<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the three months ended JUNE 30, 1998 Commission File Number 0-14371
- ---------------------------------------- ------------------------------
COMPUCOM SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 38-2363156
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7171 FOREST LANE, DALLAS, TX 75230
- --------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 856-3600
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the Registrant's common stock outstanding as of August
11, 1998 was 46,284,820 shares.
- --------------------------------------------------------------------------------
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page
- ------- --------------------- ----
Item 1. Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 (unaudited) 3
Condensed Consolidated Statements of Operations
Three and six months ended June 30, 1998 and 1997
(unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
- ------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
June 30, December 31,
Assets 1998 1997
------ ---------- -----------
Current assets:
Cash $ 4,447 $ 4,456
Receivables 297,698 177,141
Inventories 204,479 197,958
Other 4,638 2,880
---------- -----------
Total current assets 511,262 382,435
Property and equipment, net 72,752 63,359
Cost in excess of fair value of tangible
net assets purchased, less accumulated
amortization 63,876 13,569
Other 2,888 3,227
---------- -----------
$ 650,778 $ 462,590
========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 234,495 $ 72,475
Accrued liabilities 67,691 71,791
Current portion of long-term debt 3,500 3,000
---------- -----------
Total current liabilities 305,686 147,266
Long-term debt 119,432 97,400
Deferred income taxes 6,838 7,198
Other 781 526
Shareholders' equity:
Preferred stock 15,000 15,000
Common stock 462 461
Additional paid-in capital 65,923 65,762
Retained earnings 136,656 128,977
---------- -----------
Total shareholders'equity 218,041 210,200
---------- -----------
$ 650,778 $ 462,590
========== ===========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Revenue
Product $ 530,495 $ 428,353 $ 907,273 $ 803,958
Service 63,127 59,715 120,253 113,443
Other 3,935 3,152 7,782 5,708
--------- --------- --------- ---------
Total revenue 597,557 491,220 1,035,308 923,109
--------- --------- --------- ---------
Cost of revenue
Product 479,967 387,254 812,864 723,927
Service 43,372 37,571 82,131 71,937
Other 2,064 1,433 3,994 2,805
--------- --------- --------- ---------
Total cost of revenue 525,403 426,258 898,989 798,669
--------- --------- --------- ---------
Gross margin 72,154 64,962 136,319 124,440
Operating expenses
Selling 28,318 19,055 49,448 39,513
Service 13,039 11,142 27,704 21,914
General and
administrative 15,698 15,388 30,578 29,680
Depreciation and
amortization 3,696 2,652 7,026 5,243
--------- --------- --------- ---------
Total operating
expenses 60,751 48,237 114,756 96,350
--------- --------- --------- ---------
Earnings from operations 11,403 16,725 21,563 28,090
Financing expenses 4,260 3,425 8,015 6,670
--------- --------- --------- ---------
Earnings before income taxes 7,143 13,300 13,548 21,420
Income taxes 2,857 5,320 5,419 8,568
--------- --------- --------- ---------
Net earnings $ 4,286 $ 7,980 $ 8,129 $ 12,852
========= ========= ========= =========
Earnings per common share
Basic $.09 $.17 $.17 $.27
Diluted $.09 $.16 $.16 $.26
Average common shares
outstanding
Basic 46,150 45,554 46,141 45,441
Diluted 49,514 49,674 50,025 49,722
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997
(In thousands)
(unaudited)
1998 1997
-------- ---------
Cash flows from operating activities:
Net earnings $ 8,129 $ 12,852
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 7,026 5,243
Deferred income taxes (360) 48
Changes in assets and liabilities:
Receivables (48,663) 173,009
Inventories 3,046 7,369
Other current assets 191 (141)
Accounts payable 98,534 (70,494)
Accrued liabilities and other (16,895) (3,358)
-------- ---------
Net cash provided by operating activities* 51,008 124,528
-------- ---------
Cash flows from investing activities:
Capital expenditures, net (8,855) (12,091)
Business acquisitions, net of cash acquired (45,490)
-------- ---------
Net cash provided by (used in) investing
activities (54,345) (12,091)
-------- ---------
Cash flows from financing activities:
Net bank credit facility and other borrowings 3,616 (113,806)
Issuance of common stock 162 1,749
Preferred stock dividend (450) (450)
-------- ---------
Net cash provided by (used in) financing
activities* 3,328 (112,507)
-------- ---------
Net decrease in cash (9) (70)
Cash at beginning of period 4,456 4,320
-------- ---------
Cash at end of period $ 4,447 $ 4,250
======== =========
* In 1997, $100 million securitization was recorded as a cash inflow from
operations and cash used in financing activities.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(1) General
These condensed interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and the
summary of significant accounting policies and notes thereto included in
the 1997 Annual Report on Form 10-K for CompuCom Systems, Inc. (the
Company). The information furnished is unaudited but reflects all
adjustments consisting only of normal recurring accruals which are, in the
opinion of management, necessary to present a fair statement of the
results for these interim periods. Interim results are not necessarily
indicative of results expected for the full year.
(2) 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.
(3) Earnings per share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("Statement 128"). Statement 128 supersedes APB Opinion No. 15, Earnings
Per Share and specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS"). Basic 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 period. Diluted earnings per common share assumes
conversion of dilutive convertible securities into common stock at the
later of the beginning of the period or date of issuance and includes the
add-back of related interest expense and/or dividends, as required. Prior
period earnings per share have been restated to conform to Statement 128.
SFAS No. 128 also requires a reconciliation of the numerators and
denominators of the basic and diluted per share computations as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended June 30, 1998 Six months ended June 30, 1998
-------------------------------------------- -------------------------------------------
Income Shares Income Shares
(Numerator) (Denominator) EPS (Numerator) (Denominator) EPS
-------------- -------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $4,286 $ 8,129
Less: Preferred stock
dividends (225) (450)
Basic EPS
Income available to common 4,061 46,150 $.09 7,679 46,141 $.17
shareholders
Effect of dilutive securities
Stock options 1,148 1,280
Convertible preferred stock 225 2,216 450 2,216
Convertible debt - - 46 388
-------- -------- -------- --------
Diluted EPS
Income available + assumed
conversions 4,286 49,514 $.09 8,175 50,025 $.16
======== ======== ======= ======== ======== ========
</TABLE>
6
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1998
<TABLE>
<CAPTION>
Three months ended June 30, 1997 Six months ended June 30, 1997
-------------------------------------------- -------------------------------------------
Income Shares Income Shares
(Numerator) (Denominator) EPS (Numerator) (Denominator) EPS
-------------- -------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net earnings $7,980 $12,852
Less: Preferred stock
dividends (225) (450)
Basic EPS
Income available to common
shareholders 7,755 45,554 $.17 12,402 45,441 $.27
Effect of dilutive
securities
Stock options 1,516 1,677
Convertible preferred 225 2,216 450 2,216
stock
Convertible debt 23 388 46 388
-------- -------- -------- --------
Diluted EPS
Income available + assumed
conversions 8,003 49,674 $.16 12,898 49,722 $.26
======== ======== ======= ======== ======== ========
</TABLE>
The Company has excluded 1,815,037 and 497,942 shares from its calculations of
diluted earnings per share for the three and six months ended June 30, 1998, and
has excluded 1,194,842 and 938,272 shares from its calculations of diluted
earnings per share for the three and six months ended June 30, 1997,
respectively, as they are considered anti-dilutive.
(4) Business Combinations
During the three months ended June 30, 1998, the Company consummated two
business combinations. The total consideration given for these business
combinations was approximately $41 million in cash. The business combinations
were accounted for as purchases and accordingly the condensed consolidated
financial statements reflect the operations of the acquired entities since the
respective acquisition dates. The Company has not completed the allocation of
the purchase price for these two acquisitions. Therefore, the amount of goodwill
recorded could be adjusted once the allocation is finalized.
7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
June 30, 1998
Results of Operations
The following table shows the Company's total revenue, gross margin and gross
margin percentage by revenue source. Operating expenses, financing expense,
income taxes and net earnings are shown as a percentage of total net revenue for
the three and six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue:
Product $530,495 $428,353 $ 907,273 $803,958
Service 63,127 59,715 120,253 113,443
Other 3,935 3,152 7,782 5,708
--------- --------- ---------- ---------
Total revenue 597,557 491,220 1,035,308 923,109
--------- --------- ---------- ---------
Gross margin:
Product 50,528 41,099 94,408 80,031
Service 19,755 22,144 38,123 41,506
Other 1,871 1,719 3,788 2,903
--------- --------- ---------- ---------
Total gross margin 72,154 64,962 136,319 124,440
--------- --------- ---------- ---------
Gross margin percentage:
Product 9.5% 9.6% 10.4% 10.0%
Service 31.3% 37.1% 31.7% 36.6%
Other 47.5% 54.5% 48.7% 50.9%
--------- --------- ---------- ---------
Total gross margin
percentage 12.1% 13.2% 13.2% 13.5%
Operating expenses:
Selling 4.8% 3.9% 4.8% 4.3%
Service 2.2% 2.3% 2.7% 2.4%
General and administrative 2.6% 3.1% 2.9% 3.2%
Depreciation and
amortization 0.6% 0.5% 0.7% 0.6%
--------- --------- ---------- ---------
Total operating
expenses 10.2% 9.8% 11.1% 10.5%
--------- --------- ---------- ---------
Earnings from operations 1.9% 3.4% 2.1% 3.0%
Financing expenses 0.7% 0.7% 0.8% 0.7%
--------- --------- ---------- ---------
Earnings before income taxes 1.2% 2.7% 1.3% 2.3%
Income taxes 0.5% 1.1% 0.5% 0.9%
--------- --------- ---------- ---------
Net earnings 0.7% 1.6% 0.8% 1.4%
========= ========= ========== =========
</TABLE>
(Continued)
8
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
COMPARISON OF THE QUARTER ENDED JUNE 30, 1998 TO THE QUARTER ENDED JUNE 30, 1997
Product revenue, which is primarily derived from the sale of distributed
desktop computer products to corporate customers, increased 23.8% to $530.5
million in the second quarter of 1998 from $428.4 million in the second quarter
of 1997. Of the 23.8% increase, approximately 12.5% was from acquisitions and
11.3% was from internal growth. The growth from acquisitions was primarily due
to the Company's May 13, 1998 acquisition of Computer Integration Corporation
("CIC") which added approximately $51 million in product revenue. The Company
sold more desktop, laptop, and server units in the three months ended June 30,
1998 than in the same period of 1997. However, a decline in the average sales
price of these units lessened the impact of this unit growth on revenue. The
Company also completed the acquisition of Dataflex Corporation ("Dataflex") on
June 26, 1998; however, this acquisition did not have a material impact on the
Company's financial performance for the second quarter. Product gross margin as
a percentage of product revenue for the second quarter of 1998 was 9.5% compared
to 9.6% for the second quarter of 1997.
Service revenue increased 5.7% to $63.1 million for the second quarter of
1998 from $59.7 million during the second quarter of 1997. Service revenue is
primarily derived from LAN/WAN projects, consulting, asset tracking, network
management, help desk, field engineering, procurement, configuration,
distribution, and software management. Service revenue reflects revenue
generated by the actual performance of specific services and does not include
product sales associated with service projects. The increase in service revenue
is due to increases in both configuration and field engineering, which
benefitted from the increase in product unit sales volume. Service gross margin
as a percentage of service net revenue for the three months ended June 30, 1998
was 31.3% compared to 37.1% for the same period in 1997. The decrease was
primarily due to lower billing per engineer for the Company's service
personnel, particularly in the systems engineering group.
Operating expenses increased $12.5 million for the three months ended June
30, 1998 as compared to the same prior year period. As a percentage of net
revenue, operating expenses increased to 10.2% compared to 9.8% in 1997. The
percentage and dollar increases resulted primarily from increased selling
expenses.
Selling expense increased in absolute dollars and as a percentage of net
revenues for the three months ended June 30, 1998 as compared to the same prior
year period. These increases resulted from the Company hiring additional sales
representatives during the first quarter of 1998, higher commission expense, and
an increase in the Company's sales force as a result of the CIC acquisition.
Service expense, as a percentage of net revenues, decreased slightly for the
second quarter of 1998 compared to the same prior year period due to the
increase in net revenues.
(Continued)
9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General and administrative expense, as a percentage of net revenue, decreased
for the three months ended June 30, 1998 to 2.6% compared to 3.1% for the
comparable period of the prior year. The decrease was primarily due to the
increase in net revenues, as general and administrative expense increased
slightly in absolute dollars when comparing the same periods. The increases in
absolute dollars were mainly the result of costs associated with the integration
of CIC as well as the Company's ongoing campus recruiting program. The campus
recruits complete training and certification programs before being added to the
Company's billable workforce. 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 for the three months ended
June 30, 1998 in absolute dollars and as a percentage of net revenue when
compared to the same period in 1997. The increase in depreciation expense is
associated with upgrading the Company's hardware and software at the Company's
headquarters and branch locations, increased furniture and fixtures to support
headcount additions, and depreciation expense related to the Company's corporate
headquarters and operations campus, which was placed in service during the third
quarter of 1997. Increased amortization expense is the result of acquisitions
completed during the first half of 1998, primarily the CIC acquisition.
Financing expense remained flat as a percentage of revenue, but increased in
absolute dollars for the three months ended June 30, 1998, as compared to the
same period in 1997. The increase in absolute dollars was primarily the result
of higher borrowing levels due to the Company's acquisition of CIC in May. The
Company's effective interest rate was 6.5% in the second quarter as compared to
6.8% in the same prior year period.
As a result of the factors discussed above, net earnings decreased 46% for
the quarter ended June 30, 1998 to $4.3 million compared to the same period in
1997.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED JUNE
30, 1997
Product revenue increased 12.8% to $907.3 million for the six months ended
June 30, 1998 from $804 million in the same period of 1997. Of the 12.8%
increase, approximately 6.7% was from acquisitions and 6.1% was from internal
growth. The growth from acquisitions was primarily from CIC which added
approximately $51 million in product revenue. The Company also completed the
acquisition of Dataflex on June 26, 1998; however, this did not have a material
impact on the Company's financial performance for the six months ended June 30,
1998. The Company sold more desktop, laptop and server units in the six months
ended June 30, 1998 than in the same period of 1997. However, a decline in the
average sales price of these units lessened the impact of this unit growth on
revenue. Product gross margin as a percentage of product revenue increased to
10.4% for the six months ended June 30, 1998 from 10% for the same period in
1997. The increased percentage is primarily due to an increase in the amount of
manufacturer sponsored incentives, which lowered the average cost of hardware
units sold.
(Continued)
10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Service revenue increased 6.0% to $120.3 million for the six months ended
June 30, 1998 from $113.4 million during the same period of 1997. The increase
in service revenue is due to increases in both configuration and field
engineering, which are typically driven in part by product unit sales volume.
Service gross margin as a percentage of service net revenue was 31.7% for the
first half of 1998 compared to 36.6% for the same period in 1997. The decrease
was primarily caused by lower billing per engineer for the Company's service
personnel, particularly in the systems engineering group.
Operating expenses increased $18.4 million for the six months ended June 30,
1998 as compared to the same prior year period. As a percentage of net revenue,
operating expenses increased to 11.1% compared to 10.5% in 1997. The percentage
and dollar increases resulted primarily from increased selling expenses.
Selling expense increased in absolute dollars and as a percentage of net
revenues for the six months ended June 30, 1998 as compared to the same prior
year period. These increases resulted from the Company hiring additional sales
representatives during the first quarter of 1998, higher commission expense, and
an increase in the Company's sales force as a result of the CIC acquisition.
Service expense, as a percentage of net revenues, increased for the six months
ended June 30, 1998 compared to the same prior year period due primarily to
increased headcount in certain service support functions and increased spending
on training of the Company's engineer force.
General and administrative expense, as a percentage of net revenue, decreased
for the six months ended June 30, 1998 to 2.9% compared to 3.2% for the
comparable period of the prior year. The decrease was primarily due to the
increase in net revenues, as general and administrative expense increased
slightly in absolute dollars when comparing the same periods. The increase in
absolute dollars was mainly the result of costs associated with the integration
of CIC during the second quarter of 1998 as well as costs related to the
Company's ongoing campus recruiting program. The campus recruits complete
training and certification programs before being added to the Company's billable
workforce. 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 for the six months ended June
30, 1998 in absolute dollars and as a percentage of net revenue when compared to
the same period in 1997. The increase in depreciation expense is associated
with upgrading the Company's hardware and software at the Company's headquarters
and branch locations, increased furniture and fixtures to support headcount
additions, and depreciation expense related to the Company's corporate
headquarters and operations campus, which was placed in service during the third
quarter of 1997. Increased amortization expense is the result of acquisitions
completed during the first half of 1998, primarily the CIC acquisition.
Financing expense remained relatively flat as a percentage of revenue but
increased in absolute dollars for the six months ended June 30, 1998, as
compared to the same period in 1997. The increase in absolute dollars was
primarily the result of higher borrowing levels as the Company took advantage of
more early-pay discounts offered by its larger vendors than in the same prior
year period, as well as the Company's acquisition of CIC in May. The Company's
effective interest rate was 6.5% for the six months ended June 30, 1998 as
compared to 6.7% in the same prior year period.
(Continued)
11
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
As a result of the factors discussed above, net earnings decreased 37% for
the six months ended June 30, 1998 to $8.1 million compared to the same period
in 1997. Some of the factors that may impact future profitability include the
following: the Company's ability to effectively manage inventory in response to
changes in its major suppliers price protection and return programs, the
Company's ability to effectively manage the utilization of service personnel,
the Company's control of operating expenses, demand for product, competition,
manufacturer product availability, effective utilization of vendor programs, the
Company's ability to successfully manage the implementation and operation of the
channel assembly programs of its major suppliers, and the Company's ability to
adequately integrate recent and potential future acquisitions.
Liquidity and Capital Resources
Working capital at June 30, 1998 was $206 million compared to $235 million at
December 31, 1997. The decrease is primarily due to an increase in accounts
payable, partially offset by an increase in accounts receivable. The Company's
accounts payable balance fluctuates relative to the timing of the receipts of
product and the mix of vendors. The increase in accounts receivable is
attributable to the CIC and Dataflex acquisitions completed during the second
quarter, as well as higher revenues in June 1998 versus December 1997.
The Company's working capital requirements are generally funded through
financing arrangements and internally generated funds. During the second
quarter of 1998, the Company negotiated an expansion of its working capital
facility ("Revolver") from $125 million to $165 million with no significant
changes to the existing Revolver terms and conditions. The primary purpose of
the expansion was to provide financing for the acquisitions completed during the
second quarter. As of June 30, 1998, the Company's financing arrangements
consisted of a $175 million Securitization Facility, the $165 million Revolver
and a $25 million real estate loan (collectively, the "Credit Agreements"). The
Company is currently evaluating other permanent financing options for the real
estate loan.
The Company's business is not capital asset intensive, and capital
expenditures in any year normally would not be significant in relation to the
overall financial position of the Company. Excluding acquisitions, capital
expenditures were approximately $4.8 million and $8.9 million during the second
quarter of 1998 and for the six months ended June 30, 1998, as compared to $8.0
million and $12.0 million for the same periods in 1997. The majority of the 1998
capital expenditures were related to the upgrading of Company hardware and
software located at both headquarters and branch locations. The majority of the
$12.0 million in 1997 was for facility improvements to prepare the Company's
headquarters and operations campus for full occupancy.
On April 10, 1998, the Company announced definitive agreements with CIC and
holders of approximately 55% of CIC's common stock under which CompuCom would
acquire CIC in a cash for stock transaction. Under the terms of the agreements,
CompuCom paid a total of $17.25 million, of which $15.3 million was used to
purchase all of CIC's outstanding preferred stock and common stock. Of the
$15.3 million, approximately $2.75 million (or $0.196 per share) was deposited
in an interest-bearing escrow fund. Any amount remaining in the escrow fund
after the payment of certain potential post-closing adjustments will be paid to
CIC's common stockholders approximately one year after closing. The acquisition
was completed on May 13, 1998.
(Continued)
12
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
On April 10, 1998, the Company announced a definitive agreement with Dataflex
under which CompuCom would acquire Dataflex in a cash for stock transaction.
Under the terms of the agreement, CompuCom paid a total of $23,994,000 to
purchase all of Dataflex's outstanding common stock. The acquisition was
completed on June 26, 1998.
The statements contained in this document that are not historical facts,
including but not limited to, statements identified by the use of terms such as
"may", "will", "could", "potential", "would" or "expect" or other variations or
negatives of these terms, are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and involve a number of
risks and uncertainties. The actual results of the future events described in
the forward-looking statements in this document could differ materially from
those stated in the forward-looking statements. Among the factors that could
cause actual results to differ materially are: competitive pricing and supply,
short-term interest rate fluctuations, general economic conditions, employee
turnover and possible future litigation, the Company's ability to effectively
manage inventory in response to changes in its major suppliers price protection
and return programs, as well as the risks and uncertainties set forth from time
to time in the Company's other public reports and filings and public statements.
Recipients of this document are cautioned to consider these risks and
uncertainties and to not place undue reliance on these forward-looking
statements.
13
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 14, 1998. At
the meeting, the shareholders voted in favor of electing as directors the ten
nominees named in the Proxy Statement dated April 7, 1998, and for an amendment
to the Company's 1993 Stock Option Plan. The number of votes cast for, against
or withheld, as well as, the number of abstentions and broker nonvotes were as
follows:
Election of Directors:
For Withheld
---------- --------
Edward R. Anderson 52,858,663 451,852
Daniel F. Brown 52,858,356 452,159
Donald R. Caldwell 52,858,175 452,340
Michael J. Emmi 52,871,275 439,240
Richard F. Ford 52,872,165 438,350
Delbert W. Johnson 52,858,175 452,340
John D. Loewenberg 52,865,765 444,750
John C. Maxwell III 52,856,995 453,520
Warren V. Musser 52,851,197 459,318
Edward N. Patrone 52,870,127 440,388
Proposal to adopt an Employee Stock Purchase Plan:
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
44,129,629 222,701 95,561 -
Item 5. Other Information.
Stockholders intending to present proposals at the next Annual Meeting
of Shareholders to be held in 1999 must notify the Company of the proposal no
later than December 8, 1998 if they wish to include the proposal on the
Company's proxy card and, along with any supporting statement, in the Company's
proxy statement. As to any proposal presented by a stockholder at the Annual
Meeting of Stockholders that has not been included in the Proxy Statement, the
management proxies will be allowed to use their discretionary voting authority
unless notice of such proposal is received by the Company no later than February
21, 1999.
14
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit
No. Description
-------- -----------
10.1 Amendment #1 to Amended and Restated Credit Agreement,
dated as of June 26, 1998, among Compucom Systems, Inc.,
certain lenders party hereto, and NationsBank of Texas,
N.A., as administrative lender (exhibits omitted).
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during the
three months ended June 30, 1998.
15
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUCOM SYSTEMS, INC.
-----------------------------
(Registrant)
DATE: August 14, 1998 /s/ Edward Anderson
-----------------------------
Edward Anderson,
President and Chief Executive Officer
DATE: August 14, 1998 /s/ M. Lazane Smith
-----------------------------
M. Lazane Smith,
Senior Vice President, Finance and
Chief Financial Officer
16
<PAGE>
EXHIBIT 10.1
CONSENT, WAIVER AND FIRST AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS CONSENT, WAIVER AND FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "First Amendment"), dated as of June 26, 1998, is entered into
among COMPUCOM SYSTEMS, INC., a Delaware corporation (the "Borrower"), COMPUCOM
PROPERTIES, INC., a Delaware corporation ("Properties"), COMPUTER INTEGRATION
CORP., a Delaware corporation ("CIC") (Properties and CIC being sometimes
collectively referred to herein as the "Guarantors"), the lenders listed on the
signature pages hereof (the "Lenders"), and NATIONSBANK, N.A., successor by
merger to NationsBank of Texas, N.A., as Administrative Lender for the Lenders
(in said capacity, the "Administrative Lender").
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Lender heretofore
entered into a certain Amended and Restated Credit Agreement, dated as of
November 3, 1997 (the "Credit Agreement"; the terms defined in the Credit
Agreement and not otherwise defined herein shall be used herein as defined in
the Credit Agreement) .
B. The Guarantors have heretofore executed and delivered certain Loan
Documents pursuant to which the Guarantors have guaranteed the indebtedness and
obligations of the Borrower under, or in connection with, the Credit Agreement
and pursuant to which the Guarantors have granted certain Liens to the
Administrative Lender as security for such indebtedness and obligations.
C. The Borrower has advised the Administrative Lender and the Lenders
that the Borrower has entered into a certain Agreement and Plan of Merger, dated
as of April 10, 1998, among the Borrower, CompuCom Acquisition Corp., a Florida
corporation and a wholly-owned subsidiary of the Borrower (the "Acquisition
Subsidiary") and Dataflex Corporation, a Florida corporation ("Dataflex") (such
Agreement and Plan of Merger, together with the documents executed in connection
therewith or in connection with the consummation of the transactions
contemplated thereby, being collectively referred to herein as the "Dataflex
Acquisition Documents"), pursuant to which (i) the Borrower, through the
Acquisition Subsidiary, will acquire all of the issued and outstanding shares of
the common stock, other outstanding securities and other indicia of ownership of
Dataflex (or same will otherwise be terminated, retired or relinquished) and the
Borrower will pay certain other costs and expenses associated with such
transactions, for an aggregate amount not to exceed $25,000,000, (ii) the
Borrower will repay certain existing indebtedness of Dataflex in an aggregate
amount not to exceed $17,500,000 and (iii) Dataflex will merge with the
Acquisition Subsidiary, with Dataflex being the surviving entity and a wholly-
owned subsidiary of the Borrower.
<PAGE>
D. The Borrower and the Guarantors have requested that the Administrative
Lender and the Lenders waive the Event of Default that would otherwise exist
under clause (v) of Section 7.6 of the Credit Agreement by virtue of the
consummation of the transactions contemplated by the Dataflex Acquisition
Documents and that the Administrative Lender and the Lenders waive certain other
requirements under the Credit Agreement in connection therewith, all as more
fully described herein, and, subject to the terms, conditions and limitations
set forth herein, the Administrative Lender and the Lenders are prepared to do
so. The Borrower, the Guarantors, the Lenders and the Administrative Lender also
desire to amend the Credit Agreement in certain respects.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Guarantors, the Lenders and the Administrative Lender covenant and agree as
follows:
1. AMENDMENTS.
1.1 Article I of the Credit Agreement is hereby amended by adding
thereto the following additional defined terms:
"`Borrower's Corporate Headquarters' means the building located at
7171 Forest Lane in Dallas, Texas, together with the land upon which
such building is located and the other improvements located on such
land."
"`CIC' means Computer Integration Corp., a Delaware corporation and a
wholly-owned Subsidiary of the Borrower."
"`First Amendment' means that certain Consent, Waiver and First
Amendment to Amended and Restated Credit Agreement, dated as of June
26, 1998, among the Borrower, Properties, CIC, the Administrative
Lender and the Lenders."
"`First Amendment Initial Pricing Period' means the period from and
including the effective date of the First Amendment to and including
the First Amendment Rate Adjustment Date."
"`First Amendment Rate Adjustment Date' means the date which is two
Business Days following the date that the Lenders receive the
financial statements for the fiscal quarter ended September 30, 1998,
required to be delivered pursuant to Section 6.1 or 6.2 hereof,
together with the Compliance Certificate in connection therewith,
required to be delivered pursuant to Section 6.3 hereof."
- 2 -
<PAGE>
"`Properties' means CompuCom Properties, Inc., a Delaware corporation
and a wholly-owned Subsidiary of the Borrower."
"`Replacement Facility A Notes' means the promissory notes of the
Borrower evidencing Facility A Advances hereunder, substantially in
the form of Exhibit A hereto, together with any extensions, renewals
or amendments thereof, or substitutions therefor, which Replacement
Facility A Notes constitute renewals, extensions, modifications and
increases of and to the Facility A Notes and the indebtedness
evidenced thereby."
"`Replacement Facility B Notes' means the promissory notes of the
Borrower evidencing Facility B Advances hereunder, substantially in
the form of Exhibit B hereto, together with any extensions, renewals
or amendments thereof, or substitutions therefor, which Replacement
Facility B Notes constitute renewals, extensions and modifications of
and to the Facility B Notes and the indebtedness evidenced thereby."
"`Replacement Notes' means, collectively, the Replacement Facility A
Notes and the Replacement Facility B Notes."
1.2 The definition of "Applicable LIBOR Rate Margin" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Applicable LIBOR Rate Margin'" means the following per annum
percentages, applicable in the following situations:
(a) First Amendment Initial Pricing Period 0.875%
(b) Subsequent Pricing Period
(1) The Fixed Charge Coverage Ratio is greater than or 0.625%
equal to 2.50 to 1.00
(2) The Fixed Charge Coverage Ratio is less than 2.50 0.750%
to 1.00 but greater than or equal to 2.00 to 1.00
(3) The Fixed Charge Coverage Ratio is less than 2.00 0.875%
to 1.00 but greater than or equal to 1.50 to 1.00
- 3 -
<PAGE>
(4) The Fixed Charge Coverage Ratio is less than 1.50 1.125%
to 1.00
The Applicable Margin payable by the Borrower on the LIBOR Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above, on a quarterly basis according to the performance of
the Borrower as tested by using the Fixed Charge Coverage Ratio calculated as of
the end of each fiscal quarter during the Subsequent Pricing Period; provided,
that each adjustment in the LIBOR Basis shall be effective with respect to LIBOR
Advances (i) made following receipt by the Administrative Lender of the
financial statements required to be delivered pursuant to Section 6.1 or 6.2
hereof, as applicable, for each such fiscal quarter, and the corresponding
Compliance Certificate required pursuant to Section 6.3 hereof, on the date of
making such LIBOR Advance and (ii) outstanding on the date of receipt of such
financial statements and Compliance Certificate referred to in clause (i)
immediately preceding, on the date which is two Business Days following the date
of receipt of such financial statements and Compliance Certificate. If such
financial statements and Compliance Certificate are not received by the
Administrative Lender by the date required, effective as of the first Business
Day following notification thereof from the Administrative Lender to the
Borrower, the Applicable LIBOR Rate Margin shall be determined as if the Fixed
Charge Coverage Ratio is less than 1.50 to 1.00 until such time as such
financial statements and Compliance Certificate are received."
1.3 The definition of "EBITDA" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:
"`EBITDA' means, for any period, determined in accordance with GAAP on
a consolidated basis for the Borrower and its Subsidiaries, the sum of
(a) EBIT plus (b) depreciation and amortization (other than
amortization of service parts), to the extent that such depreciation
and amortization are included in determining EBIT."
1.4 The definition of "Facility A Commitment" set forth in Article
I of the Credit Agreement is hereby amended to read as follows:
"`Facility A Commitment' means $165,000,000, as reduced pursuant to
Section 2.6 hereof."
1.5 The definition of "Fixed Charges" set forth in Article I of
the Credit Agreement is hereby amended to read as follows:
"`Fixed Charges' means, for any date of calculation, calculated for
Borrower and its Subsidiaries on a consolidated basis, the sum of,
without duplication, (a) the greater of (i) Current Maturities and
- 4 -
<PAGE>
(ii) 10% of Funded Debt, plus (b) interest expense (including interest
expense pursuant to Capitalized Lease Obligations); provided, however,
that (x) for purposes of calculating Fixed Charges for the quarter
ending September 30, 1998, 2.50% of Funded Debt shall be utilized in
the foregoing calculation, (y) for purposes of calculating Fixed
Charges for the quarter ending December 31, 1998, 5.0% of Funded Debt
shall be utilized in the foregoing calculation and (z) for purposes of
calculating Fixed Charges for the quarter ending March 31, 1999, 7.50%
of Funded Debt shall be utilized in the foregoing calculation."
1.6 The definition of "Fixed Charge Coverage Ratio" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Fixed Charge Coverage Ratio' means the ratio of EBITDA to Fixed
Charges, calculated for the four consecutive fiscal quarters
immediately preceding the date of calculation; provided, however, that
for each of the three consecutive fiscal quarters beginning with the
fiscal quarter ending September 30, 1998, the Fixed Charge Coverage
Ratio shall mean the ratio of EBITDA to Fixed Charges, calculated for
the actual fiscal quarter(s) that have ended since September 29, 1998
and prior to the date of calculation."
1.7 The definition of "Notes" set forth in Article I of the Credit
Agreement is hereby amended to read as follows:
"`Notes' means, collectively, the Facility A Notes, the Facility B
Notes, the Swing Line Note and the Replacement Notes."
1.8 The definition of "Specified Percentage" set forth in Article
I of the Credit Agreement is hereby amended to read as follows:
"`Specified Percentage' means, as to any Lender, the percentage
indicated beside its name on the signature pages to the First
Amendment, or if applicable, specified in its most recent Assignment
Agreement."
1.9 The definition of "Subsequent Pricing Period" set forth in
Article I of the Credit Agreement is hereby amended to read as follows:
"`Subsequent Pricing Period' means the period from and including the
date which is the first day following the end of the First
- 5 -
<PAGE>
Amendment Initial Pricing Period to and including the Maturity Date."
1.10 Section 7.1 of the Credit Agreement is hereby amended by
adding a new clause (o) thereto reading as follows:
"(o) Subordinated Debt, not to exceed $150,000,000 in the aggregate
principal amount outstanding at any time."
1.11 Section 7.13 of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted in lieu thereof:
"Section 7.13 Minimum Tangible Net Worth. The Borrower shall not
permit the Tangible Net Worth to be less than an amount equal to the
sum of (a) $135,000,000, plus (b) 75% of cumulative Net Income for the
period from, but not including, March 31, 1998 through the date of
calculation (but excluding from the calculation of such cumulative Net
Income the effect, if any, of any fiscal quarter (or portion of a
fiscal quarter not then ended) of the Borrower for which Net Income
was a negative number, plus (c) 75% of the Net Cash Proceeds received
by the Borrower as a result of any offering of Equity or pursuant to
any conversion or exchange of convertible Indebtedness or preferred
Capital Stock into common Capital Stock of the Borrower, plus (d) an
amount equal to the net worth of any Person that becomes a Subsidiary
of the Borrower or is merged into or consolidated with the Borrower or
any Subsidiary of the Borrower or substantially all of the assets of
which are acquired by the Borrower or any Subsidiary of the Borrower
to the extent the purchase price paid therefor is paid in equity
securities of the Borrower or any Subsidiary of the Borrower."
1.12 Notwithstanding anything to the contrary contained in the
Credit Agreement or any of the other Loan Documents, subject to the
fulfillment of the following conditions precedent to the satisfaction of
the Administrative Lender, the Borrower may enter into any transaction, or
series of transactions, pursuant to which the Borrower may sell the
Borrower's Corporate Headquarters and contemporaneously therewith leaseback
the Borrower's Corporate Headquarters from the purchaser thereof:
(a) no Default or Event of Default shall exist immediately prior
to, or after giving effect to, any of such transaction(s);
- 6 -
<PAGE>
(b) contemporaneously with the consummation of such
transaction(s), in addition to any and all other payments
and/or prepayments that may be required by the Credit
Agreement and/or the other Loan Documents, all of the
Replacement Facility B Notes, together with any and all
accrued and unpaid interest thereon, any and all costs and
expenses of the Administrative Lender and/or the Lenders
relating thereto and any and all other Obligations relating
thereto shall have been paid in full; and
(c) the documentation and other aspects of such transaction(s)
shall be reasonably acceptable to the Administrative Lender.
1.13 The Replacement Notes constitute renewals, extensions,
amendments, increases (with respect to the Replacement Facility A Notes
only) and restatement of the outstanding principal balances under the
Facility A Notes and the Facility B Notes held by the Lenders, and are not
a novation of the Obligations evidenced thereby. On the effective date of
this First Amendment, the Facility A Notes and the Facility B Notes and all
of the outstanding indebtedness of the Borrower thereunder shall be
acquired by the Administrative Lender for the ratable benefit of the
Lenders in their respective Specified Percentages (as set forth in this
First Amendment). On the effective date of this First Amendment, the
outstanding indebtedness of the Borrower under the Facility A Notes shall
be renewed, extended, modified, increased and restated by the Replacement
Facility A Notes, payable to the Lenders in their respective Specified
Percentages (as set forth in this First Amendment). On the effective date
of this First Amendment, the outstanding indebtedness of the Borrower under
the Facility B Notes shall be renewed, extended, modified and restated by
the Replacement Facility B Notes, payable to the Lenders in their
respective Specified Percentages (as set forth in this First Amendment).
The Borrower hereby consents to the acquisition by the Administrative
Lender of the indebtedness, rights and interests described above. Except
insofar as any of same may have heretofore been, or may contemporaneously
herewith or hereafter be, released pursuant to written release
documentation executed and delivered by the Administrative Lender, all
Liens covering the Collateral, or any part thereof, under the collateral
documents executed in connection with the Credit Agreement shall remain
valid, binding and enforceable Liens against the Persons which granted such
Liens, as security for the Replacement Notes and all of the other
Obligations.
2. CONSENTS/WAIVERS IN CONNECTION WITH DATAFLEX ACQUISITION.
2.1 Subject to the terms and limitations set forth herein, the
Administrative Lender and each of the Lenders hereby waive the Event of
Default that would otherwise exist under clause (v) of Section 7.6 of the
Credit Agreement by virtue of the fact that the aggregate consideration
(exclusive of Equity in the Borrower or any Subsidiary of the Borrower, but
inclusive of any Indebtedness incurred or assumed by the Borrower or any
Subsidiary of the Borrower) paid or given by the Borrower and/or Borrower's
Subsidiaries
- 7 -
<PAGE>
during calendar year 1998 in connection with Acquisitions would, by virtue
of the consummation of the transactions contemplated by the Dataflex
Acquisition Documents, exceed $20,000,000; PROVIDED, HOWEVER, that the
foregoing waiver shall be effective only to the extent that the aggregate
amount of consideration (exclusive of Equity in the Borrower or any
Subsidiary of the Borrower, but inclusive of any Indebtedness incurred or
assumed by the Borrower or any Subsidiary of the Borrower) paid or given by
the Borrower and/or Borrower's Subsidiaries in connection with transactions
contemplated by the Dataflex Acquisition Documents does not exceed
$42,500,000 and only for so long as none of the material terms or
provisions of any of the Dataflex Acquisition Documents are amended,
modified or waived by, or with the consent of, the Borrower or any
Subsidiary of the Borrower.
2.2 The Administrative Lender, each of the Lenders, the Borrower
and each of the Guarantors hereby further agree that, notwithstanding
anything to the contrary contained in any of the Loan Documents, the
provisions of Sections 5.12 and 7.6 of the Credit Agreement requiring that
certain property and assets of Dataflex be pledged to the Administrative
Lender, as additional security for the Obligations, are hereby waived and,
in lieu thereof, the Borrower and Dataflex shall grant to the
Administrative Lender, for the benefit of the Lenders, the liens and
security interests, and shall take the other actions, required by
paragraphs 3 and 4 hereof.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE BORROWER
AND THE GUARANTORS. By its execution and delivery hereof, each of the Borrower
and each Guarantor hereby represents and warrants to the Administrative Lender
and to each Lender, and hereby covenants and agrees with the Administrative
Lender and each Lender, that, as of the date hereof and after giving effect to
the amendments contemplated by Section 1 hereof:
(a) The representations and warranties contained in the Credit
Agreement are true and correct on and as of the date hereof as made on and
as of such date, except to the extent that any representation or warranty,
by its own terms, relates only to a different specific date;
(b) No event has occurred and is continuing which constitutes a
Default or an Event of Default;
(c) Each of Borrower and each Guarantor has full power and
authority to execute and deliver this First Amendment, and this First
Amendment, the Credit Agreement, as amended hereby, and each of the other
Loan Documents constitute the legal, valid and binding obligations of
Borrower and each Guarantor, as applicable, enforceable in accordance with
their respective terms, except as enforceability may be limited by
applicable debtor relief laws and by general principles of equity
(regardless of
- 8 -
<PAGE>
whether enforcement is sought in a proceeding in equity or at law) and
except as rights to indemnity may be limited by federal or state securities
laws;
(d) No authorization, approval consent, or other action by, notice
to, or filing with, any governmental authority or other Person (including
the respective Board of Directors of Borrower or either Guarantor) is
required for the execution, delivery or performance by Borrower and each
Guarantor of this First Amendment;
(e) Neither CIC nor Dataflex has any Subsidiaries;
(f) On or before December 31, 1998, all distribution centers of
Dataflex, shall have been closed and any and all inventory and other
property of Dataflex located at such facilities shall have been moved to
distribution centers, or other facilities, of the Borrower;
(g) From and after the effective date of the merger of Dataflex
and the Acquisition Subsidiary, the aggregate fair market value of
Dataflex's inventory shall not, at any time, exceed $6,000,000; provided,
further, that from and after December 31, 1998 Dataflex shall not own any
inventory whatsoever;
(h) From and after December 31, 1998, Dataflex shall not generate
or create any material new accounts receivables or other receivables;
(i) Promptly following the consummation of the transactions
contemplated by the Dataflex Acquisition Documents, the Borrower shall
execute and deliver to the Administrative Lender such pledge agreements,
security agreements, financing statements, stock certificates and stock
powers (all in form and substance acceptable to the Administrative Lender),
and shall take such other actions and do such other things, as the
Administrative Lender shall reasonably require in order to create a first
priority Lien in favor of the Administrative Lender, for the benefit of the
Lenders, covering all of the issued and outstanding capital stock and other
indicia of ownership, whether then existing or thereafter arising, of
Dataflex, as additional security for the Obligations; and
(j) Upon request of the Administrative Lender and the Determining
Lenders, the Borrower shall hereafter promptly deliver to the
Administrative Lender any and all security agreements, financing
statements, subordination agreements and other documents, agreements and
instruments, in each case duly executed by Dataflex and any other necessary
or appropriate Person(s), as the Administrative Lender shall, from time to
time, reasonably require in order to create a first priority Lien in
favor of the Administrative Lender covering all of the accounts receivable
and other receivables of Dataflex, as security for the Obligations.
4. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of the date first above written, subject to the following:
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<PAGE>
(a) The Administrative Lender shall have received counterparts of
this First Amendment executed by each Lender;
(b) The Administrative Lender shall have received counterparts of
this First Amendment executed by the Borrower and by each Guarantor;
(c) The Administrative Lender shall have received a Subsidiary
Guaranty executed by Dataflex;
(d) The Borrower shall have pledged to the Administrative Lender,
for the benefit of the Lenders, as additional security for the Obligations,
all of the issued and outstanding capital stock and other indicia of
ownership, whether now existing or hereafter arising, of the Acquisition
Subsidiary, pursuant to documentation acceptable to the Administrative
Lender;
(e) The Administrative Lender shall have received the Replacement
Notes, executed by the Borrower;
(f) The Administrative Lender shall have received indorsement(s),
in form and substance acceptable to the Administrative Lender, to the
existing mortgagee title policy in favor of the Administrative Lender and
the Lenders, covering the Borrower's Corporate Headquarters, confirming
that the Lien in favor of the Administrative Lender and the Lenders, and
such existing mortgagee title policy, with respect to the Borrower's
Corporate Headquarters cover the Replacement Facility B Notes and that
neither such Lien nor such mortgagee title policy are adversely affected by
the execution and delivery of such Replacement Facility B Notes;
(g) Prior to the consummation of the transactions contemplated by
the Dataflex Acquisition Documents, the Administrative Lender shall have
received such corporate resolutions, opinions, certificates and other
information, documents and papers as the Administrative Lender shall have
reasonably requested, in each case, executed by all necessary or
appropriate parties and in form and substance acceptable to the
Administrative Lender; and
(h) The transactions contemplated by the Dataflex Acquisition
Documents shall have been consummated in accordance with the terms and
provisions of the Dataflex Acquisition Documents, to the reasonable
satisfaction of the Administrative Lender.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this First Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", or words of like
import shall mean and be a reference to the Credit Agreement, as affected
and amended hereby.
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<PAGE>
(b) The Credit Agreement, as amended by the amendments referred to
above, and each of the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed by each of the Borrower and
each Guarantor. Without limiting the generality of the foregoing, each
Guarantor hereby acknowledges and agrees that neither this First Amendment
nor the transactions contemplated hereby shall release, terminate, diminish
or otherwise adversely affect any Guaranty or Collateral Document executed
by such Guarantor in connection with the Credit Agreement or any of such
Guarantor's obligations thereunder.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of this First Amendment
and the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Administrative
Lender as to its rights and responsibilities under the Credit Agreement, as
hereby amended).
7. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which when taken together shall constitute but one and the same
instrument.
8. GOVERNING LAW: BINDING EFFECT. This First Amendment shall be governed
by and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, each Guarantor, the Administrative Lender and each
Lender and their respective successors and assigns.
9. HEADINGS. Section headings in this First Amendment are included herein
for convenience of reference only and shall not constitute a part of this First
Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
BORROWER: COMPUCOM SYSTEMS, INC.
By: /s/ DANIEL CELONI
-------------------------------------
Name: Daniel Celoni
------------------------------
Title: Treasurer
------------------------------
GUARANTORS: COMPUCOM PROPERTIES, INC.
By: /s/ M. LAZANE SMITH
-------------------------------------
Name: M. Lazane Smith
------------------------------
Title: President
------------------------------
COMPUTER INTEGRATION CORP.
By: /s/ DANIEL CELONI
-------------------------------------
Name: Daniel Celoni
------------------------------
Title: V.P.
------------------------------
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<PAGE>
ADMINISTRATIVE LENDER: NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as
Administrative Lender
By: /s/ TIMOTHY M. O'CONNOR
-------------------------------------
Name: Timothy M. O'Connor
------------------------------
Title: Vice President
------------------------------
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<PAGE>
LENDERS: NATIONSBANK, N.A., successor by merger to
NationsBank of Texas, N.A., as a Lender,
Swing Line Bank and Issuing Bank
Specified Percentage: 14.210526316%
By: /s/ TIMOTHY M. O'CONNOR
-------------------------------------
Name: Timothy M. O'Connor
------------------------------
Title: Vice President
------------------------------
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<PAGE>
SANWA BUSINESS CREDIT CORPORATION
Specified Percentage: 8.947368421%
By: /s/ STANLEY KAMINSKI
-------------------------------------
Name: Stanley Kaminski
------------------------------
Title: Vice President
------------------------------
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<PAGE>
FIRST UNION NATIONAL BANK, successor by
merger to Corestates Bank, N.A.
Specified Percentage: 10.526315789%
By: /s/ ROBERT A. BROWN
-------------------------------------
Name: Robert A. Brown
------------------------------
Title: Vice President
------------------------------
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<PAGE>
NATIONAL CITY BANK OF KENTUCKY
Specified Percentage: 10.526315789%
By: /s/ LISA M. MAHONEY
-------------------------------------
Name: Lisa M. Mahoney
------------------------------
Title: Assistant Vice President
------------------------------
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<PAGE>
PNC BANK, NATIONAL ASSOCIATION, successor-
by-merger to Midlantic Bank, N.A.
Specified Percentage: 10.526315789%
By: /s/ JOSEPH G. METERCHICK
-------------------------------------
Name: Joseph G. Meterchick
------------------------------
Title: Vice President
------------------------------
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<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
Specified Percentage: 7.894736842%
By: /s/ ROBERT IVOSEVICH
-------------------------------------
Name: Robert Ivosevich
------------------------------
Title: Senior Vice President
------------------------------
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<PAGE>
UNION BANK OF CALIFORNIA, N.A.
Specified Percentage: 8.947368421%
By: /s/ ANN YASUDA
-------------------------------------
Name: Ann Yasuda
------------------------------
Title: Vice President
------------------------------
By:
-------------------------------------
Name:
------------------------------
Title:
------------------------------
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<PAGE>
NATIONAL BANK OF CANADA
Specified Percentage: 8.947368421%
By: /s/ BILL HANDLEY
-------------------------------------
Name: Bill Handley
------------------------------
Title: Vice President
------------------------------
By: /s/ LARRY L. SEARS
-------------------------------------
Name: Larry L. Sears
------------------------------
Title: Vice President and Manager
------------------------------
- 21 -
<PAGE>
COMERICA BANK
Specified Percentage: 8.947368421%
By: /s/ REGINALD M. GOLDSMITH III
-------------------------------------
Name: Reginald M. Goldsmith III
------------------------------
Title: Vice President
------------------------------
- 22 -
<PAGE>
FLEET NATIONAL BANK
Specified Percentage: 10.526315789%
By: /s/ FRANK BENESH
-------------------------------------
Name: Frank Benesh
------------------------------
Title: Vice President
------------------------------
- 23 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,447
<SECURITIES> 0
<RECEIVABLES> 301,920
<ALLOWANCES> 4,222
<INVENTORY> 204,479
<CURRENT-ASSETS> 511,262
<PP&E> 101,519
<DEPRECIATION> 28,767
<TOTAL-ASSETS> 650,778
<CURRENT-LIABILITIES> 305,186
<BONDS> 119,932
0
15,000
<COMMON> 462
<OTHER-SE> 202,579
<TOTAL-LIABILITY-AND-EQUITY> 650,778
<SALES> 907,273
<TOTAL-REVENUES> 1,035,309
<CGS> 812,865
<TOTAL-COSTS> 898,990
<OTHER-EXPENSES> 114,756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,015
<INCOME-PRETAX> 13,548
<INCOME-TAX> 5,419
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,129
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>
