<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Required) For the Fiscal year ended March 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required) For the transition period from __________ to
__________
__________
Commission File No. 0-15551
DATAFLEX CORPORATION
(Exact name of Registrant as specified in its charter)
New Jersey 22-2163376
(State or other jurisdiction of I.R.S. Employer incorporation
or organization) Identification No.)
3920 Park Avenue
Edison, New Jersey 08820
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (908) 321-1100
__________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
No Par Value
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve (12) months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
The aggregate market value of Common Stock held by non-affiliates based upon
the average price of such stock as quoted on NASDAQ for June 2, 1995, and
reported by the National Quotations Bureau, Inc. was $30,762,876.
As of June 2, 1995 there were 4,835,102 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III
(Items 10, 11, 12 and 13) is incorporated
by reference to the Registrant's Proxy Statement to be filed pursuant to
Regulation 14A.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
Part I
1. Business 1
2. Properties 5
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
Part II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters 7
6. Selected Financial Data 8
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
8. Consolidated Financial Statements and Supplementary Data 12
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 12
Part III
10. Directors and Executive Officers of the Registrant 12
11. Executive Compensation 12
12. Security Ownership of Certain Beneficial Owners and Management 12
13. Certain Relationships and Related Transactions 12
Part IV
14. Exhibits, Consolidated Financial Statement Schedules and Reports on
Form 8-K 13
<PAGE>
<PAGE>
Item 1 - Business
General
Dataflex Corporation, ("Dataflex" or the "Company"), established in
1976, is a nationally recognized direct marketer of desktop computer
equipment and related products supplied primarilyby major manufacturers,
including IBM, Compaq, Hewlett-Packard and Apple. The Company provides its
clients with single-source value-added desktop computing solutions and
services, including product sales, system integration, network installation,
help desk support, training, consultation services and equipment repair
maintenance. The Company is also a certified Lotus, Microsoft, and Novell
Education Center, capable of providing on or off-site manufacturer authorized
education.
During fiscal 1995, the Company expanded with the acquisition of five
strategically located companies to provide a complete solution of hardware,
services and support on a national basis. These acquisitions were as follows:
Month of Acquisition Company and Location
April 1994 Granite Computer Products, Inc. (Alameda, CA)
June 1994 Advantage Systems, Inc. (Bensenville, IL)
August 1994 Sunland Computer Services, Inc. (Tempe, AZ)
November 1994 Hagen Computer Systems, Inc. (Tucson, AZ)
January 1995 National Data Products, Inc. (Clearwater, FL)
As a result of these acquisitions, the Company established the size and
geographic presence to compete and expand on a national scale. It also
enables the Company to further support its customers which have national
operations. Each acquisition enhanced and expanded the Company's product and
service distribution capabilities.
The services business is the fastest growing segment of the Company's
operations and includes dedicated on-site remedial and nonremedial
maintenance support to its customers through the Company's Mainsite program,
field service repairs and maintenance, system configuration, asset
management, authorized training centers, LAN/WAN consulting and system
integration, help desk support through its toll-free support line for all
computer and computer related problems and Flexstaff which places dedicated
high-end technical support on a contract basis to customers for short and
long-term requirements. In addition, the Company has developed a national
network of service partners to enhance its ability to deliver nationwide,
on-site services to our customers.
The Company's customers are primarily large business organizations
with diverse desktop computing requirements located throughout the United
States. Dataflex focuses its efforts on customer service. In connection
therewith, the Company conducts ongoing training for its associates,
continuously monitors response and repair time regarding customer requests
and concerns, measures delivery time for services and conducts customer
surveys to determine the levelof customer satisfaction.
Dataflex Corporation, headquartered in Edison, New Jersey, has offices
in Alameda, Anaheim and San Diego, California; Bensenville, Illinois;
Wethersfield, Connecticut; Philadelphia, Pennsylvania; Tempe, Phoenix and
Tucson, Arizona; Tallahassee, Orlando, Lake Wales, Miami and Clearwater,
Florida; Nashville, Tennessee and New York City.
Industry
Since 1988, the computer industry's rate of revenue growth has decreased
as a result of the introduction of many lines of low priced clones and
significant price reductions by major manufacturers. This trend results in
the need to sell significantly more units to achieve the same revenue. The
Company believes the computer industry does not function along the
traditional supply and demand principle, as product shortages result in lower
pricing to customers. Due to increasing supply shortages and decreasing
profit margins, the industry has been consolidating since the early 1990's,
as larger resellers acquire smaller strategically located resellers to
increase their market share.
The industry experienced record revenues in 1994, however, prices and
profit margins continue to decrease by approximately 25%. Industry studies
have shown that 80% of the five-year cost of businesses owning personal
computers is in the maintenance, training and support, not the hardware and
software acquisition costs. Consequently, the industry believes future
growth will come from a continuing demand for higher technology, such as
wireless LAN's and multimedia, as well as for integration services and
training.
Marketing and Sales
Dataflex's marketing focus is primarily on mid-to-large corporations,
with an emphasis on Fortune 1000 companies, generally with 500 plus
employees. The Company believes that these customers are increasingly
dependent on their suppliers to provide, in addition to competitive pricing,
a consultative approach to their desktop computer equipment needs. This
approach addresses purchasing, compatibility, maintenance, support,
networking, training and obsolescence. Dataflex utilizes this approach,
seeking to help customers analyze costs, improve user satisfaction and
maintain administrative control over their desktop computer equipment. The
Company markets solutions to both existing and potential customers with the
objective of becoming the customers "preferred provider" of comprehensive
information technology services and product acquisition. The Company
believes that the range of services and solutions offered, combined with its
network of regional operating companies, provides it with significant
competitive advantages in the information technology marketplace.
Dataflex is positioned to benefit from client needs, particularly in the
areas of internetworking, client/server applications, and network management
through targeted telemarketing, strategic alliances with major personal
computer and network vendors, client referrals, and promotional programs that
offer hardware and service tie-ins. The need to outsource for technical
expertise in these areas is expected to provide continued growth for Dataflex
and offer cost savings, improved flexibility and high-end user satisfaction
for our customers.
The Company believes that its ability to provide accurate and timely
information to customers is integral to the success of its marketing efforts.
Accordingly, the Company is continuing to develop internal information
systems which it believes will be the most comprehensive in its industry.
These internal information systems will provide members of the Company's
marketing and sales staff, as well as customers, with current information
regarding the products offered for sale, including information on
availability, pricing, order status and purchasing requests.
To market its products, Dataflex utilizes telemarketing, strategic
alliances with major vendors, customer referrals and various promotional
activities. Dataflex also makes joint sales presentations with certain of
its major vendors to existing and prospective customers. Additionally, IBM's
customer fulfillment option program allows customers who purchase directly
from IBM under Volume Procurement Agreements to apply purchases from Dataflex
to their obligations under those agreements. As a result, these customers
have the flexibility to purchase from Dataflex and take advantage of
Dataflex's added services and its ability to integrate multiple
manufacturers' products.
The Company maintains a product support group which provides technical
training and support, new product information, and marketing advice to sales
representatives with respect to technical matters concerning the products
offered by the Company or otherwise available from manufacturers. The
product support group also evaluates new products.
Products and Principal Suppliers
The Company offers over 25,000 PC/Networking hardware and software SKU's
from over 500 vendors, including IBM, Compaq, Hewlett Packard, Apple,
Microsoft, Novell and Lotus. Products include desktop and laptop PC's,
servers, monitors, peripherals, operating system and application software and
individual components. Due to the Company's purchasing power with these
major vendors, the Company enjoys the greatest available discounts. In
addition, the Company purchases direct from IBM to obtain its "C" level
pricing, as well as from Compaq for its US level "1" pricing; both represent
the highest discount level offered for their respective products. The
Company continually evaluates new products from existing vendors, and seeks
out new products and/or new vendors as technology develops and needs arise.
The Company's southeast region is an exclusive Apple sales agent to
Kindergarten through 12th grade education accounts in Florida, Tennessee,
Alabama, Louisiana, Arkansas and Mississippi. Under this program, Apple is
responsible for product distribution, inventories and carrying the customers'
receivables. Apple is the primary product used by educational institutions
in the United States and has authorized only 17 dealers nationwide.
Sales of IBM products constituted approximately 23%, 58% and 59% of the
Company's revenue during the years ended March 31, 1995, 1994 and 1993,
respectively. Sales of Compaq products constituted approximately 13%, 15%
and 12% of the Company's revenue during the years ended March 31, 1995, 1994
and 1993, respectively. No other manufacturer's products accounted for more
than 10% of the Company's revenues. No one customer accounted for more than
10% of the Company's revenues during the years ended March 31, 1995 and 1994.
During fiscal year 1993, one customer accounted for 11% and one customer
accounted for 12% of revenues.
The Company receives discretionary subsidies from certain manufacturers
to promote sales and support activities relating to their products. Some of
these subsidies have been used to expand the array of the Company's sales and
support services and to reimburse the Company for, and to accelerate, its
expansion into additional areas relating to those manufacturers' products and
services.
Pursuant to the terms of authorized dealership agreements with most of
the Company's major suppliers, the Company furnishes firm purchase orders 30
to 90 days in advance of shipment. Under the terms of these agreements, an
order that is cancelled on the shipment date is typically subject to
penalties, which usually amount to 2% or less of the cancelled order's value.
The Company is also liable for a 3% restocking fee to many manufacturers for
the return of previously received merchandise. During fiscal 1995, the
Company did not experience any significant cancellation penalties.
The Company's authorized dealership agreements may be terminated by the
manufacturer or the Company without cause upon notice with periods ranging
from 30 to 90 days, and immediately, under certain circumstances. In
addition, while each agreement is generally subject to renewal on an annual
basis, there can be no assurance that such agreements will be renewed. The
termination or non-renewal of the IBM or Compaq dealership agreement would
have a material adverse effect on the Company's business. The Company
believes that its relationships with its major suppliers are excellent.
Services
The Company provides a vast array of services to support product sales.
Services are offered on a per PC or complete project basis. Total services
revenue for fiscal 1995, 1994 and 1993 were $27,306,000, $14,157,000 and
$12,097,000, respectively.
Product Maintenance: The Company offers contracts to its customers for
both on-site ("Mainsite ") and off-site product maintenance. These
maintenance contracts generally provide for the Company to maintain desktop
computer equipment at the customer's location during regular business hours.
Most maintenance contracts are renewable annually. In addition, the Company
provides authorized warranty service and repair for equipment sold by it and
by others.
Flexstaff: Dataflex offers to its customers its resources for on-site
technical consulting assignments. These contracts are generally for less
than one year and provide customers with resources to meet their internal
technical needs such as project management, application development, hardware
maintenance, help desk, network design and implementation and systems
integration.
Help desk: The Company provides unlimited help desk support to
registered end users via a dedicated 800 number. Support is provided for
industry standard applications, utilities and operating system software.
Training: Dataflex offers authorized training for Microsoft, Lotus
Notes and Novell at both customer sites and its regional training locations.
All trainers must be certified instructors prior to teaching any course. To
be certified, instructors must receive a minimum of 100 hours of training and
satisfactory completion of multiple exams. Instructors also develop
applications with the products they are authorized to teach .
Personnel
On March 31, 1995, the Company employed 1,032 full-time personnel of
which 263 are responsible for marketing and sales, 532 for services, 100 for
operations, 79 for finance, 22 for MIS and 36 for administrative functions.
None of the Company's personnel is represented by a union, and the Company
believes its relationships with its personnel to be excellent.
Competition
The market for desktop computer equipment and related products is highly
competitive. The large business organizations that are the focus of the
Company's marketing and sales efforts are highly visible to both the Company
and its competitors.
The Company competes with other resellers, many of which may sell their
products at lower prices than the Company, but may not offer the same full
range of services after product delivery that the Company offers.
Backlog
The Company generally fulfills customers' orders within five business
days after the receipt of product. At times, backlog of unfilled customers'
orders has increased due to delivery constraints by major vendors.
Item 2 - Properties
<TABLE>
The Company's corporate headquarters and eastern regional office are
located in Edison, New Jersey. The Company leases approximately 50,000
square feet of which 30,000 square feet is office space. The lease term
expires March 31, 2000 and provides for rent increases on April 1, 1996 and
April 1, 1999 based on increases in the Consumer Price Index. In addition,
the Company has additional leases for each regional office as follows:
<CAPTION>
Regional Office Square Footage Principal Use Expiration Date
Dataflex East:
<S> <C> <C> <C>
Edison, NJ 44,000 Warehouse December 31, 1996
New York City, NY 5,463 Sales/Training March 30, 2003
New York City, NY 1,571 Service May 31, 1997
Wethersfield, CT 6,000 Sales March 30, 1997
Dataflex West:
Alameda, CA 28,011 Sales/Service February 28, 1999
Dataflex Midwest:
Bensenville, IL 38,965 Sales/Service April 30, 2001
Dataflex Southwest:
Tempe, AZ 19,331 Sales/Service February 28, 1998
Phoenix, AZ 8,051 Sales/Service December 28, 1995
Tucson, AZ 3,800 Sales/Service June 30, 1998
San Diego, CA 3,840 Sales/Service September 14, 1997
Anaheim, CA 3,912 Sales/Service February 28, 1997
Dataflex Southeast:
Tallahassee, FL 3,040 Sales/Service September 30, 1999
Lake Wales, FL 2,523 Sales/Service January 1, 1997
Hollywood, FL 4,500 Sales/Service May 31, 1998
Orlando, FL 4,929 Sales/Service November 1, 1996
Nashville, TN 4,963 Sales/Service May 11, 1998
</TABLE>
Generally, the Company is also responsible for all real estate taxes,
insurance, utilities and maintenance expenses payable with respect to these
premises.
The Company owns land and property in Clearwater, Florida. The
buildings owned are comprised of 44,400 square feet and are used for office
and warehouse space. Mortgages on the property are due on January 10, 2000,
bearing interest at the rate of prime plus 1% per annum.
Item 3 - Legal Proceedings
The Company is party to various claims, suits and complaints arising in
the ordinary course of the Company's business. In the opinion of Company
management, all such pending matters are without merit or are of such kind,
or involve such amounts, as would not have a material adverse effect on the
financial position of the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of fiscal 1995 to a
vote of security holders.
<PAGE>
Part II
Item 5 - Market For the Registrant's Common Stock and Related Stockholder
Matters
The Company's Common Stock is traded under the symbol "DFLX" on the
NASDAQ National Market System.
<TABLE>
The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices for the Company's common stock on the NASDAQ
National Market System. NASDAQ National Market System quotations are based
on actual transactions and not bid prices.
<CAPTION>
Prices
High Low
<S> <C> <C>
Year Ended March 31, 1995
First Quarter 9-1/4 6-9/16
Second Quarter 8 6-3/4
Third Quarter 10-3/4 7-5/8
Fourth Quarter 10-1/8 7-1/4
Year Ended March 31, 1994
First Quarter 5-1/2 4-1/4
Second Quarter 5-1/4 3-1/2
Third Quarter 6-3/8 4-1/2
Fourth Quarter 7-3/4 5-1/2
</TABLE>
On June 2, 1995, the closing price of the Common Stock as reported on
the NASDAQ National Market System was $7 1/2 per share. On June 2, 1995, there
were 555 holders of record of the Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock. The
Company intends to retain all of its future earnings to finance its
operations and does not anticipate paying cash dividends in the foreseeable
future. Any decision made by the Company's Board of Directors to declare
dividends in the future will depend upon the Company's future earnings,
capital requirements, financial condition and other factors deemed relevant
by the Board of Directors.
Item 6 - Selected Financial Data
<TABLE>
Selected financial data is set forth below as of and for each of the
five fiscal years ended March 31, 1995. The financial data for periods prior
to fiscal 1995 have been restated to include the results of operations and
financial position of Sunland Computer Services, Inc, which was acquired in
August 1994 and accounted for under the pooling of interests method. This
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the audited
consolidated financial statements and related notes thereto included
elsewhere in this report.
<PAGE>
<PAGE>
<CAPTION>
For the Years Ended March 31,
(In thousands, except per share data)
1995 1994 1993 1992 1991
<S>
Income Statement Data:
<C> <C> <C> <C> <C>
Revenue $273,851 $122,348 $ 77,306 $ 99,031 $ 98,139
Cost of Revenue 242,564 108,818 65,555 80,733 80,984
------- ------- ------ ------- --------
Gross Profit 31,287 13,530 11,751 18,298 17,155
Selling, General and
Administrative Expenses 24,259 10,675 10,272 11,116 9,141
Amortization of Goodwill 594 0 0 0 0
------- ------- ------ ------- --------
Operating Income 6,434 2,855 1,479 7,182 8,014
Interest Income (Expense) (2,677) 4 (13) (123) (38)
Litigation Settlement and
Related Costs 0 (847) 0 0 0
------- ------- ------ ------- --------
Income Before Income Taxes 3,757 2 ,012 1,466 7,059 7,976
Provision for Income Taxes 1,617 884 653 2,931 3,313
------- ------- ------ ------- --------
Net Income $ 2,140 $ 1,128 $ 813 $ 4,128 $ 4,663
======= ======= ====== ======= ========
Earnings per Common Share $ .45 $ .28 $ .20 $ .95 $ 1.14
======= ======= ====== ======= ========
Weighted Average Common
Shares 4,733 4,085 4,080 4,335 4,085
======= ======= ====== ======= ========
Balance Sheet Data: (as of March 31)
Working Capital $ 46,971 $22,629 $20,973 $ 20,722 $17,161
Total Assets 146,581 56,337 37,943 42,179 32,565
Long-Term Debt 52,726 228 -0- 213 213
Total Shareholders' Equity 34,140 26,680 25,338 24,970 20,120
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Background
As part of an overall strategy to expand its geographic presence during
fiscal 1995, the Company acquired the following companies:
April 1994 - Granite Computer Products, Inc. ("Granite")
June 1994 - Advantage Systems, Inc. ("Advantage")
August 1994 - Sunland Computer Services, Inc. ("Sunland")
November 1994 - Hagen Computer Systems, Inc. ("Hagen")
January 1995 - National Data Products, Inc. ("NDP")
The financial results of these acquisitions are included in the
Company's results of operations from their respective dates of acquisition
except for Sunland, which was accounted for under the pooling of interests
method resulting in a restatement of all periods presented.
Results of Operations
<TABLE>
The following table sets forth, for the periods indicated, the
percentage relationship to total revenues of the items listed in the
Company's Consolidated Statements of Operations:
<CAPTION>
Percentage of Revenue
Years ended March 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of Revenue 88.6 88.9 84.8
----- ----- -----
Gross Profit 11.4 11.1 15.2
Selling, General &
Administrative Expenses 8.8 8.7 13.3
Amortization of Goodwill 0.2 0.0 0.0
----- ----- -----
Operating Income 2.3 2.3 1.9
Interest Income (Expense), net (0.9) 0.0 0.0
Litigation Settlement and
Related Costs 0.0 (0.7) 0.0
----- ----- -----
Income Before Income Taxes 1.4 1.6 1.9
Provision for Income Taxes 0.6 0.7 0.8
----- ----- -----
Net Income 0.8% 0.9% 1.1%
===== ===== =====
</TABLE>
Fiscal Year Ended March 31, 1995 Compared to March 31, 1994
Revenues increased by 123.8%, or $151,502,000, from $122,349,000 for the
fiscal year ended March 31, 1994 ("fiscal 1994') to $273,851,000 for the
fiscal year ended March 31, 1995 ("fiscal 1995"). The increase primarily
relates to revenues contributed by the acquired companies during fiscal 1995
of $148,005,000. Product revenues, which include desktop computers,
printers, displays, LAN products, software and other peripherals, accounted
for over 90% of total revenues and increased by $138,353,000, or 127.9%.
Service revenues, which include consulting, training, on-site maintenance and
project management, accounted for approximately 10% of total revenues and
increased by $13,149,000, or 92.9%.
Gross profit increased by 131.2%, or $17,757,000, from $13,530,000 in
fiscal 1994 to $31,287,000 in fiscal 1995. This increase primarily relates
to the gross profit contribution provided by the acquired companies during
fiscal 1995. As a percentage of revenues, gross profit increased to 11.4% in
fiscal 1995 as compared to 11.1% in fiscal 1994. This increase reflects
slight improvement in hardware margins, partially offsetting lower margins in
the services business due to incremental costs associated with the continued
investment in the development of a nationwide services business.
Selling, general and administrative expenses increased by 127.2%, or
$13,584,000, from $10,675,000 in fiscal 1994 to $24,259,000 in fiscal 1995,
primarily due to the recent acquisitions and increases in corporate
infrastructure to support the growth of the Company. As a percentage of
revenues, selling, general and administrative expenses increased from 8.8% in
fiscal 1994 to 8.9% in fiscal 1995.
Amortization of goodwill of $593,659 in fiscal 1995 reflects
amortization of the excess of purchase price over net assets acquired for the
related acquisitions. There was no amortization of goodwill in fiscal 1994.
Interest (expense) income, net was ($2,677,000) in fiscal 1995 as
compared to $4,800 in fiscal 1994. The net increase in expense as compared to
income in the prior fiscal year primarily relates to the use of funds
available for investment and increased borrowings in connection with the
acquisitions in fiscal 1995.
Litigation settlement and related costs in fiscal 1994 represents
expenses associated with the settlement of a class action lawsuit. See Note
13 to the Consolidated Financial Statements.
Fiscal Year Ended March 31, 1994 Compared to March 31, 1993
Revenues increased by 58.3%, or $45,043,000, from $77,306,000 for the
fiscal year ended March 31, 1993 ("fiscal 1993") to $122,349,000 for fiscal
1994. This increase was a result of increased sales of the Company's product
to both existing and new customers. Product revenues, which accounted for
approximately 89% of total revenues, increased by 65.9%, or $42,983,000.
Services revenues, which accounted for approximately 11% of total revenues,
increased by 17.0%, or $2,060,000.
Gross profit increased by 15.1%, or $1,779,000, from $11,751,000 in
fiscal 1993 to $13,530,000 in fiscal 1994. As a percentage of revenue, gross
profit decreased from 15.2% in fiscal 1993 to 11.1% in fiscal 1994. This
decrease primarily resulted from continued industry price competition on
product sales.
Selling, general and administrative expenses increased by 3.9%, or
$404,000, from $10,272,000 in fiscal 1993 to $10,676,000 in fiscal 1994. As
a percentage of revenues, selling, general and administrative expenses
decreased from 13.3% in fiscal 1993 to 8.8% in fiscal 1994 reflecting
significant increases in revenues and management's continued emphasis on cost
control measures.
Interest income (expense), net was $4,800 for fiscal 1994 as compared to
($13,509) in fiscal 1993 representing an increase of 135.5%, or $18,309.
This increase resulted primarily from investments of available cash.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $10,357,000 during fiscal 1995.
This decrease primarily results from the use of available cash and cash
equivalents to fund certain acquisitions.
Net cash used in investing activities of $24,874,000 reflects
$19,604,000 in cash used for certain acquisitions and $5,270,000 for capital
expenditures. The Company has no material commitments for capital
expenditures for the fiscal year ending March 31, 1996.
Net cash provided by financing activities increased in fiscal 1995
primarily due to the net increase in notes payable of $23,371,000 under
inventory and working capital agreements executed between the Company,
Dataflex Southwest Corporation, a wholly-owned subsidiary of the Company
("Dataflex Southwest") and IBM Credit Corporation ("IBMCC"). Other factors
positively affecting the increase in net cash provided by financing
activities results from proceeds received on the exercise of stock options
and payments on officer loan receivables.
On December 28, 1994, the Company and Dataflex Southwest executed
inventory and working capital agreements with IBMCC (the "Agreements") for
the purpose of providing sufficient funds available to the Company to finance
a portion of the acquisition of NDP and future acquisitions and to support
its working capital needs. The Agreements have been subsequently amended to
expand the available line from $75.0 million, secured by substantially all of
the assets of the Company and Dataflex Southwest, to $110.0 million including
a $7.0 million unsecured promissory note. The Agreements include several
covenants requiring, among other things, minimum levels of tangible net
worth, earnings as a percentage of revenue, current ratio and leverage ratio
requirements. At March 31, 1995, a waiver on default of certain financial
covenants was also received from IBMCC and the agreements have been
subsequently amended to revise certain financial covenants to reflect the
Company's current and future business environment.
In March 1995, the Company reached an agreement to purchase
substantially all of the assets and assume substantially all of the
liabilities of a disk drive repair company located in California for common
stock and notes valued in the aggregate at approximately $4,800,000. The
transaction is subject to the satisfaction of certain conditions, as defined
in the agreement, and is expected to close in July 1995.
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its operating results.
Item 8 - Consolidated Financial Statements and Supplementary Data
The consolidated financial statements and supplementary financial
information required by this item are attached.
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Registrant did not have any disagreements on accounting and
financial disclosures with its independent accountants.
<PAGE>
PART III
The information required by Part III (Items 10, 11, 12 and 13) is
incorporated by reference to the Registrant's proxy statement to be filed
pursuant to Regulation 14A.
<PAGE>
<PAGE>
PART IV
ITEM 14 - Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K.
(a) (1) Consolidated Financial Statements. The following
consolidated financial statements are included in Part II, Item 8:
Page
Report of Independent Accountants F-1
Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1995 and 1994 F-2
Consolidated Statements of Operations for years ended
March 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Shareholders' Equity for years
ended March 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for years ended
March 31, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements F-6
(a) (2) Incorporated Exhibits.
Exhibit Number Description of Document
-------------- -----------------------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
filed February 23, 1990, and amendments thereto, Registration No. 33033472.
3.1 The registrant's Certificate of Incorporation, as
amended.
3.2 The registrant's restated and amended by-laws.
4 Specimen of stock certificate for shares of Common
Stock.
10.8 Lease dated December 5, 1989 between 3920 Park Avenue
Associates and the registrant.
10.9 Amendment to Lease dated January 29, 1990 between 3920
Park Avenue Associates and the registrant.
10.10 Dealer Agreement dated August 11, 1989 between
International Business Machines Corporation and the
registrant.
10.11 Dealer Agreement dated February 21, 1989 between
Hewlett-Packard Company and the registrant.
10.12 Dealer Agreement dated April 1, 1989 between Apple
Computer, Inc. and the registrant.
10.13 Dealer Agreement dated October 1, 1988 and extended to
June 30, 1990 between Epson America, Inc. and the
registrant.
10.14 Dealer Agreement dated April 7, 1989 between COMPAQ
Computer Corporation and the registrant.
10.16 1987 Incentive Stock Option Plan.
10.17 1989 Incentive and Non-Qualified Stock Option Plan.
10.18 Salary Savings Plan and Trust of Dataflex Corporation
dated December 21, 1989.
10.24 1990 Senior Management Incentive and Non-Qualified Stock
Option Plan.
10.25 Form of Stock Option Agreement for 1989 Incentive and
Non-Qualified Stock Option Plan by and between the
registrant and Richard C. Rose.
10.26 Form of Stock Option Agreement for 1989 Incentive and
Non-Qualified Stock Option Plan by and between the
registrant and Gordon J. McLenithan.
10.27 Form of Stock Option Agreement for 1990 Senior
Management Incentive and Non-Qualified Stock Option Plan
by and between the registrant and Richard C. Rose.
10.28 Form of Stock Option Agreement for 1990 Senior
Management Incentive and Non-Qualified Stock Option Plan
by and between the registrant and Gordon J. McLenithan.
(2) Filed as an Exhibit to the Company's Form 8-K filed April 23, 1994.
10.29 Asset Purchase Agreement between the Company and Granite
Computer Products, Inc. dated March 21, 1994.
(3) Filed as an Exhibit to the Company's Form 8-K filed June 16, 1994.
10.30 Asset Purchase Agreement between the Company and
Advantage Systems,Inc. dated May 23, 1994.
(4) Filed as an Exhibit to the Company's Annual Proxy Statement filed
September 1, 1991.
10.33 1991 Incentive and Non-Qualified Stock Option Plan.
(5) Filed as an Exhibit to the Company's December 31, 1994 Form 10-Q filed
February 13, 1995.
10.34 Inventory and Working Capital Financing Agreement
between Dataflex Corporation and IBM Credit Corporation
dated December 28, 1994.
10.35 Inventory and Working Capital Financing Agreement
between Dataflex Southwest Corporation and IBM Credit
Corporation dated December 28, 1994.
(6) Filed as an Exhibit to the Company's Form 8-K filed January 24, 1995.
10.36 Asset Purchase Agreement between Dataflex Corporation
and National Data Products, Inc. dated November 17,
1994.
(7) Filed as an Exhibit to the Company's Form 8-K filed August 31, 1994.
10.37 Stock Purchase Agreement between Dataflex Corporation,
the sellers named therein and Sunland Computer Services,
Inc. dated August 19, 1994.
(8) Filed as an Exhibit to the Company's Annual Proxy Statement filed
September 1, 1992.
10.38 1992 Incentive and Non-Qualified Stock Option Plan.
(9) Filed as an Exhibit to the Company's Annual Proxy Statement filed
September 1, 1994.
10.39 1994 Incentive and Non-Qualified Stock Option Plan.
(a) (3) Exhibits Filed Herewith
10.40 Employment Agreement dated April 1, 1993 by and between
the Company and Richard C. Rose.
10.41 Amendment to Employment Agreement dated April 1, 1993 by
and between the Company and Richard C. Rose.
10.42 Employment Agreement dated January 30, 1995 by and
between the Company and Gordon J. McLenithan.
10.43 Amendment to Employment Agreement dated January 30, 1995
by and between the Company and Gordon J. McLenithan.
10.44 Amendment to Employment Agreement by and between the
Company and Peter H. Jackson filed on April 23, 1994 as
part of the Asset Purchase Agreement between the Company
and Granite Products, Inc.
22 Subsidiaries.
23 Consent of Price Waterhouse concerning S-8 Registration
Statements.
(b) Reports on Form 8-K. A current report on Form 8-K/A, dated
March 27, 1995, was filed relating to the audited and proforma financial
statements of National Data Products, Inc. ("NDP").<PAGE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Dataflex Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidatedstatements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Dataflex Corporation and its subsidiary at March 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended March 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
Morristown, New Jersey
June 23, 1995<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Balance Sheets
March 31,
---------------------------
1995 1994
---- ----
Assets
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 5,589,741 $ 15,946,749
Accounts Receivable, Net 56,833,576 19,711,627
Inventory 32,029,137 12,791,378
Deferred Tax Asset 311,660 212,896
Other Current Assets 11,493,326 3,105,662
--------------- ------------
Total Current Assets 106,257,440 51,768,312
Property and Equipment, Net 11,617,460 3,992,873
Other Assets 962,646 576,302
Goodwill 27,743,444 -
--------------- ------------
Total Assets $ 146,580,990 $ 56,337,487
=============== ============
Liabilities and Shareholders' Equity
Current Liabilities:
Current Portion of
Long-Term Debt $ 7,249,222 $ 1,579,637
Accounts Payable 45,197,903 24,356,799
Accrued Expenses and
Other Payables 6,663,361 2,279,875
Income Taxes Payable 176,077 210,873
Accrued Settlement 712,50
--------------- -------------
Total Current Liabilities 59,286,563 29,139,684
Long-Term Debt 52,510,305 -
Deferred Tax Liability 428,249 289,670
Other Long-Term Liabilities 215,917 227,647
--------------- -------------
Total Liabilities 112,441,034 29,657,001
--------------- -------------
Commitments and Contingencies (Note 13)
Shareholders' Equity:
Common Stock - No Par Value;
Authorized 10,000,000
Shares; Issued 4,867,184
and 4,142,024 Shares at
March 31, 1995 and 1994,
respectively 19,044,531 13,804,642
Less: Loans Receivable
for Exercised Stock
Options (413,212) (441,536)
Retained Earnings 16,025,262 13,885,903
-------------- -----------
34,656,581 27,249,009
Less: Treasury Stock -
At Cost; 104,237 and 115,752
Shares at March 31, 1995
and 1994, respectively (516,620) (568,523)
--------------- -----------
Total Shareholders' Equity 34,139,956 26,680,486
Total Liabilities and
Shareholders' Equity $ 146,580,990 $ 56,337,487
=============== ============
See Notes to Consolidated Financial Statements
</TABLE>
F-2
<PAGE>
<PAGE>
<TABLE>
DATAFLEX CORPORATION
Consolidated Statements of Operations
<CAPTION>
For the Years Ended March 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue $ 273,850,996 $ 122,348,571 $ 77,305,951
Cost of Revenue 242,563,938 108,818,250 65,554,809
------------- ------------- ------------
Gross Profit 31,287,058 13,530,321 11,751,142
Selling, General and
Administrative Expenses 24,259,537 10,675,497 10,271,951
Amortization of Goodwill 593,659 - -
------------- ------------- ------------
Operating Income 6,433,862 2,854,824 1,479,191
Other Income (Expenses):
Interest (Expense) Income (2,677,308) 4,756 (13,509)
Litigation Settlement
and Related Costs - (847,500) -
------------- ------------- ------------
Income Before Income Taxes 3,756,554 2,012,080 1,465,682
Provision for Income Taxes 1,617,195 884,160 652,920
------------- ------------- ------------
Net Income $ 2,139,359 $ 1,127,920 $ 812,762
============= ============= ============
Earnings Per Common Share $ 0.45 $ 0.28 $ 0.20
============= ============= ============
Weighted Average Common
Shares Outstanding 4,732,571 4,085,049 4,079,999
============= ============= ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3<PAGE>
<TABLE>
DATAFLEX CORPORATION
Consolidated Statements of Shareholders' Equity
<CAPTION>
Common Stock Retained Earnings Treasury Stock
------------ ----------------- --------------
Issued Shares Amount Amount Shares Cost
------------- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Balance-March 31, 1992 4,125,737 $13,063,090 $11,945,221 5,473 $ 38,713
Exercise of Stock Options
and Warrants 450 5,693
Sale of Treasury Stock (2,428) (4,821) (34,101)
Forfeiture of 401(K) Shares 107 500
Purchase of Treasury Stock 125,000 611,910
Reduction of Loans Receivable
from Officers for Exercised
Stock Options, of which
$70,655 was paid subsequent
to year end and included in
current assets 130,512
Net Income 812,762
--------- ----------- ------------ ------- ---------
Balance-March 31, 1993 4,126,187 13,196,867 12,757,983 125,759 617,027
Exercise of Stock Options 15,837 85,727
Sale of Treasury Stock (10,007) (48,504)
Issuance of Officers Loans (50,000)
Reductions of Loans Receivable
from Officers for Exercised
Stock Options 130,512
Net Income 1,127,920
--------- ----------- ------------ ------- ---------
Balance-March 31, 1994 4,142,024 13,363,106 13,885,903 115,752 568,523
Exercise of Stock Options
and Warrants 28,763 153,165
Sale of Treasury Stock 32,375 (11,515) (51,898)
Issuance of Common Stock 696,397 5,028,438
Issuance of Notes Receivable
for Warrants (102,188)
Capitalized Tax Benefit for
Exercise of Stock Options 25,911
Reductions of Loans Receivable
from Officers for Exercised
Stock Options 130,512
Net Income 2,139,359
--------- ----------- ------------ ------- ---------
Balance-March 31, 1995 4,867,184 $18,631,319 $16,025,262 104,237 $516,625
See Notes to Consolidated Financial Statements
</TABLE>
F-4
PAGE
<PAGE>
<TABLE>
<CAPTION>
DATAFLEX CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended March 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net Income $ 2,139,359 $ 1,127,920 $ 812,762
Adjustments to Reconcile Net Income to
Net Cash:
Depreciation and Amortization 2,594,442 1,223,682 1,179,008
Deferred Taxes 39,815 56,074 8,700
Changes in Assets and Liabilities:
Accounts Receivable (2,775,491) (7,208,298) (4,039,326)
Inventory (9,839,062) (1,933,338) 8,277,091
Other Current Assets (7,514,172) (1,067,937) 6,928,659
Income Taxes Receivable - 359,929 559,011
Other Assets (367,689) (118,066) 223,144
Accounts Payable 8,110,671) 14,849,685 806,250
Accrued Expenses and Other Payables (923,908) 761,508 (449,314)
Income Taxes Payable (8,885) 210,873 -
Accrued Settlement (712,500) 712,500 -
Other Long-Term Liabilities 64,943 - -
----------- ---------- ----------
Net Cash - Operating (9,192,477) 8,974,532 14,305,985
----------- ---------- ----------
Investing Activities:
Capital Expenditures (5,270,085) (1,351,879) (1,226,942)
Acquisition of Businesses,
Net of Cash Acquired (19,603,661) - -
----------- ---------- ----------
Net Cash - Investing (24,873,746) (1,351,879) (1,226,942)
----------- ---------- ----------
Financing Activities:
Proceeds from Issuance of Notes
Payable 72,831,195 2,368,450 1,660,359
Payments of Notes Payable (49,460,632) (2,120,000) (6,400,000)
Payments on Long-Term Borrowings (29,998) - (230,712)
Proceeds from Common Stock and Options 153,165 30,246 5,693
Sale of Treasury Stock 84,273 53,985 31,673
Purchase of Treasury Stock - - (612,415)
Payments on Officers Loans Receivable
for Exercised Stock Options 130,512 201,167 59,857
----------- ---------- ----------
Net Cash - Financing 23,709,215 533,848 (5,485,545)
Net (Decrease) Increase in Cash (10,357,008) 8,156,501 7,593,498
Cash - Beginning of Year 15,946,749 7,790,248 196,750
----------- ---------- ----------
Cash - End of Year $ 5,589,741 $15,946,749 $7,790,248
=========== ========== ==========
See Notes to Consolidated Financial Statements
F-5
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Dataflex Corporation ("Dataflex" or "the Company") was incorporated in
the State of New Jersey in April 1976. Dataflex provides desktop computing
solutions and services including product sales, system integration, network
installation, help desk support, training, consultation services and
equipment repair maintenance.
Basis of Consolidation--The consolidated financial statements include
the Company and its wholly-owned subsidiary. As further described in Note 2,
the Company completed an acquisition on August 19, 1994 which has been
accounted for as a pooling of interests. Accordingly, the Consolidated
Balance Sheet as of March 31, 1994 and the Consolidated Statements of
Operations, of Cash Flows and of Shareholders' Equity for the years ended
March 31, 1994 and March 31, 1993 and related footnotes have been restated
and include historical information. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Revenue Recognition--Sales of computer equipment are recorded when the
customer accepts title. Services contract revenue is recognized ratably over
the terms of the contracts. The operating history of the Company is such
that the allowance for doubtful accounts represents an insignificant
percentage of total receivables.
Income Taxes--The Company accounts for income taxes using an asset and
liability approach that requires the recognition of deferred tax consequences
of events that have been recognized in the Company's financial statements or
tax returns.
Earnings Per Share--Earnings per share are calculated by dividing net
income by the weighted average common shares and common share equivalents
outstanding during the year. Weighted average common shares outstanding for
the years ended March 31, 1995, 1994 and 1993 were 4,732,571, 4,085,049 and
4,079,999, and included common stock equivalents of 485,797, 72,077 and
34,191.
Cash and Cash Equivalents--For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Inventory--Inventory is stated at the lower of cost or market. Cost is
determined on a specific cost basis for equipment and average cost for spare
parts. Discretionary subsidies received from manufacturers are recorded as
reductions in the cost of revenue. The Company amortizes its spare parts
over their estimated useful life ranging from three to eight years on a
straight-line basis.
Property and Equipment, Net--Property and equipment are stated at cost.
Depreciation and amortization are computed by use of the straight-line
method. Depreciation is based on the estimated useful lives of the various
assets which range from three to forty years. Leasehold improvements are
amortized over the shorter of the life of the lease or their estimated useful
life.
Goodwill--Goodwill represents the excess of purchase price over the fair
value of net assets acquired and liabilities assumed and is being amortized
over 25 years using the straight-line method.
NOTE 2: ACQUISITIONS
Effective April 1, 1994, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Granite Computer
Products, Inc. ("Granite"), a reseller of computer products located in
Alameda, California for $9,514,200 in cash.
Effective June 1, 1994, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Advantage Systems,
Inc. ("Advantage"), an Entre Computer franchise of Intelligent Electronics,
in exchange for $2,250,000 in cash, a $1,000,000 convertible redeemable note,
71,397 shares of the Company's common stock with an aggregate market value of
$500,000 and a contingent payment based upon the future earnings of Advantage
for a three-year period. The $1,000,000 convertible redeemable note bears
interest at 6% per annum and may be converted at any time through the
maturity date of May 31, 1997 into 100,000 shares of the Company's common
stock which would be valued at the closing price on the date of conversion.
Effective November 1, 1994, the Company (through its wholly-owned
subsidiary Dataflex Southwest Corporation) acquired substantially all of the
assets and assumed substantially all of the liabilities of Hagen Computer
Systems, Inc. ("Hagen"), an Entre Computer franchise of Intelligent
Electronics, located in Tucson, Arizona, for $416,000 in cash.
Effective January 1, 1995, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of National Data
Products Inc. ("NDP"), a reseller of computer products based in Clearwater,
Florida, for $6,200,000 in cash, $3,500,000 in subordinated notes with an
interest rate of 9%, 625,000 shares of the Company's common stock with an
aggregate market value of approximately $4,200,000, and a contingent payout
based on the future earnings of NDP over a seven year period.
These acquisitions have been accounted for under the purchase method
and, accordingly, the operating results of Granite, Advantage, Hagen and NDP
have been included in the consolidated operating results since the dates of
their respective acquisitions.
The cost of the acquisitions have been allocated on the basis of the
fair market value of the assets acquired and the liabilities assumed. The
preliminary allocation resulted in goodwill of approximately $28,337,000
which is being amortized over 25 years on a straight-line basis.
<TABLE>
The unaudited pro forma consolidated condensed results of operations
listed below give effect to certain adjustments, and assume the acquisitions
occurred at the beginning of each period presented and are based on the
preliminary allocation of the purchase price.
<CAPTION>
For the Years Ended March 31,
-----------------------------
1995 1994
---- ----
(Dollars in thousands,
except per share amounts)
<S> <C> <C>
Revenue $383,984 $271,258
Gross Profit 46,393 34,359
Net Income 3,777 2,466
Earnings Per Common Share $ .72 $ .52
</TABLE>
The pro forma information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the Granite, Advantage, Hagen and NDP acquisitions been
consummated as of the beginning of the periods above, nor are they
necessarily indicative of future operating results.
On August 19, 1994, the Company acquired all of the issued and
outstanding common stock of Sunland Computer Services, Inc. ("Sunland"), a
reseller and service provider of computer products, based in Tempe, Arizona
in exchange for 640,013 shares of the Company's common stock with an
aggregate market value of $4,800,000. The acquisition was accounted for as
a pooling of interests and, accordingly, the accompanying consolidated
financial statements have been restated to include the accounts and
operations of Sunland for all periods presented.
Sunland's net sales for the years ended March 31, 1995, 1994 and 1993
were $31,021,262, $19,968,487 and $9,724,392, respectively. Sunland's net
income (loss) for the years ended March 31, 1995, 1994 and 1993 was $397,573,
$282,115 and ($163,944), respectively.
In March 1995, the Company executed an asset purchase agreement which
was subsequently amended in May 1995, to acquire substantially all of the
assets and assume substantially all of the liabilities of a disk drive repair
company located in California in exchange for common stock of the Company
with a value of $3,750,000 and two six-month promissory notes aggregating
$1,000,000, each with an interest rate of 9%. The transaction is subject to
the satisfaction of certain conditions, as defined in the agreement, and is
expected to close in July 1995.
NOTE 3: INVENTORY
<TABLE>
Inventory consists of:
<CAPTION>
March 31,
------------------------------------
<S> <C> <C>
1995 1994
------------ -----------
Finished Goods $25,744,443 $ 8,975,333
Spare Parts, Net 6,284,694 3,816,045
----------- -----------
$32,029,137 $12,791,378
=========== ===========
</TABLE>
Accumulated amortization of spare parts inventory is $1,554,217 and
$1,414,049 at March 31, 1995 and 1994, respectively. Amortization expense
amounted to $1,004,572, $492,959 and $381,668 for the years ended March 31,
1995, 1994 and 1993, respectively.
NOTE 4: OTHER CURRENT ASSETS
The balance in other current assets at March 31, 1995 and 1994 includes
receivables from major vendors for returned goods, marketing and other
programs of $9,895,946 and $2,317,711, respectively.
NOTE 5: PROPERTY AND EQUIPMENT, NET
<TABLE>
Property and equipment, net is as follows:
<CAPTION>
March 31,
-------------------------------------
1995 1994
---- ----
<S> <C> <C>
Land $ 683,756 $ -
Buildings 1,692,458 -
Rental Equipment 87,690 157,326
Furniture and Equipment 11,398,416 5,952,277
Transportation Equipment 171,302 77,891
Leasehold Improvements 1,215,126 844,971
Construction in Progress 495,083 -
---------- ----------
15,743,831 7,032,465
Less: Accumulated
Depreciation and
Amortization (4,126,371) (3,039,592)
----------- -----------
Property and Equipment,
Net $11,617,460 $3,992,873
========== ==========
</TABLE>
Depreciation and amortization expense amounted to $1,967,637,
$1,217,652, and $1,172,974 for the years ended March 31, 1995, 1994 and 1993,
respectively.
NOTE 6: LOANS RECEIVABLE FROM EMPLOYEES
Loans receivable from employees of $697,364 and $602,311 at March 31,
1995 and 1994, respectively, includes various loans made to certain employees
during fiscal years 1987 through 1995, of which $413,212 and $441,536 are
related to the exercise of stock options. These loans bear interest at rates
ranging from 6% to prime plus 1.5% per annum and are payable upon demand.
Total interest income from employees' loans amounted to $45,326, $40,268
and $47,778 for the years ended March 31, 1995, 1994 and 1993, respectively.
NOTE 7: SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
The following is a summary of supplementary cash flow information:
<CAPTION>
For the Years ended March 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest Paid $ 2,402,661 $ 230,980 $ 240,178
Income Taxes Paid 1,636,331 365,366 196,771
Noncash Investing
and Financing
Activities:
Issuance of Notes
Receivable for
Common Stock 102,188 - -
Issuance of Common
Stock in Exchange
for Notes Payable 207,500 - -
Capitalized Tax
Benefit for Exercise
of Options 25,911 - -
Business Acquisitions:
Accounts Receivable
Acquired 34,346,458 - -
Inventory Acquired 9,783,697 - -
Fixed Assets
Acquired 4,322,139 - -
Other Assets Acquired 925,293 - -
Debt Issued and
Liabilities
Assumed 51,479,483 - -
Common Stock Issued 4,718,750 - -
</TABLE>
NOTE 8: CREDIT FACILITY
On December 28, 1994, the Company and its wholly owned subsidiary,
Dataflex Southwest Corporation ("Dataflex Southwest"), executed Inventory and
Working Capital Agreements with IBM Credit Corporation (the "Agreements").
The Agreements have been subsequently amended to expand the available line
from a maximum of $75.0 million secured by substantially all of the assets of
the Company and Dataflex Southwest to $110.0 million including a $7.0 million
unsecured promissory note. Interest charged under the Agreements ranges from
LIBOR plus 4.25% to LIBOR plus 4.875% on outstanding borrowings. Other
charges include monthly fees of $3,750 and an annual renewal fee of $25,000.
The Agreements expire on December 28, 1996 and can be renewed by the parties
for an additional year on each anniversary date.
The Agreements include several covenants requiring, among other things,
minimum levels of tangible net worth, earnings as a percentage of revenue,
current ratio and leverage ratio requirements. At March 31, 1995, a waiver
on default of certain financial covenants was received from IBM Credit
Corporation and the agreements were subsequently amended to revise certain
financial covenants to reflect the Company's current and future business
environment.
The Agreements replaced the Company's previous line of credit with a
bank. At March 31, 1995, there was $54 million outstanding under these
Agreements.
NOTE 9: LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31,
-----------------
Long-term debt consists of the following: 1995 1994
---- ----
<S> <C> <C>
Mortgage note payable to a bank, payable
in monthly installments of $5,267 plus
interest at the bank's prime rate plus
1% (9.75% at March 31, 1995) with the remaining
balance due January 10, 2000, collateralized
by land and buildings. $ 920,200 -
Mortgage note payable to a bank, payable in
monthly installments of $2,066 plus interest
at the bank's prime rate plus 1% (9.75% at
March 31, 1995) with the remaining balance
due January 10, 2000, collateralized by land
and buildings. 361,703 -
Convertible Promissory Note, payable in full
on June 1, 1997, with interest due quarterly
at an interest rate of 6%. This note is
convertible to 100,000 shares of Dataflex
common stock through the date of the note. 1,000,000 -
Promissory Note, payable in full on
January 10, 2002, with interest due quarterly
at an interest rate of 9%. 2,000,000 -
Promissory Note, payable in full on
January 10, 1998, with interest due quarterly
at an interest rate of 9%. 1,500,000 -
Promissory Note, payable to IBM Credit Corp. 7,000,000 -
The IBM Agreements 6,816,002 -
Miscellaneous Notes Payable 161,622 -
ITT Notes Payable - 1,579,637
---------- ---------
59,759,527 1,579,637
Less: Current portion of long-term debt 7,249,222 1,579,637
---------- ---------
$52,510,305 -
=========== =========
</TABLE>
<TABLE>
Aggregate principal payments for the next five years subsequent to March 31,
1995 are as follows:
<CAPTION>
Year ended
March 31,
<S> <C>
1996 $ 7,249,222
1997 46,904,394
1998 2,587,996
1999 87,996
2000 929,919
Thereafter $ 2,000,000
------------
$ 59,759,527
============
</TABLE>
NOTE 10: LEASES
The Company leases various facilities and equipment under noncancelable
lease arrangements which expire at various dates during the next eight years,
excluding renewal options. In addition, the Company is generally responsible
for real estate taxes, utilities, insurance and maintenance expenses which
relate to its facilities.
<TABLE>
Future minimum lease payments applicable to noncancelable operating
leases are as follows:
<CAPTION>
Year ended Operating
March 31, Leases
---------- ----------
<S> <C>
1996 $ 1,693,795
1997 1,708,672
1998 1,308,850
1999 1,118,711
2000 968,301
Thereafter 880,423
---------
$7,678,752
==========
</TABLE>
Total rental expense amounted to $1,147,325, $811,143 and $618,440 for
the years ended March 31, 1995, 1994 and 1993, respectively.
NOTE 11: INCOME TAXES
<TABLE>
The composition of the provision for income taxes is as follows:
<CAPTION>
For the Years Ended March 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current Taxes:
Federal $1,235,277 $622,821 $424,904
State 319,836 249,690 139,886
---------- -------- --------
1,555,113 872,511 564,790
---------- -------- --------
Deferred Taxes:
Federal 45,929 8,780 66,253
State 16,153 2,869 21,877
---------- -------- --------
62,082 11,649 88,130
---------- -------- --------
Provision For
Income Taxes $1,617,195 $884,160 $652,920
========== ======== ========
</TABLE>
<TABLE>
A reconciliation of the federal statutory rate with the Company's
effective tax rate is as follows:
<CAPTION>
For the Years Ended March 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income Taxes at Federal
Statutory Rate $1,277,228 $684,107 $498,331
State Taxes, Net of
Federal Tax Benefit 220,660 165,996 106,409
Other 119,307 34,057 48,180
---------- -------- --------
Provision for
Income Taxes $1,617,195 $884,160 $652,920
========== ======== ========
</TABLE>
<TABLE>
Deferred tax assets (liabilities) arise due to the recognition of income
and expense items for tax purposes in periods which differ from those used
for financial statement purposes. The tax effects of significant temporary
differences which comprise the net deferred tax liability at March 31, 1995
and 1994 are as follows:
<CAPTION>
March 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Accounts Receivable Reserves $123,305 $ 98,206
Vacation Reserve 43,115 26,390
Uniform Inventory Capitalization 145,240 88,300
-------- ---------
Deferred Tax Assets 311,660 212,896
-------- ---------
Accelerated Depreciation (267,574) (265,870)
Accelerated Amortization of Goodwill (160,675) -
-------- ---------
Deferred Tax Liabilities (428,249) (265,870)
-------- ---------
Net Deferred Tax Liability $(116,589) $(52,974)
======== =========
</TABLE>
NOTE 12: SIGNIFICANT CUSTOMERS AND VENDORS
No single customer accounted for greater than 10% of the Company's revenue
during the years ended March 31, 1995 and 1994. During fiscal year 1993, one
customer accounted for 11% and one customer accounted for 12% of revenue.
Sales of products from one vendor constituted approximately 23%, 58% and
59% of the Company's revenue during the years ended March 31, 1995, 1994, and
1993, respectively. Another vendor's products comprised 13%, 15% and 12% of
the Company's revenue during the same three year period.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company's employment contracts with four employees provide for base
annual salaries aggregating approximately $980,000 per year. The contracts
for the employees expire between March 1997 and December 1999 and require the
Company to provide these individuals with benefits upon the severance of
employment prior to the expiration of their contracts and in the event of a
change in control of the Company. The maximum amount that could be required
to be paid under these contracts, if such events occur, approximates
$3,200,000.
A class action complaint was filed in March 1992 by shareholders of the
Company alleging that the Company and certain of its officers and directors
violated federal securities laws. The Company included a charge of $847,500
against earnings for the year ended March 31, 1994, which included $110,000
in legal fees. Although management believed it had meritorious defenses,
expenses to defend and the time and disruption of Company resources led the
Company to agree to a full settlement of all claims for $900,000. This
amount, of which $162,500 was reimbursed from the Company's insurance carrier
in fiscal 1995, was paid by the Company in the first quarter of fiscal 1995.
Other claims, suits and complaints arise in the ordinary course of the
Company's business. In the opinion of Company management, such pending
matters are without merit or are of such kind, or involve such amounts, as
would not have a material adverse effect on the financial position or results
of operations of the Company.
NOTE 14: STOCK OPTIONS
The Company maintains two incentive stock option plans (the "ISO Plans"),
and five incentive and nonqualified stock option plans (the "NQSO Plans").
The 1989, 1990, 1991, 1992 and 1994 Plans provide for the grant of both
incentive stock options and nonqualified stock options to employees of the
Company. The grant prices of the various stock option plans range from $2.03
to $8.75.
<TABLE>
Shares of Common Stock have been reserved and issued under the above plans
as follows:
<CAPTION>
Stock Option Plan Shares Reserved Shares Granted
- ----------------- --------------- --------------
<S> <C> <C>
1984 and 1987 ISO 700,000 700,000
1989 Plan 400,000 400,000
1990 Plan 160,000 160,000
1991 Plan 200,000 200,000
1992 Plan 400,000 400,000
1994 Plan 800,000 262,749
</TABLE>
The ISO Plans and the 1989, 1991, 1992 and 1994 Plans provide for the
discretionary grant of options to purchase Common Stock at a price determined
by the Compensation Committee of the Board of Directors but, in the case of
incentive stock options, at a price not less than the fair market value
thereof on the date of grant. The options, by their terms, must be exercised
within ten years from the date on which they are granted or within 90 days of
employment termination.
All options fully vest at date of grant except for stock options granted
under the 1989, 1991, 1992 and 1994 Plans, which vest 25% per year beginning
one year after grant date. Under certain circumstances, options can vest
immediately at the discretion of the Company's Board of Directors.
The Company has occasionally granted to officers, directors and certain key
employees, stock options in addition to the ISO and NQSO stock option plans.
On November 15, 1993, in connection with the appointment of a member to the
Company's Board of Directors, the Company granted 300,000 shares of common
stock to the board member at its then fair market value of $5.00 per share.
On September 2, 1994, in connection with the appointment of another member
to the Company's Board of Directors, the Company granted 10,000 shares of
common stock to the board member at its then fair market value of $7.125 per
share.
These options vest 25% per year beginning one year after date of grant.
The options, by their terms, must be exercised within ten years from the
grant date or within 90 days of termination from the Board of Directors.
On April 6, 1994, in connection with the acquisition of Granite Products,
Inc. (see Note 2), the Company granted a total of 300,000 shares to four
Granite associates. The options were granted at their then fair market value
of $7.00 per share. These options vest 25% per year beginning one year after
date of grant. The options, by their terms, must be exercised within ten
years from the date of grant or within 90 days of employment termination.
<TABLE>
Information concerning options outstanding as of March 31, 1995, 1994 and
1993 is as follows:
<CAPTION>
For the Years Ended March 31,
---------------------------------
SHARES 1995 1994 1993
- ------ ---- ---- ----
<S> <C> <C> <C>
Outstanding at Beginning 1,146,783 533,370 382,320
Granted 639,499 794,500 152,000
Exercised (28,763) (15,837) (450)
Cancelled (44,500) (165,250) (500)
---------- ---------- --------
Outstanding at End 1,713,019 1,146,783 533,370
========= ========= ========
Exercisable 533,520 280,283 146,620
========= ========= ========
</TABLE>
Options exercised during the years ended March 31, 1995 and March 31, 1994
ranged in exercise prices from $2.04 to $5.50. The exercise price of options
exercised during the year ended March 31, 1993 was $5.50.
NOTE 15: EMPLOYEE BENEFITS
The Company has a 401(k) Plan which covers all employees who have completed
ninety days of service and are at least twenty-one years of age. Employees
may contribute from 1 to 15% of their annual compensation subject to the
limitation imposed by law. Employee contributions of up to 6% of each
covered employees' compensation are matched at a percentage determined each
year by the Company. The maximum matching percent during fiscal years 1995,
1994 and 1993 was 20%, resulting in Company contributions of $85,222, $39,779
and $32,655, respectively.
NOTE 16: QUARTERLY FINANCIAL DATA
<TABLE>
Unaudited quarterly financial data for the fiscal years ended March 31,
1995, 1994 and 1993 is as follows:
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
FY 1995:
Revenue $53,774,000 $ 57,880,000 $64,135,000 $98,062,000
Gross Profit5,800,000 6,880,000 7,556,000 11,051,000
Net Income 521,000 661,000 685,000 272,000
Earnings Per
Share $ 0.11 $ 0.15 $ 0.15 $ 0.05
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
FY 1994: <C> <C> <C> <C>
Revenue $25,855,000 $31,461,000 $29,068,000 $35,964,000
Gross Profit2,885,000 3,280,000 3,563,000 3,802,000
Net Income 243,000 326,000 139,000 420,000
Earnings Per
Share $ 0.06 $ 0.08 $ 0.04 $ 0.10
/TABLE
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934,the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized:
DATAFLEX CORPORATION DATE: June 29, 1995
By:/s/ Richard C. Rose By: /s/ Raymond DioGuardi
Richard C. Rose Raymond DioGuardi
Chairman and Senior Vice President,
Chief Executive Officer Finance and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
[CAPTION]
SIGNATURE TITLE DATE
[C] [C] [C]
/s/ Richard C. Rose Chairman, Chief June 29, 1995
- --------------------
Richard C. Rose Executive Officer,
and Director
/s/ Raymond DioGuardi Senior Vice President, June 29, 1995
- --------------------
Raymond DioGuardi Finance and Chief
Financial Officer
/s/ Gordon J. McLenithan President-Dataflex June 29, 1995
- --------------------
Gordon J. McLenithan East, Director
/s/ Peter H. Jackson Co-President, June 29, 1995
- --------------------
Peter H. Jackson Director
/s/ Philip Doganiero Co-President, June 29, 1995
- --------------------
Philip Doganiero Director
/s/ John G. Raos Director June 29, 1995
- --------------------
John G. Raos
/s/ Charles C. Kelly Director June 29, 1995
- --------------------
Charles C. Kelly
Exhibit 10.40
AGREEMENT
AGREEMENT effective as of April 1, 1993, between Dataflex
Corporation, a New Jersey corporation, which has its offices at
3920 Park Avenue, Edison, New Jersey 08820 (hereinafter termed
"Company") and Richard C. Rose, who resides at 11 S. Rohallion
Drive, Rumson, New Jersey (hereinafter "Rose").
WHEREAS, the Company presently employs Rose as President and
Chief Executive Officer of the Company; and
WHEREAS, the Company desires to continue to employ Rose as
President and Chief Executive Officer of the Company; and
WHEREAS, Rose is willing to continue such employment as
President and Chief Executive Officer of the Company.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises, covenants and conditions hereinafter set forth,
the parties hereto agree as follows:
1. Employment. The Company hereby employs Rose and Rose
hereby accepts employment upon the terms and conditions hereinafter
set forth.
2. Term. Subject to the provisions for termination as
hereinafter provided, the term of this Agreement shall begin on
April 1, 1993, and shall terminate on December 31, 1999.
3. Compensation. For the services to be rendered by Rose
under the terms of this Agreement, the Company shall pay Rose a
basic salary of three hundred twenty-nine thousand four hundred
($329,400.00) dollars per year or such greater amount as may be
approved from time to time by the Board of Directors (the "Basic
Salary"), payable in equal bi-weekly installments. In addition to
such Basic Salary, Rose shall be entitled to compensation in an
amount equal to five (5%) percent of the Company's Income Before
Income Taxes, or such greater amount as may be approved from time
to time by the Board of Directors. Such compensation in excess of
Basic Salary shall be payable within ninety (90) days after the end
of the Company's fiscal quarter.
4. Duties. Rose is engaged as President and Chief
Executive Officer of the Company with all of the responsibilities
commensurate with such titles. The precise services of Rose may be
modified, enlarged or limited, from time to time, at the discretion
of the Board of Directors. If Rose serves as a director of the
Company during the term of this Agreement, Rose shall serve in such
capacity without further compensation, however, nothing herein
shall be construed as requiring the Company, or anyone else to
cause the election or appointment of Rose as a director of the
Company.
5. Restrictive Covenants.
A. Rose recognizes and acknowledges that the list of
the Company's customers, as it may exist from time to time, is a
valuable, special, and unique asset of the Company's business. Rose
will not, during, or for one year after the term of his employment,
disclose the list of the Company's customers or any part thereof to
any person, firm, corporation, association, or other entity for any
reason or purpose whatsoever.
B. During the term of this Agreement and for one year
after the termination of this Agreement, Rose will not, directly or
indirectly, within New Jersey, New York, Connecticut,
Massachusetts, Pennsylvania, and such other states in which the
Company may or does do business, own, manage, operate, control, be
employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of any business
competitive with or otherwise similar to the business conducted by
the Company.
C. In the event of a breach or threatened breach by
Rose of the provisions of this paragraph, the Company shall be
entitled to an injunction restraining Rose from disclosing, in
whole or in part, the list of the Company's customers, or from
rendering any services to any person, firm, corporation, associa-
tion, or other entity to whom such list, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein
shall be construed as prohibiting the Company from pursuing any
other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from Rose.
6. Expenses. Rose is authorized to incur reasonable
expenses in connection with the business of the Company, including
expenses for entertainment, travel, and similar items. The Company
shall reimburse Rose for all such expenses upon the presentation by
Rose, from time to time, of an itemized account of such expendi-
tures.
7. Disability.
A. If Rose is not able to perform each of the material
duties of his job, does not work at any other occupation, is unable
to do each of the material duties of any job for which he is fitted
by education, training, or experience, and is under the regular
treatment of a physician for a period in excess of twelve (12)
consecutive months, then at the option of the Company, and upon
thirty (30) days notice in writing to Rose by the Company, this
Agreement shall cease and terminate, and Rose shall be paid, within
sixty (60) days, all Basic Salary (as then in effect) earned up to
and including the date of termination and, in addition, shall be
paid within such sixty (60) day period, fifty (50%) percent of the
remaining total amount of Basic Salary (as then in effect) due to
Rose under the terms of Paragraph 3 hereof, up to and including
such Basic Salary which would have been earned by December 31,
1999. An additional amount equal to fifty (50%) percent of the
remaining total amount of Basic Salary (as then in effect) due to
Rose under the terms of Paragraph 3 hereof, up to and including
such Basic Salary which would have been earned by December 31,
1999, shall be paid to Rose in accordance with the Company's normal
payroll practices through December 31, 1999. However, such
payments shall immediately terminate, and the Company shall have no
further obligations under this Paragraph 7, in the event of Rose's
death prior to December 31, 1999. In addition, Rose shall be
entitled to compensation in excess of Basic Salary earned up to and
including the date of termination. Such amount is deemed to be
earned on a monthly pro rata basis, on the last day of each month,
and shall be payable within 90 days after the end of the fiscal
quarter in which termination occurred.
The amount paid to Rose as one hundred (100%)
percent of his remaining Basic Salary which would have been earned
by December 31, 1999 shall be reduced by any funds provided or to
be provided from disability insurance which the Company, at its
sole cost and expense, may obtain for the benefit of Rose and by
any compensation received by Rose from another employer subsequent
to the date of disability and during the term of the employment
agreement with the Company. Such reduction shall first be applied
to reduce the fifty (50%) percent payment to be made within sixty
(60) days of the termination of the Agreement and, to the extent
necessary, shall then be applied on a proportionate basis to reduce
the remaining disability payments to be made in accordance with the
Company's normal payroll practices.
B. If at any time, as a result of the total payments
received from the Company, a disability insurance carrier and/or
another employer, Rose has received benefits or compensation in
excess of that which he is entitled to receive to date under this
Paragraph 7, he shall be obligated to immediately pay such excess
to the Company. In addition, the Company may deduct such excess
from any payments which the Company is otherwise obligated to make
to Rose in the future under this Agreement.
C. This Paragraph 7 shall survive the termination of
this Agreement.
8. Insurance. The Company shall have the right, from time
to time, to apply for and take out in its name and at its own
expense life, health or other insurance upon Rose in any sum or
sums which may be deemed necessary by the Company to protect its
interest under this Agreement, and Rose shall do all such things as
may be necessary to assist in the procuring of such insurance by
making proper application therefor as may be required by an
insurance company and submitting to the usual and customary medical
examination.
9. Other Plans. In addition to the compensation provided
for in Paragraph 3 hereof, Rose shall be entitled to participate in
any group life, medical, pension, retirement, profit sharing and
other employee benefit plans, vacations, other types of deferred
compensation arrangements afforded generally by the Company to
other officers of the Company and nothing herein contained shall be
deemed to preclude Rose's participation in any such plan.
10. Termination.
A. The Company shall have the right to terminate Rose's
employment under this Agreement if Rose:
(i) is convicted of a felony, or pleads guilty or
nolo contendre to such felony or lesser charge which results from
plea bargaining; or
(ii) breaches any material term or condition of this
Agreement in any material respect and fails to cure such material
breach within the latter of thirty (30) calendar days after
receiving written notice of such breach from the Company or such
reasonable period of time as is necessary to cure such breach; or
(iii) dies, or is disabled pursuant to Paragraph 7
of this Agreement.
B. If this Agreement is terminated pursuant to
Paragraph 10A hereof, the Company shall be under no obligation or
liability to Rose except to pay to him such Basic Salary to which
he may be entitled pursuant hereto up to the date of such termina-
tion. No compensation in excess of Basic Salary will be earned for
the fiscal quarter of termination. Such funds shall be payable to
Rose, or his personal representative, within sixty (60) days after
such termination, or the appointment of a duly authorized personal
representative, whichever is later.
C. The Company shall also have the right to terminate
Rose's employment without cause. In such event, the Company shall
be required to pay to Rose the remaining Basic Salary (as then in
effect) to which Rose is entitled, for the remaining term of this
Agreement. The Board of Directors may not reduce Rose's Basic
Salary in contemplation of such termination. The remaining Basic
Salary shall be payable in one lump sum within thirty-one (31) days
after such termination. In addition, Rose will be entitled to the
amount of compensation in excess of Basic Salary earned up to the
date of termination. For this purpose, compensation in excess of
Basic Salary is deemed to be earned on a monthly basis, on the last
day of each month. For example, if Rose is terminated without
cause on February 28, 1994, he will be entitled to 11/12 of the
compensation in excess of Basic Salary which would otherwise have
been earned by him for the Company's year ending March 31, 1994
provided he had been employed by the Company on that date. Such
amount shall be payable within 90 days after the end of the fiscal
quarter in which termination occurred.
11. Death During Employment. Notwithstanding any other
provision in this Agreement to the contrary, if Rose dies during
the term of his employment hereunder, the Company shall:
A. Pay to the estate of Rose, within six (6) months of
Rose's death, all of the Basic Salary which would otherwise be
payable to him up to the later of (i) four (4) years from the date
of Rose's death or (ii) the end of the term of this Agreement
during which his death occurs. The amount of Rose's Basic Salary
to be used in determining the amount payable to his estate pursuant
to the preceding sentence shall be the Basic Salary in effect on
the date of his death.
B. Pay a total of five thousand ($5,000.00) dollars,
within sixty (60) days after the death of Rose, to the widow and to
Rose's surviving children in equal shares, or if there are no such
widow or surviving children, to the estate of Rose.
12. Payment In the Event of Change in Control of the Company.
A. If in a single transaction or as a result of a
series of transactions occurring in concert with each other, the
control of the Company shall change, and subsequent to such change
in control, this Agreement, or any subsequent employment agreement
then in effect which expires prior to Rose attaining sixty-five
(65) years of age, is terminated or is not renewed by the Company
at the expiration of the term of such agreement or any renewals,
extensions or modifications thereof, Rose shall be entitled to
compensation (in addition to all amounts otherwise payable to Rose
under this Agreement, in an amount equal to two hundred and ninety-
nine (299%) percent of the annual Basic Salary payable to Rose at
the time when his employment is terminated. For purposes of this
Paragraph 12, a "change in control" shall occur if in excess of
fifty (50%) percent of the Company's stock is transferred in a
single transaction or a series of transactions in concert with each
other. In determining whether in excess of fifty (50%) percent of
the Company's stock has been transferred, transfers by a person or
persons who were officers of the Company, or were related to an
officer, immediately prior to a change in control shall be
disregarded. The amount payable under this Paragraph 12 shall be
paid in one single payment to Rose within sixty (60) days of the
termination of Rose's employment.
B. Notwithstanding any other provisions of this
Agreement to the contrary, the total amounts deemed to be payable
to Rose under this Agreement as a result of a change in control
shall not exceed three times the base amount as determined under
Section 280G of the Internal Revenue Code of 1986, as amended. In
the event the amounts payable to Rose as a result of a change of
control are reduced pursuant to the preceding sentence, the amounts
payable under this Paragraph 12 shall be reduced prior to the
reduction of any other payments to Rose hereunder.
C. This Paragraph 12 shall survive the termination of
this Agreement.
13. Notices. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if sent
by registered or certified mail to his residence in the case of
Rose, or to its principal office in the case of the Company.
14. Waiver of Breach. The waiver by the Company of a breach
of any provision of this Agreement by Rose shall not operate or be
construed as a waiver of any subsequent breach by Rose.
15. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of New Jersey.
16. Entire Agreement. This instrument contains the entire
agreement of the parties. It may not be changed or modified except
by an agreement in writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first written
above.
ATTEST: DATAFLEX CORPORATION
\s\ Mary Sheehan \s\ Gordon J. McLenithan
BY:
Gordon J. McLenithan,
Executive Vice President
WITNESS:
\s\ Elizabeth Massimo \s\ Richard C. Rose
Richard C. Rose,
Individually
<PAGE>
Exhibit 10.41
Dataflex Corporation
3920 Park Avenue
Edison, New Jersey 08820
May __, 1994
Richard C. Rose
c/o Dataflex Corporation
3920 Park Avenue
Edison, New Jersey 08820
Re: Amendment to Employment Agreement
Dear Mr. Rose:
Reference is made to that certain Agreement, dated as of April
1, 1993, between Dataflex Corporation, a New Jersey corporation
(the "Company"), and you (as the same has been and may hereafter be
amended, restated, supplemented or otherwise modified from time to
time, the "Employment Agreement").
Each of the parties hereto agree as follows:
SECTION 1. Amendment to the Employment Agreement. Section 3
of the Employment Agreement is hereby amended by deleting the words
"five (5)" appearing therein and substituting therefor the words
"four (4)".
SECTION 2. Miscellaneous.
(a) This Amendment and the rights of the parties hereto
shall be governed by, and construed in accordance with, the law of
the State of New Jersey.
(b) This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counter-
parts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and
the same agreement.
(c) Except as expressly amended by this Amendment, the
Employment Agreement shall remain in full force and effect and is
hereby ratified and confirmed.
Kindly confirm your acceptance of the terms hereof by signing
and returning one copy of this letter agreement to the Company.
Very truly yours,
DATAFLEX CORPORATION
\s\ Richard C. Rose
By:
Title:
\s\ Richard C. Rose
Richard C. Rose
<PAGE>
Exhibit 10.42
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 3O, 1995, between Dataflex
Corporation, a New Jersey corporation, which has its principal
office at 3920 Park Avenue, Edison, New Jersey 08820 (hereinafter,
the "Company") and Gordon J. McLenithan (hereinafter, the
"Executive").
WHEREAS, the Company desires to employ the Executive as
President of Dataflex East, a division of the Company; and
WHEREAS, the Executive is willing to accept such employment as
President of Dataflex East, a division of the Company; and
WHEREAS, the Company and the Executive desire to terminate the
Employment Agreement, dated as of April 1, 1993, as amended,
between the Company and the Executive (the "Existing Employment
Agreement");
NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises, covenants and conditions hereinafter set forth,
the parties hereto agree as follows:
1. Employment. The Company hereby employs the Execu-
tive, and the Executive hereby accepts employment, upon the terms
and conditions hereinafter set forth.
2. Term. Subject to the provisions for termination as
hereinafter provided, the term of this Agreement shall begin on the
date hereof and shall terminate on the third anniversary of the
date hereof.
3. Compensation. For the services to be rendered by the
Executive under the terms of this Agreement, the Company shall pay
the Executive a basic salary of $297,000.00 per year or such
greater amount as may be approved from time to time by the
Company's Board of Directors (the "Basic Salary"), payable in equal
by-weekly installments. In addition to such Basic Salary, the
Executive shall be entitled to compensation in an amount equal to
three percent (3%) of the Company's Income Before Income Taxes for
the Company's fiscal quarter ended on December 31, 1994 and for the
Company's fiscal quarter ending on March 31, 1995. The compensa-
tion described in the preceding sentence shall be payable within
ninety (90) days after the end of the appropriate fiscal quarter of
the Company. Commencing April 1, 1995, in addition to Basic
Salary, the Executive shall be eligible to receive bonus compensa-
tion from the Company in an amount, if any, and at such times, as
may be approved from time to time by the Company's Chief Executive
Officer or its Board of Directors in its sole discretion.
4. Duties.
A. The Executive is engaged as President of
Dataflex East, a division of the Company with all of the responsi-
bilities commensurate with such title. The precise services of the
Executive may be modified, enlarged or limited, from time to time,
at the discretion of the Company's Board of Directors or the Chief
Executive Officer. During the term of this Agreement, the Executive
shall devote his full business time, energy and skill to his
employment as President of Dataflex East, a division of the
Company.
B. During the term of this Agreement, the Executive
shall not be required to relocate to any office of the Company
which would require him to change his principal residence from that
maintained by the Executive on the date hereof.
5. Restrictive Covenants.
A. The Executive recognizes and acknowledges that
the list of the Company's customers, as it may exist from time to
time, is a valuable, special, and unique asset of the Company's
business. The Executive will not, during, or for one (1) year
after the term of his employment, disclose the list of the
Company's customers or any part thereof to any person, firm,
corporation, association, or other entity for any reason or purpose
whatsoever.
B. During the term of this Agreement and for one
year after the termination of this Agreement, the Executive will
not, directly or indirectly, within New Jersey, New York,
Connecticut, Massachusetts, Pennsylvania, California, Illinois,
Arizona, Florida, Alabama, Tennessee and such other states in which
the Company may or does do business, own, manage, operate, control,
be employed by, participate in, or be connected in any manner with
the ownership, management, operation, or control of any business
competitive with or otherwise similar to the business conducted by
the Company during the term of the Executive's employment here-
under.
C. In the event of a breach or threatened breach
by the Executive of the provisions of this paragraph 5, the Company
shall be entitled to injunctive relief to enforce its rights
hereunder. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company
for such breach or threatened breach, including the recovery of
damages from the Executive.
D. This Paragraph 5 shall survive the termination
of this Agreement.
6. Expenses. The Executive is authorized to incur
reasonable expenses in connection with the business of the Company,
including expenses for entertainment, travel, and similar items.
The Company shall reimburse the Executive for all such expenses
upon the presentation by the Executive, from time to time, of an
itemized account of such expenditures.
7. Disability.
A. If the Executive is not able to perform each of
the material duties of his job due to physical or mental disabili-
ty, does not work at any other occupation, is unable to do each of
the material duties of any job for which he is fitted by education,
training, or experience, and is under the regular treatment of a
physician, all for a period in excess of twelve (12) consecutive
months, then, at the option of the Company, and upon thirty (30)
days' notice in writing to the Executive by the Company, this
Agreement (other than the restrictive covenants set forth in
paragraph 5 hereof) shall terminate, and the Executive shall be
paid, within sixty (60) days of the date of termination of this
Agreement, a lump sum equal to all Basic Salary (as then in effect)
earned up to and including the date of termination plus fifty
percent (50%) of the remaining total amount of Basic Salary (as
then in effect) which would have been earned by the Executive
hereunder if he had remained in the employ of the Company through
the third anniversary of the date hereof. An additional amount
equal to the balance of the Basic Salary (as then in effect) which
would have been earned by the Executive hereunder if he had
remained in the employ of the Company through the third anniversary
of the date hereof shall be paid to the Executive in equal
installments through the third anniversary of the date hereof in
accordance with the Company's normal payroll practices. However,
such periodic payments shall immediately terminate, and the Company
shall have no further obligations under this Paragraph 7, in the
event of the Executive's death prior to the third anniversary of
the date hereof.
B. In addition to the payments described in
Paragraph 7A above, the Executive shall be entitled to receive the
compensation described in the second sentence of paragraph 3 hereof
earned up to and including the date of termination. Such amount is
deemed to be earned on a monthly pro rata basis, on the last day of
each month, and shall be payable within 90 days after the end of
the fiscal quarter in which termination occurred.
C. Notwithstanding the provisions of Paragraph 7A
to the contrary, the lump sum or periodic payments of Basic Salary
in respect of the remaining original tern of this Agreement
provided for in Paragraph 7A shall be reduced by any funds provided
or to be provided from disability insurance or other plans or
arrangements which the Company, at its sole cost and expense, may
obtain for the benefit of the Executive and by any compensation
received by the Executive from another employer subsequent to the
date of disability and during the term of this Agreement. Such
reduction shall first be applied to reduce the fifty (50%) percent
payment to be made within sixty (60) days of the termination of the
Agreement and, to the extent necessary, shall then be applied on a
proportionate basis to reduce the remaining disability payments to
be made in accordance with the Company's normal payroll practices.
D. If at any time, as a result of the total
payments received from the Company, a disability insurance carrier
and/or another employer, the Executive has received benefits or
compensation in excess of that which he is entitled to receive
under this Paragraph 7, he shall be obligated to immediately pay
such excess to the Company. In addition, the Company may deduct
such excess from any payments which the Company is otherwise
obligated to make to the Executive in the future under this
Agreement.
E. This Paragraph 7 shall survive the termination
of this Agreement.
8. Insurance. The Company shall have the right, from
time to time, to apply for and take out in its name and at its own
expense, life, health or other insurance upon the Executive in any
sum or sums which may be deemed necessary by the Company to protect
its interest under this Agreement, and the Executive shall do all
such things as may be necessary to assist in the procuring of such
insurance by making proper application therefor as may be required
by an insurance company and submitting to the usual and customary
medical examination.
9. Other Plans. In addition to the compensation
provided for in paragraph 3 hereof, the Executive shall be entitled
to participate in any group life, medical, pension, retirement,
profit sharing and other employee benefit plans, vacations, and
other types of deferred compensation arrangements afforded
generally by the Company to other officers of the Company, subject
to his meeting applicable eligibility requirements, and nothing
herein contained shall be deemed to preclude the Executive's
participation in any such plan.
10. Termination.
A. The Company shall have the right to terminate
the Executive's employment under this Agreement if the Executive:
(i) is convicted of a felony, or pleads guilty
or nolo contendere to such felony or lesser charge which
results from plea bargaining; or
(ii) breaches any material term or condition of
this Agreement in any material respect and fails to cure
such material breach within the latter of thirty (30)
calendar days after receiving written notice of such
breach from the Company or such reasonable period of time
as is necessary to cure such breach; or
(iii) dies, or is disabled pursuant to Para-
graph 7 of this Agreement; or
(iv) the Company shall reasonably believe that
the Executive has committed an act of fraud, theft or
dishonesty against the Company.
B. If this Agreement is terminated pursuant to
Paragraph 10A hereof, and except as otherwise provided in Para-
graphs 7 and 11 hereof, the Company shall be under no obligation or
liability to the Executive except to pay to him such Basic Salary
to which he may be entitled pursuant hereto through the date of
such termination and the compensation described in the second
sentence of paragraph 3 hereof through the last full fiscal quarter
completed prior to the date of termination. No compensation in
excess of Basic Salary will be earned for the fiscal quarter of
termination.
C. The Company shall also have the right to
terminate the Executive's employment without cause. In such event,
the Company shall be required to pay to the Executive the remaining
Basic Salary as then in effect to which the Executive is entitled
for the remaining term of this Agreement. The Company's Board of
Directors may not reduce the Executive's Basic Salary in contempla-
tion of such termination. The remaining Basic Salary shall be
payable in one lump sum within thirty-one (31) days after such
termination. In addition, the Executive will be entitled to the
compensation described in the second sentence of Paragraph 3 hereof
through the date of termination. For this purpose, such compensa-
tion is deemed to be earned on a monthly pro rata basis, on the
last day of each month. Such amount shall be payable within ninety
(90) days after the end of the fiscal quarter in which termination
occurs.
11. Death During Employment. Notwithstanding any other
provision in this Agreement to the contrary, if the Executive dies
during the term of his employment hereunder, the Company shall:
A. pay to the estate of the Executive within six
(6) months of the Executive's death, all of the Basic Salary which
would otherwise be payable to him up to the third anniversary of
the date hereof. The amount of Basic Salary to be used in
determining the amount payable to his estate pursuant to the
preceding sentence shall be the Basic Salary in effect on the date
of his death; and, in addition,
B. pay a total of $5,000 to the estate of the
Executive, within sixty (60) days after the death of the Executive.
12. Payment In the Event of Change in Control of the
Company.
A. If in a single transaction or as a result of a
series of transactions occurring in concert with each other, the
control of the Company shall change, and subsequent to such change
in control, this Agreement, or any subsequent employment agreement
then in effect which expires prior to the Executive's attaining
sixty-five (65) years of age, is terminated or is not renewed by
the Company (for an additional three-year term) at the expiration
of the term of such agreement, the Executive shall be entitled to
compensation in addition to all amounts otherwise payable to the
Executive under this Agreement, in an amount equal to two hundred
ninety nine percent (299%) of the annual Basic Salary payable to
the Executive at the time when his employment is terminated. For
purposes of this Paragraph 12, a "change in control" shall occur if
a person, together with such person's affiliates or associates,
acquire 50% or more of the outstanding voting stock of the Company.
The amount payable under this Paragraph 12 shall be paid in one
single payment to the Executive within sixty (60) days of the
termination of employment.
B. Notwithstanding any other provisions of this
Agreement to the contrary, the total amounts deemed to be payable
to the Executive under this Agreement or otherwise as a result of
a change in control shall not exceed three (3) times the "base
amount" as determined under Section 280G of the Internal Revenue
Code of 1986, as amended. In the event the amounts payable to the
Executive as a result of a change of control are reduced pursuant
to the preceding sentence, the amounts payable under this paragraph
12 shall be reduced prior to the reduction of any other payments to
the Executive hereunder.
C. This paragraph 12 shall survive the termination
of this Agreement.
13. Notices. Any notice required or permitted to be
given under this Agreement shall be sufficient if in writing, and
if sent by registered or certified mail to his residence, in the
case of the Executive, or to its principal office, in the case of
the Company.
14. Waiver of Breach. The waiver by the Company of a
breach of any provision of this Agreement by the Executive shall
not operate or be construed as a waiver of any subsequent breach by
the Executive.
15. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of New
Jersey.
16. Entire Agreement. This Agreement contains the
entire agreement of the parties. The Existing Employment Agreement
is hereby expressly terminated by the Executive and the Company,
and shall be of no further force or effect. This Agreement may not
be changed or modified except by an agreement in writing signed by
the parties hereto.
17. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validly or
enforceability of any other provision of this Agreement, each of
which shall remain in full force and effect.
18. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
19. Successors and Assigns. This Agreement shall inure
to the benefit of and be binding on the parties hereto and their
respective successors and assigns; provided, however, that this
Agreement may not be assigned by the Executive without the prior
written consent of the Company.<PAGE>
IN WITNESS WHEREOF, the parties here to have caused this
Agreement to be duly executed as of the day and year first written
above.
DATAFLEX CORPORATION
\s\ Richard C. Rose
BY:
Title: Chairman/CEO
\s\ Gordon J. McLenithan
Gordon J. McLenithan,
Executive Vice President
<PAGE>
Exhibit 10.43
Gordon J. McLenithan
c/o Dataflex Corporation
3920 Park Avenue
Edison, New Jersey 08820
April 1, 1995
Re: Employment Agreement(s)
Dear Mr. McLenithan:
Reference is made to that certain Agreement, dated as of
January 30, 1995 between Dataflex Corporation, a New Jersey
Corporation (the "Company") and you (as the same has been and may
hereafter be amended, restated, supplemented or otherwise modified
from rime to time, the "Employment Agreement").
Each of the parties agrees as follows:
SECTION 1. Employment Agreement. Section 3 of the Employment
Agreement is hereby amended by deleting the words "a basic salary
of $297,000" appearing therein and substituting therefor the words
"a basic salary of $200,000".
In return for these agreed upon terms, the Executive will
receive the following:
(a) A lump sum of $97,300.00, less all applicable taxes and
withholdings shall be paid. This amount will be earned and paid for
current services at the end of each quarter of the Company's 1996
Fiscal Year in four equal installments of $24,325.00 less all
applicable taxes and withholdings as required by Federal and State
law.
(b) A grant of 17,298 shares restricted common stock of the
Company. This restricted grant shall have a vesting period of three
(3) years, with one-third (1/3) of the share amount available at
the conclusion of the first year and one-third (1/3) of the total
shares available on subsequent years.
(c) Issuance of an option under the Dataflex 1994 Stock
Option Plan for 17,298 shares granted at $8.125. This Stock Option
Grant shall have a vesting period of three (3) years, with one-
third (1/3) of the share amount available at the conclusion of the
first year and one-third (1/3) of the total shares available on
subsequent years.
SECTION 2. Miscellaneous.
(a) This Amendment and the rights of the parties hereto shall
be governed by, and construed in accordance with, the law of the
State of New Jersey.
(b) This Amendment may be executed in any number of counter-
parts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to an original and
all of which taken together shall constitute one and the same
agreement.
(c) Except as expressly amended by this Amendment, the
Employment Agreement shall remain in full force and effect and is
hereby ratified and confirmed.
Kindly confirm your acceptance of the terms hereof by signing
and returning one copy of this document to the Company.
Very truly yours,
DATAFLEX CORPORATION
/s/ Raymond DioGuardi
By:
Title: Sr. Vice President of
Finance and CFO
\s\ Gordon J. McLenithan
Gordon J. McLenithan
4-1-95
Date
<PAGE>
Exhibit 10.44
April 1, 1995
Peter H. Jackson
19 Valley View Road
Orinda, CA 94563
Re: Amendment to Employment Agreement
Dear Mr. Jackson:
Reference is made to that certain Agreement, dated as of April
6, 1994 between Dataflex Corporation, a New Jersey Corporation (the
"Company"), and you (as the same has been and may hereafter be
amended, restated, supplemented or otherwise modified from time to
time, the "Employment Agreement').
Each of the parties hereto agrees as follows:
SECTION 1. Amendment to the Employment Agreement. Page One
(1), paragraph two (2) is hereby amended by deleting the words
"President and Chief Operating Officer" and substituting therefor
"Co-President, Executive Officer".
Section 3 of the Employment Agreement is hereby amended by
deleting the words "a basic salary of $296,460" appearing therein
and substituting therefor the words "a basic salary of $225,000".
Further, the Employment Agreement is hereby amended by
deleting the words "In addition to such Basic Salary, the Executive
shall be entitled to compensation in an amount equal to three
percent (3%) of the Company's Income Before Income Taxes, or such
greater amount as may be approved from time to time by the
Company's Board of Directors." appearing therein and substituting
therefor the words "In addition, the Executive shall be entitled to
further compensation through the Company's Annual Bonus Program and
at an amount as may be approved from time to time by the Company's
Board of Directors".
In exchange for these agreed upon substitutions, the following
one-time compensation will be made:
A. A lump sum of $ 123,640.00, less all applicable taxes
and withholdings shall be paid. This amount will be earned and paid
for current services at the end of each quarter of the Company's
1996 Fiscal Year in four equal installments of $30,910.00 less all
applicable taxes and withholdings as required by Federal and State
law.
B. Issuance of an option for 21,980 shares restricted
common stock of the Company. This restricted grant shall have a
vesting period of two (2) years, with fifty (50%) percent of the
option vesting at the conclusion of each year.
C. Issuance of an option under the Dataflex 1994 Stock
Option Plan for 21,980 shares granted at $8.125. This Stock Option
Grant shall have a vesting period of two (2) years, with fifty
(50%) percent of the option vesting at the conclusion of each year.
SECTION 2. Miscellaneous
(a) This Amendment and the rights of the parties hereto
shall be governed by, and construed in accordance with, the law of
the State of New Jersey.
(b) This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counter-
parts, each of which when so executed shall be deemed to an
original and all of which taken together shall constitute one and
the same agreement.
(c) Except as expressly amended by this Amendment, the
Employment Agreement shall remain in full force and effect and is
hereby ratified and confirmed.
Kindly confirm your acceptance of the terms hereof by signing
and returning one copy of this letter agreement to the Company
Very truly yours,
DATAFLEX CORPORATION
/s/ Raymond DioGuardi
By:
Title: Sr. Vice President of
Finance and CFO
\s\ Peter H. Jackson
Peter H. Jackson
5-11-95
Date
<PAGE>
Exhibit 22
DATAFLEX COLORATION
SUBSIDIARIES
Dataflex Southwest Corporation, an Arizona corporation.
<PAGE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Forms S-8 (Nos. 33-4817, 33-16424, 33-
32996 and 33-51012) of our report dated June 23, 1995, appearing on
page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
Morristown, New Jersey
June 23, 1995
<PAGE>
U:\WPC\FILE\01095001\dataflex.agr
June 29, 1995; 1:18pm
