<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 SEPTEMBER 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 NOVEMBER 12, 1996, 21,524,984 COMMON SHARES WERE OUTSTANDING.
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CDW COMPUTER CENTERS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets - 1
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Income - 2
Three and Nine Months Ended September 30, 1996 and 1995 and
Twelve Months Ended September 30, 1996
Condensed Consolidated Statement of Shareholders' Equity - 3
Nine Months Ended September 30, 1996
Condensed Consolidated Statements of Cash Flows - 4
Nine Months Ended September 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 5-7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
ii
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Part I. Financial Information
Item 1. Financial Statements
CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- ---------------
<S> <C> <C>
Assets
Current assets :
Cash and cash equivalents $ 6,728 $ 14,216
Marketable securities 58,773 42,953
Accounts receivable, net of allowance for doubtful
accounts of $950 and $625, respectively 55,359 38,527
Miscellaneous receivables 2,575 2,362
Merchandise inventory 46,000 27,422
Prepaid expenses and other current assets 1,146 206
Deferred income taxes 1,543 1,175
---------------- ---------------
Total current assets 172,124 126,861
Property and equipment, net 3,385 3,474
Construction-in-progress 6,853 -
Deferred income taxes and other assets 3,571 3,560
---------------- ---------------
Total assets $ 185,933 $ 133,895
================ ===============
Liabilities and Shareholders' Equity
Current liabilities :
Accounts payable $ 37,932 $ 19,436
Accrued expenses :
Payroll, commissions and management
incentive compensation 9,478 4,658
Exit costs 3,987 -
Income taxes 605 992
Other 2,728 1,682
Customer deposits 1,041 966
---------------- ---------------
Total current liabilities 55,771 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 66,396 66,414
Retained earnings 64,724 41,017
Unearned compensation (1,173) (1,485)
---------------- ---------------
Total shareholders' equity 130,162 106,161
---------------- ---------------
Total liabilities and shareholders' equity $ 185,933 $ 133,895
================ ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousand, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended September 30, Ended September 30, Ended
----------------------------- ------------------------------ September 30,
1996 1995 1996 1995 1996
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 240,330 $ 161,105 $ 665,722 $ 448,621 $ 845,822
Cost of sales 208,744 140,706 577,873 391,393 735,048
---------- ----------- ----------- ---------- -----------
Gross profit 31,586 20,399 87,849 57,228 110,774
Selling and administrative expenses 16,302 12,358 47,213 35,758 60,630
Exit charge - - 4,000 - 4,000
---------- ----------- ----------- ---------- -----------
Income from operations 15,284 8,041 36,636 21,470 46,144
Interest income 896 595 2,573 1,232 3,313
Other income (expense), net (48) 26 (146) 17 (116)
---------- ----------- ----------- ---------- -----------
Income before income taxes 16,132 8,662 39,063 22,719 49,341
Income tax provision 6,453 3,378 15,356 8,930 19,364
---------- ----------- ----------- ---------- -----------
Net income $ 9,679 $ 5,284 $ 23,707 $ 13,789 $ 29,977
========== =========== =========== ========== ===========
Net income per share $ 0.44 $ 0.25 $ 1.09 $ 0.66 $ 1.38
========== =========== =========== ========== ===========
Weighted average number of
common and common equivalent
shares outstanding 21,832 21,269 21,763 20,907 21,722
========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------- Retained
Shares Amount Paid-in Capital Earnings
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 21,525 $ 215 $ 66,414 $ 41,017
MPK Restricted Stock Plan :
Amortization of unearned compensation
Forfeiture of restricted shares (69)
Capital contribution for legal costs assumed
by majority shareholder 51
Net income 23,707
-------------------------------------------------------------
Balance at September 30, 1996 21,525 $ 215 $ 66,396 $ 64,724
=============================================================
<CAPTION>
Total
Unearned Shareholders'
Compensation Equity
--------------------------------------
<S> <C> <C>
Balance at December 31, 1995 $ (1,485) $ 106,161
MPK Restricted Stock Plan :
Amortization of unearned compensation 243 243
Forfeiture of restricted shares 69 -
Capital contribution for legal costs assumed
by majority shareholder 51
Net income 23,707
---------------------------------------
Balance at September 30, 1996 $ (1,173) $ 130,162
=======================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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CDW COMPUTER CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,707 $ 13,789
Adjustments to reconcile net income to net cash provided by
operating activities:
Exit charge 3,987 -
Depreciation and amortization 1,906 1,591
Loss on disposal of fixed asset 281 -
Legal fees assumed by majority shareholder 51 65
Tax benefit recognized from exercise of stock options - 3,655
Changes in assets and liabilities:
Accounts receivable, net (16,832) (12,924)
Miscellaneous receivables (213) (1,942)
Merchandise inventory (18,578) (10,791)
Prepaid expenses and other assets (946) (253)
Current deferred and prepaid taxes (373) (3,016)
Accounts payable 18,496 16,973
Accrued expenses 5,479 79
Customer deposits 75 232
----------- ------------
Net cash provided by operating activities 17,040 7,458
----------- ------------
Cash flows from investing activities:
Purchases of available-for-sale securities (19,600) (19,400)
Redemptions of available-for-sale securities 18,550 16,650
Purchases of held-to-maturity securities (68,746) (26,278)
Redemptions of held-to-maturity securities 54,046 18,287
Payments for purchase of property and equipment,
including construction-in-progress (8,778) (1,237)
----------- ------------
Net cash used in investing activities (24,528) (11,978)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 25,912
Payment of public offering expenses, net - (128)
----------- ------------
Net cash provided by financing activities - 25,784
----------- ------------
Net (decrease) increase in cash (7,488) 21,264
Cash and cash equivalents - beginning of period 14,216 2,969
----------- ------------
Cash and cash equivalents - end of period $ 6,728 $ 24,233
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
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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 September 30, 1996 and December 31, 1995, the results of
operations for the three and nine months ended September 30, 1996 and 1995, and
the twelve months ended September 30, 1996, cash flows for the nine months
ended September 30, 1996 and 1995 and the changes in shareholders' equity for
the nine months ended September 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.
The unaudited consolidated statement of income for the twelve months ended
September 30, 1996 has been included pursuant to the Underwriting Agreement
dated July 20, 1995 for the Company's public equity offering of common stock
and Section 11(a) of the Securities Act of 1933.
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 nine
months ended September 30, 1996 and 1995, and for the twelve months ended
September 30, 1996, are calculated using the weighted
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average number of common and common equivalent shares outstanding during each
period. Common equivalent shares of 307,354 and 238,354 for the three and nine
months ended September 30, 1996, 93,839 and 48,402 for the three and nine
months ended September 30, 1995, respectively, and 196,770 for the twelve
months ended September 30, 1996, relate primarily to the CDW Incentive Stock
Option Plan and are calculated using the treasury stock method.
3. Marketable Securities
The amortized cost and estimated fair values of the Company's investments in
marketable securities at September 30, 1996 (in thousands) were:
<TABLE>
<CAPTION>
Gross
Unrealized
Holding
--------------------------
Estimated Amortized
Fair Value Gains (Losses) Cost
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Security Type
- -------------
Available for Sale:
Redemptive tax exempt preferred stocks $ 6,550 $ - $ - $ 6,550
--------------------------------------------------------
Held to maturity:
Bonds of states, municipalities, and political subdivisions $ 13,380 $ 6 $ - $ 13,374
U.S. Government and U.S. Government Agency Securities 38,836 - (13) 38,849
--------------------------------------------------------
Total held-to-maturity 52,216 6 (13) 52,223
--------------------------------------------------------
Total marketable securities: $ 58,766 $ 6 $ (13) $ 58,773
========================================================
</TABLE>
The amortized cost and estimated fair value of the Company's investments in
securities held-to-maturity at September 30, 1996 (in thousands) by contractual
maturity were:
<TABLE>
<CAPTION>
Estimated Amortized
Fair Value Cost
-------------- ------------
<S> <C> <C>
Due in one year or less $ 58,766 $ 58,773
Due in greater than one year $ - $ -
</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 nine months
ended September 30, 1996, the Company and majority shareholder have incurred
legal expenses of approximately $30,000 and $85,000, 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 is constructing 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
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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.
Construction of the new facility began in September, 1996. As of
September 30, 1996 approximately $6.8 million in costs, including $6.1 million
in land acquisition costs, have been incurred and are included in
construction-in-progress. 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 the relocation which would be
charged to operating results in the period incurred.
6. Financing Arrangements
As of September 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.
In September, 1996 the Company established a stand-by letter of credit
for approximately $1.7 million related to construction of the new facility.
The Company has pledged a U.S. Treasury Note with a face value of $2.0
million as collateral for the letter of credit.
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 nine
months ended September 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 Nine Months Ended
FINANCIAL INFORMATION September 30, September 30,
------------------------------ ------------------------------------------------
1996 1995 1996 1995
------- -------- ----------------------- --------
Actual Pro forma
------- ----------
<S> <C> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.0% 100.00%
Cost of sales 86.86 87.34 86.80 86.80 87.24
------ ------ ------ ------ ------
Gross profit 13.14 12.66 13.20 13.20 12.76
Selling and administrative expenses 6.78 7.67 7.09 7.21 7.97
Exit charge 0.00 0.00 0.60 0.00 0.00
------ ------ ------ ------ ------
Income from operations 6.36 4.99 5.51 5.99 4.79
Other income, net 0.35 0.39 0.36 0.36 0.28
------ ------ ------ ------ ------
Income before income taxes 6.71 5.38 5.87 6.35 5.07
Income tax provision 2.68 2.10 2.31 2.50 2.00
------ ------ ------ ------ ------
Net income 4.03% 3.28% 3.56% 3.85% 3.07%
====== ====== ====== ====== ======
<CAPTION>
Three Months Ended Nine Months Ended
OPERATING STATISTICS September 30, September 30,
-------------------------------- --------------------------------------
1996 1995 1996 1995
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Number of orders shipped (000's) 342 253 944 713
Average order size $702 $636 $705 $630
Customers serviced (000's) 161 123 358 284
Number of account executives, end of period 267 184 267 184
PC catalogs distributed (000's) 10,962 6,248 33,435 18,364
Apple/Macintosh catalogs distributed (000's) 1,733 1,392 5,072 5,167
Pages of national advertising placed 173 161 482 396
Inventory turnover 20 19 21 18
</TABLE>
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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 Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Notebook & Laptops 27.5% 21.8% 26.7% 22.0%
Software 12.2 11.8 12.1 11.8
Desktop Computers 10.6 12.8 11.3 12.0
Printers 11.2 13.4 11.4 14.3
Data Storage Devices 10.6 8.7 9.5 8.4
Video 7.3 8.1 7.4 8.1
Add-On Boards/Memory 5.1 8.1 6.1 8.0
Communications 5.3 5.0 5.7 5.0
Network Products 4.3 6.6 4.2 6.8
Input Devices 3.4 N/A 2.6 N/A
Multi-Media 2.1 N/A 1.7 N/A
Other Accessories 0.4 3.7 1.3 3.6
--- --- --- ---
Total 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Three months ended September 30, 1996 compared to three months ended
September 30, 1995
Net sales increased $79.2 million, or 49.2%, for the three months
ended September 30, 1996 to $240.3 million from $161.1 million for the
three months ended September 30, 1995. The Company's average order size
grew 10.4% to $702 and orders shipped grew 35.2% to 342,000 for the three
months ended September 30, 1996 as compared to the three months ended
September 30, 1995. The number of customers serviced for the trailing
twelve months ended September 30, 1996 grew to 444,000 versus 351,000 for
the trailing twelve months ended September 30, 1995.
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 third quarter of 1996 is due,
among other factors, to a shift in product mix as sales of notebook and
laptop computers grew 88.8% to 27.5% of the total product mix compared to
21.8% 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 267 as of September 30, 1996 from 184
and 217 as of September 30, 1995 and December 31, 1995, respectively. Sales
within the Apple/MacIntosh division were essentially consistent with the
year ago quarter and have declined as a percentage of total sales.
Gross profit increased $11.2 million, or 54.8%, as a result of the
increase in net sales and increased as a percentage of net sales to 13.1%
for the three months ended September 30, 1996, compared to 12.7% for the
three months ended September 30, 1995. The increase in gross profit as a
percentage of net sales is due, among other factors, to the expansion of
selling margin on certain product lines resulting from opportunistic
purchases and pricing strategies. Rebate programs with vendors also
continue to have
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a positive impact on gross profit. The Company expects gross profit as a
percentage of net sales to vary on a quarterly basis based upon product
mix, market conditions, vendor support programs, the value of the dollar
and other factors. As a result, there is no certainty that the Company
will be able to sustain gross profit as a percentage of net sales at the
levels achieved in recent quarters.
Selling and administrative expenses increased $3.9 million, or 31.9%,
but as a percentage of net sales decreased to 6.8% for the three months
ended September 30, 1996, as compared to 7.7% for the three months ended
September 30, 1995. This decrease is due primarily to a decrease in net
advertising expense as a percentage of net sales. Net advertising expense
as a percentage of net sales decreased to 0.6% for the three months ended
September 30, 1996 from 1.5% for the three months ended September 30, 1995.
The improvement in net advertising expense is due to the combined effect
of improved productivity from marketing efforts and increased cooperative
advertising reimbursements from vendors. Gross advertising expense
decreased to 2.8% of net sales for the three months ended September 30,
1996, from 3.7% in the same period prior year. Gross advertising spending
was positively impacted by reduced catalog production costs and the
reduction of magazine advertising related to Windows 95 which occurred in
the third quarter of 1995. The cooperative advertising reimbursement rate
increased to 79.6% of gross advertising spending versus 60.3% in the same
period of the prior year, which was primarily attributable to expanded
vendor participation in the Company's advertising programs, increased
purchasing volumes, market development funding and improved claim
processing procedures. 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. The Company plans to increase marketing expenditures in future
quarters, which may result in an increase in net advertising expense as a
percentage of net sales and a lower operating margin than that achieved in
the third quarter of 1996. The statement concerning future advertising
expense is a forward looking statement that involves certain uncertainties
including the ability to identify and implement cost effective incremental
advertising and marketing programs.
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 $1,680,000 and $521,000 for the three months ended
September 30, 1996 and 1995, respectively, and is included within selling
and administrative expenses.
Selling and administrative expenses also include $30,000 and $20,000
in legal costs incurred by the majority shareholder for the three months
ended September 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.
Interest income was $896,000 for the three months ended September 30,
1996 as compared to $595,000 for the three months ended September 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 and funds generated from operations. 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, increased to 40.0% for the three months ended
September 30, 1996 from 39.0% for the three months ended September 30,
1995. The change is primarily due to an increase in the proportion of
taxable interest income earned by the Company.
Net income for the three months ended September 30, 1996 was
$9,679,000, an 83.2% increase over $5,284,000 for the three months ended
September 30, 1995. Net income per share of $0.44 for the three months
ended September 30, 1996 increased 76.0% from $0.25 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
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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.
Nine months ended September 30, 1996 compared to nine months ended
September 30, 1995
Net sales increased $217.1 million, or 48.4%, for the nine months
ended September 30, 1996 to $665.7 million from $448.6 million for the nine
months ended September 30, 1995. The Company's average order size grew
11.9% to $705 and orders shipped grew 32.4% to 944,000 for the nine months
ended September 30, 1996 as compared to the nine months ended September 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 nine months of 1996 is due, among other factors, to a shift in
product mix as sales of notebook and laptop computers grew 79.9% to 26.7%
of the total product mix compared to 22.0% in the corresponding nine 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 $30.6 million, or 53.5%, 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 nine months ended September 30, 1996, compared to the
nine months ended September 30, 1995. The increase in gross profit as a
percentage of net sales is due, among other factors, to the expansion of
selling margin on certain product lines resulting from opportunistic
purchases and pricing strategies. Rebate programs with vendors also
continue to have a positive impact on gross profit. 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,
vendor support programs, 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 $12.3 million, or 34.3%, but as a percentage of net sales
decreased to 7.2% for the nine months ended September 30, 1996, as compared
to 8.0% for the nine months ended September 30, 1995. This decrease was
primarily the result of decreased net advertising costs and re-negotiated
telephone rates which were retroactive to December 1, 1995. Net advertising
expense as a percentage of net sales decreased to 1.0% for the nine months
ended September 30, 1996 from 1.6% for the nine months ended September 30,
1995. The improvement in net advertising expense is due to the combined effect
of improved productivity from marketing efforts and increased cooperative
advertising reimbursements from vendors. Gross advertising spending decreased
to 3.1% of net sales for the nine months ended September 30, 1996 from 3.6% in
the same period prior year. Gross advertising spending was positively impacted
by reduced catalog production costs and the reduction of magazine advertising
related to Windows 95 which occurred in the third quarter of 1995. The
increase in the cooperative advertising reimbursement rate to 67.5% of gross
advertising spending versus 57.2% 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 periods
depending on the level of vendor participation achieved and collection
experience.
Selling and administrative expenses were increased in the first nine
months of 1996 by $660,000 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
was 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 $3,326,000 and $1,860,000 for the nine months ended
September 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 nine months ended
September 30, 1996 to $3,326,000 from $4,126,000 which would have been
incurred on a pro-forma basis excluding the exit charge.
Selling and administrative expenses also include $85,000 and $108,000
in legal costs incurred by the majority shareholder for the nine months
ended September 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 September, 1996, the Company purchased approximately 27 acres of
vacant land in Vernon Hills, Illinois upon which it is constructing 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.
Interest income was $2,573,000 for the nine months ended September 30,
1996 as compared to $1,232,000 for the nine months ended September 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 and funds generated from operations. The level of
interest income may decline in future periods as the Company utilizes funds
in connection with its facility expansion.
Net income for the nine months ended September 30, 1996 was
$23,707,000, a 71.9% increase over $13,789,000 for the nine months ended
September 30, 1995. Net income per share of $1.09 for the nine months
ended September 30, 1996 increased 65.2% from $0.66 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 $25,659,000 and $1.18, representing an increase of 86.1% and
78.8%, respectively, over the first nine 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 September 30, 1996, the Company had cash, cash equivalents and
marketable securities of $65.5 million and working capital of $116.4
million, representing an increase of $8.3 million in cash, cash equivalents
and marketable securities and an increase of $17.2 million in working
capital from December 31, 1995.
12
<PAGE> 15
As of September 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
September 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 September 30, 1997.
Cash flows for the nine months ended September 30, 1996
Net cash provided by operating activities for the nine months ended
September 30, 1996 was $17.0 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 increased sales volume and an increase in
days sales outstanding to 21.2 as of September 30, 1996 from 19.7 as of
December 31, 1995. The increase in days sales outstanding is due, in part,
to an increase in sales to customers on credit terms to 51.5% for the three
months ended September 30, 1996 compared to 48.0% for the three months
ended December 31, 1995. Inventory turns increased to 21 annualized turns
for the nine months ended September 30, 1996 from 18 annualized turns for
the nine months ended September 30, 1995. The increase in accounts payable
reflects timing of payments to vendors at the end of the respective periods
and increased purchase volume. Prepaid expenses and other current assets
increased $940,000 to approximately $1.1 million as of September 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 nine months ended
September 30, 1996 was $24.5 million, including approximately $8.8 million
for capital expenditures. The capital expenditures made by the Company
were primarily related to land for the Vernon Hills facility, new computer
hardware and leasehold improvements. The net increase in marketable
securities reflects purchases, net of redemptions, of approximately $15.8
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 more than a 100% increase over the current
facility. Construction of the new facility began in September, 1996. As
of September 30, 1996 approximately $6.8 million in costs have been
incurred, which are included in construction-in-progress. 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
securities 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 jurisdiction 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 the claims asserted in 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 the former shareholder 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION OF DOCUMENT
10 (ii) Non-statutory Stock Option Agreement dated September 5,
1996 between the Company and Harry J. Harczak Jr.
10 (jj) Non-statutory Stock Option Agreement dated September 5,
1996 between the Company and James R. Shanks.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the nine months
ended September 30, 1996.
14
<PAGE> 17
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 November 12, 1996 /s/ Harry J. Harczak, Jr.
----------------------------- -------------------------
Harry J. Harczak, Jr.
Chief Financial Officer
Date November 12, 1996 /s/ Daniel F. Callen
----------------------------- -------------------------
Daniel F. Callen
Chief Accounting Officer
15
<PAGE> 18
INDEX TO EXHIBITS
10 (ii) Non-statutory Stock Option Agreement dated September 5, 1996 between
the Company and Harry J. Harczak Jr.
10 (jj) Non-statutory Stock Option Agreement dated September 5, 1996 between
the Company and James R. Shanks.
<PAGE> 1
EXHIBIT 10(ii)
NON-STATUTORY STOCK OPTION AGREEMENT
DATED SEPTEMBER 5, 1996
BETWEEN THE COMPANY AND
HARRY J. HARCZAK JR.
<PAGE> 2
CDW COMPUTER CENTERS. INC.
NONSTATUTORY STOCK OPTION AGREEMENT
CDW Computer Centers, Inc. (the "Company") desiring to afford an
opportunity to the Grantee named below to purchase certain shares of the
Company's common stock, $.01 par value, to provide the Grantee with an added
incentive as an employee of the Company, hereby grants to Grantee, pursuant to
the terms hereof, an option to purchase the number of such shares optioned as
specified below, during the term ending at 5 o'clock p.m. (prevailing local
time at the Company's principal offices) on the expiration date of this Option
specified below, at the option exercise price specified below, subject to and
upon the following terms and conditions:
1. Indentifying Provisions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) Grantee: Harry J. Harczark, Jr.
(b) Date of grant: September 5, 1996
(c) Number of shares optioned: 25,000
(d) Option exercise price per share: $40.00
(e) Expiration date: September 5, 2016
2. Timing of Purchases. Subject to the other terms of this Agreement
regarding the exercisability of this Option, this Option may be exercised in
accordance with the following schedule:
This Option Shall Be Exercisable
With Respect to the Following
On Or After This Date Cumulative Number of Shares
--------------------- ---------------------------
January 1, 2000 6,250
January 1, 2001 6,250
January 1, 2002 12,500
3. Exercise: Payment For and Delivery of Stock. This Option may be
exercised by the Grantee or other person then entitled to exercise it by giving
written notice of exercise to the Company specifying the number of shares to be
purchased and the total purchase price, accompanied by a check to the order of
the Company in payment of such price, plus any
<PAGE> 3
withholding for Federal or state income taxes. The Compensation and Stock
Option Committee (the "Committee") shall have the sole discretion to
determine whether such withholding shall be satisfied by a cash payment from
Grantee or by withholding shares having a fair market value equal to the
amount of the required withholding. "Fair market value" shall be determined
using the closing price of the Company's common stock quoted on the NASDAQ
National Market System as reported in the Wall Street Journal or such other
reported value of the Common Stock of the Company as shall be specified by
the Committee, on the date notice of exercise is tendered to the Company, or
if such day is not a trading day, then on the immediately preceding trading
date. However, no such withholding of stock shall occur unless the Company
has been subject to the requirements of Section 13(a) of the Securities
Exchange Act of 1934 (the "Exchange Act") for at least one year immediately
prior to the exercise of the Option, and the Company regularly releases its
quarterly and annual summary statements of sales and earnings for
publication. Proceeds of cash or property received by the Company from the
sale of common stock pursuant to Options granted under this Agreement will be
used for general corporate purposes.
4. Alternative Payment Permitted. Notwithstanding the foregoing
provisions requiring payment by check, payment of such purchase price or any
portion thereof may be made by delivering to the Company shares of stock of the
same class as the shares then subject to this Option, such shares to be
credited toward such purchase price on the valuation basis set forth below,
valued as of the day immediately preceding the date the notice of exercise is
delivered to the Company, in which event the stock certificates evidencing the
shares so to be used shall accompany the notice of exercise and shall be duly
endorsed or accompanied by duly executed stock powers to transfer the same to
the Company; provided, however, that such payment in stock instead of cash
shall not be effective and shall be rejected by the Company if (i) the
Company is then prohibited from purchasing or acquiring shares of the class of
its stock thus tendered to it, or (ii) the right or power of the person
exercising the Option to deliver such shares in payment of said purchase price
is subject to the prior interests of any other person (excepting the Company),
as indicated by legends upon the certificate(s) or as known to the Company; if
the Company rejects the payment in stock, the tendered notice of exercise shall
not be effective hereunder unless within 10 business days after being notified
of such rejection the person exercising the Option pays the purchase price in
acceptable form.
Fair market value of the common stock for purposes of this Paragraph 4
shall be determined in accordance with the provisions of Paragraph 3.
Notwithstanding the foregoing, the Company shall not be obligated to
accept payment of the exercise price pursuant to this Paragraph unless the
stock tendered as payment for the exercise price has been held by the Grantee
for at least six months. The Company also has the discretion to refuse any
methods of payment that would cause the Company to recognize a charge to its
earnings.
2
<PAGE> 4
5. Restrictions on Exercise. The following additional provisions
shall apply to the exercise of this Option:
(a) If Grantee, who is not then subject to a Disability (as
defined below), voluntarily terminates employment with the Company, the
exercisable but unexercised portion of this Option shall continue to be
exercisable by the Grantee until the earlier of (i) the expiration date
of such Option or (ii) three months after the date of termination of
employment; provided, however, that if Grantee is terminated "for cause"
(as defined below), Grantee's right to exercise the exercisable but
unexercised portion of this Option shall terminate effective as of the
time notice of termination is given by the Company to Grantee. In
either event, the unexercisable options shall be forfeited as of the
date of termination.
(b) If a Grantee terminates employment with the Company as a
result of a Disability (as defined below) ("Disabled Grantee"), any
unexercised portion of this Option held by the Disabled Grantee shall be
exercisable in full (including the portion of which, but for this
provision, would not be exercisable) by the Disabled Grantee until the
earlier of (i) the expiration date of such Option or (ii) the date one
year after the date of termination of employment.
(c) Following the death of the Grantee during such time as
he or she shall be employed by the Company, the unexercised portion of
this Option at the time of death shall be exercisable in full (including
the portion which, but for this provision, would not be exercisable) by
the person or persons entitled to do so under the will of the Grantee,
or, if the Grantee shall fail to make testamentary disposition of the
Option or shall die intestate, by the legal representative of the
Grantee until the earlier of (i) the expiration date of such Option or
(ii) the date one year after the date of death.
(d) For purposes of this Agreement, "for cause" shall
include: (i) the commission of a criminal act, fraud, gross negligence
or willful misconduct against, or in derogation of the interests of the
Company; (ii) divulging confidential information regarding the Company;
(iii) interference with the relationship between the Company and any
major supplier or customer; or (iv) the performance of any similar
action that the Committee, in its sole discretion, may deem to be
sufficiently injurious to the interests of the Company to constitute
cause for termination.
(e) The time of cessation of employment and whether an
authorized leave of absence or absence on military or government service
shall constitute cessation of employment, for the purpose of this
Agreement, shall be determined by the Committee.
(f) "Disability" for purposes of this Agreement shall be
defined as follows:
(i) If Grantee becomes disabled while any
unexercised Options issued pursuant to this
Agreement are outstanding by reason of illness,
3
<PAGE> 5
accident or any other cause, the Company shall
have the right to appoint a physician or
physicians to (A) examine Grantee at reasonable
intervals from time to time in connection with
such disability and (B) deliver to the Company:
(I) a certificate ("Initial Certificate")
certifying whether or not such disability
occurred and, if so, the date on which it
commenced ("Onset Date"); and (II) if the
condition or disability continues uninterrupted
for a one (1) year period beginning on the
Onset Date and ending on the one (1) year
anniversary thereof, a certificate ("Final
Certificate") certifying that fact. The Grantee
shall cooperate fully with the physician(s) as
set forth in either the Initial Certificate or
the Final Certificate or both and the Grantee
shall have the right to appoint another
physician to examine the Grantee and determine
the same matters. If the physicians appointed
by the Company and by the Grantee do not agree,
such physicians shall jointly appoint a third
physician to examine the Grantee and determine
the same matters. The determination of the
third physician shall be binding on the Company
and the Grantee; and
(ii) In determining whether the Grantee is disabled
for purposes of the Initial Certificate, the
standard to be applied by any physician
appointed in accordance with this
Subparagraph shall be, at the Company's
election, either of the following: the Grantee
will be deemed disabled if on the applicable
Onset Date (A) he or she is unable to render to
the Company services of substantially the kind
and nature, and to substantially the extent,
being rendered by him or her during the fiscal
quarter next preceding such Onset Date, or (B)
his or her medical condition satisfies such
other standard of total disability as is to be
applied under any policy of insurance, the
proceeds of which would be payable to fund a
claim or claims of disability with respect to
the Grantee. If more than one such policy is in
effect at the time of such physician's
determination, the Company shall designate
which policy standard shall apply. The standard
used for purposes of the Initial Certificate
shall also be used for purposes of the Final
Certificate.
(g) Grantee agrees that in the event that Grantee is employed
by, receives compensation from or otherwise is associated with or
has agreed in principle to be employed by or to receive compensation
from or otherwise be associated as an officer, agent, director,
employee, shareholder, consultant, or otherwise with a Competitor of
the Company at any time prior to the expiration of the 12 month period
following the date of termination of employment with the Company: (i)
all unexercised Options shall be forfeited and (ii) any Option Proceeds
shall be immediately due and payable by the Grantee to the Company. For
purposes of this Paragraph, "Competitor" shall be any
4
<PAGE> 6
entity or person which engages for any portion of its business in the
direct marketing of personal computer products to residents of the
United States including, but not limited to, sale by mail order. For
purposes of this Paragraph, "Option Proceeds" shall mean (i) the
difference between (A) the per share closing price of the Company's
Common Stock as reported on the Nasdaq Stock Market or such other
reported value of the Common Stock as shall be specified by the
Committee at the date of exercise and (B) the per share exercise price
of the option, multiplied by (ii) the number of shares acquired
pursuant to any exercise of options issued under this Agreement which
occurs after the date 12 months prior to the date of termination of
employment with the Company. The remedy provided by this Paragraph
shall be in addition to and not in lieu of any rights or remedies which
Company may have against Grantee in respect of a breach by Grantee of
any duty or obligation to the Company.
6. Nontransferability. The Grantee may not transfer this Option except by
will or the laws of descent and distribution. This Option shall not be
otherwise transferred, assigned, pledged, hypothecated or disposed of in any
way, whether by operation of law or otherwise, and shall be exercisable
during the Grantee's lifetime only by the Grantee or his guardian or legal
representative. The designation of a beneficiary shall not constitute a
transfer.
7. Changes in Capital Structure. If the outstanding shares of Common
Stock of the Company are increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
or of another corporation by reason of any reorganization, merger,
consolidation, plan of exchange, recapitalization, reclassification, stock
split-up, combination of shares or dividend payable in shares, appropriate
adjustment shall be made by the Committee to the end that the Grantee's
proportionate interest is maintained as before the occurrence of such event.
The Committee may also require that any securities issued in respect of or in
exchange for Shares issued hereunder that are subject to restrictions be
subject to similar restrictions. Notwithstanding the foregoing, the Committee
shall have no obligation to effect any adjustment that would or might result
in the issuance of fractional shares, and any fractional shares resulting
from any adjustment may be disregarded or provided for in any manner
determined by the Committee. Any such adjustments made by the Committee shall
be conclusive.
Subject to the provisions of Paragraph 8, if the Company shall be a
party to a transaction involving a sale of substantially all its assets, a
merger or a consolidation, this Option shall pertain and apply to the
securities to which the Grantee would have been entitled if the Grantee
actually owned the Shares subject to the Option immediately prior to the time
any such transaction became effective; provided, however, that any unexercised
Options may be canceled by the Company as of the effective date of any such
transaction, by giving notice to the Grantee of its intention to do so and by
permitting the exercise, during the thirty (30) day period preceding the
effective date of such transaction, of all partly or wholly unexercised Options
in full (without regard to installment exercise limitations).
5
<PAGE> 7
In the case of dissolution of the Company, every Option outstanding
hereunder shall terminate; provided, however, that each Option holder shall
have thirty (30) days prior written notice of such event, during which time he
or she shall have a right to exercise his or her partly or wholly unexercised
Options (without regard to installment exercise limitations).
On the basis of information known to the Company, the Committee shall
make all determinations under this Paragraph 7, including whether a transaction
involves a sale of substantially all the Company's assets; and all such
determinations shall be conclusive and binding.
If any such adjustment provided for in this Paragraph 7 requires the
approval of shareholders of the Company in order to enable the Company to
adjust the Option, then no such adjustment shall be made without the required
shareholder approval.
8. Special Acceleration in Certain Events.
(a) Notwithstanding any other provisions of this Option, a
special acceleration ("Special Acceleration") of these options shall
occur with the effect set forth in Subparagraph (b) at any time when
the shareholders of the Company approve one of the following
("Approved Transactions"):
(i) Any consolidation, merger, plan of exchange, or
transaction involving the Company ("Merger") in which the
Company is not the continuing or surviving corporation or
pursuant to which the Common Stock of the Company would be
converted into cash, securities or other property, other than a
Merger involving the Company in which the holders of the Common
Stock of the Company immediately prior to the Merger have the
same proportionate ownership of common stock of the surviving
corporation after the Merger; or
(ii) Any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company or the adoption
of any plan or proposal for the liquidation or dissolution of
the Company.
In addition, Special Acceleration shall occur in the event a "person"
within the meaning of Section 13(d) of the Exchange Act becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, in one or more transactions, of shares of common
stock of the Company representing 50% or more of the total number of votes
that may be cast by all shareholders of the Company voting as a single
class, without the approval or consent of the Board of Directors.
6
<PAGE> 8
Notwithstanding the provisions of this Paragraph, no Option may be
exercised or stock disposed of in connection with a Special
Acceleration to the extent that such exercise or disposition would
result in an excess parachute payment to Grantee (as defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"),
without the prior consent of the Company. The Company is authorized by
Grantee to collect from Grantee any additional income or excise taxes
which the Company may incur due to a violation of this provision.
(b) Effect on Option. Except as provided below in this
Subparagraph (b) upon a Special Acceleration pursuant to Subparagraph
(a), this Option shall immediately become exercisable in full
(including any portion of the Option, which, but for this provision,
would not exercisable) during the 30-day period prior to an Approved
transaction during which grantee shall have the right to exercise this
Option, in whole or in part, and upon the expiration of such 30-day
period all rights hereunder with respect to unexercised shares shall
immediately terminate.
9. Rights in Shares Before Issuance and Delivery. Grantee, or his or her
executor, administrator or legatee if he or she be deceased, shall have no
rights as a shareholder with respect to any stock covered by this Option
until the date of issuance of the stock certificate to him or her for such
stock after receipt of the consideration in full set forth herein or as may
be approved by the Company. No adjustments shall be made for dividends,
whether ordinary or extraordinary, whether in cash, securities, or other
property, or for distributions in which the record date is prior to the date
for which the stock certificate is issued.
10. Requirements of Law and of Stock Exchanges. Until such time as the
shares to be issued pursuant to this Option are registered under applicable
federal, state or foreign securities laws, Grantee represents and warrants that
the shares of the common stock to be acquired upon exercise of the Option are
being acquired for investment for the account of such person and not with a
view to the resale or other distribution thereof, and that Grantee will not,
directly or indirectly, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of any shares acquired hereunder. Grantee agrees that he will
execute such further documents as may be reasonably required by the Company
upon exercise of the Option or any part thereof, including but not limited to
stock transfer restrictions. The certificate or certificates representing the
shares of the common stock to be issued or delivered upon exercise of this
Option may bear a legend evidencing the foregoing and other legends required by
any applicable securities laws. Furthermore, nothing herein shall require the
Company to issue any stock upon exercise of this Option if the issuance would,
in the opinion of counsel for the Company, constitute a violation of the
Securities Act of 1933, as amended, the Illinois securities laws, or any other
applicable rule or regulation then in effect.
11. Federal Income Tax Treatment. This Option is intended to be a
non-statutory stock option for purposes of the Code. The provisions of this
Agreement shall be interpreted in a manner consistent with the Code and with
all valid regulations issued thereunder.
7
<PAGE> 9
12. No Right to Continued Employment. This Option shall not confer upon
the Grantee any right with respect to continued employment by the Company nor
shall it alter, modify, limit or interfere with any right or privilege of the
Company under any employment contract, heretofore or hereinafter executed, with
the Grantee, including the right to terminate the Grantee's employment at any
time for or without cause.
13. Indemnification of Board of Directors. In addition to such other
rights of indemnification as they may have as Directors, the members of the
Board of Directors and the Committee shall be indemnified by the Company
against the reasonable expenses, including attorney's fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding (or in connection with any appeal thereof), to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with this Option and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Board or
Committee member is liable for gross negligence or gross misconduct in the
performance of his or her duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding a Board or Committee member
shall in writing offer the Company the opportunity, at its own expense, to
handle and defend the same.
14. Notices. Any notice to be given to the Committee shall be addressed
to the Committee in care of the Company at its principal office, and any notice
to be given to the Grantee shall be addressed to him or her at the address
given beneath his or her signature hereto or at such other address as the
Grantee may hereafter designate in writing to the Company. Any such notice
shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service.
15. Miscellaneous. This Agreement constitutes the entire agreement and
understanding between the Company and the Grantee and may not be changed,
modified or amended by oral statements to the contrary, but only by written
document signed by both parties hereto. The titles to each paragraph herein are
for convenience only and are not to be used in the construction or
interpretation of this document. This Agreement shall be binding on and inure
to the benefit of the parties hereto, and their respective heirs, legatees,
successors and assigns. This Agreement shall be construed in accordance with
the laws of the State of Illinois. The granting of this Option shall impose no
obligation upon the Grantee to exercise such Option or right.
8
<PAGE> 10
IN WITNESS THEREOF, the Company has granted this Option on the date of
grant specified above.
ACCEPTED: CDW COMPUTER CENTERS INC.,
an Illinois corporation
Grantee: Harry J. Harczak, Jr. By: Michael P. Krasny
-------------------------- ----------------------------
Harry J. Harczak, Jr.
Address: Title: Chairman and CEO
-------------------------- -------------------------
-------------------------- Dated as of September 5, 1996
--------------------------
Dated as of September 5, 1996
9
<PAGE> 11
NOTATIONS AS TO PARTIAL EXERCISE
<TABLE>
<CAPTION>
Number of Balance of
Date of Purchased Shares on Authorized Notation
Exercise Shares Option Signature Date
- -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
</TABLE>
10
<PAGE> 1
EXHIBIT 10 (jj)
NON-STATUTORY STOCK OPTION AGREEMENT
DATED SEPTEMBER 5, 1996
BETWEEN THE COMPANY AND
JAMES R. SHANKS
<PAGE> 2
CDW COMPUTER CENTERS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
CDW Computer Centers, Inc. (the "Company") desiring to afford an
opportunity to the Grantee named below to purchase certain shares of the
Company's common stock, $.01 par value, to provide the Grantee with an added
incentive as an employee of the Company, hereby grants to Grantee, pursuant to
the terms hereof, an option to purchase the number of such shares optioned as
specified below, during the term ending at 5 o'clock p.m. (prevailing local
time at the Company's principal offices) on the expiration date of this Option
specified below, at the option exercise price specified below, subject to and
upon the following terms and conditions:
1. Identifying Provisions. As used in this Agreement, the following
terms shall have the following respective meanings:
<TABLE>
<S> <C>
(a) Grantee: James R. Shanks
(b) Date of grant: September 5, 1996
(c) Number of shares optioned: 25,000
(d) Option exercise price per share: $40.00
(e) Expiration date: September 5, 2016
</TABLE>
2. Timing of Purchases. Subject to the other terms of this Agreement
regarding the exercisability of this Option, this Option may be exercised in
accordance with the following schedule:
<TABLE>
<CAPTION>
This Option Shall Be Exercisable
With Respect to the Following
On Or After This Date Cumulative Number of Shares
--------------------- --------------------------------
<S> <C>
January 1, 2000 6,250
January 1, 2001 6,250
January 1, 2002 12,500
</TABLE>
3. Exercise: Payment For and Delivery of Stock. This Option may be
exercised by the Grantee or other person then entitled to exercise it by
giving written notice of exercise to the Company specifying the number of
shares to be purchased and the total purchase price, accompanied by a check
to the order of the Company in payment of such price, plus any
<PAGE> 3
withholding for Federal or state income taxes. The Compensation and Stock Option
Committee (the "Committee") shall have the sole discretion to determine whether
such withholding shall be satisfied by a cash payment from Grantee or by
withholding shares having a fair market value equal to the amount of the
required withholding. "Fair market value" shall be determined using the
closing price of the Company's common stock quoted on the NASDAQ National Market
System as reported in the Wall Street Journal or such other reported value of
the Common Stock of the Company as shall be specified by the Committee, on the
date notice of exercise is tendered to the Company, or if such day is not a
trading day, then on the immediately preceding trading date. However, no such
withholding of stock shall occur unless the Company has been subject to the
requirements of Section 13(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") for at least one year immediately prior to the exercise of the
Option, and the Company regularly releases its quarterly and annual summary
statements of sales and earnings for publication. Proceeds of cash or property
received by the Company from the sale of common stock pursuant to Options
granted under this Agreement will be used for general corporate purposes.
4. Alternative Payment Permitted. Notwithstanding the foregoing
provisions requiring payment by check, payment of such purchase price or any
portion thereof may be made by delivering to the Company shares of stock of the
same class as the shares then subject to this Option, such shares to be credited
toward such purchase price on the valuation basis set forth below, valued as of
the day immediately preceding the date the notice of exercise is delivered to
the Company, in which event the stock certificates evidencing the shares so to
be used shall accompany the notice of exercise and shall be duly endorsed or
accompanied by duly executed stock powers to transfer the same to the Company;
provided, however, that such payment in stock instead of cash shall not be
effective and shall be rejected by the Company if (i) the Company is then
prohibited from purchasing or acquiring shares of the class of its stock thus
tendered to it, or (ii) the right or power of the person exercising the Option
to deliver such shares in payment of said purchase price is subject to the prior
interests of any other person (excepting the Company), as indicated by legends
upon the certificate(s) or as known to the Company; if the Company rejects the
payment in stock, the tendered notice of exercise shall not be effective
hereunder unless within 10 business days after being notified of such rejection
the person exercising the Option pays the purchase price in acceptable form.
Fair market value of the common stock for purposes of this Paragraph 4
shall be determined in accordance with the provisions of Paragraph 3.
Notwithstanding the foregoing, the Company shall not be obligated to
accept payment of the exercise price pursuant to this Paragraph unless the
stock tendered as payment for the exercise price has been held by the Grantee
for at least six months. The Company also has the discretion to refuse any
methods of payment that would cause the Company to recognize a charge to its
earnings.
2
<PAGE> 4
5. Restrictions on Exercise. The following additional provisions shall
apply to the exercise of this Option:
(a) If Grantee, who is not then subject to a Disability (as defined
below), voluntarily terminates employment with the Company, the exercisable
but unexercised portion of this Option shall continue to be exercisable by
the Grantee until the earlier of (i) the expiration date of such Option or
(ii) three months after the date of termination of employment; provided,
however, that if Grantee is terminated "for cause" (as defined below),
Grantee's right to exercise the exercisable but unexercised portion of this
Option shall terminate effective as of the time notice of termination is
given by the Company to Grantee. In either event, the unexercisable options
shall be forfeited as of the date of termination.
(b) If a Grantee terminates employment with the Company as a result
of a Disability (as defined below) ("Disabled Grantee"), any unexercised
portion of this Option held by the Disabled Grantee shall be exercisable in
full (including the portion of which, but for this provision, would not be
exercisable) by the Disabled Grantee until the earlier of (i) the expiration
date of such Option or (ii) the date one year after the date of termination
of employment.
(c) Following the death of the Grantee during such time as he or she
shall be employed by the Company, the unexercised portion of this Option at
the time of death shall be exercisable in full (including the portion which,
but for this provision, would not be exercisable) by the person or persons
entitled to do so under the will of the Grantee, or, if the Grantee shall
fail to make testamentary disposition of the Option or shall die intestate,
by the legal representative of the Grantee until the earlier of (i) the
expiration date of such Option or (ii) the date one year after the date of
death.
(d) For purposes of this Agreement, "for cause" shall include: (i)
the commission of a criminal act, fraud, gross negligence or willful
misconduct against, or in derogation of the interests of the Company; (ii)
divulging confidential information regarding the Company; (iii) interference
with the relationship between the Company and any major supplier or
customer; or (iv) the performance of any similar action that the Committee,
in its sole discretion, may deem to be sufficiently injurious to the
interests of the Company to constitute cause for termination.
(e) The time of cessation of employment and whether an authorized
leave of absence or absence on military or government service shall
constitute cessation of employment, for the purpose of this Agreement, shall
be determined by the Committee.
(f) "Disability" for purposes of this Agreement shall be defined as
follows:
(i) If Grantee becomes disabled while any unexercised Options
issued pursuant to this Agreement are outstanding by reason
of illness,
3
<PAGE> 5
accident or any other cause, the Company shall have the
right to appoint a physician or physicians to (A) examine
Grantee at reasonable intervals from time to time in
connection with such disability and (B) deliver to the
Company: (I) a certificate ("Initial Certificate")
certifying whether or not such disability occurred and, if
so, the date on which it commenced ("Onset Date"); and (II)
if the condition or disability continues uninterrupted for a
one (1) year period beginning on the Onset Date and ending
on the one (1) year anniversary thereof, a certificate
("Final Certificate") certifying that fact. The Grantee
shall cooperate fully with the physician(s) as set forth in
either the Initial Certificate or the Final Certificate or
both and the Grantee shall have the right to appoint another
physician to examine the Grantee and determine the same
matters. If the physicians appointed by the Company and by
the Grantee do not agree, such physicians shall jointly
appoint a third physician to examine the Grantee and
determine the same matters. The determination of the third
physician shall be binding on the Company and the Grantee;
and
(ii) In determining whether the Grantee is disabled for purposes
of the Initial Certificate, the standard to be applied by
any physician appointed in accordance with this Subparagraph
shall be, at the Company's election, either of the
following: the Grantee will be deemed disabled if on the
applicable Onset Date (A) he or she is unable to render to
the Company services of substantially the kind and
nature, and to substantially the extent, being rendered by
him or her during the fiscal quarter next preceding such
Onset Date, or (B) his or her medical condition satisfies
such other standard of total disability as is to be applied
under any policy of insurance, the proceeds of which would
be payable to fund a claim or claims of disability with
respect to the Grantee. If more than one such policy is in
effect at the time of such physician's determination, the
Company shall designate which policy standard shall apply.
The standard used for purposes of the Initial Certificate
shall also be used for purposes of the Final Certificate.
(g) Grantee agrees that in the event that Grantee is employed by,
receives compensation from or otherwise is associated with or has agreed in
principle to be employed by or to receive compensation from or otherwise
be associated as an officer, agent, director, employee, shareholder,
consultant, or otherwise with a Competitor of the Company at any time prior
to the expiration of the 12 month period following the date of termination
of employment with the Company: (i) all unexercised Options shall be
forfeited and (ii) any Option Proceeds shall be immediately due and payable
by the Grantee to the Company. For purposes of this Paragraph, "Competitor"
shall be any
4
<PAGE> 6
entity or person which engages for any portion of its business in the
direct marketing of personal computer products to residents of the United
States including, but not limited to, sale by mail order. For purposes of
this Paragraph, "Option Proceeds" shall mean (i) the difference between (A)
the per share closing price of the Company's Common Stock as reported on the
Nasdaq Stock Market or such other reported value of the Common Stock as
shall be specified by the Committee at the date of exercise and (B) the per
share exercise price of the option, multiplied by (ii) the number of shares
acquired pursuant to any exercise of options issued under this Agreement
which occurs after the date 12 months prior to the date of termination of
employment with the Company. The remedy provided by this Paragraph shall be
in addition to and not in lieu of any rights or remedies which Company may
have against Grantee in respect of a breach by Grantee of any duty or
obligation to the Company.
6. Nontransferability. The Grantee may not transfer this Option except
by will or the laws of descent and distribution. This Option shall not be
otherwise transferred, assigned, pledged, hypothecated or disposed of in any
way, whether by operation of law or otherwise, and shall be exercisable during
the Grantee's lifetime only by the Grantee or his guardian or legal
representative. The designation of a beneficiary shall not constitute a
transfer.
7. Changes in Capital Structure. If the outstanding shares of Common
Stock of the Company are increased or decreased or changed into or exchanged for
a different number or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation, plan
of exchange, recapitalization, reclassification, stock split-up, combination of
shares or dividend payable in shares, appropriate adjustment shall be made by
the Committee to the end that the Grantee's proportionate interest is maintained
as before the occurrence of such event. The Committee may also require that any
securities issued in respect of or in exchange for Shares issued hereunder that
are subject to restrictions be subject to similar restrictions. Notwithstanding
the foregoing, the Committee shall have no obligation to effect any adjustment
that would or might result in the issuance of fractional shares, and any
fractional shares resulting from any adjustment may be disregarded or provided
for in any manner determined by the Committee. Any such adjustments made by the
Committee shall be conclusive.
Subject to the provisions of Paragraph 8, if the Company shall be a
party to a transaction involving a sale of substantially all its assets, a
merger or a consolidation, this Option shall pertain and apply to the securities
to which the Grantee would have been entitled if the Grantee actually owned the
Shares subject to the Option immediately prior to the time any such transaction
became effective; provided, however, that any unexercised Options may be
canceled by the Company as of the effective date of any such transaction, by
giving notice to the Grantee of its intention to do so and by permitting the
exercise, during the thirty (30) day period preceding the effective date of such
transaction, of all partly or wholly unexercised Options in full (without regard
to installment exercise limitations).
5
<PAGE> 7
In the case of dissolution of the Company, every Option outstanding
hereunder shall terminate; provided, however, that each Option holder shall have
thirty (30) days prior written notice of such event, during which time he or she
shall have a right to exercise his or her partly or wholly unexercised Options
(without regard to installment exercise limitations).
On the basis of information known to the Company, the Committee shall
make all determinations under this Paragraph 7, including whether a transaction
involves a sale of substantially all the Company's assets; and all such
determinations shall be conclusive and binding.
If any such adjustment provided for in this Paragraph 7 requires the
approval of shareholders of the Company in order to enable the Company to adjust
the Option, then no such adjustment shall be made without the required
shareholder approval.
8. Special Acceleration in Certain Events.
(a) Notwithstanding any other provisions of this Option, a
special acceleration ("Special Acceleration") of these options shall
occur with the effect set forth in Subparagraph (b) at any time when
the shareholders of the Company approve one of the following
("Approved Transactions"):
(i) Any consolidation, merger, plan of exchange, or
transaction involving the Company ("Merger") in which the
Company is not the continuing or surviving corporation or
pursuant to which the Common Stock of the Company would be
converted into cash, securities or other property, other than a
Merger involving the Company in which the holders of the Common
Stock of the Company immediately prior to the Merger have the
same proportionate ownership of common stock of the surviving
corporation after the Merger; or
(ii) Any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company or the adoption
of any plan or proposal for the liquidation or dissolution of
the Company.
In addition, Special Acceleration shall occur in the event a
"person" within the meaning of Section 13(d) of the Exchange Act becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, in one or more transactions, of shares of common stock of the
Company representing 50% or more of the total number of votes that may be
cast by all shareholders of the Company voting as a single class, without
the approval or consent of the Board of Directors.
6
<PAGE> 8
Notwithstanding the provisions of this Paragraph, no Option may be
exercised or stock disposed of in connection with a Special
Acceleration to the extent that such exercise or disposition would
result in an excess parachute payment to Grantee (as defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"),
without the prior consent of the Company. The Company is authorized by
Grantee to collect from Grantee any additional income or excise taxes
which the Company may incur due to a violation of this provision.
(b) Effect on Option. Except as provided below in this
Subparagraph (b) upon a Special Acceleration pursuant to Subparagraph
(a), this Option shall immediately become exercisable in full
(including any portion of the Option, which, but for this provision,
would not be exercisable) during the 30-day period prior to an approved
Transaction during which Grantee shall have the right to exercise this
Option, in whole or in part, and upon the expiration of such 30-day
period all rights hereunder with respect to unexercised shares shall
immediately terminate.
9. Rights in Shares Before Issuance and Delivery. Grantee, or his or her
executor, administrator or legatee if he or she be deceased, shall have no
rights as a shareholder with respect to any stock covered by this Option
until the date of issuance of the stock certificate to him or her for such
stock after receipt of the consideration in full set forth herein or as may
be approved by the Company. No adjustments shall be made for dividends,
whether ordinary or extraordinary, whether in cash, securities, or other
property, or for distributions in which the record date is prior to the date
for which the stock certificate is issued.
10. Requirements of Law and of Stock Exchanges. Until such time as the
shares to be issued pursuant to this Option are registered under applicable
federal, state or foreign securities laws, Grantee represents and warrants that
the shares of the common stock to be acquired upon exercise of the Option are
being acquired for investment for the account of such person and not with a view
to the resale or other distribution thereof, and that Grantee will not, directly
or indirectly, transfer, sell, assign, pledge, hypothecate or otherwise dispose
of any shares acquired hereunder. Grantee agrees that he will execute such
further documents as may be reasonably required by the Company upon exercise of
the Option or any part thereof, including but not limited to stock transfer
restrictions. The certificate or certificates representing the shares of the
common stock to be issued or delivered upon exercise of this Option may bear a
legend evidencing the foregoing and other legends required by any applicable
securities laws. Furthermore, nothing herein shall require the Company to issue
any stock upon exercise of this Option if the issuance would, in the opinion of
counsel for the Company, constitute a violation of the Securities Act of 1933,
as amended, the Illinois securities laws, or any other applicable rule or
regulation then in effect.
11. Federal Income Tax Treatment. This Option is intended to be a
non-statutory stock option for purposes of the Code. The provisions of this
Agreement shall be interpreted in a manner consistent with the Code and with all
valid regulations issued thereunder.
7
<PAGE> 9
12. No Right to Continued Employment. This Option shall not confer upon
the Grantee any right with respect to continued employment by the Company nor
shall it alter, modify, limit or interfere with any right or privilege of the
Company under any employment contract, heretofore or hereinafter executed,
with the Grantee, including the right to terminate the Grantee's employment
at any time for or without cause.
13. Indemnification of Board of Directors. In addition to such other
rights of indemnification as they may have as Directors, the members of the
Board of Directors and the Committee shall be indemnified by the Company
against the reasonable expenses, including attorney's fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding (or in connection with any appeal thereof), to which they or any
of them may be a party by reason of any action taken or failure to act under
or in connection with this Option and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to
matters as to which it shall be adjudged in such action, suit or proceeding
that such Board or Committee member is liable for gross negligence or gross
misconduct in the performance of his or her duties; provided that within
sixty (60) days after institution of any such action, suit or proceeding a
board or Committee member shall in writing offer the Company the opportunity,
at its own expense, to handle and defend the same.
14. Notices. Any notice to be given to the Committee shall be addressed
to the Committee in care of the Company at its principal office, and any notice
to be given to the Grantee shall be addressed to him or her at the address given
beneath his or her signature hereto or at such other address as the Grantee may
hereafter designate in writing to the Company. Any such notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and deposited postage and registry or
certification fee prepaid, in a post office or branch post office regularly
maintained by the United States Postal Service.
15. Miscellaneous. This Agreement constitutes the entire agreement and
understanding between the Company and the Grantee and may not be changed,
modified or amended by oral statements to the contrary, but only by written
document signed by both parties hereto. The titles to each paragraph herein are
for convenience only and are not to be used in the construction or
interpretation of this document. This Agreement shall be binding on and inure to
the benefit of the parties hereto, and their respective heirs, legatees,
successors and assigns. This Agreement shall be construed in accordance with the
laws of the State of Illinois. The granting of this Option shall impose no
obligation upon the Grantee to exercise such Option or right.
8
<PAGE> 10
IN WITNESS THEREOF, the Company has granted this Option on the date of grant
specified above.
ACCEPTED: CDW COMPUTER CENTERS INC.,
an Illinois corporation
Grantee James R. Shanks By: Michael P. Krasny
------------------------ -----------------------------
James R. Shanks
Address: Title: Chairman and CEO
------------------------ -------------------------
------------------------ Dated as of September 5, 1996
------------------------
Dated as of September 5, 1996
9
<PAGE> 11
NOTATIONS AS TO PARTIAL EXERCISE
<TABLE>
<CAPTION>
Number of Balance of
Date of Purchased Shares on Authorized Notation
Exercise Shares Option Signature Date
- -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,728
<SECURITIES> 58,773
<RECEIVABLES> 56,309
<ALLOWANCES> 950
<INVENTORY> 46,000
<CURRENT-ASSETS> 172,124
<PP&E> 13,585
<DEPRECIATION> 3,347
<TOTAL-ASSETS> 185,933
<CURRENT-LIABILITIES> 55,771
<BONDS> 0
0
0
<COMMON> 215
<OTHER-SE> 129,947
<TOTAL-LIABILITY-AND-EQUITY> 185,933
<SALES> 240,330
<TOTAL-REVENUES> 240,330
<CGS> 208,744
<TOTAL-COSTS> 208,744
<OTHER-EXPENSES> 16,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,132
<INCOME-TAX> 6,453
<INCOME-CONTINUING> 9,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,679
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
