<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CDW Computer Centers, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- - --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
NOTICE OF
ANNUAL MEETING
OF SHAREHOLDERS
AND
PROXY STATEMENT
MAY 7, 1997
MARRIOTT LINCOLNSHIRE RESORT
10 MARRIOTT DRIVE
LINCOLNSHIRE, ILLINOIS 60069
CDW COMPUTER CENTERS, INC.
______________
<PAGE> 3
CDW COMPUTER CENTERS, INC.
1020 EAST LAKE COOK ROAD
BUFFALO GROVE, ILLINOIS 60089
APRIL 10, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
CDW Computer Centers, Inc. scheduled for 6:00 p.m. on Wednesday, May 7, 1997,
at the Marriott Lincolnshire Resort, 10 Marriott Drive, Lincolnshire, Illinois
60069.
The matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Annual Meeting of Shareholders and Proxy
Statement.
Members of the Board of Directors, management and I look forward to
personally greeting those shareholders who are able to attend.
Please be sure to sign and return the enclosed proxy card whether or not
you plan to attend the meeting so that your shares will be voted. You may
revoke your proxy by a later dated proxy or vote in person at the meeting, if
you prefer. The Board of Directors joins me in thanking you for your continued
support and hoping that you will attend the meeting.
Sincerely yours,
Michael P. Krasny
Chairman, Chief Executive Officer, Secretary and Treasurer
<PAGE> 4
CDW COMPUTER CENTERS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 7, 1997
_______________
The Annual Meeting of Shareholders of CDW Computer Centers, Inc. (the
"Company") will be held at 6:00 p.m. on Wednesday, May 7, 1997 at the Marriott
Lincolnshire Resort, 10 Marriott Drive, Lincolnshire, Illinois 60069 for the
purpose of considering and voting on:
1. The election of five directors. Management's nominees are named
in the accompanying Proxy Statement.
2. The approval of the terms of the Employee Incentive Bonus Pool, a
performance-based compensation program for certain executive officers.
3. The ratification of the selection of Coopers & Lybrand L.L.P.,
independent accountants, as auditors for the Company for the year ending
December 31, 1997.
4. Such other business as may properly come before the meeting and all
adjournments thereof.
The Board of Directors has fixed April 9, 1997 as the record date for
determining the shareholders of the Company entitled to notice of and to vote
at the meeting and only holders of stock of the Company of record at the close
of business on such date will be entitled to notice of and to vote at such
meeting and all adjournments.
Even if you plan to attend the meeting, please be sure to sign, date and
return the proxy in the enclosed envelope to:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Attention: Proxy Section
Michael P. Krasny
Chairman, Chief Executive Officer,
Secretary and Treasurer
Buffalo Grove, Illinois
April 10, 1997
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES
MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED. THE PROMPT RETURN OF YOUR SIGNED PROXY, REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD, WILL AID THE COMPANY IN REDUCING THE EXPENSE OF
ADDITIONAL PROXY SOLICITATION. THE GIVING OF SUCH PROXY DOES NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE MEETING.
<PAGE> 5
CDW COMPUTER CENTERS, INC.
1020 EAST LAKE COOK ROAD
BUFFALO GROVE, ILLINOIS 60089
PROXY STATEMENT
ANNUAL MEETING - MAY 7, 1997
INFORMATION REGARDING PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of CDW Computer Centers, Inc. (the
"Company"), to be voted at the Annual Meeting of Shareholders on Wednesday, May
7, 1997 and at any and all adjournments thereof.
Solicitation of proxies by mail is expected to commence April 10, 1997 and
the cost thereof will be borne by the Company. In addition to such
solicitation by mail, some of the directors, officers and regular employees of
the Company may, without extra compensation, solicit proxies by telephone,
telegraph and personal interview. Arrangements will be made with brokerage
houses, custodians, nominees and other fiduciaries to send proxy material to
their principals and they will be reimbursed by the Company for postage and
clerical expense in doing so. The Company may retain at its expense a proxy
solicitation firm to assist it in soliciting proxies.
Votes cast by proxy or in person at the Annual Meeting of Shareholders
will be tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as not-voted for purposes of
determining the approval of any matter submitted to the shareholders for a
vote. Shares as to which proxies have been executed will be voted as specified
in the proxies. If no specification is made in an otherwise properly executed
proxy, the shares will be voted "FOR" the election of management's nominees as
directors and "FOR" the other proposals listed. If a broker indicates on the
proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
Proxies may be revoked at any time prior to the exercise thereof by filing
with the Secretary of the Company, at the Company's executive offices, a
written revocation or a duly executed proxy bearing a later date. The
executive offices of the Company are located at 1020 East Lake Cook Road,
Buffalo Grove, Illinois 60089.
1
<PAGE> 6
UNLESS OTHERWISE INDICATED, ALL INFORMATION PROVIDED HEREIN IS GIVEN AS OF THE
DATE HEREOF.
VOTING SECURITIES
The securities of the Company entitled to be voted at the meeting consist
of shares of its Common Stock, $0.01 par value ("Common Stock"). Each share of
Common Stock is entitled to one vote on all matters. On April 9, 1997 (the
"Record Date"), 21,524,984 shares of Common Stock were issued and outstanding.
Only shareholders of record at the close of business on the Record Date
will be entitled to receive notice of and to vote at the meeting. There are no
cumulative voting rights.
Assuming a quorum is present in person or by proxy, the affirmative vote
of a majority of the votes represented is required for election of the
directors, approval of the Employee Incentive Bonus Pool and the ratification
of independent accountants.
SHAREHOLDER PROPOSALS
Any shareholder desirous of including any proposal in the Company's proxy
soliciting material for the next regularly scheduled Annual Meeting of
Shareholders (for the year ending December 31, 1997) must submit his or her
proposal, in writing, directed to the Company's executive offices not later
than December 10, 1997. Any such proposal must comply with Rule 14a-8 of
Regulation 14A of the proxy rules of the Securities Exchange Act of 1934, as
amended, in order for such proposal to be included in the 1998 Proxy Statement.
SECURITY OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock at February 28, 1997 by:
(i) each person or group that is known by the Company to be the beneficial
owner of more than five percent (5%) of the outstanding shares of Common Stock;
(ii) each director and director nominee of the Company; (iii) each of the Named
Officers (as hereinafter defined); and (iv) all directors, director nominees
and executive officers of the Company as a group. All information with respect
to beneficial ownership has been furnished by the respective shareholders to
the Company.
<TABLE>
<S> <C> <C>
COMMON STOCK
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP STOCK
- - ------------------------ ---------- ---------
Michael P. Krasny (1) (2) 12,176,793 56.6%
Gregory C. Zeman (1) (3) 2,433,199 11.3%
Pilgrim Baxter & Associates, Ltd. (4) 2,174,849 10.1%
Daniel B. Kass (5) 516,134 2.4%
Paul A. Kozak 150 *
Harry J. Harczak, Jr. 750 *
Joseph Levy, Jr. 28,500 *
Michelle L. Collins --- ---
All directors and officers as a group (11 persons) (6) 12,207,393 56.7%
</TABLE>
2
<PAGE> 7
* Less than 1%
(1) The address for Messrs. Krasny and Zeman is the executive office of the
Company.
(2) Includes 3,207,401 shares remaining subject to the MPK Stock Option Plan
(of which 2,949,333 shares are also included in the holdings of Messrs.
Zeman and Kass above), 422,672 shares remaining subject to the MPK
Restricted Stock Plan and 8,560 shares owned by Mr. Krasny's minor
stepson. Mr. Krasny disclaims beneficial ownership with respect to the
shares subject to the MPK Stock Option Plan and the MPK Restricted Stock
Plan.
(3) Reflects 2,433,199 shares issuable pursuant to non-forfeitable
options granted under the MPK Stock Option Plan out of Mr. Krasny's
own shares. The options are exercisable at the rate of 390,087 on December
31, 1997 and 471,488 on each December 31 thereafter until all options are
exercisable. Additional shares may be exercised proportionately to any
shares sold by Mr. Krasny from his holdings. These shares are also
reported as being beneficially owned by Mr. Krasny.
(4) The address of Pilgrim Baxter & Associates, Ltd. is 125 Drummers Lane,
Suite 300, Wayne, Pennsylvania, 19087-1501. The number of shares held was
obtained from the holder's Schedule 13 filing with the Securities Exchange
Commission as of December 31, 1996.
(5) Reflects 516,134 shares issuable pursuant to options granted under the
MPK Stock Option Plan out of Mr. Krasny's own shares. The options are
exercisable at the rate of 82,747 on December 31, 1997 and 100,013 on each
December 31 thereafter until all options are exercisable. Additional
shares may be exercised proportionately to any shares sold by Mr. Krasny
from his holdings. These shares are also reported as being beneficially
owned by Mr. Krasny.
(6) For purposes of computing aggregate number of shares owned by directors
and officers of the Company as a group, shares of Common Stock
beneficially owned by more than one executive officer are counted only
once.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and regulations of
the Securities and Exchange Commission thereunder require the Company's
executive officers and directors and persons who own more than ten percent of
the Company's stock, as well as certain affiliates of such persons, to file
initial reports of ownership and changes in ownership with the Securities and
Exchange Commission and The Nasdaq Stock Market. Executive officers, directors
and persons owning more than ten percent of the Company's stock are required by
the Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it and written representations that no other
reports were required for those persons, the Company believes that, during the
year ended December 31, 1996, all persons subject to Section 16(a) were in
compliance with all Section 16(a) filing requirements.
ANNUAL REPORT AND FORM 10-K
The 1996 Annual Report of the Company which includes financial statements
for the years ended December 31, 1996, 1995 and 1994 has been mailed with this
Proxy Statement to shareholders of record on the Record Date. The Annual
Report does not constitute a part of the proxy material. A copy of the
Company's Report on Form 10-K for the year ended December 31, 1996, including
the financial statements and the financial statement schedule, as filed with
the Securities and Exchange Commission, is available to shareholders and may be
obtained by writing to the Secretary at the Company's executive offices.
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<PAGE> 8
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of the Company, although it
is not involved in day-to-day operating details. Members of the Board are kept
informed of the Company's business by various reports and documents sent to
them on a regular basis, including operating and financial reports made at
Board and Committee meetings by the Chairman and other officers.
Five directors, all of whom are members of the present Board of Directors,
are recommended for election at the Annual Meeting. All directors serve until
the annual meeting next following their election and until their successors
have been elected. There are no family relationships between or among any
directors of the Company.
All of the nominees have consented to serve if elected, and at the date of
this Proxy Statement, the Company has no reason to believe that any of the
named nominees will be unable to serve. Correspondence may be directed to
nominees at the Company's executive offices. Unless otherwise directed, the
persons named as proxies intend to vote in favor of the election of all
nominees.
The information presented as to principal occupation and shares of stock
beneficially owned as of February 28, 1997, is based in part on information
received from the respective persons and in part from the records of the
Company. All directors and officers as a group were the beneficial owners of
12,207,393 shares of Common Stock representing approximately 56.7% of the
class.
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
Set forth below is certain information concerning the nominees for
election to the Board of Directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- - --------------------------------------------- ----- ---------------------------------
<S> <C> <C>
Michael P. Krasny............................ 43 Chairman of the Board, Chief
Executive Officer, Secretary and
Treasurer
Gregory C. Zeman............................. 38 President and Director
Daniel B. Kass............................... 40 Vice President-Sales and Director
Joseph Levy, Jr.............................. 70 Director
Michelle L. Collins.......................... 37 Director
</TABLE>
Michael P. Krasny is the founder of the Company and currently serves as
Chairman of the Board, Chief Executive Officer, Secretary and Treasurer. Mr.
Krasny has had similar positions and responsibilities with the Company since
the Company's inception. Mr. Krasny served as the Company's President from its
incorporation through December, 1990. Mr. Krasny's responsibilities with the
Company include the overall supervision of its operations and focus on finance,
human resources, operations and management information systems functions. Mr.
Krasny is a 1975 graduate of the University of Illinois where he earned a
Bachelor of Science degree in Finance.
Gregory C. Zeman is President and a director of the Company. Mr. Zeman
has been an employee and officer of the Company, serving in varying capacities,
since March, 1987. Prior to becoming President in January, 1991, Mr. Zeman
served as an account executive, Sales Manager, Purchasing Manager and Vice
President of Sales, Purchasing and Marketing. Mr. Zeman became a director of
the Company in June, 1990. Mr. Zeman's responsibilities with the Company focus
on the sales, purchasing and marketing functions. Mr. Zeman is a 1983 graduate
of Marquette University where he earned a Bachelor of Science degree in
Computational Math.
Daniel B. Kass is Vice President-Sales and a director of the Company.
Mr. Kass joined the Company in November, 1987 as a sales representative. He
served as Sales Manager from January, 1989 through December, 1990. Mr. Kass
became Vice President-Operations in January, 1991, a director of the Company in
March, 1993 and Vice President-Sales in January, 1996. Mr. Kass'
responsibilities with the Company focus on sales, sales training
4
<PAGE> 9
and customer service. Mr. Kass is a 1981 graduate of Southern Illinois
University where he earned a Bachelor of Science degree in Journalism.
Joseph Levy, Jr. is a director of the Company. Mr. Levy is the founder,
and for more than the past five years has been chairman, of Levy Venture
Management, Inc., a real estate rental and development group that assists auto
manufacturers in establishing new dealerships. Levy Venture Management, Inc.
currently has holdings in Illinois, Texas and Minnesota. Mr. Levy became a
director of the Company in November, 1993. Mr. Levy is a 1947 graduate of
Northwestern University, where he earned a Bachelor of Science in Business
Administration.
Michelle L. Collins is a director of the Company. Ms. Collins is a
principal in William Blair & Company, L.L.C., an investment banking firm, in
the Corporate Finance practice. Ms. Collins has been a principal since 1992
and prior to that time served as an associate at William Blair & Company since
1986. Ms. Collins became a director of the Company in April, 1996. Ms.
Collins is a member of the Board of Directors of McWhorter Technologies, Inc.,
and has been since 1995. Ms. Collins is a 1982 graduate of Yale University
where she earned an undergraduate degree in Economics and a 1986 graduate of
Harvard University, where she earned a Masters Degree in Business
Administration.
BOARD MEETINGS AND COMMITTEES
Regular meetings of the Board of Directors of the Company are conducted
quarterly. From time to time, special meetings of the Board of Directors are
conducted as required. The Board of Directors had four regular meetings and
one special meeting during the calendar year ended December 31, 1996. Each
director attended all meetings of the Board of Directors and the committees of
which they were members.
The Audit Committee is currently comprised of Messrs. Krasny and Levy and
Ms. Collins. The Audit Committee reviews and approves the general nature of
audit services by the independent accountants; monitors and reviews the
internal control system of the Company; monitors the integrity of the Company's
financial systems, reports and financial statements; reviews procedures to
communicate conflicts of interest and related party transactions; and reviews
matters where independence from management is indicated. The Audit Committee
met twice during the year ended December 31, 1996.
The Compensation and Stock Option Committee is currently comprised of Mr.
Levy and Ms. Collins. The functions performed by the Compensation and Stock
Option Committee include approval of Chief Executive Officer compensation;
review and approval of the terms of performance-based compensation programs for
officers; review and certification of amounts due under performance-based
compensation programs for officers and allocation of the Employee Incentive
Bonus Pool; review and approval of compensation and/or adjustments thereto for
other officers and employees to the extent requested by the Chief Executive
Officer or otherwise required by the terms of existing employment agreements;
review and approval of the terms of incentive stock option grants. The
Compensation and Stock Option Committee met twice during the year ended
December 31, 1996. The Compensation and Stock Option Committee met in February
of 1997 in connection with the granting of stock options, review and approval
of 1996 officer compensation, the allocation of the Employee Incentive Bonus
Pool relative to the performance of officers and employees during 1996 and the
establishment of officer compensation levels and performance-based compensation
programs for the 1997 fiscal year. See "Report of the Compensation and Stock
Option Committee."
The Nominating Committee is currently comprised of Messrs. Krasny and Levy
and Ms. Collins. The functions performed by the Nominating Committee include
the review of the Board of Directors present and future composition;
recruitment of new directors; the recommendation and placing in nomination at
annual meetings of a slate of directors; and the review and determination of
director compensation. The Nominating Committee will also consider nominees
recommended by shareholders, in writing, provided such candidates demonstrate a
serious interest in serving as directors. The Nominating Committee did not
meet during the year ended December 31, 1996. The
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<PAGE> 10
Nominating Committee acted pursuant to Unanimous Written Consent in March,
1997, for the purpose of nominating the persons presented herein for election
as directors.
MANAGEMENT
Set forth below are the names, ages and titles of each executive officer
of the Company. Executive officers are elected by and serve at the discretion
of the Board of Directors until their successors are duly chosen and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- - ---------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
Michael P. Krasny..... 43 Chairman of the Board, Chief Executive Officer, Secretary and
Treasurer
Gregory C. Zeman...... 38 President and Director
Daniel B. Kass........ 40 Vice President-Sales and Director
Harry J. Harczak, Jr.. 40 Chief Financial Officer
Mary C. Gerlits....... 38 Vice President-Human Resources
Daniel F. Callen...... 39 Vice President-Finance, Controller and Chief Accounting Officer
Paul A. Kozak......... 32 Vice President-Purchasing
Donald M. Gordon...... 56 Vice President-Advertising
James R. Shanks....... 32 Vice President-MIS
</TABLE>
See "Election of Directors-Nominees for Election to Board of Directors"
for the discussion of Messrs. Krasny, Zeman and Kass.
Harry J. Harczak, Jr. became Chief Financial Officer of the Company on May
1, 1994. Prior to joining the Company, Mr. Harczak was an audit partner in the
accounting firm of Coopers & Lybrand L.L.P. where he worked since 1978. Mr.
Harczak's responsibilities at the Company include the finance, accounting, SEC
reporting and investor relations functions. He is a 1978 graduate of Depaul
University, where he earned a Bachelor of Science degree in Accounting, and a
1995 graduate of the University of Chicago Executive Program, where he earned a
Masters of Business Administration. Mr. Harczak is a certified public
accountant.
Mary C. Gerlits is Vice President-Human Resources of the Company and has
served in that capacity since April, 1990. Ms. Gerlits joined the Company in
March, 1986 and has previously served in varying capacities as Personnel
Director, Human Resources Manager and Director of Human Resources. Ms. Gerlits
is a 1980 graduate of Hampshire College where she earned a Bachelor of Arts
degree in Humanities and Languages.
Daniel F. Callen is Vice President-Finance, Controller and Chief
Accounting Officer of the Company. Mr. Callen became Vice President - Finance
and Chief Accounting Officer in January, 1992. Mr. Callen became Controller in
May, 1989. Prior to joining the Company, Mr. Callen was employed by Rand
McNally & Company from February, 1987 to April, 1989 as Group Controller. Mr.
Callen is a 1979 graduate of Northern Illinois University where he earned a
Bachelor of Science degree in Accounting. Mr. Callen is also a 1986 graduate
of Northwestern University's J.L. Kellogg's Graduate School of Management where
he earned a Masters in Management, Marketing and Finance. Mr. Callen is a
certified public accountant.
Paul A. Kozak is Vice President-Purchasing of the Company. Mr. Kozak
joined the Company in August of 1987 and since that time has served as an
Account Executive, Sales Manager and Director of Purchasing. He is a 1986
graduate of the University of Iowa where he earned a Bachelor of Science
degree in Business Administration.
Donald M. Gordon is Vice President-Advertising of the Company. Mr. Gordon
joined the Company as Director of Marketing in February of 1993. Prior to
joining the Company, Mr. Gordon was employed by Spiegel as Director of Customer
Acquisition. He is a 1961 graduate of Bryant University where he earned a
Bachelor of Business Administration degree in Business Management.
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<PAGE> 11
James R. Shanks is Vice President-MIS of the Company. Mr. Shanks joined
the Company as Director of Information Systems in August of 1993. Prior to
joining the Company, Mr. Shanks was employed by American Hotel Register from
January, 1985 to August, 1993 as Manager of Information Systems. Mr. Shanks is
a 1991 graduate of Barat College where he earned a Bachelor of Science degree
in Computer Information Systems, and a 1996 graduate of Northwestern
University's J.L. Kellogg's Graduate School of Management.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investment Banking Relationship
Michelle L. Collins, a director of the Company, is a principal in the
investment banking firm of William Blair & Company, L.L.C., which firm served
as the sole underwriter of the Company's initial public offering of Common
Stock in May, 1993 and the Company's second public offering in June, 1994, the
lead underwriter of the Company's third and fourth public offerings in August,
1995 and February, 1997, respectively, and acts as a market maker for the
Company's Common Stock. In connection with the Company's secondary offering in
February, 1997, William Blair & Company, L.L.C. received underwriting discounts
and commissions in the aggregate amount of $640,000 from the management selling
shareholders.
Repurchase of Stock from Former Executive Officer
In July, 1990, the Company redeemed all shares of the Company's Common
Stock then held by Mr. John Marks, a former executive officer, director and
shareholder who has since terminated any association with the Company. The
purchase price of such redeemed shares was $506,113, of which $124,085 was paid
in cash and $382,028 was payable by a promissory note. The note bore interest
at a rate of 10% per annum, and principal and interest was payable in equal
quarterly installments of $31,835, which began in July, 1991 and continued
through April 1, 1994, at which time the note was paid in full. The note was
personally guaranteed by Mr. Krasny.
In June, 1993, Mr. Marks filed a three-count Complaint in the United
States District Court for the Northern District of Illinois, Eastern Division,
alleging violations of the federal securities laws, fraud and breach of
fiduciary duty in connection with the July, 1990 acquisition of his common
stock. Count I alleged violations of Section 10(b) of the Securities and
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against the Company
and Mr. Krasny. Count II alleged fraud and deceit against the Company and Mr.
Krasny. Count III alleged a breach of fiduciary duty against only Mr. Krasny.
Mr. Marks sought to rescind the 1990 sale and have himself restored to the
position he was in prior to the purchase of his shares or, alternatively, be
awarded sufficient damages to compensate him for the damages allegedly
sustained including pre-judgment interest. In addition, in Counts II and III,
Mr. Marks seeks to recover punitive damages in an unspecified amount.
In July, 1993, the Company and Mr. Krasny filed a motion to dismiss the
Complaint. In their motion to dismiss, the Company and Mr. Krasny argued that
Mr. Marks' claims for the alleged violation of Section 10(b) and Rule 10b-5
were barred because the statute of limitations for such claims had expired.
Further, Mr. Krasny and the Company denied making any misrepresentations and
argued, in the alternative, that if any misrepresentations were made, they were
not material, nor did they cause Mr. Marks' purported damages. The Company and
Mr. Krasny also asserted that certain portions of Mr. Marks' Complaint do not
comply with Federal Rule of Civil Procedure 9(b), which requires that fraud
claims be plead with particularity. In addition, the Company and Mr. Krasny
argued that since the sole basis for federal jurisdiction was Count I, if it is
dismissed, Counts II and III should also be dismissed for lack of subject
matter jurisdiction.
In September, 1995, the District Court granted, without prejudice, the
Company's and Mr. Krasny's motion to dismiss. In its Memorandum Opinion
dismissing the Complaint, the Court held Mr. Marks' allegations established
that he had inquiry notice of the purported securities law violations no later
than July 27, 1990, the date the Company purchased his shares. Because Mr.
Marks brought his action in June 1993, beyond the applicable statute of
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<PAGE> 12
limitations period, and because no facts alleged in the Complaint provided a
basis to toll that period, the District Court dismissed the federal securities
claims contained in Count I. The District Court then dismissed the state law
claims in Counts II and III for lack of federal jurisdiction. The District
Court provided Mr. Marks with leave to file an Amended Complaint if he could
plead facts that enabled him to surmount the statute of limitations obstacles
to his claims of violation of federal securities laws.
In October, 1995, Marks filed an Amended Complaint alleging the same three
causes of action contained in his original Complaint. The factual allegations
of the Amended Complaint are, in management's opinion, essentially the same as
those of the original Complaint. The Amended Complaint, however, includes
allegations which endeavor to avoid application of the statute of limitations
by alleging Mr. Marks' lack of notice of his purported claims. The Company and
Mr. Krasny in November, 1995 filed a motion to dismiss the Amended Complaint,
arguing that it contained the same deficiencies relative to the statute of
limitations and other defects as the original Complaint.
On June 14, 1996, the District Court granted the motion to dismiss the
Amended Complaint, with prejudice on the grounds that the securities law claim
alleged in Count I was barred by the statute of limitations and it did not have
jurisdiction over the state law claims alleged in Counts II and III. Mr. Marks
has appealed the District Court decision to the United States Court of Appeals
for the Seventh Circuit. The Company believes that Mr. Marks may 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 Mr. marks is without merit. The Company and Mr.
Krasny are committed to vigorously defending the litigation.
Mr. Krasny has agreed that in the event that the Company is ordered to pay
damages to Mr. Marks on account of the purchase by the Company of Mr. Marks'
shares, Mr. Krasny will indemnify and reimburse the Company for all damages,
including amounts, net of tax benefits received by the Company, ordered to be
paid and legal fees and costs incurred by the Company in connection with the
defense of the litigation and any appeals. In the event the matter is settled,
Mr. Krasny has agreed to indemnify and reimburse the Company for any amount
paid to Mr. Marks in settlement of this matter, net of tax benefits received by
the Company. No agreement of settlement may be entered into by the Company
without the consent of Mr. Krasny. The Company and majority shareholder
incurred legal expenses of approximately $133,000, $140,000 and $227,000 for
the years ended December 31, 1996, 1995 and 1994, respectively, which have been
assumed, net of tax, by the majority shareholder. These legal expenses are
recorded as a selling and administrative expense and the reimbursement by Mr.
Krasny, net of tax, is recorded as an increase to paid-in-capital.
8
<PAGE> 13
EXECUTIVE COMPENSATION
Information concerning the annual and long-term compensation for services
in all capacities to the Company for the years ended December 31, 1996, 1995
and 1994, of those persons who were, at December 31, 1996 (i) the chief
executive officer and (ii) the other four most highly compensated executive
officers of the Company whose total annual salary and bonus exceeded $100,000
in 1996 (the "Named Officers") is shown below:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------------------- --------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
BONUS COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($) SARS(#) ($)(2)
- - --------------------------- ---- --------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael P. Krasny 1996 $216,430 $1,781,276 (3) --- --- $4,918
Chairman of the Board, Chief 1995 $210,946 $833,424 (3) --- --- $4,284
Executive Officer, Secretary and 1994 $205,400 $265,911 (3) --- --- $4,280
Treasurer
Gregory C. Zeman 1996 $189,377 $1,373,747 (3) --- --- $4,918
President and Director 1995 $184,578 $632,599 (3) $1,616 (5) --- $4,284
1994 $179,731 $899,433 (3) --- --- $4,280
Daniel B. Kass 1996 $189,377 $989,602 (3) --- --- $4,918
Vice President-Sales and 1995 $184,578 $431,774 (3) $1,287 (5) --- $4,284
Director 1994 $179,058 $340,883 (3) --- --- $4,280
Paul A. Kozak 1996 $178,555 $265,413 --- 8,331 $4,918
Vice President-Purchasing 1995 $165,000 $141,996 $1,616 (5) 6,000 $4,284
1994 $165,000 $142,401 --- 3,000 $4,280
Harry J. Harczak, Jr. 1996 $131,713 $203,995 $13,050 (5) 32,827 $4,918
Chief Financial Officer 1995 $125,000 $130,108 --- 3,000 $4,284
1994 $80,294 $63,334 (4) --- 6,500 ---
</TABLE>
(1) Amounts reflected for Messrs. Kozak and Harczak for all periods, are
attributable to a non-contractual bonus.
(2) Reflects the Company's contributions to the CDW Computer Centers, Inc.
Employees' Profit Sharing Plan.
(3) The 1996, 1995 and 1994 bonus amounts for Messrs. Krasny, Zeman and
Kass are pursuant to the terms of employment agreements which provide
for allocations from the Employee Incentive Bonus Pool, the total of
which will not exceed twenty percent of the Company's increase in
income from operations as defined in accordance with generally
accepted accounting principles consistently applied over the previous
year, beginning in 1994 and relating to an increase over the prior
year's results. See "Executive Compensation -- Employment Related
Agreements."
(4) Mr. Harczak began his employment with the Company effective May 1,
1994.
(5) Amounts represent travel incentive awards.
9
<PAGE> 14
DIRECTOR COMPENSATION; CDW DIRECTOR STOCK OPTION PLAN
Directors who are not also employees of the Company ("Independent
Directors") are paid an annual fee of $20,000. Additionally, the Company has
established the CDW Director Stock Option Plan for Independent Directors (the
"Director Option Plan"). A maximum of 1,050,000 shares of Common Stock, in the
aggregate, reduced on a share for share basis for options outstanding under the
CDW Incentive Stock Option Plan (the "Stock Option Plan"), subject to
adjustment, have been authorized for the granting of stock options under the
Director Option Plan. Except as stated herein, the Director Option Plan is
identical in terms to the CDW Incentive Stock Option Plan available to officers
and employee directors and other employees of the Company or its subsidiaries.
In November, 1993, the Board of Directors granted, effective as of January 3,
1994 and on the first trading day of each calendar year thereafter, each
Independent Director options to purchase shares of Common Stock of the Company
at a price based on the closing price of the Company's shares on the first
trading day of such calendar year, subject to the terms and conditions of the
Director Option Plan and pending modification by the Board of Directors (which
shall not be made more than once each six months other than to comport with
changes in the Internal Revenue Code of 1986, as amended, and the Employee
Retirement Income Security Act). The number of options authorized to be
granted to each Independent Director was initially 3,000 shares and each year
thereafter beginning January 1, 1995 shall be 3,000 shares, plus the product of
3,000 shares multiplied by the percentage increase in the Company's immediately
preceding year's net income over the second immediately preceding year's net
income, in each case calculated in accordance with generally accepted
accounting principles, applied on a consistent basis, and excluding the effect
of Statement of Financial Accounting Standards No. 109 relating to the MPK
Stock Option Plan in 1993. The options shall vest on the third anniversary of
the date of grant and shall expire on the tenth anniversary of the date of
grant. If an Independent Director ceases to be a member of the Board of
Directors, all options granted to such Independent Director which have not
vested shall expire by their terms. The Company received no monetary
consideration for the grants.
Pursuant to the Director Option Plan, options which were granted and remain
outstanding to Mr. Levy and Ms. Collins are as follows:
<TABLE>
<S> <C> <C> <C>
Grant Date # of Options Exercise Price
--------------- ------------ ----------------
Mr. Levy January 3, 1994 3,000 $9.33
January 3, 1995 4,920 $22.83
January 2, 1996 4,980 $27.00
January 2, 1997 5,160 $53.75
Ms. Collins January 2, 1997 5,160 $53.75
</TABLE>
EMPLOYMENT RELATED AGREEMENTS
Mr. Krasny. The Company has entered into an Employment and
Non-Competition Agreement with Mr. Krasny which became effective upon the
consummation of the initial public offering in 1993. In accordance with the
terms of the Agreement, Mr. Krasny's employment is terminable with or without
cause and the Company will pay Mr. Krasny an initial annual base salary of
$200,000, to be adjusted annually in accordance with the Consumer Price Index.
Additionally, the Agreement provides that Mr. Krasny shall be eligible to
receive an annual bonus to be paid out of the Employee Incentive Bonus Pool
which shall be calculated based upon the Company's increased levels of income
from operations. Each of Messrs. Krasny, Zeman and Kass are entitled to
participate in the Employee Incentive Bonus Pool, the total of which bonus pool
will not exceed twenty percent of the Company's increase in income from
operations over the prior year as determined in accordance with generally
accepted accounting principles consistently applied. This bonus will be
awarded in the discretion of the Compensation and Stock Option Committee. In
addition, the Agreement contains a non-competition restriction prohibiting Mr.
Krasny from undertaking certain competitive activities for a two year period
after the date Mr. Krasny ceases his employment with the Company.
10
<PAGE> 15
Mr. Zeman. The Company has entered into an Employment and Non-Competition
Agreement with Mr. Zeman which became effective upon the consummation of the
initial public offering in 1993. In accordance with the terms of the
Agreement, Mr. Zeman's employment is terminable with or without cause and the
Company will pay Mr. Zeman an initial annual base salary of $175,000, to be
adjusted annually in accordance with the Consumer Price Index. Additionally,
the Agreement provides that Mr. Zeman shall be eligible to receive an annual
bonus to be paid out of the Employee Incentive Bonus Pool which shall be
calculated based upon the Company's increased levels of income from operations.
Each of Messrs. Krasny, Zeman and Kass are entitled to participate in the
Employee Incentive Bonus Pool, the total of which bonus pool will not exceed
twenty percent of the Company's increase in income from operations over the
prior year as determined in accordance with generally accepted accounting
principles consistently applied. This bonus will be awarded in the discretion
of the Compensation and Stock Option Committee. In addition, the Agreement
contains a non-competition restriction prohibiting Mr. Zeman from undertaking
certain competitive activities for a two year period after the date Mr. Zeman
ceases his employment with the Company.
Mr. Kass. The Company has entered into an Employment and Non-Competition
Agreement with Mr. Kass which became effective upon the consummation of the
initial public offering in 1993. In accordance with the terms of the
Agreement, Mr. Kass's employment is terminable with or without cause and the
Company will pay Mr. Kass an initial annual base salary of $175,000, to be
adjusted annually in accordance with the Consumer Price Index. Additionally,
the Agreement provides that Mr. Kass shall be eligible to receive an annual
bonus to be paid out of the Employee Incentive Bonus Pool which shall be
calculated based upon the Company's increased levels of income from operations.
Each of Messrs. Krasny, Zeman and Kass are entitled to participate in the
Employee Incentive Bonus Pool, the total of which bonus pool will not exceed
twenty percent of the Company's increase in income from operations over the
prior year as determined in accordance with generally accepted accounting
principles consistently applied. This bonus will be awarded in the discretion
of the Compensation and Stock Option Committee. In addition, the Agreement
contains a non-competition restriction prohibiting Mr. Kass from undertaking
certain competitive activities for a two year period after the date Mr. Kass
ceases his employment with the Company.
OPTION GRANTS
Information with respect to grants of stock options to Named Officers
during 1996 is set forth below. See "Incentive Stock Option Plans".
<TABLE>
<CAPTION> Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
- - --------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total Exercise
Options Granted or Base
Options to Employees Price Expiration
Named Officers(1) Granted in Fiscal Year ($/Sh) Date 0% ($) 5% ($) 10% ($)
- - ------------------------------------------------------------------ ------------ -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul A. Kozak 6,250 (2) 1.06% $59.31 12/31/2016 $0 $612,857 $2,123,113
2,081 (3) 0.35% $0.01 12/31/2016 $123,403 $327,460 $830,315
Harry J. Harczak, Jr. 6,250 (2) 1.06% $59.31 12/31/2016 $0 $612,857 $2,123,113
1,577 (3) 0.27% $0.01 12/31/2016 $93,516 $248,152 $629,220
25,000 (4) 4.23% $40.00 09/05/2016 $490,750 $2,955,404 $9,029,021
</TABLE>
(1) No other Named Officers received grants of stock options in 1996.
(2) Options are exercisable at the rate of 12.5% per year, beginning
December 31, 1999.
(3) Options are exercisable in full on January 1, 2001.
(4) Options are exercisable at the rate of 25%, 25%, and 50% per year,
respectively, beginning January 1, 2000.
11
<PAGE> 16
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Information with respect to options exercised during 1996 and unexercised
options to purchase the Company's Common Stock granted under the MPK Stock
Option Plan and the Company's Incentive Stock Option Plans (as hereinafter
defined) to the Named Officers and held by them at December 31, 1996 is set
forth below.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON REALIZED DECEMBER 31, 1996(#) DECEMBER 31, 1996($) (1)
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ----------- -------- ----------- ------------- ------------ -------------
Michael P. Krasny --- --- --- --- --- ---
Gregory C. Zeman --- --- 22,103 2,514,600 (2) $1,310,376 $149,078,061
Daniel B. Kass --- --- 4,689 533,400 (2) $277,987 $31,622,619
Paul A. Kozak --- --- --- 42,333 (3) --- $1,909,812
Harry J. Harczak, Jr. --- --- --- 42,327 --- $954,693
</TABLE>
(1) Based on the closing price as reported by The Nasdaq Stock Market of
the Company's Common Stock on December 29, 1996 ($59.31), less the
respective exercise prices.
(2) Pursuant to the provisions of the MPK Stock Option Plan, the options
become fully exercisable upon termination of employment.
(3) Includes 25,002 shares of restricted stock allocated to Mr. Kozak
under the MPK Restricted Stock Plan, of which 6,251 shares were vested
and sold on February 21, 1997, pursuant to the MPK Restricted Stock
Plan modification. The remaining shares vest in equal installments on
January 1, 2000, 2001, 2002 and 2003. See "MPK Restricted Stock Plan."
MPK STOCK OPTION PLAN
At the time of the Company's initial public offering, Mr. Krasny
established the MPK Stock Option Plan pursuant to which he granted as of
December 31, 1992 to Messrs. Zeman and Kass and Ms. Gerlits, options to
purchase in the aggregate 4,143,375 shares of Common Stock owned by him. As of
the date hereof, options to acquire an aggregate of 3,207,401 shares of common
stock remain outstanding. These options are non-forfeitable and become
exercisable during the employment of such individual at the rate of 5% per year
upon each of the first four anniversaries of the grant and an additional 15% on
each anniversary date thereafter until all options are exercisable. Additional
shares may be exercised proportionately to any shares sold by Mr. Krasny from
his holdings. The options may be exercised at a price of $.0167 per share. If
any of these three individuals terminates his or her employment with the
Company, all options become exercisable and such individual will be required to
exercise his or her options at the option exercise price within six months of
the date of termination. Mr. Krasny will, in such event, have a right to
repurchase the shares relating to the terminating employee's exercised options
at the prevailing market rate, less costs and expenses attendant to the sale of
the stock. Mr. Krasny's acquisition may be made pursuant to a note payable
over a ten-year period with interest at the applicable federal rate as defined
in the Internal Revenue Code of 1986, as amended. Upon the death or disability
of any of these individuals, their options shall become immediately
exercisable, and said option privileges shall expire unless exercised within
one year after the date of death or disability. The MPK Stock Option Plan,
which is wholly funded from shares of Common Stock owned by Mr. Krasny, does
not result in a cash payment from Plan participants to the Company or increase
the number of outstanding shares of Common Stock.
In connection with the Company's secondary public offerings, Messrs. Zeman
and Kass and Ms. Gerlits exercised options to acquire 349,895, 74,220 and
37,109 shares, respectively, in June, 1994, 256,653, 54,441 and 27,221 shares,
respectively, in August, 1995, and 103,504, 21,955, and 10,978 shares,
respectively, in February, 1997. These shares were immediately sold in the
respective secondary public offerings.
12
<PAGE> 17
INCENTIVE STOCK OPTION PLANS
The Company has established the CDW Incentive Stock Option Plan, the CDW
1996 Incentive Stock Option Plan, the CDW 1996 Officer and Manager Bonus Plan
and certain non-statutory stock option agreements (hereafter collectively
referred to as the "Incentive Stock Option Plans"), as described below, to
advance the interests of the Company and shareholders by providing Company
employees with an additional incentive to continue their efforts on behalf of
the Company, as well as to attract to the Company people of experience and
ability. The Incentive Stock Option Plans are intended to comply with Rule
16b-3 of the Securities Exchange Act of 1934, as amended.
CDW Incentive Stock Option Plan
The Company established the CDW Incentive Stock Option Plan effective as
of May 18, 1993. A maximum of 1,050,000 shares of Common Stock in the
aggregate, subject to adjustment, were authorized for the granting of stock
options under both the CDW Incentive Stock Option Plan and the Director Option
Plan. See "Director Compensation; CDW Director Stock Option Plan." During
1996, 520,465 options were granted pursuant to the CDW Incentive Stock Option
Plan, of which 31,250 were granted to executive officers. All of these options
have an exercise price of $59.31, the fair market value of the Company's Common
Stock on the date of grant.
CDW 1996 Incentive Stock Option Plan
The Board of Directors of the Company established the CDW 1996 Incentive
Stock Option effective as of November 14, 1996. A maximum of 3,000,000 shares
of Common Stock in the aggregate, subject to adjustment, were authorized for
the granting of stock options to directors, officers, employees and
consultants. As of December 31, 1996, no options were granted pursuant to the
1996 Stock Option Plan. On February 21, 1997, in connection with the
modification to the MPK Restricted Stock Plan more fully described below, the
Company granted 132,064 options under the CDW 1996 Incentive Stock Option Plan
at an exercise price of $59.00, the fair market value at the Company's Common
Stock on the date of grant. See "MPK Restricted Stock Plan."
It is expected that all officers, directors, other employees and
consultants of the Company or its subsidiaries will be eligible to participate
under the CDW Incentive Stock Option Plan and/or the CDW 1996 Incentive Stock
Option Plan as deemed appropriate by the Compensation and Stock Option
Committee. Participants will not pay any cash consideration to the Company to
receive the options. These stock option plans will be administered by the
Compensation and Stock Option Committee. The options will have exercise prices
at least equal to 100% of the fair market value of the Common Stock at the date
of grant. Options will expire no later than the twentieth anniversary of the
date of grant. An option holder will be able to exercise options from time to
time, subject to the vesting schedule applicable to the options. Options will
not vest prior to the third anniversary of the date of grant, except that
options will vest immediately upon the earlier of death or disability of a
participant. Upon termination for cause by the Company, all vested and
unvested options will be forfeited. Upon termination of employment with the
Company, other than for cause by the Company or upon death or disability, all
unvested options shall be forfeited and vested options shall be exercisable
only during the ninety (90) day period following termination of employment.
Subject to the above conditions, the exercise price, duration of the options
and vesting provisions will be set by the Compensation and Stock Option
Committee in its discretion.
CDW 1996 Officer and Manager Bonus Plan
The Board of Directors of the Company approved the CDW 1996 Officer and
Manager Bonus Plan (the "Officer and Manager Plan") on November 14, 1996,
pursuant to which a pre-determined portion of the 1996 annual bonus for certain
executive officers and managers of the Company would be paid by a grant of
stock options with an exercise price of $0.01 per share. The number of options
granted was determined by the amount of the bonus due to each individual, which
was formula-based, and the market value of the Company's common stock as of
December
13
<PAGE> 18
31, 1996. There were 10,260 options granted pursuant to the Officer and
Manager Plan, of which 6,889 were granted to executive officers. All options
under the Officer and Manager Bonus Plan vest on January 1, 2001.
Non-statutory Stock Option Agreements
The Compensation and Stock Option Committee and the Board of Directors of
the Company unanimously approved establishment of two Non-statutory Stock
Option Agreements and the grant thereunder of 25,000 options to each of Messrs.
Harczak and Shanks on September 5, 1996. The exercise price of the options is
$40.00 per share and the options vest 25% on each of January 1, 2000 and 2001
and 50% on January 1, 2002. The options were granted in consideration of
services performed for the benefit of the Company by each of the individuals
and to motivate and retain the individuals for future performance.
Federal Tax Consequences
The Incentive Stock Option Plans are neither subject to the provisions of
the Employee Retirement Income Security Act of 1974, as amended, nor are they
qualified plans under the Internal Revenue Code of 1986, as amended (the
"Code"). The granting of an option under the Incentive Stock Option Plans will
not result in any taxable income to the participant or deduction to the Company
at the time of grant. Generally, the holder of an option will recognize
ordinary income for federal income tax purposes at the time such participant
exercises the options and receives Common Stock. The amount of such taxable
income will be measured by the excess of the fair market value of the Common
Stock at the time of exercise over such option price and such excess will be
treated for tax purposes as compensation expense of the Company.
MPK RESTRICTED STOCK PLAN
Effective upon the closing of the initial public offering, Mr. Krasny
transferred 668,604 shares of his Common Stock to the MPK Restricted Stock Plan
(the "MPK Plan Shares"), to be held in escrow for the benefit of those persons
employed by the Company on December 31, 1992. Shares contributed on behalf of
participating employees were calculated on the basis of their months of service
and average salary. During such time as the MPK Plan Shares are held in
escrow, Mr. Krasny will retain the right to vote the MPK Plan Shares, and
dividends thereon, if any, will inure to the benefit of Mr. Krasny. The
purpose of the MPK Restricted Stock Plan was to provide participants with
additional incentives to remain in the Company's employ, to build upon employee
loyalty and to provide such employees with an opportunity to share in the
Company's profits and growth.
In accordance with the original terms of the MPK Restricted Stock Plan,
all of the MPK Plan Shares were scheduled to fully vest upon January 1, 2000,
provided that a participant has remained continually employed with the Company
or its subsidiaries during such period. Participants who do not complete
continuous employment through such date will forfeit their right to the MPK
Plan Shares and such shares will revert to Mr. Krasny. As of December 31, 1996,
112,467 shares have been forfeited and reverted to Mr. Krasny. MPK Plan Shares
will immediately vest upon the death or total disability of a participating
employee. The MPK Restricted Stock Plan, which is wholly funded from shares of
Common Stock owned by Mr. Krasny, does not result in a cash payment from Plan
participants to the Company or increase the number of outstanding shares of
Common Stock.
On January 31, 1997, the Company filed a Registration Statement on Form
S-3, which was declared effective on February 7, 1997, to modify the terms of
the MPK Restricted Stock Plan and provide participants the option to accelerate
the vesting on 25% of their shares in exchange for the extension of the vesting
period on their remaining shares through 2003. Under the terms of this
modification, participants who elected the acceleration were granted options by
the Company equal to the number of shares which became vested, with an exercise
price equal to
14
<PAGE> 19
the fair market value of the Company's Common Stock on the acceleration date.
Pursuant to this modification, participants elected accelerated vesting for an
aggregate of 132,064 shares, which vested and were sold in a secondary public
offering on February 21, 1997, the acceleration date. On the acceleration
date, participants who elected accelerated vesting received from the Company an
aggregate of 132,064 options out of the 1996 CDW Incentive Stock Option Plan.
The newly granted options have an exercise price of $59.00 per share and vest
25% per year beginning January 1, 2001.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee (the "Compensation Committee")
is currently comprised of Mr. Levy and Ms. Collins. During 1996, Mr. Krasny
also served on the Compensation Committee but resigned his position effective
January 22, 1997. Mr. Frank Resnik, a former director of the Company, served
on the Compensation Committee until the completion of his term of office in
April, 1996. The Compensation Committee met in February 1996 to review and
approve bonus and stock option allocations to employees of the Company relative
to their performance in 1995 and to establish, as necessary, the 1996 base
compensation and performance-based compensation programs for executive
officers. The Compensation Committee met on February 3, 1997 to review and
approve bonus and stock option allocations relative to the performance of
Company employees in 1996 and to establish, as necessary, the 1997 base
compensation and performance-based compensation programs for certain executive
officers. The Committee discussed and established the guidelines for the 1997
Employee Incentive Bonus Pool as set forth in Proposal #2 herein.
As previously described in the Proxy Statement, Messrs. Krasny, Zeman and
Kass are each party to an Employment and Non-Competition Agreement with the
Company (each an "Employment Agreement"). With respect to compensation for
these officers, each Employment Agreement provides (i) for a specific base
salary to be adjusted annually based upon changes in the United States Consumer
Price Index, and (ii) an opportunity for each of these executives to
participate in an Employee Incentive Bonus Pool ("the Bonus Pool") as
established pursuant to Article VIII of the Company's By-laws. Pursuant to the
By-laws, the Bonus Pool shall be established, on an annual basis, in an amount
up to twenty percent (20%) of the increase in the Company's income from
operations, as defined in accordance with generally accepted accounting
principles, over the prior fiscal year. At the February 3, 1997 meeting, the
Compensation Committee discussed the Employment Agreements and confirmed the
relevant cost of living increases in the base salaries based upon the increase
in the United States Consumer Price Index for 1996. Additionally, the
Compensation Committee reviewed the Company's 1996 financial performance for
the purpose of determining allocations to be made under the Bonus Pool.
As a result of the increase in the Company's income from operations in
1996 over the Company's 1995 income from operations, an aggregate of $5,040,798
would be available for distribution pursuant to the Bonus Pool. Of this
amount, the Committee determined that $4,144,625 should be distributed to
Messrs. Krasny, Zeman and Kass, $808,456 would be distributed to a number of
other Company employees and the remaining $87,717 would not be distributed. Of
the $4,144,625, the Compensation Committee directed that $1,781,276, $1,373,747
and $989,602 should be distributed to Messrs. Krasny, Zeman and Kass,
respectively, based on each person's perceived contribution to the Company's
1996 results. Included among the other Company employees who received the
$808,456 were Mr. Harczak, who received $10,000 in recognition of his efforts
on behalf of the Company in connection with the development of the Company's
finance and accounting organization, and Mr. Kozak, who received a $10,000
bonus for his efforts in developing and maintaining efficient inventory
purchasing methods and controls. The remaining $788,456 was distributed to
other officers and employees of the Company based upon the recommendation of
Mr. Krasny and as approved by the Compensation Committee.
As of the date hereof, no Named Officers other than Messrs. Krasny, Zeman
and Kass are employed pursuant to employment agreements. The base compensation
for Named Officers not subject to employment agreements was established by Mr.
Krasny and Mr. Zeman at the time each of the respective officers assumed
15
<PAGE> 20
their positions based upon their level of experience, past performance and
expected future performance. At the February 3, 1997 meeting, the Compensation
Committee reviewed the base compensation of such officers and approved an
increase based upon the increase in the United States Consumer Price Index for
1996. In addition to this base compensation, each of the respective officers
received a bonus out of the Officer and Manager Plan which was payable part in
cash and part in stock options of the Company with an exercise price of $0.01
per share. The aggregate amount of the bonus was determined by a formula which
was based on the percentage increase of the Company's operating income over the
prior year. Messrs. Kozak and Harczak were granted options pursuant to the
Officer and Manager Plan of 2,081 and 1,577 shares, respectively.
The additional options granted to Messrs. Kozak and Harczak in 1996, as
reflected in the Option Grants table, were granted pursuant to the CDW
Incentive Stock Option Plan and were determined based on a formula reviewed and
approved by the Compensation Committee which provided that all officers of the
Company shall be entitled to receive options to acquire 6,250 shares of
Company Common Stock. Of these options, twelve and one-half percent (12.5%)
become exercisable annually beginning December 31, 1999. No options were
granted to the three Named Officers subject to employment contracts.
The Compensation and Stock Option Committee and the Board of Directors of
the Company unanimously approved the establishment of two Non-statutory Stock
Option Agreements and the grant thereunder of 25,000 options to each of Messrs.
Harczak and Shanks on September 5, 1996. The exercise price of the options is
$40.00 per share and the options vest 25% on each of January 1, 2000 and 2001
and 50% on January 1, 2002. The options were granted in consideration of
services performed for the benefit of the Corporation by each of the
individuals and to motivate and retain the individuals for future performance.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a federal income tax deduction to public companies for compensation
over $1,000,000 paid to the corporation's chief executive officer and four
other most highly compensated executive officers. Qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. The Company currently intends to structure the performance based
portion of the compensation of its executive officers in a manner that complies
with this provision so that such amounts will be deductible to the Company.
COMPENSATION AND STOCK OPTION COMMITTEE
Joseph Levy, Jr. Michelle L. Collins
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee was formed in November, 1993.
Mr. Krasny participated in deliberations concerning executive officer
compensation as a member of the Compensation and Stock Option Committee until
January, 1997 at which time his membership on the Committee ceased.
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<PAGE> 21
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock with the
cumulative total return of the Nasdaq Composite Index and the Nasdaq Retail
Trade Index for the period commencing May 27, 1993 and ending December 31, 1996
where $100 was invested on May 27, 1993.
Historical stock price performance shown on the graph is not necessarily
indicative of the future price performance.
<TABLE>
<S> <C> <C> <C> <C> <C>
5/27/93 12/31/93 12/31/94 12/31/95 12/31/96
----------- ----------- ----------- --------- ---------
CDW Computer Centers, Inc. $100 $224 $546 $648 $1,423
Nasdaq Stock Market (US) $100 $111 $109 $153 $189
Nasdaq Retail $100 $113 $103 $114 $136
</TABLE>
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<PAGE> 22
PROPOSAL 2
APPROVAL OF EMPLOYEE
INCENTIVE BONUS POOL
Pursuant to the By-laws of the Company, the Board of Directors may, in its
discretion, establish a bonus pool out of which bonuses may be declared and
paid to the Company's executive officers. The Board of Directors has
considered the benefits of such a bonus pool for 1997 and, subject to the
approval of the Company's shareholders, will implement the Employee Incentive
Bonus Pool available for distribution for the year ended December 31, 1997 (the
"Bonus Pool"). The Bonus Pool is intended to establish "performance-based"
compensation and is presented for approval of the shareholders in order to meet
the requirements for exemption from the limitations on deductibility under
Section 162(m) of the Internal Revenue Code of 1996, as amended. The principal
features of the Bonus Pool are summarized below.
CREATION AND PURPOSE OF THE BONUS POOL
The Company's By-laws provide in Article VIII that the Board of Directors
may, at its discretion, continue to establish a bonus pool out of which bonuses
may be declared and paid to the Company's Executive Officers on an annual
basis, in an amount up to twenty percent (20%) of the increase in the Company's
income from operations, as defined in accordance with generally accepted
accounting principles, over the prior fiscal year, which commenced with
increases in income from operations in fiscal 1994 over fiscal 1993. As used
in Article VIII of the By-laws, "Executive Officers" shall mean the Chief
Executive Officer, President, the Vice President-Sales and such other officers
as the Chief Executive Officer may in his discretion designate to the Board
from time to time. The authority for establishing the Bonus Pool has existed
in the Company's By-laws since its initial public offering of Common Stock in
1993.
The purpose of the Bonus Pool is to provide annual incentives in the form
of direct cash payment to the Company's Executive Officers who contribute to
the success of the Company. Because the amount of the Bonus Pool is tied
directly to an increase in the Company's income from operations from year to
year, eligible executive officers will only be rewarded if the Company realizes
any such increase. The Bonus pool has been designed in such a way so as to
motivate the Executive Officers to increase the Company's income from
operations, and is therefore consistent with the Company's philosophy of pay
for performance.
ADMINISTRATION OF THE BONUS POOL
The Board of Directors has established a Compensation and Stock Option
Committee (the "Committee") which has responsibility for, among other things,
administration of the Bonus Pool. The Committee is comprised of Mr. Levy and
Ms. Collins. At a meeting of the Committee held on February 3, 1997, the
Committee reviewed the guidelines for calculating the Bonus Pool and reaffirmed
that the Bonus Pool shall be in an amount up to twenty percent (20%) of the
increase in the Company's income from operations for the year ended December
31, 1997 over the year ended December 31, 1996. Additionally, the Committee
determined that no person receiving a bonus under the Bonus Pool shall be
entitled to receive an amount which, when added to all other compensation
received by such person during the year, would exceed Two Million Dollars
($2,000,000) of total compensation for such year. Furthermore, at the February
3, 1997 meeting, the Committee confirmed that Messrs. Krasny, Zeman and Kass
are contractually eligible to receive awards under the Bonus Pool at the
discretion of the Committee. Additionally, the Committee designated the other
six executive officers of the Company as eligible to receive grants under the
Bonus Pool at the discretion of the Committee. The officers are identified in
this Proxy under the heading "Management".
The amount of the bonuses to be awarded to each of the officers will be
determined at the discretion of the Committee based primarily on the
Committee's assessment of the following factors: (i) the individual management
performance of each of the officers, (ii) the effort and skill exhibited in
supervising their respective areas of
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<PAGE> 23
responsibility and the personnel who report to them, and (iii) the perceived
contribution of each individual executive to the success of the Company.
Although these factors represent the principal bases upon which the Committee
will grant bonuses out of the Bonus Pool, the Committee may consider additional
factors, or may change the principal factors, from time to time in its sole
discretion. Although the bonuses awarded under the Bonus Pool for the year
ended December 31, 1996 are not indicative of the amounts which may be granted
in future years, the bonuses awarded under the Bonus Pool for the year ended
December 31, 1996 were as set forth in the following table.
EMPLOYEE INCENTIVE BONUS POOL ALLOCATIONS FOR 1996
<TABLE>
<CAPTION>
Name Bonus
- - ---- ----------
<S> <C>
Michael P. Krasny $1,781,276
Gregory P. Zeman $1,373,747
Daniel B. Kass $989,602
Harry J. Harczak, Jr. $10,000
Paul A. Kozak $10,000
All Executive Officers as a Group $4,408,577
Non-Executive Officer Employee Group $544,504
</TABLE>
AMENDMENTS TO THE BONUS POOL
There is no separate plan document for the Bonus Pool. Rather, the Bonus
Pool is authorized in the Company's By-laws and administered by the Committee
pursuant to resolutions adopted at a meeting of said Committee. Therefore,
changes to the Bonus Pool can be effected either by an amendment to the
Company's By-laws or by action of the Committee. The Company's By-laws can be
amended by the affirmative vote of the shareholders or by the affirmative vote
of the Board of Directors. Additionally, the Committee can modify the terms of
the Bonus Pool by a vote of the majority of the members of said Committee.
Therefore, the Board of Directors and the Committee will have the ability to
modify the Bonus Pool without the approval of the Company's shareholders.
Notwithstanding the foregoing, because it is the Company's intention that the
Bonus Pool distributions be "performance-based" compensation exempt from the
limitations on deductibility under Section 162(m) of the Internal Revenue Code
of 1996, as amended, the Company is unlikely to make any material modifications
to the Bonus Pool which would impact that result.
VOTE REQUIRED
THIS PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY
OF THE OUTSTANDING SHARES OF THE COMMON STOCK OF THE COMPANY. THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE TERMS OF THE EMPLOYEE INCENTIVE BONUS
POOL AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE BONUS POOL. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE BONUS POOL EXCEPT IN
THE CASE A VOTE AGAINST A PROPOSAL OR ABSTENTION IS SPECIFICALLY INDICATED OR
IN THE CASE OF BROKER NON-VOTES.
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<PAGE> 24
PROPOSAL 3
RATIFICATION OF SELECTION OF
INDEPENDENT ACCOUNTANTS
Subject to ratification by shareholders at the Annual Meeting, the Audit
Committee has recommended to the Board of Directors, and the Board of Directors
has approved, the selection of the independent accounting firm of Coopers &
Lybrand L.L.P. to audit the Company's financial statements for the 1997 year.
Coopers & Lybrand L.L.P. audited the Company's financial statements for the
twelve months ended December 31, 1996, 1995 and 1994, the nine months ended
December 31, 1993 and the twelve months ended March 31, 1993. It is expected
that representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting, will have the opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
If the foregoing recommendation is rejected or if Coopers & Lybrand L.L.P.
declines to act or otherwise becomes incapable of acting or if their
appointment is otherwise discontinued, the Board of Directors will appoint
other independent accountants whose appointment for any period subsequent to
the 1997 Annual Meeting of Shareholders shall be subject to the ratification by
the shareholders at that meeting.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
As of this date, the Company is not aware that any matters are to be
presented for action at the meeting other than those referred to in the Notice
of Annual Meeting, but the proxy form sent herewith, if executed and returned,
gives discretionary authority with respect to any other matters that may come
before the meeting.
By Order of the Board of Directors,
Michael P. Krasny
Chairman, Chief Executive Officer,
Secretary and Treasurer
Buffalo Grove, Illinois
April 9, 1997
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