<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 March 31, 2000 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 May 12,
2000 was 48,657,146 shares.
================================================================================
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page
- ------- --------------------- ----
Item 1. Condensed Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations
Three months ended March 31, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K 17
2
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(unaudited)
Assets
------
<S> <C> <C>
Current assets:
Cash $ 4,675 $ 14,060
Receivables 206,040 218,522
Inventories 100,233 129,076
Other 6,853 9,238
----------- ------------
Total current assets 317,801 370,896
Property and equipment, net 27,620 29,718
Cost in excess of fair value of tangible net assets
purchased, less accumulated amortization 83,866 85,086
Other 13,446 12,352
----------- ------------
$ 442,733 $ 498,052
=========== ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 136,120 $ 182,247
Accrued liabilities 74,371 91,993
----------- ------------
Total current liabilities 210,491 274,240
Long-term debt 18,400 --
Deferred income taxes -- 840
Shareholders' equity:
Preferred stock 15,000 15,000
Common stock 487 480
Additional paid-in capital 74,353 72,765
Retained earnings 128,666 139,152
Treasury stock (3,160) --
Notes receivable for sale of stock (1,504) (4,425)
----------- ------------
Total shareholders' equity 213,842 222,972
----------- ------------
$ 442,733 $ 498,052
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended March 31, 2000 and 1999
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
March 31,
----------------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Revenue:
Product $ 503,355 $ 421,292
Service 64,066 68,557
Other -- 3,471
---------------- ---------------
Total revenue 567,421 493,320
Cost of revenue:
Product 468,369 387,744
Service 45,110 45,236
Other -- 1,869
---------------- ---------------
Total cost of revenue 513,479 434,849
---------------- ---------------
Gross margin 53,942 58,471
Operating expenses:
Selling 22,737 23,662
Service 11,397 10,908
General and administrative 21,810 19,299
Depreciation and amortization 5,666 4,087
Restructuring charges 5,169 --
---------------- ---------------
Total operating expenses 66,779 57,956
---------------- ---------------
Earnings/(loss) from operations ( 12,837) 515
Financing expenses 4,265 4,330
---------------- ---------------
Loss before income taxes ( 17,102) ( 3,815)
Income tax benefit ( 6,841) ( 1,526)
---------------- ---------------
Net Loss ($ 10,261) ($ 2,289)
================ ===============
Loss per common share:
Basic and diluted ($ .22) ($ .05)
Average common shares outstanding:
Basic and diluted 48,275 47,635
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 10,261) ($ 2,289)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,666 4,087
Restructuring charges 5,169 --
Deferred income taxes (1,856) 1,365
Changes in assets and liabilities:
Receivables 11,423 46,365
Inventories 28,843 6,153
Other current assets 701 (3,185)
Accounts payable (46,127) 3,549
Accrued liabilities and other (20,876) (26,937)
------------- -------------
Net cash provided by/(used in) operating activities (27,318) 29,108
------------- -------------
Cash flows from investing activities:
Capital expenditures (1,837) (1,125)
Proceeds from sale of building -- 39,791
------------- -------------
Net cash provided by/(used in) investing activities (1,837) 38,666
------------- -------------
Cash flows from financing activities:
Borrowings under revolver 258,700 113,300
Repayment of revolver (240,300) (156,436)
Repayment of real estate loan -- (25,000)
Issuance of common stock 1,595 574
Preferred stock dividend (225) (225)
------------- -------------
Net cash provided by/(used in) financing activities 19,770 (67,787)
------------- -------------
Net decrease in cash (9,385) (13)
Cash at beginning of period 14,060 4,526
------------- -------------
Cash at end of period $ 4,675 $ 4,513
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
(1) General
-------
These condensed consolidated interim 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 1999 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 for a fair presentation 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
------------------
Basic earnings per common share have been computed based on net
earnings after preferred stock dividend requirements 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. Earnings per common share have been computed
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended March 31, 2000
-----------------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------------------- ----------------- ----------
<S> <C> <C> <C>
Net loss ($ 10,261)
Less: Preferred stock dividends (225)
Basic and diluted EPS
---------------------
Loss available to common shareholders $ (10,486) 48,275 ($ .22)
======================= ================= ==========
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1999
-----------------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------------------- ----------------- ----------
<S> <C> <C> <C>
Net loss ($ 2,289)
Less: Preferred stock dividends (225)
Basic and diluted EPS
---------------------
Loss available to common shareholders ($ 2,514) 47,635 ($ .05)
======================= ================= ==========
</TABLE>
The Company has excluded 3,529,976 and 4,111,586 shares from its calculations
of diluted earnings per share for the three months ended March 31, 2000 and
1999 respectively, as they are considered anti-dilutive.
6
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
(4) Business Combinations
---------------------
On May 10, 1999, the Company consummated the acquisition of the TASD
division of ENTEX Information Services, Inc ("the TASD acquisition"). The
total consideration given for the TASD acquisition was approximately $137
million in cash. The TASD acquisition was accounted for as a purchase and
accordingly the condensed consolidated financial statements reflect the
operations of the acquired entity since the acquisition date. The initial
purchase price allocation is preliminary and may be adjusted upon
completion of the final valuation work.
The following unaudited proforma financial information presents the
combined results of operations for the three months ended March 31, 1999 as
if the TASD acquisition had occurred as of the beginning of 1999, after
giving effect to certain adjustments, including amortization of goodwill,
increased financing expense on debt related to the acquisition, and
related income tax effects. The proforma results do not necessarily
represent results which would have occurred if the TASD acquisition had
taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.
(in thousands, except per share data)
Three Months Ended
March 31, 1999
--------------
Revenue $ 925,560
Net loss (5,215)
Diluted loss per share ($0.11)
7
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
(5) Restructuring Charges
During the first quarter of 2000, the Company effected a restructuring plan
designed to reduce the Company's cost structure by closing its distribution
facility located in Houston, Texas, closing and consolidating three office
facilities, and reducing the Company's workforce. As a result, the Company
recorded a restructuring charge of $5.2 million in the first quarter of
2000. The $5.2 million charge is reflected as a separate line of operating
expense in the Company's Condensed Consolidated Statement of Operations.
The following table provides a detail of the charges and cash payments made
by category as well as the amounts accrued as of March 31, 2000:
<TABLE>
<CAPTION>
(in thousands)
--------------
Restructuring Cash Accrual at
Charge Payments Other 3/31/00
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease termination costs $ 2,904 $ (8) $ --- $ 2,896
Employee severance and related benefits 1,800 (999) --- 801
Other 465 (87) (310) 68
-------------------------------------------------------------------
Total $ 5,169 $ (1,094) $ (310) $ 3,765
===================================================================
</TABLE>
The $3.8 million accrued at March 31, 2000 is reflected in accrued
liabilities on the Company's Condensed Consolidated Balance Sheet.
Lease termination costs include the estimated cost to close the three
office facilities and represents the amount required to fulfill the
Company's obligation under signed lease contracts, the net expense expected
to be incurred to sublet the facilities, or the estimated amount to be paid
to terminate the lease contracts before the end of their term. In
developing estimated costs, the Company has consulted with a professional
real estate firm with knowledge of market rent rates in all applicable
markets where the Company has space. Assumptions have been used for market
rent rates and the estimated amount of time necessary to sublet the
facilities. Payments, net of proceeds derived from subleases, are charged
against the accrual as incurred. The remaining accrual at March 31, 2000
relates to three leases for the office facilities that have not been sublet
or terminated.
Severance is paid based on associates' years of service as well as their
level within the organization. The reduction in workforce included 308
associates, of which one was an executive officer. The reduction in
workforce included associates from the following areas: sales, service, and
general and administrative, who were located at certain of the Company's
branch locations, corporate offices, and the Houston distribution center.
The remaining accrual at March 31, 2000 relates to severance payments which
are being paid to many of the former associates and are expected to be
substantially complete by the end of 2000.
Other restructuring charges primarily include the write-off of leasehold
improvements at the Houston distribution center.
8
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
During the fourth quarter of 1998, the Company recorded a $16.4 million
restructuring charge, primarily consisting of costs associated with the
closing of facilities and disposing of related fixed assets as well as
employee severance and benefits related to a reduction in workforce. The
following table provides a summary by category and rollforward of the
changes in this restructuring accrual for the three months ended March 31,
2000:
<TABLE>
<CAPTION>
(in thousands)
--------------
Accrual at Cash Accrual at
12/31/99 Payments 3/31/00
---------------------------------------------------------
<S> <C> <C> <C>
Lease termination costs $ 1,240 $ (741) $ 499
Employee severance and related benefits 560 (94) 466
---------------------------------------------------------
Total $ 1,800 $ (835) $ 965
=========================================================
</TABLE>
The Company expects all restructuring activities to be substantially
complete by the end of 2000 and believes the restructuring accruals are
adequate.
(6) Segment Information
-------------------
The Company defines its operations as two distinct businesses - sales of
computer products ("product") and services, which includes configuration,
network integration and technology support ("service"). ClientLink, Inc.
("ClientLink"), a majority-owned subsidiary of the Company until April
1999, provided customized application programming services and was
previously defined as a third distinct business. In April 1999, ClientLink
was merged with E-Certify Corporation ("E-Certify"). The combined
operations of ClientLink and E-Certify are conducted under the name E-
Certify, Inc. The Company has recorded its minority investment in E-
Certify, Inc. at the net carrying amount of its investment in ClientLink
and is accounting for the ongoing operations of E-Certify, Inc. using the
equity method. The Company's investment is included in Other Non-current
Assets as of March 31, 2000.
The Company measures segment earnings as operating earnings, defined as
income before restructuring charges, financing expenses and income taxes.
All significant inter-segment activity has been eliminated. Business assets
are the assets owned or allocated to each business. The "Other" column
includes all assets not specifically allocated to a segment. The Company's
investment in E-Certify, Inc. is reflected in the "Other" column for the
three months ended March 31, 2000.
9
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
<TABLE>
<CAPTION>
For the Quarter ended March 31, 2000
Operating Results Product Service Other Total
- ------------------------------------- ------------ ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues $ 503,355 $ $64,066 $ -- $ 567,421
Gross margin 34,987 18,956 53,943
Operating earnings/ (loss) (10,552) 3,254 (370) (7,668)
excluding restructuring charges
Restructuring charges (5,169)
Financing expense (4,265)
-----------
Loss before income taxes $ (17,102)
-----------
Total assets $ 258,673 $ 35,954 $ 148,106 $ 442,733
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Quarter ended March 31, 1999
Operating Results Product Service ClientLink, Inc. Other Total
- ------------------------------------- ------------ ------------ ---------------------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues $ 421,292 $ 68,559 $ 3,469 $ -- $ 493,320
Gross margin 33,548 23,321 1,602 58,471
Operating earnings/ (loss) (8,777) 8,549 743 515
Financing expense (4,330)
-----------
Loss before income taxes $ (3,815)
============
Total assets $ 292,046 $ 35,337 $ 9,316 $ 117,178 $ 453,877
============ ============ ====================== =========== ===========
</TABLE>
10
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
(7) Financing Arrangements
----------------------
The Company has financing arrangements which total $450 million, consisting
of a $250 million receivable securitization facility ("Securitization") and
a $200 million working capital facility ("Revolver"). The Securitization,
which matures in May 2002 and has pricing based on a designated short term
interest rate plus an agreed-upon spread, allows the Company to sell an
interest in its accounts receivable on a revolving basis and is accounted
for as a sale of accounts receivable in accordance with Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". As of
March 31, 2000, $160 million of the Securitization was utilized. The
Revolver, which matures in May 2002, bears interest at LIBOR plus an
agreed-upon spread and is secured by a lien on the Company's assets.
Availability under the Revolver is subject to a borrowing base calculation.
As of March 31, 2000, availability under the Revolver was approximately
$68.8 million, of which $18.4 million was outstanding. In accordance with
the terms of the agreement, the Revolver is scheduled to be reduced from
$200 million to $175 million in May 2000. Both the Securitization and the
Revolver are subject to the Company's compliance with selected financial
covenants and ratios.
(8) Related Party Transaction
-------------------------
In January 2000, a former officer and director of the Company
transferred 685,635 shares of the Company's common stock to the Company in
satisfaction of two notes receivable plus accrued interest. The notes were
issued for the purchase of the Company's common stock and were reflected as
notes receivable from the sale of stock in the Condensed Consolidated
Balance Sheet at December 31, 1999. The number of shares transferred was
based on the calculated ten day trailing average price of the Company's
common stock. As a result, the Company recorded a non-cash equity
transaction of approximately $3.2 million to record treasury stock, at
cost.
(9) Reclassifications
-----------------
Certain amounts in the 1999 condensed consolidated financial statements
have been reclassified to conform with the 2000 presentation.
11
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
March 31, 2000
Results of Operations
- ---------------------
The following table shows the Company's total revenue, gross margin and gross
margin percentage by revenue source. Operating expenses, financing expenses,
income tax benefit and net loss are shown as a percentage of total net revenue
for the three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
March 31,
---------
2000 1999
------------------------------------------
(in thousands)
<S> <C> <C>
Revenue:
Product $503,355 $421,292
Service 64,066 68,557
Other - 3,471
------------------------------------------
Total revenue $567,421 $493,320
==========================================
Gross margin:
Product $ 34,986 $ 33,548
Service 18,956 23,321
Other - 1,602
------------------------------------------
Total gross margin $ 53,942 $ 58,471
==========================================
Gross margin percentage:
Product 7.0% 8.0%
Service 29.6% 34.0%
Other - 46.2%
------------------------------------------
Total gross margin percentage 9.5% 11.9%
------------------------------------------
Operating expenses:
Selling 4.0% 4.8%
Service 2.0% 2.2%
General and administrative 3.8% 3.9%
Depreciation and amortization 1.0% 0.8%
Restructuring charges 1.0% -
------------------------------------------
Total operating expenses 11.8% 11.7%
------------------------------------------
Earnings/(loss) from operations (2.3%) 0.1%
Financing expenses 0.8% 0.9%
------------------------------------------
Loss before income taxes (3.0%) (0.8%)
Income tax benefit (1.2%) (0.3%)
------------------------------------------
Net loss (1.8%) (0.5%)
==========================================
</TABLE>
12
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Product revenue, which is primarily derived from the sale of desktop, mobile
computing, WEB computing, and network computer products to corporate customers,
increased approximately 19.5% to $503.4 million in the first quarter of 2000
from $421.3 million in the first quarter of 1999. The increase in product
revenue is primarily due to the May 1999 acquisition of the Technology
Acquisition Services Division of Entex Information Services ("TASD"). Negatively
impacting first quarter product revenue was lower product demand resulting from
its clients' Year 2000 concerns and spending on Year 2000 remediation projects
that occurred in 1999 and not in 2000 as well as manufacturer direct selling and
fulfillment strategies. Product gross margin as a percentage of product revenue
for the first quarter of 2000 was 7.0% compared to 8.0% for the first quarter of
1999. This decrease is primarily due to a reduction in the amount of
manufacturer volume incentives and increased competition from direct marketers
and other corporate resellers of personal computer products. The Company
anticipates a continued reduction in the amount of manufacturer sponsored volume
incentives, which could lower product gross margins even further. The Company
expects to experience continued pressure on both product revenue and product
gross margin, the result of which may be to report lower product revenue and
related product gross margin when compared to the comparable prior year period.
Service revenue declined 6.6% to $64.1 million for the first quarter of 2000
from $68.6 million for the first quarter of 1999. Service revenue is
primarily derived from field engineering, LAN/WAN projects, consulting,
configuration, help desk, asset tracking, network management 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. Service gross margin as a percentage of service net
revenue for the quarter ended March 31, 2000 was 29.6% compared to 34.0% for the
same period in 1999. The decline in both service revenue and service gross
margin was primarily due to lower demand for the Company's consulting services.
The Company believes the decline in consulting services revenue can be partially
attributable to its clients' Year 2000 concerns and spending on Year 2000
remediation projects that occurred in 1999 and not in 2000. The decline in
service gross margin was primarily a result of lower utilization in consulting
services. The Company expects to experience continued pressure in the short term
on both service revenue and service gross margin, the result of which may be to
report lower service revenue and related service gross margin when compared to
the comparable prior year period.
Selling expense decreased approximately $0.9 million for the three months
ended March 31, 2000 as compared to the same period in the prior year. Selling
expense as a percentage of revenue declined to 4.0% for the three months ended
March 31, 2000 from 4.8% for the same period a year ago. The Company attributes
this decline to increased leverage of its infrastructure resulting from the TASD
acquisition and its own cost reduction efforts.
Service expense increased approximately $0.5 million to $11.4 million for the
three months ended March 31, 2000 from $10.9 million for the same period in the
prior year. The increase is due primarily to personnel and infrastructure costs
associated with supporting the services business, offset by the impact of the
April 1999 E-Certify merger whereby ClientLink is no longer a consolidated
subsidiary. Consequently, service expense for the first quarter of 2000 does not
reflect ClientLink's operating expenses as compared to the first quarter of
1999. As a percentage of revenue, service expense declined to 2.0% for the three
months ended March 31, 2000 from 2.2% for the same period a year ago.
General and administrative expense increased to approximately $21.8 million
for the quarter ended March 31, 2000 from $19.3 million for the same period in
the prior year. This increase was primarily due to increases in distribution and
administrative personnel to support the Company's revenue growth as a result of
the TASD acquisition. General and administrative expense, as a percent of
revenue, decreased from 3.9% to 3.8% for the quarters ended March 31, 1999 and
2000, respectively. This decrease is due to increased leverage of the Company's
infrastructure resulting from the TASD acquisition and its own cost reduction
efforts relative to its revenue base. 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.
13
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
During the first quarter of 2000, the Company effected a restructuring plan
designed to reduce the Company's cost structure by closing its distribution
facility located in Houston, Texas, closing and consolidating three office
facilities, and reducing the Company's workforce. As a result, the Company
recorded a restructuring charge of $5.2 million in the first quarter of 2000. Of
the $5.2 million charged to operations, approximately $1.4 million was paid
through March 31, 2000.
Depreciation and amortization expense increased in absolute dollars and as a
percentage of net revenue for the three months ended March 31, 2000 when
compared to the same period in 1999. The increase is due primarily to goodwill
amortization related to the May 1999 TASD acquisition and to software license
amortization.
Financing expense slightly decreased for the three months ended March 31,
2000, as compared to the same period in 1999. As a percentage of revenue,
financing expense declined to 0.8% for the three months ended March 31, 2000
from 0.9% for the same period a year ago.
As a result of the factors discussed above, the Company recorded a net loss
for the quarter ended March 31, 2000 of $10.3 million compared to a net loss of
$2.3 million for the same period in 1999.
Liquidity and Capital Resources
- -------------------------------
Working capital at March 31, 2000 was $107.3 million compared to $96.7 million
at December 31, 1999. The increase in working capital is due primarily to
decreases in accounts payable and accrued liabilities, partially offset by
decreases in receivables and inventories. The decrease in inventories is mainly
due to the Company's continued efforts to reduce its risk associated with
changes in its suppliers' price protection and returns programs. The decrease
in accounts payable occurred primarily as a result of the Company's inventory
reduction efforts, as well as normal fluctuations that occur relative to the
timing of the receipts of product and the mix of vendors.
The Company's liquidity continues to be negatively impacted by the dollar
volume of vendor rebate programs. Under these programs, the Company is required
to pay a higher initial price for product and claim a rebate to reduce the
price. The collection of these rebates can take several months. Due to these
programs, the Company's initial cost for the product is often higher than the
sales price the Company can obtain from its customers. These programs are a
material factor in the Company's financing needs. As of March 31, 2000 the
Company was owed approximately $65 million under these vendor rebate programs.
14
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company's working capital requirements are generally funded through
financing arrangements and internally generated funds. As of March 31, 2000, the
Company's financing arrangements consisted of a $250 million securitization
facility ("Securitization"), and a $200 million working capital facility
("Revolver"). Both facilities mature in May 2002. The Securitization pricing is
based on a designated short-term interest rate plus an agreed upon spread. As
of March 31, 2000, $160 million of the Securitization was utilized. The Revolver
bears interest at LIBOR plus an agreed upon spread and is secured by a lien on
the Company's assets. Availability under the Revolver is subject to a borrowing
base calculation. As of March 31, 2000, availability under the Revolver was
approximately $68.8 million, of which $18.4 million was outstanding. In
accordance with the terms of the agreement, the Revolver is scheduled to be
reduced from $200 million to $175 million in May 2000. Both the Securitization
and the Revolver are subject to the Company's compliance with selected financial
covenants and ratios.
The Company's business is not capital intensive, and capital expenditures in
any year normally are not significant in relation to the overall financial
position of the Company. Capital expenditures were approximately $1.6 million
for the three months ended March 31, 2000 as compared to $1.1 million for the
same period in 1999. The majority of both the 2000 and 1999 capital
expenditures were related to the upgrading of the Company's hardware and
software. The Company does not expect to incur capital expenditures in 2000
materially different from its 1999 levels.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. We will adopt SFAS No. 133 as required by
SFAS No. 137, "Deferral of the Effective Date of the FASB Statement No. 133," in
fiscal year 2001. We do not expect the adoption of SFAS No. 133 to have a
significant impact on our financial condition or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements" and in March 2000, the SEC issued Staff Accounting Bulletin No.
101A, "Implementation Issues Related to SAB 101". These bulletins summarize
certain of the SEC's views about applying generally accepted accounting
principles to revenue recognition in financial statements. The SEC is providing
this guidance due, in part, to the large number of revenue recognition issues
that registrants encounter. Our management is in the process of analyzing the
implications of these bulletins and is anticipating that further implementation
guidance will be forthcoming from the SEC. We will adopt SAB 101 in the second
quarter of fiscal 2000 and are presently analyzing what impact, if any, SAB 101
will have on our financial position or results of operations.
This document contains certain forward-looking statements regarding revenues,
margin, earnings, growth rates and certain business trends that involve risks
and uncertainties that could cause actual results to differ materially from the
results discussed herein, specifically: the ability to grow product and service
revenue; the Company may not be able to increase its consulting revenue in the
second half of the year; there may be fewer consulting projects to compete for
in the second quarter or remainder of the year; the Company may not meet its
expectations in providing manufacturers the ability to implement their direct
fulfillment strategies; the Company may not be able to migrate clients to a fee-
for-service model; the Company may not be able to find additional ways to
leverage costs and reduce costs further. Other factors that could cause actual
results to differ materially are: competitive pricing and supply; the impact of
the manufacturer's shift to direct fulfillment programs may be more significant
than anticipated; changes to manufacturers' pricing, price protection, rebate
and incentive programs; short-term interest rate fluctuations; general economic
conditions; employee turnover and possible future litigation; the ability to
collect accounts receivable; and related uncertainties that may have an impact
on future revenue and earnings 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. Readers of this document are cautioned to consider these risks and
uncertainties and to not place undue reliance on these forward-looking
statements.
15
<PAGE>
COMPUCOM SYSTEMS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
- ------- ---------------------------------------------------------
The Company is exposed to interest rate risk primarily through its
Securitization and Revolver. The Company utilizes its Securitization and
Revolver for its working capital and other borrowing needs. As of March 31,
2000, the Company had $160 and $18.4 million outstanding under its
Securitization and Revolver, respectively. If the Company's effective interest
rate were to increase by 75 basis points (.75%), the Company's annual financing
expense would increase by approximately $1.8 million based on the average
outstandings under the Securitization and Revolver during the three months ended
March 31, 2000.
Currently, the Company does not enter into financial investments for trading
or other speculative purposes or to manage interest rate exposure.
16
<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 Executive Employment Agreement, dated March 13, 2000,
between Anthony F. Pellegrini and CompuCom Systems Inc.
(filed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
1. On February 4, 2000, the Company filed a Current Report on Form 8-K
to announce that it was ceasing operations at its Configuration
Services Center located on Compaq Computer Corporation's Houston-
based campus. The Company also announced that a senior vice-
president had resigned from his position with the Company.
17
<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: May 15, 2000 /s/ J. Edward Coleman
------------------------
J. Edward Coleman,
Chief Executive Officer
DATE: May 15, 2000 /s/ M. Lazane Smith
-------------------
M. Lazane Smith,
Senior Vice President, Finance and
Chief Financial Officer
18
<PAGE>
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated March 13, 2000 is made and entered into by and
between CompuCom Systems, a Delaware corporation ("Employer"), and Anthony F.
Pellegrini, an executive employee of Employer ("Executive").
Recitals
A. Executive is employed by Employer in an executive capacity and
Executive has agreed to continue as an employee of Employer pursuant to the
terms of this Agreement.
B. Employer desires that the Executive continue as an employee of
Employer in order to provide the necessary leadership and senior management
skills that are important to the success of Employer. Employer believes that
retaining the Executive's services as an employee of Employer and the benefits
of his business experience are of material importance to Employer and Employer's
shareholders.
Agreement
NOW, THEREFORE, in consideration of Executive's continued employment by
Employer and the mutual promises and covenants contained herein the receipt and
sufficiency of which is hereby acknowledged, Employer and Executive intend by
this Agreement to specify the terms and conditions of Executive's employment
relationship with Employer.
Section I. General Duties of Employer and Executive.
1.1 Employer agrees to employ Executive and Executive agrees to accept
employment by Employer and to serve Employer in an executive capacity upon the
terms and conditions set forth herein. The duties and responsibilities of
Executive shall include those described for the particular position held by
Executive while employed hereunder in the Bylaws of Employer or other documents
of Employer, and shall also include such other or additional duties, for
Employer, as may from time-to-time be assigned to Executive by the Board of
Directors of Employer or any duly authorized committee thereof. The executive
capacity that Executive shall hold while this Agreement is in effect shall be
that position as determined by the Board of Directors, or any duly authorized
committee thereof, from time to time in its sole discretion. While employed
hereunder, the initial position that Executive shall hold (until such time as
such position may be changed as aforesaid) shall be the position of Senior Vice
President of Sales.
1.2 While employed hereunder, Executive shall obey the lawful directions
of the Board of Directors of Employer, or any duly authorized committee thereof,
and shall use his best efforts to promote the interests of Employer and to
maintain and to promote the reputation thereof. While employed hereunder,
Executive shall devote his time, efforts, skills and attention to the affairs of
Employer in order that he/she shall faithfully perform his duties
<PAGE>
and obligations hereunder and such as may be assigned to or vested in him by the
Board of Directors of Employer, or any duly authorized committee thereof.
1.3. While this Agreement is in effect, Executive may from time to
time engage in any businesses or activities that do not compete directly and
materially with Employer, provided that such businesses or activities do not
materially interfere with his performance of the duties assigned to him in
compliance with this Agreement by the Board of Directors of Employer or any duly
authorized committee thereof. In any event, Executive is permitted to (i) invest
his personal assets as a passive investor in such form or manner as Executive
may choose in his discretion, (ii) participate in various charitable efforts,
and (iii) serve as a director or officer of any other entity or organization
that does not compete with Employer.
Section 2. Compensation and Benefits.
2.1. As compensation for services to Employer, Employer shall pay to
Executive, while this Agreement is in effect, a salary at a monthly rate of
$16,666.67. Any increases to such rate shall be at the discretion of the
Compensation Committee duly elected by the Board of Directors. The salary shall
be payable in equal bi-weekly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions applied
generally to employees of Employer for insurance and other employee benefit
plans. In addition, Executive shall be entitled to participate in the Company's
Management Incentive Compensation Plan ("MICP") at a rate of 50% of base salary.
This bonus will be subject to the parameters set forth by the Compensation
Committee each year and the amount of payment will be determined by such
Committee.
2.2. Upon Executive's furnishing to Employer customary and reasonable
documentary support (such as receipts or paid bills) evidencing costs and
expenses incurred by him in the performance of his services and duties hereunder
(including, without limitation, travel and entertainment expenses) and
containing sufficient information to establish the amount, date, place and
essential character of the expenditure, Executive shall be reimbursed for such
costs and expenses in accordance with Employer's normal expense reimbursement
policy.
2.3. Executive shall have the right to participate in medical, dental
insurance plans, 401(k) plan, life insurance or other plans existing in benefit
of executive officers of Employer.
2.4. Executive shall be entitled to such vacation (in no event less
than three (3) weeks per year), holidays and other paid or unpaid leaves of
absence as consistent with Employer's normal policies or as otherwise approved
by the Board of Directors.
2.5. Executive agrees to submit to and Company agrees to pay for one
complete physical examination on an annual basis at the Cooper Clinic (or
similar medical clinic) in Dallas, Texas.
<PAGE>
Section 3. Preservation of Business; Fiduciary Responsibility.
3.1. Executive shall use his best efforts to preserve the business and
organization of Employer, to keep available to Employer the services of present
employees and to preserve the business relations of Employer. Executive shall
not commit any act, or in any way assist others to commit any act, that would
injure Employer. So long as the Executive is employed by Employer, Executive
shall observe and fulfill proper standards of fiduciary responsibility attendant
upon his service and office.
Section 4. Initial Term; Extensions of the Term.
The term of this Agreement shall commence on the effective date hereof and
be ongoing until the employment relationship is terminated for reasons outlined
in this agreement.
Section 5. Termination. Employer or Executive may terminate Executive's
employment under this Agreement at any time, but only on the following terms:
5.1. Executive may terminate his employment under this Agreement at any
time upon at least thirty (30) days prior written notice to Employer.
5.2. Employer may terminate Executive's employment under this Agreement at
any time, without prior notice, for "due cause" upon the good faith
determination by the Board of Directors of Employer that "due cause" exists for
the termination of the employment relationship. As used herein, the term "due
cause" shall mean any of the following events:
(i) any intentional misapplication by Executive of Employer's
funds, or any other act of dishonesty injurious to Employer committed by
Executive; or
(ii) Executive's conviction of a crime involving moral turpitude; or
(iii) Executive's illegal use or possession of any controlled
substance or chronic abuse of alcoholic beverages; or
(iv) Executive's breach, non-performance or non-observance of any of
the terms of this Agreement if such breach, non-performance or non-
observance shall continue beyond a period of ten (10) business days
immediately after notice thereof by Employer to Executive; or
(v) any other action by the Executive involving willful and
deliberate malfeasance or gross negligence in the performance of
Executive's duties.
5.3. In the event Executive is incapacitated by accident, sickness or
otherwise so as to render Executive mentally or physically incapable of
performing the services required under Section 1 of this Agreement for a period
of one hundred eighty (180) consecutive business days, and such incapacity is
confirmed by the written opinion of two (2) practicing
<PAGE>
medical doctors licensed by and in good standing in the state in which they
maintain offices for the practice of medicine, upon the expiration of such
period or at any time reasonably thereafter, or in the event of Executive's
death, Employer may terminate Executive's employment under this Agreement upon
giving Executive or his legal representative written notice at least thirty (30)
days' prior to the termination date. Executive agrees, after written notice by
the Board of Directors of Employer or a duly authorized committee or officer of
Employer, to submit to examinations by such practicing medical doctors selected
by the Board of Directors of Employer or a duly authorized committee or officer
of Employer.
5.4 Employer may terminate Executive's employment under this Agreement
at any time for any reason whatsoever, even without "due cause," by giving a
written notice of termination to Executive, in which case the employment
relationship shall terminate immediately upon the giving of such notice.
Section 6. Effect of Termination.
6.1 In the event the employment relationship is terminated (a) by
Executive upon thirty (30) days' written notice pursuant to Subsection 5.1
hereof, (b) by Employer for "due cause" pursuant to Subsection 5.2 hereof, or
(c) by Executive breaching this Agreement by refusing to continue his employment
and failing to give the requisite thirty (30) days' written notice, all
compensation and benefits shall cease as of the date of termination, other
than: (i) those benefits that are provided by retirement and benefit plans and
programs specifically adopted and approved by Employer for Executive that are
earned and vested by the date of termination, (ii) Executive's pro rata annual
salary through the date of termination, and (iii) those benefits required by law
to be made available to terminating employees.
6.2 If Executive's employment relationship is terminated pursuant to
Subsection 5.3 hereof due to Executive's incapacity or death, Executive (or, in
the event of Executive's death, Executive's legal representative) will be
entitled to those benefits tht are provided by retirement and benefits plans and
programs specifically adopted and approved by Employer for Executive that are
earned and vested at the date of termination and, even though no longer employed
by Employer, shall continue to receive salary compensation (payable in the
manner as prescribed in the second sentence of Subsection 2.1) for one year.
6.3 If Employer (i) terminates the employment of Executive other than
pursuant to Subsection 5.2 hereof for "due cause" or other than for a disability
or death pursuant to Subsection 5.3 hereof, (ii) demotes the Executive to a
position below the level of the position described in Subsection 1.1, (iii)
decreases Executive's salary below the level or reduces the employee benefits
and perquisites below the level provided for by the terms of Section 2 hereof,
other than as a result of any amendment or termination of any employee and/or
executive benefit plan or arrangement, which amendment or termination is
applicable to all qualifying executives of Employer, then such action by
Employer, unless consented to in writing by Executive, shall be deemed to be a
constructive termination by Employer of Executive's employment (a "Constructive
Termination"). In the event of a Constructive Termination, at any time from the
start of this Agreement, March 13, 2000 through March 13, 2001, the Executive
shall be entitled to receive, the balance of payment remaining for the year
2000, in a lump sum within ten (10) days after the date of the Constructive
<PAGE>
Termination, plus an amount equal to one year of salary. In the event of a
Constructive Termination at any time after March 13, 2001, the Executive shall
be entitled to receive, in a lump sum within (10) days after the date of the
Constructive Termination, an amount equal to one year of salary. The Company
will also provide outplacement assistance to Executive in an amount not to
exceed $25,000, is so desired by the Executive.
6.4. For purposes of this Section 6, the term "salary" shall mean the
sum of (i) the annual rate of compensation provided to Executive by Employer
under Subsection 2.1 immediately prior to the Constructive Termination plus (ii)
the earned cash annual bonuses or other cash incentive compensation paid to
Executive (based upon most recent position) by Employer for the only calendar
year period immediately preceding the year in which there shall occur a
Constructive Termination.
6.5. In the event of a Constructive Termination, all other rights and
benefits Executive may have under the employee and/or executive benefit plans
and arrangements of Employer generally shall be determined in accordance with
the terms and conditions of such plans and arrangements.
Section 7. Covenants of Noncompetition.
7.1. Executive acknowledges that he/she has received and/or will
receive specialized knowledge and training from Employer during the term of this
Agreement, and that such knowledge and training would provide an unfair
advantage if used to compete with Employer. In order to avoid such unfair
advantage, Executive agrees that while he/she is employed with Employer and for
a period equal to one (1) year after the date of a voluntary termination of
employment (the "Restricted Period"), he shall not, directly or indirectly,
individually or as an owner, lender, consultant, adviser, independent
contractor, employee, partner, officer, director or in any other capacity, alone
or in association with other persons or entities, own, assist, finance,
participate in or be employed by any business or other endeavor that is in any
way in competition with Employer in any business at the time the termination
occurs, including, but not limited to, computer resellers, service companies
providing the same services as CompuCom, and computer retail companies.
Executive also agrees that, for the Restricted period, he/she will not, either
directly or indirectly, solicit any employee or other independent contractor of
the Employer to terminate his employment or contract with the Employer. In the
event of a Constructive Termination or termination due to change in control,
Executive will not compete for the same period of time for which payments are
received in accordance with Subsection 6.3.
7.2. Executive represents and acknowledges to Employer that his
education, experience and/or abilities are such that he/she can obtain
employment in a non-competing business, and that enforcement of the terms of
this Agreement through temporary and/or permanent injunctive relief will not
prevent him from earning a livelihood and will not cause an undue hardship upon
him. Executive hereby acknowledges that $16,666.67 of his monthly salary
described in Subsection 2.1 is paid by Employer in consideration for Executive's
agreement to be bound by the non-competition provisions of this Agreement.
Section 8. Inventions.
<PAGE>
8.1. Any and all inventions, product, discoveries, improvements,
processes, formulae, manufacturing methods or techniques, designs or styles
(collectively, "Inventions") made, developed or created by Executive, alone or
in conjunction with others, during regular hours of work or otherwise, during
the term of Executive's employment with the Employer and for a period of one (1)
year thereafter that may be directly or indirectly related to the business of,
or tests being carried out by, the Employer, or any of its subsidiaries, shall
be promptly disclosed by Executive to Employer and shall be the Employer's
exclusive property.
8.2. Executive will, upon the Employer's request and without
additional compensation, execute any documents necessary or advisable in the
opinion of the Employer's counsel to direct the issuance of patents to the
Employer with respect to Inventions that are to be the Employer's exclusive
property under this Section 8 or to vest in the Employer title to such
Inventions; the expense of securing any patent, however, shall be borne by the
Employer.
8.3. Executive will hold for the Employer's sole benefit any
Invention that is to be the Employer's exclusive property under this Section 8
for which no patent is issued.
8.4. Executive grants to Employer a royalty-free, nonexclusive
irrevocable license for any Inventions developed prior to the employment with
the Company that he has not reserved that are used by Executive in the
performance of his duties for the Employer. Employee represents and warrants
that any work produced by Executive will not, to the best knowledge of
Executive, infringe on any other person's or entity's copyright or other
proprietary rights, and Employee will hold the Employer harmless from any claims
and losses based on such infringements.
Section 9. No Violation. Executive represents that he is not bound
by any agreement with any former employer or other party that would be violated
by Executive's work for Employer.
Section 10. Confidential and Proprietary Information.
10.1. Executive acknowledges and agrees that he/she will not, without
the prior written consent of the Employer, at any time during the term of this
Agreement or any time thereafter, except as may be required by competent legal
authority or as required by the Employer to be disclosed in the course of
performing Executive's duties under this Agreement for the Employer, use or
disclose to any person, firm or other legal entity, any confidential records,
secrets or information related to the Employer or any parent, subsidiary or
affiliated person or entity (collectively, "Confidential Information").
Confidential Information shall include, without limitation, information about
the Employer's Inventions, customer lists, customer contracts, vendor contracts,
and non-public financial information. Executive acknowledges and agrees that
all Confidential Information of Employer and/or its affiliates that he has
acquired, or may acquire, were received, or will be received in confidence and
as a fiduciary of the Employer. Executive will exercise utmost diligence to
protect and guard such Confidential Information.
<PAGE>
10.2. Executive agrees that he will not take with him upon the
termination of this Agreement, any document or paper, or any photocopy or
reproduction or duplication thereof, relating to any Confidential Information.
Section 11. Return of Employer's Property. Upon the termination of
this Agreement or whenever requested by Employer, Executive shall immediately
deliver to Employer all property in his possession or under his control
belonging to Employer, in good condition, ordinary wear and tear expected.
Section 12. Injunctive Relief. Executive acknowledges that the
breach, or threatened breach, by the Executive of the provisions of this
Agreement shall cause irreparable harm to the Employer, which harm cannot be
fully redressed by the payment of damages to the Employer. Accordingly, the
Employer shall be entitled, in addition to any other right or remedy it may have
at law or in equity, to an injunction enjoining or restraining Executive from
any violation or threatened violation of this Agreement.
Section 13. Arbitration.
13.1. As concluded by the parties and as evidenced by the signatures
of the parties, any dispute between the parties arising out of any section of
this Agreement except Sections 7, 8 and 10, will, on the written notice of one
party served on the other, be submitted to arbitration complying with and
governed by the provisions of the Texas General Arbitration Act, Articles 224
through 238-20 of the Texas Revised Civil Statutes.
13.2. Each of the parties will appoint one person as an arbitrator to
hear and determine the dispute and if they are unable to agree, then the two
arbitrators so chosen will select a third impartial arbitrator whose decision
will be final and conclusive upon the parties.
13.3. The expenses of such arbitration will be borne by the losing
party or in such proportion as the arbitrators decide.
13.4. A material or anticipatory breach of any section of this
Agreement shall not release either party from the obligations of this Section
13.
Section 14. Miscellaneous.
14.1. If any provision contained in this Agreement is for any reason
held to be totally invalid or unenforceable, such provision will be fully
severable, and in lieu of such invalid or unenforceable provision there will be
added automatically as part of this Agreement a provision as similar in terms
as may be valid and enforceable.
14.2. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when mailed by registered mail or
certified mail, return receipt requested, as follows (provided that notice of
change of address shall be deemed given only when received):
<PAGE>
if to Employer: CompuCom Systems, Inc.
7171 Forest Lane
Dallas, Texas 75230
Attn: Chief Financial Officer
if to Executive: Anthony F. Pellegrini
or to such other names or addresses as Employer or Executive, as the case may
be, shall designate by notice to the other party hereto in the manner specified
in this Subsection 14.2.
14.3. This Agreement shall be binding upon and inure to the
benefit of Employer, its successors, legal representatives and assigns, and upon
Executive, his heirs, executors, administrators, representatives, legatees and
assigns. Executive agrees that his rights and obligations hereunder are personal
to him and may not be assigned without the express written consent of Employer.
14.4. This Agreement replaces and merges all previous agreements
and discussions relating to the same or similar subject matters between
Executive and Employer with respect to the subject matter of this Agreement.
This Agreement may not be modified in any respect by any verbal statement,
representation or agreement made by any employee, officer, or representative of
Employer or by any written agreement unless signed by an officer of Employer who
is expressly authorized by Employer to execute such document.
14.5. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof, and Employer and Executive agree that the
state and federal courts situated in Dallas County, Texas shall have personal
jurisdiction over Employer and Executive to hear all disputes arising under this
Agreement. This agreement is to be at least partially performed in Dallas
County, Texas, and, as such, Employer and Executive agree that venue shall be
proper with the state or federal courts in Dallas County, Texas to hear such
disputes. In the event either Employer or Executive is not able to effect
service of process upon the other with respect to such disputes, Employer and
Executive expressly agree that the Secretary of State for the State of Texas
shall be an agent of Employer and/or the Executive to receive service of process
on behalf of Employer and/or the Executive with respect to such disputes.
14.6. Executive and Employer shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
<PAGE>
14.7. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
14.8. If either party should file a lawsuit against the other to
enforce any right such party has hereunder, the prevailing party shall also be
entitled to recover reasonable attorney's fees and costs of suit in addition to
any other relief awarded such prevailing party.
14.9. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement.
14.10. Executive acknowledges that Executive has had the opportunity
to read this Agreement and discuss it with advisors and legal counsel, if
Executive has so chosen. Executive also acknowledges the importance of this
Agreement and that Employer is relying on this Agreement in continuing an
employment relationship with Executive.
The undersigned, intending to be legally bound, have executed this
Agreement on the date first written above.
EMPLOYER:
CompuCom Systems, Inc.
By:
-----------------------------------
Its:
-----------------------------------
EXECUTIVE:
/s/ ANTHONY F. PELLEGRINI 2/25/2000
----------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,675
<SECURITIES> 0
<RECEIVABLES> 211,143
<ALLOWANCES> 5,103
<INVENTORY> 100,233
<CURRENT-ASSETS> 317,801
<PP&E> 65,664
<DEPRECIATION> 38,044
<TOTAL-ASSETS> 442,733
<CURRENT-LIABILITIES> 210,491
<BONDS> 18,400
0
15,000
<COMMON> 487
<OTHER-SE> 198,355
<TOTAL-LIABILITY-AND-EQUITY> 442,733
<SALES> 503,355
<TOTAL-REVENUES> 567,421
<CGS> 468,369
<TOTAL-COSTS> 513,479
<OTHER-EXPENSES> 66,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,265
<INCOME-PRETAX> (17,102)
<INCOME-TAX> (6,841)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,261)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
