<PAGE>
Filed pursuant to Rule 424(b)(1)
SEC File No. 33-78746
4,200,000 SHARES
[COMPUCOM SYSTEMS, INC. LOGO APPEARS HERE]
COMMON STOCK
----------------
All of the 4,200,000 Shares of Common Stock, par value $.01 per share (the
"Common Stock"), of CompuCom Systems, Inc., a Delaware corporation ("CompuCom"
or the "Company"), offered hereby are being sold by certain stockholders of
the Company (the "Selling Stockholders"). See "Selling Stockholders." The
Company will not receive any of the proceeds from the sale of shares of Common
Stock offered hereby.
The Common Stock is listed on the Nasdaq National Market under the symbol
"CMPC." On October 25, 1995, the last sale price of the Common Stock as
reported on the Nasdaq National Market was $6.125.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
----------------
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.
<TABLE>
<CAPTION>
================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $6.00 $.35 $5.65
- --------------------------------------------------------------------------------
Total(3).............................. $25,200,000 $1,470,000 $23,730,000
================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the offering payable by the Selling
Stockholders estimated to be $122,000. In addition, the Company will pay
certain expenses estimated at $10,000.
(3) Certain of the Selling Stockholders have granted the Underwriters a 30-day
option to purchase up to an additional 630,000 shares of Common Stock at
the Price to Public, less the Underwriting Discount, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount, and Proceeds to Selling Stockholders
will be $28,980,000, $1,690,500 and $27,289,500, respectively. See
"Underwriting."
----------------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by them,
subject to their right to reject orders, in whole or in part, and to certain
other conditions. It is expected that delivery of certificates representing
the Common Stock will be made on or about October 31, 1995.
THE ROBINSON-HUMPHREY HAMBRECHT & QUIST
COMPANY, INC.
OCTOBER 26, 1995
<PAGE>
AVAILABLE INFORMATION
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
Securities and Exchange Commission (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, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048, and its Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus constitutes part of a Registration Statement on Form S-3 (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
omits certain of the information contained in the Registration Statement and
the exhibits thereto, in accordance with the rules and regulations of the
Commission. For further information concerning the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits filed
therewith, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of
which may be obtained from the Commission at prescribed rates. Any statements
contained herein concerning the provisions of any documents are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated by reference in this Prospectus: (i) Annual
Report on Form 10-K for the fiscal year ended December 31, 1994; (ii) Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1995 and June 30,
1995; and (iii) the description of the Company's Common Stock which is
contained in a registration statement filed under the Exchange Act, including
any statements or reports filed for the purpose of updating such description.
All reports and other documents subsequently 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 this offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated by reference 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 or in any accompanying prospectus supplement
modifies or supersedes such statement. Any such 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 a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents
that this Prospectus incorporates). Requests should be directed in writing to
Robert J. Boutin, Chief Financial Officer, CompuCom Systems, Inc., 10100 N.
Central Expressway, Dallas, Texas 75231, (214) 265-3600.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated by reference herein.
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Investors should carefully
consider the information set forth under the caption "Risk Factors."
THE COMPANY
The Company sells personal computer products and provides systems integration
services, including product configuration, field engineering, network
management, help desk services and network project management. The Company has
increased its net revenues and net earnings from 1990 through 1994 at
compounded annual rates of 38% and 42%, respectively, in part through the
enhancement of its product and services capabilities.
The Company is an authorized dealer of major personal computer products for a
number of manufacturers, including Compaq Computer Corporation, International
Business Machines Corporation, Hewlett-Packard Company, Toshiba America
Information Systems, and Apple Computer, Inc. The Company also offers a broad
selection of networking and related products, computer-related peripheral
equipment and a range of computer equipment and software from a number of
vendors, including 3Com Corporation, Digital Equipment Corporation, Intel
Corporation, Kingston Technologies, Lotus Development Corporation, Microsoft
Corporation, NEC Technologies, Inc., and Novell Corporation.
The Company provides a range of integration services from the Company's
offices and on-site at the customer's location. The Company's revenues from its
services business currently represent less than 10% of total revenues, although
such services business is an integral part of the Company's strategy to provide
customers with an "end-to-end" solution to their technology needs. The
Company's services business has increased primarily through internal growth
augmented by a series of strategic acquisitions. These acquisitions have
broadened the variety of network management platforms, increased remote network
monitoring capabilities and greatly expanded the Company's systems engineer
resources. From January 1, 1994 through June 30, 1995, the Company increased
the number of its services employees from approximately 530 to approximately
970.
Products and services are sold by a direct sales force of approximately 220
sales representatives. The Company maintains product distribution centers in
Woolwich, New Jersey and Stockton, California, and operates approximately 40
sales and services centers located in and servicing large metropolitan areas
nationwide. Services and support personnel are located at the two distribution
centers, at the Company's headquarters in Dallas, Texas, at various local sales
offices and at customer sites. The Company's distribution centers are highly
automated and employ advanced inventory management and order processing
technologies that allow the Company to configure personal computer products and
receive, process and ship customer orders accurately and efficiently.
Customer support, prompt delivery, product variety and availability, and
price are key elements in attracting new and retaining current customers. In
particular, knowledgeable, experienced sales and services personnel who
understand customer needs are important factors in the growth of the Company's
services business. The Company seeks to address these requirements by
continuing to expand its services and support organization, training sales and
services personnel, and developing its vendor relationships to provide a
customer driven product line at competitive prices. Also crucial to the
Company's continued success is the expansion of its integrated, comprehensive
information system that enables the Company to track and respond to its
customers' requirements more efficiently.
The Company's predecessor was incorporated in Michigan in 1981, and was
reincorporated in Delaware, and changed its name to CompuCom Systems, Inc., in
1989. The principal executive offices of the Company are located at 10100 N.
Central Expressway, Dallas, Texas 75231 and its telephone number at that
address is (214) 265-3600.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling Stockholders..................... 4,200,000
Common Stock to be outstanding after the offering(1)................. 43,047,515
Nasdaq National Market Symbol........................................ CMPC
</TABLE>
- --------
(1) Does not include (i) 2,954,209 shares of Common Stock reserved for
issuance upon conversion of 2,000,000 outstanding shares of Series B
Cumulative Convertible Preferred Stock, $10 stated value ("Series B
Stock"), (ii) 4,492,801 shares of Common Stock reserved for issuance upon
the exercise of options outstanding under the Company's 1983 Stock Option
Plan, 1984 Non-Qualified Stock Option Plan, 1993 Stock Option Plan and
Stock Option Plan for Directors (together, the "Option Plans"), (iii)
2,096,300 shares of Common Stock available for future grants of options
under the Option Plans, or (iv) 103,331 shares reserved for issuance upon
the exercise of outstanding warrants and other stock awards.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net revenues............ $343,325 $528,560 $713,035 $1,015,482 $1,255,813 $587,482 $674,197
Cost of revenues....... 289,409 446,149 608,316 870,773 1,085,012 510,728 569,042
-------- -------- -------- ---------- ---------- -------- --------
Gross margin............ 53,916 82,411 104,719 144,709 170,801 76,754 105,155
Selling, general and
administrative
expense............... 42,397 65,530 82,586 112,901 130,402 59,294 81,247
Depreciation and
amortization expense.. 884 1,998 2,912 4,178 4,621 2,190 2,997
-------- -------- -------- ---------- ---------- -------- --------
Operating income........ 10,635 14,883 19,221 27,630 35,778 15,270 20,911
Interest expense....... 4,579 6,654 7,507 8,722 11,346 5,229 6,497
-------- -------- -------- ---------- ---------- -------- --------
Earnings before income
taxes.................. 6,056 8,229 11,714 18,908 24,432 10,041 14,414
Income taxes........... 2,423 3,209 4,451 7,469 9,773 4,017 5,765
-------- -------- -------- ---------- ---------- -------- --------
Net earnings............ $ 3,633 $ 5,020 $ 7,263 $ 11,439 $ 14,659 $ 6,024 $ 8,649
======== ======== ======== ========== ========== ======== ========
Earnings per common
share:
Primary................ $ .13 $ .16 $ .23 $ .34 $ .40 $ .17 $ .22
Fully diluted.......... .13 .16 .22 .29 .34 .14 .19
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets............................................ $406,363 $406,363
Long-term debt.......................................... 113,417 113,417
Convertible subordinated notes.......................... 18,405 --
Stockholders' equity.................................... 102,806 121,211
</TABLE>
- --------
(1) Adjusted to give effect to the conversion of $18,500,000 in principal
amount of the Company's 9% Convertible Subordinated Notes into 8,409,087
shares of Common Stock. None of such convertible notes will be outstanding
upon the commencement of the offering contemplated hereby. See "Selling
Stockholders."
4
<PAGE>
RISK FACTORS
In evaluating the Company and its business, prospective investors should
consider carefully the following risk factors in addition to the other
information contained herein.
Competition. The Company is engaged in fields within the computer industry
characterized by a high level of competition. Many established personal
computer manufacturers (including many of the Company's own vendors), systems
integrators and other resellers of personal computer or networking products
compete with the Company in the configuration and distribution of computer
systems and equipment. In the highly fragmented computer services area, the
Company competes with several larger competitors, other corporate resellers
pursuing high-end services opportunities, as well as several smaller computer
services companies. Some of these competitors have financial, technical,
manufacturing, sales, marketing and other resources which are substantially
greater than those of the Company. In addition, the computer products and
services industry is characterized by intense price competition, which may
adversely affect the Company's results of operations. There can be no assurance
that the Company will be able to continue to compete successfully with existing
or new competitors.
Inventory Management. The personal computer industry is characterized by
rapid product improvement and technological change resulting in relatively
short product life cycles and rapid product obsolescence, which can place
inventory at considerable valuation risk. Certain of the Company's suppliers
provide price protection practices to the Company intended to reduce the risk
of inventory devaluation by absorbing temporary price reductions and long-term
price declines associated with aging product life cycles. The Company also has
the option of returning a certain percentage of its current product inventories
each quarter to certain manufacturers as it assesses each product's current and
forecasted demand schedule. There can be no assurance, however, that suppliers
will continue such policies, that unforeseen new product developments will not
affect the Company adversely, or that the Company can successfully manage its
existing and future inventory.
Attraction and Retention of Technical Employees. The Company's services
business involves the delivery of professional services and is labor-intensive.
The success of the services business will depend in large part upon the
Company's ability to attract, develop, motivate and retain highly skilled
technical employees who are in particularly great demand and are likely to
remain a limited resource for the foreseeable future. Although the Company
expects to continue to be able to attract and retain sufficient numbers of
highly skilled technical employees and project managers for the foreseeable
future, there can be no assurance that the Company will be able to do so. The
inability to attract and hire additional technical personnel, or the loss of a
significant number of the Company's technical personnel, could have a material
adverse impact on the Company, including its ability to secure and retain
customers.
Management of Growth. The Company's significant growth during the past
several years has resulted in increased responsibilities for both existing and
new management personnel. In addition, the Company is in the process of
expanding its focus to emphasize growth in the service integration business.
There can be no assurance that the Company will be successful in managing its
expansion, and the failure to do so could adversely affect the Company's
financial position and results of operations.
Product Supply. The fields within the computer industry in which the Company
competes continue to experience significant product supply shortages and
customer order backlogs due to the inability of certain manufacturers to supply
certain products on a timely basis. In addition, certain vendors have initiated
new channels of distribution that increase competition for the available
product supply. There can be no assurance that vendors will be able to maintain
an adequate supply of products to fulfill the Company's customer orders on a
timely basis. Failure to obtain adequate product supplies could have a material
adverse effect on the Company's results of operations.
5
<PAGE>
Dependence on Major Vendors. A substantial portion of the Company's revenues
are derived from sales of computer systems, including Compaq, IBM and HP
personal computer products. During 1994, sales of Compaq and IBM personal
computer products each accounted for at least 20% of the Company's 1994 net
revenues while sales of HP products accounted for approximately 11% of 1994 net
revenues. The Company's agreements with these vendors contain provisions
providing for periodic renewals and that permit termination by the vendor
without cause, generally upon 30 to 90 days' notice, depending on the vendor.
In addition, the Company's business is dependent upon pricing and related
terms, product availability and dealer authorizations provided by its major
vendors. The loss of a major vendor or the deterioration of the Company's
relationship with a major vendor could have a material adverse effect on the
Company's business. Additionally, there can be no assurance that these
relationships will continue as presently in effect or that changes by one or
more of these key vendors in their volume discount schedules or other marketing
programs applicable to the Company would not adversely affect the Company.
Potential Fluctuations in Operating Results. The Company's results may vary
significantly from quarter to quarter depending on certain factors including,
but not limited to, demand for personal computers, customer order deferrals,
availability of products and general economic conditions. The Company seeks to
control its expense levels, but such controls are in part based on anticipated
revenues. Therefore, the Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. As a result,
quarterly period-to-period comparisons of the Company's financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance.
Control by Safeguard Scientifics, Inc. Safeguard Scientifics, Inc.
("Safeguard") currently owns 21,463,184 shares of Common Stock and, after
giving effect to the issuance of 8,409,087 shares of Common Stock upon
conversion of the Company's 9% Convertible Subordinated Notes, will own
approximately 49.9% of the outstanding Common Stock assuming no additional
purchases. In addition, Safeguard owns 2,000,000 shares of Series B Stock. The
Series B Stock is currently convertible into approximately 2,954,209 shares of
Common Stock at a rate of $6.77 per share of Common Stock, subject to anti-
dilution adjustments. The shares of Series B Stock are entitled to one vote for
each share of Common Stock into which such shares may be converted, except
that, for so long as Safeguard owns at least 40% of the Company's outstanding
voting securities, in the election of directors the shares of Series B Stock
are entitled to five votes for each share of Common Stock into which such
shares of Series B Stock may be converted. Consequently, after giving effect to
the conversion of the Company's 9% Convertible Subordinated Notes into
8,409,087 shares of Common Stock, Safeguard has approximately 62.7% of the
outstanding voting power of the Company's capital stock with respect to the
election of directors and approximately 53.1% of the outstanding voting power
of the Company's capital stock with respect to all other matters upon which the
holders of Common Stock may vote. As a result, Safeguard will have the voting
power to elect the Company's entire Board of Directors and have the practical
ability to control all other matters requiring stockholder approval. In
addition, the Company has certain arrangements pursuant to which Safeguard
provides various administrative, legal and financial services in return for an
annual fee. The Company has been informed that Safeguard plans to maintain at
least a 50% economic interest in the Company and may do so, among other ways,
by purchasing Common Stock in open market transactions from time to time, in
privately negotiated transactions with other stockholders of the Company, by
purchasing shares in the offering contemplated hereby, or by acquiring newly
issued shares from the Company.
Limited Trading Market; Shares Eligible for Future Sale. At September 30,
1995, and after giving effect to the issuance of 8,409,087 shares of Common
Stock upon conversion of the Company's 9% Convertible Subordinated Notes, the
Company had 43,047,515 shares of Common Stock outstanding, not including
(i) 2,954,209 shares of Common Stock reserved for issuance upon conversion of
2,000,000 outstanding shares of Series B Stock, (ii) 4,492,801 shares of Common
Stock reserved for issuance upon the exercise of options outstanding under the
Company's Option Plans, (iii) 2,096,300 shares of Common Stock available for
future grants of options under the Option Plans, or (iv) 103,331 shares
reserved for issuance upon the exercise of outstanding warrants and other stock
awards. At September 30, 1995, and after giving effect to the issuance
6
<PAGE>
of 8,409,087 shares of Common Stock upon conversion of the Company's 9%
Convertible Subordinated Notes, 20,409,735 shares of Common Stock were held by
non-affiliates of the Company, having an aggregate market value of $125,009,626
(based on the closing price on the Nasdaq National Market on October 25, 1995).
Safeguard owns 21,463,184 of the outstanding shares of Common Stock as of
September 30, 1995. Safeguard has "demand" and "piggyback" registration rights
with respect to certain of those shares as well as an additional 2,954,209
shares of Common Stock issuable upon conversion of the Series B Stock. In
addition, the Company has granted registration rights covering approximately
4,642,716 shares of Common Stock (of which 93,331 shares are covered by
currently effective registration statements). Finally, shares issued upon
exercise of outstanding options under the Company's Option Plans are registered
for resale on Form S-8. In connection with the offering contemplated hereby,
the holders of approximately 26,559,369 shares of Common Stock have agreed,
subject to certain limited exceptions, not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, without the consent of The
Robinson-Humphrey Company, Inc., for a period of 90 days from the date of this
Prospectus. The Company is unable to predict the effect that sales made under
Rule 144, under registration statements, or otherwise, may have on the then
prevailing market price of the Common Stock, although any substantial sale of
restricted securities pursuant to Rule 144 or under registration statements may
have an adverse effect, particularly in view of the limited trading market for
the Common Stock.
No Dividends. To date, the Company has not paid any cash dividends on its
Common Stock, and does not expect to declare or pay any cash or other dividends
in the foreseeable future. Further, the Company's bank loan agreements restrict
the Company from declaring or paying dividends or other distributions on its
Common Stock.
7
<PAGE>
SELLING STOCKHOLDERS
In September 1992, the Company sold $18,500,000 in principal amount of 9%
Convertible Subordinated Notes Due September 24, 2002 (the "Convertible
Notes"). The Convertible Notes were convertible into shares of Common Stock at
a conversion price of $2.20 per share of Common Stock. During September 1995,
the Company gave notice of its intention to redeem the Convertible Notes and,
prior to the commencement of the offering contemplated hereby, the Convertible
Notes were converted into an aggregate of 8,409,087 shares of Common Stock. The
4,209,087 shares of Common Stock received by the Selling Stockholders upon
conversion of the Convertible Notes which are not being sold in this offering
(assuming no exercise of the over-allotment option) are eligible for immediate
resale under Rule 144 under the Securities Act.
The following table sets forth information regarding the beneficial ownership
of Common Stock by the Selling Stockholders as of the date of this Prospectus
and as adjusted to reflect the sale of the shares of Common Stock offered
hereby. Unless otherwise indicated, each of the Selling Stockholders has sole
voting and investment power with respect to the shares beneficially owned. No
Selling Stockholder has had any material relationship with the Company within
the past three years other than through its ownership of a Convertible Note or
shares of Common Stock issued upon conversion thereof.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER
SELLING STOCKHOLDER OFFERING SHARES BEING THE OFFERING(1)
------------------- -------------------- SOLD IN THE --------------------
TOTAL PERCENT(2) OFFERING(1) TOTAL PERCENT(2)
--------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Massachusetts Mutual
Life Insurance
Company(3)............. 2,500,000 5.8% 185,000 2,315,000 5.4%
First Interstate Bank of
Oregon as Agent for
Oregon Equity Fund..... 1,590,909 3.7% 1,590,909 0 0%
MassMutual Corporate
Investors(3)........... 1,363,636 3.2% 100,910 1,262,726 2.9%
Delaware State
Employees' Retirement
Fund................... 1,136,363 2.6% 1,136,363 0 0%
MassMutual Participation
Investors(3)........... 681,818 1.6% 50,457 631,361 1.5%
State of Delaware
Retirement Plan--
Froley, Revy........... 454,545 1.1% 454,545 0 0%
Declaration of Trust for
Defined Benefit Plans
of ICI American Holding
Inc.................... 249,090 * 249,090 0 0%
The Northern Trust
Company as Trustee for
Nalco Chemical Company
Retirement Trust....... 227,272 * 227,272 0 0%
Declaration of Trust for
Defined Benefit Plans
of Zeneca Holding
Inc.................... 205,454 * 205,454 0 0%
</TABLE>
- --------
* Less than 1%
(1) Does not reflect any exercise of the Underwriters' over-allotment option.
(2) The percentage for each Selling Stockholder is determined based upon
43,047,515 shares of Common Stock outstanding.
(3) Each of Massachusetts Mutual Life Insurance Company, MassMutual Corporate
Investors and MassMutual Participation Investors have agreed to grant the
Underwriters a 30-day option to purchase up to 346,500, 189,000, and 94,500
additional shares of Common Stock, respectively, solely to cover over-
allotments, if any. See "Underwriting."
8
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc. and
Hambrecht & Quist LLC are acting as representatives (the "Representatives"),
have severally agreed to purchase from the Selling Stockholders, and the
Selling Stockholders have agreed to sell to the Underwriters, the respective
number of shares of Common Stock set forth opposite each Underwriter's name
below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
The Robinson-Humphrey Company, Inc. ....................... 2,100,000
Hambrecht & Quist LLC...................................... 2,100,000
---------
Total.................................................... 4,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to the approval of certain legal matters by counsel and
to various other conditions. The nature of the Underwriters' obligations is
such that they are committed to purchase all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock being purchased
directly to the public at the public offering price set forth on the cover page
of this Prospectus and to certain other dealers at such price less a concession
not in excess of $.19 per share of Common Stock. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $.05 per share to
certain other dealers. After this offering, the public offering price and other
selling terms may be changed.
Certain of the Selling Stockholders have granted to the Underwriters a 30-day
option to purchase up to an additional 630,000 shares of Common Stock at the
public offering price less the underwriting discount set forth on the cover
page of this Prospectus, to cover over-allotments, if any. If the Underwriters
exercise the over-allotment option in full, such Selling Stockholders will sell
to the Underwriters an aggregate of 630,000 shares of Common Stock. See
"Selling Stockholders." If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by each of them as shown in the above table
bears to the 4,200,000 shares of Common Stock offered hereby. The Underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of the 4,200,000 shares of Common Stock offered hereby.
The Selling Stockholders, the Company, its executive officers and directors
and Safeguard, for a period of 90 days from the date of this Prospectus, have
agreed that they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock of the Company without the prior written consent of
The Robinson-Humphrey Company, Inc., except for the sale of shares of Common
Stock offered hereby and, with respect to such executive officers and
directors, the Selling Stockholders and Safeguard, except for bona fide gifts
or transfers effected other than on any securities exchange or in the over-the-
counter market to donees or transferees that agree to be bound by such
restriction.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against, and to contribute to losses arising out of, certain
liabilities under the Securities Act, subject to certain limitations.
The Underwriters have advised the Company that they do not intend to confirm
sales of Common Stock to any account over which they exercise discretionary
authority.
9
<PAGE>
In connection with the offering contemplated hereby, certain underwriters and
selling group members (if any) or their respective affiliates who are qualified
registered market makers on the Nasdaq National Market may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act during the two business day
period before commencement of offers of sales of the Common Stock. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for the security;
however if all independent bids are lowered below the passive market maker's
bid, such bid must be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania. Certain legal matters will be passed upon for the Underwriters by
Jones, Day, Reavis & Pogue, Atlanta, Georgia, and for the Selling Stockholders
by Choate, Hall & Stewart, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and schedule of CompuCom Systems, Inc.
and subsidiaries as of December 31, 1994 and 1993 and for each of the years in
the three-year period ended December 31, 1994 included and incorporated by
reference herein, have been included and incorporated by reference herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, included and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
10
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and June 30,
1995 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 (un-
audited)................................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended Decem-
ber 31, 1992, 1993 and 1994 and the six months ended June 30, 1995 (unau-
dited)................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 (un-
audited)................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
CompuCom Systems, Inc.:
We have audited the accompanying consolidated balance sheets of CompuCom
Systems, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CompuCom
Systems, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
February 8, 1995
F-2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, 1995
ASSETS 1993 1994 (UNAUDITED)
------ ------------ ------------ -------------
<S> <C> <C> <C>
Current assets:
Cash..................................... $ 3,941 $ 4,076 $ 4,094
Receivables, less allowance for doubtful
accounts of $1,872 in 1993, $1,942 in
1994 and $2,100 at June 30, 1995........ 207,721 233,589 215,791
Inventories.............................. 124,282 155,561 150,141
Other.................................... 1,705 2,145 1,737
-------- -------- --------
Total current assets................... 337,649 395,371 371,763
Property and equipment:
Land, building and improvements.......... 5,703 5,842 5,869
Furniture, fixtures and other equipment.. 12,592 15,302 17,771
Leasehold improvements................... 1,770 2,414 2,859
-------- -------- --------
20,065 23,558 26,499
Less accumulated depreciation and amorti-
zation.................................. (5,225) (7,648) (9,429)
Net property and equipment............. 14,840 15,910 17,070
Cost in excess of fair value of tangible
net assets purchased, less accumulated
amortization.............................. 10,274 12,498 12,229
Other assets............................... 2,308 5,752 5,301
-------- -------- --------
$365,071 $429,531 $406,363
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable......................... $150,914 $154,342 $132,215
Accrued liabilities...................... 29,746 37,623 34,110
-------- -------- --------
Total current liabilities.............. 180,660 191,965 166,325
Long-term debt............................. 107,316 118,974 113,417
Deferred income taxes...................... 3,485 6,010 5,410
Convertible subordinated notes............. 17,880 18,214 18,405
Stockholders' equity:
Series B preferred stock, $10 stated val-
ue. Authorized 3,000,000 shares; issued
and outstanding 2,000,000............... 20,000 20,000
Common stock, $.01 par value. Authorized
70,000,000 shares; issued and outstand-
ing 31,331,245 shares in 1993,
33,694,764 shares in 1994 and 34,059,764
at June 30, 1995........................ 313 337 341
Additional paid-in capital............... 23,984 28,164 28,774
Retained earnings from July 1, 1987...... 31,433 45,867 53,691
-------- -------- --------
Total stockholders' equity............. 55,730 94,368 102,806
-------- -------- --------
$365,071 $429,531 $406,363
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, 1994 JUNE 30, 1995
1992 1993 1994 (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues............ $713,035 $1,015,482 $1,255,813 $587,482 $674,197
Cost of revenues........ 608,316 870,773 1,085,012 510,728 569,042
-------- ---------- ---------- -------- --------
Gross margin.......... 104,719 144,709 170,801 76,754 105,155
Expenses:
Selling............... 58,843 82,205 97,915 46,019 61,546
General and adminis-
trative.............. 23,743 30,696 32,487 13,275 19,701
Interest.............. 7,507 8,722 11,346 5,229 6,497
Depreciation and amor-
tization............. 2,912 4,178 4,621 2,190 2,997
-------- ---------- ---------- -------- --------
93,005 125,801 146,369 66,713 90,741
-------- ---------- ---------- -------- --------
Earnings before income
taxes.................. 11,714 18,908 24,432 10,041 14,414
Income taxes............ 4,451 7,469 9,773 4,017 5,765
-------- ---------- ---------- -------- --------
Net earnings............ $ 7,263 $ 11,439 $ 14,659 $ 6,024 $ 8,649
======== ========== ========== ======== ========
Earnings per common
share:
Primary............... $ .23 $ .34 $ .40 $ .17 $ .22
Fully diluted......... $ .22 $ .29 $ .34 $ .14 $ .19
Average common shares
outstanding:
Primary............... 30,876 33,888 35,714 35,919 35,992
Fully diluted......... 33,651 42,958 44,123 44,328 44,935
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
------------------ ----------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1991................... 243,750 $ 2,438 29,131,929 $291 $20,041 $12,731 $ 35,501
Retirement of pre-
ferred stock......... (243,750) (2,438) (2,438)
Issuance of common
stock................ 83,850 1 209 210
Exercise of common
stock warrants....... 200,000 2 298 300
Exercise of options... 527,250 6 760 766
Net earnings.......... 7,263 7,263
--------- ------- ---------- ---- ------- ------- --------
Balances at December 31,
1992................... 29,943,029 300 21,308 19,994 41,602
Issuance of common
stock................ 430,000 4 1,249 1,253
Exercise of convert-
ible notes/common
stock warrants....... 566,666 5 1,094 1,099
Exercise of options... 391,550 4 333 337
Net earnings.......... 11,439 11,439
--------- ------- ---------- ---- ------- ------- --------
Balances at December 31,
1993................... 31,331,245 313 23,984 31,433 55,730
Issuance of preferred
stock................ 2,000,000 20,000 20,000
Issuance of common
stock................ 335,665 3 1,197 1,200
Exercise of common
stock warrants....... 1,426,666 14 2,213 2,227
Exercise of options... 601,188 7 770 777
Preferred stock divi-
dend................. (225) (225)
Net earnings.......... 14,659 14,659
--------- ------- ---------- ---- ------- ------- --------
Balances at December 31,
1994................... 2,000,000 20,000 33,694,764 337 28,164 45,867 94,368
Issuance of common
stock (unaudited).... 20,000 70 70
Exercise of common
stock warrants (unau-
dited)............... 5,000 8 8
Exercise of options
(unaudited).......... 340,000 4 532 536
Preferred stock divi-
dend (unaudited)..... (825) (825)
Net earnings (unau-
dited)............... 8,649 8,649
--------- ------- ---------- ---- ------- ------- --------
Balances at June 30,
1995 (unaudited)....... 2,000,000 $20,000 34,059,764 $341 $28,774 $53,691 $102,806
========= ======= ========== ==== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, 1994 JUNE 30, 1995
1992 1993 1994 (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net earnings.......... $ 7,263 $ 11,439 $ 14,659 $ 6,024 $ 8,649
Adjustments to
reconcile net
earnings to net cash
provided by (used in)
operating activities:
Depreciation and
amortization....... 2,912 4,178 4,621 2,190 2,997
Other............... 140 (406)
Deferred income tax-
es................. 3,720 1,667 2,525 558 (606)
Changes in assets and
liabilities:
Receivables......... (11,027) (82,375) (25,546) 14,453 19,035
Inventories......... (1,415) (25,159) (34,207) (33,689) 5,420
Other current as-
sets............... (851) 75 (145) 75 408
Accounts payable.... 2,160 45,387 4,899 (6,995) (22,359)
Accrued liabilities
and other.......... 942 14,638 7,127 (2,420) (3,062)
-------- -------- -------- -------- --------
Net cash provided
by (used in)
operating
activities....... 3,844 (30,150) (26,067) (20,210) 10,482
-------- -------- -------- -------- --------
Cash flows from invest-
ing activities:
Capital expenditures,
net.................. (7,408) (6,584) (5,018) (1,743) (2,758)
Business acquisitions
net of cash
acquired............. (457) (2,741) (1,754)
-------- -------- -------- -------- --------
Net cash used in
investing activi-
ties............. (7,865) (6,584) (7,759) (1,743) (4,512)
-------- -------- -------- -------- --------
Cash flows from financ-
ing activities:
Net borrowings (repay-
ments) under bank
credit facility...... (9,990) 37,031 11,332 9,151 (5,615)
Issuance of
convertible
subordinated notes,
net of debt issue
costs................ 17,754
Issuance (retirement)
of preferred stock... (1,179) 20,000 10,000
Retirement of
subordinated
debentures........... (4,115)
Exercise of warrants
and options.......... 349 351 2,854 2,631 488
Preferred stock divi-
dend................. (225) (825)
-------- -------- -------- -------- --------
Net cash provided
by financing
activities....... 2,819 37,382 33,961 21,782 (5,952)
-------- -------- -------- -------- --------
Net increase (decrease)
in cash................ (1,202) 648 135 (171) 18
Cash at beginning of pe-
riod................... 4,495 3,293 3,941 3,941 4,076
-------- -------- -------- -------- --------
Cash at end of period... $ 3,293 $ 3,941 $ 4,076 $ 3,770 $ 4,094
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
(1) Summary of Significant Accounting Policies
Description of Business
CompuCom Systems, Inc. and subsidiaries (the "Company") is a personal
computer ("PC") services integration company that provides services to
corporate customers ranging from product procurement and configuration to
network integration and support through sales and service locations nationwide.
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Inventories
Inventories are stated at the lower of average cost or market. Substantially
all inventories are finished goods.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the lesser of the estimated useful lives of the
assets or the remaining term of the lease using the straight-line method.
Cost in Excess of Fair Value of Tangible Net Assets Purchased
Cost in excess of fair value of tangible net assets purchased represents
goodwill and customer lists and is amortized using the straight-line method
over a 7 or 10 year period. Accumulated amortization at December 31, 1993 and
1994 was $3,551,000 and $5,142,000, respectively. The Company continually
evaluates goodwill for indications of impairment based on projected
undiscounted net cash flows from operations of the related business unit.
Revenue Recognition
Product revenues are recognized upon shipment with provisions made for
anticipated returns, which historically have been immaterial. Service revenues
are recognized when the service is rendered.
Vendor Programs
The Company receives volume rebates from certain manufacturers related to
sales of certain products which are recorded when earned as a reduction of cost
of goods sold. The Company also receives manufacturer reimbursements for
certain training, promotional and marketing activities, which are recorded as
earned as a reduction of general and administrative expense.
Earnings Per Common Share
Primary earnings per common share is based on net earnings after preferred
stock dividend requirements, if any, and the weighted average number of common
shares outstanding during each year, including stock options and warrants
considered to be dilutive common stock equivalents. Fully diluted earnings per
common share assumes full conversion of all convertible securities into common
stock at the later of the beginning of the year or date of issuance, and
includes the add-back of related interest and/or dividends.
F-7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
Restructuring
In connection with the redirection of the Company and the effective
discontinuation of its previous business activities, the accumulated deficit as
of July 1, 1987 was reclassified as a reduction of additional paid-in capital
to better reflect the financial position and new operating focus of the
Company. Retained earnings represent the cumulative net earnings of the Company
since July 1, 1987, less dividends.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
Interim Financial Information
In the opinion of management, the unaudited interim financial information of
the Company contains all adjustments, consisting only of those of a normal
recurring nature, necessary to present fairly the Company's financial position
as of June 30, 1995 and the results of its operations and cash flows for the
six months ended June 30, 1994 and 1995. The results of operations for the six
months ended June 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
(2) Long-term Debt
During March 1994, the Company executed an amendment to the August 1993
Financing and Security Agreement increasing the availability under the
Company's bank revolving credit facility ("Credit Facility") from $125 million
to $150 million. The new facility provides for a fixed rate of interest of
7.18% on $60 million of the outstanding principal balance. In addition, for the
remainder of the unpaid principal, the Company has the option to elect the
London Interbank Offered Rate ("LIBOR") plus 2.75% per annum, subject to
certain limitations, and/or an interest rate of 0.5% above the prime rate per
annum. Total borrowings are based on certain limits, as defined, and are
secured by substantially all the assets of the Company. The Credit Facility
subjects the Company to certain restrictions and covenants related to, among
others, tangible net worth, debt to tangible net worth, net earnings, and
limits the amount available for capital expenditures and dividends. All unpaid
principal borrowed and unpaid accrued interest thereon, under the Credit
Facility, are due March 1997.
During April 1995, the Company executed an amendment to the Credit Facility
to increase the availability under the Credit Facility from $150 million to
$175 million. The other significant terms under the Credit Facility remained
the same.
The Company's highest level of borrowing was $114.6 million and $132 million
in 1993 and 1994, respectively. The outstanding balance on the bank credit
facility at December 31, 1994 is $115.2 million.
A $3.9 million mortgage term loan on the corporate headquarters building in
Dallas, Texas is payable in monthly installments of $32,500 plus interest at
8.1%.
The Company paid interest of $7,633,000, $8,302,000 and $10,905,000, and the
weighted average interest rate on the bank credit facility was approximately
7.5%, 7.2% and 7.3%, in 1992, 1993, and 1994, respectively.
F-8
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
(3) Convertible Subordinated Notes
In 1992, the Company issued $18,500,000 of 9% Convertible Subordinated Notes
("Notes") due in 2002. The Notes are convertible into 8,409,000 shares of the
Company's common stock at $2.20 per share and are carried net of unamortized
debt issue costs. If not converted, payment in five equal annual installments
of $3.7 million, commencing in 1998, is required. The Notes subject the Company
to certain restrictions and covenants related to, among others, tangible net
worth, and certain ratios relating to operating cash flow and incurrence of
additional debt. In addition, the Note Agreement provides for mandatory
prepayment upon a change of control of the Company, as defined. Under certain
conditions, the Company may prepay all or any part of the Notes on or after
September 15, 1995 without prepayment penalties.
(4) Income Taxes
The provision for income taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 400 $4,849 $6,437
State.................................................... 331 953 655
Deferred................................................... 3,720 1,667 2,681
------ ------ ------
$4,451 $7,469 $9,773
====== ====== ======
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% in 1992 and 35% in 1993 and 1994 to
earnings before income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense........................... $3,983 $6,618 $8,551
State taxes, net of U.S. Federal income tax benefit....... 218 619 426
Other, net................................................ 250 232 796
------ ------ ------
$4,451 $7,469 $9,773
====== ====== ======
</TABLE>
Total tax expense for the years ended December 31, 1992, 1993 and 1994 was
allocated as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Current tax expense........................................ $ 731 $5,802 $7,092
Deferred tax expense.......................................
Acquired tax benefit..................................... 2,733 1,118 183
Other.................................................... 987 549 2,498
------ ------ ------
$4,451 $7,469 $9,773
====== ====== ======
</TABLE>
F-9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1994 are presented below (in thousands).
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards and acquired tax benefits..... $1,902 $ 33
Inventories, principally due to additional costs inventoried
for tax purposes and reserves................................. 2,167 2,064
Accounts receivable, principally due to allowance for doubtful
accounts...................................................... 646 679
Other.......................................................... 914 816
------ ------
Total gross deferred tax assets.............................. 5,629 3,592
Less valuation allowance..................................... 1,067
------ ------
Net deferred tax assets...................................... 4,562 3,592
------ ------
Deferred tax liabilities:
Tax net operating losses in excess of financial................ 6,812 7,976
Other.......................................................... 1,235 1,626
------ ------
Total gross deferred tax liabilities......................... 8,047 9,602
------ ------
Net deferred tax liability................................... $3,485 $6,010
====== ======
</TABLE>
The valuation allowance of $1,067,000 at December 31, 1993 is no longer
required as a result of the 1994 utilization of net operating losses for tax
purposes.
There were $478,000, $3,040,000 and $9,934,000 of income taxes paid in 1992,
1993 and 1994, respectively, net of refunds. Taxes payable at December 31, 1994
was approximately $857,000.
(5) Preferred Stock
The Company has authorized three million shares of preferred stock, stated
value $10. In 1994, Safeguard Scientifics, Inc., ("Safeguard") entered into an
agreement to purchase from the Company $20,000,000 (2,000,000 shares) of its
Series B Cumulative Convertible Preferred Stock ("Series B Shares"). The Series
B Shares are convertible into shares of Common Stock based on a conversion
price of $6.77 per share subject to anti-dilutive adjustments. The Series B
Shares are entitled to a 6% per annum cumulative dividend payable out of
legally available funds. The Series B Shares are entitled to one vote for each
share of Common Stock into which such Series B Shares may be converted, except
that in the election of directors (as long as Safeguard owns at least 40% of
the Company's then outstanding voting securities, excluding the Series B
Shares), the Series B Shares will be entitled to five votes for each share of
Common Stock into which the Series B Shares may be converted. As of December
31, 1994 there were $225,000 of undeclared, unpaid dividends related to the
Series B Shares.
(6) Stock Options and Warrants
The Company maintains three stock option plans covering certain key employees
and outside directors. The 1983 Stock Option Plan and the 1984 Non-Qualified
Stock Option Plan expired by their terms in May 1993 and January 1994,
respectively. Therefore, the Company adopted a 1993 Stock Option Plan under
which the Company may grant qualified or non-qualified stock options. To the
extent allowable, all grants are incentive stock options. All options granted
under the plans to date have been at prices which have been equal to the fair
market value at the date of grant. Generally, options vest five years after the
date of grant and expire ten years after the date of grant.
F-10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
At December 31, 1994, the Company has reserved 4,728,000 shares of its common
stock for issuance under its stock option plans. There are 161,000 shares
available for future grant under the 1993 Stock Option Plan. The Company plans
to increase the number of shares available for future grant under the 1993
Stock Option Plan by 3,000,000 shares in 1995, subject to approval by
shareholders.
A summary of the status of the Company's stock option plans follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
--------- -----------
<S> <C> <C>
Outstanding at December 31, 1992......................... 4,051,000 $ .50-2.81
Granted................................................ 1,481,000 2.25-3.13
Exercised.............................................. (549,000) 1.00-2.81
Canceled............................................... (69,000) 1.00-2.81
---------
Outstanding at December 31, 1993......................... 4,914,000 $ .50-3.13
Granted................................................ 612,000 3.94-4.75
Exercised.............................................. (981,000) .50-3.38
Canceled............................................... (128,000) 1.00-4.13
---------
Outstanding at December 31, 1994......................... 4,417,000 $ .50-4.75
=========
Exercisable at December 31, 1994....................... 2,773,000 $ .50-3.13
=========
</TABLE>
Under the Stock Option Plan for Directors, 100,000 shares have been reserved
for issuance, subject to stockholder approval of the plan. Options to non-
employee directors are required to be granted at fair market value with an
initial 10,000 share grant upon election to the Board. Subsequent service
grants will be awarded to all non-employee directors in accordance with
formulas based upon years of service. Under this plan, 10,000 options have been
granted at an exercise price of $4.75 per share, of which none were exercisable
at December 31, 1994. Options under this plan vest 25% each year commencing on
the first anniversary of the grant date and expire after 10 years.
In conjunction with certain subordinated debentures issued in 1991, and
repaid in 1992, warrants were issued to acquire approximately 1.4 million
shares of common stock at a purchase price of $1.50 per share, exercisable
through April 1996. During 1994, approximately 1,177,000 of these warrants were
exercised, leaving approximately 128,000 of the warrants remaining. In
connection with an acquisition in 1987, the Company issued warrants to the
seller to purchase 250,000 shares of common stock at $1.50 per share, which
were subsequently exercised in February 1994.
(7) Related Party Transactions
In 1994, the Company sold the majority of its interest in a subsidiary, PC
Parts Express, Inc. ("PCPE") to a venture capital company primarily owned by a
former officer and director of the Company, in exchange for cash, a secured
note receivable, and warrants to purchase additional PCPE common stock.
Separately, the Company sold substantially all of the assets with respect to
its network training business to this same venture capital company in exchange
for a secured note receivable and royalty agreement.
Included in other assets at December 31, 1994 is a $1,181,250 secured term
note receivable from an officer and director of the Company. Interest on the
note accrues at the rate of 6% per annum and is payable annually beginning
January 1, 1996. Principal is payable in two annual installments of $590,625
each on August 31, 1996 and August 31, 1997.
F-11
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
Included in other assets at December 31, 1994 is a $600,000 secured term note
receivable from a former officer and director of the Company. The outstanding
principal balance and accrued interest at the prime rate was paid in February
1995.
Safeguard owns approximately 63% of the Company's common stock as of December
31, 1994. The Company pays Safeguard a fee for providing certain
administrative, legal and financial services to the Company. General and
administrative expenses include charges from Safeguard of $600,000 in 1992,
1993 and 1994.
(8) Leases
The Company has noncancelable operating leases for facilities and equipment
which expire at various dates from 1995 to 2004. Total rental expense for
operating leases was $5,161,000, $5,430,000 and $4,804,000 in 1992, 1993 and
1994, respectively. Future minimum lease payments under noncancelable operating
leases as of December 31, 1994 are $4,594,000--1995; $4,392,000--1996;
$3,729,000--1997; $2,828,000--1998; $1,928,000--1999; and $2,696,000--
thereafter.
(9) Savings Plan
The Company has a contributory 401(k) Plan for its employees and matches one-
half of the first 4% and one-fourth of the next 2% of employee compensation,
and employer participation is subject to certain vesting requirements. Amounts
expensed relating to the Plan were $372,000, $501,000 and $597,000 in 1992,
1993 and 1994, respectively. In addition, the Company also expensed $215,000 in
common stock contributions to the Plan during 1992. The 80,000 shares of common
stock contributed for 1992 were made in the subsequent year.
(10) Investments
In January 1994, the Company sold the majority of its interest in a
subsidiary, PC Parts Express, Inc., which subsequently changed its name to PC
Service Source ("PCSS"). In April 1994, PCSS completed an initial public
offering. After this transaction, the Company's ownership of PCSS common stock
was approximately 24%. The PCSS common stock owned by the Company is
unregistered and the sale of the stock is subject to certain restrictions. The
Company owned approximately 23% of the outstanding common shares of PCSS at
year end and accounts for this investment using the equity method. At December
31, 1994, the Company's carrying value of the PCSS stock was $1,735,000 and the
market value was approximately $8,200,000. In addition, the Company owns
warrants for the purchase of 250,000 shares of PCSS common stock at an exercise
price of $2.25.
(11) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business with enterprises in both the public and private
sector. In the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's consolidated financial
position and results of operations.
F-12
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION WITH RESPECT TO JUNE 30, 1994 AND 1995 IS UNAUDITED)
(12) Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993
Net revenues...................... $200,856 $239,707 $256,507 $318,412
Gross margin...................... 29,530 34,538 36,890 43,751
Net earnings...................... 1,859 2,602 2,838 4,140
Earnings per common share:
Primary......................... .06 .08 .08 .12
Fully diluted................... .05 .07 .07 .10
1994
Net revenues...................... $280,857 $306,625 $306,654 $361,677
Gross margin...................... 36,141 40,613 43,503 50,544
Net earnings...................... 2,765 3,259 3,271 5,364
Earnings per common share:
Primary......................... .08 .09 .09 .15
Fully diluted................... .07 .08 .08 .12
</TABLE>
Earnings per common share calculations are based on the weighted average
number of shares outstanding in each period. Therefore, the sum of the quarters
does not necessarily equal the year to date earnings per common share.
F-13
<PAGE>
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER,
ANY OF THE UNDERWRITERS OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THE DATE AS OF WHICH INFORMATION IS SET FORTH
HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OF-
FERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY OF THE SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL OR UNAUTHO-
RIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 5
Selling Stockholders....................................................... 8
Underwriting............................................................... 9
Legal Matters.............................................................. 10
Experts.................................................................... 10
Index to Consolidated Financial Statements................................. F-1
</TABLE>
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4,200,000 SHARES
[LOGO OF COMPUCOM SYSTEMS, INC. APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
THE ROBINSON-HUMPHREY COMPANY, INC.
HAMBRECHT & QUIST
OCTOBER 26, 1995
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