<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR
- -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
-----------
-------------
COMMISSION FILE NUMBER 0-21796
CDW COMPUTER CENTERS, INC.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3310735
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1020 E. LAKE COOK ROAD 60089
BUFFALO GROVE, ILLINOIS (Zip Code)
(Address of principal executive offices)
(847) 465-6000
(Registrant's telephone number, including area code)
------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----------- -----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
----------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AS OF AUGUST 7, 1996, 21,525,000 COMMON SHARES WERE OUTSTANDING.
<PAGE> 2
CDW COMPUTER CENTERS, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets - 1
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Income - 2
Three and Six Months Ended June 30, 1996 and 1995
Condensed Consolidated Statement of Shareholders' 3
Equity - Six Months Ended June 30, 1996
Condensed Consolidated Statements of Cash Flows - 4
Six Months Ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 5-7
ITEM 2. Management's Discussion and Analysis of 8-13
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
ii
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
ASSETS ---------- ---------
<S> <C> <C>
Current assets :
Cash and cash equivalents $ 3,056 $ 14,216
Marketable securities 52,106 42,953
Accounts receivable, net of allowance for doubtful
accounts of $800 and $625, respectively 50,523 38,527
Miscellaneous receivables 2,518 2,362
Merchandise inventory 37,915 27,422
Prepaid expenses and other current assets 984 206
Deferred income taxes 1,543 1,175
---------- ----------
TOTAL CURRENT ASSETS 148,645 126,861
Property and equipment, net 2,862 3,474
Construction in progress 6,199
Deferred income taxes and other assets 3,569 3,560
---------- ----------
TOTAL ASSETS $ 161,275 $ 133,895
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities :
Accounts payable $ 25,936 $ 19,436
Accrued expenses :
Payroll, commissions and management
incentive compensation 5,829 4,658
Exit costs 4,000
Income taxes 1,132 992
Other 2,595 1,682
Customer deposits 1,402 966
---------- ----------
Total current liabilities 40,894 27,734
---------- ----------
Commitments and contingencies
Shareholders' equity :
Preferred shares, $1.00 par value; 5,000 shares
authorized; none issued -
Common shares, $ .01 par value; 75,000 shares
authorized; 21,525 shares issued and
outstanding 215 215
Paid-in capital 66,390 66,414
Retained earnings 55,045 41,017
Unearned compensation (1,269) (1,485)
Total shareholders' equity ----------- ----------
120,381 106,161
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 161,275 $ 133,895
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
1
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- --------------------------------
1996 1995 1996 1995
---------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net sales $ 218,687 $ 146,160 $ 425,392 $ 287,516
Cost of sales 189,071 127,645 369,129 250,687
--------- ---------- ----------- ----------
Gross profit 29,616 18,515 56,263 36,829
Selling and administrative expenses 16,555 11,682 30,911 23,400
Exit charge - - 4,000 -
--------- ---------- ----------- ----------
Income from operations 13,061 6,833 21,352 13,429
Interest income 842 330 1,677 638
Other income (expense), net (44) (21) (98) (9)
--------- ---------- ----------- -----------
Income before income taxes 13,859 7,142 22,931 14,058
Income tax provision 5,365 2,821 8,903 5,553
--------- ---------- ----------- -----------
Net income $ 8,494 $ 4,321 $ 14,028 $ 8,505
========= ========== =========== ===========
Net income per share $ 0.39 $ 0.21 $ 0.65 $ 0.41
========= ========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding 21,810 20,742 21,729 20,726
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
2
<PAGE> 5
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------
Shares Amount Paid-in Capital
------ ------ ---------------
<S> <C> <C> <C>
Balance at December 31, 1995 21,525 $215 $66,414
MPK Restricted Stock Plan :
Amortization of unearned compensation
Forfeiture of restricted shares (57)
Capital contribution for legal costs assumed
by majority shareholder 33
Net income
------ ---- -------
Balance at June 30, 1996 21,525 $215 $66,390
====== ==== =======
<CAPTION>
Total
Retained Unearned Shareholders'
Earnings Compensation Equity
-------- ------------ ------
<S> <C> <C> <C>
Balance at December 31, 1995 $41,017 $ (1,485) $106,161
MPK Restricted Stock Plan :
Amortization of unearned compensation 159 159
Forfeiture of restricted shares 57
Capital contribution for legal costs assumed
by majority shareholder 33
Net income 14,028 14,028
------- -------- --------
Balance at June 30, 1996 $55,045 $ (1,269) $120,381
======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
3
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------
1996 1995
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 14,028 $ 8,505
Adjustments to reconcile net income to net cash provided by
operating activities:
Exit charge 4,000 -
Depreciation and amortization 1,316 1,023
Loss on disposal of fixed asset 281 -
Legal fees assumed by majority shareholder 33 53
Changes in assets and liabilities:
Accounts receivable, net (11,996) (8,128)
Miscellaneous receivables (156) (498)
Merchandise inventory (10,493) (1,679)
Prepaid expenses and other assets (1,155) 76
Accounts payable 6,452 3,247
Accrued expenses 2,272 (934)
Customer deposits 436 (67)
---------- ----------
Net cash provided by operating activities 5,018 1,598
---------- ----------
Cash flows from investing activities:
Purchases of available-for-sale securities (10,600) (10,000)
Redemptions of available-for-sale securities 16,100 8,000
Purchases of held-to-maturity securities (51,154) (8,191)
Redemptions of held-to-maturity securities 36,558 12,847
Payments for purchase of property and equipment (7,082) (679)
---------- ----------
Net cash (used in) provided by investing activities (16,178) 1,977
---------- ----------
Net (decrease) increase in cash (11,160) 3,575
Cash and cash equivalents - beginning of period 14,216 2,969
---------- ----------
Cash and cash equivalents - end of period $ 3,056 $ 6,544
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE> 7
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
CDW Computer Centers, Inc. (the "Company") is engaged in the distribution
of personal computers and related products through direct marketing and retail
showrooms, primarily to end users within the United States. The Company
distributes its products to consumers for cash on delivery and on credit card
terms. The Company also extends credit to business, governmental and
institutional customers under certain circumstances based upon the financial
strength of the customer. Such customers are typically granted net 10-day
credit terms. The balance of the Company's sales are made primarily through
third party credit cards and for cash on delivery.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles and such principles
were applied on a basis consistent with those reflected in the 1995 Annual
Report on Form 10-K and documents incorporated therein as filed with the
Securities and Exchange Commission. The accompanying financial data should be
read in conjunction with the notes to consolidated financial statements
contained in the 1995 Annual Report on Form 10-K and documents incorporated
therein. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting solely of
normal recurring accruals) necessary to present fairly the financial position
of the Company as of June 30, 1996 and December 31, 1995, the results of
operations for the three and six months ended June 30, 1996 and 1995, cash
flows for the six months ended June 30, 1996 and 1995 and the changes in
shareholders' equity for the six months ended June 30, 1996. The unaudited
condensed consolidated statements of income for such interim periods are not
necessarily indicative of results for the full year.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Net Income Per Share
On June 24, 1996, the Board of Directors of the Company announced a
three-for-two stock split effected in the form of a stock dividend paid on July
15, 1996 to all common shareholders of record as of July 5, 1996. All per
share and related amounts contained in these financial statements and notes
have been adjusted to reflect the stock split.
Net income per common and common equivalent share for the three and six
months ended June 30, 1996 and 1995 are calculated using the weighted average
number of common and common equivalent shares outstanding during each period.
Common equivalent shares of 285,000 and 204,000 for the three and six months
ended June 30, 1996, and 42,000 and 26,000 for the three and six months ended
June 30, 1995, respectively, relate primarily to the CDW Incentive Stock Option
Plan and are calculated using the treasury stock method.
5
<PAGE> 8
3. Marketable Securities
The amortized cost and estimated fair values of the Company's investments in
marketable securities at June 30, 1996 (in thousands) were:
<TABLE>
<CAPTION>
Gross
Unrealized
Holding
Estimated --------------------------- Amortized
Fair Value Gains (Losses) Cost
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Security Type
- -------------
Held to maturity:
Bonds of states, municipalities, and political subdivisions $ 14,927 $ 9 $ - $ 14,918
U.S. Government and U.S. Government Agency Securities 37,179 - (51) 37,230
-------- ---------- ---------- -----------
Total held-to-maturity 52,106 9 (51) 52,148
-------- ---------- ---------- -----------
Total marketable securities: $ 52,106 $ 9 $ (51) $ 52,148
======== ========== ========== ===========
</TABLE>
The amortized cost and estimated fair value of the Company's investments in
securities held-to-maturity at June 30, 1996 (in thousands) by contractual
maturity were:
<TABLE>
<CAPTION>
Estimated Amortized
Fair Value Cost
----------- ----------
<S> <C> <C>
Due in one year or less $51,381 $51,422
Due in greater than one year $ 725 $ 726
</TABLE>
4. Contingency
The Company and its majority shareholder are defendants in a lawsuit filed
by a former shareholder. The suit requests actual and punitive damages in an
amount that cannot be readily determined. The Company and its majority
shareholder believe the suit to be without merit and are vigorously defending
against this action. The majority shareholder has agreed to indemnify and
reimburse the Company for all damages and expenses, net of tax benefits
received by the Company, related to this action. For the three and six months
ended June 30, 1996, the Company and majority shareholder have incurred legal
expenses of approximately $8,000 and $54,000, respectively, which have been
assumed by the majority shareholder. Although the majority shareholder has
agreed to indemnify the Company for all expenses or settlements, if any, in
connection with this suit, the Company will continue to record such expenses or
settlements, if any, as an expense with an offsetting increase to paid-in
capital, net of tax effects.
5. Exit Charge
In June, 1996, the Company purchased approximately 27 acres of vacant land
in Vernon Hills, Illinois, upon which it intends to construct a combined
telemarketing, warehouse, showroom and corporate office facility. As a result
of the planned move to the new facility, the Company will vacate and endeavor
to sublease its current facility, which resulted in a $4.0 million pre-tax
non-recurring charge to operating results for exit costs in the first quarter
of 1996. The exit costs consist primarily of the estimated cost to the
Company of sub-leasing the vacated facility, including holding costs and the
estimated costs of restoring the building to its original condition, and
certain asset write-offs resulting from the relocation. Additionally, the
Company will incur certain moving and other costs, not expected to exceed $1.0
million, relating to relocation which would be charged to operating results in
the period incurred.
Based on current plans, the Company estimates that capital expenditures
for purchasing the land and constructing and equipping the facility will be
approximately $23.0 to $25.0 million, of which approximately $6.2 million has
been incurred as of June 30, 1996 and is included in construction in progress.
The Company
6
<PAGE> 9
intends to fund the acquisition and building costs from existing cash, cash
equivalents and marketable securities balances.
6. Lines of Credit
As of June 30, 1996 the Company has an aggregate $30.0 million
available pursuant to lines of credit with two financial institutions
expiring in June, 1997. Borrowings under the lines bear interest, at the
prime rate less 2 1/2 %, LIBOR plus 1/2 % or the federal funds rate plus
1/2 %, as determined by the Company.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and the notes thereto
included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth financial information derived from the
Company's statements of income expressed as a percentage of net sales, and
certain operating statistics. The financial information for the six months
ended June 30, 1996 is presented on an actual basis and pro forma to
exclude the exit charge and related impact on the executive incentive bonus
pool, net of tax effects.
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Three Months Ended Six Months Ended
FINANCIAL INFORMATION June 30, June 30,
------------------ --------------------------
1996 1995 1996 1995
---- ---- ----------------- ----
Actual Pro forma
------ ---------
<S> <C> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of sales 86.46 87.33 86.77 86.77 87.19
------- ------- ------- ------- -------
Gross profit 13.54 12.67 13.23 13.23 12.81
Selling and administrative expenses 7.57 7.99 7.27 7.45 8.14
Exit charge 0.00 0.00 0.94 0.00 0.00
------- ------- ------ ------ ------
Income from operations 5.97 4.68 5.02 5.78 4.67
Other income, net 0.37 0.21 0.37 0.36 0.22
------- ------- ------ ------ ------
Income before income taxes 6.34 4.89 5.39 6.14 4.89
Income tax provision 2.46 1.93 2.09 2.38 1.93
------- ------- ------ ------ ------
Net income 3.88% 2.96% 3.30% 3.76% 2.96%
======= ======= ====== ====== ======
<CAPTION>
Three Months Ended Six Months Ended
OPERATING STATISTICS June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of orders shipped (000's) 302 225 602 460
Average order size $ 725 $ 649 $ 707 $ 626
Number of account executives, end of period 256 162 256 162
PC catalogs distributed (000's) 11,238 6,184 22,473 12,116
Apple/Macintosh catalogs distributed (000's) 1,666 2,275 3,339 3,776
Pages of national advertising placed 159 118 309 236
Customers serviced (000's) 146 114 254 203
Inventory turns 23 21 23 21
</TABLE>
8
<PAGE> 11
The following table represents sales by product line as a percentage of
total sales for each of the periods noted. Product mix is based upon
internal product code classifications and is not retroactively adjusted for
the addition of new categories or changes in individual product
categorization.
<TABLE>
<CAPTION>
PRODUCT MIX
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Notebook & Laptops 26.6% 22.1% 26.3% 22.2%
Software 12.3 11.9 12.1 11.8
Desktop Computers 11.6 12.0 11.7 11.5
Printers 11.1 14.4 11.5 14.8
Data Storage Devices 9.2 8.0 8.8 8.2
Video 7.4 8.3 7.5 8.1
Add-On Boards/Memory 6.2 8.0 6.6 8.0
Communications 5.6 5.1 5.9 5.0
Network Products 4.3 6.6 4.2 6.9
Input Devices 3.3 N/A 2.2 N/A
Multi-Media 2.1 N/A 1.4 N/A
Other Accessories 0.3 3.6 1.8 3.5
----- ------ ------ -----
Total 100.0% 100.0% 100.0% 100.0%
===== ======= ====== ======
</TABLE>
Three months ended June 30, 1996 compared to three months ended June 30,
1995
Net sales increased $72.5 million, or 49.6%, for the three months
ended June 30, 1996 to $218.7 million from $146.2 million for the three
months ended June 30, 1995. The Company's average order size grew 11.7% to
$725 and orders shipped grew 34.0% to 302,000 for the three months ended
June 30, 1996 as compared to the three months ended June 30, 1995. The
number of customers serviced for the twelve months ended June 30, 1996 grew
to 419,000 versus 396,000 for the twelve months ended March 31, 1996. The
growth in net sales is primarily attributable to expansion of marketing
efforts, new product introductions, an increase in the number of customers
serviced and an increase in telemarketing account executives. The increase
in average order size in the second quarter of 1996 is due, among other
factors, to a shift in product mix as sales of notebook and laptop
computers grew 80.2% to 26.6% of the total product mix compared to 22.1% in
the corresponding quarter of 1995. The growth in sales of notebook and
laptop computers is due primarily to increased sales of high-end models and
new product offerings. Within the notebook and laptop computer product
line, certain high-end models are subject to manufacturing constraints and
distribution allocations. Any reduction in the quantities available to the
Company from the manufacturers producing these items could have an adverse
impact on future sales. As a part of the Company's continuing efforts to
facilitate the expansion of sales, the total number of account executives
increased to 256 as of June 30, 1996 from 162 and 217 as of June 30, 1995
and December 31, 1995, respectively. The growth rate of the Apple/MacIntosh
division has slowed but did not have a significant impact as
Apple/MacIntosh-related products comprise less than 7% of total sales.
Gross profit increased $11.1 million, or 60.0%, as a result of the
increase in net sales and increased as a percentage of net sales to 13.5%
for the three months ended June 30, 1996, compared to 12.7% for the three
months ended June 30, 1995. The increase in gross profit is primarily due
to increased vendor rebates realized in the second quarter and the
expansion of selling margin on certain product lines resulting from
opportunistic purchases and pricing strategies. Vendor rebates recognized
in the second quarter of 1996 include approximately $300,000 which relate
to purchase volumes achieved from one vendor in the first quarter of 1996,
as well as approximately $300,000 from the same vendor relating to
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<PAGE> 12
purchase volumes achieved in the second quarter of 1996. The Company
expects gross profit as a percentage of net sales to vary on a quarterly
basis based upon product mix, market conditions, the value of the dollar
and other factors. There is no certainty that the Company will be able to
sustain gross profit margin as a percentage of net sales at the level
achieved in the second quarter of 1996.
Selling and administrative expenses increased $4.9 million, or 41.7%,
but as a percentage of net sales decreased to 7.6% for the three months
ended June 30, 1996, as compared to 8.0% for the three months ended June
30, 1995. This decrease is due primarily to a decrease in net advertising
expense as a percentage of net sales as well as improved productivity and
leveraging of certain fixed costs over a higher sales volume. Net
advertising expense as a percentage of net sales decreased to 1.1% for the
three months ended June 30, 1996 from 1.6% for the three months ended June
30, 1995, resulting from a 25.1% increase in gross advertising spending
offset by a higher cooperative advertising reimbursement rate. Gross
advertising spending was positively impacted by reduced catalog production
costs. The increase in the cooperative advertising reimbursement rate to
64.6% of gross advertising spending versus 57.9% in the same period of the
prior year was primarily attributable to expanded vendor participation in
the Company's advertising programs, including two significant vendors from
whom the Company previously had not received reimbursements. The
cooperative advertising reimbursement rate may fluctuate as a percentage of
gross advertising spending in future quarters depending on the level of
vendor participation achieved and collection experience.
Selling and administrative expenses were increased in the second
quarter of 1996 by $315,000 for a co-worker incentive program and $281,000
for a loss on the trade-in of certain internal computer equipment. The
co-worker incentive program provides for the grant of a maximum of $1
million of common stock to qualifying employees if certain annual financial
performance goals are achieved (See footnote 10 of Annual Report). The
loss on the computer equipment is the result of the Company's decision, in
the second quarter of 1996, to purchase an upgrade to its computer hardware
system for the purpose of increasing speed and capacity. The new hardware
is scheduled to be installed in the third quarter of 1996.
The executive incentive bonus pool, which pursuant to existing plans
is based upon a maximum 20% of the year over year increase in income from
operations was $1,404,000 and $614,000 for the three months ended June 30,
1996 and 1995, respectively, and is included within selling and
administrative expenses.
Selling and administrative expenses also include $8,000 and $27,000 in
legal expense costs incurred by the majority shareholder for the three
months ended June 30, 1996 and 1995, respectively, in connection with the
lawsuit filed by a former shareholder. Although the majority shareholder
has agreed to indemnify the Company for all expenses or settlements, if
any, incurred in connection with this suit, the Company will continue to
record such expenses or settlements, if any, as an expense with an
offsetting increase to paid-in capital, net of tax effects.
Net interest income was $842,000 for the three months ended June 30,
1996 as compared to $330,000 for the three months ended June 30, 1995. The
change was primarily the result of a higher level of funds available for
investment as a result of the Company's public equity offering in August
1995. The level of interest income may decline in future periods as the
Company utilizes funds in connection with its facility expansion.
The effective income tax rate, expressed as a percentage of income
before income taxes, decreased to 38.7% for the three months ended June 30,
1996 from 39.5% for the three months ended June 30, 1995 and from 39.2% for
the fiscal year 1995. The change is primarily due to an increase in the
amount of non-taxable interest income earned by the Company.
Net income for the three months ended June 30, 1996 was $8,494,000, a
96.6% increase over $4,321,000 for the three months ended June 30, 1995.
Net income per share of $0.39 for the three
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<PAGE> 13
months ended June 30, 1996 increased 85.7% from $0.21 in the same period of
1995. Net income per share reflects dilution resulting from the 825,000
additional common shares issued on August 3, 1995 pursuant to the Company's
public equity offering. All per share and related amounts have been
adjusted to reflect the three-for-two stock split effected in the form of a
stock dividend paid on July 15, 1996.
Six months ended June 30, 1996 compared to six months ended June 30, 1995
Net sales increased $137.9 million, or 48.0%, for the six months ended
June 30, 1996 to $425.4 million from $287.5 million for the six months
ended June 30, 1995. The Company's average order size grew 13.0% to $707
and orders shipped grew 31.0% to 601,743 for the six months ended June 30,
1996 as compared to the six months ended June 30, 1995. The growth in net
sales is primarily attributable to expansion of marketing efforts, new
product introductions and an increase in telemarketing account executives.
The increase in average order size in the first six months of 1996 is due,
among other factors, to a shift in product mix as sales of notebook and
laptop computers grew 75.0% to 26.3% of the total product mix compared to
22.2% in the corresponding six month period of 1995. The growth in sales
of notebook and laptop computers is due primarily to increased sales of
high-end models and new product offerings.
Gross profit increased $19.4 million, or 52.8%, as a result of the
increase in net sales and increased as a percentage of net sales to 13.2%
from 12.8% for the six months ended June 30, 1996, compared to the six
months ended June 30, 1995. The increase in gross profit is due, among
other factors, to the expansion of selling margin on certain product lines
resulting from opportunistic purchases and pricing strategies. The Company
expects a certain level of variability in its gross profit as a percentage
of net sales on a quarterly basis based upon product mix, market
conditions, the value of the dollar and other factors.
Selling and administrative expenses, excluding the impact on the
executive incentive bonus pool related to the non-recurring exit charge,
increased $7.5 million, or 32.1%, but as a percentage of net sales
decreased to 7.3% for the six months ended June 30, 1996, as compared to
8.1% for the six months ended June 30, 1995. This decrease was a result of
continued improvements in employee productivity, re-negotiated telephone
rates which were retroactive to December 1, 1995 and leveraging of certain
fixed costs over a higher sales volume. Additionally, net advertising
expense as a percentage of net sales decreased to 1.3% for the six months
ended June 30, 1996 from 1.6% for the six months ended June 30, 1995,
resulting from a 36.4% increase in gross advertising spending offset by a
higher cooperative advertising reimbursement rate. Gross advertising
spending was positively impacted by reduced catalog production costs. The
increase in the cooperative advertising reimbursement rate to 61.7% of
gross advertising spending versus 55.5% in the same period of the prior
year was primarily attributable to expanded vendor participation in the
Company's advertising programs, including two significant vendors from whom
the Company previously had not received reimbursements, and a higher than
normal recovery rate in the first quarter due to collections of past due
amounts which had been reserved in previous periods. The cooperative
advertising reimbursement rate may fluctuate as a percentage of gross
advertising spending in future quarters depending on the level of vendor
participation achieved and collection experience.
Selling and administrative expenses were increased in the second
quarter of 1996 by $315,000 for a co-worker incentive program and $281,000
for a loss on the trade-in of certain internal computer equipment. The
co-worker incentive program provides for the grant of a maximum of $1
million of common stock to qualifying employees if certain annual financial
performance goals are achieved (See footnote 10 of Annual Report). The
loss on the computer equipment is the result of the Company's decision, in
the second quarter of 1996, to purchase an upgrade to its computer hardware
system for the purpose of increasing speed and capacity. The new hardware
is scheduled to be installed in the third quarter of 1996.
11
<PAGE> 14
The executive incentive bonus pool, which pursuant to existing plans
is based upon a maximum 20% of the year over year increase in income from
operations, was $1,646,000 and $1,339,000 for the six months ended June 30,
1996 and 1995, respectively, and is included within selling and
administrative expenses. The exit charge effectively reduced the amount of
the executive incentive bonus pool for the six months ended June 30, 1996
to $1,646,000 from $2,446,000 which would have been incurred on a pro-forma
basis excluding the exit charge.
Selling and administrative expenses also include $54,000 and $87,000
in legal expense costs incurred by the majority shareholder for the six
months ended June 30, 1996 and 1995, respectively, in connection with the
lawsuit filed by a former shareholder. Although the majority shareholder
has agreed to indemnify the Company for all expenses or settlements, if
any, incurred in connection with this suit, the Company will continue to
record such expenses or settlements, if any, as an expense with an
offsetting increase to paid-in capital, net of tax effects.
In June, 1996, the Company purchased approximately 27 acres of vacant
land in Vernon Hills, Illinois upon which it intends to construct a
combined telemarketing, warehouse, showroom and corporate office facility.
In conjunction with the move to the new facility, the Company will vacate
and endeavor to sublease its current facility. Accordingly, in the first
quarter of 1996 the Company recorded a $4,000,000 pre-tax non-recurring
charge to operating results for exit costs which consist primarily of the
estimated cost of sub-leasing the vacated facility, including holding costs
and the estimated costs of restoring the building to its original
condition, and certain asset write-offs resulting from the relocation.
Net interest income was $1,677,000 for the six months ended June 30,
1996 as compared to $638,000 for the six months ended June 30, 1995. The
increase was primarily the result of a higher level of funds available for
investment as a result of the Company's public equity offering in August
1995. The level of interest income may decline in future periods as the
Company utilizes funds in connection with its facility expansion.
The effective income tax rate, expressed as a percentage of income
before income taxes, decreased to 38.8% for the six months ended June 30,
1996 from 39.5% for the six months ended June 30, 1995 and from 39.2% for
the fiscal year 1995. The change is primarily due to an increase in the
amount of non-taxable interest income earned by the Company.
Net income for the six months ended June 30, 1996 was $14,028,000, a
64.9% increase over $8,505,000 for the six months ended June 30, 1995. Net
income per share of $0.65 for the six months ended June 30, 1996 increased
58.5% from $0.41 in the same period of 1995. Pro forma net income and net
income per share, excluding the impact of the exit charge and related
reduction of the executive incentive bonus pool, were $15,980,000 and
$0.74, representing an increase of 87.9% and 80.5%, respectively, over the
first six months of 1995. Net income per share reflects dilution resulting
from the 825,000 additional common shares issued on August 3, 1995 pursuant
to the Company's public equity offering. All per share and related amounts
have been adjusted to reflect the three-for-two stock split effected in the
form of a stock dividend paid on July 15, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The Company has historically financed its operations and capital
expenditures primarily through cash flow from operations, short-term
borrowings and public offerings of common stock.
At June 30, 1996, the Company had cash, cash equivalents and
marketable securities of $55.2 million and working capital of $107.8
million, representing a decrease of $2.0 million in cash, cash
12
<PAGE> 15
equivalents and marketable securities and an increase of $8.6 million in
working capital from December 31, 1995.
As of June 30, 1996, the Company had an aggregate $30.0 million
available pursuant to unsecured credit facilities with two financial
institutions expiring in June, 1997. Borrowings under the credit
facilities bear interest at the prime rate less 2 1/2%, LIBOR plus 1/2% or
the federal funds rate plus 1/2%, as determined by the Company. At June
30, 1996 there were no borrowings against either of the credit facilities.
The Company's current primary and anticipated use of cash is to fund
the growth in working capital and capital expenditures, including
facilities expansion. The Company believes that the funds held in cash,
cash equivalents and marketable securities, and funds available under the
credit facilities will be sufficient to fund the Company's working capital
and cash requirements at least through June 30, 1997.
Cash flows for the six months ended June 30, 1996
Net cash provided by operating activities for the six months ended
June 30, 1996 was $5.0 million. The primary factors which historically
affect the Company's cash flows from operations are accounts receivable,
merchandise inventory and accounts payable. The increase in accounts
receivable resulted from both increased sales volume and an increase in the
percentage of sales to customers on credit terms to 51.4% for the six
months ended June 30, 1996 compared to 49.6% for the six months ended June
30, 1995. Inventory turns increased to 23 annualized turns for the six
months ending June 30, 1996 from 21 annualized turns for the six months
ending June 30, 1995. The decrease in accounts payable reflects timing of
payments to vendors at the end of the respective periods. Prepaid expenses
and other current assets increased $800,000 to approximately $1.0 million
as of June 30, 1996 and are primarily comprised of paper purchased for
future catalogs and a prepaid insurance premium.
Net cash used in investing activities for the six months ended June
30, 1996 was $16.2 million, including approximately $7.1 million for
capital expenditures. The capital expenditures made by the Company were
primarily related to the land for the Vernon Hills facility, as well as
auxiliary computer system storage and leasehold improvements. The net
increase in marketable securities reflects the purchase, net of
redemptions, of approximately $9.1 million of securities classified as
held-to-maturity or available-for-sale.
Facilities Expansion
In June, 1996, the Company purchased approximately 27 acres of vacant
land in Vernon Hills, Illinois for the purpose of constructing a combined
telemarketing, warehouse, showroom and corporate office facility. The
initial phase of construction is planned to include approximately 118,000
square feet of warehouse space and approximately 100,000 square feet of
office space, effectively a more than 100% increase over the current
facility. Based on current plans, the Company estimates it will incur
approximately $23.0 to $25.0 million in capital expenditures related to
purchasing the land and constructing and equipping the facility.
Additionally, the Company will incur certain moving and other costs, not
expected to exceed $1.0 million, relating to relocation which would be
charged to operating results in the period incurred.
If the Company is unable to generate increased sales and gross margins
sufficient to absorb increased overhead and other costs created by the new
facility, the Company would likely experience lower pre-tax profits.
13
<PAGE> 16
PART II Other Information
ITEM 1. Legal Proceedings
As previously reported, the Company is a defendant in a lawsuit filed
in the United States District Court for the Northern District of Illinois,
Eastern Division, in which suit a former shareholder, executive officer and
director of the Company (the "Plaintiff") alleges violations of the federal
securites laws, fraud and breach of fiduciary duty in connection with the
Company's redemption of his stock in July 1990. (Reference is made to Item
3 the Company's 1995 Annual Report on Form 10-K for a detailed discussion
of the lawsuit).
On June 14, 1996, the District Court granted the defendants' motion to
dismiss the Amended Complaint, with prejudice, on the grounds that the
federal cause of action was barred by the statute of limitations and the
District Court did not have juristiction on the pendant counts. The
Plaintiff has filed an appeal of the District Court decision to the United
States Court of Appeals for the Seventh Circuit. The Company believes that
it is likely that the Plaintiff will re-file Counts II and III, and
possibly other claims, in Illinois State Court. The Company and Mr. Krasny
believe that their actions were honest and proper and that the suit by Mr.
Marks is without merit. The Company and Mr. Krasny are committed to
vigorously defending the litigation.
As previously reported, Michael P. Krasny, the Company's majority
shareholder, has agreed to indemnify the Company for any and all costs,
fees and expenses incurred in connection with this litigation, including
any expenses incurred in judgment or settlement of the suit.
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held an annual meeting of Shareholders on April
30, 1996.
(b) The names of all Directors of the Company are set forth in (c)
below.
(c) Two matters were voted upon and approved by the
Shareholders. The presentation below briefly describes the
matters voted upon and results of Shareholders' votes.
1. Election of Directors
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
By Nominee:
----------
- Michael P. Krasny 13,903,080 18,000 -
- Gregory C. Zeman 13,903,080 18,000 -
- Daniel B. Kass 13,903,080 18,000 -
- Joseph Levy, Jr. 13,903,080 18,000 -
- Michelle L. Collins 13,903,080 18,000 -
</TABLE>
2. Ratification of Auditors
The selection of Coopers & Lybrand, LLP, independent public
accountants, as auditors of the Company for the year ended
December 31, 1996.
Votes For Votes Against Abstentions
--------- ------------- -----------
13,911,247 2,920 6,913
14
<PAGE> 17
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION OF DOCUMENT
10 (gg) Revolving Note between the Company and LaSalle National
Bank dated June 30, 1996.
10 (hh) Revolving Note between the Company and The Northern Trust
Company dated June 30, 1996.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the six months
ended June 30, 1996.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CDW Computer Centers, Inc.
(Registrant)
Date August 7, 1996 /s/ Harry J. Harczak, Jr.
-------------------------------
Harry J. Harczak, Jr.
Chief Financial Officer
Date August 7, 1996 /s/ Daniel F. Callen
-------------------------------
Daniel F. Callen
Chief Accounting Officer
16
<PAGE> 19
INDEX TO EXHIBITS
10 (gg) Revolving Note dated June 30, 1996 between the Company and LaSalle
National Bank.
10 (hh) Revolving Note dated June 30, 1996 between the Company and The Northern
Trust Company.
18
<PAGE> 1
EXHIBIT 10 (gg)
REVOLVING NOTE DATED JUNE 30, 1996
BETWEEN THE COMPANY AND LASALLE NATIONAL BANK
<PAGE> 2
REPLACEMENT REVOLVING NOTE
$15,000,000 Dated as of June 30, 1996
Due: June 29, 1997
On or before June 29, 1997, CDW COMPUTER CENTERS, INC. (the "Undersigned"),
for value received, promises to pay to the order of LASALLE NATIONAL BANK, a
national banking association (hereinafter, together with any holder thereof,
called "Bank"), whose address is 120 S. LaSalle Street, Chicago, Illinois 60603,
the principal sum of Fifteen Million and 00/100 Dollars ($15,000,000) or if
less, the aggregate unpaid principal amount of all loans made by the Bank to the
Undersigned hereunder (this "Note"). The unpaid principal amount hereof shall
bear interest at the Undersigned's option of the following:
(i) a fixed rate equal to the greater of (A) the "Prime Rate" (hereinafter
defined) minus two and one-half percent (2-1/2%) per annum, or (B) the
"Federal Funds Rate" (hereinafter defined) plus one-half of one percent per
annum, for borrowings not to exceed thirty (30) days, such rate to be fixed
at the beginning of the term of such borrowing (the "Fixed Prime Rate"); or
(ii) a floating rate equal to the greater of (A) the Prime Rate minus two
and one-half percent (2-1/2%) per annum, or (B) the Federal Funds Rate
plus one-half of one percent per annum, for borrowings in excess of thirty
(30) days (the "Floating Prime Rate"; the Floating Prime Rate and the Fixed
Prime Rate are referred to herein collectively as the "Prime Rate"); or
(iii) "Adjusted LIBOR" (hereinafter defined).
1. For purposes hereof the following terms shall have the following
definitions:
"Prime Rate" shall mean the rate in effect from time to time as set by
the Bank and called its Prime Rate. The effective date of any change in said
Prime Rate shall for purposes hereof be the date the rate is changed by the
Bank. The Bank shall not be obligated to give notice of any change in the Prime
Rate.
"Federal Funds Rate" shall mean, for any day, the daily effective
Federal Funds rate for such day as published in Federal Reserve Statistical
Release H.15 ("H.15") (or, if such Release is not published, the successor
thereto or closest approximation thereto, as determined by the Bank) for such
day; provided that, the Federal Funds Rate for any day on which the Federal
Reserve Bank of New York, (the "New York Fed") is not open for business shall be
the Federal Funds Rate for the next preceding day on which the New York Fed was
open for business; and provided, further, that if the Bank determines, in good
faith, that it is unable to determine the Federal Funds Rate on the basis of
H.15, then the Bank shall determine the Federal Funds Rate based on the
quotations of three dealers in Federal Funds in New York City,
<PAGE> 3
as reasonably selected by the Bank, and the Bank's determination of such rate
shall be binding and conclusive absent manifest error.
"Adjusted LIBOR" means a rate of interest equal to one-half of one
percent (1/2%) per annum in excess of the per annum rate of interest at which
U.S. dollar deposits in an amount comparable to the amount of the relevant
"LIBOR Loan" (hereinafter defined) and for a period equal to the relevant
"Interest Period" (hereinafter defined) are offered generally to the Bank
(rounded upward if necessary, to the nearest 1/16 of 1.00%) in the London
Interbank Eurodollar market at 11:00 a.m. (London time) two banking days prior
to the commencement of each Interest Period, such rate to remain fixed for such
Interest Period.
"Interest Period" shall mean successive one, two or three-month
periods as selected from time to time by the Undersigned by notice given to the
Bank not less than three banking days prior to the first day of each respective
Interest Period; provided that: (i) each such one, two or three-month period
occurring after such initial period shall commence on the day on which the next
preceding period expires; (ii) the final Interest Period shall be such that its
expiration occurs on or before the stated maturity date of the Note; and (iii)
if for any reason the Undersigned shall fail to select timely a period, then it
shall be deemed to have selected a LIBOR Loan with a one month Interest Period;
provided that, at any time any Interest Period expires less than one month
before the maturity of the Note, then, for the period commencing on such
expiration date and ending on the maturity date such LIBOR Loan shall convert to
a LOAN BEARING INTEREST at the Floating Prime Rate.
2. Interest on that portion of the outstanding principal amount hereof
bearing interest at the Prime Rate shall be payable from the date hereof on such
aggregate unpaid principal amount on the last day of each month, commencing on
July 31, 1996, and at maturity hereof. Interest on LIBOR borrowings shall be
payable at the end of each respective Interest Period. Interest after maturity
(whether by reason of acceleration or otherwise) shall be paid on the unpaid
balance at the rate of the Floating Prime Rate plus two percent (2) per annum
(the "Default Rate"). Interest shall be computed on the basis of a year
consisting of 360 days and shall be paid for the actual number of days elapsed,
unless otherwise specified herein.
3. Each LIBOR borrowing hereunder (each, a "LIBOR Loan") must equal
$100,000 or an integral multiple thereof. Interest on each LIBOR Loan shall be
payable on the last banking day of each Interest Period with respect thereto,
commencing on the first such date to occur after the date hereof, at maturity,
after maturity on demand, and on the date of any payment hereon on the amount
paid. The Undersigned hereby further promises to pay to the order of the Bank,
on demand, interest on the unpaid principal amount hereof after maturity
(whether by acceleration or otherwise) at the Default Rate.
4. Provisions applicable to LIBOR Loans: (a) The Bank's determination of
Adjusted LIBOR as provided above shall be conclusive, absent manifest error.
Furthermore, if the Bank determines, in good faith (which determination shall be
conclusive, absent manifest error), prior to the commencement of any Interest
Period that (a) U.S. dollar deposits of sufficient amount
2
<PAGE> 4
and maturity for funding any LIBOR Loan are not available to the Bank in the
London Interbank Eurodollar market in the ordinary course of business, or (b)
by reason of circumstances affecting the London Interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the rate of interest to
be applicable to the relevant LIBOR Loan, the Bank shall promptly notify the
Undersigned and such LIBOR Loan shall automatically convert on the last day of
its then current Interest Period to a loan bearing interest at the Floating
Prime Rate.
(b) If, after the date hereof, the introduction of, or any change in
any applicable law, treaty, rule, regulation or guideline or in the
interpretation or administration thereof by any governmental authority or any
central bank or other fiscal, monetary or other authority having jurisdiction
over the Bank or its lending office (a "Regulatory Change"), shall, in the
opinion of counsel to the Bank, makes it unlawful for the Bank to make or
maintain any LIBOR Loan evidenced hereby, then the Bank shall promptly notify
the Undersigned and such LIBOR Loan shall automatically convert on the last day
of its then-current Interest Period to a loan bearing interest at the Floating
Prime Rate.
(c) If, for any reason, any LIBOR Loan is paid prior to the last
business day of its then-current Interest Period, the Undersigned agrees to
indemnify the Bank against any loss (including any loss on redeployment of the
funds repaid), cost or expense incurred by the Bank as a result of such
prepayment.
(d) If any Regulatory Change (whether or not having the force of
law) shall (a) impose, modify or deem applicable any assessment, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of or loans by, or any other acquisition of funds or
disbursements by, the Bank; (b) subject the Bank or any LIBOR Loan to any tax,
duty, charge, stamp tax or fee or change the basis of taxation of payments to
the Bank of principal or interest due from the Undersigned to the Bank hereunder
(other than a change in the taxation of the overall net income of the Bank); or
(c) impose on the Bank any other condition regarding such LIBOR Loan or the
Bank's funding thereof, and the Bank shall determine (which determination shall
be conclusive, absent manifest error) that the result of the foregoing is to
increase the cost to the Bank of making or maintaining such LIBOR Loan or to
reduce the amount of principal or interest received by the Bank hereunder, then
the Undersigned shall pay to the Bank, on demand and presentation of
satisfactory documentation therefor, such additional amounts as the Bank shall,
from time to time, determine are sufficient to compensate and indemnify the Bank
for such increased cost or reduced amount.
5. The Undersigned hereby authorizes the Bank to charge any account of
the Undersigned for all sums due hereunder. Principal payments submitted in
funds not available until collected shall continue to bear interest until
collected. If payment hereunder becomes due and payable on a Saturday, Sunday or
legal holiday under the laws of the United States or the State of Illinois, the
due date thereof shall be extended to the next succeeding business day, and
interest shall be payable thereon at the rate specified during such extension.
3
<PAGE> 5
6. This Note evidences a revolving line of credit under which Undersigned
is indebted to Bank and evidences the aggregate unpaid principal amount of all
advances made or to be made by Bank to Undersigned under the Note. All advances
and repayments hereunder shall be evidenced by entries on the books and records
of Bank which shall be presumptive evidence of the principal amount and interest
owing and unpaid on this Note, or any renewal or extension hereof. The failure
to so record any such amount or any error so recording any such amount shall
not, however, limit or otherwise affect the obligations of the Undersigned
hereunder or under any note to repay the principal amount of the liabilities
together with all interest accruing thereon.
7. Advances under this Note may be made by Bank upon the written request
of any two authorized officers of the Undersigned whose authority to so act has
not been revoked by the Undersigned in writing theretofore received by Bank at
its main office. Any such advances shall be conclusively presumed to have been
made by Bank to or for the benefit of the Undersigned. The Undersigned does
hereby irrevocably confirm, ratify and approve all such advances by Bank and
does hereby indemnify Bank against losses and reasonable expenses (including
court costs, attorneys' and paralegals' fees) and shall hold Bank harmless with
respect thereto.
8. The Undersigned shall be in default hereunder if: (a) any amount
payable on this and any and all other liabilities or obligations of the
Undersigned to Bank, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether now due or to become due, whether direct,
indirect, absolute, contingent, joint, several or joint and several (all such
liabilities and obligations, including this Note, are hereinafter referred to as
the "Obligations") or on the obligations of any obligor hereunder, is not paid
within five (5) days of when due; or (b) the Undersigned shall otherwise fail to
perform any of the promises to be performed by the Undersigned hereunder or
under any other security agreement or other agreement with Bank and the same is
not cured within thirty (30) days of notice thereof by the Bank; or (c) the
Undersigned, or any other party liable with respect to the Obligations, or any
guarantor or accommodation endorser or third party pledgor, shall make any
assignment for the benefit of creditors, or there shall be commenced any
bankruptcy, receivership, insolvency, reorganization, dissolution or liquidation
proceedings by or against, or the entry of any judgment, levy, attachment,
garnishment or other process (except for any judgment, levy, attachment,
garnishment or other process entered pursuant to certain litigation instituted
by John Marks, as described in the Undersigned's 1996 proxy statement, as
amended from time to time), or the filing of any lien against the Undersigned or
any guarantor, or any other party liable with respect to the Obligations, or
accommodation endorser or third party pledgor for any of the Obligations which
has a material adverse effect on such party; or (d) the determination by the
Bank that a material adverse change has occurred in the financial condition of
the Undersigned from the condition set forth in the most recent financial
statement of the Undersigned furnished to the Bank, or from the financial
condition of the Undersigned most recently disclosed to Bank in any manner and
the same is not cured within thirty (30) days of notice thereof by the Bank; or
(e) any oral or written warranty, representation, certificate or statement of
the Undersigned to the Bank is untrue in any material respect; or (f) failure of
the Undersigned, within thirty (30) days
4
<PAGE> 6
after a request by the Bank, to furnish financial information or to permit
inspection by the Bank of the Undersigned's books and records; or (g) the
occurrence of any material adverse event which causes a change in the financial
condition of the Undersigned, or which would have a material adverse effect on
the business of the Undersigned and the same is not cured within thirty (30)
days notice thereof by the Bank; provided, that any event relating to the John
Marks litigation as set forth in subsection (3) above shall not be deemed to
violate this subsection (g); or (h) the Undersigned fails to have, at the end
of each of its fiscal quarters (1) a Tangible Net Worth of at least
$35,000,000, or (2) a ratio of Liabilities to Tangible Net Worth of no greater
than 2.0:1.0 and a default of either (1) or (2) shall not be cured by the
Borrower within thirty (30) days.
9. For purposes hereof, "Tangible Net Worth" shall mean the sum of
shareholders' equity plus debt subordinated to the Undersigned's liabilities to
the Bank, minus intangibles, including, but not limited to, goodwill, customer
lists, prepaid items, deferred charges, debts owed by officers and other
affiliates and such "Other Assets" as set forth on the financial statements of
the Undersigned. "Liabilities" shall mean all liabilities of the Undersigned
that would be shown on a balance sheet of the Undersigned prepared in
accordance with generally accepted accounting principles consistently applied.
10. Whenever the Undersigned shall be in default as aforesaid, without
demand or notice of any kind except as set forth herein, the entire unpaid
amount of all Obligations shall become immediately due and payable, and Bank may
exercise, from time to time, any and all rights and remedies available to it
under the Uniform Commercial Code of Illinois, or otherwise, including those
available under any written instrument (in addition to this Note) relating to
any of the Obligations and may, without demand or notice of any kind,
appropriate and apply toward the payment of such of the Obligations, whether
matured or unmatured, including reasonable costs of collection and reasonable
attorneys' and paralegals' fees, and in such order of application as the Bank
may, from time to time, elect, any balances, credits, deposits, accounts or
moneys of the Undersigned in possession, control or custody of, or in transit to
the Bank.
11. THE UNDERSIGNED WAIVES THE BENEFIT OF ANY LAW THAT WOULD OTHERWISE
RESTRICT OR LIMIT BANK IN THE EXERCISE OF ITS RIGHT, WHICH IS HEREBY
ACKNOWLEDGED, TO APPROPRIATE WITHOUT NOTICE, AT ANY TIME HEREAFTER, ANY
INDEBTEDNESS MATURED OR UNMATURED, OWING FROM BANK TO THE UNDERSIGNED. THE BANK
MAY, FROM TIME TO TIME, WITHOUT DEMAND OR NOTICE OF ANY KIND, APPROPRIATE AND
APPLY TOWARD THE PAYMENT OF SUCH OF THE OBLIGATIONS, AND IN SUCH ORDER OF
APPLICATION, AS THE BANK MAY, FROM TIME TO TIME, ELECT ANY AND ALL SUCH
BALANCES, CREDITS, DEPOSITS, ACCOUNTS, MONIES, CASH EQUIVALENTS AND OTHER ASSETS
OF OR IN THE NAME OF THE UNDERSIGNED, THEN OR THEREAFTER WITH THE BANK. THE
UNDERSIGNED DOES HEREBY ASSIGN AND TRANSFER TO THE BANK ANY AND ALL CASH,
NEGOTIABLE INSTRUMENTS, DOCUMENTS OF TITLE, CHATTEL PAPER, SECURITIES,
CERTIFICATES OF DEPOSIT, DEPOSIT ACCOUNTS, OTHER CASH EQUIVALENTS
5
<PAGE> 7
AND OTHER ASSETS OF THE UNDERSIGNED IN THE POSSESSION OR CONTROL OF BANK FOR
ANY PURPOSE.
12. THE UNDERSIGNED WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM
OR SET OFF WHICH THE UNDERSIGNED MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY
ACTION BY BANK IN ENFORCING THIS NOTE OR ANY OF THE OTHER OBLIGATIONS, RATIFIES
AND CONFIRMS WHATEVER BANK MAY DO PURSUANT TO THE TERMS HEREOF AND AGREES THAT
BANK SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT OR MISTAKES OF FACT OR LAW
EXCEPT FOR THOSE ERRORS OR MISTAKES WHICH RESULT FROM THE BANK'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. THE BANK AND THE UNDERSIGNED, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY THE RIGHT EITHER MAY HAVE TO
TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING BASED HEREON, OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OF THE OTHER OBLIGATIONS, OR
ANY AGREEMENT, EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH
OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH THE BANK AND THE
UNDERSIGNED ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
BANK GRANTING ANY FINANCIAL ACCOMMODATION TO THE UNDERSIGNED.
13. The Undersigned, and any other party liable with respect to the
Obligations, including any guarantors, and any and all endorsers and
accommodation parties, and each one of them, waive any and all presentment,
demand, notice of dishonor, protest, and all other notices and demands in
connection with the enforcement of Bank's rights hereunder, and hereby consent
to, and waive notice of release, with or without consideration, of the
Undersigned. No default shall be waived by the Bank except in writing. No delay
on the part of the Bank in the exercise of any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by the Bank of any right or
remedy shall preclude other or further exercise thereof, or the exercise of any
other right or remedy. This Note: (i) is valid, binding and enforceable in
accordance with its provisions, and no conditions exist to the legal
effectiveness of this Note; (ii) contains the entire agreement between the
Undersigned and Bank; (iii) is the final expression of the intentions of the
Undersigned and Bank; and (iv) supersedes all negotiations, representations,
warranties, commitments, offers, contracts (of any kind or nature, whether oral
or written) prior to or contemporaneous with the execution hereof. No prior or
contemporaneous representations, warranties, understandings, offers or
agreements of any kind or nature, whether oral or written, have been made by
Bank or relied upon by the Undersigned in connection with the execution hereof.
No modification, discharge, termination or waiver of any of the provisions
hereof shall be binding upon the Bank, except as expressly set forth in a
writing duly signed and delivered on behalf of the Bank.
14. The Undersigned agrees to pay all reasonable costs, legal expenses,
attorneys' fees and paralegals' fees of every kind, paid or incurred by Bank in
enforcing its rights hereunder, including, but not limited to, litigation or
proceedings initiated under the United States
6
<PAGE> 8
Bankruptcy Code, or in respect to any other of the Obligations, or in defending
against any defense, cause of action, counterclaim, set off or crossclaim
based on any act of commission or omission by the Bank with respect to this
Note or any other of the Obligations, promptly on demand of Bank or other
person paying or incurring the same.
15. TO INDUCE THE BANK TO MAKE THE LOAN EVIDENCED BY THIS NOTE, THE
UNDERSIGNED IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY
AS A RESULT OR IN CONSEQUENCE OF THIS NOTE OR ANY OTHER AGREEMENT WITH THE BANK
SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS HAVING SITUS IN THE CITY OF
CHICAGO, ILLINOIS, AND THE UNDERSIGNED HEREBY CONSENTS TO THE EXCLUSIVE
JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT LOCATED AND HAVING ITS
SITUS IN SAID CITY, AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS. THE
UNDERSIGNED HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS, AND CONSENTS
THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO THE UNDERSIGNED AT THE ADDRESS INDICATED IN THE BANK'S
RECORDS IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OR
OTHERWISE.
16. The loan evidenced hereby has been made and this Note has been
delivered at the Bank's main office. This Note shall be governed and construed
in accordance with the laws of the State of Illinois, in which state it shall be
performed, and shall be binding upon the Undersigned and its successors and
assigns. If this Note contains any blanks when executed by the Undersigned, the
Bank is hereby authorized, without notice to the Undersigned, to complete any
such blanks according to the terms upon which the loan or loans were granted.
Wherever possible, each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or be invalid under such law, such provision
shall be severable, and be deemed ineffective to the extent of such prohibition
or invalidity without invalidating the remaining provisions of this Note. If
more than one party shall execute this Note, the term "Undersigned" as used
herein shall mean all parties signing this Note and their respective successors
and assigns, and such parties shall, as the case may be, be jointly and
severally obligated hereunder.
17. The Undersigned represents and warrants to Bank that the execution and
delivery of this Note has been duly authorized by resolutions heretofore adopted
by its Board of Directors and in accordance with law and its bylaws, that said
resolutions have not been amended nor rescinded, are in full force and effect
and that the officer or officers executing and delivering this Note for and on
behalf of the Undersigned are duly authorized so to act. The Bank, in extending
financial accommodations to the Undersigned, is expressly acting and relying
upon the aforesaid representations and warranties.
18. The Undersigned acknowledges and agrees that the lending relationship
hereby created with the Bank is and has been conducted on an open and arm's
length basis in which no
7
<PAGE> 9
fiduciary relationship exists and that the Undersigned has not relied and is
not relying on any such fiduciary relationship in consummating the loan
evidenced by this Note.
19. As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require such
construction and in particular the word "Undersigned" shall be so construed.
20. This Note is a replacement and substitute for, but not a repayment of,
that certain $15,000,000 Revolving Note dated as of June 15, 1996 of the
Undersigned payable to the order of the Bank and does not and shall not be
deemed to constitute a novation therefor.
IN WITNESS WHEREOF the Undersigned has executed this Note on the date above
set forth.
CDW COMPUTER CENTERS, INC.
By: Michael P. Krasny
----------------------
Name: Michael P. Krasny
Title: Chairman & Chief Executive Officer
By: Harry J. Harczak, Jr.
----------------------
Name: Harry J. Harczak, Jr.
Its: Chief Financial Officer
July 2, 1996
0034081.2
8
<PAGE> 1
EXHIBIT 10 (hh)
REVOLVING NOTE DATED JUNE 30, 1996
BETWEEN THE COMPANY AND
THE NORTHERN TRUST COMPANY
<PAGE> 2
CHICAGO, ILLINOIS
DATED AS OF JUNE 30, 1996
MASTER NOTE
(CORPORATION, PARTNERSHIP, OR JOINT VENTURE)
This Note has been executed by CDW Computer Centers, Inc . a corporation formed
under the laws of the State of Illinois ("Borrower"); if more than one entity
executes this Note, the term "Borrower" refers to each of them individually and
some or all of them collectively, and their obligations hereunder shall be
joint and several.* If a land trustee executes this Note, "Borrower" as used in
sections 6 and 7 below also includes any beneficiary(ies) of the land trust.**
FOR VALUE RECEIVED, on or before June 29, 1997 the scheduled maturity date
hereof, Borrower promises to pay to the order of THE NORTHERN TRUST COMPANY, an
Illinois banking corporation (hereafter, together with any subsequent holder
hereof, called "Lender"), at its main banking office at 50 South LaSalle Street,
Chicago, Illinois 60675, or at such other place as Lender may direct, the
aggregate unpaid principal balance of each advance (a "Loan" and collectively
the "Loans") made by Lender to Borrower hereunder. The total principal amount of
Loans outstanding at any one time hereunder shall not exceed Fifteen million
UNITED STATES DOLLARS ($15,000,000).
Lender is hereby authorized by Borrower at any time and from time to time
at Lender's sole option to attach a schedule (grid) to this Note and to endorse
thereon notations with respect to each Loan specifying the date and principal
amount thereof, the Interim Maturity Date (as defined below) (if applicable),
the applicable interest rate and rate option, and the date and amount of each
payment of principal and interest made by Borrower with respect to each such
Loan. Lender's endorsements as well as its records relating to Loans shall be
rebuttably presumptive evidence of the outstanding principal and interest on
the Loans, and, in the event of inconsistency, shall prevail over any records
of Borrower and any written confirmations of Loans given by Borrower.
If Borrower wishes to obtain a Loan under this Note, Borrower shall notify
Lender orally or in writing on a banking day. Any such notice shall be
irrevocable; if the notice is received after 10:00 AM Chicago time the Loan may
not be available until the next banking day. Additional procedures for "Bank
Offered Rate" Loans, if available, are set forth below.
Each request for a Loan shall be deemed to be a representation and
warranty by Borrower to Lender that: (i) no Event of Default or Unmatured Event
of Default (in each case as defined below) has occurred and is continuing as of
the date of such request or would result from the making of the Loan; and (ii)
Borrower's representations and warranties herein are true and correct as of
such date as though made on such date. Upon receipt of each Loan request Lender
in its sole discretion shall have the right to request that Borrower provide to
Lender, prior to Lender's funding of the Loan, a certificate executed by
Borrower's President, Treasurer, or Chief Financial Officer (if Borrower is a
corporation), or a general partner or joint venturer of Borrower (if Borrower
is a partnership or joint venture) to such effect.
*Insert "N/A" in any blank in this Note which is not applicable. **Land
trustee may not sign upon direction of individual beneficiary(ies) unless Loans
are for business purposes.*** Do not use if collateral includes real estate.
Page 1
FORM 9601-Corp(N11/91)
<PAGE> 3
3. REFERENCES TO PREVIOUS NOTES, FACILITY TYPE, COLLATERAL, GUARANTIES, LOAN &
OTHER AGREEMENTS. (CHECK AS APPLICABLE)
LINE OF CREDIT: This Note has been executed pursuant to a line of credit. At the
present time Lender intends to make available to Borrower credit as outlined
herein or in any related letter until the maturity day indicated above unless in
Lender's sole judgment there has occurred an adverse change in the assets,
condition or prospects of Borrower or any guarantor. THE LINE OF CREDIT MAY BE
CANCELLED OR REDUCED BY LENDER AT LENDER'S SOLE OPTION WITHOUT PRIOR NOTICE TO
BORROWER OR ANY OTHER PERSON OR ENTITY. THE LINE OF CREDIT IS REVOCABLE
NOTWITHSTANDING PAYMENT OF ANY FEES OR MAINTENANCE OF ANY ACCOUNT BALANCES, AS
AND IF PROVIDED IN ANY ACCOMPANYING LETTER OR OTHER DOCUMENT PERTAINING TO SUCH
FEES AND/OR BALANCES. Any such fees and/or balances shall be deemed
compensation to Lender for being prepared to respond to Borrower's requests for
credit under this Note.
4. USE OF PROCEEDS. CHECK ONE:
/x/ Borrower represents and warrants that the proceeds of this Note will be
used solely for business purposes, and not for personal, family or household
use, within the meaning of Federal Truth-in-Lending and similar state laws and
regulations.
5. REPRESENTATIONS.
Borrower hereby represents and warrants to Lender that:
(a) Borrower and any "Subsidiary" (as defined below) are existing and in
good standing under the laws of their state of formation, are duly
qualified, in good standing and authorized to do business in each
jurisdiction where failure to do so might have a material adverse impact on
the consolidated assets, condition or prospects of Borrower; the execution,
delivery and performance of this Note and all related documents and
instruments are within Borrower's powers and have been authorized by all
necessary corporate, partnership or joint venture action;
(b) the execution, delivery and performance of this Note and all related
documents and instruments have received any and all necessary governmental
approval, and do not and will not contravene or conflict with any provision
of law or of the partnership or joint venture or similar agreement, charter
or by-laws of Borrower or any agreement affecting Borrower or its property;
and
(c) there has been no material adverse change in the business, condition,
properties, assets, operations or prospects of Borrower or any guarantor
since the date of the latest financial statements provided on behalf of
Borrower or any guarantor to Lender prior to the execution of this Note.
"Subsidiary" means any corporation, partnership, joint venture, trust, or other
legal entity of which Borrower owns directly or indirectly fifty percent (50%)
or more of the outstanding voting stock or interest, or of which Borrower has
effective control, by contract or otherwise.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
"Event of Default":
(a) If not cured within five days notice thereto: failure to pay, when and
as due, any principal, interest or other amounts payable hereunder; failure to
comply with or perform any agreement or covenant of Borrower contained herein;
or failure to furnish (or caused to be furnished to) Lender when and as
requested by Lender (but not more often than once every twelve months) fully
completed personal financial statement(s) of any individual guarantor on
Lender's then-standard form together with such supporting information as Lender
may reasonably request; or
(b) If not cured within five days notice thereto: any default, event of
default, or similar event shall occur or continue under any other instrument,
document, note, agreement, or guaranty delivered to Lender in connection with
this Note, or any such instrument, document, note, agreement, or guaranty shall
not be, or shall cease to be, enforceable in accordance with its terms; or
(c) there shall occur any default or event of default, or any event or
condition that might become such with notice or the passage of time or both, or
any similar event, or any event that requires the prepayment of borrowed money
or the acceleration of the maturity thereof under the terms of any evidence of
indebtedness or other agreement issued or assumed or entered into by Borrower,
any Subsidiary, any general partner or joint venturer of Borrower, or any
guarantor, or under the terms of any indenture, agreement or instrument under
which any such evidence of indebtedness or other agreement is issued, assumed,
secured, or guaranteed, and such event shall continue beyond any applicable
period of grace; or
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Borrower, any Subsidiary, any general partner or joint venture of Borrower, or
any guarantor to Lender is false or misleading in any material respect on the
date as of which the facts therein set forth are stated or certified; or
(e) any guaranty of or pledge of collateral security for this Note shall be
repudiated or become unenforceable or incapable of performance; or
(f) Borrower or any Subsidiary shall fail to maintain their existence in
good standing in their state of formation or shall fail to be duly qualified, in
good standing and authorized to do business in each jurisdiction where failure
to do so might have a material adverse impact on the consolidated assets,
condition or prospects of Borrower; or
(g) Borrower, any Subsidiary, any general partner or joint venturer of
Borrower, or any guarantor shall die, become incompetent, dissolve, liquidate,
merge, consolidate, or cease to be in existence for any reason; or any general
partner or joint venturer of Borrower shall withdraw or notify any partner or
joint venturer of Borrower of its or his/her intention to withdraw as a partner
or joint venturer (or to become a limited partner) of Borrower; or any general
or limited partner or joint venturer of Borrower shall fail to make any
contribution required by the partnership or joint venture agreement of Borrower
as and when due under such agreement; or there shall be any change in the
partnership or joint venture agreement of Borrower from that in force on the
date hereof which may have a material adverse impact on the ability of Borrower
to repay this Note; or
(h) any person or entity presently not in control of a corporate,
partnership or joint venture Borrower, any corporate general partner or joint
venturer of Borrower, or any guarantor, shall obtain control directly or
indirectly of Borrower, such a corporate general partner or joint venturer, or
any guarantor, whether by purchase or gift of stock or assets, by contract, or
otherwise; or
(i) See Amendment One
****If this box is checked and a land trustee is signing the Note,
do not take real estate as collateral.
<PAGE> 4
deem itself insecure; or, unless expressly permitted by the related documents,
all or any part of any collateral for this Note or any direct, indirect, legal,
equitable or beneficial interest therein is assigned, transferred or sold
without Lender's prior written consent; or
(l) If not dismissed within 60 days any bankruptcy, insolvency,
reorganization, arrangement, readjustment, liquidation, dissolution, or similar
proceeding, domestic or foreign, is instituted by or against Borrower, any
Subsidiary, any general partner or joint venturer of Borrower, or any guarantor;
or Borrower, any Subsidiary, any general partner or joint venturer of Borrower,
or any guarantor shall take any steps toward, or to authorize, such a
proceeding; or
(m) Borrower, any Subsidiary, any general partner or joint venturer of
Borrower, or any guarantor shall become insolvent, generally shall fail or be
unable to pay its debts as they mature, shall admit in writing its inability to
pay its debts as they mature, shall make a general assignment for the benefit
of its creditors, shall enter into any composition or similar agreement, or
shall suspend the transaction of all or a substantial portion of its usual
business.
7. DEFAULT REMEDIES.
(a) Upon the occurrence and during the continuance of any Event of Default
specified in Section 6(a)-(k), Lender at its option may declare this Note
(principal, interest and other amounts) immediately due and payable without
notice or demand of any kind. Upon the occurrence of any Event of Default
specified in Section 6(l)-(m), this Note (principal, interest and other amounts)
shall be immediately and automatically due and payable without action of any
kind on the part of Lender. Upon the occurrence and during the continuance of
any Event of Default, Lender may exercise any rights and remedies under this
Note, any related document or instrument (including without limitation any
pertaining to collateral), and at law or in equity.
(b) Lender may, by written notice to Borrower, at any time and from time to
time, waive any Event of Default or "Unmatured Event of Default" (as defined
below), which shall be for such period and subject to such conditions as shall
be specified in any such notice. In the case of any such waiver, Lender and
Borrower shall be restored to their former position and rights hereunder, and
any Event of Default or Unmatured Event of Default so waived shall be deemed to
be cured and not continuing; but no such waiver shall extend to or impair any
subsequent or other Event of Default or Unmatured Event of Default. No failure
to exercise, and no delay in exercising, on the part of Lender of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies of Lender herein provided are cumulative and not exclusive of any
rights or remedies provided by law. "Unmatured Event of Default" means any event
or condition which would become an Event of Default with notice or the passage
of time or both.
8. NO INTEREST OVER LEGAL RATE.
Borrower does not intend or expect to pay, nor does Lender intend or expect
to charge, accept or collect any interest which, when added to any fee or other
charge upon the principal which may legally be treated as interest, shall be in
excess of the highest lawful rate. If acceleration, prepayment or any other
charges upon the principal or any portion thereof, or any other circumstance,
result in the computation or earning of interest in excess of the highest lawful
rate, then any and all such excess is hereby waived and shall be applied against
the remaining principal balance. Without limiting the generality of the
foregoing, and notwithstanding anything to the contrary contained herein or
otherwise, no deposit of funds shall be required in connection herewith which
will, when deducted from the principal amount outstanding hereunder, cause the
rate of interest hereunder to exceed the highest lawful rate.
9. PAYMENTS, ETC.
All payments hereunder shall be made in immediately available funds, and
shall be applied first to accrued interest and then to principal; however, if an
Event of Default occurs, Lender may, in its sole discretion, and in such order
as it may choose, apply any payment to interest, principal and/or lawful charges
and expenses then accrued. Borrower shall receive immediate credit on payments
received during Lender's normal banking hours if made in cash, immediately
available funds, or by debit to available balances in an account at Lender;
otherwise payments shall be credited after clearance through normal banking
channels. Borrower authorizes Lender to charge any account of Borrower
maintained with Lender for any amounts of principal, interest, taxes, duties, or
other charges or amounts due or payable hereunder, with the amount of such
payment subject to availability of collected balances in Lender's discretion;
unless Borrower instructs otherwise, all Loans shall be credited to an
account(s) of Borrower with Lender. LENDER AT ITS OPTION MAY MAKE LOANS
HEREUNDER UPON TELEPHONIC INSTRUCTIONS AND IN SO DOING SHALL INCLUDING WITHOUT
LIMITATION INSTRUCTION TO MAKE TRANSFERS TO THIRD PARTIES, REASONABLY BELIEVED
BY LENDER TO HAVE BEEN GIVEN BY AN AUTHORIZED PERSON WITHOUT INDEPENDENT INQUIRY
OF ANY TYPE. All payments shall be made without deduction for or on account of
any present or future taxes, duties or other charges levied or imposed on this
Note or the proceeds Lender or Borrower by any government or political
subdivision thereof Borrower shall upon request of Lender pay all such taxes,
duties or other charges in addition to principal and interest, including without
limitation all documentary stamp and intangible taxes, but excluding income
taxes based solely on Lender's income.
10. SETOFF.
At any time and without notice of any kind, any account, deposit or other
indebtedness owing by Lender to Borrower, and any securities or other property
of Borrower delivered to or left in the possession of Lender or its nominee or
bailee, may be set off against and applied in payment of any obligation
hereunder, whether due or not.
11. NOTICES.
All notices, requests and demands to or upon the respective parties hereto
shall be deemed to have been given or made when deposited in the mail, postage
prepaid, addressed if to Lender to its main banking office indicated above
(Attention: Division Head, Metro I Division), and if to Borrower to its address
set forth below, or to such other address as may be hereafter designated in
writing by the respective parties hereto or, as to Borrower, may appear in
Lender's records.
12. MISCELLANEOUS.
This Note and any document or instrument executed in connection herewith
shall be governed by and construed in accordance with the internal law of the
State of Illinois, and shall be deemed to have been executed in the State of
Illinois. Unless the context requires otherwise, wherever used herein the
singular shall include the plural and vice versa, and the use of one gender
shall also denote the other. Captions herein are for convenience of reference
only and shall not define or limit any of the terms or provisions hereof;
references herein to Sections or provisions without reference to the document in
which they are contained are references to this Note. This Note shall bind
Borrower, its heirs, trustees (including without limitation successor and
replacement trustees), executors, personal representatives, successors and
assigns, and shall inure to the benefit of Lender, its successors and assigns,
except that Borrower may not transfer or assign any of its rights or interest
hereunder without the prior written consent of Lender. Borrower agrees to pay
upon demand all expenses (including without limitation attorneys' fees, legal
costs and expenses, and time charges of attorneys who may be employees of
Lender, in each case whether in or out of court, in original or appellate
proceedings or in bankruptcy) incurred or paid by Lender or any holder hereof in
connection with the enforcement or preservation of its rights hereunder or under
any document or instrument executed in connection herewith. Borrower expressly
and irrevocably waives notice of dishonor or default as well as presentment,
protest, demand and notice of any kind in connection herewith. If there shall be
more than one person or entity constituting Borrower, each of them shall be
primarily, jointly and severally liable for all obligations hereunder.
13. WAIVER OF JURY TRIAL, ETC.
BOTH PARTIES HEREBY IRREVOCABLY AGREE THAT, SUBJECT TO LENDER'S SOLE AND
ABSOLUTE ELECTION, ALL SUITS, ACTIONS OR OTHER PROCEEDINGS WITH RESPECT TO,
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY DOCUMENT OR INSTRUMENT
EXECUTED IN CONNECTION HEREWITH SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING
SITUS WITHIN OR JURISDICTION OVER COOK COUNTY, ILLINOIS. BOTH PARTIES HEREBY
CONSENT, AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN OR HAVING JURISDICTION OVER SUCH COUNTY, AND HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO REQUEST OR DEMAND TRIAL BY JURY, TO TRANSFER OR
CHANGE THE VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT BY LENDER IN
ACCORDANCE WITH THIS PARAGRAPH, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
/x/ See Rider attached hereto and incorporated herein by reference.
Lender is hereby authorized by Borrower without notice to Borrower to fill
in any blank spaces and dates and strike inapplicable terms herein or in any
related document to conform to the terms upon which the Loan(s) evidenced hereby
are or may be made, for which purpose Lender shall be deemed to have been
granted an irrevocable power of attorney coupled with an interest.
Address for Notices:
CDW Computer Centers, Inc.
- ------------------------------ -----------------------------------
By: 1020 East Lake-Cook Road
--------------------------- -----------------------------------
Title: Chief Financial Officer Buffalo Grove, IL 60089
----------------------- -----------------------------------
By: Attention: Mr. Harry Harczak, CFO
-------------------------- ------------------------
Title: Chairman and Chief Executive Officer
Page 3.
<PAGE> 5
RIDER TO
MASTER NOTE (FORM 9601)
(PRIME, LIBOR, OR FED FUNDS)
DATED AS OF June 30, 1996, EXECUTED BY CDW Computer Centers, Inc. (the
"Borrower") IN FAVOR OF THE NORTHERN TRUST COMPANY (the "Lender")
1. This Rider is attached to and forms an integral part of the
above-referenced Master Note (as amended, the "Note"). Capitalized terms deemed
in the remainder of the Note and not otherwise defined in this Rider shall have
the same meaning in this Rider as in the remainder of the Note. Wherever
possible this Rider and the remainder of the Note shall be construed so as to be
consistent with each other; however, if and to the extent that the terms of this
Rider conflict or are inconsistent with the remainder of the Note, the terms of
this Rider shall prevail. Except as modified by this Rider, the terms of the
remainder of the Note shall apply.
2. Sections 1 ("INTEREST") and 2 ("PREPAYMENTS") of the printed form are
deleted and the following is substituted.
"SECTION 1. INTEREST.
1.1 INTEREST RATES. The unpaid principal amount from time to time
outstanding hereunder shall bear interest at the following rates per year:
(a) before maturity of any Loan, whether by acceleration or otherwise, at
the option of Borrower, subject to the terms hereof at a rate equal to:
(i) the "Prime-Based Rate," which shall mean the Prime Rate (as
defined below) * percent (2 1/2 %). Changes in the rate of interest on
the Loans resulting from a change in the Prime Rate shall take effect
on the date set forth in each announcement for a change in the Prime
Rate. "Prime Rate" means the rate announced from time to time by the
Lender called its prime rate, which may not at any time be the lowest
rate charged by the Lender; or
(ii) "LIBOR," which shall mean that fixed rate of interest per year
for deposits with maturity periods of 1, 2, 3, or 6 month(s) (which
maturity period Borrower shall select subject to the terms stated
herein) in United States dollars offered to Lender in or through the
London or another offshore interbank market, as determined by the
Lender in its sole discretion for or as of the borrowing date
requested by the Borrower, divided by one minus any applicable reserve
requirement (expressed as a decimal) on Eurodollar deposits of the
same
*minus two and one half
<PAGE> 6
amount and maturity as determined by Lender in its sole discretion,
plus one half percent ( 1/2 )%; or
(iii) the "Federal Funds Rate," defined as the rate on overnight
Federal funds transactions as determined by the Lender in its sole
discretion, plus one half percent ( 1/2 %). In the case of a Saturday,
Sunday or legal holiday, the Federal Funds Rate shall be the rate
applicable on the immediately preceding day for which such weighted
average rate is reported.
(b) after the maturity of any Loan, until paid, at a rate equal to 2% in
addition to the Prime Rate (but not less than the Prime Rate in effect at
maturity).
1.2 RATE SELECTION. Borrower shall select and change its selection of the
interest rate as among the Prime-Based Rate, the Federal Funds Rate, and LIBOR
to apply to at least $100,000 and in integral multiples of $100,000 thereafter
of any advance (Loan), subject to the requirements herein stated:
(a) At the time any advance is made;
(b) At the expiration of the particular LIBOR maturity period selected for
the outstanding principal balance of any advance currently bearing interest
at the LIBOR Rate; and
(c) At any time for the outstanding principal balance of any advance
currently bearing interest at the Prime-Based Rate or the Federal Funds
Rate.
1.3 RATE CHANGES AND NOTIFICATIONS.
(a) LIBOR. If Borrower wishes to borrow funds at LIBOR or if Borrower
wishes to change the rate of interest on any advance, within the limits
described above, from any other rate to LIBOR, it shall, not less than
three banking days of the Lender prior to the banking day of the Lender on
which such rate is to take effect, give Lender written or telephonic notice
thereof, which shall be irrevocable. Such notice shall specify the advance
to which LIBOR is to apply, and, in addition, the desired LIBOR maturity
period (but not to exceed the maturity date of this Note unless the Lender
consents otherwise).
(c) Failure to Notify. If Borrower does not notify Lender at the expiration
of a selected maturity period with respect to any principal outstanding at
LIBOR, then in the absence of such notice Borrower shall be deemed to have
elected to have such principal accrue interest after the respective LIBOR
maturity period at the Prime-Based Rate. If Borrower wishes to borrow money
at the Federal Funds Rate or the Prime-Based Rate, or to change the
interest rate from the Federal Funds Rate to or from the Prime-Based Rate,
it shall notify Lender on the date of borrowing or conversion; if any such
notification is not received before 10:00
<PAGE> 7
AM Chicago time on a banking day of the Lender, at Lender's option the
borrowing or conversion may not be effected until the next banking day. If
Borrower does not notify Lender as to its selection of the interest rate
option with respect to any new advance of principal, then in the absence of
such notice Borrower shall be deemed to have elected to have such advance
accrue interest at the Prime-Based Rate.
1.4 INTEREST PAYMENT DATES. Accrued interest shall be paid in respect of:
each portion of principal to which:
(a) the Prime-Based Rate or the Federal Funds Rate applies, monthly on the
last day of each month of each year, beginning with the first of such dates
to occur after the date of the first advance, at maturity of this Note, and
upon payment in full, whichever is earlier or more frequent; and
(b) LIBOR applies, monthly on the last day of each month at the end of each
respective maturity period (unless interest is payable monthly or quarterly
as provided above), every three months (unless interest is payable monthly
or quarterly as provided above), at maturity of this Note, and upon payment
in full, whichever is earlier or more frequent.
After maturity, interest shall be payable upon demand.
1.5 ADDITIONAL PROVISIONS WITH RESPECT TO FEDERAL FUNDS RATE AND LIBOR
LOANS.
The selection by Borrower of the Federal Funds Rate or LIBOR and the
maintenance of advances at such rates shall be subject to the following
additional terms and conditions:
(a) Availability of Deposits at a Determinable Rate. If, after Borrower has
elected to borrow or maintain any advance at LIBOR or the Federal Funds
Rate, Lender notifies Borrower that:
(i) With respect to LIBOR, United States dollar deposits in the amount
and for the maturity requested are not available to Lender in the London
interbank market, or
(ii) Reasonable means do not exist for Lender to determine the Federal
Funds Rate, or LIBOR for the amount and maturity requested, all as
determined
<PAGE> 8
by the Lender in its sole discretion, then the principal subject or to be
subject to LIBOR or the Federal Funds Rate, as applicable, shall accrue or
shall continue to accrue interest at the Prime-Based Rate.
(b) Prohibition of Making, Maintaining, or Repayment of Principal at LIBOR or
Federal Funds Rate. If any treaty, statute, regulation, interpretation thereof,
or any directive, guideline, or otherwise by a central bank or fiscal authority
(whether or not having the force of law) shall either prohibit or extend the
time at which any principal subject to LIBOR or the Federal Funds Rate may be
purchased, maintained, or repaid, then on and as of the date the prohibition
becomes effective, the principal subject to that prohibition shall continue at
the Prime-Based Rate.
(c) Payments of Principal and Interest to be Net of Any Taxes or Costs. All
payments of principal and interest shall be made net of any taxes and costs
incurred by Lender resulting from having principal outstanding hereunder at
LIBOR. Without limiting the generality of the preceding obligation,
illustrations of such taxes and costs are:
(i) Taxes (or the withholding of amounts for taxes) of any nature
whatsoever including income, excise, and interest equalization taxes (other
than income taxes imposed by the United States or any state thereof on the
income of Lender), as well as all levies, imposts, duties, or fees whether
now in existence or resulting from a change in, or promulgation of, any
treaty, statute, regulation, interpretation thereof, or any directive,
guideline, or otherwise, by a central bank or fiscal authority (whether or
not having the force of law) or a change in the basis of, or time of
payment of, such taxes and other amounts resulting therefrom;
(ii) Any reserve or special deposit requirements against assets or
liabilities of, or deposits with or for the account of, Lender with respect
to principal outstanding at LIBOR (including those imposed under Regulation
D of the Federal Reserve Board) or resulting from a change in, or the
promulgation of, such requirements by treaty, statute, regulation,
interpretation thereof, or any directive, guideline, or otherwise by a
central bank or fiscal authority (whether or not having the force of law);
(iii) Any other costs resulting from compliance with treaties, statutes,
regulations, interpretations, or any directives or guidelines, or otherwise
by a central bank or fiscal authority (whether or not having the force of
law);
<PAGE> 9
(iv) Any loss (including loss of anticipated profits) or expense incurred
by reason of the liquidation or re-employment of deposits acquired by
Lender to make advances or maintain principal outstanding at LIBOR:
(A) As the result of a voluntary prepayment at a date other than the
maturity date selected for principal outstanding at LIBOR; or
(B) As the result of a mandatory repayment at a date other than the
maturity date selected for principal outstanding at LIBOR as a result
of (i) Borrower exceeding any applicable borrowing base, (ii) the
occurrence of an Event of Default and the acceleration of any portion
of the indebtedness hereunder, or (iii) the scheduled maturity date of
this Note occurring prior to the LIBOR maturity date due to Borrower's
selection of a LIBOR maturity period which extends beyond the
scheduled maturity date of this Note; or
(C) As the result of a prohibition on making, maintaining, or repaying
principal outstanding at LIBOR.
If Lender incurs any such taxes or costs, Borrower, upon demand in writing
specifying such taxes and costs, shall promptly pay them; save for manifest
error Lender's specification shall be presumptively deemed correct. All
advances made at LIBOR shall be conclusively deemed to have been funded by or
on behalf of Lender in the London interbank market by the purchase of deposits
corresponding in amount and maturity to the amount and interest periods
selected (or deemed to have been selected) by Borrower under this Note.
SECTION 2. PAYMENT.
2.1 PAYMENT AND PREPAYMENT. Borrower may from time to time, upon prior
written notice to Lender, prepay any principal bearing interest at the
Prime-Based Rate or the Federal Funds Rate in whole or in part at any time and
may prepay any principal bearing interest at LIBOR at the end of the maturity
period chosen or agreed to by Borrower applicable to the advance or portion of
the advance being prepaid, without premium or penalty; provided that any partial
prepayment shall be in an aggregate principal amount of at least $10,000. Any
prepayment of an amount bearing interest at LIBOR at a date other than the
maturity date applicable to the advance or the portion of the advance being
prepaid shall be subject to the provisions of Section 1.5. All prepayments of
principal shall include interest accrued to the date of prepayment on the
principal amount being prepaid.
<PAGE> 10
2.2 BASIS OF COMPUTATION. Interest shall be computed for the actual number
of days elapsed on the basis of a year consisting of 360 days, including the
date a Loan is made and excluding the date a Loan or any portion thereof is paid
or prepaid."
- -----------------------------------------
Type Name
-------------------------------
- -----------------------------------------
Type Name CDW Computer Centers, Inc.
-------------------------------
Mr. Harry J. Harczak, Jr.
- -----------------------------------------
By:
-------------------------------------
Title Chief Financial Officer
------------------------------------
By: Mr. Michael R. Krasny
-------------------------------------
Mr. Michael R. Krasny
Title: Chairman and Chief Executive Officer
<PAGE> 11
AMENDMENT ONE
(i) any proceeding (judicial or administrative), excluding the Marks
litigation as described in the CDW 1995 Proxy Statement, and as amended from
time to time, shall be commenced against Borrower, any Subsidiary, any general
partner or joint venturer of Borrower, any guarantor, or with respect to any
assets of Borrower, any Subsidiary, any general partner or joint venturer of
Borrower, or any guarantor which shall threaten to have a material and adverse
effect on the assets, condition or prospects of Borrower, any Subsidiary, any
general partner or joint venture of Borrower, or any guarantor; or final
judgment(s) and/or settlement(s), excluding the Marks litigation as described in
the CDW 1995 Proxy Statement, and as amended from time to time, in an aggregate
amount in excess of five million UNITED STATES DOLLARS ($5,000,000) in excess of
insurance for which the insurer has confirmed coverage in writing, a copy of
which writing has been furnished to Lender, shall be entered or agreed to in any
suit or action commenced against Borrower, any Subsidiary, any general partner
or joint venturer of Borrower, or any guarantor; or
<PAGE> 12
CERTIFICATE
NO AMENDMENT TO ARTICLES
The undersigned does hereby certify that the Articles of Incorporation of
CDW Computer Centers, Inc., an Illinois corporation, as previously furnished to
The Northern Trust Company under Certificate dated June 30, 1995, have not been
amended, modified or rescinded in any respect since such date, and remain in
full force and effect.
Dated as of June 30, 1996.
Signature Michael P. Krasny
------------------------------------
Type Name Michael P. Krasny
------------------------------------
Title Chairman, Chief Executive Officer,
Secretary, and Treasurer
--------------------------------------
Name of Borrower CDW Computer Centers, Inc.
----------------------------
<PAGE> 13
CERTIFICATE
NO AMENDMENT TO BYLAWS
The undersigned does hereby certify that the Bylaws of CDW Computer
Centers, Inc., an Illinois corporation, as previously furnished to The Northern
Trust Company under Certificate(s) dated June 30, 1995, have not been amended,
modified or rescinded in any respect since such date, and remain in full force
and effect.
Dated as of June 30, 1996.
Signature Michael P. Krasny
-----------------------------------
Type Name Michael P. Krasny
-----------------------------------
Title Chairman, Chief Executive Officer,
--------------------------------------
Secretary, and Treasurer
Name of Borrower CDW Computer Centers, Inc.
---------------------------
<PAGE> 14
CERTIFICATE
BORROWING RESOLUTION & INCUMBENCY
CORPORATION
The undersigned certifies that set forth below is a copy of a Resolution of the
Board of directors of CDW Computer Centers, Inc., an Illinois corporation (the
"Corporation", or the "Borrower") which Resolution was properly adopted, has not
been modified or rescinded, and is still in effect:
"Resolved that this Corporation borrow from the Northern Trust Company an amount
not to exceed fifteen million UNITED STATES DOLLARS ($15,000,000) at any one
time outstanding pursuant to the terms of the Master Note dated June 30, 1996
(the foregoing document(s), together with any related documents, being
collectively referred to as the "Loan Document(s)") filed with this resolution,
the form of which Loan Document(s) is approved; that any two of the "Named"
officers of this Corporation be designated to execute and deliver the Loan
Documents with such changes as (s)he may approve as evidenced by his (her)
execution of the Loan Documents; that the Secretary or any Assistant Secretary
be and each hereby is, acting alone, authorized to, attest the execution; that
any two of the "Named" officers of this corporation be authorized to request
borrowings under the Loan Documents, to execute and deliver from time to time
any notes and other documents and instruments in connection therewith, whether
or not specifically referenced in the Loan Documents, and to take any actions
deemed necessary or appropriate by such officer to carry out the provisions of
the Loan documents and such notes and other documents and instruments; and that
any actions of the type set forth above previously taken by any of the foregoing
officers are hereby approved, adopted and ratified."
The undersigned does hereby certify that the persons name below have been duly
elected or appointed, have duly qualified as, and on this day are, the "Named"
officers of the Borrower, as indicated below, and that set forth opposite the
respective name of each is a sample of the signature of such person:
NAME OFFICE SIGNATURE
Michael P. Krasny Chairman & CEO Michael P. Krasny
----------------------
Gregory Zeman President Gregory Zeman
----------------------
Harry J. Harczak Jr. Chief Financial Officer Harry J. Harczak, Jr.
----------------------
Dated as of June 30, 1996.
Signature Michael P. Krasny
----------------------------------
Name Michael P. Krasny
----------------------------------
Title Chairman, Chief Executive Officer,
Secretary and Treasurer
----------------------------------
Name of Borrower CDW Computer Centers, Inc.
---------------------------
The undersigned [MAY NOT BE THE SAME PERSONAL WHO SIGNS ABOVE] hereby certifies
that the personal who executed the foregoing portion of this Certificate on
behalf of the Borrower has been duly elected or appointed as Secretary** of the
Borrower and that set forth above is the signature of such person.
Signature Harry J. Harczak, Jr.
----------------------------------
Name Harry J. Harczak, Jr.
----------------------------------
Title Chief Financial Officer
----------------------------------
Name of Borrower CDW Computer Centers, Inc.
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
dated June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,056
<SECURITIES> 52,106
<RECEIVABLES> 51,323
<ALLOWANCES> 800
<INVENTORY> 37,915
<CURRENT-ASSETS> 148,645
<PP&E> 13,756
<DEPRECIATION> 4,695
<TOTAL-ASSETS> 161,275
<CURRENT-LIABILITIES> 40,894
<BONDS> 0
<COMMON> 215
0
0
<OTHER-SE> 120,166
<TOTAL-LIABILITY-AND-EQUITY> 161,275
<SALES> 218,687
<TOTAL-REVENUES> 218,687
<CGS> 189,071
<TOTAL-COSTS> 189,071
<OTHER-EXPENSES> 16,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,859
<INCOME-TAX> 5,365
<INCOME-CONTINUING> 8,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,494
<EPS-PRIMARY> .39
<EPS-DILUTED> 0
</TABLE>
