<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR
15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
Commission File No. 0-5734
PIONEER-STANDARD ELECTRONICS, INC.
(Exact name of registrant as
specified in its charter)
Ohio 34-0907152
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
4800 East 131st Street, Cleveland, Ohio 44105
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (216) 587-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Shares, without par value
(Title of Class)
Common Shares Purchase Rights
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by checkmark 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 requirement for the past 90 days. Yes X No
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Registration S-K is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this From 10-K Annual
Report or any amendment to this Form 10-K. [X]
The aggregate market value of voting Shares of the Registrant held by
non-affiliate was $310,547,415 as of June 1, 1996, computed on the basis of the
last reported sale price per share ($15.00) of such shares on The Nasdaq
National Market. Common Shares held by each officer, Director, and by each
person who owns or may be deemed to own 10% or more of the outstanding Common
Shares have been excluded since such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of June 3, 1996, the Registrant had the following number of Common
Shares outstanding: 22,519,692
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Shareholders to be held on July 23, 1996
are incorporated by reference into Part III of this Form 10-K.
Portions of the Registrant's Annual Report for the fiscal year ended March 31,
1996 are incorporated by reference into Parts II and IV of this Form 10-K.
Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of March 31, 1996.
The Common Share information contained in this Form 10-K reflects a
three-for-two share split effected in the form of a 50% share dividend declared
on July 25, 1995 paid on September 6, 1995 to shareholders of record on August
16, 1995.
PART I
------
Item 1. Business
- -----------------
(a) Pioneer-Standard Electronics, Inc. was organized as an Ohio
corporation in 1963 and maintains its principal office at 4800 East 131st
Street, Cleveland, Ohio 44105 (telephone number (216) 587-3600). On June 1,
1994, Pioneer-Standard Canada Inc., a newly-formed Canadian subsidiary of the
Company, purchased from United Westburne Inc., a Canadian corporation, certain
of the assets and assumed certain liabilities of Westburne's Zentronics
Division, which the Company believes is one of the largest distributors of
electronic components and computer products in Canada. On November 30, 1995,
the Company acquired 50% of the Common Stock of Pioneer/Technologies Group
Inc., a Maryland corporation ("Technologies"). Prior to this acquisition, the
Company held 50% of the Common Stock of Technologies. There have not been any
material changes in the nature of the business done by the Company since April
1, 1995. Except as otherwise stated, the term "Company" as used herein shall
mean Pioneer-Standard Electronics, Inc., Pioneer-Standard Canada Inc., and
Pioneer-Standard of Maryland, Inc. (formerly Technologies).
(b) The Company is engaged in the distribution of industrial and
end-user electronic products, which business comprises only one basic industry
segment.
(c) The following is a description of various aspects of the
Company's business:
INDUSTRIAL AND END-USER DISTRIBUTION - The Company distributes a broad
range of electronics components and computer products manufactured by others.
These products are sold to original equipment manufacturers, value-added
resellers, research laboratories, government agencies, and end-users, including
manufacturing companies, and service and other non-
2
<PAGE> 3
manufacturing organizations. These products are classified into three broad
categories: semiconductors, computer products, and passive and
electromechanical components. During fiscal 1996, semiconductor products
accounted for 38% of the Company's sales compared with 37% in 1995 and 41% in
1994. These products include microprocessors, memory devices, programmable
logic devices, analog and digital integrated circuits and other semiconductor
devices. During fiscal 1996, computer products accounted for 40% of the
Company's sales compared with 38% in 1995 and 33% in 1994. These products
include computers (primarily mini and personal), display terminals, disk
drives, development systems and networking products. During fiscal 1996,
passive and electromechanical products accounted for 20% of the Company's
sales, compared with 22% in 1995 and 24% in 1994. These products include
capacitors, connectors, resistors, potentiometers, switches and power
conditioning equipment.
As a part of its distributor operations, the Company provides
value-added services including point of use inventory management, systems
integration, just-in-time kitting operations, memory and logic device
programming and connector assemblies to customer specifications. Sales amounts
for these services are included among the three broad categories discussed
above.
Miscellaneous products accounted for 2% of sales in 1996, 3% of sales
in 1995 and 2% of sales in 1994.
PRODUCTS DISTRIBUTED AND SOURCES OF SUPPLY - The Company is the fourth
largest of the approximately 1,500 electronics distributors serving North
American markets in terms of combined sales (prior to the acquisition of the
remaining 50% of Technologies, the sales of the Company and Technologies were
combined for industry ranking purposes). The Company markets electronic
components supplied by over 100 manufacturers. A majority of the Company's
revenues comes from products sourced by relatively few suppliers. During the
1996 fiscal year, products purchased from the Company's five largest suppliers
accounted for 69% of total sales volume, with Digital Equipment Corporation
(27%) and Intel Corporation (18%) being the largest two suppliers. The loss of
any one of the top five suppliers and/or a combination of certain other
suppliers could have a material adverse effect on the Company's sales and
earnings unless alternative products manufactured by others are available to
the Company. The majority of the products sold by the Company are purchased
pursuant to distributor agreements which generally provide for inventory return
privileges by the Company upon cancellation of a distributor agreement. The
distributor agreements also typically provide protection to the Company for
product obsolescence and price erosion. The Company believes it has good
relationships with its suppliers.
CUSTOMERS - The Company serves over 24,000 customers in many major
markets of North America. No single customer accounted for more than five
percent of the Company's total sales for the fiscal year ended March 31, 1996.
BACKLOG - The Company historically has not had a significant backlog of
orders, although some shipments may be scheduled for delivery over an extended
period of time. There was not a significant backlog during the last fiscal
year.
3
<PAGE> 4
COMPETITION - The sale and distribution of industrial electronic
components and computer products are highly competitive, primarily with respect
to price and product availability, but also with respect to service, variety
and availability of products carried, number of locations and promptness of
service. Many of the distributors with whom the Company competes are regional
or local distributors. However, several of the Company's strongest competitors
have national and international distribution businesses. The Company also
experiences competition from manufacturers, including some of the Company's
suppliers, who may sell directly to the industrial and end-user account base.
EMPLOYEES - As of March 31, 1996, the Company had 2,052 employees, with
approximately 2,016 of these persons employed on a full-time basis and the
balance on a part-time basis. The Company is not a party to any collective
bargaining agreement, has had no strikes or work stoppages and considers its
employee relations to be excellent.
(d) The Company distributes its products in the United States and
Canada. Export sales are not a significant portion of the Company's sales.
Item 2. Properties
- -------------------
The Company's major distribution facilities used in the business are set forth
below:
<TABLE>
<CAPTION>
Owned or Expiration Date
Location Sq. Ft. Leased of Lease (1)
-------- ------- -------- --------------
<S> <C> <C> <C>
Austin, Texas 10,800 Leased September 1, 2003
Chicago, Illinois 11,300 Leased April 14, 1998
Cleveland, Ohio (2) 87,000 Owned
Dallas, Texas 13,500 Leased October 31, 1999
Eden Prairie, Minnesota 12,800 Leased August 31, 1997
Fremont, California 12,000 Leased March 15, 1999
Gaithersburg, Maryland 112,000 Leased July 31, 1999
Horsham, Pennsylvania 12,800 Leased October 31, 2000
Irvine, California 14,700 Leased February 1, 1997
Lexington, Massachusetts 26,400 Owned
Montreal, Canada 12,100 Leased February 28, 1999
San Jose, California 42,000 Leased June 30, 1999
Solon, Ohio 174,000 Leased December 31, 2005
Solon, Ohio 21,600 Leased December 20, 2000
Solon, Ohio 24,000 Leased February 28, 1999
Solon, Ohio 41,000 Leased March 31, 1998
Solon, Ohio 44,700 Leased May 31, 1999
Toronto, Canada 32,700 Leased May 31, 1997
Tustin, California 16,100 Leased December 1, 2001
Twinsburg, Ohio (3) 106,000 Owned
Woodbury, New York 35,600 Leased September 30, 1997
- ---------------
</TABLE>
4
<PAGE> 5
(1) The major leases contain renewal options for periods ranging from one
to twenty years.
(2) Corporate headquarters.
(3) Corporate distribution center.
The Company also has entered into various leases for distribution facilities of
10,000 square feet or less.
Item 3. Legal Proceedings
- --------------------------
As of March 31, 1996, the Company was not a party to any material
pending legal proceedings. The Company has entered into new Employment
Agreements with James L. Bayman, Arthur Rhein and John V. Goodger, effective
April 1, 1996. Ms. Janice M. Margheret has been requested to sign, but has not
yet signed, her proposed new Employment Agreement, and the Company and Ms.
Margheret are discussing the status of her continued employment with, or in the
alternative her separation from, the Company. If Ms. Margheret signs her new
Employment Agreement, which she has indicated she will not do, it will contain
terms similar to those contained in the other Executive Officers' Employment
Agreements. On June 21, 1996, Ms. Margheret, through her attorneys, advised
the Company that she has claims against the Company and certain of its Officers
and Directors based upon sex discrimination, retaliation for asserting claims
of sex discrimination, violations of the American With Disabilities Act, breach
of contract, tortious interference with advantageous business relations and
defamation. Discussions with her attorneys are being conducted, and if a
mutually satisfactory resolution is not arrived at, litigation may result.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended March 31, 1996.
5
<PAGE> 6
Executive Officers of the Company(1)
- ---------------------------------
The name, age and positions of each executive officer of the Company
as of June 1, 1996 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James L. Bayman 59 Chairman of the Board of the Company since April 1, 1996, Chief Executive Officer of
the Company since April 3, 1995, and President of the Company since June, 1984. Chief
Operating Officer of the Company from June, 1984 to April 3, 1995.
Arthur Rhein 50 Senior Vice President of the Company since April, 1993 and Vice President - Marketing
of the Company from 1986 to April, 1993. Prior thereto, Vice President - Northeast
Division of the Company from 1984 to 1986.
John V. Goodger 60 Vice President, Treasurer, and Assistant Secretary of the Company since February, 1990.
Prior thereto, Vice President, Treasurer and Assistant Secretary of Ferro Corporation
from 1987 to 1990 and Vice President and Treasurer of Ferro Corporation from 1984 to
1990.
Janice M. Margheret 41 Senior Vice President of the Company since April, 1993 and Vice President and
Controller of the Company from July, 1987 to April, 1993. Prior thereto, Group
Controller of the Company from 1983 to 1987.
William A. Papenbrock 57 Secretary of the Company since 1986. Mr. Papenbrock is a partner of the law firm of
Calfee, Halter & Griswold(2).
--------------------------
</TABLE>
(1) The description of Executive Officers called for in this Item
is included pursuant to Instruction 3 to Section (b) of Item
401 of Regulation S-K.
(2) The law firm of Calfee, Halter & Griswold serves as counsel to
the Company.
There is no relationship by blood, marriage or adoption among the
above-listed officers. Messrs. Bayman, Rhein and Goodger have entered into
new Employment Agreements with the
6
<PAGE> 7
Company, all of which are included as Exhibits hereto. Messrs. Bayman, Rhein,
and Goodger hold office until terminated as set forth in their new Employment
Agreements. Mr. Papenbrock holds office until his successor is elected by the
Board of Directors. See "Item 3. Legal Proceedings" for information with
respect to Ms. Margheret and her employment status.
7
<PAGE> 8
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------ ---------------------------------------------------------------------
The Company's Common Shares, without par value, are traded on The
Nasdaq National Market. Common Share prices are quoted daily under the symbol
PIOS. The high and low sales prices for the Common Shares, and the cash
dividends paid on the Common Shares, for each quarter of the two most recent
fiscal years and additional information required by this Item is set forth at
page 34 of the Annual Report, which information is incorporated herein by
reference.
Cash dividends are payable quarterly, upon authorization of the Board
of Directors. Regular payment dates are the 1st day of August, November,
February and May. The Company maintains a Dividend Reinvestment Plan whereby
cash dividends, and a maximum of an additional $5,000 per month, may be
invested in the Company's Common Shares at no commission cost.
On April 25, 1989, the Company adopted a Common Share Purchase Rights
Plan. For further information about the Common Share Purchase Rights Plan, see
Note 6 (Common Share Purchase Rights Plan) of Notes to Financial Statements of
the Company.
Item 6. Selected Financial Data
- ------ -----------------------
The information required by this Item is set forth at page 23 of the
Annual Report, which information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
- ---------------------
The information required by this Item is set forth at pages 19 through
22 of the Annual Report, which information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
The information required by this Item is set forth at pages 24 through
32 of the Annual Report, which information is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
8
<PAGE> 9
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
Information required by this item as to the Directors of the Company
appearing under the caption "Election of Directors" in the Company's Proxy
Statement to be used in connection with the Annual Meeting of Shareholders to
be held on July 23, 1996 (the "1996 Proxy Statement") is incorporated herein by
reference. Information required by this item as to the executive officers of
the Company is included in Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
- ------- ----------------------
The information required by this item is incorporated herein by
reference to "Compensation of Executive Officers" in the 1996 Proxy Statement
(except for the Compensation Committee Report and the Performance Graph).
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
The information required by this item is incorporated herein by
reference to "Share Ownership" in the 1996 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
The information required by this item is incorporated herein by
reference to "Compensation of Executive Officers - Certain Transactions" in the
1996 Proxy Statement.
9
<PAGE> 10
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ------- ----------------------------------------------------------------
(a) The following financial statements and schedules are filed as part of
this Form 10-K:
(1) FINANCIAL STATEMENTS AND SCHEDULES. The following financial
statements of the Company and its subsidiaries and the report of
independent accountants thereon, included in the Annual Report on
pages 24 through 32 and page 34, are incorporated by reference in Item
8:
Report of independent auditors
Balance sheet as of March 31, 1996 and 1995
For the years ended March 31, 1996, 1995
and 1994:
Statements of income
Statements of shareholders' equity
Statements of cash flows
Notes to financial statements
Report of independent auditors
Schedules for years ended March 31, 1996,
1995 and 1994:
VIII - Valuation and Qualifying Accounts
Quarterly Financial Data
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
(2) Exhibits
--------
See the Index to Exhibits at page E-1 of this Form 10-K.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K was filed December 12, 1995 and a Form 8-K/A-1
with respect to such Current Report was filed on February 9, 1996. The Current
Report was filed to report the Company's acquisition of Technologies. The
amendment was filed to include the financial statement and pro forma financial
information with respect to Technologies.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PIONEER-STANDARD ELECTRONICS, INC.
Date: June 28, 1996 By: /s/ James L. Bayman
------------------------------
James L. Bayman,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature and Title Date
- ------------------- ----
<S> <C> <C> <C>
/s/ James L. Bayman President and Chief Executive )
- ---------------------------------- Officer (Principal Executive )
James L. Bayman Officer) )
)
)
/s/ John V. Goodger Vice President, )
- ----------------------------------- Treasurer and Assistant Secretary )
John V. Goodger (Principal Financial and Accounting )
Officer) )
)
)
/s/ Preston B. Heller, Jr. Director )
- ------------------------------------ )
Preston B. Heller, Jr. )
)
/s/ Frederick A. Downey Director ) June 28, 1996
- --------------------------------- )
Frederick A. Downey )
)
/s/ Victor Gelb Director )
- ------------------------------------- )
Victor Gelb )
)
/s/ Gordon E. Heffern Director )
- ----------------------------------- )
Gordon E. Heffern )
)
/s/ Arthur Rhein Director )
- ------------------------------------ )
Arthur Rhein )
)
/s/ Edwin Z. Singer Director )
- ----------------------------------- )
Edwin Z. Singer )
)
/s/ Thomas C. Sullivan Director )
- ----------------------------------- )
Thomas C. Sullivan )
)
/s/ Karl E. Ware Director )
- ----------------------------------- )
Karl E. Ware )
</TABLE>
11
<PAGE> 12
Pioneer-Standard Electronics, Inc.
Exhibit Index
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
<S> <C> <C>
3.(a) Amended Articles of Incorporation of
Pioneer-Standard Electronics, Inc., which
is incorporated herein by reference from
the Company's Annual Report on Form 10-K
for the year ended March 31, 1982. N/A
(b) Amended Code of Regulations, as amended,
which is incorporated herein by reference
from the Company's Annual Report on
Form 10-K for the year ended March 31,
1988. N/A
4.(a) Credit Agreement, dated as of November 30, 1995
by and among Pioneer-Standard Electronics, Inc.,
Pioneer-Standard of Maryland, Inc., the Banks
identified on the signature pages thereto and
National City Bank, as Agent, which is
incorporated by reference from the Form 8-K
dated December 13, 1995. N/A
(b) Rights Agreement dated as of April 25, 1989
by and between the Company and AmeriTrust
Company National Association, which is
incorporated herein by reference from the
Company's Annual Report on Form 10-K for
the year ended March 31, 1989. N/A
(c) Note Purchase Agreement dated as of October
31, 1990 by and between the Company and
Teachers Insurance and Annuity Association
of America, which is incorporated herein
by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended
December 31, 1990. N/A
(d) Amendment No. 1 to Note Purchase Agreement
dated as of November 1, 1991 by and between
the Company and Teachers Insurance and
Annuity Association of America, which is
incorporated herein by reference from the
Company's Annual Report on Form 10-K for
the year ended March 31, 1993. N/A
(e) Amendment No. 2 to Note Purchase Agreement dated
as of November 30, 1995 by and between the
Company and Teachers Insurance and Annuity
Association of America.
10.(a) Retirement Agreement effective March 31, 1996
by and between the Company and
Preston B. Heller, Jr.
(b) Employment Agreement effective as of April 1, 1996
by and between the Company and James L. Bayman.
</TABLE>
E-1
<PAGE> 13
<TABLE>
<S> <C> <C>
(c) Employment Agreement effective as of April 1, 1996
by and between the Company and Arthur Rhein.
(d) Employment Agreement effective as of April 1, 1996
by and between the Company and John V. Goodger.
(e) Stock Purchase Agreement dated July 24, 1986
among Pioneer-Standard Electronics, Inc.
and the other shareholders of
Pioneer Technologies Group, Inc., which
is incorporated herein by reference from
the Company's Current Report on Form 8-K
dated July 24, 1986. N/A
(f) 1982 Incentive Stock Option Plan, as amended,
which is incorporated by reference from the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1988. N/A
(g) Amended and Restated 1991 Stock Option Plan,
which is incorporated by reference from the
Company's Form S-8 Registration Statement
dated April 28, 1994. N/A
(h) Asset Purchase Agreement dated April 22, 1994
between Pioneer-Standard Electronics, Inc. and
Westburne Industrial Enterprises Ltd., which
is incorporated herein by reference from the
Company's Current Report on Form 8-K dated
June 1, 1994. N/A
(i) Amended 1995 Stock Option Plan for Outside
Directors, which is incorporated by reference
from the Company's Form S-8 Registration
Statement dated June 28, 1996.
</TABLE>
E-2
<PAGE> 14
<TABLE>
<S> <C> <C>
11. Statement regarding computation of per share
earnings.
13.1 1996 Annual Report (with a manually executed
report of independent public accountants)
21. Subsidiaries of the Registrant
23. Consents of Ernst & Young LLP, Independent
Auditors.
27. Financial Data Schedule
99.(a) Certificate of Insurance Policy effective
November 1, 1996 between Chubb Group of
Insurance Companies and Pioneer-Standard
Electronics, Inc.
99.(b) Forms of Amended and Restated Indemnification
Agreement entered into by and between the
Company and each of its Directors and
Executive Officers, which are incorporated
herein by reference from the Company's
Annual Report on Form 10-K for the year
ended March 31, 1994. N/A
</TABLE>
E-3
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Pioneer-Standard
Electronics, Inc. as of March 31, 1996 and 1995 and for each of the three years
in the period ended March 31, 1996 and have issued our report thereon dated May
1, 1996 included elsewhere in this Annual Report (Form 10-K). Our audits also
included the consolidated financial statement schedule of Pioneer-Standard
Electronics, Inc. as of March 31, 1996 and 1995 and for each of the three years
in the period ended March 31, 1996, listed in Item 14(a) of this Annual Report
(Form 10-K). This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Cleveland, Ohio
May 1, 1996
<PAGE> 16
PIONEER-STANDARD ELECTRONICS, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Years ended March 31, 1996, 1995 and 1994
Balance at Charged Deductions - Balance
beginning to costs net write-offs at end of
Description of period and expenses Other (Net recoveries) period
- ----------- --------- ------------ ----- ---------------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Allowance for doubtful
accounts $4,606,000 $ 940,000 $2,195,000(1) $ 759,000 $6,982,000
Inventory valuation
reserve $3,416,000 $1,489,000 $5,534,000(1) $1,662,000 $8,777,000
1995:
Allowance for doubtful
accounts $2,869,000 $2,281,000 $ 544,000 $4,606,000
Inventory valuation
reserve $2,540,000 $2,167,000 $1,291,000 $3,416,000
1994:
Allowance for doubtful
accounts $1,713,000 $1,808,000 $ 652,000 $2,869,000
Inventory valuation
reserve $2,659,000 $1,995,000 $2,114,000 $2,540,000
<FN>
(1) Amount for Pioneer Technologies Group, Inc., purchased November 30, 1995.
</TABLE>
<PAGE> 1
Exhibit 4(e)
EXECUTION COPY
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT
This Amendment No. 2 to Note Purchase Agreement (this "Amendment") is
entered into as of November 30, 1995 by PIONEER-STANDARD ELECTRONICS, INC. (the
"Company") and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (the
"Noteholder").
PRELIMINARY STATEMENT.
1. The Company and the Noteholder have entered into a Note
Purchase Agreement, dated as of October 31, 1990 (the "Original Purchase
Agreement"), pursuant to which, at a closing held on November 2, 1990, the
Noteholder purchased $20,000,000 in aggregate principal amount of the Company's
9.79% Senior Notes due November 1, 2000 (the "Notes"), which Original Purchase
Agreement has been amended by that certain Amendment No. 1 to Note Purchase
Agreement, dated as of November 1, 1991 (as so amended, the "Purchase
Agreement"). The Noteholder was the sole purchaser and remains the sole record
and beneficial owner of the Notes. Capitalized terms used herein and not
otherwise defined herein are used with the meanings assigned thereto in the
Purchase Agreement.
2. The Company now owns one hundred percent (100%) of the
outstanding capital stock of Pioneer-Standard Canada Inc., a corporation
organized under the laws of the Province of Ontario ("Pioneer/Canada"), and one
hundred percent (100%) of Pioneer-Standard of Maryland, Inc., a Maryland
corporation ("Pioneer/Maryland"). As of the date of this Amendment,
Pioneer/Maryland will merge with and into Pioneer/Technologies Group, Inc., a
Maryland corporation ("Pioneer/Technologies") (the "Merger"), with the
survivor of the Merger, Pioneer/Technologies, becoming the wholly-owned
subsidiary of the Company and changing its name to Pioneer-Standard of
Maryland, Inc. The Company desires that each of Pioneer/Canada,
Pioneer/Maryland and Pioneer/Technologies be designated as "Restricted
Subsidiaries" under the Purchase Agreement.
3. Concurrently herewith the Company and Pioneer/Technologies have
entered into that certain Credit Agreement with certain lenders, including,
without limitation, National City Bank, a national banking association, as
agent thereunder (the "Credit Agreement"), pursuant to which the Company and
Pioneer/Technologies may borrow up to $200,000,000 in the aggregate. In
addition, the Company and Pioneer/Technologies may borrow up to $40,000,000 for
short-term overnight borrowing needs, the Company may enter into a $10,000,000
line of credit facility for foreign exchange purchases/sales, and
Pioneer/Canada may enter into a $10,000,000 line of credit facility for foreign
exchange purchases/sales (collectively, the "Short-Term Facility").
NY1-1 16887.8
1
<PAGE> 2
4. Under Sections 9.22 and 12.1 of the Purchase Agreement, a
Restricted Subsidiary must be, among other things, incorporated and organized
under the laws of the United States or any jurisdiction thereof, which would
prohibit Pioneer/Canada from being a Restricted Subsidiary. In addition,
Section 12.1 of the Purchase Agreement prohibits Pioneer/Technologies from
being a Restricted Subsidiary.
5. Under Section 9.10 of the Purchase Agreement, the Company is
required to maintain Consolidated Net Worth in an amount not less than the sum
of (a) $32,000,000 and (b) 50% of Cumulative Consolidated Net Income.
6. Under Sections 9.13 and 9.14 of the Purchase Agreement, the sum
of Secured Debt and Restricted Subsidiary Indebtedness may not exceed 15% of
Consolidated Net Worth. Under the Credit Agreement, Pioneer/Technologies is
permitted to borrow up to $75,000,000.
7. Under Section 9.15 of the Purchase Agreement, the ability of the
Company and each Restricted Subsidiary to merge or consolidate with any other
Person is subject to certain conditions set forth therein.
8. Under Section 9.16 of the Purchase Agreement, the ability of the
Company and each Restricted Subsidiary to, directly or indirectly, in a single
transaction or a series of transactions, sell, lease, transfer, abandon or
otherwise dispose of all or any part of their property, other than in the
ordinary course of its business, is subject to certain conditions set forth
therein.
9. Under Section 9.19 of the Purchase Agreement, the Company and
each Restricted Subsidiary is prohibited from making Restricted Payments or
Restricted Investments unless certain financial and other tests are met.
10. Under Section 9.20 of the Purchase Agreement, the Company and
its Restricted Subsidiaries are prohibited from, directly or indirectly,
expressly or by operation of law, creating, incurring, issuing, assuming,
guaranteeing or in any manner becoming liable, contingently or otherwise, in
respect of any Funded Indebtedness unless, immediately thereafter, and after
giving effect thereto on a PRO FORMA basis, (i) the ratio of Consolidated
Funded Indebtedness to Total Capitalization is less than or equal to 0.65 to
1.00 at any time from the Closing Date through and including December 31, 1994
and (ii) the ratio of Consolidated Funded Indebtedness to Total Capitalization
is less than or equal to 0.60 to 1.00 at any time subsequent to December 31,
1994.
11. Under Section 12.1 of the Purchase Agreement, the Consolidated
Net Worth of the Company does not include the amount at which the Company's
investment in Pioneer/Technologies would be reflected on the balance sheet of
the Company.
12. On the terms and subject to the conditions set forth in this
Amendment, and as an inducement to the Noteholder to consent to the Merger and
certain other actions, the Company and the Noteholder desire to amend the
Purchase Agreement as set forth below.
NY1-1 16887.8
2
<PAGE> 3
NOW, THEREFORE, the Company and the Noteholder agree as follows:
SECTION 1. GENERAL REPRESENTATIONS AND WARRANTIES OF
THE COMPANY.
The Company hereby represents and warrants to the Noteholder as
follows:
Section 1.1. REPRESENTATIONS AND WARRANTIES IN PURCHASE AGREEMENT. The
representations and warranties with respect to the Company contained in the
Purchase Agreement are true and correct in all material respects and the
Noteholder shall be entitled to rely on such representations and warranties as
if they were made to the Noteholder in this Amendment as of the date hereof.
Section 1.2. REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. The
representations and warranties with respect to the Company contained in the
Credit Agreement and in any document, certificate or instrument delivered
pursuant to the Credit Agreement are true and correct in all material respects
and the Noteholder shall be entitled to rely on such representations and
warranties as if they were made to the Noteholder in this Amendment as of the
date hereof.
SECTION 2. AMENDMENTS TO THE PURCHASE AGREEMENT.
The Purchase Agreement is hereby amended in the following respects:
Section 2.1. AMENDMENT TO SECTION 9.10 OF THE PURCHASE AGREEMENT.
Section 9.10 of the Purchase Agreement is hereby amended by deleting it in its
entirety and substituting the following new Section 9.10 in lieu thereof:
Section 9.10 MAINTENANCE OF CONSOLIDATED NET WORTH. The
Company shall at all times maintain a Consolidated Net Worth in an
amount not less than the sum of (a) $120,000,000, (b) 50% of
Cumulative Consolidated Net Income and (c) 100% of the net proceeds to
the Company of any offering of equity securities.
Section 2.2. AMENDMENT TO SECTION 9.13 OF THE PURCHASE AGREEMENT.
Section 9.13 of the Purchase Agreement is hereby amended by deleting it in its
entirety and substituting the following new Section 9.13 in lieu thereof:
Section 9.13 LIENS. (a) Neither the Company nor any Restricted
Subsidiary will create, incur or suffer to exist any Lien on
property which is owned by the Company or such Restricted Subsidiary,
respectively, on the date hereof and which is not presently subject to
any Lien or any property which is hereafter acquired by the Company or
any Restricted Subsidiary, other than (i) Permitted Liens and (ii) any
lien other than Permitted Liens on such property which secures Debt
("Secured Debt"), so long as (x) the sum of the principal amount of all
Secured Debt outstanding and the aggregate outstanding amount
NY1-116887.8
3
<PAGE> 4
of Restricted Subsidiary Indebtedness created, incurred or suffered to
exist pursuant to Section 9.14 hereof at no time exceeds One Hundred
Million Dollars ($100,000,000), (y) there does not exist at the time of
incurrence or creation of any such Lien any Default or Event of Default
which has not been waived pursuant to Section 13.4 hereof or cured
pursuant to Section 11.4 hereof and (z) the creation, incurrence and
existence of such Secured Debt does not otherwise give rise to or
represent a Default or Event of Default (including, but not limited to,
a Default or Event of Default under Section 9.20 hereof).
(b) If any property of the Company or any Restricted
Subsidiary is subjected to a Lien in violation of this Section 9.13,
there shall automatically arise a Lien in favor of the holders of the
Notes, or, if legally necessary to satisfy the following requirements
of this paragraph, the Company will make or cause to be made provision
whereby, in either case, the Notes will be secured equally and ratably
with all obligations secured by such Lien, and, in any case, the Notes
shall have the benefit, to the full extent that, and with such priority
as, the holders may be entitled under applicable law, of an equitable
Lien on such property securing (in the manner as aforesaid) the Notes
and such other obligations. Such violation of this Section 9.13 shall
constitute an Event of Default hereunder, whether or not any such
provision is made pursuant to this Section 9.13(b).
Section 2.3. AMENDMENT TO SECTION 9.14 OF THE PURCHASE
AGREEMENT. Section 9.14 of the Purchase Agreement is hereby amended by deleting
it in its entirety and substituting the following new Section 9.14 in lieu
thereof:
Section 9.14 RESTRICTED SUBSIDIARY INDEBTEDNESS. The Company
will not permit any Restricted Subsidiary, directly or indirectly,
expressly or by operation of law, to create, incur, assume, guarantee,
in any manner become liable in respect of or suffer to exist any
Restricted Subsidiary Indebtedness unless the sum of the principal
amount of all Restricted Subsidiary Indebtedness outstanding and the
aggregate outstanding amount of Secured Debt created, incurred or
suffered to exist pursuant to Section 9.13 hereof at no time exceeds
One Hundred Million Dollars ($100,000,000), and the creation,
incurrence and existence of such Restricted Subsidiary Indebtedness
does not otherwise give rise to or represent a Default or Event of
Default. The Company will not permit Pioneer/Technologies, directly or
indirectly, expressly or by operation of law, to create, incur,
assume, guarantee, in any manner become liable in respect of or suffer
to exist any Indebtedness unless the sum of the principal amount of all
Indebtedness of Pioneer/Technologies outstanding at no time exceeds
Seventy-Five Million Dollars ($75,000,000). Notwithstanding anything
contained in this Section 9.14 to the contrary, the Company may permit
and suffer to exist (a) any Restricted Subsidiary Guaranty of the
Indebtedness of the Company incurred under the Credit Agreement, the
Short-Term Facility or hereunder, (b) Indebtedness of any Restricted
Subsidiary
NY1-116887.8
4
<PAGE> 5
incurred under the Short-Term Facility and (c) Indebtedness
incurred by Pioneer/Technologies under the Credit Agreement.
Section 2.4. AMENDMENT TO SECTION 9.15 OF THE PURCHASE AGREEMENT.
Section 9.15 of the Purchase Agreement is hereby amended by deleting it in its
entirety and substituting the following new Section 9.15 in lieu thereof:
Section 9.15 MERGER; SALE OF ASSETS. Other than the
Merger, none of the Company or any Restricted Subsidiary will
enter into any merger, consolidation, reorganization or liquidation or
transfer or otherwise dispose of all or a Substantial Portion of its
property or business, unless approved in advance by the holders of at
least 66-2/3% in aggregate unpaid principal amount of the Notes then
Outstanding.
Section 2.5. AMENDMENT TO SECTION 9.16 OF THE PURCHASE AGREEMENT.
Section 9.16 of the Purchase Agreement is hereby amended by deleting it in its
entirety and substituting the following new Section 9.16 in lieu thereof:
Section 9.16 THIS SECTION INTENTIONALLY OMITTED.
Section 2.6. AMENDMENT TO SECTION 9.20 OF THE PURCHASE AGREEMENT.
Section 9.20 of the Purchase Agreement is hereby amended by deleting it in its
entirety and substituting the following new Section 9.20 in lieu thereof:
Section 9.20 LIMITATIONS ON CONSOLIDATED FUNDED INDEBTEDNESS.
The Company will not permit the ratio of Consolidated Funded
Indebtedness to Total Capitalization of the Company and its Restricted
Subsidiaries to be greater than (i) 0.65 to 1.00 at any time from the
Closing Date through and including December 31, 1994, (ii) 0.60 to 1.00
at any time subsequent to December 31, 1994 through and including March
30,1997, (iii) 0.575 to 1.00 at any time subsequent to March 30,1997
through and including March 30, 1998 and (iv) 0.55 to 1.00 at any time
subsequent to March 30, 1998.
Section 2.7. ADDITION OF SECTION 9.23 TO THE PURCHASE AGREEMENT. The
following new Section 9.23 shall be added to the Purchase Agreement:
Section 9.23 DELIVERY OF SUBSIDIARY GUARANTEES. Within 10 days
after the Company forms or acquires any Subsidiary, other than
Pioneer/Canada or Pioneer/Technologies, the Company shall cause such
additional Subsidiary to execute and deliver to each of the Noteholders
a guarantee agreement (together with such other documents as the
Noteholders shall reasonably request), in form and substance
satisfactory to the Noteholders, whereby such additional Subsidiary
agrees that it shall be jointly and severally liable for the
obligations of the Company under the Purchase Agreement; PROVIDED,
HOWEVER, that the obligation to execute and deliver a guarantee
agreement shall not apply in the case of any particular additional
Subsidiary unless and until such Subsidiary
NY1-116887.8
5
<PAGE> 6
has received funding from the Company and/or Pioneer/Technologies in
excess of $100,000 or the aggregate funding from the Company
and/or Pioneer/Technologies to all Subsidiaries (other than
Pioneer/Technologies and Pioneer/Canada) exceeds $500,000.
Section 2.8. ADDITION OF SECTION 9.24 TO THE PURCHASE AGREEMENT. The
following new Section 9.24 shall be added to the Purchase Agreement:
Section 9.24 INVESTMENT AND LOAN LIMIT. None of the Company or
any Restricted Subsidiary (other than Pioneer/Canada), together or
individually, directly or indirectly, in any instance or in the
aggregate over time may: (a) invest in any manner more than $10,800,000
in Pioneer/Canada or (b) loan more than an aggregate principal amount
of $25,000,000 to Pioneer/Canada.
Section 2.9. AMENDMENT TO SECTION 11.1 OF THE PURCHASE AGREEMENT.
Section 11.1 of the Purchase Agreement is hereby amended by deleting paragraph
(c) thereof in its entirety and substituting the following new paragraph (c) in
lieu thereof:
(c) the Company shall default in the due and punctual
performance of or compliance with any covenant, condition or agreement
to be performed or observed by it under Section 9.3(b) or Sections 9.10
through 9.20 hereof; the Company shall use the proceeds of sale of the
Notes other than as described in Section 1.3 hereof; or the Company,
pursuant to the provisions of the Credit Agreement, shall be required
to pay to or deposit with the Agent or any Lender under the Credit
Agreement an amount equal to the face amount of the Interim Letter of
Credit; or
Section 2.10. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT.
Section 12.1 of the Purchase Agreement is hereby amended by deleting the
definition of "Consolidated Net Worth" in its entirety and substituting the
following new definition in lieu thereof:
The term "Consolidated Net Worth" shall mean, as of the date of
determination thereof, the sum of the amount of common stock, the
aggregate liquidation preference of any preferred stock, capital
surplus and retained earnings accounts, less treasury stock, which
would appear on a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of the date of determination in accordance
with generally accepted accounting principles, less all Minority
Interests.
Section 2.11. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT.
Section 12.1 of the Purchase Agreement is hereby amended by deleting the
definition of "Cumulative Consolidated Net Income" in its entirely and
substituting the following new definition in lieu thereof:
The term "Cumulative Consolidated Net Income" shall mean, as of
the date of determination thereof, an amount equal to the sum of the
Consolidated Net Income for (i) each complete Fiscal Year for which
financial statements have been delivered or are required to have been
delivered pursuant to
NY1-116887.8
6
<PAGE> 7
Section 10.1(a) hereof and which commenced after September 30,
1995 and ended prior to such date of determination (treating each such
complete Fiscal Year as a separate accounting period for such purpose)
and (ii) each complete Fiscal Quarter for which financial statements
have been delivered or are required to have been delivered pursuant to
Section 10.1(b) hereof and which commenced after the end of the last
such complete Fiscal Year and ended prior to such date of determination
(treating each such complete Fiscal Quarter as a separate accounting
period for such purpose), but without subtraction of the amount of any
Consolidated Net Loss for any such Fiscal Year or Fiscal Quarter.
Section 2.12. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT.
Section 12.1 of the Purchase Agreement is hereby amended by deleting the
definition of "Current Liabilities" in its entirely and substituting the
following new definition in lieu thereof:
The term "Current Liabilities" of any Person, at any date of
determination, shall mean all amounts which, in accordance with
generally accepted accounting principles, would be included as current
liabilities on a balance sheet of such Person at such date, but shall
under any circumstances include all Indebtedness payable on demand or
maturing within one year after such date without any option on the part
of the obligor to extend or renew beyond such year; provided, however,
notwithstanding the foregoing, in no event shall Current Liabilities
include the outstanding principal amount of loans made pursuant to the
Credit Agreement (excluding the Short-Term Facility) unless and until
the earlier to occur of (a) the Facility Termination Date and (b) a
default pursuant to the terms of the Credit Agreement.
Section 2.13. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT.
Section 12.1 of the Purchase Agreement is hereby amended by deleting the
definition of "Funded Indebtedness" in its entirety and substituting the
following new definition in lieu thereof:
The term "Funded Indebtedness" of any Person, shall mean, as of
the date of any determination thereof, all Indebtedness of such Person
having a final maturity of one or more than one year from the date of
creation thereof (other than that portion of the principal of such
Funded Indebtedness due within one year from such date of
determination, but including, however, any Indebtedness of such Person
having a final maturity, duration or payment date within one year from
such date which, pursuant to the terms of a revolving credit or similar
agreement or otherwise may be renewed or extended at the option of such
Person for more than one year from such date, whether or not
theretofore renewed or extended); provided, however, that Funded
Indebtedness shall include all Indebtedness incurred pursuant to the
Credit Agreement (including, without limitation, any letters of credit
referred to therein).
NY1-116887.8
7
<PAGE> 8
Section 2.14. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT.
Section 12.1 of the Purchase Agreement is hereby amended by deleting the
definition of "Indebtedness" in its entirety and substituting the following new
definition in lieu thereof:
The term "Indebtedness", with respect to any Person, shall
mean and include the aggregate amount of, without duplication: (a) all
obligations of such Person for borrowed money; (b) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar
instruments; (c) all Capitalized Lease Obligations of such Person; (d)
all obligations or liabilities of others secured by a Lien on any Asset
owned by such Person, irrespective or whether such obligation or
liability is assumed, to the extent of the lesser of such obligation or
liability or the fair market value of such Asset; (e) all obligations
of such Person to pay the deferred purchase price of Assets or
services, exclusive of trade and other payable which, by their terms,
are due and payable within ninety (90) calendar days of the creation
thereof and are not overdue or are being properly and expeditiously
contested in good faith by appropriate proceedings, so long as
appropriate reserves have been established and the use by such Person
of any Assets involved has not been materially interfered with; (f) any
liability (whether contingent or not) in respect of unfunded vested
accrued benefits under any Pension Plan which is subject to Title IV of
ERISA; (g) all liabilities of such Person in respect of letters of
credit or instruments serving a similar function issued or accepted for
its account by banks and other Financial institutions (whether or not
representing obligations for borrowed money); and (h) any Guaranty of
Indebtedness described in any of clauses (a) through (g) above,
including reimbursement obligations in respect of letters of credit;
provided, however, that Indebtedness shall not include any Guaranty (i)
by the Company of Indebtedness of a Restricted Subsidiary or (ii) by a
Restricted Subsidiary of Indebtedness of another Restricted Subsidiary;
and provided, further, that, for purposes of any determination of
Consolidated Funded Indebtedness and Section 9.20 hereof, no Guaranty
shall be treated as Indebtedness if the obligation guaranteed thereby
is Indebtedness; and, provided, further, that Indebtedness shall not
include any Guaranty by the Company or a Restricted Subsidiary of the
Indebtedness of another Person if (i) treating such Guaranty as
Indebtedness would result in a violation of Section 9.20 hereof at the
time the Company or such Restricted Subsidiary becomes liable therefor,
(ii) the Company elects (and evidences such election by prompt written
notice thereof to each holder of a Note) to treat such Guaranty as a
Restricted Investment and (iii) treated as a Restricted Investment, the
incurrence of such Guaranty can be effected in compliance with Section
9.19 hereof.
Section 2.15. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT.
Section 12.1 of the Purchase Agreement is hereby amended by deleting the
definition of "Restricted Investment" in its entirety and substituting the
following new definition in lieu thereof:
NY1-116887.8
8
<PAGE> 9
The term "Restricted Investment" shall mean any Investment (other than
an Investment in, to or in favor of any Person which is, or after the making of
which, will be, a Restricted Subsidiary) paid for with cash or other property
(other than equity securities of the Company) other than:
(a) any certificate of deposit with a final maturity of one
year or less issued by any bank or trust company having capital and
surplus at the end of its most recently ended fiscal year in excess of
$100,000,000;
(b) commercial paper of any corporation incorporated in the
United States of America maturing not more than 270 days from the date
of issuance thereof and rated "A-1" or better by Standard & Poor's
Ratings Services ("S&P") or "P-1" or better by Moody's Investors
Service, Inc. ("Moody's"); provided, however, that any such commercial
paper that is rated by both such rating agencies shall be rated "A-1"
or better by S&P and "P-1" or better by Moody's;
(c) any direct obligation of the United States of America
or obligation of any instrumentality or agency thereof the payment of
the principal of and interest on which is unconditionally guaranteed by
the United States of America; PROVIDED, HOWEVER, that any such
obligation shall have a final maturity date not more than two years
after the acquisition thereof;
(d) the Investment by the Company or any Restricted
Subsidiary of the Company in Pioneer/Technologies;
(e) any Indebtedness or other security of the Company or a
Restricted Subsidiary which is purchased, repurchased, redeemed,
prepaid or acquired or reacquired in any other manner by the Company or
a Restricted Subsidiary, so long as such Indebtedness or other security
is retired or cancelled promptly after its acquisition by the Company
or such Restricted Subsidiary; and
(f) any Investment by the Company or a Restricted
Subsidiary the making of which constitutes a Restricted Payment.
Section 2.16. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT.
Section 12.1 of the Purchase Agreement is hereby amended by deleting the
definition of "Restricted Subsidiary" in its entirety and substituting the
following new definition in lieu thereof:
NY1-116887.8
9
<PAGE> 10
The term "Restricted Subsidiary" shall mean (i) any Subsidiary of the
Company hereafter designated by action of the Board of Directors of the Company
as a Restricted Subsidiary pursuant to Section 9.22 hereof and (ii) any
Subsidiary of the Company which executes and delivers to each of the
Noteholders a guaranty agreement pursuant to Section 9.23 hereof; provided,
however, that no corporation may be designated a Restricted Subsidiary unless:
(a) such corporation is organized under the laws of the
United States, Canada or any jurisdiction of the foregoing;
(b) such corporation conducts substantially all of its
business and owns substantially all of its property within the
United States or Canada;
(c) a majority of the shares of each class of the capital
stock of such Subsidiary is owned by the Company directly or
indirectly through another Restricted Subsidiary;
(d) such corporation has not previously been designated as
a Restricted Subsidiary hereunder and had such designation
rescinded; and
(e) the requirements of Section 9.22(a) have been complied
with or are complied with concurrently with such designation;
provided, further, that the designation of a Restricted Subsidiary may
be rescinded by action of the Board of Directors of the Company
pursuant to Section 9.22(c) hereof.
Section 2.17. AMENDMENT TO SECTION 12.1 OF THE PURCHASE AGREEMENT. The
following definitions are added to Section 12.1 of the Purchase Agreement, to
be inserted therein in the appropriate alphabetical order:
The term "Agent" shall have the meaning set forth in Article I
of the Credit Agreement.
The term "Credit Agreement" shall mean that certain Credit
Agreement among the Company, Pioneer/Technologies and certain lenders,
including, without limitation, National City Bank, a national banking
association, as agent thereunder, pursuant to which the Company and
Pioneer/Technologies may borrow up to $200,000,000 in the aggregate.
The term "Facility Termination Date" shall have the meaning set
forth in Article I of the Credit Agreement.
NY1-116887.8
10
<PAGE> 11
The term "Interim Letter of Credit" shall have the meaning set
forth in Article I of the Credit Agreement.
The term "Lender" shall have the meaning set forth in Article I
of the Credit Agreement.
The term "Merger" shall mean the merger whereby
Pioneer/Maryland will acquire Pioneer/Technologies via a reverse
cash-out merger with Pioneer/Technologies being the survivor and
immediately changing its name to Pioneer-Standard of Maryland, Inc.
The term "Merger Agreement" shall mean that certain Plan and
Agreement of Merger among the Company, Pioneer/Maryland,
Pioneer/Technologies, the shareholders identified on the signature
pages thereof and Bruce S. Tucker, as shareholder representative,
pursuant to which the Merger will occur.
The term "Pioneer/Canada" shall mean Pioneer-Standard Canada
Inc., a corporation organized under the laws of the Province of
Ontario.
The term "Pioneer/Maryland" shall mean Pioneer-Standard of
Maryland, Inc., a Maryland corporation.
The term "Restricted Subsidiary Guaranty" shall mean any
Guaranty by a Restricted Subsidiary of the Indebtedness of (a) the
Company or (b) another Restricted Subsidiary.
The term "Substantial Portion" shall have the meaning set forth
in Article I of the Credit Agreement.
The terms "Maryland Guarantee" and "Canada Guarantee" shall
mean the guaranty agreements executed and delivered by Pioneer-Standard
of Maryland, Inc., as successor in interest to Pioneer/Technologies,
and Pioneer/Canada, respectively, in each case in favor of the
Noteholders.
SECTION 3. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.
This Amendment shall not be effective unless and until the following
conditions shall have been satisfied or waived:
Section 3.1 OPINIONS OF COUNSEL FOR THE COMPANY. The Noteholder and its
special counsel shall have received from each of (a) Calfee, Halter &
Griswold, Cleveland, Ohio, special United States counsel for the Company and
(b) Blake, Cassels & Graydon, special Canada counsel for the Company, an
opinion, dated the date hereof, in form and substance satisfactory to the
Noteholder and its special counsel, collectively relating to the Merger, the
due authorization, execution and delivery by the Company, Pioneer/Technologies
and Pioneer/Canada of this Amendment, the Maryland Guarantee and the Canada
Guarantee,
NY1-116887.8
11
<PAGE> 12
respectively, and the enforceability against the Company, Pioneer/Technologies
and Pioneer/Canada of this Amendment, the Maryland Guarantee and the Canada
Guarantee, respectively, in accordance with their respective terms.
Section 3.2. CREDIT AGREEMENT. The Credit Agreement and all other
documents, certificates or instruments delivered pursuant thereto shall have
been reduced to writing and furnished to the Noteholder and its special
counsel, and the Credit Agreement and such other documents, certificates and
instruments shall be in form and substance satisfactory to the Noteholder and
its special counsel. The Noteholder shall have received an Officer's
Certificate of the Company certifying that attached thereto are true, correct
and complete copies of a fully executed Credit Agreement and such other
documents, certificates and instruments, that such documents are the only
agreements between such parties relating to the transactions contemplated by
the Credit Agreement, that each such document is in full force and effect
without any term or condition thereof having been amended, modified or waived,
that there is no default thereunder and that each of the conditions set forth
in Section 3.1 of the Credit Agreement have been satisfied (without any thereof
having been waived).
Section 3.3. MERGER AGREEMENT. The Merger Agreement and all other
documents, certificates or instruments delivered pursuant thereto shall have
been reduced to writing and furnished to the Noteholder and its special
counsel, and the Merger Agreement and such other documents, certificates and
instruments shall be in form and substance satisfactory to the Noteholder and
its special counsel. The Noteholder shall have received an Officer's
Certificate of the Company certifying that attached thereto are true, correct
and complete copies of the fully executed Merger Agreement and such other
documents, certificates and instruments, that such documents are the only
agreements between such parties relating to the transactions contemplated by
the Merger Agreement or the business or assets of the Company, that each such
document is in full force and effect without any term or condition thereof
having been amended, modified or waived, that there is no default thereunder
and that all conditions precedent to the effectiveness of the Merger set forth
in the Merger Agreement shall have been satisfied (without any thereof having
been waived). The Merger shall have been consummated and the Company shall own
100% of the stock of Pioneer/Technologies.
Section 3.4 THE GUARANTEES. The Maryland Guarantee and the Canada
Guarantee each shall have been duly executed and delivered and shall constitute
the legal, valid and binding obligations of the obligor thereunder, enforceable
in accordance with its terms.
SECTION 4. MISCELLANEOUS.
Section 4.1. CROSS-REFERENCES. References in this Amendment to any
Section (or "Section") are, unless otherwise specified, to such Section (or
"Section ") of this Amendment.
Section 4.2. INSTRUMENT PURSUANT TO PURCHASE AGREEMENT. This Amendment
is executed pursuant to Section 13.4 of the Purchase Agreement and shall
(unless otherwise expressly indicated herein) be construed, administered and
applied in accordance with all of the terms and provisions of the Purchase
Agreement. Except as expressly amended hereby, all of the
NY1-116887.8
12
<PAGE> 13
representations, warranties, terms, covenants and conditions of the Purchase
Agreement and the Notes shall remain unamended and unwaived. The amendments set
forth herein shall be limited precisely as provided for herein to the
provisions expressly amended herein and shall not be deemed to be a waiver of,
amendment of, consent to or modification of any other term or provision of the
Purchase Agreement or the Notes or of any term or provision of any other
document or of any transaction or further action on the part of the Company
which would require the consent of any Noteholder under the Purchase Agreement.
Section 4.3. SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 4.4. COUNTERPARTS. This Amendment may be executed
simultaneously in two or more counterparts, each of which shall be deemed to be
an original but all of which shall constitute together but one and the same
instrument.
Section 4.5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the law of the State of New York.
NY1-116887.8
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers duly authorized thereunto as of the date
and year first above written.
PIONEER-STANDARD ELECTRONICS, INC.
By: /s/ John V. Goodger
------------------------------
Name: John V. Goodger
Title: VICE PRESIDENT, TREASURER
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Lauren S. Archibald
-------------------------------
Name: Lauren S. Archibald
Title: Managing Director -
Private Placements
NY1-116887.7
14
<PAGE> 1
Exhibit 10(a)
RETIREMENT AGREEMENT
This Agreement is entered into between Pioneer-Standard
Electronics, Inc., an Ohio corporation (the "Company"), and Preston B. Heller,
Jr. ("Heller"), on February 28, 1996, to be effective immediately.
WITNESSETH:
WHEREAS: The Company and Heller have given serious
consideration over the past twelve (12) months to a succession program for the
offices of Chief Executive Officer and Chairman of the Board; and
WHEREAS: The Company and Heller entered into an Amended and
Restated Employment Agreement, dated June 12, 1995, to be effective April 3,
1995, pursuant to which Heller was employed by the Company and agreed to serve
as Chairman of the Board of Directors; and
WHEREAS: The Company and Heller have agreed to continue the
process of management succession and Heller has confirmed his agreement to
retire from the Company and cease all activities on behalf of the Company in its
day-to-day business operations; and
WHEREAS: This Agreement is deemed necessary to memorialize the
understandings between the Company and Heller with respect to certain mutual
obligations agreed upon during the course of discussions between Heller and the
Compensation Committee of the Board of Directors;
NOW THEREFORE, it is hereby agreed by and between the Company
and Heller as follows:
1. EMPLOYMENT
Heller hereby terminates his employment with the Company as an
employee of the Company in any capacity, and he hereby also resigns as Chairman
of the Board of Directors and as a member of the Executive Committee of the
Board of Directors effective 9:00 a.m., March 31, 1996. The Company and Heller
further agree that the Amended and Restated Employment Agreement, dated June 12,
1995, to be effective April 3, 1995, hereby is terminated in its entirety and
shall be of no further force and effect.
2. OFFICE
Heller agrees that he shall vacate his office at the Company's
headquarters at 4800 East 131st Street, Garfield Heights, Ohio, no later than
April 30, 1996, so as to provide Heller with ample time to arrange for a
personal office and secretarial services etc. at another location, which shall
be at Heller's sole expense.
<PAGE> 2
3. FINANCIAL COMMUNITY
Heller agrees that subsequent to the date hereof he shall not,
without the express approval and permission of the Chief Executive Officer of
the Company, contact or otherwise discuss with financial analysts or other
members of the financial community any business affairs of the Company during
the period of time while he is receiving monthly payments under this Agreement
or while he is a member of the Board of Directors of the Company. In addition,
during the same time period, Heller shall not discuss, either on a solicited or
unsolicited basis, with any vendor, customer, competitor, existing or former
employee or other third party, any matters which directly or indirectly relate
to a possible "sale", merger, or other disposition of the Company. Finally,
during the same time period, and with recognition of his responsibilities as a
director in possession of confidential business information, Heller shall not
discuss any such information with any third party, including specifically former
employees of Pioneer/Technologies Group, Inc.
4. SEVERANCE AND MEDICAL
In recognition of Heller's outstanding past services to the
Company, but subject to compliance by Heller with his continuing obligations
under this Agreement, Heller shall receive a severance payment totalling
$1,200,000 to be paid in twenty four (24) equal monthly installments commencing
April 30, 1996 and terminating March 31, 1998, all subject to normal federal,
state, and local withholding for income, payroll, or other taxes. In addition,
Heller will continue to participate and be entitled to the benefits of the
Company's medical plan during such twenty four (24) month period and subsequent
thereto shall be entitled to purchase whatever COBRA benefits are provided by
law, and Heller shall also be entitled to acquire his split dollar insurance
policies for an amount equal to the cash surrender value thereof. Heller shall
not participate in any other employee benefit plans of the Company, except to
the extent of his vested benefits thereunder or otherwise as provided by law.
5. OUTSIDE DIRECTORS STOCK OPTION PLAN
In recognition of the fact that Heller shall no longer be an
employee of the Company, it is acknowledged that Heller shall be entitled to
participate in the 1995 Stock Option Plan for Outside Directors. However, Heller
has voluntarily agreed to waive receipt of any directors fees paid to other
non-employee members of the Board of Directors during the two (2) year period
referred in Section 4 above.
6. PRESS RELEASE
The Company and Heller hereby agree to issue the press release
which they have approved in the form attached hereto as Exhibit A.
2
<PAGE> 3
7. COMPETITION
Heller shall not, during the two (2) years commencing March 1,
1996, engage in Competition with the Company as hereinafter defined. The word
"Competition" for purposes of this Section 7 shall mean taking any employment or
consulting position with or control of one of the Company's top twenty-five (25)
competitors as listed in the then most current issue of ELECTRONIC BUYER'S NEWS
and/or ELECTRONIC NEWS; provided, however, that in no event shall ownership of
less than 5% of the outstanding capital stock entitled to vote for the election
of directors of a corporation with a class of equity securities held of record
by more than 500 persons be deemed Competition with the Company within the
meaning of this Section 7.
8. CONFIDENTIAL INFORMATION
------------------------
8.01 Except for information which is already in the public
domain, or which is publicly disclosed by persons other than Heller, or which is
required by law or court order to be disclosed, or information given to Heller
by a third party not bound by any obligation of confidentiality, Heller shall at
all times after the date hereof hold in strictest confidence any and all
confidential information within his knowledge and which is material to the
business of the Company (whether acquired during or after his employment with
the Company) concerning the inventions, products, processes, methods of
distribution, customers, services, business, suppliers or trade secrets of the
Company, except that Heller may, in connection with the performance of his
duties as a director of the Company, divulge confidential information to the
directors and officers of the Company and to the accountants and attorneys of
the Company as deemed prudent to carry out his responsibilities and duties as a
director of the Company. Such confidential information includes, without
limitation, financial information, sales information, price lists, marketing
data, the identity and lists of actual and potential customers and technical
information, all to the extent that such information is not intended by the
Company for public dissemination.
8.02 Heller also agrees that after the date hereof and upon
leaving the Company's offices he will not take with him, without the prior
written consent of the Chief Executive Officer of the Company, any Company
document, contract, internal financial or management reports, customers list,
product list, price list, catalog, employee list, procedures, software, MIS
data, drawing, blueprint, specification or other document of the Company or its
subsidiaries, which is of a confidential nature and has not been provided to all
other directors of the Company in the ordinary course.
9. NONINTERFERENCE
---------------
Heller shall not, at any time during or within two (2) years
after March 1, 1996, without the prior written consent of the Company, directly
or indirectly,
3
<PAGE> 4
induce or attempt to induce any key employee, key agent or other key
representative or associate of the Company to terminate his or her relationship
with the Company, or in any way directly or indirectly interfere with such a
relationship or any relationship between the Company and any of its top fifty
(50) suppliers or top two hundred fifty (250) customers, both in terms of the
Company's sales volume.
10. REMEDY
Heller acknowledges that Sections 7, 8, and 9 hereof were
negotiated at arms length and are required for the fair and reasonable
protection of the Company. Heller and the Company further acknowledge and agree
that a breach of those obligations and agreements will result in irreparable and
continuing damage to the Company for which there will be no adequate remedy at
law and, therefore, Heller and the Company agree that in the event of any breach
of said obligations and agreements the Company, and its successors and assigns,
shall be entitled to injunctive relief and such other and further relief,
including monetary damages, as is proper in the circumstances. It is further
agreed that the running of the periods provided above in Sections 7 and 9, shall
be tolled during any period which Heller shall be adjudged to have been in
violation of any of his obligations under such Sections.
11. NOTICES
-------
All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed in the continental United States by registered or
certified mail or personally delivered to the party entitled thereto at the
address stated below or to such changed address as the addressee may have given
by a similar notice:
To the Company: Pioneer-Standard Electronics, Inc.
4800 East 131st Street
Cleveland, Ohio 44105
Attention: Secretary or
Assistant Secretary
To Heller: Preston B. Heller, Jr.
13599 County Line Road
Chagrin Falls, Ohio 44022
12. GENERAL PROVISIONS
12.01 No right or interest to or in any payments shall be
assignable by Heller; provided, however, that this provision shall not preclude
him from designating one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude the legal representative of his
estate from
4
<PAGE> 5
assigning any right hereunder to the person or persons entitled thereto under
his will or, in the case of intestacy, to the person or persons entitled thereto
under the laws of intestacy applicable to his estate. The term "beneficiaries"
as used in this Agreement shall mean a beneficiary or beneficiaries so
designated in writing by Heller to receive any such amount or, if no beneficiary
has been so designated, the legal representative of Heller's estate.
12.02 No right, benefit or interest hereunder, shall be
subject to anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, hypothecation, or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process, or assignment by operation
of law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
12.03 In the event of Heller's death or a judicial
determination of his incompetence, reference in this Agreement to Heller shall
be deemed, where appropriate, to refer to his legal representative or, where
appropriate, to his beneficiary or beneficiaries.
12.04 The titles to Sections in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any Section.
12.05 This Agreement shall be binding upon and shall inure to
the benefit of (a) Heller and, subject to the provisions of paragraphs 12.01 and
12.02, his heirs and legal representatives, and (b) the Company and its
successors as provided in Section 15 hereof.
13. AMENDMENT OR MODIFICATION; WAIVER
No provision of this Agreement may be amended or waived unless
such amendment or waiver is authorized by the Board of Directors of the Company
or any authorized committee of the Board of Directors and is agreed to in
writing, signed by Heller and by an officer of the Company thereunto duly
authorized by either the Board of Directors or the Compensation Committee.
Except as otherwise specifically provided in this Agreement, no waiver by either
party hereto of any breach by the other party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of a subsequent breach of such condition or provision or a waiver of a
similar or dissimilar provision or condition at the same or at any prior or
subsequent time.
5
<PAGE> 6
14. SEVERABILITY
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions and portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
15. SUCCESSORS TO THE COMPANY
Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the Company and any successor of the
Company, including, without limitation, any corporation which acquires directly
or indirectly all or substantially all of the assets of the Company whether by
merger, consolidation, sale or otherwise (and such successor shall thereafter be
deemed "the Company" for the purposes of this Agreement), but shall not
otherwise be assignable by the Company.
16. OPERATION OF AGREEMENT
This Agreement shall be effective February 28, 1996, and shall
supersede the Amended and Restated Employment Agreement, dated June 12, 1995,
effective April 3, 1995, between Heller and the Company.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ATTEST: PIONEER-STANDARD ELECTRONICS, INC.
By /S/ JAMES L. BAYMAN
- ------------------------ -------------------------------
James L. Bayman, Chief Executive
Officer and President
ATTEST:
/S/ PRESTON B. HELLER, JR.
- ------------------------- -----------------------------
Preston B. Heller, Jr.
6
<PAGE> 1
Exhibit 10(b)
EMPLOYMENT AGREEMENT
BETWEEN
PIONEER-STANDARD ELECTRONICS, INC.
AND
JAMES L. BAYMAN
May 7, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Employment........................................................ 1
2. Period of Employment.............................................. 1
3. Position, Duties, Responsibilities................................ 1
4. Compensation, Compensation Plans, Perquisites..................... 2
5. Employee Benefit Plans............................................ 3
6. Effect of Death or Disability..................................... 4
7. Termination....................................................... 5
8. Competition....................................................... 8
9. Confidential Information.......................................... 8
10. Noninterference .................................................. 9
11. Remedy ........................................................... 9
12. Withholding....................................................... 9
13. Notices........................................................... 10
14. General Provisions................................................ 10
15. Amendment or Modification; Waiver................................. 11
16. Severability...................................................... 11
17. Successors to the Company......................................... 11
18. Operation of Agreement............................................ 12
19. Enforcement Costs................................................. 12
</TABLE>
<PAGE> 3
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT between PIONEER-STANDARD ELECTRONICS,
INC., an Ohio corporation (the "Company"), and JAMES L. BAYMAN ("Bayman"), dated
May 7, 1996, effective April 1, 1996.
W I T N E S S E T H:
WHEREAS: The Company and Bayman have given consideration to an
employment agreement providing for the services of Bayman as President and Chief
Executive Officer; and
WHEREAS: This agreement is deemed necessary at the present
time to meet the need for a continued strong management without substantial
change; and
WHEREAS: Together with other officers of the Company, Bayman
has been responsible for the success of the business of the Company;
NOW, THEREFORE, it is hereby agreed by and between the Company
and Bayman as follows:
1. EMPLOYMENT
----------
The Company hereby agrees to continue to employ Bayman, and
Bayman hereby agrees to remain in the employ of the Company, for the period set
forth in Section 2 below (the "Period of Employment"), in the position and with
the duties and responsibilities set forth in Section 3 below, and upon the other
terms and conditions hereinafter stated.
2. PERIOD OF EMPLOYMENT
--------------------
For the purposes of this Agreement, the Period of Employment,
subject only to the provisions of Section 6 below (relating to Death or
Disability), shall continue for a one-year period from the effective date hereof
and thereafter subject to (i) termination of this Agreement by the Company
effective as of any anniversary of the effective date hereof or (ii) until the
earlier termination of employment as set forth in Section 7 (relating to
Termination).
3. POSITION, DUTIES, RESPONSIBILITIES
----------------------------------
3.01. During the Period of Employment, Bayman shall serve as
President and Chief Executive Officer of the Company and shall have the
responsibility for all of the operations of the Company including the authority,
power and duties with regard to his position as may from time to time be
assigned by the Board of Directors of the Company. Bayman's duties will include
the supervision and direction of the corporate professional staff and the
strategic direction of the Company's operations. He shall at all times during
such period have the authority, power and duties
<PAGE> 4
of the person charged with the general management of the business and affairs of
the areas assigned to him with authority to manage and direct all operations and
affairs of those areas and to employ and discharge all employees thereof,
reporting and being responsible only to the Board of Directors of the Company.
3.02. It is further contemplated that at all times during the
Period of Employment Bayman shall serve and continue to serve as a member of its
Board of Directors. In the event that Bayman's employment is terminated for any
reason as provided in paragraph 7 below, Bayman agrees that he shall immediately
submit his written resignation as a member of the Board of Directors of the
Company, which may choose to either accept or reject such resignation.
3.03. Throughout the Period of Employment Bayman shall devote
his full time and undivided attention during normal business hours to the
business and affairs of the Company, except for reasonable vacations afforded
the Company's executive officers and except for illness or incapacity, but
nothing in this Agreement shall preclude Bayman from devoting reasonable time
required for serving as a director or member of an advisory committee of any
organization involving no conflict of interest with the interests of the
Company, from engaging in charitable and community activities, and from managing
his personal investments, provided that such activities do not materially
interfere with the regular performance of his duties and responsibilities under
this Agreement.
3.04. Bayman's office shall be located at the corporate
offices of the Company, and Bayman shall not be required to locate his office
elsewhere without his prior written consent, nor shall he be required to be
absent therefrom on travel status or otherwise more than a total of sixty (60)
days in any calendar year nor more than fifteen (15) consecutive days at any one
time.
4. COMPENSATION, COMPENSATION PLANS, PERQUISITES
----------------------------------------------
4.01 (a) For all services rendered by Bayman in any capacity
during the Period of Employment, including without limitation, services as an
executive officer, director or member of any committee of the Company or of any
subsidiary, division or affiliate thereof, Bayman shall be paid as compensation:
(i) A base salary, payable not less often
than monthly, at the rate of no less than $25,000 per month, with such increases
in such rate as shall be awarded from time to time in accordance with the
Company's regular administrative practices of salary increases applicable to
executives of the Company in effect on the date of this Agreement; and
(ii) A cash incentive bonus equal to the
product of 8/10 of 1% of the sum of the "actual operating income" of the
Company, multiplied by the ratio of the Company's "actual return on capital" to
20.4%, (the "Bonus Plan") or such successor
-2-
<PAGE> 5
bonus plan as may be adopted by the Company, provided that the Bonus Plan
formula shall not be changed without Bayman's written consent. The term "actual
operating income" shall be defined as the income before income tax (state and
federal income tax) and interest expense. The term "actual return on capital"
shall be defined as the Company's "actual operating income" divided by the sum
of its interest-bearing debt, plus equity (the denominator shall be calculated
for each fiscal year as the average of such amounts as at the end of each of the
Company's four (4) fiscal quarters). All amounts used to calculate the cash
incentive bonus shall reflect the operations of the Company and its consolidated
subsidiaries and shall be calculated in conformity with generally accepted
accounting principles. The Company shall calculate the bonus for each fiscal
year on a quarterly basis and shall pay Bayman the bonus amount based on such
quarterly calculation at the end of each of the first three (3) fiscal quarters.
After April 1 and before June 16 of the next fiscal year, and after audited
financial statements are available to the Company, the Company shall pay Bayman
the balance of any bonus due Bayman based on the calculation of the bonus for
the fiscal year less payments made for the first three (3) fiscal quarters,
which payment shall be vested in the event of termination by reason of Death or
Disability (Section 6), Change of Control, (Section 7.02), or Without Cause
(Section 7.04), but shall be forfeited in the event of termination For Cause or
Voluntary Termination (Section 7.03).
(b) Any increase in salary or bonus or other
compensation shall in no way diminish any other obligation of the Company under
this Agreement, unless specifically agreed to in writing by Bayman.
4.02. During the Period of Employment Bayman shall be and
continue to be a full participant in the Company's Employees' Profit Sharing
Plan or any equivalent successor plan that may be adopted by the Company.
4.03. During the Period of Employment Bayman shall be entitled
to perquisites, including without limitation, an office, secretarial and
clerical staff, and to fringe benefits comparable to those enjoyed by the other
executive officers of the Company, but in each case at least equal to those
attached to his office on the date of this Agreement, as well as to
reimbursement, upon proper accounting, of reasonable expenses and disbursements
incurred by him in the course of his duties.
5. EMPLOYEE BENEFIT PLANS
----------------------
5.01. The compensation, together with other matters provided
for in Section 4 above, is in addition to the benefits provided for in this
Section 5.
5.02. Bayman, his dependents, beneficiaries and estate
shall be entitled to all payments and benefits and service credit
for benefits during the Period of Employment to which executive
-3-
<PAGE> 6
officers of the Company, their dependents and beneficiaries are entitled as the
result of the employment of such executive officers during the Period of
Employment under the terms of employee plans and practices of the Company,
including, without limitation, the Company's retirement program consisting of
its Employees' Profit Sharing Plan, its group life insurance plan, its
accidental death and dismemberment insurance, disability, medical and health and
welfare plans, any key person individual life and disability policies,
automobile expense reimbursement, club membership fees and dues, and other
present or equivalent successor plans and practices of the Company, its
subsidiaries and divisions, for which officers, their dependents and
beneficiaries are eligible, and to all payments or other benefits under any such
plan or practice after the Period of Employment as a result of participation in
such plan or practice during the Period of Employment.
5.03. Bayman shall be eligible to participate in the Company's
1991 Stock Option Plan (which, together with any successor stock option plan or
plans that may be adopted by the Company, is referred to herein as the "Option
Plan"). The Company has granted Bayman stock options ("Options") at an option
price equal to the fair market value of the Company's Common Shares at the date
of grant. The terms and conditions of exercise of Bayman's Options shall be as
is set forth in Bayman's Stock Option Agreements (the "Option Agreements") with
the Company; provided, however, that in the event of a Change in Control, as
defined in paragraph 18.02 below, then notwithstanding the provisions of said
Option Agreements, all options (including those granted to him under the 1982
Incentive Stock Option Plan and the 1991 Stock Option Plan) shall immediately be
100% vested and Bayman shall have the immediate right of exercise with respect
to all Options and their underlying Common Shares covered by said Option
Agreements. In the event that Bayman's employment is terminated as a result of a
Change in Control, as defined in paragraph 18.02 below, Bayman shall have the
period of one (1) year after the date of such termination to exercise his
Options or the remainder of the term of such Options, whichever is shorter, and
any such exercise shall be irrevocable.
6. EFFECT OF DEATH OR DISABILITY
-----------------------------
6.01. In the event of the death of Bayman during the Period of
Employment, the Period of Employment shall be deemed to have ended as of the
close of business on the last day of the month in which death shall have
occurred, and his legal representative shall be entitled to (i) the compensation
provided for in paragraph 4.01(a)(i) above for the month in which death shall
take place at the rate being paid at the time of death, (ii) any cash bonus
payable for the fiscal quarter in which the Period of Employment shall be deemed
to have terminated due to death, plus the balance of any bonus due Bayman for
any prior fiscal quarters in accordance with, and payable at the times set forth
in, paragraph 4.01(a)(ii) above, and (iii) any benefits provided pursuant to
paragraph 5.02
-4-
<PAGE> 7
hereof which are payable pursuant to the terms of the applicable plan or
practice.
6.02 (a) The term "Disability," as used in this Agreement,
shall mean an illness or accident which prevents Bayman from performing his
duties under this Agreement for a period of six (6) consecutive months. The
Period of Employment shall be deemed to have ended as of the close of business
on the last day of such six (6) months' period but without prejudice to any
payments due Bayman in respect of disability.
(b) In the event of the Disability of Bayman
during the Period of Employment, Bayman shall be entitled to (i) the
compensation provided for in paragraph 4.01(a)(i) above, at the rate being paid
at the time of the commencement of Disability, for the period of such Disability
but not in excess of six (6) months, (ii) any cash bonus payable for the fiscal
quarter in which the Period of Employment shall be deemed to have terminated due
to Disability, plus the balance of any bonus due Bayman for any prior fiscal
quarters in accordance with, and payable at the times set forth in, paragraph
4.01(a)(ii) above, and (iii) any benefits provided pursuant to paragraph 5.02
hereof which are payable pursuant to the terms of the applicable plan or
practice.
(c) The amount of any payments due under this
paragraph 6.02 shall be reduced by any payments to which Bayman may be paid for
the same period under any disability plan of the Company or of any subsidiary or
affiliate thereof.
7. TERMINATION
-----------
7.01. GENERAL. The Company may terminate Bayman with or
without cause at any time during the Period of Employment, subject to the
provisions of this Section 7. The termination of this Agreement by the Company
pursuant to Section 2(i) hereof shall be deemed to be a termination of
employment Without Cause as set forth in Section 7.04 hereof.
7.02. CHANGE OF CONTROL. Within one (1) year of a Change of
Control of the Company, as defined in paragraph 18.02, Bayman shall have the
right to terminate his employment with the Company and there shall be paid or
provided to Bayman, his dependents, beneficiaries and estate, as liquidated
damages or severance pay, or both, the following:
(a) The compensation provided for in paragraph
4.01(a)(i) above for the month in which Termination shall have occurred at the
rate being paid at the time of Termination; and an amount equal to his previous
twenty four (24) months of base salary plus an amount equal to the earned
incentive cash bonus referred to in paragraph 4.01(a)(ii) above for the two (2)
previously completed fiscal years. Such amount shall be paid to Bayman in one
payment, immediately upon Termination. Bayman shall also receive any cash bonus
payable for the fiscal quarter in which the Period of
-5-
<PAGE> 8
Employment shall be deemed to have terminated due to Change of Control, plus the
balance of any bonus due Bayman for any prior fiscal quarters in accordance
with, and payable at the times set forth in, paragraph 4.01(a)(ii) above.
(b) For two (2) years following the date of
Termination, Bayman, his dependents, beneficiaries and estate, shall continue to
be entitled to all benefits provided pursuant to paragraph 5.02 hereof which are
payable pursuant to the terms of the applicable plan or practice, and service
credit for benefits under all employee benefit plans of the Company, including,
without limitation, the Company's profit sharing plan referred to in paragraph
5.02 above, upon the same basis as immediately prior to Termination and, to the
extent that such benefits or service credit for benefits shall not be payable or
provided under any such plans to Bayman, his dependents, beneficiaries and
estate, by reason of his no longer being an employee of the Company as the
result of Termination, or any such plan, program or arrangement is discontinued
or the benefits thereunder are materially reduced, the Company shall itself
arrange to provide benefits substantially similar to those which Bayman, his
dependents and beneficiaries were entitled to receive under such plans, programs
and arrangements immediately prior to termination to Bayman, his dependents,
beneficiaries and estate.
Any termination by the Company within the period of ninety
(90) days prior to the execution of a letter of intent or a definitive agreement
which could lead to a Change of Control and the closing of the transaction
actually resulting in the Change of Control, as defined in paragraph 18.02,
shall be deemed to be a termination under this paragraph 7.02. An election by
Bayman to terminate his employment under the provisions of this paragraph 7.02
shall not be deemed a Voluntary Termination of employment by Bayman under
paragraph 7.03 of this Agreement or any plan or practice of the Company.
7.03. FOR CAUSE OR VOLUNTARY TERMINATION. For the purpose of
any provision of this Agreement, the termination of Bayman's employment shall be
deemed to have been For Cause only if:
(a) termination of his employment shall have been
the result of Bayman's conviction of any of the following: (i)
embezzlement; (ii) misappropriation of money or other property of
the Company; or (iii) any felony; or
(b) there has been a breach by Bayman during the
Period of Employment of the provisions of paragraph 3.02 above, relating to
devotion of full time to the affairs of the Company, Section 8 relating to
Competition, Section 9 relating to Confidential Information, or Section 10
relating to Noninterference, and such breach results in demonstrably material
injury to the Company, and with respect to any alleged breach of paragraph 3.02
hereof, Bayman shall have failed to remedy such
-6-
<PAGE> 9
proven breach within thirty (30) days from his receipt of written notice from
the Company.
If Bayman's employment is terminated by the Company For Cause,
or if Bayman shall Voluntarily Terminate his employment with the Company, Bayman
shall be entitled to the compensation provided for in paragraph 4.01(a)(i)
through the date of such termination. Bayman shall not be entitled to any
additional compensation or benefits (except for any vested benefits), and shall
continue to be bound by the provisions of Section 8 of this Agreement (relating
to Competition), the provisions of Section 9 of this Agreement (relating to
Confidential Information), and the provisions of Section 10 (relating to
Noninterference).
7.04. WITHOUT CAUSE. Subject to compliance by Bayman with the
provisions of Section 8 of this Agreement (relating to Competition), the
provisions of Section 9 of this Agreement (relating to Confidential
Information), and the provisions of Section 10 of this Agreement (relating to
Noninterference), if the Company shall terminate Bayman's employment, Without
Cause, there shall be paid or provided to Bayman, his dependents, beneficiaries
and estate, as liquidated damages or severance pay, or both, (i) the
compensation provided for in paragraph 4.01(a)(i) above for the month in which
termination shall have occurred at the rate being paid at the time of such
termination, and (ii) the amount (the "Payment Amount") per month equal to
1/24th of (A) the total of his previous twenty-four (24) months of base salary
PLUS (B) an amount equal to the earned incentive cash bonus referred to in
paragraph 4.01(a)(ii) above for the two (2) previously completed fiscal years.
Such Payment Amount shall be paid to Bayman or, in case of his prior death, to
his legal representative, in monthly installments at the end of each month
commencing with the month next following that in which such termination shall
have occurred, and continuing for a period of twenty-four (24) months. Bayman
shall also receive any cash bonus payable for the fiscal quarter in which the
Period of Employment shall be deemed to have terminated due to termination
Without Cause, plus the balance of any bonus due Bayman for any prior fiscal
quarters in accordance with, and payable at the times set forth in, paragraph
4.01(a)(ii) above, plus any benefits provided pursuant to paragraph 5.02 hereof
which are payable pursuant to the terms of the applicable plan or practice. In
the event the Company fails to make such payments when due, then the remaining
payments shall become due and payable immediately.
7.05. ARBITRATION. In the event that Bayman's employment shall
be terminated by the Company during the Period of Employment or the Company
shall withhold payments or provision of benefits because Bayman is alleged to be
engaged in activities prohibited by Sections 8, 9 or 10 of this Agreement or for
any other reason, Bayman shall have the right, in addition to all other rights
and remedies provided by law, at his election either to seek arbitration in the
metropolitan area of Cleveland, Ohio, under the rules of the American
Arbitration Association by serving a notice
-7-
<PAGE> 10
to arbitrate upon the Company or to institute a judicial proceeding, in either
case within one hundred and twenty (120) days after having received notice of
termination of his employment or within such longer period as may reasonably be
necessary for Bayman to take action in the event that his illness or incapacity
should preclude his taking such action within such one hundred and twenty (120)
day period.
8. COMPETITION
-----------
There shall be no obligation on the part of the Company to
make any further payments provided for in paragraph 7.04 above if Bayman shall,
during the two (2) years following termination of Bayman's employment for any
reason except Change of Control as described in paragraph 7.02, engage in
Competition with the Company as hereinafter defined. The word "Competition" for
purposes of this Section 8 and any other provision of this Agreement shall mean
taking any employment or consulting position with or control of one of the
Company's top twenty-five (25) competitors as listed in the most current issue
at the date of termination of ELECTRONIC BUYER'S NEWS and/or ELECTRONIC NEWS;
provided, however, that in no event shall ownership of less than 5% of the
outstanding capital stock entitled to vote for the election of directors of a
corporation with a class of equity securities held of record by more than 500
persons be deemed Competition with the Company within the meaning of this
Section 8.
9. CONFIDENTIAL INFORMATION
------------------------
9.01. Except for information which is already in the public
domain, or which is publicly disclosed by persons other than Bayman, or which is
required by law or court order to be disclosed, or information given to Bayman
by a third party not bound by any obligation of confidentiality, Bayman shall at
all times during and after his employment with the Company hold in strictest
confidence any and all confidential information within his knowledge and which
is material to the business of the Company (whether acquired prior to or during
his employment with the Company) concerning the inventions, products, processes,
methods of distribution, customers, services, business, suppliers or trade
secrets of the Company, except that Bayman may, in connection with the
performance of his duties to the Company, divulge confidential information to
the directors, officers, employees and shareholders of the Company and to the
advisors, accountants, attorneys or lenders of the Company or such other
individuals as deemed prudent in the course of business to carry out the
responsibilities and duties of his position. Such confidential information
includes, without limitation, financial information, sales information, price
lists, marketing data, the identity and lists of actual and potential customers
and technical information, all to the extent that such information is not
intended by the Company for public dissemination.
-8-
<PAGE> 11
9.02. Bayman also agrees that upon leaving the Company's
employ he will not take with him, without the prior written consent of an
officer authorized to act in the matter by the Board of Directors of the
Company, any Company document, contract, internal financial or management
reports, customers list, product list, price list, catalog, employee list,
procedures, software, MIS data, drawing, blueprint, specification or other
document of the Company, its subsidiaries, affiliates and divisions, which is of
a confidential nature relating to the Company, its subsidiaries, affiliates and
divisions, or, without limitation, relating to its or their methods of purchase
or distribution, or any description of any trade secret, formulae or secret
processes.
10. NONINTERFERENCE
---------------
Except for Change of Control as described in paragraph 7.02,
Bayman shall not, at any time during or within two (2) years after his
employment is terminated with the Company, without the prior written consent of
the Company, directly or indirectly, induce or attempt to induce any key
employee, key agent or other key representative or associate of the Company to
terminate his or her relationship with the Company, or in any way directly or
indirectly interfere with such a relationship or any relationship between the
Company and any of its top fifty (50) suppliers or top two hundred fifty (250)
customers, both in terms of the Company's sales volume, provided that purchasing
goods from a supplier to the Company or making a sale to any of the Company's
customers shall not be deemed to be interference.
11. REMEDY
------
Bayman acknowledges that Sections 8, 9 and 10 hereof were
negotiated at arms length and are required for the fair and reasonable
protection of the Company. Bayman and the Company further acknowledge and agree
that a breach of those obligations and agreements will result in irreparable and
continuing damage to the Company for which there will be no adequate remedy at
law and, therefore, Bayman and the Company agree that in the event of any breach
of said obligations and agreements the Company, and its successors and assigns,
shall be entitled to injunctive relief and such other and further relief,
including monetary damages, as is proper in the circumstances. It is further
agreed that the running of the periods provided above in Sections 8 and 10,
shall be tolled during any period which Bayman shall be adjudged to have been in
violation of any of his obligations under such Sections.
12. WITHHOLDING
-----------
Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Bayman or his estate or
beneficiaries, shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation. In
lieu of withholding such
-9-
<PAGE> 12
amounts, the Company may accept other provisions to the end that it has
sufficient funds to pay all taxes required by law to be withheld in respect of
such payments or any of them.
13. NOTICES
-------
All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed in the continental United States by registered or
certified mail or personally delivered to the party entitled thereto at the
address stated below or to such changed address as the addressee may have given
by a similar notice:
To the Company: Pioneer-Standard Electronics, Inc.
4800 East 131st Street
Cleveland, Ohio 44105
Attention: Secretary or
Assistant Secretary
To Bayman: James L. Bayman
2749 Cranlyn Road
Shaker Heights, Ohio 44122
14. GENERAL PROVISIONS
------------------
14.01. There shall be no right of set-off or counter claim, in
respect of any claim, debt or obligation, against payments to Bayman, his
dependents, beneficiaries or estate provided for in this Agreement.
14.02. No right or interest to or in any payments shall be
assignable by Bayman; provided, however, that this provision shall not preclude
him from designating one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude the legal representative of his
estate from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Bayman's estate.
14.03. No right, benefit or interest hereunder, shall be
subject to anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, hypothecation, or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process, or assignment by operation
of law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
-10-
<PAGE> 13
14.04. In the event of Bayman's death or a judicial
determination of his incompetence, reference in this Agreement to Bayman shall
be deemed, where appropriate, to refer to his legal representative or, where
appropriate, to his beneficiary or beneficiaries.
14.05. The titles to sections in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
14.06. This Agreement shall be binding upon and shall inure to
the benefit of (a) Bayman and, subject to the provisions of paragraphs 14.02 and
14.03, his heirs and legal representatives, and (b) the Company and its
successors as provided in Section 17 hereof.
15. AMENDMENT OR MODIFICATION; WAIVER
---------------------------------
No provision of this Agreement may be amended or waived unless
such amendment or waiver is authorized by the Board of Directors of the Company
or the Compensation Committee and is agreed to in writing, signed by Bayman and
by an officer of the Company thereunto duly authorized by either the Board of
Directors or the Compensation Committee. Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto of any breach by
the other party hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a subsequent breach of
such condition or provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
16. SEVERABILITY
------------
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions and portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
17. SUCCESSORS TO THE COMPANY
-------------------------
Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the Company and any successor of the
Company, including, without limitation, any corporation which acquires directly
or indirectly all or substantially all of the assets of the Company whether by
merger, consolidation, sale or otherwise (and such successor shall thereafter be
deemed "the Company" for the purposes of this Agreement), but shall not
otherwise be assignable by the Company.
-11-
<PAGE> 14
18. OPERATION OF AGREEMENT
----------------------
18.01. This Agreement is effective April 1, 1996, and shall
supersede any prior employment agreement, including the Amended and Restated
Employment Agreement dated June 12, 1995, which was effective April 3, 1995,
between Bayman and the Company, which shall be deemed to be terminated and null
and void except for any vested rights to receive compensation under Section
4.01(a)(ii) thereof.
18.02. For the purpose of this Agreement, the term "Change in
Control" of the Company shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 as in effect on the
date of this Agreement; provided that, without limitation, such a change in
control shall be deemed to have occurred if and when (a) any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934) is or becomes a beneficial owner, directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities or (b) during any period of twelve (12)
consecutive months, commencing before or after the date of this Agreement,
individuals who, at the beginning of such twelve (12) month period were
directors of the Company for whom Bayman, as a shareholder, shall have voted,
cease for any reason to constitute at least a majority of the Board of Directors
of the Company.
19. ENFORCEMENT COSTS
-----------------
The Company is aware that upon the occurrence of a Change in
Control the Board of Directors or a shareholder of the Company may then cause or
attempt to cause the Company to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Company to institute, or may
institute, litigation seeking to have this Agreement declared unenforceable, or
may take, or attempt to take, other action to deny Bayman the benefits intended
under this Agreement. In these circumstances, the purpose of this Agreement
could be frustrated. It is the intent of the Company that Bayman not be required
to incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
Bayman hereunder, nor be bound to negotiate any settlement of his rights
hereunder under threat of incurring such expenses. Accordingly, if following a
Change in Control it should appear to Bayman that the Company has failed to
comply with any of its obligations under this Agreement or in the event that the
Company or any other person takes any action to declare this Agreement void or
unenforceable, or institutes any litigation or other legal action designed to
deny, diminish or to recover from, Bayman, or in the event the Company fails or
refuses to comply with
-12-
<PAGE> 15
the obligations under this Agreement, the benefits intended to be provided to
Bayman hereunder, and that Bayman has complied with all of his obligations under
this Agreement, the Company irrevocably authorizes Bayman from time to time to
retain counsel of his choice at the expense of the Company as provided in this
Section 19, to represent Bayman in connection with the initiation or defense of
any litigation or other legal action, whether by or against the Company or any
Director, officer, shareholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to Bayman entering into an attorney-client relationship with such
counsel, and in that connection the Company and Bayman agree that a confidential
relationship shall exist between Bayman and such counsel. The reasonable fees
and expenses of counsel selected from time to time by Bayman as hereinabove
provided shall be paid or reimbursed to Bayman by the Company on a regular,
periodic basis upon presentation by Bayman of a statement or statements prepared
by such counsel in accordance with its customary practices, up to a maximum
aggregate amount of $500,000.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ATTEST: PIONEER-STANDARD ELECTRONICS, INC.
By /S/ VIC GELB
- ------------------------------- ---------------------------------
Vic Gelb
Chairman of the Compensation
Committee
ATTEST:
/S/ JAMES L. BAYMAN
- ------------------------------- ---------------------------------
James L. Bayman
-13-
<PAGE> 1
Exhibit 10(c)
EMPLOYMENT AGREEMENT
BETWEEN
PIONEER-STANDARD ELECTRONICS, INC.
AND
ARTHUR RHEIN
May 7, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Employment..................................................... 1
2. Period of Employment........................................... 1
3. Position, Duties, Responsibilities............................. 1
4. Compensation, Compensation Plans, Perquisites.................. 2
5. Employee Benefit Plans......................................... 3
6. Effect of Death or Disability.................................. 4
7. Termination.................................................... 5
8. Competition.................................................... 7
9. Confidential Information....................................... 8
10. Noninterference ............................................... 9
11. Remedy ........................................................ 9
12. Withholding.................................................... 9
13. Notices........................................................ 9
14. General Provisions............................................. 10
15. Amendment or Modification; Waiver.............................. 11
16. Severability................................................... 11
17. Successors to the Company...................................... 11
18. Operation of Agreement......................................... 11
19. Enforcement Costs.............................................. 12
</TABLE>
<PAGE> 3
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT between PIONEER-STANDARD ELECTRONICS,
INC., an Ohio corporation (the "Company"), and ARTHUR RHEIN ("Rhein"), dated May
7, 1996, effective April 1, 1996.
W I T N E S S E T H:
WHEREAS: The Company and Rhein have given consideration
to an employment agreement providing for the services of Rhein as
Senior Vice President; and
WHEREAS: This agreement is deemed necessary at the present
time to meet the need for a continued strong management without substantial
change; and
WHEREAS: Together with other officers of the Company, Rhein
has been responsible for the success of the business of the Company;
NOW, THEREFORE, it is hereby agreed by and between the Company
and Rhein as follows:
1. EMPLOYMENT
----------
The Company hereby agrees to continue to employ Rhein, and
Rhein hereby agrees to remain in the employ of the Company, for the period set
forth in Section 2 below (the "Period of Employment"), in the position and with
the duties and responsibilities set forth in Section 3 below, and upon the other
terms and conditions hereinafter stated.
2. PERIOD OF EMPLOYMENT
--------------------
For the purposes of this Agreement, the Period of Employment,
subject only to the provisions of Section 6 below (relating to Death or
Disability), shall continue for a one-year period from the effective date hereof
and thereafter on a year-to-year basis subject to (i) termination of this
Agreement by the Company effective as of any anniversary of the effective date
hereof or (ii) until the earlier termination of employment as set forth in
Section 7 (relating to Termination).
3. POSITION, DUTIES, RESPONSIBILITIES
----------------------------------
3.01. During the Period of Employment, Rhein shall serve as
Senior Vice President of the Company reporting to the Chief Executive Officer of
the Company and shall have the authority, power, and duties with regard to his
position as may from time to time be assigned by the Chief Executive Officer or
the Board of Directors of the Company.
3.02. It is further contemplated that at all times during
the Period of Employment Rhein shall serve and continue to serve as
a member of its Board of Directors. In the event that Rhein's
<PAGE> 4
employment is terminated for any reason as provided in paragraph 7 below, Rhein
agrees that he shall immediately submit his written resignation as a member of
the Board of Directors of the Company, which may choose to either accept or
reject such resignation.
3.03. Throughout the Period of Employment Rhein shall devote
his full time and undivided attention during normal business hours to the
business and affairs of the Company, except for reasonable vacations afforded
the Company's executive officers and except for illness or incapacity, but
nothing in this Agreement shall preclude Rhein from devoting reasonable time
required for serving as a director or member of an advisory committee of any
organization involving no conflict of interest with the interests of the
Company, from engaging in charitable and community activities, and from managing
his personal investments, provided that such activities do not materially
interfere with the regular performance of his duties and responsibilities under
this Agreement.
3.04. Rhein's office shall be located at the corporate offices
of the Company, and Rhein shall not be required to locate his office elsewhere
without his prior written consent, nor shall he be required to be absent
therefrom on travel status or otherwise more than a total of sixty (60) days in
any calendar year nor more than fifteen (15) consecutive days at any one time.
4. COMPENSATION, COMPENSATION PLANS, PERQUISITES
----------------------------------------------
4.01 (a) For all services rendered by Rhein in any capacity
during the Period of Employment, including without limitation, services as an
executive officer, director or member of any committee of the Company or of any
subsidiary, division or affiliate thereof, Rhein shall be paid as compensation:
(i) A base salary, payable not less often
than monthly, at the rate of no less than $19,166 per month, with such increases
in such rate as shall be awarded from time to time in accordance with the
Company's regular administrative practices of salary increases applicable to
executives of the Company in effect on the date of this Agreement; and
(ii) A cash incentive bonus equal to the
product of 65/100 of 1% of the sum of the "actual operating income" of the
Company, multiplied by the ratio of the Company's "actual return on capital" to
20.4%, (the "Bonus Plan") or such successor bonus plan as may be adopted by the
Company, provided that the Bonus Plan formula shall not be changed without
Rhein's written consent. The term "actual operating income" shall be defined as
the income before income tax (state and federal income tax) and interest
expense. The term "actual return on capital" shall be defined as the Company's
"actual operating income" divided by the sum of its interest-bearing debt, plus
equity (the denominator shall be calculated for each fiscal year as the average
of such amounts as at the end of each of the Company's four (4) fiscal
-2-
<PAGE> 5
quarters). All amounts used to calculate the cash incentive bonus shall reflect
the operations of the Company and its consolidated subsidiaries and shall be
calculated in conformity with generally accepted accounting principles. The
Company shall calculate the bonus for each fiscal year on a quarterly basis and
at the end of each of the first three (3) fiscal quarters shall pay Rhein the
bonus amount based on such quarterly calculation. After April 1 and before June
16 of the next fiscal year, and after audited financial statements are available
to the Company, the Company shall pay Rhein the balance of any bonus due Rhein
based on the calculation of the bonus for the fiscal year less payments made for
the first three (3) fiscal quarters, which payment shall be vested in the event
of termination by reason of Death or Disability (Section 6), Change of Control,
(Section 7.02), or Without Cause (Section 7.04), but shall be forfeited in the
event of termination For Cause or Voluntary Termination (Section 7.03).
(b) Any increase in salary or bonus or other
compensation shall in no way diminish any other obligation of the Company under
this Agreement, unless specifically agreed to in writing by Rhein.
4.02. During the Period of Employment Rhein shall be and
continue to be a full participant in the Company's Employees' Profit Sharing
Plan or any equivalent successor plan that may be adopted by the Company.
4.03. During the Period of Employment Rhein shall be entitled
to perquisites, including without limitation, an office, secretarial and
clerical staff, and to fringe benefits comparable to those enjoyed by the other
executive officers of the Company, but in each case at least equal to those
attached to his office on the date of this Agreement, as well as to
reimbursement, upon proper accounting, of reasonable expenses and disbursements
incurred by him in the course of his duties.
5. EMPLOYEE BENEFIT PLANS
----------------------
5.01. The compensation, together with other matters provided
for in Section 4 above, is in addition to the benefits provided for in this
Section 5.
5.02. Rhein, his dependents, beneficiaries and estate shall be
entitled to all payments and benefits and service credit for benefits during the
Period of Employment to which executive officers of the Company, their
dependents and beneficiaries are entitled as the result of the employment of
such executive officers during the Period of Employment under the terms of
employee plans and practices of the Company, including, without limitation, the
Company's retirement program consisting of its Employees' Profit Sharing Plan,
its group life insurance plan, its accidental death and dismemberment insurance,
disability, medical and health and welfare plans, any key person individual life
and disability policies, automobile expense reimbursement, club membership fees
-3-
<PAGE> 6
and dues, and other present or equivalent successor plans and practices of the
Company, its subsidiaries and divisions, for which officers, their dependents
and beneficiaries are eligible, and to all payments or other benefits under any
such plan or practice after the Period of Employment as a result of
participation in such plan or practice during the Period of Employment.
5.03. Rhein shall be eligible to participate in the Company's
1991 Stock Option Plan (which, together with any successor stock option plan or
plans that may be adopted by the Company, is referred to herein as the "Option
Plan"). The Company has granted Rhein stock options ("Options") at an option
price equal to the fair market value of the Company's Common Shares at the date
of grant. The terms and conditions of exercise of Rhein's Options shall be as is
set forth in Rhein's Stock Option Agreements (the "Option Agreements") with the
Company; provided, however, that in the event of a Change in Control, as defined
in paragraph 18.02 below, then notwithstanding the provisions of said Option
Agreements, all options (including those granted to him under the 1982 Incentive
Stock Option Plan and the 1991 Stock Option Plan) shall immediately be 100%
vested and Rhein shall have the immediate right of exercise with respect to all
Options and their underlying Common Shares covered by said Option Agreements. In
the event that Rhein's employment is terminated as a result of a Change in
Control, as defined in paragraph 18.02 below, Rhein shall have the period of one
(1) year after the date of such termination to exercise his Options or the
remainder of the term of such Options, whichever is shorter, and any such
exercise shall be irrevocable.
6. EFFECT OF DEATH OR DISABILITY
-----------------------------
6.01. In the event of the death of Rhein during the Period of
Employment, the Period of Employment shall be deemed to have ended as of the
close of business on the last day of the month in which death shall have
occurred, and his legal representative shall be entitled to (i) the compensation
provided for in paragraph 4.01(a)(i) above for the month in which death shall
take place at the rate being paid at the time of death, (ii) any cash bonus
payable for the fiscal quarter in which the Period of Employment shall be deemed
to have terminated due to death, plus the balance of any bonus due Rhein for any
prior fiscal quarters in accordance with, and payable at the times set forth in,
paragraph 4.01(a)(ii) above, and (iii) any benefits provided pursuant to
paragraph 5.02 hereof which are payable pursuant to the terms of the applicable
plan or practice.
6.02 (a) The term "Disability," as used in this Agreement,
shall mean an illness or accident which prevents Rhein from performing his
duties under this Agreement for a period of three (3) consecutive months. The
Period of Employment shall be deemed to have ended as of the close of business
on the last day of such three (3) months' period but without prejudice to any
payments due Rhein in respect of disability.
-4-
<PAGE> 7
(b) In the event of the Disability of Rhein
during the Period of Employment, Rhein shall be entitled to (i) the compensation
provided for in paragraph 4.01(a)(i) above, at the rate being paid at the time
of the commencement of Disability, for the period of such Disability but not in
excess of three (3) months, (ii) any cash bonus payable for the fiscal quarter
in which the Period of Employment shall be deemed to have terminated due to
Disability, plus the balance of any bonus due Rhein for any prior fiscal
quarters in accordance with, and payable at the times set forth in, paragraph
4.01(a)(ii) above, and (iii) any benefits provided pursuant to paragraph 5.02
hereof which are payable pursuant to the terms of the applicable plan or
practice.
(c) The amount of any payments due under this
paragraph 6.02 shall be reduced by any payments to which Rhein may be paid for
the same period under any disability plan of the Company or of any subsidiary or
affiliate thereof.
7. TERMINATION
-----------
7.01. GENERAL. The Company may terminate Rhein with or without
cause at any time during the Period of Employment, subject to the provisions of
this Section 7. The termination of this Agreement by the Company pursuant to
Section 2(i) hereof shall be deemed to be a termination of employment Without
Cause as set forth in Section 7.04 hereof.
7.02. CHANGE OF CONTROL. Within one (1) year of a Change of
Control of the Company, as defined in paragraph 18.02, Rhein shall have the
right to terminate his employment with the Company and there shall be paid or
provided to Rhein, his dependents, beneficiaries and estate, as liquidated
damages or severance pay, or both, the following:
(a) The compensation provided for in paragraph
4.01(a)(i) above for the month in which Termination shall have occurred at the
rate being paid at the time of Termination; and an amount equal to his previous
twenty four (24) months of base salary plus an amount equal to the earned
incentive cash bonus referred to in paragraph 4.01(a)(ii) above for the two (2)
previously completed fiscal years. Such amount shall be paid to Rhein in one
payment, immediately upon Termination. Rhein shall also receive any cash bonus
payable for the fiscal quarter in which the Period of Employment shall be deemed
to have terminated due to Change of Control, plus the balance of any bonus due
Rhein for any prior fiscal quarters in accordance with, and payable at the times
set forth in, paragraph 4.01(a)(ii) above.
(b) For two (2) years following the date of
Termination, Rhein, his dependents, beneficiaries and estate, shall continue to
be entitled to all benefits provided pursuant to paragraph 5.02 hereof which are
payable pursuant to the terms of the applicable plan or practice, and service
credit for benefits under all employee benefit plans of the Company, including,
without
-5-
<PAGE> 8
limitation, the Company's profit sharing plan referred to in paragraph 5.02
above, upon the same basis as immediately prior to Termination and, to the
extent that such benefits or service credit for benefits shall not be payable or
provided under any such plans to Rhein, his dependents, beneficiaries and
estate, by reason of his no longer being an employee of the Company as the
result of Termination, or any such plan, program or arrangement is discontinued
or the benefits thereunder are materially reduced, the Company shall itself
arrange to provide benefits substantially similar to those which Rhein, his
dependents and beneficiaries were entitled to receive under such plans, programs
and arrangements immediately prior to termination to Rhein, his dependents,
beneficiaries and estate.
Any termination by the Company within the period of ninety
(90) days prior to the execution of a letter of intent or a definitive agreement
which could lead to a Change of Control and the closing of the transaction
actually resulting in the Change of Control, as defined in paragraph 18.02,
shall be deemed to be a termination under this paragraph 7.02. An election by
Rhein to terminate his employment under the provisions of this paragraph 7.02
shall not be deemed a Voluntary Termination of employment by Rhein under
paragraph 7.03 of this Agreement or any plan or practice of the Company.
7.03. FOR CAUSE OR VOLUNTARY TERMINATION. For the
purpose of any provision of this Agreement, the termination of
Rhein's employment shall be deemed to have been For Cause only if:
(a) termination of his employment shall have
been the result of Rhein's conviction of any of the following: (i)
embezzlement; (ii) misappropriation of money or other property of the Company;
or (iii) any felony; or
(b) there has been a breach by Rhein during the
Period of Employment of the provisions of paragraph 3.02 above, relating to
devotion of full time to the affairs of the Company, Section 8 relating to
Competition, Section 9 relating to Confidential Information, or Section 10
relating to Noninterference, and such breach results in demonstrably material
injury to the Company, and with respect to any alleged breach of paragraph 3.02
hereof, Rhein shall have failed to remedy such proven breach within thirty (30)
days from his receipt of written notice from the Company.
If Rhein's employment is terminated by the Company For Cause,
or if Rhein shall Voluntarily Terminate his employment with the Company, Rhein
shall be entitled to the compensation provided for in paragraph 4.01(a)(i)
through the date of such termination. Rhein shall not be entitled to any
additional compensation or benefits (except for any vested benefits), and shall
continue to be bound by the provisions of Section 8 of this Agreement (relating
to Competition), the provisions of Section 9 of this Agreement
-6-
<PAGE> 9
(relating to Confidential Information), and the provisions of Section 10
(relating to Noninterference).
7.04. WITHOUT CAUSE. Subject to compliance by Rhein with the
provisions of Section 8 of this Agreement (relating to Competition), the
provisions of Section 9 of this Agreement (relating to Confidential
Information), and the provisions of Section 10 of this Agreement (relating to
Noninterference), if the Company shall terminate Rhein's employment, Without
Cause, there shall be paid or provided to Rhein, his dependents, beneficiaries
and estate, as liquidated damages or severance pay, or both, (i) the
compensation provided for in paragraph 4.01(a)(i) above for the month in which
termination shall have occurred at the rate being paid at the time of such
termination, and (ii) the amount (the "Payment Amount") per month equal to
1/24th of the total of (A) his previous twenty-four (24) months of base salary
PLUS (B) an amount equal to the earned incentive cash bonus referred to in
paragraph 4.01(a)(ii) above for the two (2) previously completed fiscal years.
Such Payment Amount shall be paid to Rhein or, in case of his prior death, to
his legal representative, in monthly installments at the end of each month
commencing with the month next following that in which such termination shall
have occurred, and continuing for a period of twelve (12) months. Rhein shall
also receive any cash bonus payable for the fiscal quarter in which the Period
of Employment shall be deemed to have terminated due to termination Without
Cause, plus the balance of any bonus due Rhein for any prior fiscal quarters in
accordance with, and payable at the times set forth in, paragraph 4.01(a)(ii)
above, plus any benefits provided pursuant to paragraph 5.02 hereof which are
payable pursuant to the terms of the applicable plan or practice. In the event
the Company fails to make such payments when due, then the remaining payments
shall become due and payable immediately.
7.05. ARBITRATION. In the event that Rhein's employment shall
be terminated by the Company during the Period of Employment or the Company
shall withhold payments or provision of benefits because Rhein is alleged to be
engaged in activities prohibited by Sections 8, 9 or 10 of this Agreement or for
any other reason, Rhein shall have the right, in addition to all other rights
and remedies provided by law, at his election either to seek arbitration in the
metropolitan area of Cleveland, Ohio, under the rules of the American
Arbitration Association by serving a notice to arbitrate upon the Company or to
institute a judicial proceeding, in either case within one hundred and twenty
(120) days after having received notice of termination of his employment or
within such longer period as may reasonably be necessary for Rhein to take
action in the event that his illness or incapacity should preclude his taking
such action within such one hundred and twenty (120) day period.
8. COMPETITION
-----------
There shall be no obligation on the part of the Company to
make any further payments provided for in paragraph 7.04 above
-7-
<PAGE> 10
if Rhein shall, during the one (1) year following termination of Rhein's
employment for any reason except Change of Control as described in paragraph
7.02, engage in Competition with the Company as hereinafter defined. The word
"Competition" for purposes of this Section 8 and any other provision of this
Agreement shall mean taking any employment or consulting position with or
control of one of the Company's top twenty-five (25) competitors as listed in
the most current issue at the date of termination of ELECTRONIC BUYER'S NEWS
and/or ELECTRONIC NEWS; provided, however, that in no event shall ownership of
less than 5% of the outstanding capital stock entitled to vote for the election
of directors of a corporation with a class of equity securities held of record
by more than 500 persons be deemed Competition with the Company within the
meaning of this Section 8.
9. CONFIDENTIAL INFORMATION
------------------------
9.01. Except for information which is already in the public
domain, or which is publicly disclosed by persons other than Rhein, or which is
required by law or court order to be disclosed, or information given to Rhein by
a third party not bound by any obligation of confidentiality, Rhein shall at all
times during and after his employment with the Company hold in strictest
confidence any and all confidential information within his knowledge and which
is material to the business of the Company (whether acquired prior to or during
his employment with the Company) concerning the inventions, products, processes,
methods of distribution, customers, services, business, suppliers or trade
secrets of the Company, except that Rhein may, in connection with the
performance of his duties to the Company, divulge confidential information to
the directors, officers, employees and shareholders of the Company and to the
advisors, accountants, attorneys or lenders of the Company or such other
individuals as deemed prudent in the course of business to carry out the
responsibilities and duties of his position. Such confidential information
includes, without limitation, financial information, sales information, price
lists, marketing data, the identity and lists of actual and potential customers
and technical information, all to the extent that such information is not
intended by the Company for public dissemination.
9.02. Rhein also agrees that upon leaving the Company's employ
he will not take with him, without the prior written consent of an officer
authorized to act in the matter by the Board of Directors of the Company, any
Company document, contract, internal financial or management reports, customers
list, product list, price list, catalog, employee list, procedures, software,
MIS data, drawing, blueprint, specification or other document of the Company,
its subsidiaries, affiliates and divisions, which is of a confidential nature
relating to the Company, its subsidiaries, affiliates and divisions, or, without
limitation, relating to its or their methods of purchase or distribution, or any
description of any trade secret, formulae or secret processes.
-8-
<PAGE> 11
10. NONINTERFERENCE
---------------
Except for Change of Control as described in paragraph 7.02,
Rhein shall not, at any time during or within one (1) year after his employment
is terminated with the Company, without the prior written consent of the
Company, directly or indirectly, induce or attempt to induce any key employee,
key agent or other key representative or associate of the Company to terminate
his or her relationship with the Company, or in any way directly or indirectly
interfere with such a relationship or any relationship between the Company and
any of its top fifty (50) suppliers or top two hundred fifty (250) customers,
both in terms of the Company's sales volume, provided that purchasing goods from
a supplier to the Company or making a sale to any of the Company's customers
shall not be deemed to be interference.
11. REMEDY
------
Rhein acknowledges that Sections 8, 9 and 10 hereof were
negotiated at arms length and are required for the fair and reasonable
protection of the Company. Rhein and the Company further acknowledge and agree
that a breach of those obligations and agreements will result in irreparable and
continuing damage to the Company for which there will be no adequate remedy at
law and, therefore, Rhein and the Company agree that in the event of any breach
of said obligations and agreements the Company, and its successors and assigns,
shall be entitled to injunctive relief and such other and further relief,
including monetary damages, as is proper in the circumstances. It is further
agreed that the running of the periods provided above in Sections 8 and 10,
shall be tolled during any period which Rhein shall be adjudged to have been in
violation of any of his obligations under such Sections.
12. WITHHOLDING
-----------
Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Rhein or his estate or
beneficiaries, shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Company may accept other provisions to the
end that it has sufficient funds to pay all taxes required by law to be withheld
in respect of such payments or any of them.
13. NOTICES
-------
All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed in the continental United States by registered or
certified mail or personally delivered to the party entitled thereto at the
address stated below or to such changed address as the addressee may have given
by a similar notice:
-9-
<PAGE> 12
To the Company: Pioneer-Standard Electronics, Inc.
4800 East 131st Street
Cleveland, Ohio 44105
Attention: Secretary or
Assistant Secretary
To Rhein: Arthur Rhein
40 Stonehill Lane
Moreland Hills, Ohio 44022
14. GENERAL PROVISIONS
------------------
14.01. There shall be no right of set-off or counter claim, in
respect of any claim, debt or obligation, against payments to Rhein, his
dependents, beneficiaries or estate provided for in this Agreement.
14.02. No right or interest to or in any payments shall be
assignable by Rhein; provided, however, that this provision shall not preclude
him from designating one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude the legal representative of his
estate from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Rhein's estate.
14.03. No right, benefit or interest hereunder, shall be
subject to anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, hypothecation, or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process, or assignment by operation
of law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
14.04. In the event of Rhein's death or a judicial
determination of his incompetence, reference in this Agreement to Rhein shall be
deemed, where appropriate, to refer to his legal representative or, where
appropriate, to his beneficiary or beneficiaries.
14.05. The titles to sections in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
14.06. This Agreement shall be binding upon and shall
inure to the benefit of (a) Rhein and, subject to the provisions of
-10-
<PAGE> 13
paragraphs 14.02 and 14.03, his heirs and legal representatives, and (b) the
Company and its successors as provided in Section 17 hereof.
15. AMENDMENT OR MODIFICATION; WAIVER
---------------------------------
No provision of this Agreement may be amended or waived unless
such amendment or waiver is authorized by the Board of Directors of the Company
or the Compensation Committee and is agreed to in writing, signed by Rhein and
by an officer of the Company thereunto duly authorized by either the Board of
Directors or the Compensation Committee. Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto of any breach by
the other party hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a subsequent breach of
such condition or provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
16. SEVERABILITY
------------
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions and portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
17. SUCCESSORS TO THE COMPANY
-------------------------
Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the Company and any successor of the
Company, including, without limitation, any corporation which acquires directly
or indirectly all or substantially all of the assets of the Company whether by
merger, consolidation, sale or otherwise (and such successor shall thereafter be
deemed "the Company" for the purposes of this Agreement), but shall not
otherwise be assignable by the Company.
18. OPERATION OF AGREEMENT
----------------------
18.01. This Agreement is effective April 1, 1996, and shall
supersede any prior employment agreement, including the Amended and Restated
Employment Agreement dated June 12, 1995, which was effective April 3, 1995,
between Rhein and the Company, which shall be deemed to be terminated and null
and void except for any vested rights to receive compensation under Section
4.01(a)(ii) thereof.
18.02. For the purpose of this Agreement, the term "Change in
Control" of the Company shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the
-11-
<PAGE> 14
Securities Exchange Act of 1934 as in effect on the date of this Agreement;
provided that, without limitation, such a change in control shall be deemed to
have occurred if and when (a) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes a
beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities or (b) during any period of twelve (12) consecutive
months, commencing before or after the date of this Agreement, individuals who,
at the beginning of such twelve (12) month period were directors of the Company
for whom Rhein, as a shareholder, shall have voted, cease for any reason to
constitute at least a majority of the Board of Directors of the Company.
19. ENFORCEMENT COSTS
-----------------
The Company is aware that upon the occurrence of a Change in
Control the Board of Directors or a shareholder of the Company may then cause or
attempt to cause the Company to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Company to institute, or may
institute, litigation seeking to have this Agreement declared unenforceable, or
may take, or attempt to take, other action to deny Rhein the benefits intended
under this Agreement. In these circumstances, the purpose of this Agreement
could be frustrated. It is the intent of the Company that Rhein not be required
to incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
Rhein hereunder, nor be bound to negotiate any settlement of his rights
hereunder under threat of incurring such expenses. Accordingly, if following a
Change in Control it should appear to Rhein that the Company has failed to
comply with any of its obligations under this Agreement or in the event that the
Company or any other person takes any action to declare this Agreement void or
unenforceable, or institutes any litigation or other legal action designed to
deny, diminish or to recover from, Rhein, or in the event the Company fails or
refuses to comply with the obligations under this Agreement, the benefits
intended to be provided to Rhein hereunder, and that Rhein has complied with all
of his obligations under this Agreement, the Company irrevocably authorizes
Rhein from time to time to retain counsel of his choice at the expense of the
Company as provided in this Section 19, to represent Rhein in connection with
the initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, shareholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any existing
or prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Rhein entering into an attorney-client
relationship with such counsel, and in that connection the Company and Rhein
agree that a confidential relationship shall exist between Rhein and such
-12-
<PAGE> 15
counsel. The reasonable fees and expenses of counsel selected from time to time
by Rhein as hereinabove provided shall be paid or reimbursed to Rhein by the
Company on a regular, periodic basis upon presentation by Rhein of a statement
or statements prepared by such counsel in accordance with its customary
practices, up to a maximum aggregate amount of $500,000.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ATTEST: PIONEER-STANDARD ELECTRONICS, INC.
By /S/ JAMES L. BAYMAN
- ---------------------------------- -----------------------------------
James L. Bayman, Chief Executive
Officer and President
ATTEST:
/S/ ARTHUR RHEIN
- ---------------------------------- -----------------------------------
Arthur Rhein
-13-
<PAGE> 1
Exhibit 10(d)
EMPLOYMENT AGREEMENT
BETWEEN
PIONEER-STANDARD ELECTRONICS, INC.
AND
JOHN V. GOODGER
May 7, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Employment...................................................... 1
2. Period of Employment............................................ 1
3. Position, Duties, Responsibilities.............................. 1
4. Compensation, Compensation Plans, Perquisites................... 2
5. Employee Benefit Plans.......................................... 3
6. Effect of Death or Disability................................... 4
7. Termination..................................................... 5
8. Competition..................................................... 7
9. Confidential Information........................................ 8
10. Noninterference................................................. 8
11. Remedy ......................................................... 9
12. Withholding..................................................... 9
13. Notices......................................................... 9
14. General Provisions.............................................. 10
15. Amendment or Modification; Waiver............................... 11
16. Severability.................................................... 11
17. Successors to the Company....................................... 11
18. Operation of Agreement.......................................... 11
19. Enforcement Costs............................................... 12
</TABLE>
<PAGE> 3
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT between PIONEER-STANDARD ELECTRONICS,
INC., an Ohio corporation (the "Company"), and JOHN V. GOODGER ("Goodger"),
dated May 7, 1996, effective April 1, 1996.
W I T N E S S E T H:
WHEREAS: The Company and Goodger have given consideration to
an employment agreement providing for the services of Goodger as Vice President,
Treasurer and Assistant Secretary; and
WHEREAS: This agreement is deemed necessary at the present
time to meet the need for a continued strong management without substantial
change; and
WHEREAS: Together with other officers of the Company, Goodger
has been responsible for the success of the business of the Company;
NOW, THEREFORE, it is hereby agreed by and between the Company
and Goodger as follows:
1. EMPLOYMENT
----------
The Company hereby agrees to continue to employ Goodger, and
Goodger hereby agrees to remain in the employ of the Company, for the period set
forth in Section 2 below (the "Period of Employment"), in the position and with
the duties and responsibilities set forth in Section 3 below, and upon the other
terms and conditions hereinafter stated.
2. PERIOD OF EMPLOYMENT
--------------------
For the purposes of this Agreement, the Period of Employment,
subject only to the provisions of Section 6 below (relating to Death or
Disability), shall continue for a one-year period from the effective date hereof
and thereafter on a year-to-year basis subject to (i) termination of this
Agreement by the Company effective as of any anniversary of the effective date
hereof or (ii) until the earlier termination of employment as set forth in
Section 7 (relating to Termination).
3. POSITION, DUTIES, RESPONSIBILITIES
----------------------------------
3.01. During the Period of Employment, Goodger shall serve as
Vice President, Treasurer and Assistant Secretary of the Company reporting to
the Chief Executive Officer of the Company and shall have the authority, power,
and duties with regard to his position as may from time to time be assigned by
the Chief Executive Officer or the Board of Directors of the Company.
3.02. Throughout the Period of Employment Goodger shall
devote his full time and undivided attention during normal business
<PAGE> 4
hours to the business and affairs of the Company, except for reasonable
vacations afforded the Company's executive officers and except for illness or
incapacity, but nothing in this Agreement shall preclude Goodger from devoting
reasonable time required for serving as a director or member of an advisory
committee of any organization involving no conflict of interest with the
interests of the Company, from engaging in charitable and community activities,
and from managing his personal investments, provided that such activities do not
materially interfere with the regular performance of his duties and
responsibilities under this Agreement.
3.03. Goodger's office shall be located at the corporate
offices of the Company, and Goodger shall not be required to locate his office
elsewhere without his prior written consent, nor shall he be required to be
absent therefrom on travel status or otherwise more than a total of sixty (60)
days in any calendar year nor more than fifteen (15) consecutive days at any one
time.
4. COMPENSATION, COMPENSATION PLANS, PERQUISITES
--------------------------------- -----------
4.01 (a) For all services rendered by Goodger in any capacity
during the Period of Employment, Goodger shall be paid as compensation:
(i) A base salary, payable not less
often than monthly, at the rate of no less than $12,500 per month, with such
increases in such rate as shall be awarded from time to time in accordance with
the Company's regular administrative practices of salary increases applicable to
executives of the Company in effect on the date of this Agreement; and
(ii) A cash incentive bonus equal to the
product of 15/100 of 1% of the sum of the "actual operating income" of the
Company, multiplied by the ratio of the Company's "actual return on capital" to
20.4%, (the "Bonus Plan") or such successor bonus plan as may be adopted by the
Company, provided that the Bonus Plan formula shall not be changed without
Goodger's written consent. The term "actual operating income" shall be defined
as the income before income tax (state and federal income tax) and interest
expense. The term "actual return on capital" shall be defined as the Company's
"actual operating income" divided by the sum of its interest-bearing debt, plus
equity (the denominator shall be calculated for each fiscal year as the average
of such amounts as at the end of each of the Company's four (4) fiscal
quarters). All amounts used to calculate the cash incentive bonus shall reflect
the operations of the Company and its consolidated subsidiaries and shall be
calculated in conformity with generally accepted accounting principles. The
Company shall calculate the bonus for each fiscal year on a quarterly basis and
at the end of each of the first three (3) fiscal quarters shall pay Goodger the
bonus amount based on such quarterly calculation. After April 1 and before June
16 of the next fiscal year, and after audited financial statements are available
to the Company, the Company
-2-
<PAGE> 5
shall pay Goodger the balance of any bonus due Goodger based on the calculation
of the bonus for the fiscal year less payments made for the first three (3)
fiscal quarters, which payment shall be vested in the event of termination by
reason of Death or Disability (Section 6), Change of Control, (Section 7.02), or
Without Cause (Section 7.04), but shall be forfeited in the event of termination
For Cause or Voluntary Termination (Section 7.03).
(b) Any increase in salary or bonus or other
compensation shall in no way diminish any other obligation of the Company under
this Agreement, unless specifically agreed to in writing by Goodger.
4.02. During the Period of Employment Goodger shall be and
continue to be a full participant in the Company's Employees' Profit Sharing
Plan or any equivalent successor plan that may be adopted by the Company.
4.03. During the Period of Employment Goodger shall be
entitled to perquisites, including without limitation, an office, secretarial
and clerical staff, and to fringe benefits comparable to those enjoyed by the
other executive officers of the Company, but in each case at least equal to
those attached to his office on the date of this Agreement, as well as to
reimbursement, upon proper accounting, of reasonable expenses and disbursements
incurred by him in the course of his duties.
5. EMPLOYEE BENEFIT PLANS
----------------------
5.01. The compensation, together with other matters provided
for in Section 4 above, is in addition to the benefits provided for in this
Section 5.
5.02. Goodger, his dependents, beneficiaries and estate shall
be entitled to all payments and benefits and service credit for benefits during
the Period of Employment to which executive officers of the Company, their
dependents and beneficiaries are entitled as the result of the employment of
such executive officers during the Period of Employment under the terms of
employee plans and practices of the Company, including, without limitation, the
Company's retirement program consisting of its Employees' Profit Sharing Plan,
its group life insurance plan, its accidental death and dismemberment insurance,
disability, medical and health and welfare plans, any key person individual life
and disability policies, automobile expense reimbursement, club membership fees
and dues, and other present or equivalent successor plans and practices of the
Company, its subsidiaries and divisions, for which officers, their dependents
and beneficiaries are eligible, and to all payments or other benefits under any
such plan or practice after the Period of Employment as a result of
participation in such plan or practice during the Period of Employment.
5.03. Goodger shall be eligible to participate in the
Company's 1991 Stock Option Plan (which, together with any
-3-
<PAGE> 6
successor stock option plan or plans that may be adopted by the Company, is
referred to herein as the "Option Plan"). The Company has granted Goodger stock
options ("Options") at an option price equal to the fair market value of the
Company's Common Shares at the date of grant. The terms and conditions of
exercise of Goodger's Options shall be as is set forth in Goodger's Stock Option
Agreements (the "Option Agreements") with the Company; provided, however, that
in the event of a Change in Control, as defined in paragraph 18.02 below, then
notwithstanding the provisions of said Option Agreements, all options (including
those granted to him under the 1982 Incentive Stock Option Plan and the 1991
Stock Option Plan) shall immediately be 100% vested and Goodger shall have the
immediate right of exercise with respect to all Options and their underlying
Common Shares covered by said Option Agreements. In the event that Goodger's
employment is terminated as a result of a Change in Control, as defined in
paragraph 18.02 below, Goodger shall have the period of one (1) year after the
date of such termination to exercise his Options or the remainder of the term of
such Options, whichever is shorter, and any such exercise shall be irrevocable.
6. EFFECT OF DEATH OR DISABILITY
-----------------------------
6.01. In the event of the death of Goodger during the Period
of Employment, the Period of Employment shall be deemed to have ended as of the
close of business on the last day of the month in which death shall have
occurred, and his legal representative shall be entitled to (i) the compensation
provided for in paragraph 4.01(a)(i) above for the month in which death shall
take place at the rate being paid at the time of death, (ii) any cash bonus
payable for the fiscal quarter in which the Period of Employment shall be deemed
to have terminated due to death, plus the balance of any bonus due Goodger for
any prior fiscal quarters in accordance with, and payable at the times set forth
in, paragraph 4.01(a)(ii) above, and (iii) any benefits provided pursuant to
paragraph 5.02 hereof which are payable pursuant to the terms of the applicable
plan or practice.
6.02 (a) The term "Disability," as used in this Agreement,
shall mean an illness or accident which prevents Goodger from performing his
duties under this Agreement for a period of three (3) consecutive months. The
Period of Employment shall be deemed to have ended as of the close of business
on the last day of such three (3) months' period but without prejudice to any
payments due Goodger in respect of disability.
(b) In the event of the Disability of Goodger
during the Period of Employment, Goodger shall be entitled to (i) the
compensation provided for in paragraph 4.01(a)(i) above, at the rate being paid
at the time of the commencement of Disability, for the period of such Disability
but not in excess of three (3) months, (ii) any cash bonus payable for the
fiscal quarter in which the Period of Employment shall be deemed to have
terminated due to Disability, plus the balance of any bonus due Goodger for any
prior
-4-
<PAGE> 7
fiscal quarters in accordance with, and payable at the times set forth in,
paragraph 4.01(a)(ii) above, and (iii) any benefits provided pursuant to
paragraph 5.02 hereof which are payable pursuant to the terms of the applicable
plan or practice.
(c) The amount of any payments due under this
paragraph 6.02 shall be reduced by any payments to which Goodger may be paid for
the same period under any disability plan of the Company or of any subsidiary or
affiliate thereof.
7. TERMINATION
-----------
7.01. GENERAL. The Company may terminate Goodger with or
without cause at any time during the Period of Employment, subject to the
provisions of this Section 7. The termination of this Agreement by the Company
pursuant to Section 2(i) hereof shall be deemed to be a termination of
employment Without Cause as set forth in Section 7.04 hereof.
7.02. CHANGE OF CONTROL. Within one (1) year of a Change of
Control of the Company, as defined in paragraph 18.02, Goodger shall have the
right to terminate his employment with the Company and there shall be paid or
provided to Goodger, his dependents, beneficiaries and estate, as liquidated
damages or severance pay, or both, the following:
(a) The compensation provided for in paragraph
4.01(a)(i) above for the month in which Termination shall have occurred at the
rate being paid at the time of Termination; and an amount equal to his previous
twenty four (24) months of base salary plus an amount equal to the earned
incentive cash bonus referred to in paragraph 4.01(a)(ii) above for the two (2)
previously completed fiscal years. Such amount shall be paid to Goodger in one
payment, immediately upon Termination. Goodger shall also receive any cash bonus
payable for the fiscal quarter in which the Period of Employment shall be deemed
to have terminated due to Change of Control, plus the balance of any bonus due
Goodger for any prior fiscal quarters in accordance with, and payable at the
times set forth in, paragraph 4.01(a)(ii) above.
(b) For two (2) years following the date of
Termination, Goodger, his dependents, beneficiaries and estate, shall continue
to be entitled to all benefits provided pursuant to paragraph 5.02 hereof which
are payable pursuant to the terms of the applicable plan or practice, and
service credit for benefits under all employee benefit plans of the Company,
including, without limitation, the Company's profit sharing plan referred to in
paragraph 5.02 above, upon the same basis as immediately prior to Termination
and, to the extent that such benefits or service credit for benefits shall not
be payable or provided under any such plans to Goodger, his dependents,
beneficiaries and estate, by reason of his no longer being an employee of the
Company as the result of Termination, or any such plan, program or arrangement
is discontinued or the benefits thereunder are materially reduced, the
-5-
<PAGE> 8
Company shall itself arrange to provide benefits substantially similar to those
which Goodger, his dependents and beneficiaries were entitled to receive under
such plans, programs and arrangements immediately prior to termination to
Goodger, his dependents, beneficiaries and estate.
Any termination by the Company within the period of ninety
(90) days prior to the execution of a letter of intent or a definitive agreement
which could lead to a Change of Control and the closing of the transaction
actually resulting in the Change of Control, as defined in paragraph 18.02,
shall be deemed to be a termination under this paragraph 7.02. An election by
Goodger to terminate his employment under the provisions of this paragraph 7.02
shall not be deemed a Voluntary Termination of employment by Goodger under
paragraph 7.03 of this Agreement or any plan or practice of the Company.
7.03. FOR CAUSE OR VOLUNTARY TERMINATION. For the purpose of
any provision of this Agreement, the termination of Goodger's employment shall
be deemed to have been For Cause only if:
(a) termination of his employment shall have
been the result of Goodger's conviction of any of the following: (i)
embezzlement; (ii) misappropriation of money or other property of the Company;
or (iii) any felony; or
(b) there has been a breach by Goodger during
the Period of Employment of the provisions of paragraph 3.02 above, relating to
devotion of full time to the affairs of the Company, Section 8 relating to
Competition, Section 9 relating to Confidential Information, or Section 10
relating to Noninterference, and such breach results in demonstrably material
injury to the Company, and with respect to any alleged breach of paragraph 3.02
hereof, Goodger shall have failed to remedy such proven breach within thirty
(30) days from his receipt of written notice from the Company.
If Goodger's employment is terminated by the Company For
Cause, or if Goodger shall Voluntarily Terminate his employment with the
Company, Goodger shall be entitled to the compensation provided for in paragraph
4.01(a)(i) through the date of such termination. Goodger shall not be entitled
to any additional compensation or benefits (except for any vested benefits), and
shall continue to be bound by the provisions of Section 8 of this Agreement
(relating to Competition), the provisions of Section 9 of this Agreement
(relating to Confidential Information), and the provisions of Section 10
(relating to Noninterference).
7.04. WITHOUT CAUSE. Subject to compliance by Goodger with the
provisions of Section 8 of this Agreement (relating to Competition), the
provisions of Section 9 of this Agreement (relating to Confidential
Information), and the provisions of Section 10 of this Agreement (relating to
Noninterference), if the
-6-
<PAGE> 9
Company shall terminate Goodger's employment, Without Cause, there shall be paid
or provided to Goodger, his dependents, beneficiaries and estate, as liquidated
damages or severance pay, or both, (i) the compensation provided for in
paragraph 4.01(a)(i) above for the month in which termination shall have
occurred at the rate being paid at the time of such termination, and (ii) the
amount (the "Payment Amount") per month equal to 1/24th of (A) the total of his
previous twenty-four (24) months of base salary PLUS (B) an amount equal to the
earned incentive cash bonus referred to in paragraph 4.01(a)(ii) above for the
two (2) previously completed fiscal years. Such Payment Amount shall be paid to
Goodger or, in case of his prior death, to his legal representative, in monthly
installments at the end of each month commencing with the month next following
that in which such termination shall have occurred, and continuing for a period
of six (6) months. Goodger shall also receive any cash bonus payable for the
fiscal quarter in which the Period of Employment shall be deemed to have
terminated due to termination Without Cause, plus the balance of any bonus due
Goodger for any prior fiscal quarters in accordance with, and payable at the
times set forth in, paragraph 4.01(a)(ii) above, plus any benefits provided
pursuant to paragraph 5.02 hereof which are payable pursuant to the terms of the
applicable plan or practice. In the event the Company fails to make such
payments when due, then the remaining payments shall become due and payable
immediately.
7.05. ARBITRATION. In the event that Goodger's employment
shall be terminated by the Company during the Period of Employment or the
Company shall withhold payments or provision of benefits because Goodger is
alleged to be engaged in activities prohibited by Sections 8, 9 or 10 of this
Agreement or for any other reason, Goodger shall have the right, in addition to
all other rights and remedies provided by law, at his election either to seek
arbitration in the metropolitan area of Cleveland, Ohio, under the rules of the
American Arbitration Association by serving a notice to arbitrate upon the
Company or to institute a judicial proceeding, in either case within one hundred
and twenty (120) days after having received notice of termination of his
employment or within such longer period as may reasonably be necessary for
Goodger to take action in the event that his illness or incapacity should
preclude his taking such action within such one hundred and twenty (120) day
period.
8. COMPETITION
-----------
There shall be no obligation on the part of the Company to
make any further payments provided for in paragraph 7.04 above if Goodger shall,
during the six (6) months following termination of Goodger's employment for any
reason except Change of Control as described in paragraph 7.02, engage in
Competition with the Company as hereinafter defined. The word "Competition" for
purposes of this Section 8 and any other provision of this Agreement shall mean
taking any employment or consulting position with or control of one of the
Company's top twenty-five (25) competitors as listed in the
-7-
<PAGE> 10
most current issue at the date of termination of ELECTRONIC BUYER'S NEWS and/or
ELECTRONIC NEWS; provided, however, that in no event shall ownership of less
than 5% of the outstanding capital stock entitled to vote for the election of
directors of a corporation with a class of equity securities held of record by
more than 500 persons be deemed Competition with the Company within the meaning
of this Section 8.
9. CONFIDENTIAL INFORMATION
------------------------
9.01. Except for information which is already in the public
domain, or which is publicly disclosed by persons other than Goodger, or which
is required by law or court order to be disclosed, or information given to
Goodger by a third party not bound by any obligation of confidentiality, Goodger
shall at all times during and after his employment with the Company hold in
strictest confidence any and all confidential information within his knowledge
and which is material to the business of the Company (whether acquired prior to
or during his employment with the Company) concerning the inventions, products,
processes, methods of distribution, customers, services, business, suppliers or
trade secrets of the Company, except that Goodger may, in connection with the
performance of his duties to the Company, divulge confidential information to
the directors, officers, employees and shareholders of the Company and to the
advisors, accountants, attorneys or lenders of the Company or such other
individuals as deemed prudent in the course of business to carry out the
responsibilities and duties of his position. Such confidential information
includes, without limitation, financial information, sales information, price
lists, marketing data, the identity and lists of actual and potential customers
and technical information, all to the extent that such information is not
intended by the Company for public dissemination.
9.02. Goodger also agrees that upon leaving the Company's
employ he will not take with him, without the prior written consent of an
officer authorized to act in the matter by the Board of Directors of the
Company, any Company document, contract, internal financial or management
reports, customers list, product list, price list, catalog, employee list,
procedures, software, MIS data, drawing, blueprint, specification or other
document of the Company, its subsidiaries, affiliates and divisions, which is of
a confidential nature relating to the Company, its subsidiaries, affiliates and
divisions, or, without limitation, relating to its or their methods of purchase
or distribution, or any description of any trade secret, formulae or secret
processes.
10. NONINTERFERENCE
---------------
Except for Change of Control as described in paragraph 7.02,
Goodger shall not, at any time during or within six (6) months after his
employment is terminated with the Company, without
-8-
<PAGE> 11
the prior written consent of the Company, directly or indirectly, induce or
attempt to induce any key employee, key agent or other key representative or
associate of the Company to terminate his or her relationship with the Company,
or in any way directly or indirectly interfere with such a relationship or any
relationship between the Company and any of its top fifty (50) suppliers or top
two hundred fifty (250) customers, both in terms of the Company's sales volume,
provided that purchasing goods from a supplier to the Company or making a sale
to any of the Company's customers shall not be deemed to be interference.
11. REMEDY
------
Goodger acknowledges that Sections 8, 9 and 10 hereof were
negotiated at arms length and are required for the fair and reasonable
protection of the Company. Goodger and the Company further acknowledge and agree
that a breach of those obligations and agreements will result in irreparable and
continuing damage to the Company for which there will be no adequate remedy at
law and, therefore, Goodger and the Company agree that in the event of any
breach of said obligations and agreements the Company, and its successors and
assigns, shall be entitled to injunctive relief and such other and further
relief, including monetary damages, as is proper in the circumstances. It is
further agreed that the running of the periods provided above in Sections 8 and
10, shall be tolled during any period which Goodger shall be adjudged to have
been in violation of any of his obligations under such Sections.
12. WITHHOLDING
-----------
Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to Goodger or his estate or
beneficiaries, shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Company may accept other provisions to the
end that it has sufficient funds to pay all taxes required by law to be withheld
in respect of such payments or any of them.
13. NOTICES
-------
All notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be sufficiently
given if and when mailed in the continental United States by registered or
certified mail or personally delivered to the party entitled thereto at the
address stated below or to such changed address as the addressee may have given
by a similar notice:
-9-
<PAGE> 12
To the Company: Pioneer-Standard Electronics, Inc.
4800 East 131st Street
Cleveland, Ohio 44105
Attention: Secretary or Chief Executive
Officer [and President]
To Goodger: John V. Goodger
104 Manor Brook Drive
Chagrin Falls, Ohio 44022
14. GENERAL PROVISIONS
------------------
14.01. There shall be no right of set-off or counter claim, in
respect of any claim, debt or obligation, against payments to Goodger, his
dependents, beneficiaries or estate provided for in this Agreement.
14.02. No right or interest to or in any payments shall be
assignable by Goodger; provided, however, that this provision shall not preclude
him from designating one or more beneficiaries to receive any amount that may be
payable after his death and shall not preclude the legal representative of his
estate from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Goodger's estate.
14.03. No right, benefit or interest hereunder, shall be
subject to anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, hypothecation, or set-off in respect of any claim, debt or obligation,
or to execution, attachment, levy or similar process, or assignment by operation
of law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
14.04. In the event of Goodger's death or a judicial
determination of his incompetence, reference in this Agreement to Goodger shall
be deemed, where appropriate, to refer to his legal representative or, where
appropriate, to his beneficiary or beneficiaries.
14.05. The titles to sections in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
14.06. This Agreement shall be binding upon and shall inure to
the benefit of (a) Goodger and, subject to the provisions of paragraphs 14.02
and 14.03, his heirs and legal representatives,
-10-
<PAGE> 13
and (b) the Company and its successors as provided in Section 17 hereof.
15. AMENDMENT OR MODIFICATION; WAIVER
---------------------------------
No provision of this Agreement may be amended or waived unless
such amendment or waiver is authorized by the Board of Directors of the Company
or the Compensation Committee and is agreed to in writing, signed by Goodger and
by an officer of the Company thereunto duly authorized by either the Board of
Directors or the Compensation Committee. Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto of any breach by
the other party hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a subsequent breach of
such condition or provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
16. SEVERABILITY
------------
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions and portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
17. SUCCESSORS TO THE COMPANY
-------------------------
Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the Company and any successor of the
Company, including, without limitation, any corporation which acquires directly
or indirectly all or substantially all of the assets of the Company whether by
merger, consolidation, sale or otherwise (and such successor shall thereafter be
deemed "the Company" for the purposes of this Agreement), but shall not
otherwise be assignable by the Company.
18. OPERATION OF AGREEMENT
----------------------
18.01. This Agreement is effective as of April 1, 1996, and
shall supersede any prior employment agreement, including the Amended and
Restated Employment Agreement dated June 12, 1995, which was effective April 3,
1995, between Goodger and the Company, which shall be deemed to be terminated
and null and void except for any vested rights to receive compensation under
Section 4.01(a)(ii) thereof.
18.02. For the purpose of this Agreement, the term "Change in
Control" of the Company shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 as in effect on the
date of this
-11-
<PAGE> 14
Agreement; provided that, without limitation, such a change in control shall be
deemed to have occurred if and when (a) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes a beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities or (b) during any period of twelve (12) consecutive
months, commencing before or after the date of this Agreement, individuals who,
at the beginning of such twelve (12) month period were directors of the Company
for whom Goodger, as a shareholder, shall have voted, cease for any reason to
constitute at least a majority of the Board of Directors of the Company.
19. ENFORCEMENT COSTS
-----------------
The Company is aware that upon the occurrence of a Change in
Control the Board of Directors or a shareholder of the Company may then cause or
attempt to cause the Company to refuse to comply with its obligations under this
Agreement, or may cause or attempt to cause the Company to institute, or may
institute, litigation seeking to have this Agreement declared unenforceable, or
may take, or attempt to take, other action to deny Goodger the benefits intended
under this Agreement. In these circumstances, the purpose of this Agreement
could be frustrated. It is the intent of the Company that Goodger not be
required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to Goodger hereunder, nor be bound to negotiate any settlement of his
rights hereunder under threat of incurring such expenses. Accordingly, if
following a Change in Control it should appear to Goodger that the Company has
failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any litigation or other legal
action designed to deny, diminish or to recover from, Goodger, or in the event
the Company fails or refuses to comply with the obligations under this
Agreement, the benefits intended to be provided to Goodger hereunder, and that
Goodger has complied with all of his obligations under this Agreement, the
Company irrevocably authorizes Goodger from time to time to retain counsel of
his choice at the expense of the Company as provided in this Section 19, to
represent Goodger in connection with the initiation or defense of any litigation
or other legal action, whether by or against the Company or any Director,
officer, shareholder or other person affiliated with the Company, in any
jurisdiction. Notwithstanding any existing or prior attorney-client relationship
between the Company and such counsel, the Company irrevocably consents to
Goodger entering into an attorney-client relationship with such counsel, and in
that connection the Company and Goodger agree that a confidential relationship
shall exist between Goodger
-12-
<PAGE> 15
and such counsel. The reasonable fees and expenses of counsel selected from time
to time by Goodger as hereinabove provided shall be paid or reimbursed to
Goodger by the Company on a regular, periodic basis upon presentation by Goodger
of a statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of $500,000.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ATTEST: PIONEER-STANDARD ELECTRONICS, INC.
By /S/ JAMES L. BAYMAN
- -------------------------------- --------------------------------------
James L. Bayman, Chief Executive
Officer and President
ATTEST:
/S/ JOHN V. GOODGER
- -------------------------------- --------------------------------------
John V. Goodger
-13-
<PAGE> 1
EXHIBIT 10(I)
AMENDMENT
TO
PIONEER-STANDARD ELECTRONICS, INC.
1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
The following shall be inserted after the second paragraph of
Section 7:
The Plan shall not be amended more than once every six (6)
months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder.
With respect to Rule 16b-3 of the Securities Exchange Act of
1934, as amended, or any successor to such Rule, (i) the Plan is intended to
comply with all applicable conditions of Rule 16b-3; (ii) all transactions are
subject to the conditions and requirements of Rule 16b-3, regardless of whether
the conditions are expressly set forth in the Plan; and (iii) any provision of
the Plan or action by plan administrators that is contrary to any condition or
requirement of Rule 16b-3 shall not apply to any Director participating in the
Plan.
* * *
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE> 1
Exhibit 11
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
Years Ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted average common shares
and common share equivalents
outstanding 23,127,486 22,886,877 22,677,034
Net income $25,252,000 $25,009,000 $19,676,000
========== ========== ==========
Earnings per share $1.09 $1.09 $.87
</TABLE>
<PAGE> 1
Exhibit 13.1
MANAGEMENT'S DISCUSSION ANDANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONS
Sales
Fiscal 1996 was the tenth consecutive year of record sales and the 24th year
in the 25 years we have been public that sales increased. The year's sales were
$1,105.3 million, up 33 percent from $832.2 million in 1995. The Company's sales
excluding the newly acquired affiliate increased 17 percent and, including the
four month contribution of the affiliate, sales increased 33 percent. Subsequent
to the acquisition on November 30, 1995, the former affiliate was renamed
Pioneer-Standard of Maryland, Inc., and is operated as a wholly-owned
subsidiary.
Pro Forma Effects of Acquisition
On November 30, 1995, we acquired the remaining interest in our 50-percent
owned affiliate for $50 million in cash.
The following unaudited pro forma information presents a summary of
consolidated results of operations for the Company and Pioneer-Standard of
Maryland as if the acquisition had occurred at the beginning of fiscal 1995 and
fiscal 1996, with pro forma adjustments to give effect to amortization of
goodwill, interest expense on acquisition debt and certain other adjustments,
together with related income tax effects. Included in the 1996 results is an
after-tax non-recurring discontinuance charge of $2,450,000 ($.11 per share)
recorded by Pioneer-Standard of Maryland to conform to the Company's methods of
accounting.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net sales $1,325,047,000 $1,200,252,000
Net income $ 24,704,000 $ 27,741,000
Earnings
per share $1.07 $1.21
</TABLE>
Product Line Sales
The Company distributes a broad range of electronics components and computer
products manufactured by others. These products are classified into three broad
categories: semiconductors, computer system products and passive
electromechanical components.
All three of our major product categories added to sales growth this past
year. Semiconductor products accounted for 38 percent of sales, compared to 37
percent and 41 percent in 1995 and 1994, respectively. Computer systems products
comprised 40 percent of sales compared with 38 percent in 1995 and 33 percent in
1994. Passive and electromechanical products were 20 percent of sales, versus 22
percent in 1995 and 24 percent in 1994. Miscellaneous products accounted for 2
percent in 1996, 3 percent in 1995 and 2 percent in 1994.
Gross Margins
The 1996 gross margin was 18.3 percent compared to 18.6 percent in 1995 and
19.8 percent in 1994. Product line shifts have been a factor in the change
between gross margin percents. The difference in gross margin per-
<TABLE>
<CAPTION>
Sales Per
Employee
(Thousands of Dollars)
<C> <C>
1992 387
1993 457
1994 579
1995 686
1996 671
</TABLE>
<TABLE>
<CAPTION>
Inventory Turnover Rate
(Based on End of Quarter Rates)
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Pioneer-Standard
Industry
</TABLE>
PIONEER-STANDARD ELECTRONICS, INC. 19
<PAGE> 2
cent between 1995 and 1994 is attributable to increased sales volume of
microprocessors. While microprocessors earn a relatively low gross profit
margin, they are marketed through an efficient low cost sales channel.
Typically, semiconductor products have the highest gross margin of the three
product lines, but the addition of microprocessor sales in the semiconductor
category ranks semiconductors behind passives. Computer system products have the
lowest gross margin and had the highest line item value in 1996 while passives
had the lowest. The gross margin percent of the semiconductor products was below
the other two categories in 1995 and 1994 primarily due to the effect of the
increased microprocessor sales noted above.
Operating Efficiencies
Warehouse, selling and administrative expenses in 1996 were 13.6 percent of
sales, compared with 13.4 percent in 1995, and 14.4 percent in 1994. The
slightly increased rate of operating expenses as a percent of sales in 1996 is
in part a reflection of the Company's investment in various programs to foster
growth and improve value added offerings and customer service and satisfaction.
The improvements since 1994 reflect to some extent the leveraging of expenses on
greater sales volume, and to a larger extent the many efficiencies realized
through FutureStart, our total quality management initiative. In addition,
operating expenses in all three years included outlays for geographic
expansion of sales operations.
The resulting operating profit amounted to $51.9 million, up 19 percent from
the $43.7 million in 1995, which was 39 percent greater than the $31.4 million
of 1994. Operating profit amounted to 4.7 percent of net sales in 1996 compared
with 5.2 percent in 1995 and 5.4 percent in 1994.
On a weighted basis after giving effect to the acquisition, sales per
employee were $671,000. Sales per employee have reflected an average annual
efficiency gain of approximately 12 percent over the past five years. Turns on
annual average inventory were 5.4 in 1996, versus 6.5 in 1995 and 6.1 in 1994.
Pioneer's inventory turn has ranked at the top of the industry's averages.
Interest Expense
Interest expense totaled $8.1 million in 1996, $4.0 million in 1995 and $2.7
million in 1994. Total interest-bearing debt increased by $122.0 million during
1996 due principally to the additional indebtedness associated with funding the
$50 million cash acquisition of the affiliate and assumption of its debt, which
was refinanced. In addition, the increased interest expense in 1996 reflects
working capital needs stemming from increased sales volume and increased capital
expenditures.
Interest expense in fiscal 1995 also increased over the prior year amount.
Total interest bearing debt in 1995 increased by $38.9 million from 1994
primarily due to the working capital needs arising from increased sales volume
coupled with the cash investment in the Canadian business and to an increased
level of capital expenditures.
<TABLE>
<CAPTION>
Interest Expense
as a Percent
to Sales
(Percent)
<S> <C>
1992 1.2
1993 .8
1994 .5
1995 .5
1996 .7
</TABLE>
<TABLE>
<CAPTION>
Net Income
(Millions of Dollars)
<S> <C>
1992 5.3
1993 12.9
1994 19.7
1995 25.0
1996 25.3
</TABLE>
20 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 3
Equity Interest
The equity interest in the net income of our former 50%-owned affiliate
resulted in a loss of $173 thousand during 1996, versus net income of $2.5
million in 1995 and $3.0 million in 1994. The amounts above include Pioneer's 50
percent share of the affiliate's net income, and in 1996 include the 50 percent
share for only the first eight months prior to the acquisition on November 30,
1995. The $173 thousand loss includes Pioneer's 50 percent share of
non-recurring discontinuance costs of $1.2 million after tax, or 5 cents per
share. Notwithstanding this one-time charge, effects of the acquisition were
approximately neutral to earnings in the final four months of the year, and it
is expected to have a positive effect on earnings in fiscal 1997.
Pioneer-Standard of Maryland's sales for fiscal 1996 were $350.6 million,
compared to $368.1 million in 1995 and $422.0 million in 1994. Lower 1996 net
sales again reflected reduced microprocessor sales which earn a relatively low
gross profit margin. However, the subsidiary's traditional business sales volume
without including microprocessors actually increased over the prior year. In
both 1996 and 1995 microprocessor sales were reduced from a substantial build up
in 1993 and 1994.
Taxes
The effective tax rate was 42.1 percent in 1996, compared to 40.8 percent in
1995 and 37.9 percent in 1994. The 1996 and 1995 tax rate increases were due to
decreases in the equity income amounts of Pioneer-Standard of Maryland relative
to the Company's total net income, coupled with higher effective state tax rates
and the unrecognized tax benefit associated with the operating losses of the
Canadian subsidiary.
Net Income
Despite the impact of non-recurring acquisition discontinuance costs and
other factors outlined above, fiscal 1996 net income moved up one percent to a
new record high of $25.3 million, compared to $25.0 million in 1995 which was up
27 percent from $19.7 million in 1994.
Earnings per share of $1.09 in 1996 matched the year ago record of $1.09,
compared with 87 cents per share in 1994. Per share amounts have been adjusted
to reflect a 3-for-2 split of the Company's common shares effective September
6, 1995.
Risk Control
Systems are in place providing for continuous measurement and evaluation of
foreign exchange exposures so that timely action can be taken when considered
desirable. Reducing exposure to foreign currency fluctuations is an integral
part of the Company's risk management program. Financial instruments in the form
of forward exchange contracts are employed as one of the methods to reduce such
risk. The Company does not enter into financial instruments for trading or
speculative purposes.
We extend credit based on customers' financial conditions, and generally
collateral is not required. Credit losses are provided for in the financial
statements when collections are in doubt.
Inflation has had little effect on our operations.
<TABLE>
<CAPTION>
Cash Dividends
Paid Per Share
(Dollars)
<S> <C>
1992 .047
1993 .049
1994 .058
1995 .075
1996 .106
</TABLE>
<TABLE>
<CAPTION>
Interest
Bearing Debt
Percent of Equity
Plus Debt
(Percent)
<S> <C>
1992 46
1993 22
1994 21
1995 34
1996 56
</TABLE>
<TABLE>
<CAPTION>
Return on
Average
Shareholders'
Equity
(Percent)
<S> <C>
1992 9.7
1993 18.2
1994 21.1
1995 21.8
1996 18.2
</TABLE>
PIONEER-STANDARD ELECTRONICS, INC. 21
<PAGE> 4
CAPITAL AND LIQUIDITY
On November 30, 1995, we acquired the remaining interest in our 50-percent
owned affiliate for $50 million in cash and assumed its $30 million bank debt,
which was subsequently refinanced. Intangible assets of $38.4 million arising
from the transaction are being amortized over 40 years.
We maintain a strong financial position and excellent liquidity. Current
assets at fiscal 1996 year-end were $466.5 million, 1.9 times current
liabilities.
On July 25, 1995, we declared a three-for-two split of common shares in the
form of a 50 percent share dividend. Also at that time, reflecting sales and
earnings progress, the quarterly cash dividend rate was increased from 3.5 cents
per share to 4.5 cents per share on a pre-split basis, 3 cents per share on a
post-split basis, for a 29 percent increase. This marks the 8th consecutive year
of a dividend increase and the 21st increase in the 25 years we have been
publicly traded.
We continued investing in programs to stimulate and support future growth.
Capital expenditures were $21.0 million in 1996, $11.3 million in 1995, and $7.6
million in 1994. The increased spending in 1996 and 1995 is largely related to
ongoing initiatives designed to improve efficiencies through computer
enhancement of operating processes as well as investments in value added and
warehousing operations, and this will be true as well in 1997. Plans call for
approximately $23.0 million of capital expenditures in 1997. The increase in
1996 and planned increase in spending during 1997, in part, reflect investments
in our continuing business process redesign efforts. In addition, amounts
expended will enable our technology toolset migration to a new, state-of-the art
software platform to support growth and flexibility requirements.
In order to finance the purchase of the balance of Technologies and to meet
near-term cash needs, we entered into a new credit agreement dated November 29,
1995, with five banks providing up to an aggregate of $200.0 million of
unsecured borrowings on a revolving credit basis for two years. As of March 31,
1996, borrowings outstanding of $152.0 million resulted in $48.0 million of this
total commitment available for use. In addition to the revolving credit line,
unsecured short-term lines of credit are available whereby a maximum of $40.0
million may be borrowed to meet short-term fluctuations in cash needs. At March
31, 1996, borrowings pursuant to these short-term lines totaled $21.0 million
leaving $19.0 million available for use. The debt to capitalization ratio was 56
percent at March 31, 1996. The Copmany believes that cash generated from
operations and amounts avaliable under its lines of credit are presently
sufficient to fund its working capital and capital expenditure requirements.
It is anticipated that some portion of the outstanding bank borrowings will
be refinanced with fixed rate debt, equity, or a combination thereof given
favorable market conditions. However, there can be no assurance that any part of
the borrowings will be refinanced.
22 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 5
FINANCIAL REVIEW
Summary of Operations/Fiscal Years ended March 31
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------
For the Year 1996 1995 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Combined Sales
(Pioneer-Standard Electronics, Inc. and
Pioneer-Standard of Maryland, Inc.) $ 1,325,047 $ 1,200,252 $ 1,002,758 $ 714,021 $ 552,294
Pioneer-Standard Electronics, Inc.
Net Sales 1,105,281 832,152 580,757 430,013 362,386
Interest Expense 8,136 3,966 2,687 3,581 4,505
Income Before Income Taxes and Equity in
Earnings of Pioneer/Technologies Group, Inc. 43,812 39,713 28,702 17,480 7,888
Equity in Earnings (Loss) of
Pioneer/Technologies Group, Inc. (173) 2,500 3,001 2,505 654
Income Taxes 18,387 17,204 12,027 7,072 3,215
Net Income 25,252 25,009 19,676 12,913 5,327
- -----------------------------------------------------------------------------------------------------------------------
Year-End Position
Accounts Receivable 189,296 133,987 81,155 62,347 50,004
Inventory 238,370 123,008 85,754 67,101 60,983
Working Capital 224,840 131,438 85,132 70,781 69,325
Net Property and Equipment 48,679 30,929 25,572 23,159 23,579
Total Assets 559,110 327,415 220,039 171,860 150,871
Long-Term Debt 164,447 56,318 22,272 21,328 44,717
Shareholders' Equity 150,693 126,415 102,740 84,117 57,455
Weighted Average Shares Outstanding 23,127,486 22,886,877 22,677,034 20,674,152 18,460,401
Average Number of Employees 1,647 1,213 1,003 940 937
- -----------------------------------------------------------------------------------------------------------------------
Per Share Data
Net Income Per Share 1.09 1.09 .87 .63 .29
Cash Dividends Paid Per Share .106 .075 .058 .049 .047
Shareholders' Equity Per Share 6.70 5.65 4.61 3.82 3.11
Price Range of Common Shares
High 19.25 13.17 12.55 8.89 5.26
Low 10.75 9.17 5.33 3.11 2.97
- -----------------------------------------------------------------------------------------------------------------------
Measurement Data
Gross Margin Percent of Sales 18.3 18.6 19.8 21.7 21.4
Income from Operations Percent
of Sales 2.3 3.0 3.4 3.0 1.5
Net Income Percent of
Average Shareholders' Equity 18.2 21.8 21.1 18.2 9.7
Sales Per Employee 671 686 579 457 387
Accounts Receivable Days Outstanding
at Year-End 45 47 43 45 47
Turns on Annual Average Inventory 5.4 6.5 6.1 5.3 4.8
Interest Bearing Debt
Percent of Equity Plus Debt 55.5 34.4 21.0 22.3 46.4
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company acquired the remaining 50% of the common stock of
Pioneer/Technologies Group, Inc. on November 30, 1995. The consolidated
statements include the operating results of Technologies from the date of
acquisition. Prior to the acquisition, the Company accounted for its investment
in Technologies under the equity method of accounting.
See Note 1 to the financial statements for stock split details.
PIONEER-STANDARD ELECTRONICS, INC. 23
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 and 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS 1996 1995
- ----------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 24,440,000 $ 9,598,000
Accounts receivable, less allowance for doubtful accounts
(1996-$6,982,000, 1995-$4,606,000,) 189,296,000 133,987,000
Merchandise inventory 238,370,000 123,008,000
Prepaid expenses 2,922,000 1,623,000
Deferred income taxes 11,454,000 5,708,000
- ----------------------------------------------------------------------------------------------
Total current assets 466,482,000 273,924,000
INVESTMENT AND OTHER ASSETS:
Investment in 50%-owned company -- 16,963,000
Intangible assets 42,446,000 4,456,000
Other assets 1,503,000 1,143,000
PROPERTY AND EQUIPMENT, AT COST:
Land 1,070,000 1,070,000
Buildings 13,768,000 12,984,000
Furniture and equipment 62,276,000 39,166,000
Leasehold improvements 6,910,000 2,176,000
- ----------------------------------------------------------------------------------------------
84,024,000 55,396,000
Less accumulated depreciation and amortization 35,345,000 24,467,000
- ----------------------------------------------------------------------------------------------
Net property and equipment 48,679,000 30,929,000
- ----------------------------------------------------------------------------------------------
$559,110,000 $ 327,415,000
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks $ 21,000,000 $ 7,000,000
Accounts payable 184,946,000 106,905,000
Income taxes 1,654,000 3,946,000
Accrued salaries, wages and commissions 13,017,000 8,593,000
Other accrued liabilities 18,154,000 13,086,000
Long-term debt due within one year 2,871,000 2,956,000
- ----------------------------------------------------------------------------------------------
Total current liabilities 241,642,000 142,486,000
LONG-TERM DEBT 164,447,000 56,318,000
DEFERRED INCOME TAXES 2,328,000 2,196,000
SHAREHOLDERS' EQUITY:
Common shares, without par value, $.30 stated value: authorized
40,000,000 shares in 1996 and 1995; outstanding
22,498,510 shares in 1996 and 22,374,219 shares in 1995 6,667,000 6,630,000
Capital in excess of stated value 17,221,000 16,318,000
Retained earnings 126,506,000 103,646,000
Foreign currency translation adjustment 299,000 (179,000)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 150,693,000 126,415,000
- ----------------------------------------------------------------------------------------------
$559,110,000 $ 327,415,000
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
24 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended March 31, 1996, 1995 and 1994
- ----------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,105,281,000 $ 832,152,000 $ 580,757,000
Operating costs and expenses:
Cost of goods sold 902,629,000 677,171,000 465,614,000
Warehouse, selling and administrative expenses 150,704,000 111,302,000 83,754,000
- ----------------------------------------------------------------------------------------------------
1,053,333,000 788,473,000 549,368,000
- ----------------------------------------------------------------------------------------------------
Operating profit 51,948,000 43,679,000 31,389,000
Equity in earnings (loss) of 50%-owned company (173,000) 2,500,000 3,001,000
Interest expense (8,136,000) (3,966,000) (2,687,000)
- ----------------------------------------------------------------------------------------------------
Income from operations before
income taxes 43,639,000 42,213,000 31,703,000
Provision for income taxes:
Federal
Current 16,779,000 14,517,000 9,946,000
Deferred (2,304,000) (1,107,000) (574,000)
- ----------------------------------------------------------------------------------------------------
14,475,000 13,410,000 9,372,000
State 3,912,000 3,794,000 2,655,000
- ----------------------------------------------------------------------------------------------------
18,387,000 17,204,000 12,027,000
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 25,252,000 $ 25,009,000 $ 19,676,000
====================================================================================================
INCOME PER COMMON SHARE:
Primary and fully diluted $ 1.09 $ 1.09 $ .87
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
PIONEER-STANDARD ELECTRONICS, INC. 25
<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended March 31, 1996, 1995 and 1994
- ----------------------------------------------------------------------------------------------------------------------------
Foreign
Stated value Capital in currency
of common excess of Retained translation
shares stated value earnings adjustment Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993 $ 6,529,000 $ 15,665,000 $ 61,923,000 $ 84,117,000
Net income 19,676,000 19,676,000
Cash dividends ($.058 per share) (1,274,000) (1,274,000)
Shares issued upon exercise of stock options 95,000 719,000 814,000
Tax benefit related to exercise of stock
options 21,000 21,000
Shares retired (15,000) (599,000) (614,000)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1994 6,609,000 15,806,000 80,325,000 102,740,000
Net income 25,009,000 25,009,000
Cash dividends ($.075 per share) (1,688,000) (1,688,000)
Shares issued upon exercise of stock options 21,000 388,000 409,000
Tax benefit related to exercise of stock
options 124,000 124,000
Foreign currency translation adjustment $(179,000) (179,000)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 6,630,000 16,318,000 103,646,000 (179,000) 126,415,000
Net income 25,252,000 25,252,000
Cash dividends ($.106 per share) (2,392,000) (2,392,000)
Shares issued upon exercise of stock options 37,000 693,000 730,000
Tax benefit related to exercise of stock
options 214,000 214,000
Cash in lieu of fractional shares for stock split (4,000) (4,000)
Foreign currency translation adjustment 478,000 478,000
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 $ 6,667,000 $ 17,221,000 $ 126,506,000 $ 299,000 $ 150,693,000
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
26 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,252,000 $ 25,009,000 $ 19,676,000
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization 8,998,000 6,230,000 5,264,000
Undistributed (earnings) loss of affiliate 173,000 (2,500,000) (3,001,000)
Increase in operating working capital (31,898,000) (38,566,000) (11,635,000)
Increase in intangible assets (5,155,000) (1,488,000) --
(Increase) decrease in other assets 67,000 (225,000) (199,000)
Deferred taxes (2,304,000) (1,115,000) (574,000)
- --------------------------------------------------------------------------------------------------------
Total adjustments (30,119,000) (37,664,000) (10,145,000)
- --------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (4,867,000) (12,655,000) 9,531,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (21,004,000) (11,326,000) (7,626,000)
Acquisition of businesses, net of cash acquired (49,883,000) (10,068,000) --
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (70,887,000) (21,394,000) (7,626,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term financing 14,000,000 5,000,000 (500,000)
Increase in revolving credit borrowings 81,000,000 37,000,000 4,000,000
Principal payments under long-term debt obligations (2,956,000) (3,056,000) (262,000)
Issuance of common shares under stock option plans 730,000 409,000 200,000
Tax benefit related to exercise of stock options 214,000 124,000 21,000
Dividends paid (2,392,000) (1,688,000) (1,274,000)
Cash in lieu of fractional shares for stock split (4,000) -- --
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 90,592,000 37,789,000 2,185,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4,000 (96,000) --
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 14,842,000 3,644,000 4,090,000
CASH AT BEGINNING OF YEAR 9,598,000 5,954,000 1,864,000
- --------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 24,440,000 $ 9,598,000 $ 5,954,000
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
PIONEER-STANDARD ELECTRONICS, INC. 27
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The Company distributes a broad range of electronics components and computer
products manufactured by others. These products are sold to original equipment
manufacturers, value-added resellers, research laboratories, government
agencies, and end-users, including manufacturing companies, and service and
other non-manufacturing organizations. The Company has operations in the United
States and Canada.
The Company maintains the following accounting policies:
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
transactions have been eliminated. As discussed in Note 2, the Company acquired
the remaining 50% of the common stock of Pioneer/Technologies Group, Inc.
("Technologies") on November 30, 1995. The consolidated statements include the
operating results of Technologies from the date of acquisition. Prior to the
acquisition, the Company accounted for its investment in Technologies under the
equity method of accounting.
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
CASH EQUIVALENTS--The Company considers highly liquid instruments with a
maturity of ninety days or less at date of purchase to be cash equivalents.
MERCHANDISE INVENTORY--Inventory is stated at the lower of cost (first-in,
first-out basis) or market. The Company's inventory is constantly monitored for
obsolescence. This review considers such factors as turnover, technical
obsolescence, right of return status to suppliers and price protection offered
by suppliers. Reserves for slow-moving and obsolete inventory at March 31, were
$8,777,000 in 1996 and $3,416,000 in 1995.
INTANGIBLE ASSETS--Intangible assets include the excess of cost over value
assigned to net assets of purchased businesses, which is being amortized on the
straight-line method over 40 years. Intangible assets are periodically reviewed
for impairment based on an assessment of future operations to ensure they are
appropriately valued.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost. The Company
capitalizes costs associated with software developed for its own use.
Depreciation and amortization is computed using principally the straight-line
method. Accelerated methods are used for tax reporting purposes.
FOREIGN CURRENCY--The assets and liabilities of foreign operations are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date whereas income statement accounts are translated at the weighted
average exchange rates for the year. The gains or losses resulting from these
translations are recorded in a separate component of shareholders' equity. Gains
or losses resulting from realized foreign currency transactions are included in
net income.
STOCK SPLIT--On July 25, 1995, the Board of Directors declared a three-for-two
stock split effected in the form of a 50% share dividend of the Company's Common
Shares payable September 6, 1995 to shareholders of record August 16, 1995. All
share and per share data have been restated for all periods presented to reflect
the stock split.
COMMON SHARES AND NET INCOME PER COMMON SHARE--Net income per common share is
computed using the weighted average common shares and common share equivalents
outstanding during the year of 23,127,486 in 1996, 22,886,877 in 1995 and
22,677,034 in 1994. Common share equivalents consists of shares issuable upon
exercise of stock options computed by using the treasury stock method.
USE OF ESTIMATES--The financial statements are prepared in conformity with
generally accepted accounting principles and accordingly, include management's
best estimates and judgments where applicable. Actual results could differ from
those estimates.
ACCOUNTING CHANGES--Effective April 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Adoption
of this statement was not material to the financial results.
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the
28 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 11
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(FAS 121), and Statement No. 123, "Accounting for Stock-Based Compensation" (FAS
123). FAS 121 requires that, under certain circumstances, long-lived assets be
reviewed for impairment and any applicable impairment loss be recognized. FAS
123 allows accounting for employee stock options under either the fair value or
the intrinsic value method. The Company plans to continue to use the intrinsic
value method. These statements, which must be adopted by the Company no later
than the first quarter of fiscal 1997, are not expected to have a material
effect on the financial statements.
2. ACQUISITIONS
On November 30, 1995, the Company acquired the remaining 50% of the common stock
of Pioneer/Technologies Group, Inc. for $50,000,000 in cash. The Company
refinanced all of Technologies' bank debt approximating $30,000,000. The
acquisition was accounted for by using the purchase method of accounting and the
operating results of Technologies have been included in the consolidated
financial statements since the date of acquisition. The cost in excess of the
net assets of the business acquired is included in intangible assets and is
being amortized over 40 years. Prior to the acquisition, the Company accounted
for its investment in Technologies under the equity method of accounting.
The following unaudited pro forma information presents a summary of
consolidated results of operations for the Company and Technologies as if the
acquisition had occurred at the beginning of fiscal 1995 and fiscal 1996, with
pro forma adjustments to give effect to amortization of goodwill, interest
expense on acquisition debt and certain other adjustments, together with related
income tax effects. Included in the 1996 results is an after-tax non-recurring
discontinuance charge of $2,450,000 ($.11 per share) recorded by Technologies to
conform to the Company's methods of accounting.
<TABLE>
<CAPTION>
- -----------------------------------------------------
1996 1995
- -----------------------------------------------------
<S> <C> <C>
Net sales $1,325,047,000 $1,200,252,000
Net income $ 24,704,000 $ 27,741,000
Earnings per share $ 1.07 $ 1.21
</TABLE>
On June 1, 1994, the Company acquired certain of the assets of the
Zentronics Division of Westburne Industrial Enterprises Ltd. ("Westburne"), a
Canadian corporation, and assumed certain of Westburne's liabilities for a
purchase price of approximately $10,068,000. The transaction has been accounted
for by the purchase method of accounting and the pro forma effects are not
material. Operating results are included in the consolidated financial
statements from the date of acquisition.
3. NOTES PAYABLE AND LONG-TERM DEBT
SHORT-TERM:
The Company has unsecured short-term lines of credit aggregating $40,000,000
available for use. The unsecured lines, which may be withdrawn at the option of
the lenders, permit the Company to borrow at varying interest rates. Borrowings
against these lines and related weighted average interest rates, at March 31,
1996, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------
1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
Borrowings $21,000,000 $7,000,000 $2,000,000
Weighted
average
interest rate 6.08% 6.69% 5.75%
</TABLE>
Long-Term:
Long-term debt at March 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------
1996 1995
- -----------------------------------------------------
<S> <C> <C>
Revolving credit $ 152,000,000 $ 41,000,000
9.79% Senior Notes 14,280,000 17,140,000
Obligations under
capital leases 1,038,000 1,134,000
------------- ------------
167,318,000 59,274,000
------------- ------------
Less amounts due
within one year 2,871,000 2,956,000
------------- ------------
$ 164,447,000 $ 56,318,000
============= ============
</TABLE>
The Company entered into a new credit agreement dated November 29, 1995 with
five banks providing for up to an aggregate of $200,000,000 of unsecured
borrowings on a revolving credit basis for two years. Interest rates on
borrowings are based on various floating rate alternative pricing mechanisms.
There is a commitment fee on the unborrowed amount and there is no prepayment
penalty.
Annual principal payments of $2,860,000 on the 9.79% Senior Notes are due
each November 1 and continue through November 1, 2000 when the last payment of
$2,840,000 is due. Interest is payable semi-annually.
The terms of the credit agreement and Senior Note Purchase Agreement provide
for, among other things, restrictions regarding the payment of cash dividends
and purchase of the Company's Common Shares, limitations on other borrowings and
capital expenditures, minimum working capital requirements and the maintenance
of certain financial ratios. Unrestricted retained earnings available for
dividends at March 31, 1996 under the most restrictive covenants are
$17,965,000.
Aggregate maturities of long-term debt for the next five fiscal years are:
1997--$2,871,000; 1998--$154,873,000; 1999--$2,874,000; 2000--$2,876,000 and
2001--$2,858,000.
PIONEER-STANDARD ELECTRONICS, INC. 29
<PAGE> 12
4. LEASE COMMITMENTS
The Company is committed under lease agreements, which contain renewal options
for periods up to twenty years, for certain facilities and equipment expiring at
various dates to the year 2017.
Amounts for capitalized leases are included in property and equipment at cost
of $1,668,000 and $2,181,000 at March 31, 1996 and 1995, less accumulated
amortization of $619,000 and $1,034,000 at March 31, 1996 and 1995,
respectively.
Future minimum lease payments under capital leases and operating leases at
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- -----------------------------------------------------
<S> <C> <C>
1997 $ 132,000 $ 5,075,000
1998 132,000 4,474,000
1999 132,000 3,982,000
2000 132,000 1,711,000
2001 132,000 628,000
Thereafter 2,178,000 1,845,000
- -----------------------------------------------------
Total minimum
lease payments 2,838,000 $17,715,000
===========
Less amount
representing interest 1,800,000
-----------
Present value of
minimum lease
payments $ 1,038,000
===========
</TABLE>
Rental expense for operating leases was $4,230,000, $2,897,000 and $2,166,000
for 1996, 1995 and 1994, respectively.
5. INCOME TAXES
The following is a reconciliation of the Company's effective income tax rate to
the statutory rate:
<TABLE>
<CAPTION>
Liability Method
- ----------------------------------------------------
1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Equity in undistributed
(earnings) loss of
50%-owned company .1 (1.6) (2.6)
Provision for state taxes 5.8 5.8 5.4
Foreign losses with
unrecognized tax benefits .6 1.1 --
Other items .6 .5 .1
----------------------
Effective rate 42.1% 40.8% 37.9%
======================
</TABLE>
Deferred tax assets and liabilities as of March 31, 1996 and 1995 are presented
below:
<TABLE>
<CAPTION>
- -----------------------------------------------------
1996 1995
- -----------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs $1,842,000 $1,391,000
Accrued expenses 3,322,000 1,674,000
Allowance for doubtful
accounts 2,433,000 1,581,000
Inventory valuation reserve 2,807,000 639,000
Foreign losses 691,000 450,000
Other 1,050,000 423,000
---------- ----------
Deferred tax assets 12,145,000 6,158,000
Less valuation allowance (691,000) (450,000)
---------- ----------
Total deferred tax assets 11,454,000 5,708,000
---------- ----------
Deferred tax liabilities:
Depreciation expense 1,325,000 1,335,000
Other 1,003,000 861,000
---------- ----------
Total deferred tax liabilities 2,328,000 2,196,000
---------- ----------
Net deferred tax assets $9,126,000 $3,512,000
========== ==========
</TABLE>
6. COMMON SHARE PURCHASE
RIGHTS PLAN
The Company maintains a Common Share Purchase Rights Plan whereby, until the
occurrences of certain events, each share of the Company's outstanding common
shares represents ownership of one right (Right). The Rights may only be
exercised if a person or group acquires twenty percent (20%) or more of the
Company's Common Shares, or announces a tender offer for at least twenty percent
(20%) of the Company's Common Shares. The exercise price of each Right is $11.85
per Common Share subject to adjustment in certain events. The Rights trade with
the Company's Common Shares until the Rights become exercisable.
If the Company is acquired in a merger or other business combination
transaction, each Right will entitle its holder to purchase, at the Right's
then-exercise price, a number of the acquiring company's common shares (or other
securities) having a market value at the time of twice the Right's then-current
exercise price. In addition, if a person or group acquires twenty percent (20%)
or more of the Company's Common Shares or certain specified transactions occur
while a person or group beneficially owns twenty percent (20%) or more of such
Common Shares, each Right will entitle its holder (other than such person or
members of such group) to purchase, at the Right's then-current exercise price,
a number of the Company's Common Shares having a market value of twice the
Right's then-exercise price.
Prior to the acquisition by a person or group of beneficial ownership of
twenty percent (20%) or more of
30 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 13
the Company's Common Shares, the Rights are redeemable for $.003 per Right at
the option of the Board of Directors. The Rights will expire May 10, 1999.
7. STOCK OPTIONS
The Company has stock option plans which provide for the granting of options to
employees and directors to purchase its Common Shares. These plans provide for
nonqualified or incentive stock options.
A stock option plan for non-employee directors was approved by shareholders
on July 25, 1995 for the granting of a maximum of 75,000 Common Shares.
The options under the Company's plans are priced at 100% of fair market value
at date of grant and expire ten years from date of grant.
No charges are made against income in accounting for stock options. Any tax
benefits arising from the exercise of options are recognized when realized and
credited to capital in excess of stated value. Transactions involving the stock
option plans are summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------
Number Average Option Price
of Shares Per Share
- -----------------------------------------------------
<S> <C> <C>
Outstanding at
March 31, 1993 654,919 $ 2.93
Exercised (318,262) $ 2.56
Granted 675,000 $ 6.11
Forfeited (2,250) $ 6.11
- -----------------------------
Outstanding at
March 31, 1994 1,009,407 $ 5.17
Exercised (70,332) $ 5.82
Granted 646,950 $12.06
Forfeited (4,275) $11.33
- -----------------------------
Outstanding at
March 31, 1995 1,581,750 $ 7.95
Exercised (124,442) $ 5.87
Granted 274,000 $14.99
Forfeited (110,734) $10.53
- -----------------------------
Outstanding at
March 31, 1996 1,620,574 $ 9.12
=============================
Exercisable at
March 31, 1996 603,200 $ 6.84
=============================
Available for grant
at March 31, 1996 565,107
=============================
</TABLE>
8. FINANCIAL INSTRUMENT SAND
ESTIMATED FAIR VALUES
The Company uses forward exchange contracts to reduce exposure to foreign
currency fluctuations. Gains or losses on forward contracts which hedge its net
investment in its Canadian subsidiary are accrued in shareholders' equity. Gains
or losses resulting from contracts which hedge specific transactions are
in-cluded in net income offsetting the net income effect of the transaction
creating the risk. As of March 31, 1996 there is one contract outstanding for
the forward purchase of U.S. dollars against Canadian dollars in a notional
amount of $1,000,000, which also approximates fair value at March 31, 1996. The
contract matured on April 30, 1996 and was utilized to hedge U.S. dollar
transactions of the Canadian subsidiary.
On June 1, 1995 the Company entered into a five year interest rate swap
agreement for a notional amount of $20,000,000 to reduce the impact of increases
in interest rates on its outstanding floating rate debt. Under the agreement,
the Company will pay interest at a fixed rate of 6.05% and will receive interest
payments on the same notional amount at a floating rate based on 3 month LIBOR
(London Interbank Offered Rate). This swap agreement has the effect of
converting the floating rate of interest into a fixed rate of 6.05% on
$20,000,000 of floating rate bank credit borrowings oustanding.
The carrying amounts and estimated fair values of the Company's other
financial instruments are as follows:
<TABLE>
<CAPTION>
1996
- -----------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------
<S> <C> <C>
Cash $ 24,440,000 $ 24,440,000
Notes payable to banks 21,000,000 21,000,000
Long-term debt:
9.79% Senior Notes 14,280,000 15,107,000
Revolving credit
borrowings 152,000,000 152,000,000
Gain on interest rate swap -- 75,000
</TABLE>
<TABLE>
<CAPTION>
1995
- -----------------------------------------------------
Carrying Fair
Amount Value
- -----------------------------------------------------
<S> <C> <C>
Cash $ 9,598,000 $ 9,598,000
Notes payable to banks 7,000,000 7,000,000
Long-term debt:
9.79% Senior Notes 17,140,000 17,916,000
Revolving credit
borrowings 41,000,000 41,000,000
</TABLE>
The carrying amount of cash, notes payable to banks and revolving credit
borrowings approximates fair value. The fair value of the Senior Notes is
estimated using rates currently available for securities with similar terms and
remaining maturities. The fair value of the interest rate swap is the amount at
which it could be settled, based on market estimates.
PIONEER-STANDARD ELECTRONICS, INC. 31
<PAGE> 14
9 OPERATING WORKING CAPITAL CHANGES AND SUPPLEMENTAL INFORMATION FOR THE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE COMPONENTS OF THE CHANGES IN OPERATING WORKING CAPITAL WERE:
- --------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable $(18,456,000) $(47,595,000) $(18,808,000)
Merchandise inventory (57,702,000) (32,049,000) (18,653,000)
Prepaid expenses (894,000) (682,000) (146,000)
Accounts payable 41,911,000 35,879,000 22,566,000
Income taxes (3,107,000) 858,000 (31,000)
Accrued salaries, wages and commissions 2,156,000 1,480,000 2,073,000
Other accrued liabilities 4,194,000 3,543,000 1,364,000
--------------------------------------------
Increase in operating working capital $(31,898,000) $(38,566,000) $(11,635,000)
============================================
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION:
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid or received during the year for:
Interest $ 7,824,000 $ 4,255,000 $ 2,623,000
Income taxes 21,195,000 17,064,000 12,659,000
===========================================
Non-cash investing and financing activities:
Common shares retired -- -- 614,000
===========================================
Non-cash assets and liabilities of business acquired:
Working capital $ 57,817,000 $ 7,684,000 $ --
Intangible assets 33,208,000 2,174,000 --
Other assets 5,648,000 210,000 --
Long-term debt assumed (30,000,000) -- --
Investment in 50%-owned company at date of acquisition (16,790,000) -- --
===========================================
</TABLE>
10 EMPLOYEE RETIREMENT PLAN
The Company maintains various profit-sharing and thrift plans for all employees
meeting certain service requirements. Generally, the plans allow eligible
employees to contribute a portion of their compensation, with the Company
matching a percentage thereof. The Company may also make contributions each year
for the benefit of all eligible employees under the plans. Total profit sharing
and Company matching contributions were $2,622,000, $2,129,000 and $1,899,000
for 1996, 1995 and 1994, respectively.
32 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
Shareholders and the Board of Directors
Pioneer-Standard Electronics, Inc.
We have audited the accompanying consolidated balance sheets of Pioneer-Standard
Electronics, Inc. as of March 31, 1996 and 1995 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pioneer-Standard
Electronics, Inc. at March 31, 1996 and 1995 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 1, 1996
PIONEER-STANDARD ELECTRONICS, INC. 33
<PAGE> 16
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(unaudited)
- -------------------------------------------------------------------------------------------------------------
Fiscal Year First Second Third Fourth
Ending March 31 Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net sales $ 224,724,000 $ 234,913,000 $ 263,940,000 $ 381,704,000 $ 1,105,281,000
Gross profit 43,610,000 45,356,000 47,550,000 66,136,000 202,652,000
Net income 6,816,000 6,705,000 4,089,000 7,642,000 25,252,000
Net income per share .29 .29 .18 .33 1.09
- -------------------------------------------------------------------------------------------------------------
1995
Net sales $ 183,832,000 $ 194,423,000 $ 212,433,000 $ 241,464,000 $ 832,152,000
Gross profit 35,155,000 37,433,000 38,592,000 43,801,000 154,981,000
Net income 5,965,000 5,649,000 6,130,000 7,265,000 25,009,000
Net income per share .26 .25 .27 .32 1.09
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Company acquired the remaining 50% of the common stock of
Pioneer/Technologies Group, Inc. on November 30, 1995. The consolidated
statements include the operating results of Technologies from the date of
acquisition. Prior to the acquisition, the Company accounted for its investment
in Technologies under the equity method of accounting.
DIVIDEND INFORMATION AND PRICE RANGE OF COMMON SHARES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year First Second Third Fourth
Ending March 31 Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
High $ 17.83 $ 19.25 $ 17.75 $ 15.75 $ 19.25
Low 11.67 14.67 12.75 10.75 10.75
Dividends paid .023 .023 .03 .03 .106
- -------------------------------------------------------------------------------------------------------------
1995
High $ 12.45 $ 12.67 $ 13.17 $ 13.17 $ 13.17
Low 9.67 9.17 9.50 10.67 9.17
Dividends paid .015 .02 .02 .02 .075
- -------------------------------------------------------------------------------------------------------------
</TABLE>
As of May 1, 1996 there were 22,502,443 Common Shares of Pioneer-Standard
Electronics, Inc. outstanding, and there were 2,401 shareholders of record.
The market price of Pioneer-Standard Electronics, Inc. Common Shares at the
close of business May 1, 1996 was $15.75.
See Note 3 for information regarding dividend restrictions.
34 PIONEER-STANDARD ELECTRONICS, INC.
<PAGE> 1
Exhibit 21
Subsidiaries
------------
Pioneer-Standard of Maryland, Inc.
Pioneer-Standard Canada Inc.
Pioneer-Standard FSC, Inc.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Pioneer-Standard Electronics, Inc. of our report dated May 1, 1996 included
in the 1996 Annual Report to Shareholders of Pioneer-Standard Electronics, Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1995 Stock Option Plan for Outside Directors of
Pioneer-Standard Electronics, Inc. and in the related Prospectus, and in the
Registration Statements (Form S-8 No. 33-46008 and Form S-8 No. 33-53329)
pertaining to the 1991 Incentive Stock Option Plan of Pioneer-Standard
Electronics, Inc. and in the related Prospectuses and in the Registration
Statement (Form S-8 No. 33-18790) pertaining to the 1982 Incentive Stock Option
Plan of Pioneer-Standard Electronics, Inc. and in the related Prospectus of our
reports dated May 1, 1996 with respect to the consolidated financial statements
and schedule of Pioneer-Standard Electronics, Inc. incorporated by reference and
included in this Annual Report (Form 10-K) for the year ended March 31, 1996.
ERNST & YOUNG LLP
Cleveland, Ohio
June 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,440
<SECURITIES> 0
<RECEIVABLES> 196,278
<ALLOWANCES> 6,982
<INVENTORY> 238,370
<CURRENT-ASSETS> 466,482
<PP&E> 84,024
<DEPRECIATION> 35,345
<TOTAL-ASSETS> 559,110
<CURRENT-LIABILITIES> 241,642
<BONDS> 164,447
<COMMON> 6,657
0
0
<OTHER-SE> 144,036
<TOTAL-LIABILITY-AND-EQUITY> 559,110
<SALES> 1,105,281
<TOTAL-REVENUES> 1,105,281
<CGS> 902,629
<TOTAL-COSTS> 902,629
<OTHER-EXPENSES> 150,704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,136
<INCOME-PRETAX> 43,639
<INCOME-TAX> 18,387
<INCOME-CONTINUING> 25,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,252
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
<PAGE> 1
Exhibit 99(a)
ACORD CERTIFICATE OF INSURANCE CSR ISSUE DATE (MM/DD/YY)
06/25/96
<TABLE>
<S> <C> <C> <C> <C> <C>
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND
Alexander & Alexander, Inc CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE
1660 W. 2nd Street, Ste. 650 DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE
Skylight Office Tower POLICIES BELOW.
Cleveland, OH
44113-1454 COMPANIES AFFORDING COVERAGE
216-621-8100 COMPANY
LETTER A FEDERAL INSURANCE COMPANY
OHIO INSURANCE FRAUD WARNING
INSURED LETTER B ANY PERSON, WHO WITH INTENT TO
DEFRAUD OR KNOWING THAT HE IS
PIONEER STANDARD ELECTRONICS COMPANY FACILITATING A FRAUD AGAINST AN
4800 EAST 131ST STREET LETTER C INSURER, SUBMITS AN APPLICATION
CLEVELAND, OH OR FILES A CLAIM CONTAINING A
44105 COMPANY FALSE OR DECEPTIVE STATEMENT IS
LETTER D GUILTY OF INSURANCE FRAUD.
COMPANY
LETTER E
- ------------------------------------------------------------------------------------------------------------------------------------
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY
PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO
ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
CO POLICY EFFECTIVE POLICY EXPIRATION
LTR TYPE OF INSURANCE POLICY NUMBER DATE(MM/DD/YY) DATE(MM/DD/YY) LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL LIABILITY GENERAL AGGREGATE $
/ / COMMERCIAL GENERAL LIABILITY PRODUCTS-COMP/OP AGG. $
/ / CLAIMS MADE / / OCCUR. PERSONAL & ADV. INJURY $
/ / OWNER'S & CONTRACTOR'S PROT. EACH OCCURRENCE $
/ / FIRE DAMAGE (Any one fire) $
MED. EXPENSE (Any one person) $
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE
/ / ANY AUTO LIMIT $
/ / ALL OWNED AUTOS BODILY INJURY $
(Per person)
/ / SCHEDULED AUTOS
/ / HIRED AUTOS BODILY INJURY
(Per accident) $
/ / NON-OWNED AUTOS
/ / GARAGE LIABILITY
/ / PROPERTY DAMAGE $
- ------------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE $
/ / UMBRELLA FORM AGGREGATE $
/ / OTHER THAN UMBRELLA FORM
- -----------------------------------------------------------------------------------------------------------------------------------
WORKER'S COMPENSATION / / STATUTORY LIMITS
EACH ACCIDENT $
AND
DISEASE -- POLICY LIMIT $
EMPLOYERS' LIABILITY
DISEASE -- EACH EMPLOYEE $
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER
A EXECUTIVE RISK 8102-64-55G 11/01/95 11/01/96 $15,000,000 Ea. Loss
D & O LIABILITY $15,000,000 Each
Policy year.
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES / SPECIAL ITEMS
DEDUCTIBLES - $500,000.
INSURED ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
CALFEE, HALTER & GRISWOLD SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
SUZANNE Y. PARK, ESQ EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO
1400 MCDONALD INV. CTR. MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE
800 SUPERIOR AVENUE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR
CLEVELAND OH 44114-2688 LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES.
AUTHORIZED REPRESENTATIVE
/s/ Mary Benko
ACORD 25-S (7/90) ALEXANDER & ALEXANDER OF OHIO, INC. ACORD CORPORATION 1990
</TABLE>
