUFACTURING CO.
Company Name Miami Computer Supply, Inc. (MCSI)
__________________________________
By /s/John C. Huffman, III By /s/Larry D. Bode
___________________________ __________________________________
Name (print) John C. Huffman, III Name (print)
_____________________________ ________________________________
Title National Sales Manager Title
____________________________ ________________________________
Date August 24, 1992 Date
_____________________________ _________________________________
EXHIBIT 10.12(a)
September 23, 1996
Miami Computer Supply, Inc.
3884 Indian Ripple Road
Dayton, Ohio 45440
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Albert L. Schwarz
453 Rolling Timber Trail
Dayton, Ohio 45429
Re: Employment Agreement
Dear Al:
Pursuant to Section VI of the Employment Agreement dated May 30, 1996
("Agreement") by and between Miami Computer Supply, Inc. and Albert L. Schwarz,
we hereby propose to amend the Agreement as follows:
Section III.A. shall be deleted in its entirety and replaced with:
"A. A business plan dated September 3, 1996 ("Plan") for the fiscal
years 1996 through 1999 has been approved by the Board of Directors.
Executive shall be paid a base salary ("Base Salary") which will be
increased based on whether, beginning in 1998, the Company meets the
targeted pretax income for the prior fiscal year as set forth in the
Plan, as follows: In fiscal 1997, the Base Salary shall be $15,000; in
fiscal 1998, (i) if the Company does not meet the targeted pretax
income for 1997 under the Plan, Executive's Base Salary for 1998 shall
be the product of his Base Salary for 1997 multiplied by 1.06; or (ii)
if the Company meets the targeted pretax income for 1997 under the
Plan, Executive's Base Salary for 1998 shall be the product of his Base
Salary for 1997 multiplied by 1.33; in fiscal 1999, (i) if the Company
does not meet the targeted pretax income for 1998 under the Plan,
Executive's Base Salary for 1999 shall be the product of his Base
Salary for 1998 multiplied by 1.06; or (ii) if the Company meets the
targeted pretax income for 1998 under the Plan, Executive's Base Salary
for 1999 shall be the product of his Base Salary for 1998 multiplied by
1.25."
<PAGE>
Albert L. Schwarz
September 23, 1996
Page 2
Section III.B. shall be deleted in its entirety and be replaced with:
"B. In addition to the Base Salary, an annual bonus will be paid to
Executive of ten percent (10%) of pretax profits before employee
profitsharing or any other bonuses, which amount shall not, beginning
in year 1997, exceed in any year the amount of his Base Salary.
Executive will be furnished an automobile (up to $35,000, 1996 value)
and insurance, repairs, gas, oil, fees, etc., and such other per diem
allowances, as approved by the Board of Directors, equaling no more
than $1,200 per month for his use for Company business. Executive will
control the use and distribution, for Company purposes, of sporting
event tickets with a 1996 value of $3,000 per year."
If you agree to the above amendment, please so signify by executing
this letter in the space provided below and returning the copy of the executed
letter to me as soon as possible.
Sincerely,
/s/Anthony W. Liberati
Anthony W. Liberati
Chairman of the Board
Accepted and Agreed this 25th day of October, 1996.
/s/Albert L. Schwarz
Albert L. Schwarz
EX-10.13(a)
September 23, 1996
Miami Computer Supply, Inc.
3884 Indian Ripple Road
Dayton, Ohio 45440
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Thomas C. Winstel
368 Lincoln Circle
Beavercreek, Ohio 45385
Re: Employment Agreement
Dear Tom:
Pursuant to Section VI of the Employment Agreement dated May 30, 1996
("Agreement") by and between Miami Computer Supply, Inc. and Thomas C. Winstel,
we hereby propose to amend the Agreement as follows:
Section III.A. shall be deleted in its entirety and replaced with:
"A. Executive shall be paid a base salary of $9,000.00 per month during
fiscal 1996, $9,800.00 per month during fiscal 1997, $10,300.00 per
month during fiscal 1998 and $10,800.00 per month during fiscal 1999
("Base Salary"). Executive shall also be entitled to receive a
commission comprised of the following: (i) 40% of the Gross Margin of
computer supply sales to current assigned "key accounts" as set forth
in the list attached hereto as Exhibit A, plus (ii) a Presentation
Products commission comprised of $3,000 plus 5% of the Gross Margin on
sales of all products in the Presentation Products Division. (Gross
Margin is defined herein to mean the difference between the unit sales
invoice price and the actual dollar cost of the product to the
Company.) The commission described above shall be paid only when the
amount of the commission exceeds Executive's Base Salary for any month
and will be paid in lieu of such monthly Base Salary."
<PAGE>
Thomas C. Winstel
September 23, 1996
Page 2
If you agree to the above amendment, please so signify by executing
this letter in the space provided below and returning the copy of the executed
letter to me as soon as possible.
Sincerely,
/s/Albert L. Schwarz
Albert L. Schwarz
President
Accepted and Agreed this 25th day of October, 1996.
/s/Thomas C. Winstel
Thomas C. Winstel
Exhibit 10.14(a)
Miami Computer Supply, Inc.
3884 Indian Ripple Road
Dayton, Ohio 45440
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Richard A. Newkold
10970 Mudlick Road
Dayton, Ohio 45440
Re: Employment Agreement
Dear Richard:
Pursuant to Section VI of the Employment Agreement dated May 30, 1996
(Agreement) by and between Miami Computer Supply, Inc. and Richard A. Newkold,
we hereby propose to amend the Agreement as follows:
Section II.A.1. shall be deleted in its entirety and be replaced with:
"1. December 31, 1996";
In Section III.A., the line: "Year 1997 8,528" shall be deleted in its
entirety.
In Section IV.A "December 31, 1997" shall be deleted and be replaced
with:
"December 31, 1996";
In Section IV.B "December 31, 1997" shall be deleted and be replaced
with:
"December 31, 1996"; and
In Section IV.C "December 31, 1997" shall be deleted and be replaced
with:
"December 31, 1996".
<PAGE>
Richard A. Newkold
Page 2
If you agree to the above amendment, please so signify by executing
this letter in the space provided below and returning the copy of the executed
letter to me as soon as possible.
Sincerely,
/s/Albert L. Schwarz
Albert L. Schwarz
President
Accepted and Agreed this 22nd day of October, 1996.
/s/Richard A. Newkold
Richard A. Newkold
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 21, 1996, except
as to the recapitalization and stock split described in Note 17 which is as of
September 25, 1996, relating to the consolidated financial statements of Miami
Computer Supply Corporation, which appears in such Prospectus and of our report
dated July 31, 1996 relating to the consolidated financial statements of
Diversified Data Products, Inc., which appears in such Prospectus. We also
consent to the references to us under the heading "Experts", "Summary Financial
and Operating Data" and "Selected Consolidated Financial and Operating Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Summary Financial and Operating Data" or "Selected
Consolidated Financial and Operating Data."
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
October 29, 1996
