<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1995 Commission File Number 0-14371
- ------------------------------------------- ------------------------------
COMPUCOM SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 38-2363156
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10100 N. CENTRAL EXPRESSWAY, DALLAS, TX 75231
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 265-3600
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
-----------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock, $.01 par value, held by non-
affiliates (based on the closing price on NASDAQ) on March 18, 1996 was
approximately $169.1 million. For purposes of determining this amount only,
Registrant has defined affiliates as including (a) the executive officers named
in Part III of this 10-K report, (b) all directors of Registrant, and (c) each
stockholder that has informed Registrant by March 18, 1996 that it is the
beneficial owner of 10% or more of the outstanding common stock of Registrant.
The number of shares of the Registrant's Common Stock outstanding as of
March 18, 1996 was 44,359,338 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relative to the May 21, 1996 annual
meeting of stockholders of registrant, to be filed within 120 days after the end
of the year covered by this report on Form 10-K, are incorporated by reference
into Items 10, 11, 12 and 13 (Part III) of this Report. Such Proxy Statement,
except for the parts therein which have been specifically incorporated by
reference, shall not be deemed "filed" for the purposes of this report on Form
10-K.
<PAGE>
PART I
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ITEM 1 BUSINESS
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(A) GENERAL DEVELOPMENT OF THE BUSINESS
-----------------------------------
INTRODUCTION
CompuCom Systems, Inc., together with its subsidiaries ("CompuCom" or "the
Company"), is a leading provider of personal computer ("PC") products and
services to large and medium sized businesses throughout the United States.
CompuCom teams with its customers, which include primarily Fortune 1000
companies and other large businesses, to apply PC technology to meet their
business objectives, which range from product procurement and configuration to
network project management and support. Product and services are sold by a
direct sales force to over 2,000 business customers through approximately 40
sales and service centers located in and serving large metropolitan areas
nationwide.
The Company is an authorized dealer of major personal computer products for
a number of manufacturers, including Compaq Computer Corporation ("Compaq"),
International Business Machines Corporation ("IBM"), Hewlett-Packard Company
("HP"), Toshiba America Information Systems ("Toshiba"), and Apple Computer
Corporation ("Apple"). CompuCom 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
("3Com"), Digital Equipment Corporation ("Digital"), Intel Corporation
("Intel"), Kingston Technology Corporation ("Kingston"), Lotus Development
Corporation ("Lotus"), Microsoft Corporation ("Microsoft"), NEC Technologies,
Inc. ("NEC"), and Novell, Inc. ("Novell"). To further meet the needs of its
customers, CompuCom provides a variety of services including custom
configuration of PC systems, field engineering, network management, help desk
services and network project management utilizing network applications such as
Novell Netware, Windows NT Server, Windows and Windows 95, IBM's OS/2 Warp and
LAN Server.
Net revenues for the Company have grown at a compounded rate of 29% over
the past five years, while net earnings have grown by 42% compounded annually
over the same period. CompuCom's strong revenue and net earnings performance is
a result of the Company's continued focus on customer satisfaction, along with
the enhancement of its product and services capabilities created by a strategy
of growth through existing operations and strategic acquisitions. The Company's
target customers are becoming increasingly dependent on information technology
to compete effectively in today's markets. As a result, the decision making
process that organizations face when planning, selecting and implementing
technology solutions is becoming more complex and requires many of these
organizations to outsource the management and support of their PC technology
needs. In an effort to enhance the Company's ability to provide customers with
value-added services designed to meet their PC technology service requirements,
the Company acquired several small regional service companies during 1994 and
1995. These acquisitions have broadened the variety of the Company's network
management platforms, increased the Company's remote network monitoring
capabilities and greatly expanded the Company's systems engineer resources.
RECENT DEVELOPMENTS
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. During 1995, the Company continued to place emphasis on
expanding the service portion of its business through internal and external
growth. In 1996, the Company expects to continue to expand its services and
support organization, train sales and services personnel, and develop its vendor
relationships to provide customer-driven product lines at competitive prices.
In addition, CompuCom plans to continue its expansion of its integrated,
comprehensive information system to enable the Company to track and respond to
its customers' requirements more efficiently.
On September 25, 1995, the Company called for redemption $18.5 million of
9% Convertible Subordinated Notes which were converted to 8.4 million shares of
common stock prior to their October redemption date. In an effort to assist the
holders of these shares to sell in the public market a portion of the converted
shares, the Company completed an underwritten public offering of approximately
4.8 million of these shares in November 1995. The Company received no proceeds
from the offering. The redemption will result in an annualized after tax
interest savings of approximately $1 million.
2
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In 1995, the Company increased the availability under the Company's bank
revolving credit facility ("credit facility") from $150 million to $175 million.
During October 1995, the Company executed an amendment to the credit facility
lowering the interest rate from the London Interbank Offered Rate ("LIBOR") plus
2.75% per annum to LIBOR plus 1.5% per annum and reduced the prime based portion
of the credit facility from the prime rate plus 0.5% to the prime rate, subject
to certain limitations. The fixed interest portion of the credit facility ($60
million at 7.18% per annum) remained unchanged. Negotiations are currently
underway to extend the maturity date of the credit facility. In addition, the
Company is currently negotiating to expand its credit sources to include asset
securitization, to lower the effective borrowing rate and increase its borrowing
capacity to support the Company's projected net revenue growth.
In the first quarter of 1996, Mr. Charles A. Root, who has been a member of
the Board since 1986 and who served as Vice-Chairman of the Board from June 1988
until March 1991, was elected to the position of Chairman of the Board of
Directors. Mr. Root replaces Mr. James W. Dixon who has joined ClientLink, Inc.,
a subsidiary of CompuCom, as president and CEO.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
---------------------------------------------
The Company operates in only one industry segment -- sales and services of
personal computers, configuration, network integration and technology support
services to businesses nationwide -- and no separate industry segment
information is presented.
(C) NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------
SALES AND MARKETING
The Company markets its product procurement, configuration, field
engineering, network management, help desk services and network project
management primarily through its direct sales force and service personnel,
operating through approximately 40 sales and service centers. The Company
focuses on meeting the needs of large corporate businesses, which account for
the majority of the Company's net revenue in 1995. However, no one customer
accounted for in excess of 10% of such revenues.
The Company is generally authorized by various vendors to sell PC products
through its sales centers, which are located strategically near major
metropolitan areas to provide convenient access for sales and service personnel
to a significant customer base. Each location generally is staffed by direct
sales representatives, support personnel, system engineers and technicians who
are authorized to repair and maintain Compaq, IBM, HP, and certain other
manufacturer's products. In 1995, the Company realigned its field locations
into four regions, East, Central, West and Northwest.
The Company provides support to its customers primarily through the
CompuCom Customer Center ("customer center"), located in Dallas, Texas.
Customer center personnel, called inside sales representatives ("ISR's"), may be
assigned to specific customer accounts or to customers in a certain geographical
area, and are knowledgeable about computer technology. Each ISR works closely
with the customer and the CompuCom sales representative to keep up to date on
the business needs of that customer, and provides the customer with information
about product availability, services, pricing, shipping and invoicing via a
toll-free telephone number. The primary goal of the customer center is to
provide greater support to the Company's customers while allowing the Company's
direct sales force to focus on soliciting new business and providing the
necessary support for the customer's more complex service needs.
As of December 31, 1995, the Company employed 258 full-time direct sales
representatives. The sales force is compensated with a base salary, at one of
three levels, and commissions based on gross margin related to their sales. In
1995, a larger portion of the sales representatives compensation was based on
service sales and gross margin as part of the Company's strategy of growing its
service business. The number of ISR's at the end of 1995 was 338, of which
approximately 280 were located at the customer center in Dallas, and
approximately 58 were on-site at certain customer locations.
3
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During 1995, services net revenues increased approximately 80% due to the
Company's continued efforts to focus on increased sales of services to meet
customer needs and to improve profitability. These efforts took many forms:
additional training was provided for system engineers; existing management
provided greater support to the services group; additional corporate resources
were allocated to support the services group; the compensation plan of branch
general managers and sales representatives placed greater emphasis on sales of
services; and several acquisitions were made to expand the service business and
to help build a service infrastructure. In addition, the Company also
emphasized the hiring of quality services personnel, increasing the number of
its services employees from approximately 800 at the end of 1994 to almost 1,200
by year-end 1995. Although the Company's revenues from its services business
currently represent 7% of total revenues, such services business is an integral
part of the Company's strategy to provide customers with the value-added service
solutions to meet their technology needs. The Company intends to continue to
make strategic acquisitions and make investments internally to enhance the
Company's ability to satisfy the constantly changing technology requirements of
its customers.
Order backlog is not considered to be a meaningful indicator of the
Company's future business prospects due to the short order fulfillment cycle.
OPERATIONS
The Company's corporate headquarters is located in Dallas, Texas.
Currently, the Company's financial and administrative functions, including
information services, service support, marketing, human resources, and finance,
are located at this facility. During 1995, the customer center, collections
department, product services, and order processing relocated from the corporate
headquarters to nearby leased facilities in Dallas.
The Company's integrated, comprehensive, internally-designed information
system ("IS") utilizes client/server distributed relational database technology
running on a wide area network based on superframe relay. The system consists
of five major components: the Distribution Information Management Systems
("DIMS"), the Services Information Management System ("SIMS"), the Customer
Center System ("CCS"), the Warehouse Information Management System ("WIMS"), and
the Financial Information Management System ("FIMS"). In addition, the network
and database capabilities of the Company's purchase order and order management
systems provide its customers and sales representatives with product
availability information. In 1995, the Company implemented a new customer
procurement system which allows customer's to place orders that automatically
interface with the Company's core system applications, thereby enhancing the
customer's ability to control the order management process while at the same
time reducing the overall order to delivery timeline.
To further enhance the quality and efficiency of its management information
systems, the Company developed a state-of-the-art data warehouse which allows
for the quick and easy generation of custom reports by Company personnel. With
implementation scheduled for the first half of 1996, the data warehouse will be
updated with current information on a daily basis and will provide a wide range
of information from which to generate customized reports, such as timeliness of
customer shipments, status of orders, and customer accounts receivable aging.
During 1995, the Company successfully completed the conversion of its DIMS
application from a PC based system to a mini-computer platform, significantly
enhancing system reliability, response time, and growth capacity. In the first
quarter of 1996, the Company performed similar conversions of the SIMS and CCS
applications.
The Company utilized two product distribution centers in 1995, one located
in Woolwich, New Jersey (near Philadelphia) and the second in Stockton,
California (near San Francisco). These bi-coastal distribution centers allow the
Company to efficiently service its nationwide customers, reducing both shipment
time and expense.
The Company's distribution centers are highly automated and employ advanced
inventory management and order processing technologies that allow the Company to
configure PC products and receive, process and ship customer orders accurately
and efficiently. The distribution centers utilize hand-held, radio frequency
devices to stock, pick and update the status and location of inventory. In
addition, these devices play a key role in enabling the Company to efficiently
handle increasing volume. During 1995, the distribution centers expanded the
use of these radio frequency devices to implement a daily cycle counting
process, resulting in improved overall inventory integrity and bin accuracy.
The Company also uses an on-line freight metering program, which helps lower
order fulfillment time and provides more reliable and timely freight
information.
4
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In 1995, the distribution, configuration, Project Integration Networking
Group ("PING"), and product services department's completed ISO 9002
certification. ISO 9002 is part of the ISO 9000 set of standards developed by
the International Organization of Standardization ("ISO") which represent common
international business quality standards designed to help demonstrate the
capability of a supplier to control the processes that determine the
acceptability of the product being delivered. In 1996, the Company plans to
complete ISO 9002 certification for its returned merchandise center.
PRODUCTS
The Company provides for procurement of sophisticated technologies
consisting of PC's, peripherals, software and services to its customers. It is
an authorized dealer for PC products of Apple, Compaq, Digital, HP, IBM,
Kingston, NEC, 3Com, Toshiba, and other major manufacturers, as well as a dealer
for software products of Lotus, Microsoft, Novell, WordPerfect and other
principal software suppliers. By stocking approximately 1,700 products, and
procuring approximately 17,000 special order products monthly, consisting of
leading as well as alternative brands, the Company offers "one-stop-shopping" to
its customers.
CompuCom provides the integration of a variety of manufacturers' products
into various PC system configurations to meet each customer's needs. The
Company provides value to its customers by allowing them to choose products from
various manufacturers which best suit their PC and network needs as opposed to
manufacturers' direct sales organizations which typically configure or market PC
systems which include only products from that particular manufacturer.
NETWORK AND TECHNOLOGY SERVICES
The Company is focusing on expanding its presence in the service market.
This commitment is reflected in the increase in its service personnel during
1995. As of December 31, 1995, the Company employed 1,196 service personnel,
including system engineers, field technicians, service support and engineers
on-site at customer locations, compared to 809 as of December 31, 1994. These
service personnel provide configuration, field engineering, network management,
help desk services and network project management services to the Company's
customers.
CompuCom maintains two configuration centers, one in each of the Company's
distribution centers. These centers contain configuration systems that have
the ability to set up and install product that includes both standard and non-
standard components or software. Also located in each of these centers is the
PING group, which is dedicated to the development, staging and configuration of
large network projects while providing the flexibility to quickly adapt to
changing technologies.
Through its field engineering group, the Company provides hardware
maintenance services ranging from high-end servers, intelligent hubs and
routers to everyday workstations to remote and laptop computing products.
These services are provided through the Company's sales and service centers,
and are performed based upon the specific customer needs such as on-site
support, warranty support, change and upgrade management, contingency
management, annual contract, or time and material.
CompuCom's Network Management Group focuses on the development, testing
and implementation of network management systems. The network management
service offerings include: network audits, which consist of an on-site detailed
analysis of the current configuration and health of the customer's network
environment; network control center design, which includes building a network
control center at the customer's location; and remote network monitoring of the
customer's network performed by CompuCom's network control center located at
the Company's headquarters in Dallas, Texas.
CompuCom offers help desk support through its Support Center Services
located at the Company's headquarters in Dallas, Texas and at customer
locations. These help desk services address various areas of help desk
operations, including call flow processes, call management, report systems,
resources, and customer relations. The Company's help desk support group
consists of personnel with expertise in software applications, network
operating systems, and hardware who provide technical support to end users and
system administrators.
5
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The Company offers network project management services by providing
consulting services that focus on the integration of new and existing computing
technologies into existing corporate computing environments. Such services
include technology selection and strategic planning, technology briefings,
systems analysis, system design services, and design of support
infrastructures. By combining the expertise of its consultant personnel with
strategic manufacturer partnerships, the Company is able to provide solutions
for complex network integration projects.
PRINCIPAL SUPPLIERS
A major portion of the Company's revenues are derived from sales of
computer systems and related peripherals, including Compaq, IBM and HP personal
computer products. During 1995, the Company's principal suppliers were Compaq,
IBM and HP. The Company's agreements with these vendors contain provisions
providing for periodic renewals and permitting termination by the vendor without
cause, generally upon 30 to 90 days written notice, depending upon the vendor.
Since 1987, Compaq, IBM and HP have regularly renewed their respective dealer
agreements with the Company, although there can be no assurance that the regular
renewals of the Company's dealer agreements will continue. The termination, or
non-renewal, of the Company's Compaq dealer agreement or IBM dealer agreement,
or both, would materially adversely affect the Company's business. The loss of
HP as a supplier would adversely affect the Company's ability to continue its
expansion. The Company, however, is not aware of any reason for the termination,
or non-renewal, of any of those dealer agreements and believes that its
relationships with Compaq, IBM and HP are satisfactory.
The Company purchases products from Compaq, IBM and HP at pricing levels
which the Company believes are the lowest prices available to those vendor's
respective dealers with the exception of special bid pricing for specific large
customer accounts. All of the Company's principal suppliers require that the
Company purchase certain minimum volumes of products in a specified period to
maintain favorable pricing levels. The Company also obtains favorable terms
from Compaq, IBM and HP by participating in certain vendor programs offered by
those suppliers. The Company has certain selling, promotional and related
expenses reimbursed by vendors under dealer programs offered by those and other
suppliers. However, there can be no assurance that any of these programs will
continue in 1996 or that the Company will continue to participate in any of
these programs at the same level as in 1995.
Sales of Compaq, IBM and HP accounted for approximately 28%, 16% and 11%,
respectively, of the Company's 1995 net revenues compared to 27%, 20% and 11%,
respectively, in 1994 and 23%, 24% and 10%, respectively, in 1993.
Due to rapid delivery requirements of customers and to assure itself of
continuous allotment of products from suppliers, the Company maintains adequate
levels of inventory funded through its line of credit and vendor credit. These
major suppliers at times provide price protection programs to the Company which
are 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 these principal suppliers as it
assesses each product's current and forecasted demand schedule. If such returns
exceed certain specified levels, the Company may be charged restocking fees
ranging up to 5%. The Company has not incurred any significant restocking fees
in 1995.
DEPENDENCE UPON MAJOR VENDORS AND OTHER SUPPLIERS
The Company is dependent upon the continued supply of products from its
suppliers, particularly Compaq, IBM and HP. Historically, certain suppliers
occasionally experience shortages of select product which render components
unavailable or necessitate product allocations among resellers. While certain
shortages did exist throughout 1995, the Company believes the product
availability issues are a result of the present dynamics of the PC industry as
a whole, which include high customer product demand, shortened product life
cycles and increased frequency of new product introductions into the
marketplace. While there can be no assurance that product unavailability or
product allocations, or both, will not increase in 1996, the impact of such an
interruption is not expected to be unduly troublesome because of the breadth of
alternative product lines available to the Company and the Company's
established programs to accelerate configuration and delivery times when such
events occur.
6
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COMPETITION
The Company is engaged in fields within the computer industry characterized
by a high level of competition. Many established personal computer
manufacturers (including some of the Company's own vendors), systems integrators
and other resellers of personal computer or networking products including
AmeriData Technologies, Inc., Entex Information Services Inc., InaCom Corp.,
Microage, Inc. and Vanstar Corporation, compete with the Company in the
configuration and distribution of computer systems and equipment. In addition,
the PC reseller industry is characterized by intense competition primarily in
the areas of price, product availability and breadth of product line. 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.
Although the Company believes it currently competes favorably within the PC
reseller industry, there can be no assurance that the Company will be able to
continue to compete successfully with new or existing competition.
The Company experienced an improvement in product margins during the first
half of 1995, partially due to the Company's decision not to do business with
the lowest margin customers as well as certain manufacturer price reductions.
Product margins declined in the second half of the year, compared to the first
half, reacting to increasing pricing pressure from competition. The Company
believes that gross margins will continue to be reactive to industry-wide
changes. Future improved profitability will depend on competition, manufacturer
product pricing changes, increased focus on providing technical service and
support to customers, as well as the Company's control of operating expenses,
ability to retain and hire quality service personnel, product availability, and
effective utilization of vendor programs.
THE COMPANY'S EMPLOYEES
The Company employed 2,615 full-time employees as of December 31, 1995.
The Company offers its full-time employees health, long-term disability, dental
and life insurance benefits, and has a 401(k) plan for eligible employees. None
of the Company's employees are represented by a union, and the Company considers
its employee relations to be good.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
----------------------------------------------------------------------
SALES
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The Company does not have any foreign operations nor does it engage in any
material export sales.
(E) EXECUTIVE OFFICERS
------------------
Information about the Company's executive officers can be found in Part III
of this report under "Item 10 Directors and Executive Officers of the
Registrant".
7
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ITEM 2 PROPERTIES
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The Company's principal executive and administrative offices are located in
a commercial office building in Dallas, Texas, comprised of approximately
100,000 square feet of space, which it purchased in May 1992. In December 1993,
the Company secured a ten-year $3.9 million mortgage on the headquarters
building which is payable in 120 monthly installments of principal plus interest
at a rate of 8.1%. In late 1994, the Company leased approximately 50,000 square
feet of additional office space in Dallas near its headquarters, for a term of
sixty months commencing March 1995. In early 1995, the Company relocated the
customer center and credit/collection departments to this new leased facility.
In addition, the Company has leased 26,000 square feet in a commercial office
building adjacent to the Company's headquarters for a term of thirty-six months
expiring in 1998. During 1995, the Company's Dallas sales office and product
services department were relocated to this facility.
The Company distributes products primarily from two leased warehouse
facilities. In March 1993, the Company entered into a lease for approximately
145,000 square feet of warehouse space located in Woolwich, New Jersey, which
has a five year term, with a cancellation option exercisable at any time after
February 1996. Its western distribution center has approximately 104,000 square
feet of leased warehouse space in Stockton, California, under a lease which
expires in May 1999, with a cancellation option exercisable beginning May 1995
and each year thereafter.
The Company also has noncancelable operating leases for its sales and
service centers, expiring at various dates between 1996 and 2004. See Note 10
to the accompanying Notes to Consolidated Financial Statements for additional
information regarding lease costs. The Company believes there will be no
difficulty in negotiating the renewal of its real property leases as they expire
or in finding other satisfactory space. In the opinion of management, the
properties are in good condition and repair and are adequate for the particular
operations for which they are used. Due to the continued product revenue
growth, the Company is in the process of reviewing alternatives to expand its
distribution center capacity through acquiring additional space at the existing
facilities or leasing warehouse space at a new location. In addition, the
growth of the services business may require the Company to obtain additional
office space in Dallas, Texas, during late 1996 or early 1997.
ITEM 3 LEGAL PROCEEDINGS
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The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. Management believes that
the ultimate disposition of these matters, singly or in the aggregate, will not
have a material adverse effect on the Company's consolidated financial
position and results of operations, taken as a whole.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
None have been submitted in the fourth quarter.
8
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PART II
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ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------ ---------------------------------------------------------------------
The Company's common stock is listed on the NASDAQ National Market System
(Symbol: CMPC). As of December 31, 1995, there were approximately 9,000
beneficial stockholders of the Company's common stock. The high and low last
sales prices reported within each quarter for the years ended December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
High Low High Low
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First quarter $ 4.25 $ 3.13 $ 7.25 $ 3.88
Second quarter 5.13 3.13 6.25 3.50
Third quarter 6.88 4.75 4.13 2.75
Fourth quarter 10.63 5.50 4.13 2.88
</TABLE>
The last sale price reported for the Company's common stock on March 18,
1996 was $8.00.
The Company has historically reinvested earnings in the growth of its
business and has not paid cash dividends on its common stock. In addition, the
Company's credit facilities limit the amount of dividends the Company may pay.
While the Company currently has no plans to pay dividends on common stock,
payment of dividends in the future will depend upon the Company's financial
performance and other relevant factors.
9
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ITEM 6 SELECTED FINANCIAL DATA
- ------ -----------------------
Selected financial data for the Company is presented below:
<TABLE>
<CAPTION>
For the Years Ended December 31
---------------------------------------------------------------------------
Operating Results 1995 1994 1993 1992 1991
- ----------------- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,441,597 $ 1,255,813 $ 1,015,482 $ 713,035 $ 528,560
Gross margin 174,908 141,693 127,875 94,551 70,966
Earnings before income taxes 34,335 24,432 18,908 11,714 8,229
Net earnings 20,670 14,659 11,439 7,263 5,020
Earnings per common share:
Primary .51 .40 .34 .23 .16
Fully diluted .44 .34 .29 .22 .16
Balance Sheet Data
- ------------------
Total assets $ 508,704 $ 429,531 $ 365,071 $ 252,958 $ 229,461
Long-term debt 120,364 118,974 107,316 70,734 79,724
Convertible subordinated notes 3,000 18,214 17,880 17,779
Stockholders' equity 138,341 94,368 55,730 41,602 35,501
</TABLE>
10
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
The following table presents the Company's total revenue, gross margin and
gross margin percentage by revenue source. Operating expenses, interest and net
earnings are shown as a percentage of total net revenue, for the three years
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
($ in millions)
<S> <C> <C> <C>
Revenue:
Product $ 1,334 $ 1,197 $ 933
Service 101 56 44
Other 6 3 38
---------------------------------------------
Total revenue $ 1,441 $ 1,256 $ 1,015
=============================================
Gross margin:
Product $ 141 $ 122 $ 106
Service 31 18 11
Other 3 2 11
---------------------------------------------
Total gross margin $ 175 $ 142 $ 128
=============================================
Gross margin percentage:
Product 10.6% 10.2% 11.4%
Service 30.5% 32.7% 25.3%
Other 51.2% 65.7% 27.4%
---------------------------------------------
Total gross margin 12.1% 11.3% 12.6%
---------------------------------------------
Operating expenses:
Selling 4.3% 4.4% 5.6%
Service 1.5% 1.4% 1.0%
General and administrative 2.6% 2.3% 2.8%
Depreciation and amortization 0.4% 0.4% 0.4%
---------------------------------------------
Total operating expenses 8.8% 8.5% 9.8%
---------------------------------------------
Operating earnings 3.3% 2.9% 2.8%
Interest 0.9% 0.9% 0.9%
---------------------------------------------
Earnings before income taxes 2.4% 2.0% 1.9%
Income taxes 1.0% 0.7% 0.8%
---------------------------------------------
Net earnings 1.4% 1.3% 1.1%
=============================================
</TABLE>
11
<PAGE>
1995 COMPARED WITH 1994
-----------------------
Product revenue increased 11% to $1.33 billion in 1995 compared to $1.20
billion in 1994. The increase in product revenue reflects increased demand by
corporate customers for personal computers, particularly Pentium-based systems
and laptops. Product revenue is primarily derived from the sale of computer
hardware, software and peripherals to corporate customers. Also favorably
impacting the Company's net product revenue was corporate customers continuing
to consolidate the number of suppliers to only one or two.
Product gross margin as a percentage of product net revenues increased to
10.6% in 1995 from 10.2% in 1994. The Company experienced an improvement in
product margins during the first half of 1995, partially due to the Company's
decision not to do business with the lowest margin customers as well as certain
manufacturer price reductions. Product margins declined in the second half of
the year, compared to the first half, reacting to increasing pricing pressure
from competition. Future product margins will be influenced by manufacturers'
pricing strategies together with competitive pressures from other resellers in
the industry. 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. Due to the short order fulfillment cycle, the Company's backlog is not
considered to be a meaningful indicator of future business prospects.
Service revenue increased 80% to $101 million in 1995 from $56 million in
1994. The increase in service revenue reflects the Company's continued focus on
expanding its network and technology services at competitive prices. Service
revenue is primarily derived from systems integration services, including
product configuration, field engineering, network management, help desk services
and network project management. Service revenue reflects revenue generated by
the actual performance of specific services and does not include product sales
associated with service projects. The Company's service business has increased
primarily through internal growth augmented by a series of small 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. Service gross margin
as a percentage of service net revenue decreased to 30.5% in 1995 from 32.7% in
1994, primarily as a result of increasing costs related to the relative
scarcity of system engineers and the Company's continuing investment in its
service business.
As a percentage of net revenue, operating expenses for 1995 increased to
8.8% compared to 8.5% in 1994, to support the continued revenue growth and the
expansion of the service business. On an absolute dollar basis, operating
expenses increased approximately $22 million, principally as a result of an
increase in general and administrative expenses related to the Company's
investment in information systems resources required to enhance customer
satisfaction, particularly in the service business, and other spending necessary
to meet the Company's objectives. Service expenses, which increased both as a
percentage of net revenues and in absolute dollars, primarily reflect 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,
decreased when compared to 1994 primarily as a result of continued improvement
in product sales productivity. 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 constant as a percentage of net revenue for 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
1995 and 1994.
Interest expense increased in absolute dollars by $0.9 million but remained
constant as a percentage of net revenue for 1995, primarily as a result of
higher average interest rates and increased borrowings to support revenue
growth. The Company is continuing to pursue additional alternatives it
anticipates will reduce its cost of funds.
As a result of the factors discussed above, net earnings increased 41% to
$20.7 million in 1995 from $14.7 million in 1994. Future improved profitability
will depend on competition, manufacturer product pricing changes, increased
focus on providing technical service and support to customers, as well as the
Company's control of operating expenses, ability to retain and hire quality
service personnel, product availability, and effective utilization of vendor
programs.
12
<PAGE>
1994 COMPARED WITH 1993
-----------------------
Product revenue increased 28% to $1.20 billion in 1994 compared to $0.9
billion in 1993. The increase reflected increased demand by corporate customers
for personal computers, particularly 486-based machines. Also favorably
impacting the Company's product revenue was the weakened financial condition of
certain competitors. Product gross margin as a percentage of product net
revenue decreased to 10.2% in 1994 from 11.4% in 1993. This decrease was
principally due to an industry-wide decline in product margins resulting from
pricing pressures created by intense competition. Service revenue increased 26%
to $56 million in 1994 from $44 million in 1993. The increase in service
revenue reflected the Company's strategy of focusing on increasing its service
business.
Other revenue was $2.6 million in 1994, compared to $38.3 million in 1993,
as a result of the sale of various non-core businesses, primarily PC Parts
Express, Inc., in January 1994. The increase in other gross margin as a
percentage of other revenue was a result of the divestitures mentioned above, as
those non-core business gross margins were less than the gross margins related
to customized software applications reflected as other revenue and other gross
margin in 1994.
Operating expenses increased 6%, or $5.7 million, from the comparable
period of 1993, to support the continued revenue growth. As a percentage of net
revenue, operating expenses decreased primarily as a result of improved
efficiencies, increased sales productivity, and the fixed cost components of
general and administrative expenses being spread over a larger revenue base.
Service expenses increased as a percentage of net revenue compared to 1993 due
to the Company's focus on expanding the technical services business.
Depreciation and amortization remained constant as a percentage of net
revenue but increased in absolute dollars principally as a result of the
Company's growth in facilities over the last three years, as well as leasehold
improvements and related warehouse equipment for its distribution facilities.
Interest expense increased in absolute dollars by $2.6 million in 1994 as a
result of higher working capital needed to support the significant growth in net
revenue and slower asset turns. As a percentage of net revenue, however,
interest expense remained constant as compared to the 1993 level primarily due
to the Company's success in mitigating increased interest rates through the
renegotiation of the bank credit facility in early 1994.
As a result of the factors discussed above, net earnings increased 28% to
$14.7 million in 1994 from $11.4 million in 1993.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During recent years, the Company has utilized operating earnings, the bank
credit facility, equity financing 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 1995, the
Company increased the availability under the Company's bank revolving credit
facility ("credit facility") from $150 million to $175 million. During October
1995, the Company executed an amendment to the credit facility lowering the
interest rate from the London Interbank Offered Rate ("LIBOR") plus 2.75% per
annum to LIBOR plus 1.5% per annum and reduced the prime based portion of the
credit facility from the prime rate plus 0.5% to the prime rate, subject to
certain limitations. The fixed interest portion of the credit facility ($60
million at 7.18% per annum) remained unchanged. The credit facility is subject
to certain collateral restrictions and matures in March 1997. Negotiations are
currently underway to extend the maturity date of the credit facility. In
addition, the Company is currently negotiating to expand its credit sources to
include asset securitization, to lower the effective borrowing rate and increase
its borrowing capacity to support the Company's projected net revenue growth.
On September 25, 1995, the Company called for redemption $18.5 million of
9% Convertible Subordinated Notes which were converted to 8.4 million shares of
common stock prior to their October redemption date. In an effort to assist the
holders of these shares to sell in the public market a portion of the converted
shares, the Company completed an underwritten public offering of approximately
4.8 million of these shares in November 1995. The Company received no proceeds
from the offering. The redemption will result in an annualized after tax
interest savings of approximately $1 million.
Working capital at December 31, 1995 is $225 million compared to $203
million at December 31, 1994. Contributing to the increase in working capital
was higher accounts receivable and inventory, principally related to the revenue
growth and a slight decline in current asset turns from 3.4 in 1994 to 3.3 in
1995. Although working capital increased during 1995, the working capital ratio
of 1.9 slightly decreased from 2.1 in 1994.
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 were
approximately $6 million in 1995, and are expected to be approximately $7
million in 1996. There are no material capital asset purchase commitments at
December 31, 1995.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The consolidated financial statements and schedule filed with this report
appear on pages F-2 through F-15, and are listed on page F-1.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
14
<PAGE>
PART III
--------
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The executive officers of the Company as of March 18, 1996 are as follows:
Name Age Position
---------------------- --- ---------------------------------------------
Edward Anderson (1) 49 President and Chief Executive Officer
Daniel F. Brown (2) 50 Executive Vice President, Sales
Robert J. Boutin (3) 38 Senior Vice President, Finance and Chief
Financial Officer
(1) Mr. Anderson has served as President and Chief Executive Officer since
January 1994. Mr. Anderson joined the Company in August 1993 as Chief
Operating Officer. Prior to joining the Company, he held the position of
President and Chief Operating Officer of Computerland Corporation from 1989
until 1993.
(2) Mr. Brown has held the position of Executive Vice President, Sales since
February 1989, when he was promoted from Vice President, Sales, a position
he had held since joining the Company in 1987.
(3) Mr. Boutin has held the position of Senior Vice President, Finance and
Chief Financial Officer since January 1991. Mr. Boutin joined the Company
in June 1984 and served as Controller from February 1985 to November 1989,
when he was elected Vice President and Chief Financial Officer.
15
<PAGE>
DIRECTORS
The Company incorporates by reference the information contained under the
caption "ELECTION OF DIRECTORS" in its definitive Proxy Statement relative to
its May 21, 1996 annual meeting of stockholders, to be filed within 120 days
after the end of the year covered by this Form 10-K Report pursuant to
Regulation 14A under the Securities Exchange Act of l934, as amended.
DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K
The Company incorporates by reference the information contained under the
caption "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934"
in its definitive Proxy Statement relative to its May 21, 1996 annual meeting of
stockholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
ITEM 11 EXECUTIVE COMPENSATION
- ------- ----------------------
The Company incorporates by reference the information contained under the
captions "Directors' Compensation" and "EXECUTIVE COMPENSATION" in its
definitive Proxy Statement relative to its May 21, 1996 annual meeting of
stockholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
The Company incorporates by reference the information contained under the
caption "Securities Ownership of Certain Beneficial Owners and Management" in
its definitive Proxy Statement relative to its May 21, 1996 annual meeting of
stockholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Company incorporates by reference the information contained under the
caption "CERTAIN TRANSACTIONS" in its definitive Proxy Statement relative to its
May 21, 1996 annual meeting of stockholders, to be filed within 120 days after
the end of the year covered by this Form 10-K Report pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
16
<PAGE>
PART IV
-------
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------- ---------------------------------------------------------------
(a) Financial Statements and Schedules.
The financial statements and financial statement schedule filed with this
report are listed on page F-1.
(b) Reports on Form 8-K.
On October 27, 1995, the Company filed a Form 8-K disclosing under "Item 5
- - Other Events" the commencement of an underwritten public offering of 4.8
million shares of its common stock and the underwriting agreement among the
Company, the Robinson-Humphrey Company, Inc. and Hambrecht & Quist LLC, as
representatives of several underwriters named in Schedule II to such agreement,
and the selling shareholders named in Schedule I to such agreement. This report
included the Company's press release dated October 16, 1995 regarding results of
operations for the period ended September 30, 1995.
(c) Exhibits.
The following is a list of exhibits required by Item 601 of Regulation S-K
filed as part of this Report. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For exhibits incorporated
by reference, the location of the exhibit in the previous filing is indicated in
parentheses. The page numbers listed refer to the page numbers where such
exhibits are located using the sequential numbering system specified by Rules 0-
3 and 403.
17
<PAGE>
Exhibit
No. Description
- ------- -----------
3(a) Certificate of Incorporation of CompuCom Systems, Inc. (1)
(Exhibit B)
3(b) Certificate of Amendment of the Certificate of Incorporation of
CompuCom Systems, Inc. (4) (Exhibit 3(b))
3(c) Certificate of Amendment of the Certificate of Incorporation
of CompuCom Systems, Inc., filed November 30, 1992 (7)
(Exhibit 4(c))
3(d) Certificate of Amendment of the Certificate of Incorporation
of CompuCom Systems, Inc., filed July 1, 1993 (7) (Exhibit 4(d))
3(e) Bylaws of CompuCom Systems, Inc., revised April 1, 1991 (4)
(Exhibit 3(c))
4(a) Form of Stock Certificate evidencing Common Stock, $.01 par value,
of CompuCom Systems, Inc. (2) (Exhibit 4(b))
4(b)** CompuCom Systems, Inc. 1983 Stock Option Plan, as amended (6)
(Exhibit 4(k))
4(c)** CompuCom Systems, Inc. 1993 Stock Option Plan, as amended *
4(d)** CompuCom Systems, Inc. 1984 Non-Qualified Stock Option Plan, as
amended (3) (Exhibit 4(g))
4(e)** CompuCom Systems, Inc. Stock Option Plan for Directors (12)
(Exhibit 4(g))
4(f)** Stock Option Agreement dated July 21, 1995 between CompuCom
Systems, Inc. and Delbert W. Johnson (12) (Exhibit 4(i))
4(g)** Form of Securities Purchase Agreement, dated as of April 29, 1991,
between CompuCom Systems, Inc. and certain members of its management
as listed on the schedule attached thereto, and including as exhibits
the Form of 15% Subordinated Debenture due October 29, 1992 and Form
of Common Stock Purchase Warrant (6) (Exhibit 4(o))
4(h) Note Agreement and sample note representing the $18.5 million 9%
Convertible Subordinated Notes due September 24, 2002, issued by
CompuCom Systems, Inc. in September, 1992 (5) (Exhibit 4)
4(i) Certificate of Designation dated March 31, 1994, establishing Series B
Cumulative Convertible Preferred Stock of CompuCom Systems, Inc.
(9) (Exhibit 4(i))
4(j) Form of Stock Certificate evidencing Series B Cumulative Convertible
Preferred Stock, $.01 par value, of CompuCom Systems, Inc. (10)
(Exhibit 4(h))
4(k) $3 Million Subordinated Convertible Note dated October 31, 1995 from
CompuCom Systems, Inc. to Network Compatibility Group, Inc. *
10(a) Stock Purchase Agreement between Safeguard Scientifics (Delaware),
Inc. and CompuCom Systems, Inc., dated March 31, 1994, regarding the
sale of Series B Cumulative Convertible Preferred Stock of CompuCom
Systems, Inc. (9) (Exhibit 10(mm))
10(b)** CompuCom Systems, Inc. 401(k) Matched Savings Plan, as amended and
restated effective January 1, 1989 (8) (Exhibit 10(a))
18
<PAGE>
Exhibit
No. Description
- ------- -----------
10(c) Security Agreement for Wholesale Financing, dated August 2, 1991,
between CompuCom Systems, Inc. and IBM Credit Corporation, with
Addendum dated as of October 24, 1991 (4) (Exhibit 10(b))
10(d) Security Agreement for Wholesale Financing, dated June 5, 1991 between
CompuCom Systems, Inc. and ITT Commercial Finance Corp., with
Amendment dated as of June 5, 1991 and Addendum dated June 14, 1991
(4) (Exhibit 10(c))
10(e) Addendum dated August 20, 1992 to Agreement for Wholesale Financing
between CompuCom Systems, Inc. and ITT Commercial Finance Corp.
(6) (Exhibit 10(d))
10(f) Security Agreement for Wholesale Financing, dated December 27, 1993,
between CompuCom Systems, Inc. and Compaq Computer Corporation
(8) (Exhibit 10(e))
10(g) Intercreditor Agreement, dated December 27, 1993, among NationsBank of
Texas, N.A., CompuCom Systems, Inc., and Compaq Computer Corporation
(8) (Exhibit 10(f))
10(h) Subordination Agreement, dated August 22, 1994, among Hewlett-Packard
Company, NationsBank of Texas, N.A., and IBM Credit Corporation,
pertaining to certain assets of CompuCom Systems, Inc.
(10) (Exhibit 10(h))
10(i) Revolving Credit Financing and Security Agreement, dated as of
August 4, 1993, between NationsBank of Texas, N.A. and CompuCom
Systems, Inc. (exhibits omitted) (8) (Exhibit 10(i))
10(j) First Amendment to Financing and Security Agreement, dated March 31,
1994, between NationsBank of Texas, N.A., and CompuCom Systems, Inc.
(9) (Exhibit 10(nn))
10(k) Second Amendment to Financing and Security Agreement, dated
December 12, 1994, between NationsBank of Texas, N.A., and CompuCom
Systems, Inc. *
10(l) Third Amendment to Financing and Security Agreement, dated April 26,
1995, between NationsBank of Texas, N.A. and CompuCom Systems, Inc.
(11) (Exhibit 10.1)
10(m) $175,000,000 Master Revolving Note due March 31, 1997 to NationsBank
of Texas, N.A., dated as of April 26, 1995 (11) (Exhibit 10.2)
10(n) Fourth Amendment to Financing and Security Agreement, dated as of
October 1, 1995, between NationsBank of Texas, N.A. and CompuCom
Systems, Inc. *
10(o) Business Partner Agreement, dated September 15, 1994, between IBM
Corporation and CompuCom Systems, Inc., with Dealer Profile,
Remarketer General Terms, and attachments (10) (Exhibit 10(n))
10(p) IBM Corporation memorandum, dated September 13, 1994, modifying its
Business Partner Agreement with CompuCom Systems, Inc. to have 24
month term *
10(q) U.S. Reseller Agreement, dated January 23, 1993, between Compaq
Computer Corporation and CompuCom Systems, Inc. (8) (Exhibit 10(l))
10(r) U.S. Reseller Agreement, dated February 28, 1995, between Hewlett-
Packard Company and CompuCom Systems, Inc., with attached U.S. Dealer
Addendum and Amendment of same date *
10(s) Administrative Services Agreement, dated January 1, 1988, between
CompuCom Systems, Inc. and Safeguard Scientifics, Inc., with Letter
Amendment dated as of April 1, 1991 (4) (Exhibit 10(z))
10(t) Lease dated December 29, 1992, between CompuCom Systems, Inc. and
Commodore North Associates Limited Partnership for premises at 100
Dartmouth Drive, Woolwich Township, New Jersey (6) (Exhibit 10(w))
19
<PAGE>
Exhibit
No. Description
- ------- -----------
10(u) Addendum No. 1, dated July 30, 1993, to lease dated December 29, 1992,
between CompuCom Systems, Inc. and Commodore North Associates Limited
Partnership for premises at 100 Dartmouth Drive, Woolwich Township,
New Jersey (8) (Exhibit 10(q))
10(v) Ratification Agreement dated January 9, 1992 between CompuCom Systems,
Inc. and The Arch Street Group with respect to assignment of Lease
dated November 1, 1988 between The Arch Road Group and Photo & Sound
Company (attached) for premises at 4686 Frontier, Stockton, California
(4) (Exhibit 10(dd))
10(w) Order of the United States Bankruptcy Court, Northern District of
California, dated April 6, 1992, granting final approval of the
assignment to CompuCom Systems, Inc. of the Lease for 4686 Frontier,
Stockton, California (6) (Exhibit 10(y))
10(x) Substitute Trustee's Deed, dated and recorded May 5, 1992, granting
CompuCom Systems, Inc. title to the property located at 10100 North
Central Highway, Dallas, Texas (6) (Exhibit 10(aa))
10(y) Deed of Trust, Assignment, Security Agreement and Financing Statement,
dated December 29, 1993, from CompuCom Systems, Inc., to Comerica
Bank - Texas, for 10100 North Central Expressway, Dallas, Texas
(8) (Exhibit 10(v))
10(z) $3,900,000 Promissory Note, dated December 29, 1993, to Comerica
Bank - Texas, secured by premises at 10100 North Central Expressway,
Dallas, Texas (8) (Exhibit 10(w))
10(aa) Lease dated December 2, 1994 between CompuCom Systems, Inc. and ZML-
Glen Lakes Tower Limited Partnership for premises at 9400 North
Central Expressway, Dallas Texas. (10) (Exhibit 10(aa))
10(bb) Stock Purchase Agreement between CompuCom Systems, Inc. and Rosetta
Stone Corporation, dated January 5, 1994, regarding sale of common
stock of PC Parts Express, Inc. (exhibits omitted), with attached
$3,500,000 Promissory Note, Pledge and Security Agreement, and PC
Parts Express, Inc. Common Stock Purchase Warrant (8) (Exhibit 10(x))
10(cc) Asset Purchase Agreement among Rosetta Stone Corporation, Teknowlogy
Corp., and CompuCom Acquisition Corporation, d/b/a/ MicroSolutions,
dated January 5, 1994, regarding sale of MicroSolutions' Network
Training Group division (exhibits omitted), with attached $1,000,000
Installment Promissory Note, and Pledge and Security Agreement
(8) (Exhibit 10(y))
10(dd)** Confidentiality, Non-competition and Non-solicitation Agreement dated
January 1, 1989 between CompuCom Systems, Inc. and James W. Dixon
(2) (Exhibit 10(gg))
10(ee)** $210,000 Secured Promissory Note dated November 1, 1994 from James W.
Dixon, to CompuCom Systems, Inc. (10) (Exhibit 10(ff))
10(ff)** Stock Purchase Agreement between CompuCom Systems, Inc. and James W.
Dixon, dated July 15, 1995, regarding sale of shares of common stock
of ClientLink, Inc. to Mr. Dixon, with attached $112,500 Secured Term
Note and Pledge Agreement of even date *
10(gg)** $1,181,250 Secured Term Note, dated August 31, 1994, from Edward R.
Anderson to CompuCom Systems, Inc. (10) (Exhibit 10(mm))
20
<PAGE>
Exhibit
No. Description
- ------- -----------
10(hh)** Pledge Agreement, dated August 31, 1994, between Edward R. Anderson
and CompuCom Systems, Inc. (10) (Exhibit 10(nn))
11 Computation of Per Share Earnings *
21 List of Subsidiaries *
23 Consent of KPMG Peat Marwick LLP *
27 Financial Data Schedule *
- -------------------------
* Filed herewith
** These exhibits relate to management contracts or to compensatory
plans, contracts or arrangements in which directors and/or executive
officers of the registrant may participate, required to be filed as
exhibits to this Form 10-K.
(1) Filed on April 19, 1989 as an exhibit to the 1989 Annual Meeting Proxy
Statement and incorporated herein by reference.
(2) Filed on April 2, 1990 as an exhibit to the Annual Report on Form 10-K
(No. 0-14371) and incorporated herein by reference.
(3) Filed on March 29, 1991 as an exhibit to the Annual Report on Form 10-
K (No. 0-14371) and incorporated herein by reference.
(4) Filed on March 30, 1992 as an exhibit to the Annual Report on Form 10-
K (No. 0-14371) and incorporated herein by reference.
(5) Filed on November 13, 1992 as an exhibit to the Quarterly Report on
Form 10-Q (No. 0-14371) and incorporated herein by reference.
(6) Filed on March 31, 1993 as an exhibit to the Annual Report on Form 10-
K (No. 0-14371) and incorporated herein by reference.
(7) Filed on March 14, 1994 as an exhibit to the Registration Statement on
Form S-8 (No. 33-76382) and incorporated herein by reference.
(8) Filed on March 31, 1994 as an exhibit to the Annual Report on Form 10-
K (No. 0-14371) and incorporated herein by reference.
(9) Filed on May 15, 1994 as an exhibit to the Quarterly Report on Form
10-Q (No. 0-14371) and incorporated herein by reference.
(10) Filed on March 31, 1995 as an exhibit to the Annual Report on Form 10-
K (No. 0-14371) and incorporated herein by reference.
(11) Filed on August 14, 1995 as an exhibit to the Quarterly Report on Form
10-Q (No. 0-14371) and incorporated herein by reference.
(12) Filed on October 10, 1995 as an exhibit to the Registration Statement
on Form S-8 (No. 33-63309) and incorporated herein by reference.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 18, 1996 COMPUCOM SYSTEMS, INC.
By: /s/ Edward R. Anderson
-----------------------------------
Edward R. Anderson, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 18, 1996 /s/ Charles A. Root
----------------------------------------
Charles A. Root, Chairman of the Board
Dated: March 18, 1996 /s/ Edward R. Anderson
----------------------------------------
Edward R. Anderson, President, Chief
Executive Officer and Director
(Principal Executive Officer)
Dated: March 18, 1996 /s/ Robert J. Boutin
----------------------------------------
Robert J. Boutin, Senior Vice President-
Finance (Principal Financial and
Accounting Officer)
Dated: March 18, 1996 /s/ Daniel F. Brown
----------------------------------------
Daniel F. Brown, Director
Dated: March 15, 1996 /s/ James W. Dixon
----------------------------------------
James W. Dixon, Director
Dated: March 18, 1996 /s/ Michael J. Emmi
----------------------------------------
Michael J. Emmi, Director
Dated: March 19, 1996 /s/ Richard F. Ford
----------------------------------------
Richard F. Ford, Director
Dated: March 15, 1995 /s/ Delbert W. Johnson
----------------------------------------
Delbert W. Johnson, Director
Dated: March 17, 1996 /s/ John D. Loewenberg
----------------------------------------
John D. Loewenberg, Director
Dated: March 18, 1996 /s/ Ira M. Lubert
----------------------------------------
Ira M. Lubert, Director
Dated: March 18, 1996 /s/ Warren V. Musser
----------------------------------------
Warren V. Musser, Director
Dated: March 18, 1996 /s/ Edward N. Patrone
----------------------------------------
Edward N. Patrone, Director
<PAGE>
Index to Consolidated Financial Statements
------------------------------------------
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts F-15
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, 1995 and 1994, 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, 1995. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Dallas, Texas
January 31, 1996
F-2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Assets
------
Current assets:
Cash $ 4,249 $ 4,076
Receivables, less allowance for doubtful accounts
of $2,234 in 1995 and $1,942 in 1994 265,071 233,589
Inventories 196,531 155,561
Other 2,151 2,145
------------ ------------
Total current assets 468,002 395,371
Property and equipment:
Land, building and improvements 6,245 5,842
Furniture, fixtures and other equipment 20,564 15,302
Leasehold improvements 3,091 2,414
------------ ------------
29,900 23,558
Less accumulated depreciation and amortization (11,647) (7,648)
------------ ------------
Net property and equipment 18,253 15,910
Cost in excess of fair value of tangible net assets
purchased, less accumulated amortization 18,146 12,498
Other assets 4,303 5,752
------------ ------------
$ 508,704 $ 429,531
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 189,180 $ 154,342
Accrued liabilities 53,867 37,623
------------ ------------
Total current liabilities 243,047 191,965
Long-term debt 120,364 118,974
Deferred income taxes 3,952 6,010
Convertible subordinated notes 3,000 18,214
Stockholders' equity:
Series B preferred stock, $10 stated value. Authorized 3,000,000
shares; issued and outstanding 1,500,000 in 1995
and 2,000,000 in 1994. 15,000 20,000
Common stock, $.01 par value. Authorized 70,000,000 shares;
issued and outstanding 44,100,732 shares in 1995
and 33,694,764 shares in 1994 441 337
Additional paid-in capital 57,788 28,164
Retained earnings from July 1, 1987 65,112 45,867
------------ ------------
Total stockholders' equity 138,341 94,368
------------ ------------
$ 508,704 $ 429,531
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Revenue
Product $1,334,442 $1,197,278 $ 932,862
Service 100,868 55,895 44,272
Other 6,287 2,640 38,348
---------- ---------- -----------
Total revenue 1,441,597 1,255,813 1,015,482
---------- ---------- -----------
Cost of revenue
Product 1,193,513 1,075,624 826,713
Service 70,107 37,590 33,065
Other 3,069 906 27,829
---------- ---------- -----------
Total cost of revenue 1,266,689 1,114,120 887,607
---------- ---------- -----------
Gross margin 174,908 141,693 127,875
Operating expenses:
Selling and service 84,270 72,157 67,853
General and administrative 37,722 29,137 28,214
Depreciation and amortization 6,291 4,621 4,178
---------- ---------- -----------
Total operating expenses 128,283 105,915 100,245
---------- ---------- -----------
Earnings before interest and income taxes 46,625 35,778 27,630
Interest 12,290 11,346 8,722
---------- ---------- -----------
Earnings before income taxes 34,335 24,432 18,908
Income taxes 13,665 9,773 7,469
---------- ---------- -----------
Net earnings $ 20,670 $ 14,659 $ 11,439
========== ========== ===========
Earnings per common share:
Primary $ .51 $ .40 $ .34
Fully diluted $ .44 $ .34 $ .29
Average common shares outstanding:
Primary 38,449 35,714 33,888
Fully diluted 49,301 44,123 42,958
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
------------------ ----------------- Paid-in Stockholders'
Shares Amount Shares Amount Capital Retained Equity
------- ------ ------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 convertible
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 dividend (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
Conversion of preferred
stock (500,000) (5,000) 738,552 7 4,993 0
Conversion of convertible
debt 8,409,087 84 18,366 18,450
Exercise of common stock
warrants 53,331 1 79 80
Exercise of options 1,204,998 12 1,886 1,898
Pre-restructuring tax
benefit 4,300 4,300
Preferred stock dividend (1,425) (1,425)
Net earnings 20,670 20,670
--------- ------- ---------- ---- -------- ------- --------
Balances at December 31, 1995 1,500,000 $15,000 44,100,732 $441 $ 57,788 $65,112 $138,341
========= ======= ========== ==== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 20,670 $ 14,659 $ 11,439
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 6,291 4,621 4,178
Deferred income taxes 355 2,525 1,667
Changes in assets and liabilities:
Receivables (28,450) (25,546) (82,375)
Inventories (41,290) (34,207) (25,159)
Other current assets 20 (145) 75
Accounts payable 35,111 4,899 45,387
Accrued liabilities and other 13,890 7,127 14,638
----------- ----------- -----------
Net cash provided by (used in) operating activities 6,597 (26,067) (30,150)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (5,999) (5,018) (6,584)
Business acquisitions net of cash acquired (2,310) (2,741)
----------- ----------- -----------
Net cash used in investing activities (8,309) (7,759) (6,584)
----------- ----------- -----------
Cash flows from financing activities:
Net bank credit facility and other borrowings 1,332 11,332 37,031
Issuance of preferred stock 20,000
Issuance of common stock 1,978 2,854 351
Preferred stock dividend (1,425) (225)
----------- ----------- -----------
Net cash provided by financing activities 1,885 33,961 37,382
----------- ----------- -----------
Net increase in cash 173 135 648
Cash at beginning of year 4,076 3,941 3,293
----------- ----------- -----------
Cash at end of year $ 4,249 $ 4,076 $ 3,941
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
Description of Business
-----------------------
CompuCom Systems, Inc. and subsidiaries (the "Company") is a
provider of personal computer product and network integration services
for large corporate customers nationwide. CompuCom's services include
LAN/WAN projects, help desk design and implementation, network
management, field engineering, asset and procurement management,
configuration, and product distribution.
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.
Use of Estimates
----------------
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Inventories
-----------
Inventories are stated at the lower of average cost or market.
Substantially all inventories are finished goods. Periodically, the
Company assesses the appropriateness of the inventory valuations
giving consideration to obsolete, slow-moving and nonsalable
inventory.
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, 1995 and 1994 was $7,686,000 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 or on a
straight-line basis if performed over a service contract period.
F-7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Vendor Programs
---------------
The Company receives volume rebates from certain manufacturers
related to sales of certain products which are recorded as a reduction
of cost of goods sold when earned. The Company also receives
manufacturer reimbursements for certain training, promotional and
marketing activities, which are recorded as a reduction of general and
administrative expense as earned.
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.
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 dilutive 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, as
required.
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.
Financial Instruments
---------------------
The Company's financial instruments, principally cash, accounts
receivable, accounts payable and accrued liabilities, are carried at
cost which approximates fair value due to the short-term maturity of
these instruments. As amounts outstanding under the Company's credit
agreement bear interest approximating current market rates, their
carrying amounts approximate fair value. The fair value of the
Company's Convertible Subordinated Notes approximates cost based upon
quoted market prices.
New Accounting Pronouncements
-----------------------------
The Financial Accounting Standards Board recently issued two
standards which will be applicable to the Company but which the
Company has not yet adopted. No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" is
not expected to have a significant impact on the Company. No. 123,
"Accounting for Stock-Based Compensation", which is effective for the
Company beginning in 1996, gives companies the option to adopt the
fair value method for expense recognition of employee stock options or
to continue to account for stock options and stock based awards using
the intrinsic value method as outlined under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25") and to make pro forma disclosures of net income and net income
per share as if the fair value method had been applied. The Company
has elected to continue to apply APB 25 for future stock options and
stock based awards.
F-8
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Reclassifications
-----------------
Certain amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to conform with the 1995
presentation, the most significant of which is the reclassification of
direct expenses related to the service business from operating expense
to cost of goods sold.
(2) Inventories
-----------
Inventory is comprised of product inventory and spare parts. At
December 31, 1995 and 1994, total inventory was $196.5 million and $155.6
million, respectively, net of inventory reserves of $9.5 million and $9.8
million for the same periods. Product inventory was $191.8 million and
$152.8 million at December 31, 1995 and 1994, respectively, and spare parts
inventory for the same periods was $14.2 million and $12.6 million.
(3) Long-term Debt
--------------
In 1995, the Company increased the availability under the Company's
bank revolving credit facility ("credit facility") from $150 million to
$175 million. During October 1995, the Company executed an amendment to
the Agreement lowering the interest rate from the London Interbank Offered
Rate ("LIBOR") plus 2.75% per annum to LIBOR plus 1.5% per annum and
reducing the prime based portion of the credit facility from the prime rate
plus 0.5% to the prime rate, subject to certain limitations. The fixed
interest portion of the credit facility ($60 million at 7.18%) remained
unchanged. Total borrowings are based on certain limits, as defined, and
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. Negotiations are currently underway to
extend the maturity date of the credit facility. In addition, the Company
is currently negotiating to expand its credit sources to include asset
securitization, to lower the effective borrowing rate and increase its
borrowing capacity to support the Company's projected net revenue growth.
The Company's highest level of borrowing was $156 million and $132
million in 1995 and 1994, respectively. The outstanding balance on the
bank credit facility at December 31, 1995 is $117.5 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 $12,083,000, $10,905,000 and $8,302,000,
and the weighted average interest rate on the bank credit facility was
approximately 7.9%, 7.3% and 7.2%, in 1995, 1994, and 1993, respectively.
(4) Convertible Subordinated Notes
-------------------------------
On September 25, 1995, the Company called for redemption $18.5 million
of 9% Convertible Subordinated Notes which were converted into 8.4 million
shares of common stock prior to their October redemption date. In an
effort to assist the holders of these shares to sell in the public market a
portion of the converted shares, the Company completed an underwritten
public offering of approximately 4.8 million of these shares in November
1995. The Company received no proceeds from the offering. The redemption
will result in an annualized after tax interest savings of approximately $1
million.
In conjunction with an acquisition in 1995, the Company issued
$3,000,000 of 5% Convertible Subordinated Notes due in 1998, with a call
option in late 1996, convertible into approximately 387,600 shares of the
Company's common stock at $7.74 per share.
F-9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Income Taxes
------------
The provision for income taxes is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 11,991 $ 6,437 $ 4,849
State 1,319 655 953
Deferred 355 2,681 1,667
--------- --------- ---------
$ 13,665 $ 9,773 $ 7,469
========= ========= =========
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 35% in 1995, 1994 and 1993 to earnings
before income taxes as a result of the following (in percentages):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense 35.0% 35.0% 35.0%
State taxes, net of U.S. Federal
income tax benefit 2.5% 1.7% 3.3%
Other, net 2.3% 3.3% 1.2%
----- ----- -----
39.8% 40.0% 39.5%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below (in thousands).
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes and reserves $ 609 $ 2,064
Accounts receivable, principally due to
allowance for doubtful accounts 782 679
Other 1,712 849
------- -------
Deferred tax assets 3,103 3,592
------- -------
Deferred tax liabilities:
Tax net operating losses in excess of book 7,230
Accelerated depreciation 1,549 265
Other 5,506 2,107
------- -------
Deferred tax liabilities 7,055 9,602
------- -------
Net deferred tax liability $ 3,952 $ 6,010
======= =======
</TABLE>
(continued)
F-10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The valuation allowance decreased from $1,067,000 to zero in 1994 as a
result of the 1994 utilization of net operating losses for tax purposes.
There were $9,717,000, $9,934,000 and $3,040,000 of income taxes paid
in 1995, 1994 and 1993, respectively, net of refunds. Taxes payable at
December 31, 1995 was approximately $1,994,000.
(6) Preferred Stock
---------------
The Company has authorized three million shares of preferred stock,
stated value $10. In 1994, Safeguard Scientifics, Inc., ("Safeguard")
purchased 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. On December 29, 1995, Safeguard converted 500,000 of its
Series B Shares into 738,552 shares of the Company's Common Stock. In
1995, the Company paid $1,425,000 of Series B dividends, of which $225,000
related to 1994 and $1,200,000 related to 1995.
(7) Stock Options and Warrants
--------------------------
The Company maintains four 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, and therefore no new grants can be awarded out
of those plans. The Company adopted a 1993 Stock Option Plan under which
the Company may grant qualified or non-qualified stock options which was
amended in 1995 to increase the number of shares available. 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.
Under the Stock Option Plan for Directors, 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. Options under this plan vest 25% each year
commencing on the first anniversary of the grant date and expire after 10
years.
At December 31, 1995, the Company has reserved 6,262,000 shares of its
common stock for issuance under its stock option plans. There are 1,904,000
shares available for future grant under the 1993 Stock Option Plan and
80,000 shares under the Stock Option Plan for Directors.
F-11
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the status of the Company's stock option plans follows:
<TABLE>
<CAPTION>
Shares Price range
-------- -----------
(In thousands)
<S> <C> <C>
Outstanding at December 31, 1993 4,914 $ .50-3.13
Granted 612 3.94-4.75
Exercised (981) .50-3.13
Canceled (128) 1.00-4.13
------
Outstanding at December 31, 1994 4,417 $ .50-4.75
Granted 1,407 3.50-6.50
Exercised (1,246) .50-4.13
Canceled (300) 1.00-4.63
------
Outstanding at December 31, 1995 4,278 $ .50-6.50
======
Exercisable at December 31, 1995 2,048 $ .50-4.75
======
</TABLE>
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 1995 and 1994, approximately 53,000
and 1,177,000 of these warrants were exercised, respectively, leaving
approximately 75,000 of the warrants remaining.
(8) Related Party Transactions
--------------------------
In 1994, the Company loaned an officer and director of the Company
$1,181,250 secured by a term note receivable, of which $590,625 was
included in other current assets at December 31, 1995. 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.
In 1994, the Company sold the majority of its interest in a
subsidiary, PC Parts Express, Inc. ("PCPE"), which subsequently changed its
name to PC Service Source ("PCSS"), 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 PCSS
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.
Safeguard owns approximately 50% of the Company's common stock as of
December 31, 1995. The Company pays Safeguard a fee for providing certain
administrative, legal and financial services to the Company. General and
administrative expenses include fees paid to Safeguard of $600,000 in 1995,
1994 and 1993.
F-12
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Investments
-----------
In 1994, the Company sold the majority of its interest in a
subsidiary (See Note 8). 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 21% and 24% of the outstanding common
shares of PCSS at December 31, 1995 and 1994, respectively, and accounted
for this investment using the equity method in 1995 and 1994. At December
31, 1995, the Company's carrying value of the PCSS stock was $1,238,000 and
the market value was approximately $6,994,000. In addition, the Company
owns warrants for the purchase of 250,000 shares of PCSS common stock at an
exercise price of $2.25.
(10) Leases
------
The Company has noncancelable operating leases for facilities and
equipment which expire at various dates from 1996 to 2004. Total rental
expense for operating leases was $6,204,000, $4,804,000 and $5,430,000 in
1995, 1994 and 1993, respectively. Future minimum lease payments under
noncancelable operating leases as of December 31, 1995 are $5,934,000 -
1996; $4,170,000 - 1997; $3,633,000 - 1998; $3,148,000 - 1999; $1,557,000 -
2000; and $2,041,000 - thereafter.
(11) 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 $1,009,000,
$597,000 and $501,000 in 1995, 1994 and 1993, respectively.
(12) Contingencies
-------------
The Company is involved in various claims and legal actions arising in
the ordinary course of business. 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, taken as a whole.
F-13
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) 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>
1995
- ----
Revenue
Product $ 302,401 $ 324,427 $ 319,562 $ 388,052
Service 19,668 25,204 26,988 29,008
Other 1,418 1,079 1,349 2,441
--------- --------- --------- ---------
Net revenue 323,487 350,710 347,899 419,501
Gross margin
Product $ 31,751 $ 33,789 $ 33,134 $ 42,255
Service 5,571 8,240 8,261 8,689
Other 856 524 747 1,091
--------- --------- --------- ---------
Total gross margin 38,178 42,553 42,142 52,035
Net earnings $ 3,835 $ 4,814 $ 4,827 $ 7,194
Earnings per common share:
Primary .10 .12 .12 .16
Fully diluted .09 .11 .10 .15
1994
- ----
Revenue
Product $ 269,804 $ 292,806 $ 290,974 $ 343,694
Service 11,053 13,185 14,754 16,903
Other 634 926 1,080
--------- --------- --------- ---------
Net revenue 280,857 306,625 306,654 361,677
Gross margin
Product $ 26,902 $ 29,264 $ 30,238 $ 35,250
Service 3,589 4,353 4,918 5,445
Other 389 613 732
--------- --------- --------- ---------
Total gross margin 30,491 34,006 35,769 41,427
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.
Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform with the 1995 presentation, the most significant of
which is the reclassification of direct expenses related to the service
business from operating expense to cost of revenue.
F-14
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
- --------------------------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Trade receivables-
Allowance for doubtful accounts
1993 $ 1,603 767 498 $ 1,872
1994 $ 1,872 963 893 $ 1,942
1995 $ 1,942 900 608 $ 2,234
Inventory reserves
1993 $ 10,090 11,108 7,415 $ 13,783
1994 $ 13,783 14,597 18,608 $ 9,772
1995 $ 9,772 13,333 13,581 $ 9,524
</TABLE>
F-15
<PAGE>
EXHIBIT 4(C)
COMPUCOM SYSTEMS, INC.
1993 STOCK OPTION PLAN
1. Purpose. The purpose of this Stock Option Plan (the "Plan") is to
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provide additional incentive, in the form of stock options which may be either
incentive stock options or non-qualified stock options, to employees (as
described in Section 4 hereof) of CompuCom Systems, Inc., a Delaware
corporation, (the "Corporation") and its subsidiaries whose judgment, initiative
and efforts contribute significantly to the successful operation of the
Corporation's business, and to increase their proprietary interest in the
success of the enterprise to the benefit of the Corporation and its
stockholders.
2. Definitions. When used in this Plan, unless the context otherwise
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requires:
(a) "ISO" shall mean a stock option which, at the time such option
is granted, qualifies as an incentive stock option, as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) "NQSO" shall mean a stock option which, at the time such option is
granted, does not qualify as an ISO as defined in the Code.
(c) "Options" shall mean all ISOs and NQSOs which from time to time
may be granted under this Plan.
(d) "Share" shall mean a share of the common stock, $.01 par value, of
the Corporation.
(e) "Parent" shall mean any corporate parent of the Corporation, as
defined in Section 424(e) of the Code.
(f) "Subsidiary" shall mean any corporate subsidiary of the
Corporation, as defined in Section 424(f) of the Code.
3. Administration. The Plan shall be administered by a Committee of the
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Board of Directors ("Committee"), which shall consist of not less than two
members of the Board of Directors ("Board") of the Corporation, who shall be
appointed by, and shall serve at the pleasure of, the Board; provided that to
the extent required by Rule 16b-3, or any successor provision ("Rule 16b-3"), of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Plan
shall be administered by disinterested administrators within the meaning of Rule
16b-3. Each member of
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such Committee, while serving as such, shall be deemed to be acting in his
capacity as a director of the Corporation.
The Committee shall have full authority, subject to the terms of the
Plan, to select the persons to whom ISOs or NQSOs may be granted under the Plan,
to grant options on behalf of the Corporation, and to set the number of Shares
to be covered by such Options, the times and dates at which such Options shall
be granted and exercisable and the other terms of such Options. The Committee
also shall have the authority to establish such rules and regulations, not
inconsistent with the provisions of the Plan, for the proper administration of
the Plan, and to amend, modify or rescind any such rules and regulations, and to
make such determinations and interpretations under, or in connection with, the
Plan, as it deems necessary or advisable. All such rules, regulations,
determinations and interpretations shall be binding and conclusive upon the
Corporation, its stockholders and all employees, and upon their respective legal
representatives, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Option
granted under it. Nothing herein shall be deemed to expand the personal
liability of a member of the Board or Committee beyond that which may arise
under any applicable standards set forth in the Corporation's by-laws and
Delaware law, nor shall anything herein limit any rights to indemnification or
advancement of expenses to which any member of the Board or the Committee may be
entitled under any by-law, agreement, vote of the stockholders or directors, or
otherwise.
4. Eligibility. The class of employees who shall be eligible to receive
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Options under the Plan shall be the employees (including any directors who also
are employees) of the Corporation or of any Subsidiary who, from time to time,
contribute significantly to the management and growth of the business of the
Corporation or of such Subsidiaries. More than one Option may be granted to an
employee under the Plan.
The Committee may require that the exercise of the Option shall be
subject to the satisfaction of conditions relating to the Optionee's position
and duties with the Corporation and the performance thereof.
5. Amount of Stock. The stock to be offered for purchase pursuant to
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Options granted under this Plan shall be treasury or authorized but unissued
Shares, and the total number of such Shares which may be issued pursuant to
Options under this Plan shall not exceed 4,750,000 Shares, subject to adjustment
as provided in Section 16 hereof. If any unexercised Options are
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exchanged for new Options, lapse or terminate for any reason, the Shares covered
thereby may again be optioned.
6. Stock Option Agreement. Each Option granted under this Plan shall be
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evidenced by an appropriate stock option agreement ("Agreement"), which
Agreement shall expressly specify whether such Option is an ISO or NQSO and
shall be executed by the Corporation and by the person to whom the Option is
granted ("Optionee"). The Agreement shall contain such terms and provisions, not
inconsistent with the Plan, as shall be determined by the Committee. Such terms
and provisions may vary between Optionees or as to the same Optionee to whom
more than one Option may be granted.
7. Option Price. The exercise price under each Option granted hereunder
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shall be determined by the Committee in its discretion, provided, however, that
the exercise price of an ISO shall in no event be less than an amount equal to
the fair market value of the Shares subject to the ISO on the date of grant.
8. Ten Percent Stockholders. If an Optionee owns more than ten percent of
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the total combined voting power of all shares of stock of the Corporation or of
a Parent or Subsidiary at the time an ISO is granted to him, the Option price
for the ISO shall be not less than 110% of the fair market value of the Shares
subject to the ISO on the date the ISO is granted, and such ISO, by its terms,
shall not be exercisable after the expiration of five years from the date the
ISO is granted. The conditions set forth in this Section 8 shall not apply to
the grant of NQSOs.
9. Term and Exercise of Option. Each Option shall expire on such date as
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may be determined by the Committee with respect to such Option, but in no event
shall any Option expire more than ten years from the date it is granted. The
date on which an Option shall be granted shall be the date of the Committee's
authorization of the Option or such later date as may be determined by the
Committee at the time the Option is authorized.
Options shall be exercisable in such installments and on such dates,
and/or upon the occurrence of such events, as the Committee may specify. The
Committee may accelerate the exercise date of any outstanding Options, in its
discretion, if it deems such acceleration to be desirable. Except as provided
in Section 11, no Option shall be exercised unless at the time of such exercise
the Optionee is then an employee of the Corporation or any Subsidiary.
Exercisable Options may be exercised, in whole or in part, from time to time, by
giving written notice of exercise to the Corporation at its principal office,
specifying the number of Shares to be purchased and accompanied by payment in
full of the aggregate Option price for such Shares. Only full Shares shall be
issued under the Plan, and any fractional Share
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which might otherwise be issuable upon exercise of an Option granted hereunder
shall be forfeited.
The Option price shall be payable (a) in cash or its equivalent; (b)
in the discretion of the Committee, in Shares previously acquired by the
Optionee, provided that if such Shares were acquired through exercise of an ISO,
such Shares have been held by the Optionee for a period of not less than the
holding period described in section 422(a)(1) of the Code on the date of
exercise, or if such Shares were acquired through exercise of an NQSO or of an
option under a similar plan of the Corporation, such Shares have been held by
the Optionee for a period of more than one year on the date of exercise, and
further provided that the Optionee shall not have tendered Shares in payment of
the exercise price of any other Option under the Plan or any other stock option
plan of the Corporation within six calendar months of the date of exercise; (c)
in the discretion of the Committee, in any combination of (a) and (b) above; or
(d) in the discretion of the Committee, by delivering a properly executed notice
of exercise of the Option to the Corporation and a broker, with irrevocable
instructions to the broker to deliver to the Corporation on the settlement date
the amount of sale proceeds necessary to pay the exercise price of the Option.
In the event the Option price is paid, in whole or in part, with Shares, the
portion of the Option price so paid shall be valued based upon the closing price
of the Shares on the business date preceding tender if received prior to the
close of the stock market and at the closing price on the date of tender if
received after the stock market closes.
If the applicable Agreement so provides, at the request of the
Optionee, the Corporation shall loan the Optionee, upon exercise of an Option,
an amount not in excess of the sum of (i) 100% of the exercise price of the
Shares subject to that portion of the Option being exercised and (ii) any taxes
due upon exercise of said portion of the Option. The Optionee shall furnish to
the Corporation the Optionee's personal, negotiable promissory note for the
loan, bearing interest at a rate prescribed by the Committee (but not less than
the lowest rate which will avoid imputation of interest under section 7872 of
the Code) and including such other terms as the Committee shall prescribe. Any
amounts outstanding under the note shall become due and payable in full upon the
termination of the Optionee's employment by the Corporation or any subsidiary.
The Optionee shall deliver the optioned Shares, endorsed in blank, to the
Corporation, to be pledged to, and held by, the Corporation, as collateral to
secure the loan. The Optionee shall remain personally liable to the Corporation
or the Corporation's transferee for the repayment of said note. When the entire
amount of the loan is repaid in cash or its equivalent, the
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Corporation shall deliver all certificates for Shares for which payment in full
has been made to the Optionee.
On receipt of a written notice to exercise, the Committee may, in its
sole discretion, elect to cash-out all or part of the portion of the Option(s)
to be exercised by paying the Optionee an amount, in cash or Shares, equal to
the excess of the fair market value of the Shares over the exercise price (the
"Spread Value") on the effective date of such cash-out.
10. Maximum Value of ISOs. The aggregate fair market value of the Shares,
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determined as of the date of grant, with respect to which ISOs first become
exercisable during any calendar year by an Optionee (under this Plan and any
other plan of the Corporation or any Parent or Subsidiary) shall not exceed
$100,000.
11. Termination of Employment.
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(a) Except as set forth below, in the event of termination (voluntary
or involuntary) for any reason of an Optionee's employment by the Corporation or
any subsidiary, all Options granted hereunder to such Optionee, to the extent
exercisable on the date of termination, or to any greater extent permitted by
the Committee, may be exercised by the Optionee at any time within three months
after the date of such termination, provided, however, that in no event shall
any Option be exercisable after the expiration of its term.
(b) If, however, the termination of employment is due to disability
(as defined in Section 22(e)(3) of the Code), the Optionee shall have the
privilege of exercising the unexercised Option to the extent such Option was
exercisable on the date of such termination due to disability, or to any greater
extent permitted by the Committee, within one year of such date, provided,
however, that in no event shall any Option be exercisable after the expiration
of its term.
(c) If, however, the Optionee dies within three months of termination
of employment or the termination of employment is due to the death of the
Optionee while in the employ of the Corporation or a subsidiary, the estate of
the holder or the person or persons who acquired the right to exercise such
Option by bequest or inheritance, shall have the privilege of exercising the
unexercised Option to the extent such Option was exercisable on the date of such
termination, or to any greater extent permitted by the Committee, within one
year of the earlier of the date of termination or the date of death, but in no
event shall any Option be exercisable after the expiration of its term.
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(d) Notwithstanding the provisions of subparagraphs 11(a), 11(b) and
11(c) above, the Committee may determine with respect to any NQSO that such NQSO
shall terminate at a time later than the expiration of such three-month or one-
year periods, as set forth in the Agreement.
12. Withholding and Use of Shares to Satisfy Tax Obligations. The
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obligation of the Corporation to deliver Shares upon the exercise of any Option
shall be subject to applicable federal, state and local tax withholding
requirements.
If the exercise of any Option is subject to the withholding
requirements of applicable federal tax laws, the Committee, in its discretion
(and subject to such withholding rules ("Withholding Rules") as shall be adopted
by the Committee), may permit the Optionee to satisfy the federal withholding
tax, in whole or in part, by electing to have the Corporation withhold (or by
delivering to the Corporation) Shares, which Shares shall be valued, for this
purpose, at their fair market value on the date the amount of tax required to be
withheld is determined (the "Determination Date"). Such election must be made
in compliance with and subject to the Withholding Rules, and the Committee may
not withhold Shares in excess of the number necessary to satisfy the minimum
federal income tax withholding requirements. In the event Shares acquired under
the exercise of an ISO are used to satisfy such withholding requirement, such
Shares must have been held by the Optionee for a period of not less than the
holding period described in Section 422(a)(1) of the Code on the Determination
Date. In the event Shares acquired through exercise of an NQSO or of an option
under a similar plan are delivered by the Optionee to the Corporation to satisfy
such withholding requirement, such Shares must have been held by the Optionee
for a period of more than one year on the Determination Date. For Optionees
subject to Section 16 of the Exchange Act, to the extent required by Section 16,
the election to have Shares withheld by the Corporation hereunder must be either
(a) an irrevocable election made six months before the Determination Date; or
(b) an irrevocable election where both the election and the Determination Date
occur during one of the ten-day periods beginning on the third business day
following the date of release of the Corporation's quarterly or annual summary
finanicial data and ending on the twelfth business day following such release.
13. Non-Assignability. Each Option granted under the Plan shall be non-
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transferable by the Optionee except by will or the laws of descent and
distribution, and each Option shall be exercisable during the Optionee's
lifetime only by him.
14. Issuance of Shares and Compliance with Securities Acts. Within a
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reasonable time after exercise of an Option, the
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Corporation shall cause to be delivered to the Optionee a certificate for the
Shares purchased pursuant to the exercise of the Option. At the time of any
exercise of any Option, the Corporation may, if it shall deem it necessary and
desirable for any reason connected with any law or regulation of any
governmental authority relative to the regulation of securities, require the
Optionee to represent in writing to the Corporation that it is his then
intention to acquire the Shares for investment and not with a view to
distribution thereof and that such Optionee will not dispose of such Shares in
any manner that would involve a violation of applicable securities laws. In such
event, no Shares shall be issued to such holder unless and until the Corporation
is satisfied with such representation. Certificates for Shares issued pursuant
to the exercise of Options may bear an appropriate securities law legend.
15. Rights as a Stockholder. An Optionee shall have no rights as a
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stockholder with respect to Shares covered by his Option until the date of the
issuance or transfer of the Shares to him and only after the exercise price for
such Shares is fully paid either in cash, by the withholding or delivery of
Shares, or by the delivery of a promissory note pursuant to Section 9 hereof. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date of such issuance or transfer.
16. Stock Adjustments. In the event of a reorganization, recapitalization,
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change of shares, stock split, or spinoff, stock dividend, reclassification,
subdivision or combination of shares, merger, consolidation, rights offering, or
any other change in the corporate structure or shares of the Corporation, the
Committee shall make such adjustment as it, in its sole discretion, deems
appropriate in the number and kind of shares authorized by the Plan, in the
number and kind of shares covered by grants made under the Plan or in the
purchase prices of outstanding Options, and such adjustments shall be effective
and binding on the Optionee and the Corporation for all purposes of the Plan,
provided, however, that no such adjustments shall be made to any ISO without the
Optionee's consent if such adjustment would cause such ISO to fail to qualify as
such under Section 422 of the Code.
In the event of a corporate transaction (as that term is described in
Section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Option shall be
assumed by the surviving or successor corporation, provided, however, that in
the event of a proposed corporate transaction, the Committee may terminate all
or a portion of the outstanding Options if it determines that such termination
is in the best
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interests of the Corporation. If the Committee decides to terminate outstanding
Options, the Committee shall give each Optionee holding an Option to be
terminated not less than seven days' notice prior to any such termination by
reason of such a corporate transaction, and any such outstanding Option which is
to be so terminated may be exercised (if and only to the extent that it is then
exercisable) up to and including the date immediately preceding such
termination. Notwithstanding the preceding sentence, as provided in Section 9
hereof, the Committee, in its discretion, may accelerate, in whole or in part,
the date on which any or all Options become exercisable.
17. Adoption by Board and Approval by Stockholders. This Plan becomes
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effective on February 18, 1993 (the date the Plan was adopted by the Board),
provided, however, that if the Plan is not approved by a majority of the votes
cast at a duly held meeting at which a quorum representing a majority of all
outstanding voting stock of the Corporation is, either in person or by proxy,
present and voting on the Plan, within 12 months after said date, the Plan and
all Options granted hereunder shall be null and void and no additional Options
shall be granted hereunder.
18. Termination and Amendment of the Plan. Subject to the right of the
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Board to terminate the Plan prior thereto, the Plan shall terminate on, and no
Options shall be granted hereunder after, February 18, 2003. The Board shall
have the power at any time, in its discretion, to amend, abandon or terminate
the Plan, in whole or in part, provided that no such action shall affect any
Options theretofore granted and then outstanding under the Plan. Nothing
contained in this Section 18, however, shall terminate or affect the continued
existence of rights created under Options issued hereunder and outstanding on
February 18, 2003, which by their terms extend beyond such date.
Any Plan amendment which would (a) increase the maximum number of
Shares which may be issued under the Plan, except pursuant to Paragraph 16
above; (b) modify the requirements as to eligibility for participation in the
Plan; or (c) materially increase the benefits accruing to participants under the
Plan, shall not be effective unless approved by a majority of the votes cast at
a duly held meeting at which a quorum representing a majority of all outstanding
voting stock of the Corporation is, either in person or by proxy, present and
voting on the Plan; provided, however, that no stockholder approval shall be
required for an amendment or modification pursuant to (a) and (b) above if the
applicable sections of the Code, and rules and regulations thereunder governing
incentive stock options, do not require stockholder approval and, provided
further, that no stockholder approval shall be required for an amendment or
modification
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pursuant to (c) above if Rule 16b-3 does not require stockholder approval.
19. Interpretation. A determination of the Committee as to any question
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which may arise with respect to the interpretation of the provisions of this
Plan or any Options shall be final and conclusive, and nothing in this Plan, or
in any regulation hereunder, shall be deemed to give any Optionee, his legal
representatives, assigns or any other person any right to participate herein
except to such extent, if any, as the Committee may have determined or approved
pursuant to this Plan. The Committee may consult with legal counsel who may be
counsel to the Corporation and shall not incur any liability for any action
taken in good faith in reliance upon the advice of such counsel.
20. Governing Law. With respect to any ISOs granted pursuant to the Plan
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and the Agreements thereunder, the Plan, such Agreements and any ISOs granted
pursuant thereto shall be governed by the applicable Code provisions to the
maximum extent possible. Otherwise, the laws of the State of Delaware shall
govern the operation of, and the rights of Optionees under, the Plan, the
Agreements and any Options granted thereunder.
21. Rule 16b-3 Compliance.
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(a) Additional Restrictions under Rule 16b-3. Unless an Optionee
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could otherwise transfer Shares issued hereunder without incurring liability
under Section 16(b) of the Exchange Act, at least six months must elapse from
the date of grant of an Option to the date of disposition of the Shares issued
upon exercise of the Option.
(b) Compliance with Rule 16b-3. It is the intent of the Corporation
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that this Plan comply in all respects with applicable provisions of Rule 16b-3
in connection with any grant of Options to, or other transaction by, an Optionee
who is subject to Section 16 of the Exchange Act. Accordingly, if any provision
of this Plan or any Agreement relating to an Option does not comply with the
requirements of Rule 16b-3 as then applicable to any such Optionee, such
provision will be construed or deemed amended to the extent necessary to conform
to such requirements with respect to such person. In addition, the Committee
shall have no authority to make any amendment, alteration, suspension,
discontinuation, or termination of the Plan or any Agreement hereunder, or take
other action if such authority would cause an Optionee's transactions under the
Plan not to be exempt under Rule 16b-3.
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EXHIBIT 4(K)
COMPUCOM SYSTEMS, INC.
SUBORDINATED CONVERTIBLE NOTE
$3,000,000 October 31, 1995
COMPUCOM SYSTEMS, INC., a Delaware corporation whose executive offices
are at 1100 N. Central Expressway, Dallas, Texas 75231 (the "Company"), for
value received hereby promises to pay to Network Compatibility Group, Inc.
("Network") the principal sum of Three Million Dollars ($3,000,000.00), together
with interest (computed on the basis of a 360-day year of twelve 30-day months)
on the unpaid principal balance as set forth below. All sums hereunder are
payable to Network at its principal office at 130 E. Wilson Bridge Road, Suite
100, Columbus, Ohio, or at such other address as Network may, from time to time,
designate.
1. Definitions. Unless the context hereof otherwise requires or
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provides, the terms used herein shall have the following meanings:
a. "Company" means CompuCom Systems, Inc. and any corporation which
shall succeed to or assume the obligations of the Company under
this Note.
b. "Holder" means Network or its permitted transferees.
c. "Senior Indebtedness" means the principal of and unpaid accrued
interest on all indebtedness of the Company to banks, insurance
companies or other financial institutions regularly engaged in the
business of lending money, which is for money borrowed by the
Company (whether or not secured), and renewals, extensions and
refundings of, and indebtedness and obligations of a successor
person issued in exchange for or in replacement of, indebtedness
or obligations of the kind described in the preceding clause of
this definition.
d. "Note" means this Subordinated Convertible Note dated October
31, 1995.
SUBORDINATED CONVERTIBLE NOTE - Page 1
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2. Interest Rate. The unpaid principal balance of this Note from the
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date hereof until maturity shall bear interest at a rate equal to five percent
(5%) per annum; provided, however, that upon the occurrence of an Event of
-----------------
Default, the unpaid principal balance of this Note shall bear interest at the
rate of ten percent (10%) per annum from the date of such Event of Default until
the Note is repaid or the Event of Default is cured.
3. Payment of Principal and Interest. The accrued interest on this Note
---------------------------------
shall be due and payable quarterly commencing February 1, 1996 and upon the
occurrence of an Event of Default (as defined below). The principal on this Note
shall be due and payable on the earlier to occur of (a) October 31, 1998, and
(b) when declared due and payable by the Holder upon the occurrence of an Event
of Default (as defined below). Unless the Holder in its sole discretion elects
to apply payments differently, each payment on this Note shall be first credited
to the discharge of interest accrued on the unpaid principal balance to the date
of the payment, and the remainder shall be credited to the reduction of
principal. The principal and interest due hereunder shall be evidenced by the
Holder's records which, absent manifest error, shall be conclusive evidence of
the computation of principal and interest balances owed by the Company to the
Holder.
4. Events of Default. If any of the events specified in this Section 4
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shall occur (herein individually referred to as an "Event of Default"), the
Holder of this Note may, so long as such condition exists, declare the entire
principal and unpaid accrued interest hereon immediately due and payable, by
notice in writing to the Company:
a. Default in the payment of the principal or unpaid accrued interest
of this Note when due and payable; or
b. The institution by the Company of proceedings to be adjudicated as
bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by
it of a petition or answer or consent seeking reorganization or
release under the federal Bankruptcy Act, or any other applicable
federal or state law, or the consent by it to the filing of any
such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of the Company, or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of
corporate action by the Company in furtherance of any such action;
or
SUBORDINATED CONVERTIBLE NOTE - Page 2
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c. If within sixty (60) days after the commencement of an action
against the Company (and service of process in connection
therewith on the Company) seeking any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, such action
shall not have been resolved in favor of the Company or all orders
or proceedings thereunder effecting the operations or the business
of the Company stayed, or if the stay of any such order or
proceeding shall thereafter be set aside, or if, within sixty (60)
days after the appointment without the consent or acquiescence of
the Company of any trustee, receiver or liquidator of the Company
or of all or any substantial part of the properties of the
Company, such appointment shall not have been vacated; or
d. Any declared default of the Company under any Senior Indebtedness
that gives the holder thereof the right to accelerate such Senior
Indebtedness, and such Senior Indebtedness is in fact accelerated
by such holder; or
e. Any default of the Company under that certain Promissory Note from
the Company to Network dated of even date herewith in the
principal amount of Five Million Seventy-Five Thousand Dollars
($5,075,000.00).
5. Subordination.
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a. The indebtedness evidenced by this Note is hereby expressly
subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all the
Company's Senior Indebtedness.
b. If there should occur any receivership, insolvency, assignment for
the benefit of creditors, bankruptcy, reorganization or
arrangements with creditors (whether or not pursuant to bankruptcy
or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the
assets and liabilities of the Company, or if this Note shall be
declared due and payable upon the occurrence of an event of
default with respect to any Senior Indebtedness, then (i) no
amount shall be paid by the Company in respect of the principal of
or interest on this Note at the time outstanding, unless and until
the principal of and interest on the
SUBORDINATED CONVERTIBLE NOTE - Page 3
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Senior Indebtedness then outstanding shall be paid in full or the
event of default is cured, and (ii) no claim or proof of claim
shall be filed with the Company by or on behalf of the Holder of
this Note that shall assert any right to receive any payments in
respect of the principal of and interest on this Note, except
subject to the payment in full of the principal of and interest on
all of the Senior Indebtedness then outstanding, unless and until
the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full or the event of default is
cured. If there occurs an event of default that has been declared
in writing with respect to any Senior Indebtedness, or in the
instrument under which any Senior Indebtedness is outstanding,
permitting the holder of such Senior Indebtedness to accelerate
the maturity thereof, then, the Company shall immediately give
notice to the Holder and, unless and until such event of default
shall have been cured or waived or shall have ceased to exist, or
all Senior Indebtedness shall have been paid in full, no payment
shall be made in respect of the principal of or interest on this
Note, unless within three (3) months after the happening of such
event of default, the maturity of such Senior Indebtedness shall
not have been accelerated.
c. Subject to the rights, if any, of the holders of Senior
Indebtedness under this Section 5 to receive cash, securities or
other properties otherwise payable or deliverable to the Holder of
this Note, nothing contained in this Section 5 shall impair, as
between the Company and the Holder, the obligation of the Company,
subject to the terms and conditions hereof, to pay to the Holder
the principal hereof and interest hereon as and when the same
become due and payable, or shall prevent the Holder of this Note,
upon the occurrence of an Event of Default, from exercising all
rights, powers and remedies otherwise provided herein or by
applicable law.
d. Subject to the payment in full of all Senior Indebtedness and
until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to
the extent of payments or distributions previously made to such
holders of Senior Indebtedness pursuant to the provisions of
subparagraph (b) above) to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior
Indebtedness shall, as between the Company and its creditors,
other than the holders of Senior
SUBORDINATED CONVERTIBLE NOTE - Page 4
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Indebtedness and the Holder, be deemed to be a payment by the
Company to or on account of this Note; and for the purposes of
such subrogation, no payments or distributions to the holders of
Senior Indebtedness to which the Holder would be entitled except
for the provisions of this Section 5 shall, as between the Company
and its creditors, other than the holders of Senior Indebtedness
and the Holder, be deemed to be a payment by the Company to or on
the account of the Senior Indebtedness.
e. The Holder agrees to execute and deliver such documents as may be
reasonably requested from time to time by the Company or the
lender of any Senior Indebtedness in order to implement the
foregoing provisions of this Section 5.
f. Nothing herein shall impair the right of the Holder to convert the
principal amount of this Note into shares of Common Stock of the
Company in accordance with the provisions of Section 7 of this
Note.
6. Prepayment. After October 31, 1996, the Company may at any time after
----------
giving the Holder thirty (30) days prior written notice, prepay in whole or in
part the unpaid principal balance of this Note together with all accrued
interest then owing thereon without premium or penalty, and the interest shall
immediately cease to accrue on any amount so prepaid.
SUBORDINATED CONVERTIBLE NOTE - Page 5
<PAGE>
7. Conversion.
----------
a. Prior to payment in full of the principal balance of this Note,
the Holder of this Note has the right, at the Holder's option, at
any time and from time to time following the earlier to occur of
(i) October 31, 1996, and (ii) within thirty (30) days of
receiving written notice of the Company's election to prepay this
Note, to convert all or any portion of the then unpaid principal
balance of this Note, in accordance with the provisions of
subparagraph (c) of this Section 7, into unregistered shares of
Common Stock of the Company, $.01 par value per share (the "Common
Stock"). The number of shares of Common Stock into which this Note
may be converted ("Conversion Shares") of this Note by $7.74 (the
"Conversion Price"). The average of the closing price of the
Common Stock, as reported on the NASDAQ National Market, for the
thirty (30) trading days ending October 12, 1995 is $6.19. The
Conversion Price was calculated by multiplying such average
closing price by 125%.
b. Any Conversion Shares shall have registration rights set forth in
the Registration Rights Agreement between the Company and Network
dated of even date herewith.
c. Before the Holder shall be entitled to convert this Note into
shares of Common Stock, it shall give written notice by mail,
postage prepaid, to the Company at its principal corporate office,
of the election to convert the same, if the Holder is electing to
convert pursuant to Section 7(a), and shall state therein the name
or names in which the certificate or certificates for shares of
Common Stock are to be issued and the date on which such
conversion will occur. The Company shall, as soon as practicable
thereafter, issue and deliver at such office to the Holder of this
Note a certificate or certificates for the number of shares of
Common Stock to which the Holder of this Note shall be entitled.
Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of conversion specified
in such written notice, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders
of such shares of Common Stock as of such date. To the extent that
the entire unpaid principal balance of this Note together with the
accrued interest owing thereon is not being converted into Common
Stock the Holder of this Note shall credit the Note on its books
to the extent of the principal and interest being converted by the
Holder into Common Stock.
d. As promptly as practicable after the conversion of this Note or
any part thereof, the Company at its expense will issue and
deliver to the Holder of this Note a certificate or certificates
for the number of full shares of Common Stock issuable upon such
conversion.
e. No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of the Company issuing any
fractional shares to the Holder upon the conversion of this Note,
the
SUBORDINATED CONVERTIBLE NOTE - Page 6
<PAGE>
Company shall pay to the Holder the amount of outstanding
principal that is not so converted. At its expense, the Company
shall, as soon as practicable thereafter, issue and deliver to
such Holder at such principal office a certificate or certificates
for the number of shares of Common Stock to which the Holder shall
be entitled upon such conversion (bearing such legends as are
required by applicable state and federal securities laws in the
opinion of counsel to the Company), together with any other
securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable
to the Holder for any cash amounts payable as described above and
for all amounts of interest accrued as of the date of conversion.
In the event of any conversion of this Note pursuant to Section
7(a), such conversion shall be deemed to have been made
immediately prior to the close of business on the date specified
in such notice and on and after such date the Holder of this Note
entitled to receive the shares of such Common Stock issuable upon
such conversion shall be treated for all purposes as the record
holder of such shares. Upon conversion of this Note and delivery
of the check described above, the Company shall be forever
released from all its obligations and liabilities under this Note
to the extent of the amount of unpaid principal which the Holder
has elected to convert into shares of Common Stock.
f. At all times following the conversion of this Note or any part
thereof, the Company will maintain the listing of all shares of
Common Stock issued upon the conversion of this Note or any part
thereof on each securities exchange or market or trading system on
which the Common Stock is then or at any time thereafter listed or
traded.
8. Conversion Price Adjustments.
----------------------------
a. In the event the Company should at any time or from time to time
after the date of issuance hereof fix a record date for the
effectuation of a split or subdivision of the outstanding shares
of Common Stock or the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive
directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration
SUBORDINATED CONVERTIBLE NOTE - Page 7
<PAGE>
by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then,
as of such record date (or the date of such dividend distribution,
split or subdivision if no record date is fixed), the Conversion
Price of this Note shall be appropriately decreased so that the
number of shares of Common Stock issuable upon conversion of this
Note shall be increased in proportion to such increase of
outstanding shares.
b. If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the
outstanding shares of Common Stock, then, following the record
date of such combination, the Conversion Price for this Note shall
be appropriately increased so that the number of shares of Common
Stock issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
c. In the event of (i) any taking by the Company of a record of the
holders of any class of securities of the Company for the purpose
of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend payable out of earned surplus
at the same rate as that of the last such cash dividend
theretofore paid) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all of the assets
of the Company to any other person or any consolidation or merger
involving the Company, or (iii) any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company
will mail to the Holder of this Note at least ten (10) days prior
to the earliest date specified therein, a notice specifying (A)
the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, (B) the date on
which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is
expected to become effective and the record date for determining
stockholders entitled to vote thereon and (C) the new Conversion
Price after giving effect to the adjustment event.
SUBORDINATED CONVERTIBLE NOTE - Page 8
<PAGE>
d. The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the Note such number of its
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of the Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the entire outstanding
principal amount of this Note, in addition to such other remedies
as shall be available to the Holder of this Note, the Company will
use its best efforts to take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
9. Assignment. Holder shall not assign or transfer this Note without
----------
the prior written consent of the Company; provided, however, that Holder may
assign all or any part of this Note to Mark Bradley Ristas or Robert J. D'Orazio
or any of their respective spouses, children, grandchildren or a trust for their
benefit.
10. Waiver and Amendment. Any provisions of this Note may be amended,
--------------------
waived or modified upon the written consent of the Company and the Holder of
this Note.
11. Treatment of Note. To the extent permitted by generally accepted
-----------------
accounting principles and the provisions of the Internal Revenue Code of 1986,
as amended, and any regulations promulgated thereunder, the Company will treat,
account and report this Note as debt and not equity for accounting purposes and
with respect to any returns filed with federal, state or local tax authorities.
12. Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if telecopied or mailed by registered or
certified mail, postage prepaid, at the respective addresses of the parties as
set forth herein. Any party hereto may by notice so given change its address for
future notice hereunder. Notice shall conclusively be deemed to have been given
when personally delivered or when deposited in the mail or telecopied in the
manner set forth above and shall be deemed to have been received when delivered.
13. No Stockholder Rights. Nothing contained in this Note shall be
---------------------
construed as conferring upon the Holder or any other person the right to vote or
to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of
SUBORDINATED CONVERTIBLE NOTE - Page 9
<PAGE>
directors of the Company or any other matters or any rights whatsoever as a
stockholder of the Company until the conversion of this Note into Common Stock
has been effected as provided in Section 7.
14. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Ohio.
15. Heading References. All headings used herein are used for
------------------
convenience only and shall not be used to construe or interpret this Note.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be issued
effective as of October 31, 1995.
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
------------------------------------
Robert J. Boutin, Senior Vice
President and Chief Financial
Officer
Name of Holder: NETWORK COMPATIBILITY GROUP, INC.
Address: Suite 100, 130 E. Wilson Bridge Road
Columbus, Ohio 43085
SUBORDINATED CONVERTIBLE NOTE - Page 10
<PAGE>
NationsBank
NationsBank of Texas, N.A.
- --------------------------------------------------------------------------------
EXHIBIT 10(K)
SECOND AMENDMENT
TO
FINANCING AND SECURITY AGREEMENT
This Second 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 12th day of December, 1994, 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 (hereinafter called the "Financing and Security Agreement"). Terms
defined in the Financing and Security Agreement wherever used in this
Second 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. The definition of "Total Liabilities" as provided in paragraph
6.23(b)1 hereby is amended to read in its entirety as follows:
"Total Liabilities" means all indebtedness now or hereafter existing,
including without limitation indebtedness for borrowed money, trade
debt, inter-company debt and all other liabilities of Borrower which
should be reflected on the consolidated balance sheet of Borrower and
the Subsidiaries according to GAAP, but excluding: (i) Subordinated
Debt (defined hereinbelow) and (ii) indebtedness for the purchase of
Inventory which is in transit from the vendor or supplier, regardless
of shipping terms, and has not yet been physically delivered to any of
Borrower's locations specified in Exhibit 3.4 (as such exhibit may be
amended from time to time in accordance with the requirements of this
Agreement);".
2. The following shall be added as a concluding sentence at the end of
paragraph 6.23(b)(3):
"In calculating Tangible Net Worth, inventory which is in transit from
the vendor or supplier (regardless of shipping terms) and has not yet
been physically delivered to any of Borrower's locations specified in
Exhibit 3.4 (as such exhibit may be amended from time to time in
accordance with the requirements of this Agreement) shall be excluded
for all purposes."
3. This Second 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 NOT UNWRITTEN ORAL
-----------------------------------------------------------------------
AGREEMENTS BETWEEN THE PARTIES.
------------------------------
<PAGE>
EXECUTED as of the effective date specified in the preamble but effective
only upon confirmation of consent by Participants, as provided below, sufficient
to constitute Majority Consent.
NATIONSBANK OF TEXAS, N.A.
By: /s/ Dan Lane
------------
Dan Lane
Vice President
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
--------------------
Senior Vice President, Finance
and Chief Financial Officer
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/ William Handley/Larry L. Sears By: /s/ Stephen Sweeney
---------------------------------- -------------------
Name: William 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/ Kim A. Uhlemann
------------------ -------------------
Name: Michael J. Cox Name: Kim A. Uhlemann
-------------- ---------------
Title: Vice President Title: Vice President
-------------- --------------
By: /s/ James T. Wang
-----------------
Name: James T. Wang
-------------
Title: Vice President & Manager
------------------------
<PAGE>
EXHIBIT 10(N)
NationsBank
NationsBank of Texas, N.A.
________________________________________________________________________________
FOURTH AMENDMENT
TO
FINANCING AND SECURITY AGREEMENT
This Fourth 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 1st day of October, 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 (i) the First
Amendment to Financing and Security Agreement dated effective as of March
31, 1994 (the "First Amendment"), (ii) the Second Amendment to Financing
and Security Agreement dated effective as of December 12, 1994 and (iii)
the Third Amendment to Financing and Security Agreement dated effective as
of April 26, 1995 (collectively 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. 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:
1.68 "LIBOR FIXED RATE" means the Adjusted LIBOR Rate plus one and one-half
percent (1.50%) per annum.
"1.13 "CONTRACT RATE" means, on any day, a floating annual rate of
interest calculated on the basis of actual days elapsed but computed as if
each year consists of 360 days, equal to the sum of the Prime Rate
effective as of the first day of the calendar month in which such day falls
plus zero percent (0.00%). Upon written notification to Borrower at any
time when any Event of Default exists, the Contract Rate otherwise
applicable hereunder shall automatically increase by an additional two
percent (2.0%) per annum, beginning on the effective date specified in such
written notice (which shall be on or after the date on which any such Event
of Default shall have first occurred) and continuing thereafter for so long
as any such Event of Default remains uncured or until Lender may agree
otherwise.
2. Paragraph 3.8 of the Financing and Security Agreement hereby is
amended such that, in the fourth sentence thereof, the phrase "two (2) Business
Days" shall be deemed to read "one (1) Business Day".
3. The following items shall be delivered to Lender prior to or
simultaneously with execution and delivery of this Fourth Amendment:
(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 May 9, 1995 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, or a duly authorized executive committee thereof,
authorizing this Fourth Amendment and the transactions evidenced hereby,
and authorizing and directing one or more named officers of Borrower to
execute and deliver this Fourth Amendment, and all related documentation
required by Lender, on behalf of Borrower, which certificate shall be in
form satisfactory to Lender;
(b) Amendments to Participation Agreements as may be required by
Lender in connection with this Fourth Amendment, in form satisfactory to
Lender;
(c) Such other documentation as Lender may reasonably require in
connection with the Financing and Security Agreement or this Fourth
Amendment.
5. In consideration of this Fourth 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
<PAGE>
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 Fourth 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 Fourth Amendment.
6. This Fourth 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/ Sally Pershica
------------------
Sally Pershica
Senior Vice President
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
--------------------
Robert J. Boutin
Senior Vice President, Finance
and Chief Financial Officer
CONSENT BY PARTICIPANTS
-----------------------
Each of the undersigned consents to Borrower's and Lender's execution of
the above Fourth Amendment to Financing and Security Agreement:
BARNETT BANK OF TAMPA MIDLANTIC BANK, N.A.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
NATIONAL CANADA FINANCE CORP. UNION BANK
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
SANWA BUSINESS CREDIT CORPORATION THE DAIWA BANK, LTD.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
By:______________________________
Name:____________________________
Title:___________________________
2
<PAGE>
THE STATE OF TEXAS (S)
COUNTY OF DALLAS (S)
BEFORE ME, the undersigned authority, on this day personally appeared Sally
Pershica, known to me to be the person and officer whose name is subscribed to
the foregoing instrument, and acknowledged to me that the same was the act of
the said NATIONSBANK OF TEXAS, N.A., and was executed for the purposes and
consideration therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 6th day of December 1995.
/s/ Paula N. Potcinske
----------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
- --------------------- ----------------------------------
(Printed Name of Notary)
[NOTARY SEAL APPEARS HERE]
THE STATE OF TEXAS (S)
COUNTY OF DALLAS (S)
BEFORE ME, the undersigned authority, on this day personally appeared
Robert J. Boutin, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same was
the act of the said COMPUCOM SYSTEMS, INC., and was executed for the purposes
and consideration therein expressed and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 4th day of October 1995.
/s/ M. Patricia Tarkington
----------------------------------
NOTARY PUBLIC, STATE OF TEXAS
My Commission Expires:
4/1/98 M. Patricia Tarkington
- --------------------- ----------------------------------
(Printed Name of Notary)
[NOTARY SEAL APPEARS HERE]
3
<PAGE>
EXHIBIT 10(P)
==================PCRMKTR Remarketer Memos/IBM PC Co. - N.A.====================
94-015 Introduction of 24-month Business Partner Agreement
September 13, 1994
MEMORANDUM TO: IBM Authorized Personal Computer Dealers
IBM Authorized Industry Remarketers
- Personal Computer
IBM Authorized Aggregators
IBM Authorized Distributors
SUBJECT: Introduction of 24-month Business Partner Agreement
In response to remarketer feedback, the IBM PC Company is pleased to introduce
the 24-month Business Partner Agreement for qualifying Personal Computer Dealers
(PCDs), Industry Remarketers - Personal Computer (IRPCs), Aggregators and
Distributors.
To qualify, you must have achieved you agreement's minimum renewal criteria
(MRC) for the prior year and have satisfied any outstanding notices of
deficiency.
If you are in your first year of IBM authorization, you must successfully
complete your 12-month agreement and achieve 100% of your MRC before you will be
offered a 24-month renewal agreement.
If you currently qualify for a 24-month term, your agreement will be extended 12
months from your current expiration date. Your MRC will be adjusted to an
amount equal to twice the 12-month MRC shown on your current Dealer, Industry
Remarketer or Distributor Profile.
The effective date of this offering is October 1, 1994. This memo serves as
notification of your agreement's new expiration date. Terms and conditions of
your current IBM Business Partner Agreement apply for the contract period. A
copy of your next agreement will not be mailed to you until your next renewal
period.
We hope this transition to 24-month agreements simplifies your renewal process
and contributes to your continued success. For further information, please
contact your IBM representative.
D. G. Boucher
Vice President
Channel Marketing
Blind note: HQ contact is Genie Sayre, tie line
336-9025 or RHQVM15(GMSAYRE.).
<PAGE>
EXHIBIT 10(R)
U.S. RESELLER AGREEMENT
1. APPOINTMENT
Hewlett-Packard Company ("HP") appoints Reseller as an authorized, non-
exclusive Reseller for marketing the HP Products listed on the Product
Exhibits. Reseller's appointment is subject to the terms and conditions
set forth in this U.S. Reseller Agreement and the associated Addenda,
Product Exhibits, HP Product Acquisitions and Resale Categories ("Product
Categories") and Operations Policy Manual (collectively, "Agreement") for
the period from the effective date through the expiration date of this
Agreement. Reseller accepts appointment on these terms.
2. STATUS CHANGE
A. If Reseller wishes to:
1. Change its name or that of any approved location;
2. Add, close or change an approved location;
3. Undergo a merger, acquisition, consolidation, or other reorganization
with the result that any entity controls 20% or more of Reseller's
capital stock or assets after such transaction; or
4. Undergo a significant change in control or management of Reseller
operations
then Reseller shall notify HP in writing prior to the intended date of
change.
B. HP agrees to promptly notify Reseller of its approval or disapproval
of any proposed change, provided that Reseller has given HP all
information and documents reasonably requested by HP.
C. HP must approve proposed Reseller changes prior to any obligation of HP
to perform under this Agreement with Reseller as changed.
4. MULTIPLE AGREEMENT DISCOUNTS
Unless otherwise specified by HP in writing, purchases of HP Products under
this Agreement and purchases under any other HP Agreement are exclusive of
each other for the purpose of calculating volume commitment and discount
levels.
7. PRICES
A. HP's corporate price lists are internal data bases indicating current
List Prices for HP Products (List Prices"). HP reserves the right to
change List Prices and discounts upon reasonable notice to Reseller.
If Reseller is unsure of the List Price to use in calculating net
Reseller price for any HP Product, Reseller should contact its HP sales
representative.
B. Net Reseller price for HP Products purchased under this Agreement will
be the List Price at the time of Reseller's orders, less the discounts
based on Reseller's volume or other commitments or elections specified
in the Product Exhibits.
C. Net Reseller price includes shipment arranged by HP. HP reserves the
right to charge Reseller for any special routing, handling or insurance
requested by Reseller and agreed to by HP. Orders shipped special
routing will be F.O.B. Origin.
D. Net Reseller price excludes State and Local taxes. HP will invoice
Reseller for these taxes, based on point of delivery, unless the
appropriate resale exemption certificates are on file at HP's order-
entry point or HP agrees the sale is otherwise exempt.
E. Upon request from Reseller, at its discretion, HP may grant special
pricing for particular end-user customer transactions. In good faith,
HP may retract the special pricing at any time before acceptance by the
end-user customer. HP may extend the pricing on an exclusive or non-
exclusive basis and may condition the pricing on a pass-through of all
or part of the non-standard offering extended by HP.
8. PAYMENT AND SECURITY TERMS
A. Reseller will pay invoices within 30 days from the date of the invoice.
HP reserves the right to change credit terms at any time when in HP's
opinion Reseller's financial condition or previous payment record so
warrants.
B. Any Reseller claim for adjustment of an invoice is agreed to be waived
if Reseller fails to present it within 90 days from date of HP invoice.
No claims, credits, or offsets may be deducted from any invoice.
C. If Reseller fails to pay any sum due within 15 days of HP's written
notice of delinquency, HP may discontinue performance under this
Agreement and may revise credit terms for unshipped orders.
D. Reseller grants and HP reserves a purchase money security interest in
each Product purchased under this Agreement and in any proceeds thereof
for the amount of the purchase price from HP. Upon request by HP,
Reseller will sign any document required to perfect such security
interest. Payment in full of the purchase price of a Product purchased
will release the security interest in that Product.
9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Reseller's orders must comply with the minimum order, release, ship-to,
and other requirements specified in this Agreement.
B. HP will honor written, fax and telephone orders from Reseller's
approved locations. Reseller is responsible for ensuring that only
authorized employees place, change, or delete orders, and that the
orders conform to all requirements of this Agreement.
C. Reseller's requested date for shipment must be within 90 days after
order date. HP reserves the right to schedule and reschedule any
order, at HP's discretion, and to decline any order for credit reasons
or because the order specifies an unreasonably large quantity or makes
an unreasonable shipment request.
D. HP will use reasonable efforts to meet scheduled shipment dates.
However, HP will not be liable for delay in meeting a scheduled
shipment date.
E. Reseller must own more than 50% of its business at each approved
location. HP will ship HP Products to Reseller under HP's standard
shipment terms and conditions but only to approved Shipment Locations
authorized by HP on Exhibit L. Shipment Locations may be the same as
company-owned Selling Locations. All Reseller's sales, advertising and
promotional activities for HP Products must be conducted from Selling
Locations approved by HP. No sales, advertisement or promotion of HP
Products may be conducted from Shipment
<PAGE>
Locations which are not also approved company-owned Selling Locations.
However, HP will ship to a maximum of six approved Shipment Locations
and will accept orders only from a single order point. An exception
will be made where a Product Exhibit indicates drop shipment is
available for a specific HP product under a special program; drop
shipment for those HP Products will be subject to limitations indicated
in the Product Exhibits.
F. Shipments are subject to availability. If HP Products are in short
supply, HP will allocate them equitably, at HP's discretion.
G. Title to HP Products and risk of loss and damage will pass to Reseller
F.O.B. Destination.
10. PRICE ADJUSTMENTS; PRICE PROTECTION
A. If HP raises Net Reseller prices (either through List Price increases
or Product Exhibit discount reductions) HP will Invoice Reseller based
on the old List Price or discount for affected HP Product orders placed
by Reseller within one month after the effective date of the increase.
Limited quantity restrictions may apply.
B. If HP reduces Net Reseller prices (either through a List Price
reduction or a combination of List Price and discount changes), HP will
Invoice Reseller based on the reduced Net Reseller price for affected
HP Products shipped on or after the effective date of the reduction.
C. If HP offers a limited time promotional HP Product discount to all
Resellers (excluding rebates and spiffs of all forms), HP will invoice
Reseller based on the Net Reseller price less the promotional discount
for orders conforming to and shipments made pursuant to the terms and
conditions of the promotions.
D. If HP reduces Net Reseller prices or offers a limited time HP Product
promotional discount to all Resellers and the HP Products are eligible
for price protection as designated on the Product Exhibits, then HP
will grant Reseller a price protection credit calculated by one of the
two following methods at HP's discretion:
1. The credit will equal the total reduction in Net Reseller price
(less any previous promotional discount available from HP) for those
HP Products in Reseller's inventory and in transit to Reseller on
the effective date of the reduction, using a verification process
determined by HP, or
2. The credit will equal 100% of the total reduction in Net Reseller
price (Less any previous promotional discount available from HP) for
those HP products shipped within 30 days before the effective date
of the reduction, or 75% of the reduction for those HP Products
shipped within 60 days before that date, whichever is greater.
E. To receive a price protection credit by the inventory method, Reseller
upon notification of a change in price from HP and upon request, will
complete, sign and return to HP a form showing the number of units
(including serial numbers) in inventory and in transit to Reseller on
the effective date of the reduction. The format for the form may be
defined by Reseller but must meet the approval of HP. If Reseller
fails to submit the form within 30 days of the effective date of the
reduction, Reseller will receive no price protection for eligible
products.
F. In all cases, HP may require that Reseller accumulate a minimum credit
of $200 within a particular month before HP extends price protection to
Reseller for that month.
G. HP reserves the right to offer Reseller obsolete, used or refurbished
HP Products and to offer Reseller HP Products through special promotion
at discounts different from those in the Product Exhibits and on terms
which may not include rights to price protection, stock adjustment,
promotional funds allowance or count towards Reseller's volume
commitment levels.
11. SOFTWARE
Reseller is granted the right to distribute software materials supplied by
HP only in accordance with the license terms supplied with these materials.
Reseller may alternatively acquire the software materials from HP for its
own demonstration purposes in accordance with the terms for use in those
license terms.
12. TRADEMARKS
A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks. Reseller may display the trademarks solely
to promote HP Products. Any display of the trademarks must be in good
taste, in a manner that preserves their value as HP trademarks, and in
accordance with standards provided by HP for their display. Reseller
will not use any name or symbol in a way which may imply that the
Reseller is an agency or branch of HP; Reseller will discontinue any
such use of a name or mark as requested by HP. Any rights or purported
rights in any HP trademarks acquired through Reseller's use belong
solely to HP.
B. Reseller grants HP the non-exclusive, royalty free right to display the
Reseller's trademarks in advertising and promotional material solely
for directing prospective purchasers of HP Products to Reseller's
Selling Locations. Any display of the trademarks must be in good
taste, in a manner that preserves their value as Reseller's trademarks,
and in accordance with standards provided by Reseller for their
display. Any rights or purported rights in any Reseller trademarks
acquired through HP's use belong solely to Reseller.
13. WARRANTY
A. HP Product User Warranties are described on the Product Exhibits and
apply only to end-user purchasers of HP Products. HP revisions to the
User Warranties will be effective on the date specified by HP. Copies
of User Warranties will be supplied with HP Products. Reseller must
provide a copy of the associated User Warranty for an HP Product to
each end-user prior to sale.
B. HP Product Warranty begins upon purchase by the end-user customer and
shall be verified by proof of acquisition by the end-user or via HP's
electronic warranty verifications system.
C. HP PRODUCT USER WARRANTIES ARE THE EXCLUSIVE WARRANTIES COVERING HP
PRODUCTS AND ARE IN LIEU OF ANY OTHER WARRANTIES, WRITTEN OR ORAL,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
D. Some HP Products may contain selected remanufactured parts equivalent
to new in performance.
14. LIMITATION OF REMEDIES AND LIABILITY
A. The remedies provided in this Agreement are Reseller's sole and
exclusive remedies against HP.
B. HP will be liable for damage to tangible property, bodily injury or
death to the extent a court of competent jurisdiction determines that
an HP Product sold under this Agreement is defective and has directly
caused such damage, injury or death, provided that HP's liability for
damage to tangible property will be limited to $300,000 per incident.
<PAGE>
C. HP will be liable to Reseller for any net credits due from HP pursuant
to the express provisions of this Agreement. In no event will HP be
liable for loss of data, for indirect, special, incidental or
consequential damages (including lost profits) or for any other damages
whether based on contract, tort, or other legal theory.
15. INTELLECTUAL PROPERTY INDEMNITY
A. HP will defend any claim against Reseller that any HP Product infringes
a patent, utility model, industrial design, copyright, mask work or
trademark in the country where Reseller acquires or sells the Product
from HP, provided that Reseller:
1. Promptly notifies HP in writing of the claim; and
2. Cooperates with HP in and grants HP sole authority to control the
defense and any related settlements.
HP will pay the cost of such defense or settlement and any costs and
damages finally awarded by a court against Reseller.
B. HP's indemnity shall extend to Reseller's customers and end-users under
this Agreement provided they comply with the obligations above.
C. HP may procure for Reseller, its customers and end-users the right to
continued sale or use, as appropriate, of the Product or HP may modify
or replace the product. If a court enjoins the sale or use of the
Product and HP determines that none of the above alternatives is
reasonably available, HP will accept return of the Product and refund
its depreciated value.
D. HP has no obligation for any claim of infringement arising from:
1. HP's compliance with any designs, specifications or instructions of
Reseller;
2. Modification of the Product by Reseller or a third party;
3. Use of the Product in a way not specified by HP, or
4. Use of the Product with products not supplied by HP.
E. This Section states HP's entire liability to Reseller and its customers
and end-users for infringement.
16. RESELLER RECORD-KEEPING
A. For contract compliance verification, product safety information,
operational problem correction and the like, Reseller must maintain
records of customer purchases of printers, plotters, taxes, scanners,
and computers for one year. Records must include customer name,
address, phone number, ship-to address, serial number and date of sale
of the above products.
B. HP may require Reseller to provide HP or HP's designate with HP Product
Inventory and sales data including, but not limited to, information
such as total units of selected HP Products sold and held in inventory
by month for each approved location, in a format specified by HP. HP
may require monthly reporting incorporating the previous month's data
for each approved location.
C. In addition, Reseller must comply with any reporting requirements for
HP programs.
D. At HP's discretion and upon notice to Reseller, HP or HP's designate
will be given prompt access, either on site or through other means
specified by HP, to Reseller's customer records, inventory records, and
other books and records of account as HP believes are reasonably
necessary to verify and audit Reseller's compliance with this
Agreement.
E. Failure to promptly comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of this
Agreement on 30 days notice without further cause.
F. HP may recover all reasonable actual costs associated with compliance
verification procedures from any promotional funds, rebate funds, or
any other HP accrued funds due Reseller.
G. HP may debit Reseller for all wrongfully claimed discounts, rebates,
promotional allowances or other amounts determined as a result of HP's
audit.
17. AMENDMENTS
A. From time to time, HP may add products to or delete them from the
Product Exhibits, or implement or change HP policies or programs at
HP's discretion, after reasonable notice to Reseller.
B. Any amendment will automatically become a part of this Agreement on the
effective date specified in the notice.
C. Each party agrees that the other has made no commitments regarding the
duration or renewal of this Agreement beyond those expressly stated in
this Agreement.
18. TERMINATION OF AGREEMENT
A. Either party may terminate this Agreement without cause at any time
upon 30 days' written notice or with cause at any time upon 15 days'
written notice to the other party.
B. If either party gives the other notice of termination or advises the
other of its intent not to renew this Agreement, HP may require that
the Reseller pay cash in advance for additional shipments during the
remaining term, regardless of Reseller's previous credit status, and
may withhold all such shipments until Reseller pays its outstanding
balance.
C. Upon termination or expiration of this Agreement for any reason,
Reseller will immediately cease to be an authorized HP Reseller and
will refrain from representing itself as such and from using any HP
trademark or trade name.
D. Upon any termination or expiration, either party may require that HP
purchase from Reseller any HP Products purchased under this Agreement
that are on HP's then current Product Exhibits, which are in their
unopened, original packaging and marketable as new merchandise. The
repurchase price shall be the lower of either the Net Reseller Price on
the date of termination or expiration or Reseller's original purchase
price, in each case less any promotional or other discounts or price
protection or other credit extended by HP to Reseller for the HP
Product. Reseller should contact its HP Sales representative for
information about the items eligible for repurchase and instructions
for their return at HP's expense.
E. Upon termination of this Agreement or expiration without renewal all
rights to any accrued Advantage Program or other promotional funds will
automatically lapse.
F. The indemnities provided in this Agreement will survive termination or
expiration of this Agreement.
19. RELATIONSHIP
A. Reseller's relationship with HP will be that of an independent
contractor. Nothing stated in this Agreement shall be construed as
making Reseller and HP a franchise, joint venture or partnership.
<PAGE>
B. Unless expressly authorized by HP in writing in advance, any commitment
made by Reseller to its customers with respect to price, quantities,
delivery, specifications, warranties, modifications, interfacing
capability or suitability will be Reseller's sole responsibility, and
Reseller will indemnify HP from liability for any such commitment by
Reseller.
C. List Prices are suggested prices for resale to end-user customers and a
basis for calculating Net Reseller price. Reseller has the right to
determine its own resale prices, and no HP representative will require
that any particular resale price be charged by Reseller or grant or
withhold any treatment to Reseller based on Reseller's resale pricing
policies. Reseller agrees that it will promptly report any effort by
HP personnel to interfere with its pricing policies directly to an HP
officer or manager.
D. This Agreement applies only to the HP Products listed on the Product
Exhibits (U.S. Versions Only). Reseller acknowledges that HP may
market other products, including products in competition with those
listed on the Product Exhibits without making them available to
Reseller. HP reserves the right to advertise, promote and sell any
product, including HP Products on the Product Exhibits, in competition
with the Reseller.
20. POLICIES & PROGRAMS
From time to time, HP may offer or change HP policies and programs, such as
but not limited to the Advantage Program, Premier Support program and other
programs and policies in HP's Operations Policy Manual, participation in
which will be on the current terms and conditions of the policies &
programs.
21. GENERAL CONDITIONS
A. Neither party may assign any rights or obligations in this Agreement
without the prior written consent of the other party. Any attempted
assignment will be deemed void.
B. Neither party's failure to enforce any provision of this Agreement will
be deemed a waiver of that provision or of the right to enforce it in
the future.
C. This Agreement, including the attached Addenda, associated Product
Exhibits and Product Categories contains the entire understanding
between the parties relating to its subject matter. HP hereby gives
notice of objection to any additional or inconsistent terms set forth
in any purchase order or other document issued by Reseller. Except as
provided in paragraphs 17A and 17B of this Agreement, no modification
of this Agreement will be binding on either party unless made in
writing and signed by both parties.
D. No U.S. Government procurement regulations will be deemed included in
this Agreement or binding on either party unless specifically accepted
in writing and signed by both parties.
E. This Agreement will be governed by the laws of the State of California.
F. If any Clause of this Agreement is held invalid, the remainder of this
Agreement will continue unaffected.
22. NOTICES
All notices and demands issued under the terms of this Agreement shall be
in writing, delivered by fax, personal service, first class mail postage
prepaid, or by registered mail to a location set forth in this Agreement or
to HP at 5301 Steven's Creek Boulevard, P.O. Box 58059, Santa Clara,
California 95052-8059 or to the assigned local HP sales representative.
<PAGE>
U.S. DEALER ADDENDUM
1. APPOINTMENT
A. HP appoints the Reseller as a Dealer.
2. DEALER RESPONSIBILITIES
A. Dealer will advertise, promote and sell HP Products only through the
company name(s) and approved Selling Locations listed on Exhibit L and
only to end-user customers (including government and corporate users as
well as individual users) or to Resellers as permitted in the Product
Categories.
B. Dealer agrees to:
1. Advertise, promote, demonstrate and sell HP Products on a face-to-
face basis and provide pre-sales support and post-sales technical
support to all Customers.
2. Maintain at each approved Selling Location a facility in which HP
Products are displayed or demonstrated on a regular basis to end-
user customers.
3. Use catalogs and telemarketing sales techniques only in conformity
with current HP policies and only as a complement to face-to-face
sales activity unless nationwide advertising for the HP Product is
permitted in the Product Categories.
4. Ensure that no sale, advertising, promotion, display or disclosure
of any features, availability, or price of any new HP Product takes
place before HP's public announcement of that Product.
5. Identify and keep current a primary and secondary support contact
for both marketing communications. and post-sales technical support
at each approved Selling Location.
6. Report promptly to HP all suspected defects in HP Products.
7. Assist its customers in obtaining warranty repairs for HP Products
by either repairing the product itself, referring the customer to HP
or an approved HP repair provider, or returning the HP Product to
HP. If Dealer elects to provide warranty repair services to its
customers, Dealer will comply with the terms and conditions outlined
in the HP Premier Support Program Guide.
8. Ensure that its employees complete any required training courses and
certification programs designated by HP.
C. Without HP's prior written consent, Dealer will not export HP Products
to any customer outside the U.S., nor will Dealer sell HP Products for
export outside the U.S.
D. Except for sales to HP Resellers permitted in the Product Categories,
Dealer may not sell HP Products to or buy them from other Resellers for
stock balancing or any other reason.
E. Dealer may not sell, rent or lease HP Products to rental companies or
leasing companies for their subsequent rental or lease.
5. VOLUME COMMITMENT LEVELS
A. Dealer volume commitment levels are described on the attached Product
Exhibits and are based upon 12 month purchase volume levels.
B. If the term of this Agreement or any new Addendum or Product Exhibit is
less than 12 months, an applicable 12 month volume commitment level
will be calculated for Dealer by projection over a full 12 month term.
6. DEALER ORDER MILESTONES
A. Unless otherwise specified in the Product Exhibits, as of 5 months
after the effective date of this Agreement, HP will review Dealer's
progress towards its volume commitment.
1. If Dealer's orders in the first 5 months are less than 35% of its
12 month volume commitment level, then Dealer's orders during the
remaining term of this Agreement will be subject to the lower
Dealer discounts corresponding to the 12 month volume commitment
level projected by Dealer's orders in the first 5 months. If the
projected orders are below HP's minimum volume commitment level, HP
may terminate all or part of this Agreement.
2. If Dealer's orders in the first 5 months are 42% or more of the 12
month volume commitment level required for greater Dealer discounts,
then dealer's orders during the remaining term of this Agreement
will be subject to those greater discounts.
3. Dealer discounts for orders during the first 5 months of this
Agreement will not be affected by the milestone adjustments above.
B. If Dealer later cancels any order that resulted in HP granting Dealer a
higher discount level, HP may reduce Dealer's discount to the level
which would have applied had all canceled orders never been placed.
9. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Minimum resale shipments for 12 months for each approved location are
$100,000 of HP Products measured by Dealer's Net Reseller price from
HP.
B. Notwithstanding Section 9.E of the U.S. Reseller Agreement, Dealer may
elect more than six ship to locations. This election will result in a
1% reduction in Dealer's discount. In either case, the single order
point requirement of Section 9.E of the U.S. Reseller Agreement
remains. Dealer's election can be changed only at the time of the 5
month milestone review.
C. Regardless of Dealer's shipment election, supplies and accessories on
Exhibit U40X will be drop shipped to approved Shipment Locations
without charge to Dealer.
<PAGE>
AMENDMENT
To the Hewlett-Packard 1995 U.S. Reseller Agreement:
Within Section 10.E it is agreed between Hewlett-Packard Company and CompuCom
Systems, Inc. to strike the clause reading "(including serial numbers)".
Authorized Signatures Hewlett-Packard Company
- --------------------------- -----------------------
/s/ Edward R. Anderson
- --------------------------- -----------------------------
Authorized Signature Susan Weatherman
Reseller Contracts Manager
Edward R. Anderson February 28, 1996
- ------------------------ -------------- -----------------
Typed Name Effective Date Expiration Date
President/CEO
- -----------------------------
Title
<PAGE>
EXHIBIT 10(FF)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into this 15
day of July, 1995, by and between CompuCom Systems, Inc., a Delaware corporation
("Seller"), and James W. Dixon ("Purchaser").
WHEREAS, Purchaser is the Chairman of the Board of Seller and has
assisted in the growth and development of ClientLink, Inc., a Delaware
corporation (the "Company") of which Seller owns in excess of the majority of
the issued and outstanding Common Stock;
WHEREAS, Seller desires that Purchaser continue to assist the Company
with its future growth and development;
WHEREAS, in connection with the services for the Company to be provided
by Purchaser, Seller owns and desires to sell to Purchaser 150,000 shares (the
"Shares") of the Common Stock of the Company owned by Seller and Purchaser
desires to purchase such Shares, on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions herein contained, the parties hereby agree as follows:
ARTICLE I
DEFINED TERMS
As used herein, the following terms shall have the meanings set forth
below:
"AGREEMENT" shall mean this Stock Purchase Agreement, as it may be
amended from time to time in accordance with its terms.
"CHANGE OF CONTROL" shall mean any of (a) the sale by the Company of
substantially all of its assets, or (b) a merger or consolidation of the Company
or a sale of the Company's Common Stock the result of which merger,
consolidation or sale is that the majority of the Common Stock of the Company is
acquired by a person or entity other than CompuCom or its principal stockholder,
Safeguard Scientifics, Inc.
"CLOSING" shall mean the consummation of the transactions provided for
in this Agreement.
"CLOSING DATE" shall mean the date on which the Closing actually occurs
which is the date of this Agreement.
-1-
<PAGE>
"COMMON STOCK" shall mean the authorized Common Stock, $.01 par value
per share, of the Company which presently consists of 4,000,000 shares.
"ENCUMBRANCE" shall mean any option, pledge, security interest, lien,
transfer restriction, claim, charge, mortgage, trust deed, easement, lease or
other encumbrance.
"EXEMPT TRANSFERS" shall have the meaning set forth in Section 7.2(a).
"FAMILY GROUP" shall mean Purchaser's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of Purchaser and/or
Purchaser's spouse and/or descendants.
"IPO" shall mean the date on which the Company conducts a public
offering of any portion of its Common Stock under the Securities Act.
"ORIGINAL COST" of each Share shall mean $.75 (as proportionately
adjusted for all stock splits, stock dividends and other recapitalizations
affecting the Company's Common Stock subsequent to the date hereof).
"LOSSES" shall mean all claims, demands, liabilities, losses, costs,
damages, penalties and expenses (including without limitation, reasonable
attorneys' fees and expenses).
"NOTE" means that certain Term Note, in the form attached as Exhibit A
to this Agreement.
"PLEDGE AGREEMENT" means that certain Pledge Agreement, in the form
attached as Exhibit B to this Agreement.
"REPURCHASE NOTICE" shall have the meaning set forth in Section 7.1(b).
"REPURCHASE OPTION" shall have the meaning set forth in Section 7.1(a).
"SALE NOTICE" shall have the meaning set forth in Section 7.2(a).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"SHARES" shall mean the 150,000 shares of Common Stock of the Company
owned by Seller which are being sold to Purchaser.
"STOCK POWER" means that certain Stock Power, in the form attached as
Exhibit C to this Agreement.
- ---------
-2-
<PAGE>
"TERMINATION DATE" shall mean the date on which (a) Purchaser
voluntarily terminates his services with Seller for any reason (excluding,
however, Purchaser's death or disability) or (b) Purchaser's services for Seller
are terminated with or without cause pursuant to the provisions of any
employment arrangement between the Company and Purchaser.
ARTICLE II
PURCHASE AND SALE
2.1 AGREEMENT TO SELL AND PURCHASE. Subject to the terms and conditions of
------------------------------
this Agreement, at the Closing Seller shall sell to Purchaser, and Purchaser
shall purchase from Seller, all of the Shares.
2.2 PURCHASE PRICE. Subject to the terms and conditions of this Agreement,
--------------
in consideration for the Shares, Purchaser shall pay to Seller the sum of One
Hundred Twelve Thousand Five Hundred Dollars ($112,500.00) by executing and
delivering to Seller the Note, the Pledge Agreement and the Stock Power.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
3.1 AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement has been duly and
------------------------------------
validly executed and delivered by Seller and constitutes a legal, valid and
binding agreement of Seller enforceable in accordance with its terms.
3.2 NO VIOLATION. The execution, delivery and performance of this
------------
Agreement and all other instruments, agreements, certificates and documents
contemplated hereby by Seller does not, on the date hereof, (i) violate any
decree, judgment, order, writ, injunction or award of any court or governmental
authority binding upon or applicable to Seller; (ii) violate any law, rule or
regulation binding upon or applicable to Seller; (iii) violate or conflict with,
or result in a breach of, or constitute a default (or an event which, with or
without notice or lapse of time or both, would constitute a default) under, or
permit cancellation of, or result in the creation of any Encumbrance upon, any
of the Shares under any of the terms, conditions, or provisions of any contract
to which Seller is a party, or by which Seller is bound; or (iv) violate or
conflict with any provision of the Certificate or Articles of Incorporation or
Bylaws of the Company.
3.3 TITLE TO STOCK. Seller is the unconditional sole legal and equitable
--------------
owner of the Shares, free and clear of any and all Encumbrances of any kind or
nature whatsoever. At the Closing, Seller will convey to Purchaser valid and
marketable title to
-3-
<PAGE>
all of such Shares, free and clear of any and all Encumbrances of any kind or
nature whatsoever.
3.4 CONSENTS. No notice to, filing with, authorization of, exemption by,
--------
or consent of any person, entity, or public or governmental authority is
required for Seller to consummate the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
4.1 AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement has been duly and
------------------------------------
validly executed and delivered by Purchaser and constitutes a legal, valid and
binding agreement of Purchaser enforceable with its terms.
4.2 INVESTMENT REPRESENTATIONS. Purchaser will acquire the Shares for his
--------------------------
own account for investment and not with a view to the resale or distribution
thereof. Purchaser will not transfer or otherwise dispose of the Shares, or any
interest therein, in such manner as to violate any provisions of the Securities
Act or of any applicable state securities laws regulating the disposition
thereof. Purchaser agrees that the certificates representing the Shares may bear
legends to the effect that such shares have not been registered under the
Securities Act or such other state securities laws, and that no interest therein
may be transferred or otherwise disposed of in violation of the provisions
thereof or of any rules and regulations issued thereunder.
ARTICLE V
CLOSING
5.1 DATE OF CLOSING. Unless otherwise agreed upon by Purchaser and Seller,
---------------
Closing hereunder shall take place simultaneously with the execution of this
Agreement.
5.2 ACTIONS BY SELLER. At the Closing, Seller shall do the following:
-----------------
(A) SHARES. Seller shall deliver to Purchaser the original
------
certificate or certificates representing the Shares, with an appropriate stock
power with respect thereto duly endorsed in blank by Seller.
(B) OTHER AGREEMENTS. Seller shall perform or shall have performed
----------------
all of the covenants and agreements contained in this Agreement to be performed
or complied with by Seller at or prior to the Closing hereunder.
-4-
<PAGE>
5.3 ACTIONS BY PURCHASER. At the Closing, Purchaser shall:
--------------------
(A) CLOSING PAYMENT. Pay to Seller the sum of One Hundred Twelve
---------------
Thousand Five Hundred Dollars ($112,500.00). Such payment shall be made by
Purchaser executing and delivering to Seller the Note, the Pledge Agreement and
the Stock Power.
(B) OTHER AGREEMENTS. Perform or shall have performed all of the
----------------
covenants and agreements contained in this Agreement to be performed or complied
with by Purchaser at or prior to the Closing hereunder.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNITY
6.1 REPRESENTATIONS AND WARRANTIES TO SURVIVE. All statements contained in
-----------------------------------------
any agreement, certificate, instrument, schedule, or document delivered by or on
behalf of the parties pursuant to this Agreement and the transactions
contemplated hereby shall be deemed representations and warranties by the
delivering party hereunder. All representations, warranties, covenants and
agreements made by the parties each to the other in this Agreement shall be true
at the Closing and shall survive the consummation of this Agreement and the
Closing hereunder for a period of four (4) years, ending at midnight on the
fourth anniversary of the Closing Date.
6.2 INDEMNITY.
---------
(A) SELLER. Seller agrees to indemnify and hold harmless Purchaser,
------
and his successors and assigns from, against, and in respect of, any and all
Losses arising out of or resulting from any of the following:
(i) Any misrepresentation, breach of warranty, or failure to fulfill
any agreement or covenant of Seller under this Agreement or under any other
agreement or document delivered by Seller at Closing hereunder; and
(ii) Any and all actions, suits, proceedings, demands, assessments,
judgments, costs and legal and other expenses incident to any of the
foregoing.
(B) PURCHASER. Purchaser shall indemnify and hold Seller harmless
---------
from, against, and in respect of, any and all Losses arising out of or resulting
from any of the following:
(i) Any misrepresentation, breach of warranty, or failure to fulfill
any agreement or covenant of Purchaser under this Agreement or under any
other agreement or document delivered by Purchaser at Closing hereunder;
and
-5-
<PAGE>
(ii) Any and all actions, suits, proceedings, demands, assessments,
judgments, costs, and legal and other expenses incident to any of the
foregoing.
(C) INDEMNITY PROCEDURES. In case any claim, demand or action shall be
--------------------
brought by any third party including, without limitation, any governmental
authority, against a party entitled to indemnity under Section 6.2(a) or 6.2(b)
above, such party shall promptly notify the other party or parties, as the case
may be, from whom indemnity is or may validly be sought in writing and, subject
to this Section 6.2(c), the indemnifying party or parties shall assume the
defense thereof, including the employment of counsel. In addition, in case a
party hereto shall become aware of any facts which might result in any such
claim, demand or action,such party shall promptly notify the other party or
parties who would be obligated to provide indemnity hereunder with respect to
such claim, demand or action, and, subject to this Section 6.2(c), such other
party or parties shall have the right to take such action as it or they may deem
appropriate to resolve such matter. The indemnified party or parties shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties, unless the employment of such
counsel has been specifically authorized by the indemnifying party or parties.
Any settlement of any action subject to indemnity hereunder shall require the
consent of the indemnified and the indemnifying party which consent shall not be
unreasonably withheld and shall be given within five (5) days following the
giving of notice thereof. The indemnifying party or parties shall not be liable
for any settlement of any action effected without its or their consent, but if
settled with the consent of the indemnifying party or parties or if there be a
final judgment for the plaintiff in any such action, the indemnifying party or
parties shall indemnify and hold harmless the indemnified party from and against
any loss or liability by reason of such settlement or judgment. If requested by
the indemnifying party, the indemnified party shall cooperate with the
indemnifying party and its counsel and use its best efforts in contesting any
such claim or, if appropriate, in making any counter-claim or cross-complaint
against the party asserting the claim, provided that the indemnifying party will
reimburse the indemnified party for reasonable expenses incurred in so
cooperating upon presentation of receipts or other evidence of such expense. The
indemnifying party and its representatives shall have full and complete access
during reasonable hours to all books, records and files of the indemnified party
expressly related to the defense of any claim for indemnification undertaken by
the indemnifying party pursuant to this Section 6.2, or for any other purpose in
connection therewith; provided that the indemnifying party shall safeguard and
maintain the confidentiality of all such books, records and files.
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<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 REPURCHASE OPTION.
-----------------
(A) Subject to the limitations contained in this Section 7.1(a),
Seller or its designee will have the option to repurchase (the "Repurchase
Option") the Shares at a price per share equal to the sum of (i) the Original
Cost plus (ii) interest on the Original Cost at eight percent (8%) per annum
from the date of this Agreement to the date of closing of such repurchase, in
the event that prior to January 1, 1999 (A) Purchaser voluntarily terminates his
services with Seller for any reason (excluding, however, Purchaser's death or
disability) or (B) Purchaser's services for Seller are terminated with or
without cause pursuant to the provisions of any employment arrangement between
the Company and Purchaser. The number of Shares which Seller shall be entitled
to repurchase pursuant to this Section 7.1 shall be as follows:
(i) Any or all of the Shares in the event the Termination Date
occurs before January 1, 1996;
(ii) Up to 75% of the Shares in the event the Termination Date
occurs after January 1, 1996 but before January 1, 1997;
(iii) Up to 50% of the Shares in the event the Termination Date
occurs after January 1, 1997 but before January 1, 1998; and
(iv) Up to 25% of the Shares in the event the Termination Date
occurs after January 1, 1998 but before January 1, 1999.
(B) Subject to the limitations contained in Section 7.1(a), Seller
may elect to purchase all or any portion of the Shares by delivery of written
notice (the "Repurchase Notice") to the holder or holders of the Shares within
sixty (60) days after the Termination Date. The Repurchase Notice shall set
forth the number of Shares to be acquired from such holder(s), the aggregate
consideration to be paid for such Shares, and the time and place for the closing
of the transaction. The number of Shares to be repurchased by Seller shall first
be satisfied to the extent possible from the Shares then held by Purchaser at
the time of delivery of the Repurchase Notice. If the number of Shares then held
by Purchaser is less than the total number of Shares Seller has elected to
purchase, Seller shall purchase the remaining Shares elected to be purchased
from the other holder(s) of the Shares, pro rata according to the number of
Shares held by such other holder(s) at the time of delivery of such Repurchase
Notice (determined as nearly as practicable to the nearest Share).
(C) The closing of the purchase transaction provided for in this
Section 7.1 shall take place on the date designated by Seller in the Repurchase
Notice, which
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<PAGE>
date shall not be more than thirty (30) days and not less than ten (10) days
after delivery of the Repurchase Notice. Seller or its designee will pay for the
Shares to be purchased pursuant to the Repurchase Option by delivery of
immediately available funds. The purchasers of the Shares pursuant to this
Section 7.1 will be entitled to receive customary representations and warranties
from the sale regarding the Seller's good title to, and freedom from
Encumbrances on, the Shares.
(D) The Repurchase Option set forth in this Section 7.1 will continue
with respect to each of the Shares until the earlier of (i) the IPO, (ii)
January 1, 1999 and (iii) a Change of Control occurs.
7.2 RESTRICTIONS ON TRANSFER.
------------------------
(A) Purchaser will not sell, pledge or otherwise transfer any
interest in any Shares except pursuant to the provisions of Section 7.1 ("Exempt
Transfers") and except pursuant to the provisions of this Section 7.2. At least
sixty (60) days prior to making any transfer other than an Exempt Transfer,
Purchaser will deliver a written notice (the "Sale Notice") to Seller. The Sale
Notice will disclose in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the proposed transfer. Purchaser
(and Purchaser's transferees) agree not to consummate any such transfer until
sixty (60) days after the Sale Notice has been delivered to Seller. Seller or
its designee may elect to purchase all (but not less than all) of the Shares to
be transferred upon the same terms and conditions as set forth in the Sale
Notice by delivering a written notice of such election to Purchaser within
thirty (30) days after the receipt of the Sale Notice by Seller. Seller or its
designee will be given up to sixty (60) days after receipt of the Sale Notice by
Purchaser to consummate the purchase and sale of Shares. If Seller or its
designee has not elected to purchase all of the Shares specified in the Sale
Notice, Purchaser may, subject to the provisions of Section 7.2(c), transfer the
Shares specified in the Sale Notice at a price and on terms no more favorable to
the transferee(s) thereof than specified in the Sale Notice during the 60-day
period immediately following the earlier of (i) the date on which Seller's right
of first refusal hereunder expires or (ii) the date on which Seller delivers
written notice to Purchaser of its election not to exercise its right of first
refusal. Any Shares not transferred within such 60-day period will be subject to
the provisions of this Section 7.2(b) upon subsequent transfer.
(B) The restrictions contained in this Section 7.2 will not apply
with respect to transfers of Shares (i) pursuant to applicable laws of descent
and distribution or (ii) among Purchaser's Family Group; provided that the
--------
restrictions contained in this Section 7.2 will continue to be applicable to the
Shares after any such transfer and the transferees of such Shares have agreed in
writing to be bound by the provisions of this Agreement.
(C) The restrictions on the transfer of Shares set forth in this
Section 7.2 will continue with respect to each of the Shares until the earlier
of (i) the IPO and (ii) a Change of Control occurs.
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<PAGE>
(D) The certificates representing the Shares will bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR EXEMPTION FROM REGISTRATION THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCK PURCHASE AGREEMENT
BETWEEN COMPUCOM SYSTEMS, INC. AND JAMES W. DIXON DATED AS OF JULY __,
1995, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
7.3 FURTHER INSTRUMENTS. The parties hereto agree to execute and deliver
-------------------
such instruments and take such other action as shall be reasonably necessary, or
as shall be reasonably requested by any other party, in order to carry out the
transactions, agreements and covenants contemplated in this Agreement at or
prior to the Closing Date.
7.4 NOTICES. Any notices, claims or demands which any party is required or
may desire to give to another under or in conjunction with this Agreement shall
be in writing, and shall be given by addressing the same to such other
party(ies) at the address set forth below, and by (i) depositing the same so
addressed, postage prepaid, first class, certified or registered, in the United
States mail (herein referred to as "Mailing"), (ii) overnight delivery by a
nationally recognized overnight courier service (e.g. UPS, Federal Express),
(iii) delivery the same personally to such other party(ies), or (iv)
transmitting by facsimile and Mailing the original. Any notice shall be deemed
to have been given five (5) U.S. Post Office delivery days following the date of
Mailing; one day after timely delivery to an overnight courier; if by personal
delivery, upon such delivery; or if by facsimile, the day of transmission if
made within customary business hours, or if not transmitted within customary
business hours, the following business day.
(A) If to Seller:
CompuCom Systems, Inc.
10100 North Central Expressway
Dallas, Texas 75231
Attention: Chief Financial Officer
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<PAGE>
(B) If to Purchaser:
James W. Dixon
5447 Surrey Circle
Dallas, Texas 75209
Any party may change the address or facsimile telephone number for notices to be
sent to it by written notice delivered pursuant to the terms of this Section
7.4.
7.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the documents to be
----------------------------
delivered at Closing hereunder set forth the entire understanding of the parties
and supersede all prior agreements or understandings, whether written or oral,
with respect to the subject matter hereof. This Agreement may be amended,
modified or supplemented but only in writing by Purchaser and Seller.
7.6 BINDING EFFECT/ASSIGNABILITY. This Agreement shall extend to and be
----------------------------
binding upon and inure to the benefit of the parties hereto, their respective
heirs, legal representatives, successors and assigns. Seller shall not be
entitled to assign any of its rights or obligations under this Agreement.
7.7 INVALID PROVISIONS. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provisions shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof with the remaining provisions
remaining in full force and effect and not affected by the illegal, invalid or
unenforceable provision or by severance herefrom. Furthermore, in lieu of such
illegal, invalid or unenforceable provision there shall be added automatically
as part of this Agreement a provision similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and still be legal, valid and
enforceable.
7.8 HEADINGS/CAPTIONS. The captions to sections and subsections of this
-----------------
Agreement have been inserted solely for convenience and reference, and shall not
control or affect the meaning or construction of any of the provisions of this
Agreement.
7.9 WAIVER; REMEDIES. Waiver by any party hereto of any breach of or
----------------
exercise of any rights under this Agreement shall not be deemed to be a waiver
of similar or other breaches or rights or a future breach of the same duty. The
failure of a party to take any action by reason of any such breach or to
exercise any such right shall not deprive any party of the right to take any
action at any time while such breach or condition giving rise to such right
continues. Except as expressly limited by this Agreement, the parties shall have
all remedies permitted to them by this Agreement or law, and all such remedies
shall be cumulative.
-10-
<PAGE>
7.10 ATTORNEY'S FEES AND COSTS. In the event of a breach by any party to
-------------------------
this Agreement and commencement of a subsequent legal action in a court of law
or forum of arbitration, or in the event legal counsel is consulted in the event
of any such breach or in anticipation of any such prospective legal action, the
prevailing party in any such dispute shall be entitled to reimbursement of
reasonable attorney's fees and court costs, including, but not limited to, the
costs of expert witnesses, transportation, lodging and meal costs of the parties
and witnesses, costs of transcript preparation and other reasonable and
necessary direct and incidental costs of such dispute. "Prevailing party" is the
party in whose favor final judgment is rendered.
7.11 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
set forth above.
SELLER:
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
-------------------------------------
Its: Senior Vice President - CFO
-------------------------------------
PURCHASER:
/s James W. Dixon
----------------------------------------
JAMES W. DIXON
-11-
<PAGE>
TERM NOTE
$112,500 Dallas, Texas July 15, 1995
FOR VALUE RECEIVED, James W. Dixon, an individual residing at 5447 Surrey
Circle, Dallas, Texas 75209 (the "MAKER") promises to pay to the order of
CompuCom Systems, Inc. ("PAYEE"), the principal sum of One Hundred Twelve
Thousand Five Hundred Dollars ($112,500.00), together with interest on the
unpaid principal balance as set forth below. All sums hereunder are payable to
Payee at CompuCom Systems, Inc., 10100 North Central Expressway, Dallas, Texas
75231, Attention: Chief Financial Officer.
1. DEFINITIONS. The following terms shall have the following meanings:
-----------
"MAXIMUM RATE" means the higher of the maximum interest rate allowed
by applicable United States or Texas law as amended from time to time and
in effect on the date for which a determination of interest accrued
hereunder is made. The determination of the maximum rate permitted by
applicable Texas law shall be made pursuant to the indicated rate ceiling
as defined in Tex.Rev.Civ.Stat.Ann. art. 5069-1.04, but the Lender reserves
the right to implement from time to time any other rate ceiling permitted
by such law.
2. INTEREST RATE.
-------------
(a) The unpaid principal balance from the date hereof until maturity
(whether by acceleration or otherwise) shall bear interest at eight percent
(8%) per annum.
(b) All past-due payments of principal and interest under this Note
shall bear interest at the Maximum Rate (or if there is no such Maximum
Rate, then at 12%) from maturity until paid.
3. PAYMENT OF PRINCIPAL AND INTEREST.
---------------------------------
(a) The principal of this Note shall be due and payable on July 15,
2000 unless prior to such date (i) Maker voluntarily terminates his
services with Payee for any reason (excluding, however, Maker's death or
disability) or (ii) Maker's services for Payee are terminated with or
without cause pursuant to the provisions of any employment arrangement
between Maker and Payee, in either of which cases the principal balance of
this Note shall be due and payable thirty (30) days after such termination
of Maker's employment with Payee. Interest on this Note shall be due and
payable on July __ of each year commencing July __, 1996 and continuing on
the same day of each year thereafter until the principal of this Note
becomes due and payable.
TERM NOTE - PAGE 1 ____________________________
Initialed for Identification
<PAGE>
(b) Unless the Lender in its sole discretion elects to apply payments
differently, each payment shall be first credited to the discharge of
interest accrued on the unpaid principal balance to the date of the
payment, and the remainder shall be credited to the reduction of said
principal.
(C) The principal and interest due hereunder shall be evidenced by
the Lender's records which, absent manifest error, shall be conclusive
evidence of the computation of principal and interest balances owed by the
Maker to the Lender.
4. DEFAULT. Failure to pay the principal and interest of this Note as
-------
they become due, or failure of the undersigned or any other person to perform
(after the expiration of any applicable cure period) any of the terms or
provisions set forth in, or the occurrence of any event of default under the
terms of that certain Pledge Agreement of even date herewith between Maker and
Payee (the "Pledge Agreement"), shall, at the election of the holder hereof,
without notice, demand or presentment, which are hereby waived, mature the
principal of this Note and all interest then accrued, and the same shall at once
become due and payable and subject to those remedies of the holder hereof.
5. PREPAYMENT. Maker may at any time prepay in whole or in part the
----------
unpaid principal of this Note without premium or penalty, and the interest shall
immediately cease on any amounts so prepaid.
6. WAIVER. Each surety, endorser, guarantor and any other party now or
------
hereafter liable for the payment of this Note in whole or in part ("Surety") and
the Maker hereby severally (a) waive grace, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, non-payment or dishonor,
notice of intent to accelerate, notice of acceleration and all other notices,
filing of suit and diligence in collecting this Note or enforcing any other
security with respect to same, (b) agree to any substitution, surrender,
subordination, waiver, modification, change, exchange or release of any security
or the release of the liability of any parties primarily or secondarily liable
hereon, (c) agree that the Lender is not required first to institute suit or
exhaust its remedies hereon against the Maker, any Surety or others liable or to
become liable hereon or to enforce its rights against them or any security with
respect to same or to join any of them in any suit against any others of them,
and (d) consent to any extension or postponement of time of payment of this Note
and to any other indulgence with respect hereto without notice thereof to any of
them. No failure or delay on the part of the Lender in exercising any right,
power or privilege hereunder shall operate as a waiver thereof.
7. ATTORNEYS' FEES. If this Note is not paid at maturity, regardless of
---------------
how such maturity may be brought about, or is collected or attempted to be
collected through the initiation or prosecution of any suit or through any
probate, bankruptcy or any other judicial proceedings, or is placed in the hands
of an attorney for collection, the Maker shall pay, in addition to all other
amounts owing hereunder, all actual
TERM NOTE - Page 2 ____________________________
Initialed for Identification
<PAGE>
expenses of collection, all court costs and reasonable attorney's fees incurred
by the holder hereof.
8. LIMITATION ON AGREEMENTS. All agreements between the Maker and the
------------------------
Lender, whether now existing or hereafter arising, are hereby limited so that in
no event shall the amount paid, or agreed to be paid to or charged or demanded
by the Lender for the use, forbearance, or detention of money or for the payment
or performance of any covenant or obligation contained herein or in any other
document evidencing, securing or pertaining to this Note, exceed the Maximum
Rate. If any circumstance otherwise would cause the amount paid, charged or
demanded to exceed the Maximum Rate, the amount paid or agreed to be paid to or
charged or demanded by the Lender shall be reduced to the Maximum Rate, and if
the Lender ever receives interest which otherwise would exceed the Maximum Rate,
such amount which would be excessive interest shall be applied to the reduction
of the principal of this Note and not to the payment of interest, or if such
excessive interest otherwise would exceed the unpaid balance of principal of
this Note such excess shall be applied first to other indebtedness of the Maker
to the Lender, and the balance, if any, shall be refunded to the Maker. In
determining whether the interest paid, agreed to be paid, charged or demanded
hereunder exceeds the highest amount permitted by applicable law, all sums paid
or agreed to be paid to or charged or demanded by the Lender for the use,
forbearance or detention of the indebtedness of the Maker to the Lender shall,
to the extent permitted by applicable law, (i) be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in full
so that the actual rate of interest on account of such indebtedness is uniform
throughout such term, (ii) be characterized as a fee, expense or other charge
other than interest, and (iii) exclude any voluntary prepayments and the effects
thereof. The terms and provisions of this paragraph shall control and supersede
every other provision of all agreements between the Lender and the Maker in
conflict herewith.
9. GOVERNING LAW AND VENUE. This Note and the rights and obligations of
-----------------------
the parties hereunder shall be governed by the laws of the United States of
America and by the laws of the State of Texas, and is performable in Dallas
County, Texas.
10. BUSINESS DAY. If any action is required or permitted to be taken
------------
hereunder on a Sunday, legal holiday or other day on which banking institutions
in the State of Texas are authorized or required to close (a "Non-Business
Day"), such action shall be taken on the next succeeding day which is not a Non-
Business Day, and, to the extent applicable, interest on the unpaid principal
balance shall continue to accrue at the applicable rate.
11. SECURITY. This Note is the Note referred to in the Pledge Agreement,
--------
and is entitled to the benefits thereof and the security as provided for
therein. Reference is made to the Pledge Agreement for a statement of the rights
and obligations of Maker, a description of the nature and extent of the security
and the rights of the parties in respect to such security, and a statement of
the terms and conditions under which the due date of this Note may be
accelerated.
TERM NOTE - Page 3 ____________________________
Initialed for Identification
<PAGE>
12. VENUE. Any suit, action, or proceeding arising out of or in any manner
-----
relating to this Note may be brought in the courts of the State of Texas, County
of Dallas, or in the United States District Court for the Northern District of
Texas, Dallas Division. Maker irrevocably waives any objections which it may now
or hereafter have (including any based on the ground of forum non conveniens) to
--------------------
the laying of venue of any suit, action, or proceeding arising out of or
relating to this Note brought in the courts located in the State of Texas,
County of Dallas. Nothing herein impairs the right to bring proceedings in the
courts of any other jurisdiction.
/s/ James W. Dixon
--------------------------------
James W. Dixon
TERM NOTE - Page 4
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT ("PLEDGE AGREEMENT") made as of the 15 day of July, 1995
between James W. Dixon ("PLEDGOR"), and CompuCom Systems, Inc., a Delaware
corporation ("SECURED PARTY").
1. DEFINITIONS. In addition to the terms defined elsewhere in this Pledge
-----------
Agreement, the following terms shall have the following meanings for purposes of
this Pledge Agreement:
(a) The term "EVENT OF DEFAULT" shall have the meaning set forth in
Section 9.
---------
(b) The term "NOTE" shall mean that certain Term Note, dated of even
date herewith, in the original principal amount of One Hundred Twelve
Thousand Five Hundred Dollars ($112,500.00), which Pledgor has executed, or
is in the process of executing, payable to the order of Secured Party,
together with any and all concurrent or subsequent extensions, amendments,
or modifications thereto.
(c) The term "OBLIGATIONS" shall mean and includes all obligations
of Pledgor to Secured Party pursuant to the terms of the Note and this
Pledge Agreement.
2. PLEDGE. Upon the terms hereof, Pledgor hereby pledges and grants to
------
Secured Party a lien on and security interest (the "SECURITY INTEREST") in and
to all of the right, title and interest of Pledgor in and to all of the
following instruments and property (all of the following being herein sometimes
called the "COLLATERAL"):
(a) One Hundred Fifty Thousand (150,000) shares of voting Common
Stock of ClientLink, Inc., a Delaware corporation, presently registered in
the name of Secured Party which are being sold by Secured Party to Pledgor
and which are evidenced by share certificate No. _____________;
(b) All securities and other property, rights or interests of any
description at any time issued or issuable as an addition to, in
substitution or exchange for, with respect to, incident to or in lieu of
such shares described in Section 2(a) or with respect to, incident to or in
------------
lieu of the Collateral (i) due to any dividend, stock-split, stock dividend
or distribution on dissolution, on partial or total liquidation, or other
corporate reorganization; or for any other reason; (ii) in connection with
a reduction of capital, capital surplus or paid-in surplus; or (iii) in
connection with any spin-off, split-off, reclassification, readjustment,
merger, consolidation, sale of assets, combination of shares or any other
plan of distribution affecting the companies which have issued the shares
described in Section 2(a); and
------------
PLEDGE AGREEMENT - Page 1
<PAGE>
(c) Any and all proceeds, monies, income and benefits arising from or
by virtue of, and all dividends and distributions (cash or otherwise)
payable and/or distributable with respect to, all or any of the shares or
other securities and rights and interests described herein.
3. OBLIGATIONS SECURED. This Pledge Agreement and the Security Interest
-------------------
granted hereby secure the prompt satisfaction of the Obligations.
4. WARRANTIES. Pledgor represents, warrants, covenants and agrees to and
----------
with Secured Party that: (a) Pledgor is the legal and beneficial owner of the
Collateral; (b) the Collateral is duly authorized and issued, fully paid, and
nonassessable; (c) no dispute, right of setoff, counterclaim or defense exists
with respect to all or any part of the Collateral; (d) all of the shares of the
Collateral are owned by Pledgor free of any pledge, mortgage, hypothecation,
lien, charge, encumbrance or security interest or purchase right or option on
the part of any third person in such shares or the proceeds thereof, except the
Security Interest; (e) other than certain restrictions in favor of Secured
Party, there are no restrictions upon the transfer of any of the shares
constituting the Collateral, other than as may appear on the face of the
certificates; (f) Pledgor has the full power, authority and legal right to
transfer and pledge the Collateral free of any encumbrances and without
obtaining the consent of the other shareholders of the issuer of the Collateral;
(g) this Pledge Agreement has been duly authorized, executed and delivered by
Pledgor and constitutes a legal, valid and binding obligation of Pledgor
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights and, to the extent that such
instruments require or may require, enforcement by a court of equity, such
principles of equity as the court may have jurisdiction to impose; and (i) upon
delivery of the Collateral to Secured Party, this Pledge Agreement will create a
valid and perfected first priority lien upon, and security interest in, the
Collateral and the proceeds thereof, securing the payment of the Obligations.
The delivery at any time by Pledgor to Secured Party of Collateral shall
constitute a representation and warranty by Pledgor under this Pledge Agreement
that, with respect to such Collateral and each item thereof: (1) Pledgor is the
owner of the Collateral; and (2) the matters heretofore warranted in clauses (a)
through (i) of this Section 4 are true and correct.
---------
5. COVENANTS. Pledgor covenants to do or not to do, as the case may be,
---------
each of the following; provided, however, in the case of a negative covenant,
-------- -------
Pledgor will not undertake any of the proscribed activities without the prior
written consent of Secured Party: (a) from time to time promptly to execute,
assign, endorse and deliver to Secured Party all proxies, applications,
acceptances, stock powers, chattel paper, documents, instruments or other
evidences of payment or writing constituting or relating to any of the
Collateral, and all such other assignments, certificates, supplemental writings,
and financing statements and do all other acts or things as Secured Party may
reasonably request in order more fully to evidence and perfect the Security
Interest; (b) promptly to furnish Secured Party with any information or writings
which Secured Party may reasonably request concerning the Collateral; (c) to
allow Secured Party to inspect all records of Pledgor relating to the Collateral
or to the Obligations, and to make and take
PLEDGE AGREEMENT - Page 2
<PAGE>
away copies of such records during normal business hours; (d) promptly to notify
Secured Party of any change in any fact or circumstance warranted or represented
by Pledgor in this Pledge Agreement or in any other writing furnished by Pledgor
to Secured Party in connection with the Collateral or the Obligations; (e)
promptly to notify Secured Party of any claim, action or proceeding affecting
title to the Collateral, or any part thereof, or the Security Interest, and at
the request of Secured Party, appear in and defend, at Pledgor's expense, any
such action or proceeding; (f) promptly to pay to Secured Party the amount of
all court costs and reasonable attorneys' fees incurred by Secured Party
hereunder; (g) except to the extent prohibited by applicable law, pay all
expenses incurred in the custody, preservation, use or operation of the
Collateral; and (h) promptly to deliver to Secured Party, in the exact form
received, all securities and other property described in Section 2(b) and
------------
Section 2(d) hereof which comes into the possession, custody or control of
- ------------
Pledgor. Pledgor further covenants and agrees that, without the prior written
consent of Secured Party, Pledgor shall not sell, assign or transfer Pledgor's
rights in the Collateral, or create any other lien or security interest in, or
otherwise encumber any of the Collateral, or permit any of the Collateral ever
to be or become subject to any lien, attachment, execution, sequestration, other
legal or equitable process, or any lien or encumbrance of any kind. All
assignments and endorsements by Pledgor shall be in such form and substance as
may be satisfactory to Secured Party. Should any covenant, duty or agreement of
Pledgor fail to be performed in accordance with its terms hereunder, Secured
Party may, but shall never be obligated to, perform or attempt to perform such
covenant, duty or agreement on behalf of Pledgor, and any amount expended by
Secured Party in such performance or attempted performance shall become part of
the Obligations, except to the extent prohibited by applicable law, and, at the
request of Secured Party, or unless otherwise agreed, Pledgor agrees to pay such
amount promptly to Secured Party.
6. ADJUSTMENTS AND DISTRIBUTIONS CONCERNING COLLATERAL. Should the
---------------------------------------------------
Collateral, or any part thereof, ever be converted in any manner by its issuer
into another type of property or any money or other proceeds ever be paid or
delivered to Pledgor as a result of Pledgor's rights in the Collateral, then in
any such event (except as provided in Section 7 hereof), all such property,
---------
money and other proceeds shall immediately be and become part of the Collateral,
and Pledgor covenants to pay forthwith and deliver all such property, money or
other proceeds so received to Secured Party; and, if Secured Party deems it
necessary and so requests, to endorse properly or assign any and all such other
proceeds to Secured Party and to deliver to Secured Party any and all such other
proceeds which require perfection by possession under the Uniform Commercial
Code of the State of Texas or other appropriate jurisdiction (the "UCC"). With
respect to any of such property of a kind requiring an additional security
agreement, financing statement or other writing to perfect a security interest
therein in favor of Secured Party, Pledgor will forthwith execute and deliver to
Secured Party whatever Secured Party shall deem necessary or proper for such
purpose.
7. CASH DIVIDENDS AND VOTING RIGHTS. Unless an Event of Default has
--------------------------------
occurred and shall not have been waived by Secured Party, Pledgor is entitled
(a) to exercise all voting rights with respect to the Collateral and (b) to
receive for its own use
PLEDGE AGREEMENT - Page 3
<PAGE>
cash dividends on the Collateral. Upon the occurrence of an Event of Default,
Secured Party may require any such cash dividends to be delivered to Secured
Party as additional Collateral hereunder or applied toward the satisfaction of
the Obligations.
8. REGISTRATION OF COLLATERAL IN NAME OF SECURED PARTY. Upon the
---------------------------------------------------
occurrence of an Event of Default Secured Party, at its option, may have any or
all of the Collateral registered in its name or that of its nominee, and Pledgor
hereby covenants that, upon Secured Party's request, Pledgor will cause the
issuer of the Collateral to effect such registration. Immediately and without
further notice, upon the occurrence of an Event of Default, whether or not the
Collateral shall have been registered in the name of Secured Party or its
nominee, Secured Party or its nominee shall have, with respect to the
Collateral, the right to exercise all voting rights and all other corporate
rights and all conversion, exchange, subscription or other rights, privileges or
options pertaining thereto as if it were the absolute owner thereof, including,
without limitation, the right to exchange any or all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the issuer thereof, or upon the exercise by such issuer of any right, privilege,
or option pertaining to any of the Collateral, and, in connection therewith, to
deliver any of the Collateral to any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine, all without liability except to account for property actually
received by it; but Secured Party shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure to do so, delay in doing so, or depreciation in the value of the
Collateral by reason of doing so.
9. EVENTS OF DEFAULT. The occurrence of any one or more of the following
-----------------
shall constitute an Event of Default:
(a) The failure of Pledgor to make timely payment of any portion of
the principal or interest of the Note or any portion of the Obligations
when due subject to any applicable cure periods;
(b) The failure of Pledgor to perform fully, faithfully and promptly
any material agreements, covenants and conditions contained in this Pledge
Agreement;
(c) The making of any statement, representation, covenant or warranty
by Pledgor in this Pledge Agreement or in any certificate, agreement,
instrument or statement contemplated hereby or made or delivered pursuant
hereto, or in connection herewith, or in any other written agreement
between Pledgor and Secured Party which is untrue or misleading in any
material respect at the time such statement, representation, warranty or
covenant is made;
(d) The levy against the Collateral, or any substantial part thereof,
or any execution, attachment, sequestration, restraint warrant or other
like or similar writ or the attachment to the Collateral of any lien other
than the Security Interest;
PLEDGE AGREEMENT - Page 4
<PAGE>
(e) The entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of Pledgor in an involuntary case
under the United States bankruptcy laws as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency or other
similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of Pledgor or of any
substantial part of Pledgor's property, or ordering the winding-up or
liquidation of the affairs of Pledgor and the continuance of any such
decree or order unstayed and in effect for a period of thirty (30)
consecutive days; or
(f) The commencement by Pledgor of a voluntary case under the United
States bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other similar
law, or the consent by Pledgor to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or
similar official) of Pledgor for any substantial part of Pledgor's
property, or the making by Pledgeor of any assignment for the benefit of
creditors, or the inability of Pledgor generally to pay his debts as such
debts become due, or the taking of any action by Pledgor in furtherance of
any of the foregoing.
10. REMEDIES. Upon the occurrence of an Event of Default, in addition to
--------
any and all other rights and remedies which Secured Party may then have
hereunder, under the UCC or otherwise, Secured Party may at its discretion and
without notice to Pledgor do any one or more of the following, without liability
except to account for property actually received by it, and Pledgor agrees that
it is commercially reasonable for Secured Party to do any of the following:
(a) declare the entire unpaid balance of principal of and all accrued interest
on the Obligations immediately due and payable without notice, including without
limitation, notice of acceleration and notice of intent to accelerate, demand,
or presentment, which are hereby waived; (b) transfer to or register in its name
or the name of its nominee (if the same has not already been done) any of the
Collateral with or without indication of the security interest herein created,
and whether or not so transferred or registered, receive the income, dividends
and other distributions thereon and hold them or apply them to the Obligations
in any order of payment; (c) exercise or cause to be exercised all voting powers
with respect to any of the Collateral so registered or transferred, including
all rights to conversion, exchange, subscription or any other rights, privileges
or options pertaining to such Collateral, as if the absolute owner thereof; (d)
exchange any of the Collateral for other property upon a reorganization,
recapitalization or other readjustment and, in connection therewith, deposit any
of the Collateral with any committee or depository upon such terms as Secured
Party may determine; (e) in its name or in the name of Pledgor demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral and, in connection
therewith, endorse notes, checks, drafts, money orders, documents of title or
other evidences of payment, shipment or storage in the name of Pledgor; (f) make
any compromise or settlement deemed advisable with respect to any of the
Collateral; (g) renew, extend, or otherwise change the terms and conditions of
any of the Collateral or otherwise change the terms and conditions of any of the
Collateral or the Obligations; (h) take or release any other collateral as
security for
PLEDGE AGREEMENT - Page 5
<PAGE>
any of the Collateral or the Obligations; (i) add or release any guarantor,
indorser, surety or other party to any of the Collateral or the Obligations; (j)
reduce its claim to judgment or foreclose or otherwise enforce the Security
Interest, in whole or in part, by any available judicial procedure; (k) without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon Pledgor or any other person (all of which are, to the extent
permitted by law, hereby expressly waived), forthwith realize upon the
Collateral or any part thereof, and may forthwith sell or otherwise dispose of
or deliver the Collateral or any part thereof or interest therein, in one or
more parcels at public or private sale or sales, at any exchange, broker's board
or at Secured Party's office or elsewhere, at such prices and on such terms
(including, but without limitation, a requirement that any purchaser of all or
any part of the Collateral purchase the shares constituting the Collateral for
investment without any intention to make any distribution thereof) as it may
deem best (it being agreed that the sale of any part of the Collateral shall not
exhaust Secured Party's power of sale, but sales may be made from time to time
until all of the Collateral has been sold or until the Obligations have been
paid in full without any intention to make any distribution thereof), for cash
or on credit, or for future delivery without assumption of any credit risk, with
the right of Secured Party or any purchaser to purchase upon any such sale the
whole or any part of the Collateral free from any right or equity of redemption
in Pledgor, which right or equity is hereby expressly waived and released, and
at any such sale it shall not be necessary to exhibit the Collateral; (l) apply
by appropriate judicial proceedings for appointment of a receiver for the
Collateral, or any part thereof, and Pledgor hereby consents to any such
appointment; (m) at its discretion, retain the Collateral in satisfaction of the
Obligations whenever the circumstances are such that Secured Party is entitled
to do so under the UCC or otherwise; (n) exercise any and all other rights it
may have hereunder or under the UCC or otherwise. Pledgor hereby grants to
Secured Party an irrevocable proxy coupled with an interest to exercise as to
such Collateral, upon the occurrence of an Event of Default, all rights, powers
and remedies of an owner and all of the rights, powers and remedies hereinabove
set forth, the proxy herein granted to exist until all of the Obligations have
been paid and performed in full.
11. APPLICATION OF PROCEEDS. The proceeds of any disposition of the
-----------------------
Collateral or other action by Secured Party shall be applied (a) first, to the
cost and expenses incurred in connection therewith or incidental thereto or to
the care or safekeeping of any of the Collateral or in any way relating to the
rights of Secured Party hereunder, including reasonable attorneys' fees and
legal expenses; (b) then, to the satisfaction of the Obligations in such order
as Secured Party may elect; (c) then, to the payment of any other amounts
required by applicable law (including, without limitation, Section 9.504(a)(3)
of the UCC); and (d) then, to Pledgor to the extent of any surplus proceeds.
Secured Party shall be under no duty to exercise or to withhold the exercise of
any of the rights, powers, privileges and options expressly or implicitly
granted to Secured Party in this Pledge Agreement, and shall not be responsible
for any failure to do so or delay in so doing.
PLEDGE AGREEMENT - Page 6
<PAGE>
12. LAWS AND AGREEMENTS. Pledgor agrees that, because of the Securities
-------------------
Act of 1933, as amended (the "SECURITIES ACT"), to the extent applicable, or any
other laws or regulations, and for other reasons, including in order to obtain
any required approval of the purchase or purchaser by any governmental
regulatory agency or officers, there may be legal and/or practical restrictions
or limitations affecting Secured Party in any attempts to dispose of certain
portions of the Collateral and for enforcement of its rights. For these reasons,
Secured Party is hereby authorized by Pledgor, but not obligated, in the event
of the occurrence of an Event of Default, to sell all or any part of the
Collateral at private sale, subject to investment letter or in any other manner
which will not require the Collateral, or any part thereof, to be registered in
accordance with any laws or regulations, including but not limited to the
Securities Act of 1933, to the extent applicable, or the rules and regulations
promulgated thereunder, or make it necessary to obtain any required approval of
the purchase or the purchaser by any governmental regulatory agency or officer,
at the best price reasonably obtainable by Secured Party at such private sale or
other disposition in the manner mentioned above. Pledgor understands that
Secured Party may in its discretion approach a restricted number of potential
purchasers and that a sale under such circumstances may yield a lower price for
the Collateral, or any part or parts thereof, than would otherwise be obtainable
if same were either offered to a large number of potential purchasers, or
registered and sold in the open market. Pledgor agrees that such private sales
shall be deemed to have been made in a commercially reasonable manner and that
Secured Party has no obligation to delay sale of any Collateral to permit the
issuer thereof to register it for public sale under any applicable federal or
state securities laws, and that Secured Party shall not be liable or accountable
to Pledgor, nor shall the Obligations be subject to any reduction by reason of
the fact that the proceeds of sale subject to any such limitation or restriction
are less than otherwise might have been obtained.
13. NOTIFICATION OF SALE. Reasonable notification of the time and place of
--------------------
any public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be
made, shall be sent to Pledgor and to any other person entitled under the UCC to
notice; provided that if any of the Collateral threatens to decline speedily in
value or is of the type customarily sold on a recognized market, Secured Party
may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than five (5) calendar days prior to the taking of the action to
which the notice relates is reasonable notification and notice for the purposes
of this paragraph.
14. SATISFACTION OF OBLIGATIONS. Upon the satisfaction in full of all
---------------------------
Obligations and the satisfaction of all additional costs and expenses of Secured
Party as provided herein, this Pledge Agreement shall terminate, and Secured
Party shall deliver to Pledgor, at Pledgor's expense, such of the Collateral as
shall not have been sold or otherwise applied pursuant to this Pledge Agreement.
15. NOTICES. Any notice required or permitted by this Pledge Agreement
-------
shall be deemed to have been given or made when deposited in the United States
Mail, postage prepaid, certified mail, return receipt requested, addressed to
the parties at the
PLEDGE AGREEMENT - Page 7
<PAGE>
addresses set forth opposite their respective signatures below, or, if hand
delivered, upon actual receipt.
16. DUTIES OF SECURED PARTY. Secured Party's duty with respect to any
-----------------------
Collateral now or hereafter in the possession of Secured Party is solely to use
reasonable care in the custody and preservation of the Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation in the Collateral if the Collateral is accorded treatment
substantially equal to that which Secured Party accords its own property, it
being understood that Secured Party shall not have any responsibility for
ascertaining or taking action with respect to fixing or preserving rights
against prior parties to the Collateral, calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral or for informing
Pledgor of such matters whether or not Secured Party has or is deemed to have
any knowledge of such matters. Secured Party shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties
or to protect, perfect, preserve or maintain any security interest given to
secure the Collateral. Secured Party shall never be liable for its failure to
use due diligence in the collection of the Obligations, or any part thereof, or
for its failure to give notice to Pledgor of default in the payment of the
Obligations, or any part thereof, or in the payment of or upon any security,
whether pledged hereunder or otherwise. Secured Party shall not be liable for a
decline in the market value of the Collateral.
17. INDEMNIFICATION. Pledgor hereby agrees to indemnify and to hold
---------------
Secured Party harmless from and against any loss, claim, demand or expense
(including attorneys' fees) by reason, or in any manner related to, the
Collateral, including any such claim as may arise by reason of any alleged
breach of warranty concerning the Collateral, by reason of the failure of
Pledgor to comply with any state or federal statute, rule, regulation, order or
decree, or by reason of Secured Party's efforts to enforce payment of the
Obligations, including expenses incurred in satisfying any applicable securities
and banking laws.
18. EXPENSES. Pledgor will upon demand pay to Secured Party the amount of
--------
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which Secured Party may incur in
connection with the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, the exercise or enforcement of
any of the rights of Secured Party hereunder, or the failure by Pledgor to
perform or observe any of the provisions hereof.
19. SECURITY INTEREST ABSOLUTE. All rights of Secured Party and the pledge
--------------------------
and Security Interest hereunder, and all obligations of Pledgor hereunder, shall
be absolute and unconditional in all respects and shall not be released,
diminished, impaired, or affected for any reason, including without limitation
the occurrence of any one or more of the following events: (a) the taking or
accepting of any other security or assurance for any or all of the Obligations;
(b) any change in the time, manner or place of payment of, or in any other term
of, all or any of the Obligations; (c) any exchange, release, subordination,
surrender, loss or non-perfection of any other collateral at any time existing
in connection with any or all of the Obligations, or any release or amendment or
waiver
PLEDGE AGREEMENT - Page 8
<PAGE>
of or consent to departure from any guaranty, or other security, for all
or any of the Obligations; (d) any neglect, delay, omission, failure, or refusal
of Secured Party to take or prosecute any action in connection with this Pledge
Agreement; (e) the insolvency, bankruptcy, or lack of corporate power of
Pledgor; or (f) any other circumstance which might otherwise constitute a
defense available to a discharge of Pledgor in respect of the Obligations of
Pledgor in respect of this Pledge Agreement.
20. WAIVERS. Except as otherwise required by the terms hereof or by
-------
applicable law, Pledgor hereby waives all notices, including but not limited to
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate, notice of acceleration and all other
notices, and without further notice hereby consents to any and all renewals,
extensions, amendments, modifications, indulgences, releases, subordinations,
waivers or changes in the terms of any of the Obligations.
21. REMEDIES CUMULATIVE. The rights and remedies provided herein are
-------------------
cumulative and are in addition to and not exclusive of any rights or remedies
provided by law, including, but without limitation, the rights and remedies of a
secured party under the UCC.
22. AMENDMENT. This Pledge Agreement may be amended only by written
---------
instrument signed by both parties.
23. COURSE OF DEALING. No course of dealing between Pledgor and Secured
-----------------
Party, nor any failure to exercise, nor any delay in exercising, any right,
power or privilege of, Secured Party hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
24. INVALIDITY OF ANY PROVISION. The invalidity of any one or more
---------------------------
phrases, sentences, clauses, paragraphs or sections hereof shall not affect the
remaining portions of this Pledge Agreement, all of which are being inserted
conditionally on their being held legally valid. In the event that any one or
more of the phrases, sentences, clauses, paragraphs or sections contained herein
should be invalid, or should operate to render this Pledge Agreement invalid,
then this Pledge Agreement shall be construed as if such invalid phrase or
phrases, sentence or sentences, clause or clauses, paragraph or paragraphs, or
section or sections had not been inserted.
25. ASSIGNMENT. This Pledge Agreement shall apply to, inure to the benefit
----------
of and be binding upon and enforceable against the parties hereto and their
respective legal representatives, successors and assigns, except that the right
and obligations of Pledgor contained herein shall not be assignable.
26. GOVERNING LAW. This Pledge Agreement is being executed and delivered,
-------------
and is intended to be performed, in the State of Texas, and the substantive laws
of such State shall govern the validity construction, enforcement and
interpretation of this
PLEDGE AGREEMENT - Page 9
<PAGE>
Agreement, unless the laws of another state require the application of the laws
of such state. This Pledge Agreement is performable in Dallas County, Texas.
IN WITNESS WHEREOF, the parties have executed this Pledge Agreement as of
the day and year first above written.
PLEDGOR:
/s/ James W. Dixon
----------------------------------------
JAMES W. DIXON
SECURED PARTY:
COMPUCOM SYSTEMS, INC.
By: /s/ Robert J. Boutin
-------------------------------------
Its: Senior Vice President - CFO
------------------------------------
PLEDGE AGREEMENT - Page 10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Exhibit 11
Computation of Per Share Earnings
Years ended December 31, 1995, 1994 and 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Primary earnings per common share
- ---------------------------------
Net earnings $ 20,670 $ 14,659 $ 11,439
Preferred stock dividend (1,200) (450)
----------- ----------- -----------
$ 19,470 $ 14,209 $ 11,439
=========== =========== ===========
Average common shares outstanding 35,857 33,091 30,654
Average common share equivalents:
Options 2,515 2,476 2,352
Warrants 77 147 882
----------- ----------- -----------
Average number of common shares and
common share equivalents outstanding 38,449 35,714 33,888
=========== =========== ===========
Primary earnings per common share $ .51 $ .40 $ .34
=========== =========== ===========
Fully diluted earnings per common share
- ---------------------------------------
Primary net earnings 20,670 14,659 11,439
Preferred stock dividend (450)
Interest expense, net of income tax expense 846 1,000 1,007
----------- ----------- -----------
$ 21,516 $ 15,209 $ 12,446
=========== =========== ===========
Average number of common shares and
common share equivalents outstanding 42,393 35,714 33,888
Additional shares issuable 6,908 8,409 9,070
----------- ----------- -----------
Average number of common shares
assuming full dilution 49,301 44,123 42,958
=========== =========== ===========
Fully diluted earnings per common share $ .44 $ .34 $ .29
=========== =========== ===========
</TABLE>
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Exhibit 21
Subsidiaries of the Registrant
Exclusive of inactive subsidiaries, the Registrant as of March 18, 1996 had the
following subsidiaries:
Place of
Name Incorporation
---- -------------
CompuCom Properties, Inc. Delaware
The Computer Factory Inc. New York
ClientLink, Inc. Delaware
International Micronet Systems California
CSI Funding, Inc. Delaware
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
CompuCom Systems, Inc.:
We consent to incorporation by reference in the Registration Statements
(No. 33-2304, No. 33-30175, No. 33-30056, No. 33-39914, No. 33-43275, No. 33-
63307, No. 33-63309, No. 33-76382 and No. 33-85268) on Form S-8 and the
Registration Statements (No. 33-43367, No. 33-47002, No. 33-64341, No. 33-78746
and No. 33-78756) on Form S-3 of CompuCom Systems, Inc. of our report dated
January 31, 1996, related to the consolidated balance sheets of CompuCom
Systems, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows and
related schedule for each of the years in the three-year period ended December
31, 1995, which report appears in the December 31, 1995 annual report on Form
10-K of CompuCom Systems, Inc.
KPMG PEAT MARWICK LLP
Dallas, Texas
March xx, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 31, 1995 and the Consolidated
Statement of Operations for the twelve months ended December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,249
<SECURITIES> 0
<RECEIVABLES> 267,305
<ALLOWANCES> 2,234
<INVENTORY> 196,531
<CURRENT-ASSETS> 468,002
<PP&E> 29,900
<DEPRECIATION> 11,647
<TOTAL-ASSETS> 508,704
<CURRENT-LIABILITIES> 243,047
<BONDS> 123,364
0
15,000
<COMMON> 441
<OTHER-SE> 122,900
<TOTAL-LIABILITY-AND-EQUITY> 508,704
<SALES> 1,334,442
<TOTAL-REVENUES> 1,441,597
<CGS> 1,193,513
<TOTAL-COSTS> 1,266,689
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 12,290
<INCOME-PRETAX> 34,335
<INCOME-TAX> 13,665
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,670
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.44
</TABLE>
