<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the three months ended JUNE 30, 1995 Commission File Number 0-14371
---------------------------------------- ------------------------------
COMPUCOM SYSTEMS, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 38-2363156
---------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10100 N. CENTRAL EXPRESSWAY, DALLAS, TX 75231
---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 265-3600
----------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the Registrant's common stock outstanding as of August
8, 1995 was 34,463,762.
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
------- --------------------- ----
<S> <C>
Item 1. Condensed Consolidated Balance Sheets
June 30, 1995 (unaudited) and December 31, 1994 3
Condensed Consolidated Statements of Operations
Three months and six months ended June 30, 1995 and 1994
(unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1994 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
-------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash $ 4,094 $ 4,076
Receivables 215,791 233,589
Inventories 150,141 155,561
Other 1,737 2,145
-------- --------
Total current assets 371,763 395,371
Property and equipment, net 17,070 15,910
Cost in excess of fair value of tangible net
assets purchased, less accumulated amortization 12,229 12,498
Other assets 5,301 5,752
-------- --------
$406,363 $429,531
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $132,215 $154,342
Accrued liabilities 34,110 37,623
-------- --------
Total current liabilities 166,325 191,965
Long-term debt 113,417 118,974
Deferred income taxes 5,410 6,010
Convertible subordinated notes 18,405 18,214
Shareholders' equity:
Preferred stock 20,000 20,000
Common stock 341 337
Additional paid-in capital 28,774 28,164
Retained earnings from July 1, 1987 53,691 45,867
-------- --------
Total shareholders' equity 102,806 94,368
-------- --------
$406,363 $429,531
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues $350,710 $306,625 $674,197 $587,482
Cost of revenues 295,237 266,012 569,042 510,728
-------- -------- -------- --------
Gross margin 55,473 40,613 105,155 76,754
-------- -------- -------- --------
Expenses:
Selling 31,909 24,089 61,546 46,019
General and administrative 10,733 7,241 19,701 13,275
Interest 3,260 2,731 6,497 5,229
Depreciation and amortization 1,548 1,119 2,997 2,190
-------- -------- -------- --------
47,450 35,180 90,741 66,713
-------- -------- -------- --------
Earnings before income taxes 8,023 5,433 14,414 10,041
Income taxes 3,209 2,174 5,765 4,017
-------- -------- -------- --------
Net earnings $ 4,814 $ 3,259 $ 8,649 $ 6,024
======== ======== ======== ========
Earnings per common share:
Primary $.12 $.09 $.22 $.17
Fully diluted $.11 $.08 $.19 $.14
Average common shares outstanding:
Primary 36,261 35,865 35,992 35,919
Fully diluted 44,996 44,274 44,935 44,328
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,649 $ 6,024
Adjustments to reconcile net earnings to net
cash provided (used) in operating activities:
Depreciation and amortization 2,997 2,190
Other (406)
Deferred income taxes (606) 558
Changes in assets and liabilities:
Receivables 19,035 14,453
Inventories 5,420 (33,689)
Other current assets 408 75
Accounts payable (22,359) (6,995)
Accrued liabilities and other (3,062) (2,420)
-------- --------
Net cash provided (used) by operating activities 10,482 (20,210)
-------- --------
Cash flows from investing activities:
Capital expenditures, net (2,758) (1,743)
Business acquisitions net of cash acquired (1,754)
-------- --------
Net cash used by investing activities (4,512) (1,743)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under bank credit facility (5,615) 9,151
Issuance of preferred stock 10,000
Exercise of warrants and options 488 2,631
Preferred stock dividend (825)
-------- --------
Net cash provided (used) by financing activities (5,952) 21,782
-------- --------
Net increase (decrease) in cash 18 (171)
Cash at beginning of period 4,076 3,941
-------- --------
Cash at end of period $ 4,094 $ 3,770
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1995
(1) General
-------
These condensed interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and the summary
of significant accounting policies and notes thereto included in the
Company's 1994 Annual Report on Form 10-K. The information furnished is
unaudited but reflects all adjustments consisting only of normal recurring
accruals which are, in the opinion of management, necessary to present a
fair statement of the results for these interim periods. Interim results
are not necessarily indicative of results expected for the full year.
(2) Long-term Debt
--------------
During April 1995, 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 $150
million to $175 million. The other significant terms under the Credit
Facility remained the same.
(3) 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.
(4) Reclassifications
-----------------
Certain amounts in the 1994 condensed consolidated financial statements
have been reclassified to conform with the 1995 presentation.
6
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
June 30, 1995
Results of Operations
---------------------
The following table shows the Company's gross margin and expenses, as a
percentage of net revenues.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
----- ---- ----- ----
<S> <C> <C> <C> <C>
Gross margin 15.8% 13.2% 15.6% 13.1%
Operating expenses:
Selling 4.1 4.6 4.2 4.6
Service 5.0 3.2 5.0 3.2
General and administrative 3.1 2.4 2.9 2.3
Depreciation and amortization 0.4 0.4 0.4 0.4
---- ---- ---- ----
12.6 10.6 12.5 10.5
---- ---- ---- ----
Operating earnings 3.2 2.6 3.1 2.6
Interest 0.9 0.8 1.0 0.9
---- ---- ---- ----
Earnings before income taxes 2.3 1.8 2.1 1.7
Income taxes 0.9 0.7 0.8 0.7
---- ---- ---- ----
Net earnings 1.4% 1.1% 1.3% 1.0%
==== ==== ==== ====
</TABLE>
Net revenues for the quarter and six months ended June 30, 1995 increased 14%
and 15% from the same periods in 1994 to $350.7 million and $674.2 million,
respectively. The higher net revenues are a result of the continued demand by
corporate customers for personal computers, as well as the Company's strategy of
expanding its enterprise network integration capabilities through internal
growth and acquisitions, remaining focused on its selling strategies and
providing quality service. The Company's second quarter net revenues reflect an
increase in service revenue in excess of 80% over the second quarter of 1994 and
approximately 25% over the first quarter of 1995, and includes revenue from four
acquisitions in the service arena, International Micronet Systems, acquired in
December 1994, and certain assets related to Allerion Corporation and Benchmark
Corporation, acquired during the first quarter of 1995, and the purchase of
Trellis-Hayes-Micronet, acquired in the second quarter of 1995. In addition,
the Company believes the increase in net revenues can also be attributed to the
weakened financial condition of certain competitors, as corporate customers
consolidate their outsourcing and outtasking needs. Corporate demand for the
remainder of 1995 will be influenced by the timing of the acceptance of Windows
'95.
(Continued)
7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Gross margin as a percentage of net revenues for the second quarter 1995
increased slightly when compared to the first quarter of 1995 primarily as a
result of increased service activity, partially offset by lower product margins.
Gross margin also increased when compared to the same quarter in 1994,
principally due to higher product margins and the increase in service-related
activity resulting from the Company's emphasis on the growth of the service
business. Although product margins declined from the first quarter to the
second quarter in 1995, product margins are higher than the same periods in 1994
primarily due to price decreases related to certain manufacturers' products and
less price competition, partially influenced by poor financial results of
certain competitors. Future product margins will be influenced by
manufacturers' pricing strategies together with competitive pressures, and will
be enhanced to the extent the Company is able to increase service revenues
through internal growth and growth via acquisitions. As service revenues
increases at a rate greater than product revenues, overall gross margin is
favorably impacted due to service margin as a percentage of service net revenues
being higher than product margin. The Company participates in certain
manufacturer-sponsored programs designed to increase sales of specific products.
These programs, excluding volume rebates and specific product rebates offered by
certain manufacturers, are not material when compared to the Company's overall
financial results.
Operating expenses for the three month and six month period ended June 30,
1995 increased $11.7 and $22.8 million, respectively, from the comparable
periods of 1994, to support the continued revenue growth. As a percentage of
net revenues, operating expenses also increased, principally as a result of the
growth of the service business. The significant increase in service expense
both as a percentage of net revenues and in absolute dollars reflects expenses
associated with the overall service revenue growth, including the recent
acquisitions, as well as costs related to the planned development of an
infrastructure necessary to manage and expand the service business. Selling
expense as a percentage of net revenues improved when compared to 1994 primarily
as a result of continued improvement in product sales productivity, as well as
the rate of growth in the service business exceeding that of the product
business. General and administrative expenses increased over the prior year,
primarily due to the Company's investment in information systems resources
required to enhance customer satisfaction, particularly in the service segment,
and other discretionary spending necessary to meet the Company's objectives.
The Company's operating expenses are reported net of reimbursements by certain
manufacturers for specific training, promotional and marketing programs. These
reimbursements offset the expenses incurred by the Company.
Depreciation and amortization expense increased in absolute dollars but
remained relatively constant as a percentage of net revenues for the quarter and
six months ended June 30, 1995. The dollar increase reflects amortization
expense associated with the Company's recent acquisitions, as well as increased
depreciation expense related to fixed asset purchases in 1994 and 1995.
Interest expense increased in absolute dollars by $0.5 million and also
increased as a percentage of net revenues for the quarter and six months ended
June 30, 1995 primarily as a result of higher average interest rates and
increased borrowings to support revenue growth, partially offset by improved
asset turns. The Company is pursuing alternatives it anticipates will reduce its
cost of funds.
As a result of the factors discussed above net earnings increased 48% to $4.8
million in the second quarter of 1995 from $3.2 million in 1994 and as a
percentage of net revenues improved from 1.1% to 1.4%. Future improved
profitability will depend on competition, manufacturer product pricing changes
and product availability, as well as the Company's control of operating
expenses, increased focus on providing technical service and support to
customers, and effective utilization of vendor programs.
(Continued)
8
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
-------------------------------
During recent years, the Company has utilized equity financing, operating
earnings, the bank credit facility and long-term subordinated notes to fund its
significant revenue growth and related operating asset requirements. The Company
maintains a satisfactory relationship with several banks. In April 1995, the
Company increased its bank revolving credit facility from $150 million to $175
million to support its revenue growth. The credit facility is subject to
certain collateral restrictions and matures in March, 1997. At June 30, 1995
approximately $115 million of this facility was outstanding, with an additional
$60 million available for borrowing. In addition, the Company currently has
outstanding $18,500,000 of 9% Convertible Subordinated Notes ("Notes") issued in
1992. The Notes are due in 2002 and are convertible into 8,409,000 shares of
the Company's common stock at $2.20 per share. The Company may call the Notes
on or after September 15, 1995 subject to certain conditions as provided in the
Notes. Given that the current price of the Company's common stock is well above
the conversion price of $2.20, it is likely that if the Notes are called by the
Company, the holders will convert their holdings into common stock.
Working capital at June 30, 1995 is $205 million compared to $203 million at
December 31, 1994 resulting in an increase in the working capital ratio from 2.1
to 2.2. Inventory levels were lower at June 30, 1995 when compared to December
31, 1994, principally due to the Company's renewed focus on improving inventory
turns. Accounts receivable declined when compared to December 1994 due to
seasonally lower net revenues in the second quarter of 1995 compared to the
fourth quarter of 1994, and improved collection efforts. The decline in
accounts payable is principally due to the timing of product shipments, which
were higher in the fourth quarter of 1994 to support the seasonally high net
revenues.
The business is not capital asset intensive, and capital expenditures in any
year normally would not be significant in relation to total assets. Capital
asset requirements are generally funded through internally generated funds, the
bank credit facility or leasing sources. Capital expenditures are expected to
be approximately $5 million in 1995, of which approximately $3 million was spent
during the first and second quarters. There are no material capital asset
purchase commitments at June 30, 1995.
9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
The Company held its Annual Meeting of Shareholders on May 25, 1995. At the
meeting, the shareholders voted in favor of electing as directors the nine
nominees named in the Proxy Statement dated April 24, 1995, in favor of an
amendment to the 1993 Stock Option Plan to increase the number of shares of
common stock available from 1,750,000 to 4,750,000, and in favor of the proposal
to adopt the Stock Option Plan for Directors. The number of votes cast for,
against or withheld, as well as, the number of abstentions and broker non-votes
were as follows:
Election of Directors:
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
James W. Dixon 44,833,235 181,580
Edward R. Anderson 44,833,835 180,980
Daniel F. Brown 44,834,485 180,330
Michael J. Emmi 44,834,935 179,880
Richard F. Ford 44,833,735 181,080
Ira M. Lubert 44,833,235 181,580
Warren V. Musser 44,831,135 183,680
Edward N. Patrone 44,831,035 183,780
Charles A. Root 44,830,135 184,680
</TABLE>
Proposal to Amend the 1993 Stock Option Plan:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
---------- --------- ------- ----------------
<S> <C> <C> <C>
28,513,688 1,169,731 108,920 0
</TABLE>
Proposal to Adopt the 1993 Stock Option Plan for Directors:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
---------- --------- ------- ----------------
<S> <C> <C> <C>
29,393,303 470,083 141,076 0
</TABLE>
10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
---------------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
--------
Exhibit
No. Description
------- -----------
10.1 Financing and Security Agreement dated April 26, 1995
between Nations Bank of Texas, N.A. and CompuCom
Systems, Inc.
10.2 $175,000,000 Master Revolving Promissory Note due March
31, 1997 to Nations Bank of Texas, N.A. dated as of
April 26, 1995.
11 Computation of Per Share Earnings
27 Financial Data Schedule (electronic filing only)
No other exhibits are required to be filed by the Registrant during the
three months ended June 30, 1995.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed by the Registrant during the
three months ended June 30, 1995.
11
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUCOM SYSTEMS, INC.
----------------------------------
(Registrant)
DATE: August 14, 1995 /s/ Edward Anderson
-------------------
Edward Anderson,
President and Chief Executive Officer
DATE: August 14, 1995 /s/ Robert J. Boutin
--------------------
Robert J. Boutin,
Senior Vice President, Finance and
Chief Financial Officer
12
<PAGE>
EXHIBIT 10.1
MASTER REVOLVING PROMISSORY NOTE
$175,000,000.00 Dated effective as of April 26, 1995
--
FOR VALUE RECEIVED, the undersigned, COMPUCOM SYSTEMS, INC. a Delaware
corporation ("Borrower") hereby promises to pay to the order of NATIONSBANK OF
TEXAS, N.A., a national bank with its principal office located at NationsBank
Plaza, 6th Floor, 901 Main Street, Dallas, Texas 75202 ("Lender"), the principal
amount of ONE HUNDRED SEVENTY FIVE MILLION AND NO/100 DOLLARS ($175,000,000.00)
or such lesser amount as may from time to time be advanced and remain unpaid and
outstanding hereunder, together with accrued interest as provided hereinbelow.
This promissory note is executed and delivered by Borrower pursuant to the
certain Financing and Security Agreement dated effective as of August 4, 1993,
as amended by the certain First Amendment to Financing and Security Agreement
dated effective as of March 31, 1994, the certain Second Amendment to Financing
and Security Agreement dated effective as of December 12, 1994, and the certain
Third Amendment to Financing and Security Agreement of even date herewith, each
between Lender and Borrower (hereinafter called the "Financing and Security
Agreement") and is the Revolving Note as defined therein. All terms defined in
the Financing and Security Agreement, wherever used herein, shall have the same
meaning prescribed by the Financing and Security Agreement.
All loans from time to time requested by Borrower hereunder are subject to
the terms and provisions of the Financing and Security Agreement. The maximum
principal amount at any time outstanding hereunder shall not at any time exceed
the Availability. The unpaid principal from day to day outstanding under this
promissory note shall bear interest at the applicable rate prescribed by the
Financing and Security Agreement. Lender's records shall be conclusive proof of
loans, payments and interest accruals hereunder, absent proof by Borrower of
error.
All unpaid principal and accrued interest under this promissory note shall
be payable as follows: (a) accrued interest on the Category I Facility Balance
and on any portion of the Category II Facility Balance accruing interest
according to the Contract Rate shall be payable monthly on the last day of each
calendar month, and (b) accrued interest on any Tranche accruing interest
according to a LIBOR Fixed Rate shall be payable monthly on the last day of each
calendar month and on the last day of the Interest Period applicable to such
Tranche. Subject to Lender's rights under Article VIII of the Financing and
Security Agreement, all unpaid principal borrowed under the Facility and all
unpaid accrued interest thereon, and all other amounts payable hereunder
relative to the Facility, shall be due and payable to Lender in full on the last
day of the Contract Term. To the extent that any accrued interest is not paid
prior to the fifth day following its due date as specified above, Lender may at
its option (but with no obligation to do so), add the amount of such accrued
interest to the unpaid principal due by Borrower under the Facility, in which
event such amount will be deemed paid and the aggregate amount thereof shall be
treated as a loan under the Facility. Any payment which is due on a day which
is not a Business Day shall instead be deemed to be due on the next succeeding
Business Day, and interest thereon shall accrue and be payable at the then
applicable rate during the time of such extension.
If at any time, from time to time, the aggregate unpaid principal amount
outstanding hereunder exceeds the Availability, Borrower shall make an immediate
payment of principal in an amount not less than the amount of such excess and
all such amounts, if any, shall be payable on demand.
No delay by Lender in the exercise of any power or right hereunder shall
operate as a waiver or impair Lender's rights and remedies under this promissory
note or the Loan Documents. Except as specifically provided in the Financing
and Security Agreement, Borrower and each other party ever liable hereunder
severally hereby expressly waives presentment, demand, notice of intention to
demand, notice of intention to accelerate, notice of acceleration, protest,
notice of protest and any other notice of any kind, and agrees that its
liability hereunder shall not be affected by any renewals, extensions or
modifications, from time to time, of the time or manner of payment hereof, or by
any release or modification of any Collateral.
This promissory note in all respects is subject to the Financing and
Security Agreement. All obligations and indebtedness from time to time
evidenced hereby are secured by continuing security interests and liens in all
Collateral. Proceeds of Collateral shall be subject to the Financing and
Security Agreement. Lender shall have all rights and remedies provided by the
Financing and Security Agreement and the other Loan Documents.
Borrower hereby promises to pay to Lender all fees, costs and expenses
incurred by Lender in enforcement and collection of any amounts under this
promissory note, including without limitation, reasonable attorneys fees.
In no contingency or event whatsoever shall the amount of interest under
this promissory note paid by Borrower, received by Lender, agreed to be paid by
Borrower, or requested or demanded to be paid by Lender, exceed the Maximum
Rate. In the event any such sums paid to Lender by Borrower would exceed
<PAGE>
the maximum amount permitted by applicable law, Lender shall automatically apply
such excess to any unpaid principal or, if the amount of such excess exceeds
said unpaid principal, such excess shall be paid to Borrower. All sums paid, or
agreed to be paid, by Borrower hereunder which are or hereafter may be construed
to be compensation for the use, forbearance, or detention of money shall be
amortized, prorated, spread and allocated in respect of the Obligations
throughout the full Contract Term until the Obligations are paid in full.
Notwithstanding any provisions contained in the Loan Documents or herein, Lender
shall never be entitled to receive, collect or apply as interest any amount in
excess of the Maximum Rate and, in the event Lender ever receives, collects, or
applies any amount that otherwise would be in excess of the Maximum Rate, such
amount shall automatically be deemed to be applied in reduction of the unpaid
principal balance of the Obligations and, if such principal balance is paid in
full, any remaining excess shall forthwith be paid to Borrower. In determining
whether or not the interest paid or payable under any specific contingency
exceeds the Maximum Rate, Borrower and Lender shall, to the maximum extent
permitted under applicable law, (i) characterize any non-principal payment as a
standby fee, commitment fee, prepayment charge, delinquency charge or
reimbursement for a third-party expense rather than as interest, (ii) exclude
voluntary prepayments and the effect thereof, and (iii) amortize, prorate,
allocate and spread in equal parts throughout the entire period during which the
indebtedness was outstanding the total amount of interest at any time contracted
for, charged or received. Nothing herein contained shall be construed or so
operate as to require Borrower to pay any interest, fees, costs, or charges
greater than is permitted by applicable law. Subject to the foregoing, Borrower
hereby agrees that the actual effective rate of interest from time to time
existing with respect to loans made by Lender to Borrower hereunder, including
all amounts agreed to by Borrower or charged or received by Lender, which may be
deemed to be interest under applicable law, shall be deemed to be a rate which
is agreed to and stipulated by Borrower and Lender in accordance with applicable
law.
This promissory note is in renewal and increase of the certain promissory
note dated effective as of March 31, 1994 executed by Borrower payable to the
order of Lender in the face amount of $150,000,000.00 (the "March 1994 Revolving
Note"). All obligations and indebtedness previously evidenced by the March 1994
Revolving Note hereby is renewed and hereafter shall be deemed outstanding
under, and payable in accordance with, this promissory note.
This promissory note may not be changed, amended or modified except in
writing executed by Lender and Borrower.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF TEXAS, EXCEPT AS TO PROVISIONS RELATING TO THE RATE OF
INTEREST TO BE CHARGED ON THE UNPAID PRINCIPAL HEREOF, IN WHICH CASE, TO THE
EXTENT FEDERAL LAW OTHERWISE WOULD ALLOW A HIGHER RATE OF INTEREST THAN WOULD BE
ALLOWED BY THE LAWS OF THE STATE OF TEXAS, SUCH FEDERAL LAW SHALL APPLY.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
NATIONSBANK OF TEXAS, N.A. COMPUCOM SYSTEMS, INC.
By: /s/ Dan Lane By: /s/ Robert J. Boutin
------------ ---------------------
Dan Lane Robert J. Boutin
Vice President Senior Vice President, Finance
and Chief Financial Officer
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
---------------------
Name: Robert J. Boutin
Title: Senior Vice President, Finance
and Chief Financial Officer
<PAGE>
EXHIBIT 10.2
NationsBank
NationsBank of Texas, N.A.
THIRD AMENDMENT
TO
FINANCING AND SECURITY AGREEMENT
This Third Amendment to Financing and Security Agreement is executed and
entered into by COMPUCOM SYSTEMS, INC. ("Borrower") and NATIONSBANK OF TEXAS,
N.A. ("Lender"), effective as of the 26 day of April, 1995, as follows:
----
RECITALS
--------
Borrower and Lender are parties to the certain Financing and Security
Agreement dated effective as of August 4, 1993, as amended by the certain
First Amendment to Financing and Security Agreement dated as of March 31,
1994 and Second Amendment to Financing and Security Agreement dated
December 12, 1994 (hereinafter called the "Financing and Security
Agreement"). Terms defined in the Financing and Security Agreement
wherever used in this Third Amendment, shall have the same meanings as are
prescribed by the Financing and Security Agreement.
Borrower and Lender have agreed to amend the Financing and Security
Agreement as provided herein.
NOW THEREFORE, premises considered, for value received, Borrower and Lender
hereby agree as follows:
1. ARTICLE I ("DEFINITIONS") of the Financing and Security Agreement
hereby is amended to add the following definitions, which shall be deemed added
immediately following paragraph 1.74 thereof:
" 1.75 OVERADVANCE ALLOWANCE AMOUNT means an amount equal to the lesser
of (i) ten percent (10.0%) of the aggregate net amount of Eligible Accounts
and Eligible Inventory, or (ii) Fifteen Million Dollars ($15,000,000.00)."
2. Each of the following definitions contained in ARTICLE I
("DEFINITIONS") of the Financing and Security Agreement hereby is amended to
read in its entirety as follows:
" 1.7 BORROWING BASE at any time means an amount equal to the sum of (i)
up to a maximum of eighty-five percent (85.0%) of the net amount of
Eligible Accounts plus (ii) up to a maximum of fifty percent (50.0%) (but
limited, however, to an amount not exceeding $20,000,000.00) of the net
amount of Eligible Inventory plus (iii) the Overadvance Allowance Amount
if, and to the limited extent, allowed by paragraph 2.7a and elected by
Borrower as provided therein, less (iv) the Reserve."
" 1.15 CREDIT LIMIT means the amount of One Hundred Seventy Five Million
and no/100 Dollars, less the amount, if any, of any applicable reduction in
the Credit Limit pursuant to paragraph 2.11."
" 1.36 "LENDER'S MAXIMUM AMOUNT means the amount of Fifty Three Million
and no/100 Dollars ($53,000,000.00).
3. A new paragraph shall be added immediately following paragraph 2.7 of
the Financing and Security Agreement, which shall read in its entirety as
follows:
"2.7A OVERADVANCE ALLOWANCE. On written notice by Borrower to
Lender, Borrower may elect to include the Overadvance Allowance Amount in
calculation of the Borrowing Base, subject, however, to the following
conditions and requirements:
(a) Borrower shall notify Lender in writing of its intention to
elect to include the Overadvance Allowance Amount in calculation of
the Borrowing Base, therein specifying the effective date that such
election will begin;
(b) As of the effective date of any such election, no Event of
Default shall have occurred and be continuing, and no other event or
condition which would be the subject of a required notice under
paragraph 6.14 shall be in existence;
(c) Each such election shall be effective for a period of sixty
(60) days from the effective date of such election specified in
Borrower's written notice thereof referenced
<PAGE>
above, and upon expiration of such period the Overadvance Allowance
Amount shall automatically be excluded in calculation of the Borrowing
Base (until the effective date specified in any subsequent election
(if any) allowed by this paragraph 2.7a); and
(d) No more than two (2) of such elections may be made by
Borrower during any calendar year; and
(e) Subject to paragraph 9.10, on the effective date of each
election by Borrower under, and allowed by, this paragraph 2.7a,
Borrower shall pay to Lender an overadvance fee in the amount of
$37,500.00 (at Lender's option with no obligation to do so, such fee
may be added to the amount due by Borrower under the Facility, in
which event such fee will be deemed paid and the amount thereof shall
be treated as a loan under the Facility).
Upon the occurrence, and during the continuance of any Event of Default,
Lender shall have the right, upon written notice to Borrower but without
requirement for prior notice, to terminate any election under this
paragraph then in effect, whereupon the Overadvance Allowance Amount shall
automatically be excluded in calculation of the Borrowing Base (until the
effective date specified in any subsequent election (if any) allowed by
this paragraph 2.7a)."
4. The second sentence of paragraph 6.6 ("Interim Financial Statements")
hereby is amended to read in its entirety as follows:
"Such financial statements shall be accompanied by a statement signed by
Borrower's president, chief financial officer or controller representing
to Lender that such financial statements are true and complete and fairly
present the financial condition and results of operations of Borrower and
the Subsidiaries."
5. The following shall be added to paragraph 6.5 ("Annual Financial
Statements") immediately following the end thereof:
"Notwithstanding the foregoing, until directed otherwise by Lender in
writing, at Borrower's option the foregoing consolidating financial
statements, and accompanying signed statement, may exclude ClientLink,
Inc."
6. The following shall be added to paragraph 6.6 ("Interim Financial
Statements") immediately following the end thereof:
"Notwithstanding the foregoing, until directed otherwise by Lender in
writing, at Borrower's option the foregoing consolidating financial
statements, and accompanying signed statement, may exclude ClientLink,
Inc."
7. Borrower acknowledges that effective simultaneously upon execution
hereof Lender and one or more Participants have agreed to amend the
Participant's Committed Amount under their respective Participation Agreements.
Lender and Borrower acknowledge and confirm the following in respect of
Participants and the Participant's Committed Amount relative to each, and
Lender's Maximum Amount, effective as of the date hereof:
<TABLE>
<CAPTION>
PARTICIPANTS
----------------------------------------------------------------------------------------------
PARTICIPANT PARTICIPANT'S PARTICIPANT'S
COMMITTED AMOUNT CHANGE (+ OR -) COMMITTED AMOUNT
(EXISTING) (REVISED)
==============================================================================================
<S> <C> <C> <C>
Barnett Bank of Tampa $14,500,000.00 -0- $14,500,000.00
Midlantic Bank, N.A. $20,000,000.00 -0- $20,000,000.00
The Daiwa Bank, Ltd. $ 8,000,000.00 + $7,000,000.00 $15,000,000.00
National Canada Finance Corp. $15,000,000.00 + $2,500,000.00 $17,500,000.00
Sanwa Business Credit Corporation $22,500,000.00 + $7,500,000.00 $30,000,000.00
Union Bank $20,000,000.00 + $5,000,000.00 $25,000,000.00
==============================================================================================
LENDER
----------------------------------------------------------------------------------------------
LENDER LENDER'S MAXIMUM CHANGE (+ OR -) LENDER'S MAXIMUM
AMOUNT (EXISTING) AMOUNT (REVISED)
==============================================================================================
NationsBank of Texas, N.A. $50,000,000.00 + $3,000,000.00 $53,000,000.00
==============================================================================================
</TABLE>
<PAGE>
8. Subject to paragraph 9.10 of the Financing and Security Agreement, in
consideration of this Third Amendment and increase of the Credit Limit as
provided herein, Borrower agrees to pay to Lender a Credit Limit increase fee in
the amount of $62,500.00 [which is calculated by multiplying the amount of
increase of the Credit Limit resulting from this Agreement ($25,000,000.00) by
one-quarter of one percent (0.25%)], which shall be payable upon execution
hereof.
9. The following items shall be delivered to Lender prior to or
simultaneously with execution and delivery of this Third Amendment (or, in the
case of any of the items referenced in subparagraphs (e) and (f) below, within
such period of time thereafter as Lender may specify to Borrower in writing):
(a) A certificate signed by the corporate secretary of Borrower (i)
certifying to Lender that its Certificate of Incorporation and Bylaws have
not been amended since Borrower's certification thereof under Secretary's
Certificate dated April 5, 1994 previously delivered to Lender, and that
the officers of Borrower specified therein are duly elected, qualified and
acting in the capacities therein stated, as of the effective date hereof
and (ii) attaching and certifying resolutions duly adopted by the board of
directors of Borrower authorizing this Third Amendment and the transactions
evidenced hereby, and authorizing and directing one or more named officers
of Borrower to execute and deliver this Third Amendment, and all related
documentation required by Lender, on behalf of Borrower, which certificate
shall be in form satisfactory to Lender;
(b) The Revolving Note, amended and restated, and duly executed.
(c) Amendments to Participation Agreements as referenced in paragraph
4, in form satisfactory to Lender;
(d) Such consents and agreements in respect of the Subordinated Note
Agreement and the Intercreditor Agreements as Lender may require, in form
satisfactory to Lender;
(e) If requested by Lender, an opinion of Borrower's counsel, in form
satisfactory to Lender; and
(f) Such other documentation as Lender may reasonably require in
connection with the Financing and Security Agreement or this Third
Amendment.
10. In consideration of this Third Amendment, Borrower represents to
Lender that (i) no Event of Default, or other event or condition which would be
the subject of a required notice under paragraph 6.14 of the Financing and
Security Agreement, is in existence as of the effective date hereof, (ii) each
of the representations and warranties contained in the following paragraphs of
the Financing and Security Agreement are true and correct as of the effective
date of this Third Amendment: paragraphs 3.3, paragraph 3.4, and paragraph 5.1
through paragraph 5.18. Borrower hereby ratifies and confirms the Financing and
Security Agreement as being and continuing in full force and effect, as amended
by this Third Amendment.
11. This Third Amendment (i) shall be deemed effective prospectively as of
the effective date specified in the preamble, (ii) contains the entire agreement
among the parties and may not be amended or modified except in writing signed by
all parties, (iii) shall be governed and construed according to the laws of the
State of Texas and (iv) may be executed in any number of counterparts, each of
which shall be valid as an original and all of which shall be one and the same
agreement. A telecopy of any executed counterpart shall be deemed valid as an
original.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
-------------------------------------------------------------------------
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
--------------------------------------------------------------------
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
-----------------------------------------------------------------------
AGREEMENTS BETWEEN THE PARTIES.
------------------------------
EXECUTED as of the effective date specified in the preamble.
NATIONSBANK OF TEXAS, N.A.
By: /s/ Dan Lane
---------------------
Dan Lane
Vice President
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
--------------------
Robert J. Boutin
Senior Vice President, Finance
and Chief Financial Officer
<PAGE>
CONSENT BY PARTICIPANTS
-----------------------
Each of the undersigned consents to Borrower's and Lender's execution of
the above Second Amendment to Financing and Security Agreement:
BARNETT BANK OF TAMPA MIDLANTIC BANK, N.A.
By: /s/ Emily D. Waterman By: /s/ Joseph G. Meterchick
-------------------------------------- ------------------------------
Name: Emily D. Waterman Name: Joseph G. Meterchick
Title: Vice President Title: Vice President
NATIONAL CANADA FINANCE CORP. UNION BANK
By: /s/ Bill Handley/Larry L. Sears By: /s/ Stephen Sweeney
-------------------------------------- ------------------------------
Name: Bill Handley/Larry L. Sears Name: Stephen Sweeney
Title: Vice President/Group Vice President Title: Vice President
SANWA BUSINESS CREDIT CORPORATION THE DAIWA BANK, LTD.
By: /s/ Michael J. Cox By: /s/ James T. Wang
-------------------------------------- -------------------------------
Name: Michael J. Cox Name: James T. Wang
Title: Vice President Title: Vice President/Manager
By: /s/ Kirk L. Stites
------------------------------
Name: Kirk L. Stites
Title: Vice President
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Exhibit 11 - Computation of Per Share Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------------- ---------------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
---------------------------------
Net earnings $ 4,814 $ 3,259 $ 8,649 $ 6,024
Preferred dividend (300) (75) (600) (75)
---------- ---------- ---------- ----------
$ 4,514 $ 3,184 $ 8,049 $ 5,949
========== ========== ========== ==========
Average common shares outstanding 34,011 33,169 33,956 32,826
Average common share equivalents:
Options 2,169 2,607 1,958 2,828
Warrants 81 89 78 265
---------- ---------- ---------- ----------
Average number of common shares and
common share equivalents outstanding 36,261 35,865 35,992 35,919
========== ========== ========== ==========
Primary earnings per common share $ .12 $ .09 $ .22 $ .17
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER COMMON SHARE
---------------------------------------
Primary net earnings $ 4,814 $ 3,259 $ 8,649 $ 6,024
Preferred dividend (300) (75) (600) (75)
Interest expense, net of income tax benefit 250 250 500 500
---------- ---------- ---------- ----------
$ 4,764 $ 3,434 $ 8,549 $ 6,449
========== ========== ========== ==========
Average number of common shares and
common share equivalents outstanding 36,587 35,865 36,526 35,919
Additional shares issuable 8,409 8,409 8,409 8,409
---------- ---------- ---------- ----------
Average number of common shares
assuming full dilution 44,996 44,274 44,935 44,328
========== ========== ========== ==========
Fully diluted earnings per common share $ .11 $ .08 $ .19 $ .14
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet as of June 30, 1995 and the Condensed
Consolidated Statement of Operations for the three months ended June 30, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,094
<SECURITIES> 0
<RECEIVABLES> 217,891
<ALLOWANCES> 2,100
<INVENTORY> 150,141
<CURRENT-ASSETS> 371,763
<PP&E> 26,499
<DEPRECIATION> 9,429
<TOTAL-ASSETS> 406,363
<CURRENT-LIABILITIES> 166,325
<BONDS> 113,417
<COMMON> 341
0
20,000
<OTHER-SE> 82,465
<TOTAL-LIABILITY-AND-EQUITY> 406,363
<SALES> 674,197
<TOTAL-REVENUES> 674,197
<CGS> 569,042
<TOTAL-COSTS> 569,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,497
<INCOME-PRETAX> 14,414
<INCOME-TAX> 5,765
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,649
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.19
</TABLE>
