As filed with the Securities and Exchange Commission on June 25, 1998.
Registration No. 333-53225
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SAVOIR TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2414428
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
--------------------
254 East Hacienda Avenue
Campbell, California 95008
(408) 379-0177
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
P. SCOTT MUNRO
Chairman of the Board, Chief Executive
Officer, President and Secretary
SAVOIR TECHNOLOGY GROUP, INC.
254 East Hacienda Avenue
Campbell, California 95008
(408) 379-0177
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
KATHARINE A. MARTIN MARC C. KRANTZ
KENT E. SOULE KOHRMAN, JACKSON & KRANTZ P.L.L.
PILLSBURY MADISON & SUTRO LLP One Cleveland Center, 20th Floor
2550 Hanover Street 1375 East 9th Street
Palo Alto, California 94304 Cleveland, Ohio 44114
(650) 233-4500 (216) 736-7204
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE
TO THE PUBLIC: On a delayed or continuous
basis pursuant to Rule 415.
--------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The prospectus included in this registration statement also relates to
registration statement No. 333-40599.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+ Information contained herein is subject to completion or amendment. +
+ A registration statement relating to these securities has been filed +
+ with the Securities and Exchange Commission. These securities may +
+ not be sold nor may offers to buy be accepted prior to the time the +
+ registration statement becomes effective. This prospectus shall not +
+ constitute an offer to sell or the solicitation of an offer to buy +
+ nor shall there be any sale of these securities in any State in +
+ which such offer, solicitation or sale would be unlawful prior to +
+ registration or qualification under the securities laws of any such +
+ State. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 24, 1998
PROSPECTUS
4,578,949 SHARES OF COMMON STOCK
OF
SAVOIR TECHNOLOGY GROUP, INC.
This Prospectus relates to the resale from time to time of 4,578,949 shares
(the "Shares") of Common Stock, $.01 par value per share (the "Common Stock") of
Savoir Technology Group, Inc. (the "Company") held by certain securityholders of
the Company (the "Selling Stockholders").
The Shares being offered by the Selling Stockholders hereunder include (i)
2,302,658 shares of Common Stock issuable upon conversion (the "Conversion
Shares") of the Company's Series A Preferred Stock (the "Series A Preferred
Stock"); (ii) 1,121,250 shares of Common Stock issuable upon the exercise of
warrants issued in connection with the Series A Preferred Stock; (iii) 112,125
shares of Common Stock issuable upon the exercise of warrants issued to the
placement agents in connection with the private placement of the Series A
Preferred Stock and the related Common Stock warrants; (iv) 82,916 shares of
Common Stock issued upon payment of regular quarterly dividends on the Series A
Preferred Stock; (v) 500,000 shares of Common Stock issuable upon the exercise
of warrants held by other securityholders of the Company; and (vi) 460,000
shares of Common Stock held by a stockholder of the Company. See "Risk
Factors--Possible Volatility of Stock Price."
The Shares may be offered by one or more of the Selling Stockholders from
time to time in transactions (which may include block transactions) on any
exchange or market on which such Shares are listed or quoted, as applicable, in
negotiated transactions, through a combination of such methods of sale, or
otherwise, at fixed prices that may be changed, at market prices prevailing at
the time of sale, at prices related to prevailing market prices, or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares directly to purchasers, acting as principals for their own
accounts, or by selling the Shares to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholders. The Company has agreed to
bear all expenses of registration of the Shares, but any commissions, discounts,
concessions or other fees, if any, payable to broker-dealers in connection with
any sale of the Shares will be borne by the Selling Stockholder selling such
Shares. As of the date hereof, there are no special selling arrangements known
to the Company between any broker-dealer or other person and any Selling
Stockholder. See "Selling Stockholders" and "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the symbol
"SVTG." On June 24, 1998, the last reported sale price of the Common Stock
reported on the Nasdaq National Market was $10.938 per share.
---------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is __________, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (together with all amendments
and exhibits, referred to as the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act") with respect to the Shares
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the Rules and Regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto, all of which may be obtained from the Commission in
Washington, D.C., as described below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street N.W., Room 1034, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such reports
and other information may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Company files electronically with the
Commission certain reports, proxy statements and other information, and the
Commission maintains a Web site on the Internet (WWW.SEC.GOV) that contains such
reports, proxy statements and other information regarding the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission (File No.
0-11560, except where otherwise indicated) and are incorporated herein by
reference: (i) Annual Report of the Company on Form 10-K, as amended, for the
fiscal year ended December 31, 1997; (ii) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998; (iii) Current Report on Form 8-K dated June 5,
1998; and (iv) the description of the Company's capital stock contained in the
Company's Registration Statement on Form S-2 (Registration Statement No.
333-47965), including any amendments and reports filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests for such documents
should be submitted to Savoir Technology Group, Inc., 254 East Hacienda Avenue,
Campbell, California 95008, Attn: Secretary. In order to ensure timely delivery
of the documents, any request should be made at least five business days prior
to the date on which the final investment decision must be made.
2
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY SELLING
STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SECURITIES DESCRIBED HEREIN BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER
NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT
TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
--------------------
TABLE OF CONTENTS
Page
----
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 4
Risk Factors............................................................... 4
Use of Proceeds............................................................ 12
Income Tax Considerations.................................................. 12
Selling Stockholders....................................................... 13
Plan of Distribution....................................................... 16
Legal Matters.............................................................. 16
Experts.................................................................... 16
3
<PAGE>
THE COMPANY
Savoir Technology Group, Inc. (the "Company") is a value-added wholesale
distributor of commercial mid-range servers, peripheral equipment (including
wireless networking equipment, storage products, printers and terminals) and
software. Through its Mid-Range Systems Division, the Company primarily
distributes commercial mid-range servers and related products to value-added
resellers ("VARs") who generally incorporate commercial applications software
and sell integrated computer systems to end-user customers. Through its Computer
and Peripherals Group ("CPG"), the Company integrates and configures personal
computers, workstations and departmental servers for original equipment
manufacturers ("OEMs"). The Company has a national presence served through four
warehouse, distribution and integration centers in the United States. The
Company was incorporated in California in 1975, and changed its state of
incorporation to Delaware in August 1997. Previously known as Western Micro
Technology, Inc., the Company changed its name to Savoir Technology Group, Inc.
in November 1997. The Company's principal executive office is located at 254
East Hacienda Avenue, Campbell, California 95008, and its telephone number is
(408) 379-0177.
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS
AND THE COMPANY'S PLANS AND EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES.
WHEN USED IN THIS PROSPECTUS, THE WORDS "ESTIMATE," "PROJECT," "INTEND" AND
"EXPECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED BELOW, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW UNDER "RISK
FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS AND IN THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE. THESE FORWARD-LOOKING STATEMENTS
SPEAK ONLY AS OF THE DATE HEREOF.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING ANY OF THE SHARES OFFERED HEREBY.
DEPENDENCE UPON IBM AND VENDOR CONCENTRATION
The Company's business, financial condition and results of operations are
highly dependent upon the Company's relationship with International Business
Machines Corporation ("IBM") and upon the continued market acceptance of IBM
commercial mid-range servers. During the years ended December 31, 1995, 1996 and
1997, approximately 30%, 50% and 65%, respectively, of the Company's net sales
were generated from the sale of IBM products, and the Company expects the
percentage to increase in 1998. The Company's non-exclusive agreement with IBM
may be unilaterally modified by IBM upon 30 days' written notice, renews
automatically but may be terminated by IBM upon written notice given not less
than 90 days prior to the renewal date (January 1, 1999), provides no franchise
rights and may not be assigned by the Company. The continued consolidation of
wholesale distributors of commercial mid-range servers may also result in IBM
raising the sales volume threshold required to maintain most favorable volume
discount status. In furtherance of its business strategy, and in order to
maintain most favorable volume discount status with IBM, the Company has
recently completed several acquisitions and is actively engaged in an ongoing
search for additional acquisitions and potential equity investments for similar
purposes. However, there can be no assurance that the Company will be successful
in completing any future acquisitions or in making any such equity investments.
The failure by the Company to complete other acquisitions or make equity
investments, or to otherwise increase its sales volume through internal growth,
could result in the Company's inability to maintain most favorable volume
discount status with IBM, which would, in turn, have a material adverse effect
on the Company's relationship with IBM and on the Company's business, financial
condition and results of operations. Any disruption, change or termination in
the Company's relationship with IBM or in the manner in which IBM distributes
its products, the failure of IBM to develop new products which are accepted by
the Company's customers, the failure by the Company to maintain certain
operational and administrative capabilities, the failure by the Company to
maintain sufficient sales volumes of certain IBM products to maintain most
favorable volume discount status or the
4
<PAGE>
addition of other wholesale distributors by IBM would have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The balance of the Company's net sales is derived from the sale of products
from a limited number of other vendors. During the years ended December 31,
1995, 1996 and 1997, approximately 22%, 28% and 19%, respectively, of the
Company's net sales were derived from the sale of products manufactured by Data
General, NCR and Unisys, collectively. To become an authorized distributor for
these vendors, the Company typically enters into a non-exclusive agreement that
is cancelable by either party upon 30 to 120 days' prior written notice. Any
disruption, change or termination in the Company's relationship with any such
vendor or in the manner in which any such vendor distributes its products, the
failure of any such vendor to develop new products which are accepted by the
Company's customers, the failure by the Company to maintain certain operational
and administrative capabilities, the failure by the Company to maintain
sufficient sales volumes of certain vendors' products to maintain most favorable
volume discount status or the addition of other wholesale distributors by any
such vendor would have a material adverse effect upon the Company's business,
financial condition and results of operations.
As is typical in its industry, the Company receives volume discounts and
market development funds from most of its vendors. These volume discounts
directly affect the Company's gross profit. In addition, market development
funds are typically used by the Company to offset a portion of its sales and
marketing expenses. Any change in the availability of these discounts or market
development funds or the failure of the Company to obtain vendor financing on
satisfactory terms and conditions would have a material adverse effect on the
Company's business, financial condition and results of operations.
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly net sales and operating results may vary
significantly as a result of a variety of factors, including, but not limited
to, changes in the supply and demand for commercial mid-range servers,
peripheral equipment, software and related services, the cost, timing and
integration of acquisitions, the addition or loss of a key vendor or customer,
the introduction of new technologies, changes in manufacturers' prices, price
protection policies or stock rotation privileges, changes in market development
funds, changes in the level of operating expenses, product supply shortages,
disruption of warehousing or shipping channels, inventory adjustments, increases
in the amount of accounts receivable written off, price competition and changes
in the mix of products sold through distribution channels and in the mix of
products purchased by OEMs. Operating results could also be adversely affected
by general economic and other conditions affecting the timing of customer orders
and capital spending, a downturn in the market for commercial mid-range servers
and order cancellations or rescheduling. In addition, historically a substantial
portion of the Company's net sales has been made in the last few days of a
quarter. Accordingly, the Company's quarterly operating results are difficult to
predict and delays in the closing of sales near the end of a quarter could cause
quarterly net sales to fall substantially short of anticipated levels and, to a
greater degree, adversely affect profitability. Thus, the Company believes that
period-to-period comparisons of the Company's operating results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. The Company's future operating results are expected to fluctuate as
a result of these and other factors, which could have a material adverse effect
on the Company's business, financial condition and results of operations and on
the price of the Common Stock. It is possible that in future periods the
Company's operating results may be below the expectations of securities analysts
and investors. In such event, the market price of the Common Stock would likely
be materially and adversely affected. See "--Possible Volatility of Stock
Price."
SUBSTANTIAL COMPETITION
The markets in which the Company operates are highly competitive.
Competition is based primarily on product availability, price, credit
availability, speed of delivery, ability to tailor specific solutions to
customer needs, breadth and depth of product lines and services, technical
expertise and pre- and post-sale service and support. Increased competition may
result in further price reductions, reduced gross profit margins and loss of
market share, any of which could materially and adversely affect the Company's
business, financial condition and results of operations.
5
<PAGE>
Through the Mid-Range Systems Division, the Company competes with national,
regional and local distributors, including, but not limited to, Gates/Arrow
Commercial Systems, a division of Arrow Electronics, Inc., Hamilton HallMark
Computer Products, a subsidiary of Avnet, Inc., and Pioneer Standard
Electronics, Inc. (which recently acquired Dickens Data Systems, Inc.), and, in
some limited circumstances, its own vendors. In the distribution of storage
products, the Company competes with national, regional and local distributors.
Through CPG, the Company competes with contract manufacturers, systems
integrators and certain assemblers of computer products. The Company has
experienced, and expects to continue to experience, increased competition from
current and potential competitors, many of which have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and a larger customer base than the Company. Accordingly, such
competitors or future competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or to devote greater
resources to the development, promotion and sale of their products than the
Company. Competitors which are larger than the Company may be able to obtain
more favorable pricing and terms from vendors than the Company. As a result, the
Company may be at a disadvantage when competing with these larger companies. If
the Company fails to compete effectively, the Company's business, financial
condition and results of operations would be materially and adversely affected.
RELIANCE ON SIRIUS COMPUTER SOLUTIONS, LTD.
During the year ended December 31, 1997 and the quarter ended March 31,
1998, sales to Sirius Computer Solutions, Ltd. ("Sirius") accounted for
approximately 11% and 23%, respectively, of the Company's net sales. The
Company's sales to Sirius are made under the Industry Remarketer Affiliate
Agreement between the Company and Sirius dated as of September 30, 1997 (the
"Sirius Agreement"), pursuant to which the Company appointed Sirius as one of
its industry remarketer affiliates of IBM products. The Sirius Agreement
provides that Sirius may not enter into any similar arrangement with any third
party for the purpose of selling IBM products to its end-user customers and also
provides a favorable pricing structure to Sirius. As a result, Sirius is
expected to remain the Company's largest customer for the duration of the Sirius
Agreement and to account for approximately the same percentage of the Company's
net sales in 1998 as it represented in the first quarter of 1998. The Sirius
Agreement expires on September 30, 2000, but may be terminated earlier under
certain conditions, not including termination at will. Any disruption, change or
termination of the Company's relationship with Sirius or a reduction in
purchases from the Company by Sirius could have a material adverse effect upon
the Company's business, financial condition and results of operations.
INTEGRATION RISKS RELATING TO ACQUISITIONS
Since December 1994, the Company has completed eight acquisitions. The
combination of the Company's business and acquired businesses requires, among
other things, integration of the respective management teams and sales and other
personnel, coordination of sales and marketing efforts, conversion of computer
systems (including inventory control, order entry and financial reporting) and
integration of the businesses' products and physical facilities. The
difficulties of such integration may be increased by the necessity of
coordinating geographically separate organizations. The integration of certain
operations will require the dedication of management resources which may
temporarily divert attention away from the day-to-day business of the combined
company. There can be no assurance that such coordination and integration will
be accomplished smoothly or successfully. The inability of management to
integrate successfully the operations of acquired businesses could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, during the integration phase, aggressive
competitors may undertake to attract customers and to recruit key employees
through various incentives. There can be no assurance that acquisitions will not
materially and adversely affect the selling patterns of vendors and the buying
patterns of present and potential customers of the Company and that such effect
will not materially and adversely affect the Company's business, financial
condition and results of operations.
The Company's ability to achieve the anticipated benefits of the
acquisition of Star Management Services, Inc. ("SMS") completed on September 30,
1997 (the "SMS Acquisition") or any other acquisition depends in part upon
whether the integration of the business of the Company and any acquired business
is accomplished in an efficient and effective manner, and there can be no
assurance that this will occur. The SMS Acquisition and other acquisitions and
investments have placed, and will continue to place, substantial demands on the
Company's
6
<PAGE>
management team and financial resources. The integration of the operations of
SMS and the other acquired companies has on occasion been slower, more complex
and more costly than originally anticipated. The Company will encounter similar
uncertainties and risks with respect to any future acquisitions and investments.
Although the Company expects to realize cost savings and sales enhancements as a
result of the recent and proposed acquisitions, there can be no assurance that
such savings or enhancements will be realized in full or when anticipated, or
that any such cost savings will not be offset by increases in other expenses or
operating losses. See "--Uncertainty of Future Acquisitions and Expansion."
UNCERTAINTY OF FUTURE ACQUISITIONS AND EXPANSION
Acquisitions have played an important role in the implementation of the
Company's business strategy, and the Company believes that additional
acquisitions are important to its growth, development and continued ability to
compete effectively in the marketplace. The Company evaluates potential
acquisitions and strategic investments on an ongoing basis. No assurance can be
given as to the Company's ability to compete successfully for available
acquisition or investment candidates or to complete future acquisitions and
investments or as to the financial effect on the Company of any acquired
businesses or equity investments. Future acquisitions and investments by the
Company may involve significant cash expenditures and may result in increased
indebtedness, interest and amortization expense or decreased operating income,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, future growth will
require additional financing to fund the working capital requirements of the
Company's business and to finance future acquisitions and strategic equity
investments, if any. There can be no assurance that the Company will be able to
raise financing on satisfactory terms and conditions, if at all. See "--Future
Capital Needs; Uncertainty of Additional Financing." Should the Company be
unable to implement successfully its acquisition and investment strategy, its
business, financial condition and results of operations could be materially and
adversely affected. See "--Integration Risks Relating to Acquisitions" and
- --Future Dilution Due to Acquisitions."
MANAGEMENT OF GROWTH
Since 1995, the Company has experienced significant growth in the number of
its employees and in the scope of its operating and financial systems, resulting
in increased responsibilities for the Company's management. In addition, the SMS
Acquisition, which was completed in September 1997, increased the Company's
employee base by approximately 140 persons to 393 employees as of March 31,
1998. To manage future growth effectively, the Company will need to continue to
improve its operational, financial and management information systems,
procedures and controls and expand, train, motivate, retain and manage its
employee base. There can be no assurance that the Company will be successful in
managing any future expansion or identifying, attracting and retaining key
personnel, and failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"--Dependence on Key Personnel."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in part on the continued service of
its key management, sales and marketing personnel and its ability to identify
and hire additional personnel. Competition for qualified management, sales and
marketing personnel is intense and there can be no assurance that the Company
can retain and recruit adequate personnel to operate its business. The success
of the Company is largely dependent on the skills, experience and efforts of its
key personnel, particularly P. Scott Munro, Chairman of the Board, Chief
Executive Officer, President and Secretary, and Carlton Joseph Mertens II, Chief
Executive Officer and President of the Company's subsidiary, Business Partner
Solutions, Inc., both of whom have entered into employment agreements with the
Company. The loss of either of these individuals or other key personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company maintains life insurance on Messrs. Munro
and Mertens in the amounts of $7.9 million and $10.0 million, respectively. The
Company is contractually obligated to apply any proceeds from these policies to
repay the IBMCC Credit Advance (as defined herein).
7
<PAGE>
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company's operations to date have required substantial amounts of
working capital to finance accounts receivable and product inventories. Although
the Company believes it has sufficient funds, or alternate sources of funds, to
carry on its business as presently conducted through 1998, the Company will need
to raise additional amounts through public or private debt or equity financings
in order to achieve the growth contemplated by the Company's business plan.
There can be no assurance that additional financing of any type will be
available on acceptable terms, or at all, and failure to obtain such financing
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "--Limitations Upon Incurrence of
Additional Indebtedness."
DEPENDENCE ON AVAILABILITY OF CREDIT AND IBMCC CREDIT FACILITY
In order to obtain necessary working capital, the Company relies primarily
on a line of credit that is collateralized by substantially all of the Company's
assets. The amount of credit available to the Company may be adversely affected
by numerous factors beyond the Company's control, such as delays in collection
or deterioration in the quality of the Company's accounts receivable, economic
trends in the technology industry, interest rate fluctuations and the lending
policies of the Company's creditors. Any decrease or material limitation on the
amount of capital available to the Company under its line of credit or other
financing arrangements will limit the ability of the Company to fill existing
sales orders or expand its sales levels and, therefore, would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, any significant increase in interest rates will
increase the cost of financing to the Company and could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is dependent on the availability of accounts receivable financing on
reasonable terms and at levels that are high relative to its equity base in
order to maintain and increase its sales. There can be no assurance that such
financing will continue to be available to the Company or available under terms
acceptable to the Company. The inability of the Company to have continuous
access to such financing at reasonable costs would materially and adversely
impact the Company's business, financial condition, results of operations and
cash flows.
The Company has primarily funded its working capital requirements through a
$75.0 million Inventory and Working Capital Agreement (the "IBMCC Credit
Facility") with "IBMCC", which credit line was temporarily increased to $85.0
million through January 31, 1998. At March 31, 1998, the outstanding
principal balance under the IBMCC Credit Facility was approximately $72.2
million, of which $52.0 million represented product purchases and $20.2 million
represented interest-bearing cash advances. Borrowings under the IBMCC Credit
Facility are collateralized by substantially all assets of the Company,
including accounts receivable, inventories and equipment. The IBMCC Credit
Facility provides that the outstanding interest-bearing cash advance balance is
subject to interest at the annual rate of prime plus 1.875% (10.375% at March
31, 1998) and expires on September 30, 1999. IBMCC may terminate the IBMCC
Credit Facility at any time upon the occurrence of, and subsequent failure to
cure, an "Event of Default" (as such term is defined in the IBMCC Credit
Facility). In the event of such termination, the outstanding borrowings under
the IBMCC Credit Facility become immediately due and payable. The termination of
the IBMCC Credit Facility and the subsequent inability of the Company to secure
a replacement credit facility on terms and conditions no less favorable than
those contained in the IBMCC Credit Facility would have a material adverse
effect on the Company's business, financial condition and results of operations.
LIMITATIONS UPON INCURRENCE OF ADDITIONAL INDEBTEDNESS
The terms of the IBMCC Credit Facility require that the Company obtain the
consent of IBMCC prior to incurring certain additional indebtedness, including
any additional senior or subordinated debt. The Company may incur additional
indebtedness without such consent through capital leases and general business
commitments insofar as the terms thereof are commercially reasonable and
consistent with prior business practices. The IBMCC Credit Facility and the
Company's anticipated cash flows may not provide sufficient funding to achieve
the growth contemplated by the Company's business plan. Accordingly, the Company
may need to obtain the consent of IBMCC to incur additional indebtedness. While
the Company has no reason to believe that such consent will be withheld, there
can be no assurance that the Company will obtain such consent. Failure to obtain
such consent or
8
<PAGE>
to obtain an alternate credit facility could have a material adverse effect on
the Company's business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE, PRICE REDUCTIONS AND INVENTORY RISK
The markets for products sold by the Company are extremely competitive and
are characterized by declining selling prices over the life of a particular
product and rapid technological change. Since the Company acquires inventory in
advance of product shipments, and because the markets for the Company's products
are volatile and subject to rapid technological and price changes, there is a
risk that the Company will forecast incorrectly and stock excessive or
insufficient inventory of particular products. The Company's business, like that
of other wholesale distributors, is subject to the risk that the value of its
inventory will be adversely affected by price reductions by manufacturers or by
technological changes affecting the usefulness or desirability of its product
inventory. It is the policy of many manufacturers of technology products to
protect wholesale distributors such as the Company from the loss in value of
inventory due to technological change or reductions in the manufacturers'
prices. Under the terms of most of the Company's agreements, vendors will
generally credit the Company for inventory losses resulting from the vendor's
price reductions if the Company complies with certain conditions. In addition,
generally under such agreements, the Company has the right to return for credit
or exchange for other products a portion of its slow moving or obsolete
inventory items within designated periods of time. There can be no assurance
that, in every instance, the Company will be able to comply with all necessary
conditions or manage successfully such price protection or stock rotation
opportunities, if available. Also, a manufacturer which elects to terminate a
distribution agreement generally will repurchase its products carried in a
wholesale distributor's inventory. These industry practices are sometimes not
included in written agreements and do not protect the Company in all cases from
declines in inventory value, excess inventory or product obsolescence. There can
be no assurance that manufacturers will continue such practices or that the
Company will be able to manage successfully its existing and future inventories.
Historically, the Company has not experienced losses due to obsolete inventory
in excess of established inventory reserves. Significant declines in inventory
value in excess of established inventory reserves or dramatic changes in
prevailing technology could have a material adverse effect on the Company's
business, financial condition and results of operations.
Certain major systems vendors, including IBM, have developed and will
continue to implement programs which allow the Company to assemble systems from
components provided by the vendors. While the Company has developed the ability
to integrate and configure computer products, the process of assembling large
volumes of systems from components will require the Company to implement new
business practices. It is also uncertain how the vendors will apply policies
related to price protection, stock rotation and other protections against the
decline in inventory value of such system components. There can be no assurance
that the Company will be successful in the integration and configuration of
computer products or that certain vendors will apply price protection and stock
rotation policies to the Company's component inventories.
LOW PROFIT MARGINS
As a result of price competition, the Company has low gross profit and
operating income margins. These low margins magnify the impact on operating
results of variations in net sales and operating costs. The Company has
partially offset the effects of its low gross profit margins by increasing net
sales, availing itself of large volume purchase discount opportunities and
reducing selling, general and administrative expenses as a percentage of net
sales. However, there can be no assurance that the Company will maintain or
increase net sales, continue to avail itself of large volume purchase discount
opportunities or further reduce selling, general and administrative expenses as
a percentage of net sales. Future gross profit margins may be materially and
adversely affected by changes in product mix, vendor pricing actions and
competitive and economic pressures.
PRODUCT SUPPLY SHORTAGES
The Company is dependent upon the supply of products available from its
vendors. From time to time, the industry has experienced product shortages for
certain products distributed by the Company due to vendors' difficulty in
projecting demand. When such product shortages occur, the Company typically
receives an allocation of product
9
<PAGE>
from the vendor. There can be no assurance that vendors will be able to maintain
an adequate supply of products to fulfill all of the Company's orders on a
timely basis. Failure to obtain adequate product supplies, if such supplies are
available to competitors, would have a material adverse effect on the Company's
business, financial condition and results of operations.
EXTENSION OF CREDIT TO CUSTOMERS WITHOUT REQUIRING COLLATERAL
The Company sells products to a broad geographic and demographic base of
customers and offers unsecured credit terms to its customers. Sirius accounted
for more than 10% of the Company's outstanding accounts receivable at March
31, 1998. No other single customer accounted for more than 5% of the Company's
outstanding accounts receivable at March 31, 1998. To reduce credit risk, the
Company performs ongoing credit evaluations of its customers, maintains an
allowance for doubtful accounts and has credit insurance. Historically, the
Company has not experienced losses from write-offs in excess of established
reserves. Should the Company's customers increase the rate at which they default
on payments due to the Company, and should the Company be unable to collect such
amounts, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
SEASONALITY
The computer distribution industry experiences seasonal trends and, within
each quarter, a substantial amount of products are generally sold in the last
few days of the quarter. The Company's largest vendor, IBM, sells approximately
35-40% of its products in the last calendar quarter, and such continuing pattern
could have an effect on the Company's quarterly net sales. Historically, a
substantial portion of the Company's net sales has been made in the last few
days of a quarter. Due to the Company's recent significant growth through
acquisitions and the Company's increased dependence on the sale of IBM products,
variations experienced by IBM and the Company may be magnified in the future and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Fluctuations in Operating Results."
EXPANDING SERVICE CAPABILITIES
The Company is expanding the nature and scope of its value-added services.
There can be no assurance that new value-added services will be integrated
successfully with the Company's commercial mid-range server and related products
distribution business. If the Company is unable to provide value-added services
effectively, it may be unable to compete effectively for the business of certain
customers which require the provision of such services as a condition to
purchasing products from the Company. In addition, the Company will be subject
to risks commonly associated with a value-added services business, including
dependence on reputation, fluctuations in workload and dependence on the ability
to identify, recruit and retain qualified technical personnel. The expansion of
the Company's value-added services is expected to require a significant capital
investment, including an increase in the number of technical employees. There
can be no assurance that one or more of such factors will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON THIRD-PARTY SHIPPERS
The Company presently ships a majority of its products from its warehouses
via Federal Express Corporation ("FedEx"), but also ships via United Parcel
Service of America, Inc. ("UPS") and other common carriers. In addition, certain
products that the Company sells are drop-shipped to its customers via these
carriers. Changes in shipping terms or the inability of FedEx, UPS or any other
third-party shipper to perform effectively (whether as a result of mechanical
failure, casualty loss, labor stoppage, other disruption or any other reason)
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
can maintain favorable shipping terms or replace such shipping services on a
timely or cost-effective basis.
10
<PAGE>
PLANNED INTERNATIONAL EXPANSION
Although the Company to date has not generated significant sales from
international operations, one of the elements of its business strategy is to
expand internationally. The Company was recently authorized to distribute IBM's
AS/400 products in Canada. There can be no assurance that the Company will be
able to expand successfully its international business. Risks inherent in doing
business on an international level include management of remote operations,
unexpected changes in regulatory requirements, export restrictions, tariffs and
other trade barriers, difficulties in staffing and managing foreign operations,
longer payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates and potentially adverse tax
consequences, any of which could adversely impact the success of the Company's
international operations. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
condition and results of operations.
RISK ASSOCIATED WITH POTENTIAL "YEAR 2000" PROBLEMS OF THIRD PARTIES
It is possible that the currently-installed computer systems, software
products or other business systems of the Company's vendors or customers,
working either alone or in conjunction with other software or systems, will not
accept input of, store, manipulate and output data in the year 2000 or
thereafter without error or interruption (commonly known as the "Year 2000
problem"). The Company believes that its business systems, including its
computer systems, are not subject to the Year 2000 problem; however, the Company
has begun to query its vendors and customers as to their progress in identifying
and addressing problems that their computer systems may face in correctly
processing date information as the year 2000 approaches. However, there can be
no assurance that the Company will identify all such Year 2000 problems in the
computer systems of its vendors or customers in advance of their occurrence or
that the Company's vendors and customers will be able to successfully rectify
any problems that are discovered. The expenses of the Company's efforts to
identify and address such problems, or the expenses or liabilities to which the
Company may become subject as a result of such problems, are not expected to
have a material adverse effect on the Company's business, financial condition or
results of operations. The purchasing patterns of existing and potential
customers, however, may be affected by Year 2000 problems, which could cause
fluctuations in the Company's sales volumes and could have a material adverse
effect on the Company's business, financial condition and results of operations.
NO CASH DIVIDENDS ON COMMON STOCK
The Company has never declared or paid a cash dividend on the Common Stock.
The Company currently anticipates that it will retain all available funds for
use in the operation of its business, including possible acquisitions, and does
not intend to pay any cash dividends in the foreseeable future. The payment of
any future dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other factors, future earnings,
operations, capital requirements, acquisitions and strategic investment
opportunities, the general financial condition of the Company and general
business conditions. Further, the Company's ability to pay cash dividends is
currently restricted by the terms of the IBMCC Credit Facility. The terms of
future credit facilities or other agreements may also contain similar
restrictions. In addition, the Company's Certificate of Designation with respect
to the Series A Preferred Stock prohibits the payment of dividends on the Common
Stock unless and until dividends are paid on the Series A Preferred Stock in
accordance with its terms. Should the Company fail to pay dividends on the
Company's Series A Preferred Stock when due, the holders thereof may initiate an
action against the Company.
FUTURE DILUTION DUE TO ACQUISITIONS
In connection with certain acquisitions completed by the Company, the
Company expects to issue up to approximately 200,000 additional shares of Common
Stock pursuant to earnout provisions based on the attainment of performance
goals. The Company anticipates issuing additional shares of Common Stock or
other equity or convertible debt securities to effect future acquisitions or for
other corporate purposes. Upon such issuances, the percentage ownership of the
stockholders of the Company will be reduced and stockholders may experience
additional dilution.
11
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been and is likely to continue to
be highly volatile and may be significantly affected by factors such as actual
or anticipated fluctuations in the Company's quarterly operating results,
announcements of technological innovations, industry conditions and trends,
changes in or failure by the Company to meet the expectations of securities
analysts and investors, general market conditions and other factors. It is
possible that in some future quarter, the Company's operating results may be
below the expectations of securities analysts and investors. In such event, the
price of the Common Stock would likely decline, perhaps substantially. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices of the
stocks of technology companies. These broad market fluctuations may adversely
affect the market price of the Common Stock. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought. There can be no assurance that
such litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, financial condition and results of operations.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws") may have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors may be willing to pay in the future for shares of the Common
Stock. The Company has issued 2,242,500 shares of Series A Preferred Stock and
10 shares of Series B Preferred Stock, and has the authority to issue up to an
additional 7,757,490 shares of preferred stock and to determine the price,
rights, preferences, qualifications, limitations and restrictions, including
voting rights, of such additional preferred stock without any further vote or
action by the stockholders, subject to the terms of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock. The issuance of
additional preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, would have the effect
of delaying or preventing a third party from acquiring a majority of the
outstanding voting stock of the Company. Further, Section 203 of the General
Corporation Law of Delaware prohibits the Company from engaging in certain
business combinations with interested stockholders. These provisions may have
the effect of delaying or preventing a change in control of the Company without
action by the stockholders, and therefore could adversely affect the market
price of the Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Stockholders of the Shares.
INCOME TAX CONSIDERATIONS
Each prospective purchaser should consult his or her own tax advisor with
respect to the income tax issues and consequences of holding and disposing of
the Common Stock.
12
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information as of June 17, 1998
regarding the beneficial ownership of Common Stock by each of the Selling
Stockholders and the Shares offered hereby by such Selling Stockholders.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to Offering(1) Number of After Offering(1)
------------------------- Shares Being -------------------------
Number Percent(2) Offered Number Percent(2)
---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Hymie Akst................................ 3,752 * 3,752 -- *
Joan F. Albrecht.......................... 3,752 * 3,752 -- *
Neil T. Anderson.......................... 78,198 * 78,198 -- *
Chaim I. Anfang........................... 3,752 * 3,752 -- *
Argonaut Investors Fund Ltd............... 5,003 * 5,003 -- *
Argonaut Partnership, L.P................. 8,757 * 8,757 -- *
Astoria Capital Partners L.P.(3).......... 888,716 8.87 323,744 564,972 5.70
Ballina Trading Services Limited.......... 7,818 * 7,818 -- *
Daniel M. Bogard Revocable Trust.......... 3,752 * 3,752 -- *
Richard M. Brooks......................... 2,818 * 2,818 -- *
Michael E. Bushey and Martha L. Bushey.... 3,752 * 3,752 -- *
Canpartners Investments IV, LLC(4)........ 525,307 5.14 525,307 -- *
Central Fill Pharmacy, Inc................ 6,567 * 6,567 -- *
Brian M. Chait............................ 3,752 * 3,752 -- *
Phyllis J. Cohen.......................... 4,689 * 4,689 -- *
Commonwealth Life Ins. Co.
(Teamsters - Cambden)................... 109,478 1.10 109,478 -- *
Irving Davies............................. 3,752 * 3,752 -- *
Abraham Debbi............................. 7,818 * 7,818 -- *
Jack Diener Living Trust.................. 4,689 * 4,689 -- *
Duck Partners, L.P.(5).................... 16,264 * 16,264 -- *
Burton I. Epstein and Elaine G. Epstein... 2,501 * 2,501 -- *
Fahnestock & Co. Inc...................... 90,453 * 90,453 -- *
Dr. Edward R. Falkner Inc. Profit Sharing
TR DTD 2-1970........................... 3,752 * 3,752 -- *
S. Marcus Finkle.......................... 10,899 * 10,899 -- *
Gerstenhaber Investors L.P................ 1,875 * 1,875 -- *
Dennis A. Gleicher........................ 2,501 * 2,501 -- *
Gruber & McBaine International............ 52,766 * 18,766 34,000 *
Larry Horn................................ 8,017 * 8,017 -- *
J.M. Hull Associates, L.P.(5)............. 32,529 * 32,529 -- *
Hull Overseas, Ltd.(5).................... 32,529 * 32,529 -- *
IBM Credit Corporation.................... 100,000 * 100,000 -- *
JMG Capital Partners L.P.................. 138,361 1.39 138,361 -- *
KA Investments LDC........................ 81,326 * 81,326 -- *
David J. Katz............................. 3,752 * 3,752 -- *
Ivan Kaufman.............................. 23,458 * 23,458 -- *
Kodiak Opportunity, L.P.(6)............... 64,260 * 64,260 -- *
Kodiak Opportunity Offshore, Ltd.(6)...... 56,301 * 56,301 -- *
Marvin Kogod & Muriel Kogod............... 3,752 * 3,752 -- *
Lagunitas Partners, L.P................... 151,430 1.52 59,430 92,000 *
Avy Lahav and Vered S. Lahav.............. 3,752 * 3,752 -- *
Janet Lehr................................ 3,752 * 3,752 -- *
Moshe Levy................................ 71,941 * 71,941 -- *
Hanka Lew................................. 4,510 * 4,510 -- *
Lew Lieberbaum & Co., Inc................. 21,672 * 21,672 -- *
Sheldon Lieberbaum........................ 2,818 * 2,818 -- *
Richard A. Lippe.......................... 31,277 * 31,277 -- *
William Lippe............................. 7,818 * 7,818 -- *
Marc Loveman, IRA......................... 3,752 * 3,752 -- *
Michael G. Lucci.......................... 3,752 * 3,752 -- *
Arthur Luxenberg.......................... 24,083 * 24,083 -- *
Irwin Luxemberg and Michael Luxemberg..... 1,352 * 1,352 -- *
MDA Financial, Inc........................ 6,254 * 6,254 -- *
Virginia Meade Trust...................... 3,125 * 3,125 -- *
Carlton Joseph Mertens II(7).............. 460,000 4.64 460,000 -- *
Beno Michel, M.D. Trust................... 3,752 * 3,752 -- *
Microcap Partners, L.P.(8)................ 23,458 * 23,458 -- *
13
<PAGE>
Microcap Partners Limited Partnership
(Astoria)(3)............................ 222,766 2.24 161,089 61,677 *
Millennium Trading Co., LP................ 1,661 * 1,661 -- *
Gee Gee Morgan............................ 3,125 * 3,125 -- *
NAV LLC(8)................................ 15,638 * 15,638 -- *
James M. Persky........................... 3,125 * 3,125 -- *
Pleiades Investment Partners, L.P.(8)..... 23,458 * 23,458 -- *
Puck Trading Limited...................... 7,818 * 7,818 -- *
R Capital II, Ltd.(9)..................... 12,510 * 12,510 -- *
R&J Trust Dtd 7-1-93...................... 3,752 * 3,752 -- *
Kenneth M. Reichle, Jr.................... 6,254 * 6,254 -- *
Gerald Richter IRA........................ 2,501 * 2,501 -- *
Robert Fleming Inc........................ 1,508,548 14.68 704,748 803,800 8.11
Francine Rodin............................ 3,125 * 3,125 -- *
ROI Offshore Fund Ltd.(8)................. 93,837 * 93,837 -- *
ROI Partners, L.P.(8)..................... 156,397 1.57 156,397 -- *
Robert Rosin.............................. 3,752 * 3,752 -- *
Corey K. Ruth............................. 3,752 * 3,752 -- *
Jay Salomon and Bernice Salomon........... 5,430 * 5,430 -- *
Esther Schachner TTEE U/A DTD: 11/2/95.... 3,752 * 3,752 -- *
Harry Schwartz............................ 6,567 * 6,567 -- *
Mark Schwartz IRA......................... 5,003 * 5,003 -- *
Beverly Segal............................. 7,818 * 7,818 -- *
Seneca Capital International Ltd.......... 1,417 * 1,417 -- *
Seneca Capital L.P........................ 2,126 * 2,126 -- *
E. Donald Shapiro......................... 7,818 * 7,818 -- *
Sidelmar Partnership(10).................. 3,752 * 3,752 -- *
Irwin Simon............................... 1,307 * 1,307 -- *
SoundShore Partners L.P................... 15,638 * 15,638 -- *
Strome Hedgecap Limited(11)............... 48,908 * 48,908 -- *
Strome Offshore Limited(11)............... 198,392 1.99 198,392 -- *
Strome Partners, L.P.(11)................. 162,321 1.63 162,321 -- *
Strome, Susskind Hedgecap Fund, L.P.(11).. 195,647 1.96 195,647 -- *
Bruce Toll................................ 15,638 * 15,638 -- *
Triton Capital Investments Ltd............ 78,930 * 78,930 -- *
Wesley T. Wood............................ 3,752 * 3,752 -- *
- -------------
* Less than 1%.
(1) Information with respect to beneficial ownership is based upon
information obtained from the Selling Stockholders and from the
Company's transfer agent. Unless otherwise indicated, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws, where applicable. Shares of Common Stock receivable upon
conversion of Series A Preferred Stock or upon exercise of warrants
that are currently exercisable or exercisable within 60 days of June
17, 1998 are deemed to be outstanding and to be beneficially owned by
the person presently entitled to exercise the right of conversion or
exercise for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
(2) Based on 9,914,097 shares of Common Stock outstanding as of June 17,
1998.
(3) A limited partnership controlled by Richard Koe. Mr. Koe disclaims
beneficial ownership of these shares.
(4) These shares are beneficially owned by Joshua S. Friedman, Mitchell R.
Julis and R. Christian B. Evensen.
(5) These shares are beneficially owned by J. Mitchell Hull.
(6) These shares are beneficially owned by Lee E. Mickles and Mark R.
Miller.
(7) Mr. Mertens is a director of the Company, and is President of Business
Partner Solutions, Inc., a wholly-owned subsidiary of the Company. The
Company acquired Business Partner Solutions, Inc. (then named Star
Management Services, Inc.) in September 1997. Prior to its acquisition,
Mr. Mertens was Executive Vice President of Star Management Services,
Inc.
14
<PAGE>
(8) A limited partnership controlled by Mitchell Soboleski and Mark Boyer.
Messrs. Soboleski and Boyer disclaim beneficial ownership of these
shares.
(9) A limited partnership controlled by Robert P. Saccogna. Mr. Saccogna
disclaims beneficial ownership of these shares.
(10) A partnership controlled by Sidney Dworkin. Mr. Dworkin disclaims
beneficial ownership of these shares.
(11) A limited partnership controlled by Strome Susskind Investment
Management, L.P., of which SSCO, Inc. is the sole general partner. The
Mark E. Strome Living Trust is the controlling shareholder of SSCO, and
Mark E. Strome is the settlor and a trustee of the Trust.
</TABLE>
Because a Selling Stockholder may offer by this Prospectus all or some part
of the Common Stock which he or she holds, no estimate can be given as of the
date hereof as to the amount of Common Stock actually to be offered for sale by
a Selling Stockholder or as to the amount of Common Stock that will be held by a
Selling Stockholder upon the termination of such offering. See "Plan of
Distribution."
15
<PAGE>
PLAN OF DISTRIBUTION
Sales of the Shares may be effected by or for the account of one or more of
the Selling Stockholders from time to time in transactions (which may include
block transactions) on any exchange or market on which such securities are
listed or quoted, as applicable, in negotiated transactions, through a
combination of such methods of sale, or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
prevailing market prices, or at negotiated prices. The Selling Stockholders may
effect such transactions by selling the Shares directly to purchasers, acting as
principals for their own accounts, or by selling their Shares to or through
broker-dealers acting as agents for the Selling Stockholders, or to
broker-dealers who may purchase Shares as principals and thereafter sell such
securities from time to time in transactions on any exchange or market on which
such securities are listed or quoted, as applicable, in negotiated transactions,
through a combination of such methods of sale, or otherwise. In effecting sales,
broker-dealers engaged by Selling Stockholders may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
To the extent required, the amount of the Shares to be sold, purchase
prices, public offering prices, the names of any agents, dealers or
underwriters, and any applicable commissions or discounts with respect to a
particular offer will be set forth by the Company in a Prospectus Supplement
accompanying this Prospectus or, if appropriate, a post-effective amendment to
the Registration Statement. The Selling Stockholders and agents who execute
orders on their behalf may be deemed to be underwriters as that term is defined
in Section 2(11) of the Securities Act and a portion of any proceeds of sales
and discounts, commissions or other seller's compensation may be deemed to be
underwriting compensation for purposes of the Securities Act.
Offers or sales of the Shares have not been registered or qualified under
the laws of any country, other than the United States. To comply with certain
states' securities laws, if applicable, the Shares will be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may be limited in its ability to engage
in market activities with respect to such Shares. In addition and without
limiting the foregoing, each Selling Stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the Shares by
the Selling Stockholders. The foregoing may affect the marketability of the
Shares.
The Company has agreed to bear all expenses of registration of the Shares.
Any commissions, discounts, concessions or other fees, if any, payable to
broker-dealers in connection with any sale of the Shares will be borne by the
Selling Stockholder selling such Shares. Under agreements entered into with the
Company, the Selling Stockholders will be indemnified by the Company against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain matters with respect to the legality of the securities offered
hereby will be passed upon for the Company by Pillsbury Madison & Sutro LLP,
2550 Hanover Street, Palo Alto, California.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1997, and the consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997,
incorporated by reference in this Prospectus, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing.
16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Company in
connection with the sale and distribution of the securities being registered
hereby. The Selling Stockholders will not share in the payment of any portion of
these expenses. The table omits any applicable selling commissions or discounts,
which are payable solely by the Selling Stockholders. All the amounts shown are
estimates, except for the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee.................................. $ 299.76
Printing expenses..................................... 1,000.00
Legal fees and expenses............................... 10,000.00
Accounting fees and expenses.......................... 5,000.00
Transfer agent and registrar fees..................... 1,000.00
Miscellaneous......................................... 1,000.00
------------------
Total................................... $ 18,299.76
==================
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware GCL")
permits the Company's board of directors to indemnify any person against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of his being or having been a director, officer,
employee or agent of the Company, in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Delaware GCL provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors, or otherwise.
The Company's Certificate of Incorporation and Bylaws provide for
indemnification of the Company's directors, officers, employees and other agents
to the maximum extent permitted by law.
As permitted by Sections 102 and 145 of the Delaware GCL, the Company's
Certificate of Incorporation eliminates a director's personal liability for
monetary damages to the Company and its stockholders arising from a breach or
alleged breach of such director's fiduciary duty, except for liability under
Section 174 of the Delaware GCL or liability for any breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law
or for any transaction from which the director derived an improper personal
benefit.
In addition, the Company has entered into separate indemnification
agreements with its directors and officers that will require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors or officers to the fullest extent
not prohibited by law. The directors and officers of the Company have a policy
of insurance under which they are insured, within limits and subject to
limitations, against certain expenses in connection with the defense of actions,
suits or proceedings, and certain liabilities which might be imposed as a result
of such actions, suits or proceedings, in which they are parties by reason of
their being or having been directors or officers.
II-1
<PAGE>
ITEM 16. EXHIBITS
Exhibit
Number Description of Document
------- -----------------------
3.1(a) Restated Certificate of Incorporation of Savoir Technology
Group, Inc., a Delaware corporation, filed as Exhibit 3(ii) to
the Company's Current Report on Form 8-K dated July 23, 1997,
filed on August 14, 1997, and incorporated herein by this
reference.
3.1(b) Certificate of Designation, Preferences and Rights of the
Company's Series A Preferred Stock, filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated October 10,
1997, and incorporated herein by this reference.
3.1(c) Certificate of Designation, Preferences and Rights of the
Company's Series B Preferred Stock, filed as Exhibit 3.1 to
the Company's Current Report on Form 8-K dated October 10,
1997, and incorporated herein by this reference.
3.1(d) Certificate of Ownership and Merger dated as of November 21,
1997, filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated November 21, 1997, and incorporated herein by
this reference.
3.2(a) Amended and Restated Bylaws of Savoir Technology Group, Inc.,
a Delaware corporation, filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by this reference.
*5.1 Opinion of Pillsbury Madison & Sutro LLP.
*23.1 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit
5.1).
*23.2 Consent of Coopers & Lybrand L.L.P.
*24 Powers of Attorney.
- -----------
* Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(b) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this Registration Statement; and
(c) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Campbell, State of California on June 24, 1998.
SAVOIR TECHNOLOGY GROUP, INC.
By /s/ P. SCOTT MUNRO*
----------------------------------------
P. Scott Munro
Chairman of the Board, Chief Executive
Officer, President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ P. SCOTT MUNRO* Chairman of the Board, Chief June 24, 1998
- ---------------------------------- Executive Officer, President
P. Scott Munro and Secretary
(Principal Executive Officer)
/s/ JAMES W. DORST Chief Financial Officer (Principal June 24, 1998
- ---------------------------------- Financial and Accounting Officer)
James W. Dorst
/s/ ANGELO GUADAGNO* Director June 24, 1998
- ----------------------------------
Angelo Guadagno
/s/ JAMES J. HEFFERNAN* Director June 24, 1998
- ----------------------------------
James J. Heffernan
/s/ CARLTON JOSEPH MERTENS II* Director June 24, 1998
- ----------------------------------
Carlton Joseph Mertens II
/s/ K. WILLIAM SICKLER* Director June 24, 1998
- ----------------------------------
K. William Sickler
Director June __, 1998
- ----------------------------------
J. Larry Smart
*By /s/ JAMES W. DORST
-------------------------------
James W. Dorst
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
3.1(b) Certificate of Designation, Preferences and Rights of the
Company's Series A Preferred Stock, filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated October 10,
1997, and incorporated herein by this reference.
3.1(c) Certificate of Designation, Preferences and Rights of the
Company's Series B Preferred Stock, filed as Exhibit 3.1 to
the Company's Current Report on Form 8-K dated October 10,
1997, and incorporated herein by this reference.
3.1(d) Certificate of Ownership and Merger dated as of November 21,
1997, filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated November 21, 1997, and incorporated herein by
this reference.
3.2(a) Amended and Restated Bylaws of Savoir Technology Group, Inc.,
a Delaware corporation, filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by this reference.
*5.1 Opinion of Pillsbury Madison & Sutro LLP.
*23.1 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit
5.1).
*23.2 Consent of Coopers & Lybrand L.L.P.
*24 Powers of Attorney.
- ----------
* Previously filed.
