SCANSOURCE INC, S-1, 1997-01-23

SCANSOURCE INC
S-1, 1997-01-23
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SCANSOURCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

SOUTH CAROLINA 5045 57-0965380
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER)IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

6 LOGUE COURT, SUITE G
GREENVILLE, SOUTH CAROLINA 29615
(864) 288-2432
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JEFFERY A. BRYSON
CHIEF FINANCIAL OFFICER
6 LOGUE COURT, SUITE G
GREENVILLE, SOUTH CAROLINA 29615
(864) 288-2432
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF AGENT FOR SERVICE)

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COPIES TO:
G. MARCUS KNIGHT J. VAUGHAN CURTIS
NEXSEN PRUET JACOBS & POLLARD, LLP ALSTON & BIRD
FIRST UNION BUILDING ONE ATLANTIC CENTER
1441 MAIN STREET, SUITE 1500 1201 WEST PEACHTREE STREET
COLUMBIA, SOUTH CAROLINA 29201 ATLANTA, GA 30309-3424
PHONE:(803) 253-8245 PHONE: (404) 881-7000
FACSIMILE: (803) 253-8277 FACSIMILE: (404) 881-7777
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the registration
statement number of the earlier effective registration statement for the same
offering: [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value..... 2,300,000 shares $16.75 $38,525,000 $11,675
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</TABLE>
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(1) Includes 300,000 shares for which the Underwriters have an option to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

SUBJECT TO COMPLETION, DATED JANUARY 23, 1997

SCANSOURCE, INC.

2,000,000 SHARES

COMMON STOCK

All of the shares of Common Stock offered hereby are being offered by
ScanSource, Inc. (the "Company"). On January 22, 1997, the last sale price of
the Common Stock as reported on The Nasdaq National Market was $17.50 per
share. See "Price Range of Common Stock." The Common Stock is traded on The
Nasdaq National Market under the symbol "SCSC."

---------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 6.

---------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS COMPANY (1)
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<S> <C> <C> <C>
Per Share...........................$ $ $
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Total (2)...........................$ $ $
</TABLE>
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(1) Before deducting expenses payable by the Company, estimated at $400,000.
(2) The Company and certain selling shareholders (the "Selling Shareholders")
have granted to the Underwriters a 30-day option to purchase up to 300,000
additional shares of Common Stock solely to cover over-allotments, if any.
If such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ , and $ , respectively, and the proceeds to be received
by the Selling Shareholders will be $ . See "Principal and Selling
Shareholders" and "Underwriting."

---------

The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1997.

ROBERTSON, STEPHENS & COMPANY
THE ROBINSON-HUMPHREY COMPANY, INC.
WILLIAM BLAIR & COMPANY

The date of this Prospectus is , 1997.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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[INSIDE FRONT COVER GRAPHICS]

ScanSource logo with supporting text: "A leader in the value-added wholesale
distribution of specialty technology products exclusively to resellers."

Right hand side of page, vendor logos for: IBM, Metrologic, Zebra, Symbol,
Datamax, Cherry, Cognitive Solutions, Epson, MMF, PSC, Monarch, MicroTouch,
Intermec, Eltron, Ithaca, Percon, StrandWare, Spectra Physics

Left margin with supporting text: "Serving multiple applications for specialty
technology"

Picture(s) Caption Description of Picture
- ---------- ------- ----------------------

1 Inventory management Person at a lumberyard

2 Grocery POS Retail store cashier

3 Product identification Person scanning a product

4 Production control Laboratory scene

5 Retail Auto-ID Person with handheld computer at a retail
display rack

6 Retail point of sale Store cashier standing at countertop

2
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NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANY INFORMATION OR
REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER, OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME AFTER THE DATE HEREOF.

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TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 10
Price Range of Common Stock............................................... 10
Dividend Policy........................................................... 10
Capitalization............................................................ 11
Selected Financial Data................................................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 19
Management................................................................ 26
Certain Transactions...................................................... 30
Principal and Selling Shareholders........................................ 31
Description of Capital Stock.............................................. 33
Shares Eligible for Future Sale........................................... 36
Underwriting.............................................................. 37
Legal Matters............................................................. 38
Experts................................................................... 38
Additional Information.................................................... 38
Index to Financial Statements ............................................ F-1
</TABLE>

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"ScanSource" is a trademark of the Company. The Company also sells products
and provides services under various trademarks, service marks and trade names
to which reference is made in this Prospectus that are the property of owners
other than the Company. Such owners have reserved all rights with respect to
their respective trademarks, service marks, and trade names.

The Company's principal executive offices are located at 6 Logue Court,
Suite G, Greenville, South Carolina 29615. The Company's telephone number is
(864) 288-2432.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."

3
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." Unless
otherwise indicated, (i) all information in this Prospectus assumes the
Underwriters' over-allotment option is not exercised and (ii) all references to
the Company's fiscal years refer to the fiscal years ending on June 30 of each
calendar year.

THE COMPANY

The Company is a leading value-added wholesale distributor of specialty
technology products exclusively to resellers. The Company primarily distributes
automatic-identification ("Auto-ID") and point-of-sale ("POS") products which
interface with computer systems used to automate the collection, processing and
communication of information for commercial and industrial applications,
including retail sales, distribution, shipping, inventory control, materials
handling, and warehouse management. The Company currently markets more than
7,800 products from 45 hardware and software vendors from its central warehouse
in Memphis, Tennessee to approximately 5,900 reseller customers in the United
States and Canada. From fiscal 1994 to fiscal 1996, the Company's net sales
increased at an 86.0% compound annual rate to $55.7 million, while operating
income increased at a 107.5% compound annual rate to $2.8 million.

The Company's vendors include most of the leading Auto-ID and POS
manufacturers, including Cherry Electrical, Cognitive Solutions, Datamax,
Eltron, Epson America, IBM, Intermec, Ithaca Peripherals, Metrologic, Micro-
Touch Systems, MMF Cash Drawer, Monarch Marking Systems, Percon, PSC, Spectra-
Physics, StrandWare, Symbol Technologies, and Zebra Technologies. In addition
to distributing Auto-ID and POS products, the Company intends to begin
distributing telephony products, including PBXs, key systems, telephone
handsets, cabling, and voice mail.

The Company's objective is to be a comprehensive source of specialty
technology products and value-added services for resellers. The Company's
business model features a sophisticated information system, streamlined
management, and centralized distribution enabling it to achieve the economies
of scale necessary for cost-effective order fulfillment. In addition, the
Company offers significant value-added services such as pre- and post-sale
technical support, bundling of separate product assortments into solution kits,
applications programming, systems integration, and project management services.
The Company believes that its value-added services and targeted marketing
programs provide it with significant competitive advantages and distinguish it
from conventional wholesale distributors engaged primarily in order
fulfillment.

The markets for Auto-ID and POS products accounted for revenues in excess of
$5 billion in 1996. The Auto-ID market experienced annual growth in excess of
15% from 1991 to 1996 and is expected to continue growing at a rate of
approximately 14% through 2000. Other specialty technology products such as
telephony may comprise even larger markets. In addition, the growth of the
wholesale distribution channel has been aided by the evolution of specialty
technology products. As these products move from proprietary to open-
architecture systems, the end-user base becomes more fragmented. In order to
service this fragmented market, both manufacturers and resellers increasingly
rely on wholesale distributors to provide such functions as order fulfillment,
delivery, inventory management, financing, technical support, and marketing.

The Company's strategy is to capitalize on the continuing shift of specialty
technology products toward wholesale distribution as well as the continuing
expansion of certain specialty technology markets. Key elements of the
Company's growth strategy include: (i) promoting the entry of additional
resellers into its core markets; (ii) expanding vendor relationships; (iii)
enhancing value-added service capabilities; (iv) entering additional specialty
technology markets; and (v) pursuing selective acquisitions.

4
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THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company......... 2,000,000 shares
Common Stock to be Outstanding after the
Offering................................... 5,247,986 shares(1)
Use of Proceeds ............................ To repay bank indebtedness
and for general corporate
purposes, including working
capital and possible acquisitions.
Nasdaq National Market Symbol............... SCSC
</TABLE>
SUMMARY FINANCIAL DATA

(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED DECEMBER 31,
-------------------------------- ------------------
1993(2) 1994 1995 1996 1995 1996
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(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales................. $2,383 $16,089 $34,235 $55,670 $ 23,277 $ 42,110
Gross profit.............. 342 2,413 4,791 7,814 3,349 5,728
Operating income (loss)... (243) 645 1,580 2,776 1,091 2,130
Gain from contract
termination, net......... -- -- 1,000 200 200 --
Net income (loss)(3)...... (243) 352 1,511 1,858 813 1,216
Net income (loss) per
share(3)................. $(0.31) $ 0.23 $ 0.50 $ 0.53 $ 0.23 $ 0.35
Weighted average shares
outstanding.............. 773 1,663 3,271 3,560 3,552 3,478
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED(4)
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(Unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 19,332 $46,763
Total assets........................................... 37,987 65,418
Total bank debt........................................ 5,069 --
Shareholders' equity................................... 16,652 49,152
</TABLE>
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(1) Based on the number of shares outstanding at December 31, 1996. Excludes
(i) 444,117 shares of Common Stock issuable upon exercise of options
outstanding at December 31, 1996 at a weighted average exercise price of
$9.09 per share; (ii) 84,000 shares of Common Stock issuable upon exercise
of unit purchase options outstanding at December 31, 1996 at a weighted
average exercise price of $5.75 per share; and (iii) 100,000 shares of
Common Stock issuable upon exercise of warrants outstanding at December 31,
1996 at a weighted average exercise price of $2.00 per share. See
"Management--Stock Option Plans" and "Description of Capital Stock--
Warrants and Unit Purchase Options."
(2) Fiscal 1993 consisted of approximately seven months from the Company's
inception in December 1992.
(3) Excluding the net effect of a one-time gain from a contract termination
payment by Gates/FA Distributing, Inc., and the net effect of an additional
warehouse relocation in May 1995, the Company's net income and net income
per share for fiscal 1995 and 1996 and for the six months ended December
31, 1995 would have been $911,000, $1,738,000 and $693,000 and $0.32, $0.50
and $0.20, respectively. See "Certain Transactions."
(4) Adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company at an assumed public offering price of $17.50 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."

This Prospectus contains forward-looking statements relating to future events
or the future financial performance of the Company, including statments
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." Prospective investors are cautioned that
such statements, which may be identified by words including "anticipates,"
"believes," "intends," "estimates," "expects," and similar expressions, are
only predictions or estimations and are subject to known and unknown risks and
uncertainties. In evaluating such statements, prospective investors should
consider the various factors identified in this Prospectus, including matters
set forth in "Risk Factors," which could cause actual events, performance or
results to differ materially from those indicated by such statements.

5
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RISK FACTORS

The securities offered hereby involve a high degree of risk. In addition to
other information in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing shares of Common Stock offered hereby.

DEPENDENCE ON VENDORS AND PRODUCT SUPPLY

The Company's future success is highly dependent on its relationships with
vendors. Sales of products from the Company's ten largest vendors accounted
for 73.2% of net sales for fiscal 1996, and 76.5% of net sales for the six
months ended December 31, 1996. Sales of products from the Company's two
largest vendors, Symbol Technologies and IBM Corporation, accounted for 20.3%
and 9.4%, respectively, of net sales for fiscal 1996, and 17.9% and 14.2%,
respectively, of net sales for the six months ended December 31, 1996. From
time to time, the Company experiences shortages in availability of some
products from vendors. The Company's business is largely dependent upon the
terms provided by its vendors. The Company's vendor agreements generally
contain provisions for periodic renewals and for termination by the vendor
without cause and typically upon short notice. Some of the Company's vendor
agreements require minimum purchase amounts or the maintenance of a
representative assortment of the vendor's full line of products. Such contract
provisions could increase the Company's working capital requirements. Although
the Company believes its vendor relationships are good, there can be no
assurance that the Company's vendor relationships will continue as currently
in effect. The loss or deterioration of the Company's relationship with a
major vendor, the authorization by vendors of additional wholesale
distributors, or the failure by the Company to establish good relationships
with major new vendors could have a material adverse effect on the Company's
business, financial condition, and results of operations. See "Business--
Products and Vendors."

As is typical in its industry, the Company receives volume discounts and
certain credits for market development from most of its vendors. These volume
discounts directly affect the Company's gross profits. In addition, credits
for market development are typically used to offset a portion of the Company's
sales and marketing expense. The Company is also dependent, in part, upon
vendor financing for working capital requirements. No assurance can be given
that vendor financing will continue to be available to the Company on
satisfactory terms and conditions, if at all. Any change in the availability
of these discounts or credits or the failure of the Company to obtain vendor
financing on satisfactory terms and conditions could have a material adverse
effect on the Company's business, financial condition, and results of
operations. See "Business--Products and Vendors."

COMPETITION

The markets in which the Company operates are highly competitive.
Competition is based primarily on factors such as price, product availability,
speed and accuracy of delivery, effectiveness of sales and marketing programs,
credit availability, ability to tailor specific solutions to customer needs,
quality and breadth of product lines and services, and availability of
technical and product information. The Company's competitors include regional
and national wholesale distributors, as well as hardware manufacturers
(including most of the Company's vendors) that sell directly to resellers and
to end-users. In addition, the Company competes with master resellers which
sell to franchisees, third-party dealers, and end-users. Certain of the
Company's current and potential competitors have significantly greater
financial, technical, marketing, and other resources than the Company and may
be able to respond more quickly to new or emerging technologies, and changes
in customer requirements. Additional competition could result in price
reductions, reduced margins and loss of market share by the Company. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors or that future competitive pressures will not
materially and adversely affect its business, financial condition, and results
of operations. See "Business--Competition."

6
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MANAGING GROWTH; RISK OF ENTERING NEW MARKETS

The rapid growth of the Company's business has required it to make
significant additions in personnel and has increased its working capital
requirements. Such growth has resulted in new and increased responsibilities
for management and has placed significant strain upon the Company's
management, operating, financial and technical resources. There can be no
assurance that this strain will not have a material adverse effect on the
Company's business, financial condition, and results of operations, nor can
there be any assurance that the Company will be able to attract or retain
competent personnel and improve its operational systems sufficiently to
support the expansion of its operations. The Company's business requires
significant levels of working capital to finance accounts receivable and
product inventory that is not financed by its vendors. The Company may in the
future require additional equity or debt financing to support its increased
working capital needs in connection with any expansion of its business. Such
financing may not be available on terms that are favorable to the Company, if
at all. Also crucial to the Company's success will be its ability to achieve
additional economies of scale in order to sustain its operating margins. There
can be no assurance that the Company will be able to obtain adequate working
capital or achieve such economies of scale, and the failure to do so could
have a material adverse effect on the Company's business, financial condition,
and results of operations.

The Company's growth strategy also anticipates the entry into new product
markets in which the Company has had no prior experience, such as its plans to
enter into the telephony market. The Company might also attempt to expand its
business by engaging in strategic acquisitions or investments in complementary
businesses. Expansion of the Company's existing product markets, entry into
new product markets, or growth by such acquisitions or investments could
divert the use of the Company's resources and systems, require additional
resources that might not be available, result in new or more intense
competition, require longer implementation times or greater start-up
expenditures than anticipated, or otherwise fail to achieve the desired
results in a timely fashion, if at all. There can be no assurance, therefore,
that the Company will be able to expand its existing markets, compete
successfully in any new product markets, or identify, complete, or integrate
successfully any acquisitions or investments. The Company's ability to manage
successfully its growth will require continued enhancement of its operational,
management, and financial resources and controls. The Company's failure to
manage effectively its growth could have a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Business--Growth Strategy."

QUARTERLY FLUCTUATIONS IN NET SALES AND OPERATING RESULTS

Net sales and operating results may fluctuate quarterly as a result of
demand for the Company's products and services, the introduction of new
hardware and software technologies, the introduction of new services by the
Company and its competitors, changes in manufacturers' prices or price
protection policies, changes in freight rates, disruption of warehousing or
shipping channels, changes in the level of operating expenses, the timing of
major marketing or other service projects, product supply shortages, inventory
adjustments, changes in product mix, entry into new product markets, timing of
acquisitions or investments, difficulty in maintaining margins, and general
competitive and economic conditions. In addition, a substantial portion of the
Company's net sales in each quarter result from orders booked in such quarter.
Accordingly, the Company believes that period-to-period comparisons of its
operating results should not be relied upon as an indication of future
performance. It is possible that in certain future periods, the Company's
operating results may be below the expectations of public market analysts and
investors. In such event, the price of the Common Stock would likely be
materially and adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Quarterly Results."

RISKS ASSOCIATED WITH INVENTORY MANAGEMENT

The Company's business, like that of other wholesale distributors, is
subject to the risk that the value of its inventory will be adversely affected
by price reductions by manufacturers or by technological changes affecting the
usefulness or desirability of its products inventory. It is the policy of most
manufacturers of specialty technology products to protect distributors such as
the Company from the loss in value of inventory due to technological change or
reductions in the manufacturers' prices. Under the terms of most of the
Company's agreements, vendors will generally credit the Company for inventory
losses resulting from the vendor's price

7
<PAGE>

reductions if the Company complies with certain conditions. In addition,
generally under such agreements, the Company has the right to return for
credit or exchange for other products a portion of its slow moving or obsolete
inventory items within designated periods of time. There can be no assurance
that, in every instance, the Company will be able to comply with all necessary
conditions or manage successfully such price protection or stock rotation
opportunities, if available. Also, a manufacturer which elects to terminate a
distribution agreement generally will repurchase its products carried in
inventory. These industry practices are sometimes not included in written
agreements and do not protect the Company in all cases from declines in
inventory value, excess inventory, or product obsolescence. There can be no
assurance that manufacturers will continue such practices or that the Company
will be able to manage successfully its existing and future inventories.
Historically, the Company has not experienced losses due to obsolete inventory
materially in excess of established inventory reserves. Significant declines
in inventory value in excess of established inventory reserves or dramatic
changes in prevailing technology could have a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Products and Vendors."

The Company is IBM's wholesale distributor of the "SureOne" line of POS
products in the United States. At December 31, 1996, the Company had
approximately 5,300 SureOne units in inventory at a cost of approximately $10
million. For the quarter ended December 31, 1996, the Company averaged sales
of approximately 230 SureOne units per month. IBM recently approved a stock
rotation of 3,200 units which IBM has indicated it will redirect to
international markets. While the Company does not presently anticipate
material losses on its SureOne inventory, there can be no assurance that
losses or costs from similar inventory excesses will not occur in the future.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 13 of Notes to Financial Statements.

DEPENDENCE ON SENIOR MANAGEMENT

The success of the Company is largely dependent on the skills, experience
and efforts of its senior management, particularly Steven H. Owings, Chief
Executive Officer, Michael L. Baur, President, and Jeffery A. Bryson, Chief
Financial Officer. The Company has entered into employment agreements with
Messrs. Owings, Baur, and Bryson, all expiring on June 30, 1999. The Company
also has obtained "key person" insurance policies on the lives of Mr. Owings
and Mr. Baur, each in the amount of $1 million. The loss of services of these
named individuals could have a material adverse effect on the Company's
business, financial condition, and results of operations. See "Management."

DEPENDENCE ON CENTRALIZED FUNCTIONS

The Company distributes products from a single warehouse located in Memphis,
Tennessee and manages its operations through a single information system based
in Greenville, South Carolina. Repair, replacement or relocation of such
centralized functions could be costly or untimely. Although the Company has
business interruption insurance, an uninsurable loss from electrical or
telephone failure, fire or other casualty, or other disruption could have a
material adverse effect on the Company's business, financial condition, and
results of operations. The Company's use of a single warehouse also makes the
Company more vulnerable to dramatic changes in freight rates than a competitor
with multiple, geographically dispersed warehouse sites. There can be no
assurance that losses in excess of insurance coverage, an uninsurable loss, or
changes in freight rates would not have a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Business--Operations."

DEPENDENCE ON THIRD-PARTY SHIPPERS

The Company presently ships virtually all of its products from Memphis,
Tennessee by Federal Express ("FedEx") or United Parcel Service ("UPS").
Changes in shipping terms, or the inability of these third-party shippers to
perform effectively, could have a material adverse effect on the Company's
business, financial condition, and results of operations. There can be no
assurance that the Company can maintain favorable shipping terms or replace
such shipping services on a timely or cost-effective basis. See "Business--
Operations" and "Certain Transactions."

8
<PAGE>

SIGNIFICANT FLEXIBILITY IN APPLYING NET PROCEEDS OF OFFERING

The Company has not designated any specific use for a substantial portion of
the net proceeds from the sale of Common Stock offered by the Company hereby.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. The Company's net income per share will be diluted
as a result of this offering, and failure to utilize effectively the net
proceeds of this offering within a reasonable period of time may delay the
Company's ability to compensate for such dilution through increased
profitability, if at all, which could have a material adverse effect on the
market price of the Common Stock. See "Use of Proceeds."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Common Stock may be subject to wide fluctuations in
response to quarterly variations in operating results, general market
movements and other events or factors. In addition, in recent years the stock
markets in general, and technology-related stocks in particular, have
experienced price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock. See "Price Range of Common
Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
5,247,986 shares of Common Stock (5,507,386 shares if the Underwriters' over-
allotment option is exercised in full). Of these outstanding shares, the
1,150,000 shares of Common Stock sold in the Company's initial public offering
in March 1994, the approximately 1,150,000 shares issued pursuant to the
subsequent redemption of warrants granted in the initial public offering, and
the 2,000,000 shares offered hereby (2,300,000 shares of the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act") other than by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act. The remaining
shares of Common Stock outstanding after completion of this offering were
issued in private transactions and are eligible for sale in the public markets
at prescribed times, subject to compliance with an exemption from the
registration requirements of the Securities Act, such as Rule 144 or Rule
144A. The Company and the holders of 809,400 shares of Common Stock (including
all shares beneficially owned by the Company's officers and directors) have
agreed that they will not sell any shares of Common Stock for 90 days from the
date of this Prospectus without the prior written consent of Robertson,
Stephens & Company. Sales of a substantial number of shares of the Common
Stock in the public market following this offering could adversely affect the
prevailing market price of the Common Stock and could impair the Company's
ability to raise additional equity capital. See "Management--Recent Option
Grants" and "--Stock Option Plans," "Description of Capital Stock," "Shares
Eligible for Future Sale," and "Underwriting."

ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK AND OTHER PROVISIONS

The Board of Directors has the authority to issue up to 3,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any shares of Preferred Stock that
may be issued in the future. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could make it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no present
plans to issue shares of Preferred Stock. Issuance of additional shares of
Common Stock or Preferred Stock could also result in the dilution of the
voting power of the Common Stock purchased in this offering. In addition, the
Board of Directors is authorized by the Articles of Incorporation to consider
all relevant factors, including the effect on employees, customers, vendors,
and other constituencies, and the future value of the Company as a going
concern, in evaluating any proposed tender offer, merger, sale of assets, or
similar extraordinary transaction. Such authority of the Board of Directors
may tend to discourage attempts by third parties to acquire the Company, and
may adversely affect the price that a potential purchaser would be willing to
pay for the Common Stock. See "Description of Capital Stock."

9
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of 2,000,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price of $17.50 per share
are estimated to be approximately $32.5 million ($36.5 million if the
Underwriters' over-allotment option is exercised in full). The Company
anticipates that the net proceeds will be used first to repay the Company's
outstanding bank debt, with the remaining proceeds used for general corporate
purposes, including working capital and possible strategic acquisitions or
investments in complementary businesses. The Company is not currently a party
to any agreements or understandings with respect to any such acquisitions or
investments. There can be no assurance that any acquisitions or investments
can be completed on terms favorable to the Company, if at all. See "Risk
Factors--Significant Flexibility in Applying Net Proceeds of Offering."

At December 31, 1996 the Company's bank debt balance was approximately $5.1
million bearing interest at a floating 30-day LIBOR rate, plus 2.00% to 2.65%,
depending upon the Company's debt-to-net worth ratio. At December 31, 1996,
the interest rate was 7.66%.

Pending the foregoing uses, the net proceeds will be invested in short-term,
investment grade securities, certificates of deposit or direct or guaranteed
obligations of the United States government.

PRICE RANGE OF COMMON STOCK

The following table sets forth, for the periods indicated, the high and low
bid quotations on The Nasdaq SmallCap Market and the high and low sales prices
on The Nasdaq National Market. On October 11, 1995, the Common Stock ceased
trading on The Nasdaq SmallCap Market and commenced trading on The Nasdaq
National Market under the symbol "SCSC." The Nasdaq SmallCap Market quotations
reflect inter-dealer quotations, without adjustment for retail work-ups, mark-
downs or commissions and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
THE NASDAQ THE NASDAQ
NATIONAL MARKET SMALLCAP MARKET
-------------------- -----------------
HIGH LOW HIGH LOW
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Fiscal 1995 $ 9 5/8 $ 7 3/4
First quarter...................... 9 3/8 8 1/4
Second quarter..................... 10 1/4 8 1/2
Third quarter...................... 9 7/8 8 5/8
Fourth quarter.....................
Fiscal 1996
First quarter...................... 13 1/4 9 1/4
Second quarter..................... $ 17 $ 11 12 1/2 11 1/4
Third quarter...................... 16 5/8 12 1/2
Fourth quarter..................... 15 1/2 13 1/4
Fiscal 1997
First quarter...................... 14 10 3/4
Second quarter..................... 16 12 3/4
Third quarter (through January 22,
1997)............................. 17 1/2 15 3/8
</TABLE>

On January 22, 1997, the last sale price of the Common Stock on The Nasdaq
National Market was $17.50 per share. On January 17, 1997, there were 49
shareholders of record of Common Stock.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock
and it is currently the intention of the Board of Directors not to pay cash
dividends in the foreseeable future. The Company plans to retain earnings, if
any, to finance its operations.

10
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at December
31, 1996, and as adjusted to reflect the receipt and application of the net
proceeds from the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed public offering price of $17.50 per share:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(In thousands)
<S> <C> <C>
Long-term obligations..................................... $ 5,069 $ --
Shareholders' equity:
Preferred Stock, no par value; 3,000,000 shares
authorized;
none issued or outstanding.............................. -- --
Common Stock, no par value; 10,000,000 shares authorized;
3,247,986 shares issued and outstanding; and
5,247,986 shares issued and outstanding, as adjusted(1). 11,958 44,458
Retained earnings......................................... 4,694 4,694
-------- -------
Total shareholders' equity............................... 16,652 49,152
-------- -------
Total capitalization.................................... $ 21,721 $49,152
======== =======
</TABLE>
- --------
(1) Based on the number of shares outstanding at December 31, 1996. Excludes
(i) 444,117 shares of Common Stock issuable upon exercise of options
outstanding at December 31, 1996 at a weighted average exercise price of
$9.09 per share; (ii) 84,000 shares of Common Stock issuable upon exercise
of unit purchase options outstanding at December 31, 1996 at a weighted
average exercise price of $5.75 per share; and (iii) 100,000 shares of
Common Stock issuable upon exercise of warrants outstanding at December
31, 1996 at a weighted average exercise price of $2.00 per share. See
"Management--Stock Option Plans" and "Description of Capital Stock--
Warrants and Unit Purchase Options."

11
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth certain selected financial information data,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and related notes thereto included elsewhere herein. The following selected
financial data for the seven months ended June 30, 1993 and for each of the
years in the three-year period ended June 30, 1996 have been derived from the
financial statements of the Company audited by KPMG Peat Marwick LLP,
independent accountants. The audited financial statements of the Company for
the three-year period ended June 30, 1996 are included elsewhere herein. The
statements of operations data for the six months ended December 31, 1995 and
1996 and the balance sheet data at December 31, 1996 are unaudited but have
been prepared on the same basis as the audited financial statements and, in
the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. The results of operations for the six months
ended December 31, 1996 are not necessarily indicative of results to be
expected for any future period or year.

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL ENDED JUNE 30, ENDED DECEMBER 31,
--------------------------------- -------------------
1993(1) 1994 1995 1996 1995 1996
------- ------- ------- ------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.............. $2,383 $16,089 $34,235 $55,670 $ 23,277 $ 42,110
Cost of goods sold..... 2,041 13,676 29,444 47,856 19,928 36,382
------ ------- ------- ------- --------- ---------
Gross profit........... 342 2,413 4,791 7,814 3,349 5,728
Selling, general and
administrative
expenses............... 578 1,718 3,128 4,955 2,217 3,557
Amortization of
intangibles............ 7 50 83 83 41 41
------ ------- ------- ------- --------- ---------
Total operating
expenses............ 585 1,768 3,211 5,038 2,258 3,598
------ ------- ------- ------- --------- ---------
Operating income
(loss)................. (243) 645 1,580 2,776 1,091 2,130
Gain from contract
termination, net....... -- -- 1,000 200 200 --
Other income (expense),
net(2)................. 5 (150) (72) 75 45 (169)
------ ------- ------- ------- --------- ---------
Total other income
(expense)........... 5 (150) 928 275 245 (169)
------ ------- ------- ------- --------- ---------
Income (loss) before
income taxes........... (238) 495 2,508 3,051 1,336 1,961
Income taxes........... 5 143 997 1,193 523 745
------ ------- ------- ------- --------- ---------
Net income (loss)(3)... $ (243) $ 352 $ 1,511 $ 1,858 $ 813 $ 1,216
====== ======= ======= ======= ========= =========
Net income (loss) per
share(3)............... $(0.31) $ 0.23 $ 0.50 $ 0.53 $ 0.23 $ 0.35
====== ======= ======= ======= ========= =========
Weighted average shares
outstanding............ 773 1,663 3,271 3,560 3,552 3,478
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
------------------------------ DECEMBER 31,
1993 1994 1995 1996 1996
------ ------- ------- ------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 216 $ 4,888 $ 6,530 $17,061 $19,332
Total assets.................. 2,017 6,740 13,939 28,742 37,987
Total bank debt............... 120 -- 1,200 3,779 5,069
Total shareholders' equity.... 212 4,751 6,396 15,413 16,652
</TABLE>
- --------
(1) Fiscal 1993 consisted of approximately seven months from the Company's
inception in December 1992.
(2) Includes net interest income (expense) and net other income (expense).
(3) Excluding the net effect of a one-time gain from a contract termination
payment by Gates/FA Distributing, Inc., and the net effect of an additional
warehouse relocation in May 1995, the Company's net income and net income
per share for fiscal 1995 and 1996 and for the six months ended December 31,
1995 would have been $911,000, $1,738,000 and $693,000, and $0.32, $0.50 and
$0.20, respectively.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking statements
which involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under "Risk Factors"
and elsewhere in this Prospectus. This discussion and analysis should be read
in conjunction with "Selected Financial Data" and the Financial Statements and
the Notes thereto included elsewhere in this Prospectus.

OVERVIEW

The Company was incorporated in December 1992 as a joint venture with
Gates/FA Distributing, Inc. ("Gates"), a distributor of personal computer
products. The Company began as a distributor of Auto-ID products, including
bar code scanners and bar code label printers, but rapidly expanded into the
distribution of POS products, initially in April 1993 through the acquisition
of Alpha Data Systems ("Alpha Data"), a POS distributor. In July 1994, the
Company acquired MicroBiz Corp. ("MicroBiz"), another POS distributor. In
March 1994 the Company completed an initial public offering, and in March 1996
purchased Gates' remaining interest in the Company.

From fiscal 1994 to fiscal 1996, net sales increased at a compound annual
rate of 86.0% to $55.7 million, while over the same period operating income
increased at a 107.5% compound annual rate to $2.8 million. Growth in net
sales has been principally driven by competitive product pricing, selective
expansion of its product line, intensive marketing efforts to the reseller
channel, and strategic acquisitions. Results for fiscal 1995 and 1996
benefitted significantly from expanded marketing efforts to recruit new
reseller customers and from the addition of significant new vendor
relationships. Sales for fiscal 1995 were enhanced by the addition of Epson
America's receipt printers, Zebra Technologies' bar code label printers, and
Micro-Touch Systems' POS touch screen monitors. In fiscal 1996, the Company
established Transition Marketing, a joint venture including Globelle
Corporation, a large international distributor of personal computer products.
The primary purpose of this joint venture is to enhance the Company's market
presence through the sponsorship of regional quarterly trade shows to showcase
Auto-ID and POS hardware and software solutions for reseller customers.

The Company's operating income growth has historically been driven by
increasing gross profit and disciplined control of operating expenses. The
Company's business model features a sophisticated information system,
streamlined management, and centralized distribution enabling it to achieve
the economies of scale necessary for cost-effective order fulfillment. As the
Company's markets have grown, pricing pressures have been mitigated by
increased purchasing discounts earned through volume purchases from
manufacturers. From its inception, the Company has tightly managed its general
and administrative expenses by maintaining strong internal controls.
Historically, general and administrative expenses have decreased as a
percentage of sales. However, this decline has been offset by higher marketing
costs, including the establishment of a business development team to enhance
POS market penetration, the organization of the Professional Services Group to
serve the needs of Auto-ID customers, and investments related to Transition
Marketing and its "Solutions USA" trade shows for the benefit of its reseller
customers.

The Company's operating results for fiscal 1995 and 1996 were impacted by:
(i) a one-time gain of $1.3 million (net of $100,000 of relocation expenses)
resulting from the September 1994 termination of warehousing operations
provided by Gates, which was recognized ratably over a one-year period ending
in August 1995; and (ii) $100,000 in additional relocation expenses related to
a subsequent move of the Company's warehouse to its present location. The
effect of these transactions was to increase net income by $600,000 in fiscal
1995 and by $120,000 in fiscal 1996. Excluding these amounts, net income and
net income per share for fiscal 1995 and 1996 would have been $911,000 and
$1.7 million and $0.32 and $0.50, respectively.

13
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain income and
expense items as a percentage of net sales:

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED DECEMBER 31,
---------------------------- --------------------
1994 1995 1996 1995 1996
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......... 85.0 86.0 86.0 85.6 86.4
-------- -------- -------- --------- ---------
Gross profit............... 15.0 14.0 14.0 14.4 13.6
Selling, general and admin-
istrative expenses........ 10.7 9.2 8.9 9.5 8.4
Amortization of intangi-
bles...................... 0.3 0.2 0.1 0.2 0.1
-------- -------- -------- --------- ---------
Total operating expenses. 11.0 9.4 9.0 9.7 8.5
-------- -------- -------- --------- ---------
Operating income........... 4.0 4.6 5.0 4.7 5.1
Gain from contract termina-
tion, net................. -- 2.9 0.4 0.8 --
Other income (expense),
net....................... (0.9) (0.2) 0.1 0.2 (0.4)
-------- -------- -------- --------- ---------
Total other income (ex-
pense).................. (0.9) 2.7 0.5 1.0 (0.4)
-------- -------- -------- --------- ---------
Income (loss) before income
taxes..................... 3.1 7.3 5.5 5.7 4.7
Income taxes............... 0.9 2.9 2.2 2.2 1.8
-------- -------- -------- --------- ---------
Net income................. 2.2% 4.4% 3.3% 3.5% 2.9%
======== ======== ======== ========= =========
</TABLE>

COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995

Net Sales. Net sales consist of sales of Auto-ID and POS products billed to
customers when shipped, net of sales discounts and returns. Net sales for the
six months ended December 31, 1996 increased by 80.9% to $42.1 million from
$23.3 million for the comparable prior year period. Growth of net sales
resulted primarily from additions to the Company's sales force, competitive
product pricing, selective expansion of its product line, and increased
marketing efforts to Auto-ID and POS resellers.

Gross Profit. Cost of sales is comprised of purchase costs, net of early
payment, volume discounts, and product freight. Gross profit as a percentage
of net sales is affected by several factors including the mix of high margin
and low margin products and the proportion of large orders on which the
Company extends volume discounts.

Gross profit for the six months ended December 31, 1996 increased by 71.0%
to $5.7 million from $3.3 million for the comparable prior year period. Gross
profit as a percentage of net sales for the six months ended December 31, 1996
was 13.6% as compared to 14.4% for the comparable prior year period. Gross
profit as a percentage of net sales decreased as a result of a greater mix of
lower margin products as well as volume discounts provided to resellers on
large orders.

Operating Expenses. Operating expenses include commissions paid to sales
representatives; compensation paid to marketing, technical and administrative
personnel; the costs of marketing programs to reach resellers; telephone
expense; a provision for bad debt losses; costs associated with the
Professional Services Group; and amortization. Fluctuations in operating
expenses as a percentage of net sales can result from the amount of value-
added services which accompany higher or lower gross margin sales; planned
expenditures by the Company for additional marketing programs for hiring
additional technical support personnel; and general and administrative
efficiencies gained through higher sales volumes and accompanying economies of
scale.

Operating expenses for the six months ended December 31, 1996 increased by
59.3% to $3.6 million from $2.3 million for the comparable prior year period.
Operating expenses as a percentage of net sales were 8.5% for

14
<PAGE>

the six months ended December 31, 1996, as compared to 9.7% for the comparable
prior year period. The decrease in operating expenses as a percentage of net
sales for the six months ended December 31, 1996 resulted from efficiencies
gained through increased sales volumes.

Operating Income. Operating income for the six months ended December 31,
1996 increased by 95.2% to $2.1 million from $1.1 million for the comparable
prior year period, driven by higher net sales as well as a reduction of
operating expenses as a percentage of net sales. Operating income as a
percentage of net sales increased to 5.1% from 4.7% for the comparable prior
year period.

Total Other Income (Expense). Total other income (expense) consists of
interest income (expense), net, and gain from contract termination, net of
expenses related to warehouse relocations. Net interest expense for the six
months ended December 31, 1996 was $144,000 as compared to $45,000 of net
interest income for the comparable prior year period. Higher net interest
expense resulted from the Company's use of its line of credit to fund higher
inventory levels. Interest income for the six months ended December 31, 1995
resulted from earnings on invested proceeds from Common Stock issued in
connection with warrant exercises through September 1995. The Company
recognized $200,000 as other income for the six months ended December 31, 1995
associated with the Gates contract termination. This amount constituted the
final portion of the gain from contract termination.

Income Taxes. For the six month periods ended December 31, 1996 and 1995,
the Company's effective tax rate was 38.0% and 39.1%, respectively.

Net Income. Net income for the six months ended December 31, 1996 increased
by 49.6% to $1.2 million from $813,000 for the comparable prior year period as
a result of increased operating income, offset by higher interest expense. Net
income as a percentage of net sales for the six-month period ended December
31, 1996 was 2.9% as compared to 3.5% for the comparable prior year period.
Excluding the effect of the Gates contract termination payment, net income for
the six months ended December 31, 1996 would have increased by 75.5% to $1.2
million, or 2.9% of net sales, from $693,000, or 3.0% of net sales, for the
comparable prior year period.

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994

Net Sales. Net sales increased by 62.6% to $55.7 million in fiscal 1996 from
$34.2 million in fiscal 1995, and by 112.8% from $16.1 million in 1994. Net
sales growth in each period resulted primarily from additions to the Company's
sales force, competitive product pricing, selective expansion of its product
line, and increased marketing efforts to the reseller channel.

Gross Profit. Gross profit increased by 63.1% to $7.8 million in fiscal 1996
from $4.8 million in fiscal 1995, and by 98.5% from $2.4 million in fiscal
1994. Gross profit as a percentage of net sales was 14.0% in fiscal 1996 and
1995, and 15.0% in fiscal 1994. This decrease in fiscal 1995 was a result of a
greater mix of lower margin products as well as volume discounts provided to
resellers on large orders.

Operating Expenses. Operating expenses increased by 56.9% to $5.0 million in
fiscal 1996 from $3.2 million in fiscal 1995, and by 81.6% from $1.8 million
in fiscal 1994. Operating expenses as a percentage of net sales declined to
9.0% in 1996, from 9.4% in 1995 and 11.0% in fiscal 1994. The decrease in
operating expenses as a percentage of net sales resulted from efficiencies
gained through increased sales volumes.

Operating Income. Operating income increased by 75.7% to $2.8 million in
fiscal 1996 from $1.6 million in fiscal 1995, and by 145.0% from $645,000 in
fiscal 1994, driven by higher net sales as well as a reduction in operating
expenses as a percentage of net sales. Operating income as a percentage of net
sales increased to 5.0% in fiscal 1996, from 4.6% in fiscal 1995 and 4.0% in
fiscal 1994.

Total Other Income (Expense). Net interest income for fiscal 1996 was
$87,000 from earnings on the investment of proceeds from the issuance of
Common Stock pursuant to exercises of warrants through September 1995. Net
interest expense for fiscal 1995 decreased to $65,000 from $134,000 for fiscal
1994. This decrease resulted primarily from the application of proceeds from
the Company's March 1994 initial public offering, which allowed the Company to
maintain adequate inventory while minimizing line of credit use and related
interest charges throughout fiscal 1995.

15
<PAGE>

The Company recognized $200,000 in fiscal 1996 and $1.1 million in fiscal
1995 (net of $100,000 of warehouse relocation expenses) as other income
associated with the Gates contract termination. The Company incurred
additional warehouse relocation expenses of $100,000 in fiscal 1995 which is
reflected in the gain from contract termination, net.

Income Taxes. Income tax expense was $1.2 million, $997,000 and $143,000, in
fiscal 1996, 1995 and 1994, respectively, reflecting an effective tax rate of
39.1%, 39.8%, and 28.9%, respectively. These provisions are based upon the
Federal tax rate of 34.0% and reflect the impact of state taxes and credits
for net operating loss carry-forwards in fiscal 1994.

Net Income. Net income increased by 23.0% to $1.9 million in fiscal 1996,
from $1.5 million in fiscal 1995, and by 329.3% from $352,000 in fiscal 1994.
Net income as a percentage of net sales was 3.3% for fiscal 1996, 4.4% for
fiscal 1995, and 2.2% for fiscal 1994. Without the effect of the Gates
contract termination payment and the additional May 1995 warehouse relocation,
net income for fiscal 1996 would have increased by 90.8% to $1.7 million, or
3.1% of net sales, from $911,000, or 2.7% of net sales, in fiscal 1995, and by
158.8% from $352,000, or 2.2% of net sales, in fiscal 1994.

QUARTERLY RESULTS

The following tables set forth certain unaudited quarterly financial data
and such data expressed as a percentage of net sales. The information has been
derived from unaudited financial statements that, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such quarterly information.
The operating results for any quarter are not necessarily indicative of the
results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1996 1996 1996 1996
--------- -------- -------- -------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $10,788 $12,489 $14,355 $18,038 $19,673 $22,437
Cost of goods sold...... 9,211 10,716 12,290 15,639 16,975 19,407
------- ------- ------- ------- ------- -------
Gross profit............ 1,577 1,773 2,065 2,399 2,698 3,030
Selling, general and ad-
ministrative expenses.. 1,053 1,164 1,270 1,468 1,668 1,889
Amortization of intangi-
bles................... 21 21 21 20 20 21
------- ------- ------- ------- ------- -------
Total operating ex-
penses............... 1,074 1,185 1,291 1,488 1,688 1,910
Operating income ....... 503 588 774 911 1,010 1,120
Gain from contract ter-
mination, net.......... 200 -- -- -- -- --
Other income (expense),
net.................... (6) 51 30 -- (81) (88)
------- ------- ------- ------- ------- -------
Total other income
(expense)............ 194 51 30 -- (81) (88)
------- ------- ------- ------- ------- -------
Income before income
taxes.................. 697 639 804 911 929 1,032
Income taxes............ 274 249 315 355 353 392
------- ------- ------- ------- ------- -------
Net income ............. $ 423 $ 390 $ 489 $ 556 $ 576 $ 640
======= ======= ======= ======= ======= =======
Net income per share.... $ 0.13 $ 0.11 $ 0.13 $ 0.16 $ 0.17 $ 0.18
======= ======= ======= ======= ======= =======
Weighted average shares
outstanding............ 3,412 3,693 3,670 3,466 3,455 3,493
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1996 1996 1996 1996
--------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 85.4 85.8 85.6 86.7 86.3 86.5
------- ------- ------- ------- ------- -------
Gross profit............ 14.6 14.2 14.4 13.3 13.7 13.5
Selling, general and ad-
ministrative expenses.. 9.8 9.3 8.8 8.1 8.5 8.4
Amortization of intangi-
bles................... 0.2 0.2 0.2 0.1 0.1 0.1
------- ------- ------- ------- ------- -------
Total operating ex-
penses............... 10.0 9.5 9.0 8.2 8.6 8.5
Operating income ....... 4.6 4.7 5.4 5.1 5.1 5.0
Gain from contract ter-
mination, net.......... 1.9 -- -- -- -- --
Other income (expense),
net.................... (0.1) 0.4 0.2 -- (0.4) (0.4)
------- ------- ------- ------- ------- -------
Total other income
(expense)............ 1.8 0.4 0.2 -- (0.4) (0.4)
------- ------- ------- ------- ------- -------
Income before income
taxes.................. 6.4 5.1 5.6 5.1 4.7 4.6
Income taxes............ 2.5 2.0 2.2 2.0 1.8 1.7
------- ------- ------- ------- ------- -------
Net income ............. 3.9% 3.1% 3.4% 3.1% 2.9% 2.9%
======= ======= ======= ======= ======= =======
</TABLE>

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company financed its initial operating requirements and growth through
private financings totalling $500,000. In March 1994, the Company completed an
initial public offering of Common Stock and warrants which provided the
Company with net proceeds of approximately $4.6 million. In September 1995,
the Company also received net proceeds of approximately $6.3 million from
Common Stock issued upon the exercise of warrants.

In October 1995, the Company entered into a revolving credit facility with
Branch Banking and Trust Company ("BB&T") which allowed for borrowings of up
to $8.0 million at an interest rate equal to the 30-day LIBOR rate plus 2.35%.
The borrowing base available under the line of credit was limited to 80% of
eligible accounts receivable and 40% of non-IBM inventory. A lien on accounts
receivable and inventory secured the line of credit. At June 30, 1996, the
interest rate on the line was 7.98%, the borrowing base exceeded $8.0 million,
and the outstanding balance was $3.8 million, leaving $4.2 million of credit
availability.

In November 1996, the Company renegotiated the BB&T line of credit to allow
borrowings of up to $15.0 million at an interest rate equal to the 30-day
LIBOR rate plus a rate varying from 2.00% to 2.65% tied to the Company's debt-
to-net worth ratio ranging from 1:1 to 2:1. This line of credit extends to
October 31, 1998. Other terms of the line of credit remain essentially the
same. At December 31, 1996, the interest rate on the line was 7.66%, and the
outstanding balance was $5.1 million, on a borrowing base of $12.2 million,
leaving $7.1 million of credit availability.

A lien on the Company's IBM accounts receivable and inventory secure its
trade payable to IBM Credit Corporation under an agreement for wholesale
financing signed in April 1996. This arrangement also grants IBM Credit a lien
on the Company's non-IBM accounts receivable and inventory which is
subordinated to the BB&T lien.

For the six months ended December 31, 1996, operating activities used cash
in the amount of $973,000. For this period, cash was used to fund a $1.3
million increase in receivables and a $7.6 million increase in inventory, net
of a corresponding $7.3 million increase in accounts payable. For fiscal 1996,
net cash in the amount of $8.3 million was used in operating activities,
compared to $1.8 million for fiscal 1995. The increase in cash used in
operations was primarily the result of higher inventory and receivables, which
was partially offset by growth in trade payables to vendors. Cash used in
operating activities for fiscal 1995 would have been $2.5 million except that
in September 1994 the Company received $650,000 of the $1.4 million Gates
agreed to pay to the Company in connection with the contract termination. In
March 1996, the Company collected the remaining $750,000 from Gates.

For the six months ended December 31, 1996, investing activities consisted
of $340,000 of capital expenditures. Cash used in investing activities for
fiscal 1996 was $904,000 and included $659,000 for certain capital
expenditures and payments of $202,000 to MicroBiz in connection with the
acquisition. Cash used in investing activities for fiscal 1995 was $1.4
million and consisted of $669,000 for capital expenditures, payments of
$120,000 to a former shareholder of Alpha Data, and $629,000 to MicroBiz.

For the six months ended December 31, 1996, cash provided by financing
activities was $1.3 million, consisting of borrowings under the Company's line
of credit. Cash provided by financing activities for fiscal 1996 was $9.0
million, consisting of $2.6 million in net advances under the line of credit,
$6.8 million in net proceeds from the issuance of Common Stock pursuant to
exercises of warrants and a portion of a prior underwriter's unit purchase
options, and $552,000 in net proceeds from the issuance of Common Stock
pursuant to exercise of certain other options. A portion of these proceeds was
used in September 1995 to repay $1.2 million of indebtedness under the
Company's line of credit. In March 1996 the Company exercised its call option
to repurchase 250,000 shares of Common Stock from Gates for $875,000. Cash
provided by financing activities for fiscal 1995 was $1.3 million, consisting
of $1.2 million in borrowings under the line of credit and $134,000 in net
proceeds from the issuance of Common Stock pursuant to exercises of warrants
and a portion of a prior underwriter's unit purchase options.

17
<PAGE>

The Company believes that the net proceeds from this offering, together with
the existing bank line of credit, vendor financing, and cash flow from
operations, will be sufficient to meet its cash requirements for at least the
next 18 months.

BACKLOG

The Company does not consider backlog to be material to its business.
Virtually all orders are filled within 24 hours of receipt.

NEW ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standard Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 was effective for
fiscal years beginning after December 15, 1995, and requires that the Company
either recognize in its financial statements costs related to its employee
stock-based compensation plans, such as stock option and stock purchase plans,
or make pro forma disclosures of such costs in a footnote to the financial
statements.

The Company expects to continue to use the intrinsic value based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
its financial statements for fiscal 1997, the Company will make the required
pro forma disclosures in a footnote to the financial statements. SFAS No. 123
is not expected to have a material effect on the Company's statements of
income or financial position.

18
<PAGE>

BUSINESS

GENERAL

The Company is a leading value-added wholesale distributor of specialty
technology products exclusively to resellers. The Company primarily
distributes Auto-ID and POS products which interface with computer systems
used to automate the collection, processing and communication of information
for commercial and industrial applications, including retail sales,
distribution, shipping, inventory control, materials handling, and warehouse
management. The Company currently markets more than 7,800 products from 45
hardware and software vendors from its central warehouse in Memphis, Tennessee
to approximately 5,900 reseller customers in the United States and Canada.

INDUSTRY OVERVIEW

Distribution channels for specialty technology products generally consist of
manufacturers, wholesale distributors, resellers and end-users. In recent
years, these distribution channels have evolved through three stages: (i)
direct sales by manufacturers to end-users; (ii) single-tier distribution in
which manufacturers sell to resellers who sell directly to end-users; and
(iii) two-tier, or wholesale distribution, in which manufacturers sell to
wholesale distributors who sell only to resellers.

Currently, the wholesale distribution channel is highly fragmented,
comprised of several large national distributors and many smaller regional
distributors. Large national distributors are engaged primarily in
conventional order fulfillment and typically offer few value-added services,
while small regional distributors are limited in the scale and scope of their
operations and services.

As was the case with the PC industry in the 1980s, specialty technology
products have been evolving from proprietary single platform systems, whereby
a single manufacturer's products are used to create a system solution, to more
open-architecture systems, whereby a variety of manufacturers' products can be
configured together. As a technology moves towards open-system solutions, it
becomes easier for manufacturers to develop and enter markets with components
that are part of an overall system solution. Competition among an expanding
number of manufacturers has caused product prices to decrease and product
applications to expand, which has resulted in an increasing number of
resellers entering the market in order to support a broader base of potential
end-users. As the number of resellers and end-users grows, competition among
manufacturers and within the reseller channel has intensified, resulting in a
less orderly market structure. As a result of the transition of specialty
technology products to open-systems, both manufacturers and resellers have
become more dependent upon wholesale distributors for the organization and
maintenance of an efficient market structure.

In addition, manufacturers which face declining product prices and rising
costs of direct sales increasingly rely upon value-added wholesale
distributors for outsourcing certain support functions, such as product
assortment, delivery, inventory management, technical assistance, and
marketing. At the same time, shortened product life cycles and the
introduction of new products and applications have caused resellers
increasingly to rely on wholesale distributors for various inventory
management, financing, technical support and related functions. The Company
believes that as the reseller market grows and becomes more fragmented, and as
specialty technology products continue to transition to open systems, the
wholesale distribution channel will become increasingly important.

19
<PAGE>

Auto-ID and POS products are examples of specialty technology products which
are transitioning from proprietary to open-systems architecture. Auto-ID
technology incorporates the capabilities for electronic recognition and data
processing without the need for manual input and consists of a wide range of
products, including bar code printers and labeling devices, contact wands,
light pens, hand-held and fixed-mount laser scanners, portable data collection
devices, keyboard wedges, and magnetic stripe readers. As Auto-ID technology
has become more pervasive, applications have evolved from traditional uses
such as inventory control, materials handling, distribution, shipping, and
warehouse management to more advanced applications such as medical research.
According to an industry study, the worldwide Auto-ID market is projected to
grow at a compounded annual rate of 14%, from approximately $2.2 billion in
1993 to approximately $5.6 billion in 2000.

POS technology consists of devices used for the capture, processing,
analysis, and dissemination of transaction data. POS product lines include
computer-based terminals, monitors, receipt printers, pole displays, cash
drawers, keyboards, peripheral equipment, and fully integrated processing
units used primarily in retail applications. According to an industry study,
the market in the United States for POS equipment was $2.6 billion in 1994.
The same study indicated that in 1994, approximately 40% of POS terminals were
distributed through indirect channels, including wholesale distributors,
dealers, and VARs.

In addition to POS and Auto-ID, the Company believes that other specialty
technologies, such as telephony (including handsets, cabling, voice mail,
PBXs, and key systems), have similar market characteristics, thereby making
them attractive for wholesale distribution.

THE SCANSOURCE BUSINESS MODEL

The Company is a leading value-added wholesale distributor of specialty
technology products and services exclusively to the reseller channel and
believes that it has developed the scope of service capabilities and the scale
of operations that are critical to success in its core markets. The Company's
business model is based upon the following fundamental elements:

. Focus on Specialty Technology Products. The Company focuses on specialty
technology products in order to capitalize upon a growing reliance on value-
added wholesale distribution as these products transition to open-
architecture, scalable platforms.

. Exclusive Emphasis on Resellers. The Company does not compete with its
reseller customers for sales to end-users. This exclusive focus on resellers
generates loyalty among its customers, is an established distribution model
with which the majority of PC resellers are familiar, and promotes incremental
market growth by encouraging resellers to service a broad group of end-users
without the threat of competition from the wholesale channel.

. Commitment to Cost Leadership. The Company's flat organizational structure
permits it to respond rapidly to the needs of both its vendors and its
resellers while maintaining tight control over operating expenses. The Company
monitors its operating costs and intends to continue investing in its
information system and central warehouse as required, implement incentive
programs for product managers to increase inventory turns, and leverage vendor
relationships for pricing discounts and marketing allowances.

. Sophisticated Information System. The Company has made a significant
investment in the development of a sophisticated information system. The
Company's information system is a scalable, multi-platform, real-time system
intended for simultaneous decentralized decision-making by sales and
purchasing professionals while permitting control of daily operating functions
by senior management.

. Central Warehouse. The Company distributes products from a single
warehouse in Memphis, Tennessee. The Company believes that central
distribution provides certain competitive advantages, including prompt order
fulfillment and delivery, lower inventory requirements, improved inventory
control, simplified purchasing and tracking, higher order-fill rates, and the
flexibility to respond quickly to various customer needs, such as systems
integration and drop shipments to end-users.

20
<PAGE>

GROWTH STRATEGY

The Company's strategy is to capitalize on the continuing shift of specialty
technology products toward wholesale distribution as well as the continued
expansion of certain specialty technology markets. Key elements of the
Company's growth strategy are as follows:

. Promote Entry of Additional Resellers in Core Markets. The Company
educates resellers on the opportunities in specialty technology markets,
sponsors programs aimed at recruiting new resellers, and facilitates the flow
of sales and marketing information, such as tracking sales leads. By offering
a wide array of products and services, including same-day order fulfillment,
overnight product delivery, financing, and technical support, the Company
minimizes barriers to entry and promotes development of the reseller channel.

. Expand Vendor Relationships. The Company presently offers more than 7,800
products from 45 vendors and intends to continue broadening its product
assortment and base of vendors. Recently, the Company expanded its offerings
of radio-frequency equipment and pen-based hand-held devices and is adding the
full line of bar code scanning devices, printers, and radio-frequency portable
computers from Intermec Corporation, a leading bar code manufacturer.

. Enhance Value-Added Service Capabilities. In addition to basic order
fulfillment offered by conventional wholesale distributors, the Company
provides a variety of value-added services benefitting both manufacturers and
resellers. These programs include pre-sale and post-sale technical support,
bundling of separate product assortments in solution kits, and contract
consulting and programming. The Company also intends to add new services in
response to the growing needs of its reseller customers. For example, the
Company recently established a Professional Services Group to assist resellers
with pen-based systems programming and radio-frequency data collection
applications.

. Enter Additional Specialty Technology Markets. The Company believes that
opportunities exist to apply its efficient, value-added distribution model to
additional specialty technology markets with characteristics similar to the
Auto-ID and POS markets. For example, the Company intends to begin
distributing computer telephony products, such as handsets, cabling, voice
mail, PBXs, and key systems.

. Pursue Selective Acquisitions. The Company intends to identify and pursue
strategic acquisitions or investments in complementary businesses. While the
Company continues to evaluate opportunities, it is not currently a party to
any agreements or understandings with respect to any such acquisitions or
investments.

21
<PAGE>

PRODUCTS AND VENDORS

The Company currently markets more than 7,800 products from 45 hardware and
software vendors. The Company primarily distributes Auto-ID and POS products
which interface with computer systems used to automate the collection,
processing and communication of information for commercial and industrial
applications, including retail sales, distribution, shipping, inventory
control, materials handling, and warehouse management. The following table sets
forth the Company's principal Auto-ID and POS product categories and vendors:

[CHART APPEARS HERE]

<TABLE>
<CAPTION>
Credit
Bar Code Cash Auth. Customer
Printers Decoders Scanners Software Verifiers Drawers Products Displays
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advent Corporation
American Power Conversion
Cherry Electrical
Cognitive Solutions, Inc. X
CoStar Corporation X
Datacap Systems, Inc. X
Datamax Corporation X X
Donner Media Incorporated
Eltron International, Inc. X X X
Epson America, Inc.
GrafTek X
Hand Held Products
IBM Corporation X X
IC Verify X
Informatics, Inc. X
Intermec Corporation X X X X
Ithaca Peripheral Incorporated
Linx Data Terminals, Inc. X
Logic Controls, Inc. X X
Metrologic Instrument X X
Micro-Touch Systems, Inc.
MMF Cash Drawer Company X
Monarch Marking Systems X X
Motorola Indala X
Opticon, Inc. X X
Percon, Inc. X X X
PSC Inc. X X
Psion, Incorporated X
SATO America, Inc. X X X
Spectra-Physics, Inc. X
StrandWare X
Symbol Technologies, Inc. X X X
Unitech America, Inc. X X
Zebra Technologies X X

Ribbons & Portable Data POS POS Receipt Radio Freq. Touch UPS Backup
Labels Collectors Computers Keyboards Printers Products Screens Systems
- -----------------------------------------------------------------------------------------------------------------------------------
Advent Corporation X
American Power Conversion X
Cherry Electrical X
Cognitive Solutions, Inc. X
CoStar Corporation
Datacap Systems, Inc.
Datamax Corporation
Donner Media Incorporated X
Eltron International, Inc.
Epson America, Inc. X X X
GrafTek
Hand Held Products X
IBM Corporation X X X X
IC Verify
Informatics, Inc.
Intermec Corporation X
Ithaca Peripheral Incorporated X
Linx Data Terminals, Inc.
Logic Controls, Inc. X
Metrologic Instrument
Micro-Touch Systems, Inc. X
MMF Cash Drawer Company
Monarch Marking Systems X
Motorola Indala X
Opticon, Inc.
Percon, Inc. X
PSC Inc.
Psion, Incorporated X
SATO America, Inc.
Spectra-Physics, Inc.
StrandWare
Symbol Technologies, Inc. X X
Unitech America, Inc. X X
Zebra Technologies X
</TABLE>

22
<PAGE>

The Company's merchandising director recruits vendors and manages important
aspects of its vendor relationships, such as purchasing arrangements,
cooperative marketing initiatives, vendor sales force relationships, product
training, and monitoring rebate programs and various contract terms and
conditions. The Company generally enters into non-exclusive distribution
agreements with vendors. These agreements typically provide the Company with
stock rotation and price protection provisions that may mitigate the risk of
loss from slow moving inventory, vendor price reductions, product updates or
obsolescence. Some of these distribution agreements contain minimum purchase
amounts in order to receive preferential prices. The distribution agreements
are generally terminable on 30 to 120 days' notice by either party.

CUSTOMERS

The Company's reseller customers currently include more than 5,900 active
accounts located in the United States and Canada. No single customer accounted
for more than five percent of the Company's net sales in fiscal 1996 or the
six months ended December 31, 1996. The Company segments its reseller
customers into the following four broad categories:

Auto-ID VARs. These resellers focus on selling Auto-ID products as a
tailored software or integrated hardware solution for end-users' existing
applications. Primary industries served by these resellers include
manufacturing, distribution, health care, and pharmaceutical.

POS VARs. These resellers are comprised of: (i) former computer resellers
with comprehensive knowledge of networking; and (ii) former cash register
dealers who have entered the POS market in response to retailers' demand for
integrated, PC-based POS systems. Primary industries served by these resellers
include hospitality, convenience, grocery, and other retail markets.

Application VARs. These resellers incorporate various Auto-ID and POS
products as part of customized technology solutions to their end-users. These
resellers serve vertical markets, such as lumber yards or automotive parts
businesses, rather than broader horizontal applications such as general office
automation. The Company's technical support, systems integration, and
Professional Services Group represent attractive "partnering" opportunities
with these resellers.

General or PC VARs. These resellers develop computer solutions for their
end-users' microcomputer needs. They typically have well-established
relationships with end-user MIS directors and are seeking additional revenue
and profit opportunities in related markets, such as Auto-ID or POS.

SALES AND MARKETING

The Company's sales force is comprised of 30 inside sales representatives
located in South Carolina, California and Georgia. In order to build strong
customer relationships, each active reseller is assigned to a sales
representative. Each sales representative negotiates pricing directly with his
assigned customers. The Company also employs several product managers who are
responsible for developing technical expertise within broad product markets,
evaluating competitive markets, and reviewing overall product and service
requirements of resellers. Each sales representative and product manager
receives comprehensive training with respect to the technical characteristics
of each vendor's products. This training is supplemented by quarterly product
seminars conducted by vendors' representatives and by weekly meetings among
all product managers, marketing and sales representatives.

The Company provides a range of marketing services which include:
cooperative advertising with vendors through trade publications and direct
mail; a product catalog which is published three times per year; periodic
newsletters; management of sales leads; trade shows with software companies
and vendors; direct mail; and sales promotions. In addition, the Company
organizes and operates its own "Solutions USA" trade show on a quarterly basis
to recruit prospective resellers and introduce new applications for the
specialty technology products it distributes. The Company frequently
customizes its marketing services for vendors and resellers.

In order to promote growth in the POS market, the Company recently
established a business development team focused on recruiting IBM "partners",
and has thus far signed 50 IBM independent software vendors in

23
<PAGE>

80 different geographic and vertical markets. The team has also recruited over
500 approved resellers for IBM-branded POS products.

VALUE-ADDED SERVICES

In addition to the basic order fulfillment and credit services that
conventional wholesale distributors typically provide to resellers, the
Company differentiates itself by providing an array of value-added services,
including the following:

Pre-Sale Technical Support. Technical support personnel assist the reseller
with systems configuration as the order is placed. Pre-sale support also
includes testing products to ensure their compatibility with other products
and applications.

Post-Sale Technical Support. Technical support personnel also assist sales
representatives and customers in diagnosing and solving technical,
configuration, or compatibility issues which may arise after sale. The
technical support department will, if necessary, serve as a liaison or
advocate between the manufacturer and the reseller.

Bundling of Separate Product Assortments into Solution Kits. Product
managers and technical support personnel work together to select specific
products that are compatible and continually develop "solution kits" or
bundles to better meet the reseller's needs.

Professional Services Group. With the growth of radio-frequency and pen-
based technology in the Auto-ID market, resellers need greater technical
expertise. As a result, the Company established the Professional Services
Group to assist resellers with pen-based programming and radio-frequency data
collection applications. This group offers needs-analysis, pre-sale equipment
configuration, sales assistance, site surveys, on-site installation, post-sale
maintenance, software programming (both utilities and applications), and
project management.

OPERATIONS

Information System

The Company's information system is a highly scalable centralized processing
system capable of supporting numerous operational functions including
purchasing, receiving, order processing, shipping, inventory management, and
accounting. The overall on-line response time for the Company's network of
more than 100 user stations (terminals, printers, personal computers, and
hand-held terminals) is less than one-half second.

Sales representatives rely on the information system for on-line, real-time
information on product pricing, inventory availability, and order status. The
Company's warehouse operations use bar code technology for receiving and
shipping, and automated UPS and FedEx systems for freight processing and
shipment tracking, each of which is integrated with the Company's information
system. The customer service and technical support departments employ the
system for documentation and faster processing of customer product returns. To
ensure that adequate inventory levels are maintained, the Company's buyers
depend on the system's purchasing and receiving functions to track inventory
on a continual basis.

Integrated Order Entry

The order entry process begins with the entry by a sales representative of a
customer name, account number, or phone number. Based on this input, the
information system automatically displays the customer's name, address, credit
terms, financing arrangements, and preferred shipping method during each
subsequent inquiry. As an order is entered, key information is automatically
provided by the system, such as product description, price, availability, and
gross margin. The quantity of product required to fill the order is then
reserved at the central warehouse. The system automatically checks the
customer's credit status and the order is then released for processing, unless
credit limits are exceeded or the account contains past-due invoices, in which
case the order is placed on hold and immediately elevated for review by the
Company's credit management department.

Automated Purchasing

To monitor product inventory, the purchasing staff uses reports generated by
the information system, which provides product inventory levels, six months'
sales history, month-to-date, and year-to-date sales statistics by

24
<PAGE>

product. The Company's buyers carefully analyze current and future inventory
positions as well as profit potential. Buyers enter purchase orders into the
system, indicating the product number, the quantity to be ordered, and the
method of shipment.

Central Warehouse and Shipping

The Company's 81,000 square foot warehouse facility (of which it currently
occupies approximately 40,000 square feet) is located approximately four miles
from the FedEx hub facility in Memphis, Tennessee. The Company believes that
its centralized distribution creates several advantages, including (i) a
reduced amount of "safety stock" inventory, which, in turn reduces the
Company's working capital borrowings; (ii) an increased turnover rate by
tighter control over inventory; (iii) maintenance of a consistent order-fill
rate; (iv) improved personnel productivity; (v) improved delivery time; (vi)
simplified purchasing and tracking; (vii) decreased demand for management
personnel; and (viii) flexibility to meet customer needs for systems
integration.

The Company's objective is to ship on the same day all orders received by
8:00 p.m. Eastern Time. Orders are processed in the central warehouse, where
bar code technology is utilized to minimize shipping errors. The Company also
has an automated package handling system used to send products from the
picking area to invoicing stations. Upon fulfillment of the order, the package
is immediately shipped to the reseller or "drop-shipped" to an end-user
specified by the reseller by FedEx or UPS overnight service. The Company
charges its customers local ground delivery rates for this service.

Credit Services

The Company offers 20-day credit terms for qualified resellers. The Company
believes this policy eliminates the customer's need to establish multiple
credit relationships with a large number of manufacturers. In addition, the
Company arranges floor planning and lease financing for its resellers through
a number of credit institutions.

COMPETITION

The markets in which the Company operates are highly competitive.
Competition is based primarily on factors such as price, product availability,
speed and accuracy of delivery, effectiveness of sales and marketing programs,
credit availability, ability to tailor specific solutions to customer needs,
quality and breadth of product lines and services, and availability of
technical and product information. The Company's competitors include regional
and national wholesale distributors, as well as hardware manufacturers
(including most of the Company's vendors) that sell directly to resellers and
to end-users. In addition, the Company competes with master resellers which
sell to affiliated dealers and end-users. Certain of the Company's current and
potential competitors have greater financial, technical, marketing and other
resources than the Company and may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. Such competition
could also result in price reductions, reduced margins, and loss of market
share by the Company.

FACILITIES

The Company leases approximately 25,000 square feet in Greenville, South
Carolina for its principal executive and sales office. The lease for about
half of this space expires in September 1998 and for the balance of this space
in September 2001. The Company's 81,000 square foot distribution center in
Memphis, Tennessee is leased through November 2000. Approximately 41,000
square feet of the distribution center is subleased on a month-to-month basis.
The Company also leases small offices in Tustin, California and Norcross,
Georgia. Management believes the Company's office and warehouse facilities are
adequate to support its current level of operations. See "Certain
Transactions."

EMPLOYEES

As of December 31, 1996, the Company had 101 employees, none of whom is a
member of an industry trade union or collective bargaining unit. The Company
considers employee relations to be good.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings it believes could have a
material adverse effect on its business, financial condition, or results of
operations.

25
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following sets forth certain information regarding the Company's
executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven H. Owings......... 43 Chairman of the Board and Chief Executive Officer
Michael L. Baur.......... 39 President and Director
Jeffery A. Bryson........ 36 Chief Financial Officer and Treasurer
Steven R. Fischer(1)..... 51 Director
James G. Foody(1)........ 66 Director
</TABLE>
- --------

(1) Member of Audit Committee and Compensation Committee.

STEVEN H. OWINGS has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since its inception in December 1992. From
1991 to 1992, Mr. Owings served as Chairman of the Board, Chief Executive
Officer and the sole shareholder of Argent Technologies, Inc. ("Argent"), a
personal computer manufacturer. From 1983 to 1991, Mr. Owings held various
positions with Gates/FA Distributing, Inc. and its predecessors, including
serving as President from December 1987 until December 1990, Chief Executive
Officer from December 1987 to December 1991 and Chairman of the Board of
Directors from December 1990 to December 1991. From December 1987 to September
1994, Mr. Owings served as a director of Gates. He is currently a director of
Globelle Corporation, an international distributor of personal computer
products.

MICHAEL L. BAUR has served as President of the Company since its inception
and as a director of the Company since December 1995. Prior to joining the
Company, from April 1991 to November 1992, Mr. Baur served in various
positions at Argent including as President and as General Manager. In
September 1989, Mr. Baur joined Gates as Product Manager and served as
Merchandising Director from February 1990 to March 1991.

JEFFERY A. BRYSON has served as Chief Financial Officer and Treasurer of the
Company since December 1993. Prior to joining the Company, from 1990 to 1993,
Mr. Bryson served as a senior manager with the accounting firm of KPMG Peat
Marwick LLP, where he was employed for more than seven years. Mr. Bryson is
also a certified public accountant.

STEVEN R. FISCHER has served as a director of the Company since December
1995. Mr. Fischer has served as Senior Vice President and Regional Manager of
Transamerica Business Credit Corporation since March 1992. From February 1981
to March 1992, Mr. Fischer served as Vice President and Regional Manager of
Citibank, N.A.

JAMES G. FOODY has served as a director of the Company since December 1995.
Mr. Foody has served as a business consultant in Greenville, South Carolina
since October 1990. Prior to that time, he served as a partner in the
accounting firm of Ernst & Young LLP.

Directors serve until the next annual meeting of shareholders and until
their successors are elected. Except as otherwise set forth herein, executive
officers serve at the discretion of the Board of Directors. See "--Employment
Agreements."

The Board of Directors has an Audit Committee and Compensation Committee.
The functions of the Audit Committee include recommending to the Board the
retention of independent auditors, reviewing the scope of the annual audit
undertaken by the Company's independent auditors and the progress and results
of their work, and reviewing the financial statements of the Company and its
internal accounting and auditing procedures. The functions of the Compensation
Committee include reviewing and approving executive compensation policies and
practices, reviewing salaries and bonuses for certain officers of the Company,
administering the Company's employee stock option plans, and considering such
other matters as may from time to time be referred to the Compensation
Committee by the Board.

26
<PAGE>

Directors are reimbursed for expenses incurred in connection with the
performance of services as directors. In addition, directors who are not
otherwise compensated as officers of the Company receive a fee of $1,000 per
calendar quarter for their service on the Board of Directors and any committee
thereof and also receive automatic grants of stock options under the Company's
1994 Incentive Stock Option Plan for Outside Directors. See "--Stock Option
Plans."

EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid or accrued to the
Company's Chief Executive Officer and its President (the "Named Executive
Officers") for fiscal 1996, 1995 and 1994. No other executive officer of the
Company earned compensation in excess of $100,000 for services provided to the
Company during such periods.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ------------
SECURITIES
FISCAL UNDERLYING
NAME YEAR SALARY BONUS OPTIONS
---- ------ ------- ------ ------------
<S> <C> <C> <C> <C>
Steven H. Owings.......................... 1996 $87,266 $ -- --
Chairman of the Board and 1995 72,000 -- --
Chief Executive Officer 1994 72,000 -- --
Michael L. Baur........................... 1996 87,000 44,094 --
President 1995 72,000 57,550 30,000
1994 72,000 15,007 30,000
</TABLE>

EMPLOYMENT AGREEMENTS

Effective January 1, 1997, and for a term extending through June 30, 1999,
the Company entered into employment agreements with each of Steven H. Owings,
Michael L. Baur, and Jeffery A. Bryson, pursuant to which Mr. Owings serves as
Chief Executive Officer, Mr. Baur serves as President, and Mr. Bryson serves
as Chief Financial Officer of the Company. These agreements provide for annual
salaries of $96,000, $87,000, and $60,000 for Messrs. Owings, Baur, and
Bryson, respectively, plus incentive bonuses based upon a percentage of the
Company's operating income. The agreements also include non-competition
provisions for two years following the expiration of the agreements or the
earlier termination of employment.

RECENT OPTION GRANTS

The Company did not grant any stock options to its Named Executive Officers
during fiscal year 1996. Subsequently the Company granted the following
options: (i) in December 1996, Steven H. Owings was granted an incentive stock
option for 7,500 shares at an exercise price of $14.50 per share, subject to
vesting over a three-year period, and a non-qualified option for 30,000 shares
at an exercise price of $14.50 per share, which is immediately vested, and in
January 1997, he was granted a non-qualified option for 70,000 shares at an
exercise price of $16.50 per share, which is immediately vested; (ii) in July
1996, Michael L. Baur was granted an incentive stock option for 25,000 shares
at an exercise price of $11.25 per share, subject to vesting over a three-year
period, in December 1996, he was granted a non-qualified option for 16,000
shares at an exercise price of $14.50 per share, subject to vesting over a
three-year period, and in January 1997, he was granted a non-qualified option
for 10,000 shares at an exercise price of $16.50 per share, which is
immediately vested; and (iii) in July 1996, Jeffery A. Bryson was granted an
incentive stock option for 5,000 shares at an exercise price of $11.25 per
share, in December 1996, he was granted an incentive stock option for 7,500
shares at an exercise price of $14.50 per share, subject to vesting over a
three-year period, and in January 1997, he was granted a non-qualified option
for 5,000 shares at an exercise price of $16.50 per share, which is
immediately vested.

FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information with respect to
unexercised stock options held by the Named Executive Officers at June 30,
1996. No options were exercised by any Named Executive Officers during fiscal
1996.

27
<PAGE>

FISCAL 1996 YEAR-END
OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY
YEAR END OPTIONS AT FISCAL YEAR END(1)
--------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Michael L. Baur......... 40,000 20,000 $ 427,709 $ 105,416
</TABLE>
- --------
(1) Based on a per share price of $14.00, the last sale price of the Common
Stock as reported on The Nasdaq National Market on June 28, 1996, the last
trading day of the fiscal year.

STOCK OPTION PLANS

1993 Incentive Stock Option Plan

The Company adopted the 1993 Incentive Stock Option Plan in July 1993, and
amended the plan in December 1996 (the "1993 Employee Plan"). The Company has
reserved 280,000 shares of Common Stock for issuance pursuant to the 1993
Employee Plan. The plan authorizes the issuance of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to eligible employees of
the Company. The Compensation Committee currently administers this Plan.
Future as well as present officers and employees who are directors are
eligible to participate in the plan, but directors who are members of the
Compensation Committee or who are not officers or employees of the Company are
not eligible for participation. No option may be granted under the 1993
Employee Plan after June 2003. The Compensation Committee has discretionary
authority to determine the individuals to whom options will be granted from
among those individuals who are eligible, as well as the terms of, and the
number of shares of Common Stock subject to such options. The exercise price
of each incentive stock option under the plan shall not be less than 100% of
the fair market value of the Common Stock at the time of grant, except in the
case of a grant to an employee who owns more than 10% of the voting power of
the Company's voting stock, the exercise price shall be not less than 110% of
such fair market value. Options may be exercised in the manner and at such
times as may be fixed by the Compensation Committee, but may not be
exercisable after the tenth anniversary (fifth anniversary in the case of a
10% shareholder) of the date of grant. Generally options shall immediately
terminate after ten years, to the extent not previously exercised. Upon
termination of employment, other than for cause, options may be exercised
during various periods not less than three months after the date of
termination. Options are not transferable during the lifetime of an option
holder. Shares issuable under any options that expire or terminate before
exercise become available again for issuance. The Company has registered
200,000 shares of Common Stock reserved for the 1993 Employee Plan under the
Securities Act, and intends to register the remaining 80,000 shares reserved
under the Plan upon completion of this offering.

At December 31, 1996, the Company had granted options under the 1993
Employee Plan for 216,584 shares of Common Stock, of which options for 196,617
shares remained unexercised. The Company has also from time to time granted
non-qualified options to officers and employees of the Company and its
affiliates for 202,000 shares in the aggregate. See "--Recent Option Grants."

1994 Stock Option Plan for Outside Directors

The Company adopted the 1994 Stock Option Plan for Outside Directors in
December 1993 (the "Outside Director Plan"). The Company has reserved 65,000
shares of Common Stock for issuance to Board members who are not employees of
the Company. Options for 5,000 shares of Common Stock under the Outside
Director Plan are automatically granted on the day following each annual
meeting to each eligible director. The exercise price of all such options is
the fair market value of the Common Stock on the date of grant. Options
granted under the Outside Director Plan are exercisable beginning six months
after the date of grant, and may be exercised only during the period in which
the option holder remains a director of the Company, and for one year
thereafter. The option price shall be payable in full upon exercise in cash,
by check, in shares of Common Stock already held by the option holder, or in
any combination thereof. Options may not be exercised after the fifth
anniversary of the date of grant. Generally, options shall immediately
terminate after five years, to the extent not previously exercised. Shares
issuable pursuant to options that expire or terminate prior to exercise become
available again for issuance. The Company has registered 65,000 shares of
Common Stock for issuance under the Outside Director Plan under the Securities
Act.

28
<PAGE>

At December 31, 1996, options for the purchase of 30,000 shares of Common
Stock pursuant to the Outside Director Plan had been granted, of which no
options have been exercised. The Company has also from time to time in the
past granted non-qualified options and warrants to directors who are not
employees of the Company for 115,000 shares in the aggregate. The Company does
not presently anticipate granting any more options or warrants to such
directors except as permitted by the Outside Director Plan.

RETIREMENT PLAN

In October 1993, the Company established a defined contribution retirement
plan with a 401(k) feature (the "Retirement Plan") for all employees who meet
certain length of service and other eligibility requirements. Pursuant to the
Retirement Plan, employees may elect to reduce their current compensation by
up to the statutorily prescribed annual limit and have the amount of such
reduction contributed to the Retirement Plan. The Retirement Plan permits, but
does not require, additional matching contributions to the Retirement Plan by
the Company on behalf of all participants in the Retirement Plan. During
fiscal 1996, the Company provided a matching contribution equal to one-half of
each participant's contribution, up to a maximum matching contribution of $500
per participant. Participants' contributions to the Retirement Plan are
immediately vested, and the Company's contributions to the Retirement Plan are
vested over a period of three to seven years. Each participant has the right
to direct the investment of the participant's funds among certain designated
investment alternatives. The Retirement Plan is intended to qualify under
Sections 401(a) and (k) of the Internal Revenue Code 1986, as amended, so that
contributions by employees or by the Company and income earned on plan
contributions are not taxable to employees until withdrawn from the Retirement
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made.

29
<PAGE>

CERTAIN TRANSACTIONS

In June 1994, the Company loaned $40,000 to Michael L. Baur, President of
the Company, at 7.25% interest, with interest only payments for three years,
and the principal balance due in June 1997. During 1996, the Company modified
the loan to make additional advances of $43,000 to be repaid under the same
terms as the original note.

Steven H. Owings, Chairman of the Board and Chief Executive Officer of the
Company, joined the Board of Directors of Globelle Corporation ("Globelle"),
an international distributor of personal computer products, in July 1996.
Until August 1996, the Company paid approximately $12,000 per month to
Globelle pursuant to a warehouse service agreement. Subsequently, the Company
subleased warehouse space from Globelle for approximately $12,000 per month
through December 1996, at which time Globelle assigned its lease for the
warehouse space to the Company and the Company subleased approximately half of
such space on a month-to-month basis to Globelle for approximately $12,000 per
month. The Company also has a software license agreement with Globelle, and
has been informally assigned non-exclusive rights to use Globelle's contract
with FedEx. In July 1995, the Company and Globelle formed a joint venture
named Transition Marketing, Inc. ("Transition") to provide certain marketing
services, such as the Company's "Solutions USA" quarterly trade shows. The
Company owns 42%, Globelle 27% and a private investor the remaining 31% of
Transition. The Company purchased $278,000 of marketing services from
Transition during fiscal 1996 and at June 30, 1996 had loaned Transition
$122,000 at a 9% interest rate, which was repaid by October 1996. Mr. Owings
is a member of the Board of Directors of Transition. Management believes that
the terms of such transactions with Globelle are no less favorable to the
Company than terms which could be negotiated with other unrelated parties.
Globelle and Transition regularly engage in such activities as a part of their
normal businesses.

Gates/Arrow Distributing, Inc. ("Gates") previously owned 250,000 shares of
Common Stock, or approximately 7.46% of the outstanding Common Stock, which
were acquired in December 1993 for $375,000. Under an agreement with Gates
(the "Services Agreement"), the Company obtained accounts payable,
warehousing, shipping and receiving, and limited management information system
services, for which it paid approximately $127,000 during fiscal 1994 and
$60,000 during fiscal 1995. The Company also received inventory financing from
Gates, for which it paid interest of approximately $180,000 in fiscal 1994 and
$10,000 in fiscal 1995. Under the September 1994 agreement terminating the
Services Agreement (the "Termination Agreement"), Gates was obligated to pay
the Company approximately $1.4 million. Under the Termination Agreement, the
Company had an option, exercisable until April 1996, to acquire all of the
Common Stock held by Gates for $3.50 per share, which was exercised in March
1996. Steven H. Owings is a former Chief Executive Officer of Gates, and until
September 1994, was a director of Gates. Irwin Lieber and Eli Oxenhorn were
directors of the Company until December 1995, and until September 1994, were
also directors of Gates. James G. Foody, a director of the Company since
December 1995, served as a director of Gates until September 1994. In
connection with the initial capitalization of the Company in December 1992,
the nine initial shareholders of the Company, including certain of the
Company's current directors, executed guarantees of a portion of the Company's
obligation to Gates under the Gates Agreement, for an aggregate guaranteed
amount of up to $250,000. These guarantees terminated in March 1994.

In 1994, the Board of Directors formally adopted a policy under which any
transaction between the Company and an affiliate of the Company is prohibited
unless the transaction is fair to the Company, does not violate applicable
law, is at rates and upon terms no less favorable to the Company than
available for arms'-length transactions of the same type with unrelated third
parties, and is with an affiliate that regularly engages in such activity as
part of its business.

30
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock at January 23, 1997 of: (i) each person known by
the Company to beneficially own five percent or more of the Common Stock; (ii)
each director of the Company who beneficially owns Common Stock; (iii) each
Named Executive Officer who beneficially owns Common Stock; and (iv) all
directors and executive officers of the Company, as a group, and as adjusted
to reflect the sale of Common Stock offered hereby. Footnote (2) to the table
also sets forth certain information with respect to the beneficial ownership
of the Selling Stockholders, assuming the Underwriters exercise their over-
allotment option in full.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
----------------------- -----------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Richard Kaufman(3)............ 316,000 9.7% 316,000 6.0%
Steven H. Owings(4)........... 321,000 9.6 321,000 6.0
Walter Scheuer(3)............. 269,000 8.3 269,000 5.1
Barry Rubenstein(5)(6)(7)..... 210,000 6.4 210,000 4.0
Wayne S. Reisner(3)........... 209,000 6.4 209,000 4.0
Dennis B. Gates(8)............ 190,000 5.8 190,000 3.6
Eli Oxenhorn(6)............... 190,000 5.8 190,000 3.6
Michael L. Baur(9)............ 56,667 1.7 56,667 1.1
Jeffery A. Bryson(10)......... 19,067 * 19,067 *
Steven R. Fischer(11)......... 11,000 * 11,000 *
James G. Foody(11)............ 12,000 * 12,000 *
All directors and executive
officers as a group (5
persons)..................... 419,734 12.2 419,734 7.7
</TABLE>
- --------
* Amount represents less than 1.0%.
(1) Applicable percentage of ownership at January 23, 1997, is based upon
3,247,986 shares of Common Stock outstanding. Applicable percentage of
ownership after completion of this offering is based upon 5,247,986 shares
of Common Stock outstanding. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares shown as
beneficially owned. Shares of Common Stock subject to options or warrants
currently exercisable or exercisable within 60 days are deemed outstanding
for computing the shares and percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing the
percentage ownership of any other person or entity. Except as otherwise
indicated, the persons or entities listed below has sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
(2) If the Underwriters' exercise their over-allotment option in full: (i) Mr.
Owings will sell 14,200 shares and will beneficially own 306,800 shares,
or 5.7% of the Common Stock outstanding after this offering; (ii) Mr. Baur
will sell 20,000 shares and will beneficially own 36,667 shares, or less
than 1.0% of the Common Stock outstanding after this offering; (iii) Mr.
Bryson will sell 10,000 shares and will beneficially own 9,067 shares, or
less than 1.0% of the Common Stock outstanding after this offering; (iv)
Samuel M. Pringle and Kathrin R. Pringle, co-trustees of the Pringle
Family Education Trust under agreement dated April 13, 1994, will sell
2,200 shares, and will beneficially own no shares of the Common Stock
outstanding after this offering; (v) John S. Ingles, Jr. and Susan P.
Ingles, as co-trustees of the Ingles Family Education Trust, will sell
2,200 shares, and will beneficially own no shares of the Common Stock
outstanding after this offering; and (vi) Brenda McCurry, an employee of
the Company, will sell 7,000 shares, and will beneficially own 1,000
shares, or less than 1.0% of the Common Stock outstanding after this
offering.
(3) The business address for the named individual is 635 Madison Avenue, New
York, New York 10022. Schedules filed with the Securities and Exchange
Commission reflect: (i) Walter Scheuer, Richard Kaufman and Wayne S.
Reisner as three of the trustees of certain trusts for the benefit of Mr.
Scheuer's children and grandchildren, which trusts hold an aggregate of
159,000 shares; (ii) Mr. Scheuer and Mr. Kaufman as executive officers of
two foundations holding an aggregate of 12,000 shares; (iii) Mr. Scheuer
as the general partner of a limited partnership holding 98,000 shares;
(iv) Mr. Kaufman and Mr. Reisner as two of the trustees of a trust for the
benefit of Mr. Scheuer and Mr. Scheuer's wife holding 50,000 shares; and
(v) Mr. Kaufman as one of the trustees of a trust for the benefit of Mr.
Scheuer's children holding 95,000 shares. While such Schedules relate to
an aggregate of 414,000 shares of Common Stock, the aggregate beneficial
ownership reflected in the table for these individuals is greater than
such amounts because more than one individual may be deemed to be the
beneficial owner of the same securities. Each of Mr. Scheuer, Mr. Kaufman,
and Mr. Reisner disclaims beneficial ownership of all shares held by the
aforementioned entities.
(4) The business address for the named individual is 6 Logue Court, Suite G,
Greenville, South Carolina 29615. Includes 100,000 shares issuable
pursuant to currently exercisable non-qualified options granted by the
Company to Mr. Owings.

31
<PAGE>

(5) The business address for the named individual is 68 Wheatley Road,
Brookville, New York 11545.
(6) Includes 50,000 shares issuable pursuant to currently exercisable warrants
granted by the Company.
(7) Includes 100,000 shares owned by Woodland Partners, an investment
partnership of which Mr. Rubenstein and his wife are the sole general
partners; 40,000 shares held by Mr. Rubenstein's wife; and 20,000 shares
held by a limited partnership of which Mr. Rubenstein is a general partner.
(8) The business address for the named individual is 851 Arlington Boulevard,
El Cerrito, California 94530.
(9) All shares issuable pursuant to currently exercisable options granted by
the Company.
(10) Includes 18,667 shares issuable pursuant to currently exercisable options
granted by the Company.
(11) Includes 10,000 shares issuable pursuant to currently exercisable options
granted by the Company.

32
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, no par value, and 3,000,000 shares of preferred stock, as to
which the Company's Board of Directors has the authority to designate a par
value (the "Preferred Stock"). As of January 17, 1997, 3,247,986 shares of
Common Stock were outstanding, held of record by 49 shareholders. After
completion of this offering, there will be 5,247,986 shares of Common Stock
outstanding (5,507,386 shares if the Underwriters' over-allotment option is
exercised in full). No shares of Preferred Stock are currently outstanding.

COMMON STOCK

Subject to the rights of the holders of any outstanding shares of Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of legally available
funds. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share equally and ratably,
based on the number of shares held, in the assets, if any, remaining after
payment of all of the Company's debts and liabilities and the liquidation
preference of any outstanding series of Preferred Stock granted a liquidation
preference upon its designation by the Board of Directors.

Holders of Common Stock are entitled to one vote per share for each share
held of record on any matter submitted to the holders of Common Stock for a
vote. Because holders of Common Stock do not have cumulative voting rights,
the holders of a majority of the shares of Common Stock represented at a
meeting can elect all of the directors. Holders of Common Stock do not have
preemptive or other rights to subscribe for or purchase any additional shares
of capital stock issued by the Company.

PREFERRED STOCK

The Company's authorized shares of Preferred Stock may be issued in one or
more series, and the Board of Directors is authorized, without further action
by the shareholders, to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate
par value, preferences in liquidation and the number of shares constituting
any series. It is not possible to state the actual effect of the authorization
and issuance of any series of Preferred Stock upon the rights of holders of
Common Stock until the Board of Directors determines the specific terms,
rights and preferences of a series of Preferred Stock. However, such effects
might include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, or impairing liquidation rights
of such shares without further action by holders of the Common Stock. In
addition, under various circumstances, the issuance of Preferred Stock may
have the effect of facilitating, as well as impeding or discouraging, a
merger, tender offer, proxy contest, the assumption of control by a holder of
a large block of the Company's securities or the removal of incumbent
management. Issuance of Preferred Stock could also adversely effect the market
price of the Common Stock. The Company has no present plan to issue any shares
of Preferred Stock.

WARRANTS AND UNIT PURCHASE OPTIONS

The Company issued warrants for the purchase of 50,000 shares of Common
Stock to each of Barry Rubenstein and Eli Oxenhorn, former directors, which
are currently exercisable at a price of $2.00 per share. These warrants are
non-transferable and expire in September 1998. The holders of these warrants
are not entitled to require the Company to register the underlying shares
under the Securities Act. In addition, in connection with the Company's
initial public offering in March 1994, the Company issued certain unit
purchase options to its former underwriter and certain affiliates thereof.
Each unit purchase option entitles the holder to purchase one share of Common
Stock and a warrant for one share of Common Stock for an option exercise price
of $6.00 per unit, pursuant to the conditions set forth in the related unit
purchase option agreement. Each warrant acquired by exercise of the unit
purchase option entitles the holder to purchase one share of Common Stock for
an exercise price of $5.50 per share. The unit purchase options expire in
March 1999. The unit purchase option agreement also provides the holders with
certain rights to require the Company to register the underlying shares under
the

33
<PAGE>

Securities Act. At December 31, 1996, 42,000 unit purchase options remained
outstanding, representing the right of the holders to acquire 84,000 shares of
Common Stock at a weighted average price of $5.75 per share. Neither the
warrants nor the unit purchase options provide any holders thereof with the
voting rights of a shareholder prior to valid exercise. See "Principal and
Selling Shareholders."

CERTAIN PROVISIONS OF ARTICLES AND BYLAWS

Shareholders' rights and related matters are governed by the South Carolina
Business Corporation Act of 1988, as amended (the "South Carolina Code") and
the Company's Amended and Restated Articles of Incorporation (the "Articles")
and Bylaws.

Limitations of Liability and Indemnification. As permitted by the South
Carolina Code, the Company's Articles provide that a director of the Company
shall not be personally liable to the Company or any of its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its shareholders, (ii) for acts or omissions not in good faith or which
involve gross negligence, intentional misconduct or a knowing violation of
law, (iii) for any unlawful distribution as set forth in the South Carolina
Code or (iv) for any transaction from which the director derived an improper
personal benefit. While these provisions eliminate the right to recover
monetary damages from directors except in limited circumstances, rights to
seek injunctive or other non-monetary relief are not eliminated. In addition,
the Bylaws set forth certain indemnification provisions as a contractual right
of the Company's directors and officers, and permit indemnification of the
Company's employees and agents.

Anti-Takeover Effects of Certain Provisions. The South Carolina Code
contains provisions that may have the effect of delaying, deferring or
preventing a change in control of a company unless a company's articles of
incorporation expressly provide otherwise. The Articles provide that the
Company elects not to be governed by such provisions of the South Carolina
Code. However, the Articles expressly permit the Board of Directors, when
evaluating any proposed tender or exchange offer, any merger, consolidation or
sale of substantially all of the assets, or any similar extraordinary
transaction, to consider (i) all relevant factors, including without
limitation the social, legal, and economic effects on the employees,
customers, suppliers and other constituencies of the Company and its
subsidiaries, on the communities and geographical areas in which the Company
and its subsidiaries operate or are located and on any of the business and
properties of the Company or any of its subsidiaries, and (ii) the
consideration being offered, not only in relation to the then current market
price for the Company's outstanding shares of capital stock, but also in
relation to the then current value of the Company in a freely negotiated
transaction and in relation to the Board of Directors' estimate of the future
value of the Company (including the unrealized value of its properties and
assets) as an independent going concern.

The foregoing provisions contained in the Articles as well as the right of
the Board of Directors to designate the features of and issue shares of
Preferred Stock without a shareholder vote may tend to discourage attempts by
third parties to acquire any substantial ownership position in the Common
Stock and may adversely effect the price that such a potential purchaser would
be willing to pay for the Common Stock.

Restrictions on Special Meetings. Under the Bylaws, special meetings of the
shareholders may be called only by the President, the Chairman of the Board, a
majority of the directors, or the holders of record of 10% or more of the
Company's outstanding shares of stock entitled to vote at such meeting. This
provision may impede a shareholder who wishes to require the Company to call a
special meeting of shareholders to consider any proposed corporate action.

Directors--Number, Vacancies, Removal, and Nomination. Under the Bylaws, the
Board of Directors determines the number of directors on the Board and fills
any newly created directorships or director vacancies, although directors
elected by the Board to fill vacancies may serve only until the next annual
meeting of shareholders at which directors are elected by the shareholders to
fill such vacancies. Directors may be removed

34
<PAGE>

from office, with or without cause, by a vote of the holders of the majority
of the shares of the Company's voting stock or by a majority of the directors
for cause. Nominations for the election of directors may be made by the Board
of Directors or by any shareholder entitled to vote for the election of
directors, but a shareholder must submit written notice of such shareholder's
intent to make such nomination to the Secretary of the Company no later than
90 days before the annual meeting of shareholders, and such notice must
conform to the requirements of the Bylaws.

TRANSFER AGENT AND REGISTRAR

Continental Stock Transfer & Trust Company, New York, New York is the
transfer agent and registrar for the Common Stock.

REGISTRATION RIGHTS

The holders of unit purchase options, representing rights to acquire an
aggregate of 84,000 shares of Common Stock (the "Registrable Securities"), are
entitled to certain demand and piggyback registration rights. After completion
of this offering, holders of a majority of the unit purchase options may
require the Company to register all or part of their Registrable Securities
under the Securities Act within 60 days. In addition, if the Company otherwise
proposes to register any of its securities under the Securities Act for its
own account, holders of Registrable Securities may require the Company to
include all or a portion of their Registrable Securities in the Company's
registration, provided, among other conditions, that the managing underwriter
of such offering does not object or limit the number of Registrable Shares to
be included. In general, all fees, costs, and expenses of such registrations
(other than underwriting commissions and expenses of legal counsel
representing such holders) will be borne by the Company. The right of such
holders to demand registration terminates in March 1999 and to require
piggyback registration terminates in March 2001.

35
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 5,247,986 shares of
Common Stock outstanding (5,507,386 shares if the Underwriters' over-allotment
option is exercised in full). Substantially all of these shares will be freely
tradeable without restriction under the Securities Act or may be sold
currently in accordance with an exemption under the Securities Act such as
Rule 144 or Rule 144A. In addition, shortly after completion of the offering,
the Company will have registered on Form S-8 a total of 662,000 shares of
Common Stock reserved for issuance under the Company's stock options or upon
the exercise of outstanding warrants, of which 29,967 shares have been issued
upon exercise of such options as of December 31, 1996. The remaining 632,033
shares, when and if issued, would be freely tradeable (unless acquired by an
affiliate of the Company, in which case they would be subject to volume and
other limitations under Rule 144). In addition, currently exercisable unit
purchase options representing rights to purchase 84,000 shares are
outstanding, which the Company may be obligated to register under the
Securities Act under certain conditions. See "Description of Capital Stock--
Registration Rights."

The Company, all directors and executive officers, and certain other
beneficial owners of an aggregate of 809,400 shares of Common Stock as of
December 31, 1996 (excluding shares offered hereby), have agreed with the
Underwriters not to sell or otherwise dispose of any shares of Common Stock
for a period of 90 days after the date of this Prospectus without the prior
written consent of Robertson, Stephens & Company. Upon expiration of this
lock-up period, these shares will be eligible for immediate sale, subject in
certain cases to volume and other limitations under Rule 144. See
"Underwriting."

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years, including a person who may be deemed an affiliate of the
Company, is entitled to sell, within any three-month period, a number of
shares of Common Stock that does not exceed the greater of one percent of the
then-outstanding shares of Common Stock (approximately 52,480 shares after
completion of this offering) or the average weekly reported trading volume of
the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are subject to certain restrictions relating to manner of sale,
notice, and availability of current public information about the Company. In
addition, under Rule 144(k), a person who is not an affiliate and has not been
an affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years, would be entitled to sell
such shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144. Rule 144A under the Securities Act permits the immediate sale by the
holders of restricted shares of all or a portion of their shares to certain
"qualified institutional buyers" as defined in Rule 144A.

Sales of substantial amounts of such shares in the public market, or the
perception that such sales might occur, could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities. See "Risk
Factors--Shares Eligible for Future Sale."

36
<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters"), acting through their
representatives, Robertson, Stephens & Company LLC, The Robinson-Humphrey
Company, Inc. and William Blair & Company, L.L.C. (the "Representatives"),
have severally agreed with the Company, subject to the terms and conditions of
the Underwriting Agreement, to purchase from the Company the respective number
of shares of Common Stock set forth opposite their names below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Robertson, Stephens & Company LLC..........................
The Robinson-Humphrey Company, Inc.........................
William Blair & Company, L.L.C.............................
---------
Total.................................................. 2,000,000
</TABLE>

The nature of the Underwriters' obligation under the Underwriting Agreement
is such that all shares of Common Stock being offered, excluding shares
covered by the over-allotment option granted to the Underwriters, must be
purchased if any shares of Common Stock are purchased.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession of not more than $ per share, of which $ may be
reallowed to other dealers. After completion of this offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction will change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.

The Underwriters have been granted an option, exercisable during the 30-day
period after the date of this Prospectus, to purchase (i) first, up to an
aggregate of 55,600 additional shares of Common Stock from the Selling
Shareholders (which if partially exercised will be purchased from the Selling
Shareholders on a pro rata basis), and (ii) second, up to an aggregate of
244,400 additional shares of Common Stock from the Company, all at the same
price per share that the Company will receive for the 2,000,000 shares that
the Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each of the Underwriters will have made a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown
in the above table represents as a percentage of the 2,000,000 offered hereby.
If purchased, such additional shares will be sold by the Underwriters on the
same terms as those on which the 2,000,000 shares are being sold.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.

Pursuant to the terms of lock-up agreements, the holders of approximately
809,400 shares of the Common Stock have agreed with the Representatives that,
except for 55,600 shares that will be sold by the Selling Shareholders if the
Underwriters' over-allotment option is exercised in full, until 90 days after
the date of this Prospectus, subject to certain limited exceptions, they will
not sell or otherwise dispose of shares of Common Stock, or other securities
of the Company, without the prior written consent of Robertson, Stephens &
Company.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Common Stock during
the "cooling off" period immediately preceding the commencement of sales in
the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make
a market in the Common Stock subject to the conditions, among others, that its
bid not exceed the highest bid by a market maker not connected with the
offering and that its net

37
<PAGE>

purchases on any one trading day not exceed prescribed limits. Pursuant to
these exemptions, certain Underwriters and other members of the selling group
intend to engage in passive market making in the Common Stock during the
cooling off period.

LEGAL MATTERS

Certain legal matters in connection with the validity of the issuance of the
shares offered hereby will be passed upon for the Company by Nexsen Pruet
Jacobs & Pollard, LLP, Columbia, South Carolina. As of January 15, 1997,
certain attorneys with Nexsen Pruet Jacobs & Pollard, LLP held 7,700 shares of
Common Stock. Certain legal matters in connection with the offering will be
passed upon for the Underwriters by Alston & Bird, Atlanta, Georgia.

EXPERTS

The financial statements of the Company as of June 30, 1995 and 1996, and
for each of the years in the three-year period ended June 30, 1996, have been
included herein and in the registration statements in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement," which
term shall include all amendments thereto) under the Securities Act of 1933,
as amended (the "Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions having been
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company, the securities offered by
this Prospectus and such omitted information, reference is made to the
Registration Statement, including any and all exhibits and amendments thereto.
Statements contained in this Prospectus concerning the provisions of any
document filed as an exhibit are of necessity brief descriptions thereof and
are not necessarily complete, and in each instance reference is made to the
copy of the document filed as an exhibit to the Registration Statement, each
such statement being qualified in its entirety by this reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith the Company
files reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
New York, New York 10048. Copies of such material, including the Registration
Statement, can be obtained from the Public Reference Section of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission also maintains a Web site that
contains reports, proxy statements, and other information regarding
registrants, such as the Company, that file electronically with the
Commission. The Commission's Web site address is http://www.sec.gov.

38
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets as of June 30, 1995 and 1996 and December 31, 1996
(unaudited)............................................................. F-3
Statements of Income for the fiscal years ended June 30, 1994, 1995 and
1996 and the six-month
periods ended December 31, 1995 and 1996 (unaudited).................... F-5
Statements of Shareholders' Equity for the fiscal years ended June 30,
1994, 1995 and 1996 and
the six-month period ended December 31, 1996 (unaudited)................ F-6
Statements of Cash Flows for the fiscal years ended June 30, 1994, 1995
and 1996 and the six-month periods ended December 31, 1995 and 1996
(unaudited)............................................................. F-7
Notes to Financial Statements............................................ F-8
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
ScanSource, Inc.

We have audited the accompanying balance sheets of ScanSource, Inc. as of
June 30, 1995 and 1996 and the related statements of income, shareholders'
equity and cash flows for each of the years in the three-year period ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ScanSource, Inc. at June
30, 1995 and 1996 and the results of its operations and its cash flows for
each of the years in the three-year period ended June 30, 1996 in conformity
with generally accepted accounting principles.

Greenville, South Carolina KPMG Peat Marwick LLP
August 16, 1996

F-2
<PAGE>

SCANSOURCE, INC.

BALANCE SHEETS

JUNE 30, 1995 AND 1996 AND DECEMBER 31, 1996

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------- ------------
<S> <C> <C> <C>
1995 1996 1996
------- ------ -----------
(UNAUDITED)
ASSETS
Current assets
Cash............................................ $ 187 -- --
Receivables:
Trade, less allowance for doubtful accounts of
$317, $527 and $733 at June 30, 1995 and 1996
and December 31, 1996, respectively........... 3,950 7,463 8,909
Other.......................................... 235 531 367
------- ------ -----------
4,185 7,994 9,276
Inventories..................................... 6,306 17,538 25,169
Prepaid expenses and other...................... 49 52 126
Due from Gates/FA............................... 750 -- --
Deferred tax asset.............................. 637 1,001 1,001
------- ------ -----------
Total current assets......................... 12,114 26,585 35,572
------- ------ -----------
Property and equipment:
Furniture and equipment......................... 701 1,261 1,593
Leasehold improvements.......................... 186 286 294
------- ------ -----------
887 1,547 1,887
Less accumulated depreciation................... (125) (363) (533)
------- ------ -----------
762 1,184 1,354
Intangible assets, net........................... 953 871 830
Note from officer................................ 40 83 83
Cost of pending warrant redemption 47 -- --
Other assets..................................... 23 19 148
------- ------ -----------
Total assets................................. $13,939 28,742 37,987
======= ====== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

SCANSOURCE, INC.

BALANCE SHEETS (CONTINUED)

JUNE 30, 1995 AND 1996 AND DECEMBER 31, 1996

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------- ------------
<S> <C> <C> <C>
1995 1996 1996
------- ------ -----------
(UNAUDITED)
Liabilities and
Shareholders' Equity
Current liabilities:
Trade accounts payable.... $ 3,377 8,287 15,602
Accrued compensation cost. 93 97 143
Accrued expenses and other
liabilities............... 404 600 495
Income tax payable........ 1,308 540 --
Deferred gain............. 200 -- --
Other..................... 202 -- --
------- ------ -----------
Total current
liabilities............. 5,584 9,524 16,240
------- ------ -----------
Deferred tax liability..... 9 26 26
Borrowings under line of
credit..................... 1,200 3,779 5,069
------- ------ -----------
Total liabilities....... 6,793 13,329 21,335
------- ------ -----------
Common stock subject to
put/call option............ 750 -- --
------- ------ -----------
Shareholders' equity:
Preferred stock, no par
value; 3,000,000 shares
authorized, none issued
and outstanding.......... -- -- --
Common stock, no par
value; 10,000,000 shares
authorized; 2,175,130,
3,235,186 and 3,247,986
issued and outstanding at
June 30, 1995 and 1996
and December 31, 1996,
respectively............. 5,526 11,935 11,958
Less common stock subject
to put/call option,
250,000 shares at $3.00
per share................ (750) -- --
------- ------ -----------
4,776 11,935 11,958
Retained earnings......... 1,620 3,478 4,694
------- ------ -----------
Total shareholders'
equity.................. 6,396 15,413 16,652
Commitments................
------- ------ -----------
Total liabilities and
shareholders' equity.... $13,939 28,742 37,987
======= ====== ===========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

SCANSOURCE, INC.

STATEMENTS OF INCOME

FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1995 AND 1996
AND THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX-MONTH
PERIODS ENDED
FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
-------------------------------------------
1994 1995 1996 1995 1996
--------- --------- --------------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 16,089 34,235 55,670 23,277 42,110
Cost of goods sold................ 13,676 29,444 47,856 19,928 36,382
--------- -------- -------- ------ ------
Gross profit.................. 2,413 4,791 7,814 3,349 5,728
Selling, general and
administrative expenses........... 1,718 3,128 4,955 2,217 3,557
Amortization of intangibles....... 50 83 83 41 41
--------- -------- -------- ------ ------
Total operating expenses...... 1,768 3,211 5,038 2,258 3,598
--------- -------- -------- ------ ------
Operating income.............. 645 1,580 2,776 1,091 2,130
Other income (expense):
Gain from contract termination,
net............................. -- 1,000 200 200 --
Other income (expense), net..... (150) (72) 75 45 (169)
--------- -------- -------- ------ ------
Total other income (expense).. (150) 928 275 245 (169)
--------- -------- -------- ------ ------
Income before income taxes.... 495 2,508 3,051 1,336 1,961
Income taxes...................... 143 997 1,193 523 745
--------- -------- -------- ------ ------
Net income.................... $ 352 1,511 1,858 813 1,216
========= ======== ======== ====== ======
Per share data:
Primary
Net income.................... $ .25 .50 .53 .23 .35
========= ======== ======== ====== ======
Weighted average shares
outstanding................... 1,506 3,271 3,556 3,544 3,469
========= ======== ======== ====== ======
Fully diluted
Net income.................... $ .23 .50 .53 .23 .35
========= ======== ======== ====== ======
Weighted average shares
outstanding................... 1,663 3,271 3,560 3,552 3,478
========= ======== ======== ====== ======
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

SCANSOURCE, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1995 AND 1996
AND THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1996

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK
SUBJECT TO RETAINED
PREFERRED COMMON PUT/CALL EARNINGS
STOCK STOCK OPTION (DEFICIT) TOTAL
--------- ------ ------------ --------- ------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993...... $ -- 455 -- (243) 212
Issuance of stock due to
exercise of option........... -- 375 -- -- 375
Issuance of stock in initial
public offering.............. -- 4,562 -- -- 4,562
Issuance of put/call option
on 250,000 shares............ -- -- (750) -- (750)
Net income................... -- -- -- 352 352
----- ------ ---- ----- ------
Balance at June 30, 1994...... -- 5,392 (750) 109 4,751
Issuance of stock pursuant to
the exercise of warrants and
the unit purchase option.... -- 134 -- -- 134
Net income................... -- -- -- 1,511 1,511
----- ------ ---- ----- ------
Balance at June 30, 1995...... -- 5,526 (750) 1,620 6,396
Issuance of stock pursuant to
the exercise of warrants and
the unit purchase price
option, net of offering
costs....................... -- 6,732 -- -- 6,732
Issue of stock due to
exercise of stock options.... -- 552 -- -- 552
Exercise of call option...... -- -- 750 -- 750
Purchase of shares owned by
Gates/FA..................... -- (875) -- -- (875)
Net income................... -- -- -- 1,858 1,858
----- ------ ---- ----- ------
Balance at June 30, 1996...... -- 11,935 -- 3,478 15,413
Issuance of stock due to
exercise of options
(unaudited)................. -- 23 -- -- 23
Net income (unaudited)....... -- -- -- 1,216 1,216
----- ------ ---- ----- ------
Balance at December 31, 1996
(unaudited)................... $ -- 11,958 -- 4,694 16,652
===== ====== ==== ===== ======
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

SCANSOURCE, INC.

STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1995 AND 1996
AND THE SIX-MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1996

(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------- --------------
1994 1995 1996 1995 1996
--------- --------- --------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 352 1,511 1,858 813 1,216
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation.................. 35 79 238 103 170
Amortization of intangible
assets........................ 50 83 83 41 41
Deferred income taxes, net.... (156) (477) (347) -- --
Deferred gain................. -- 200 (200) (200) --
Other, net.................... -- (3) -- -- --
Changes in operating assets
and liabilities:
Receivables.................. (1,485) (1,710) (3,810) (1,017) (1,282)
Inventories.................. (10) (6,037) (11,232) (3,648) (7,631)
Prepaid expenses and other... (48) 4 (3) (13) (74)
Due from Gates/FA............ -- (750) 750 -- --
Deposit with Gates/FA........ (1,266) 1,266 -- -- --
Net assets acquired and held
for liquidation.............. 115 -- -- -- --
Trade accounts payable....... (599) 2,685 4,909 181 7,315
Accrued compensation......... (16) 54 5 (10) 46
Accrued expenses and other
liabilities.................. 31 238 196 (60) (105)
Income tax payable........... 273 1,036 (769) (1,103) (540)
Other noncurrent assets...... (3) (5) 4 4 (129)
-------- -------- --------- ------ ------
Net cash used in operating
activities.................. (2,727) (1,826) (8,318) (4,909) (973)
-------- -------- --------- ------ ------
Cash flows from investing
activities:
Capital expenditures, net...... (103) (669) (659) (338) (340)
Advances to officer under note. (40) -- (43) -- --
Repayments of amount due to
former Alpha Data shareholder.. (250) (120) -- -- --
Purchase of MicroBiz........... -- (531) -- -- --
Payments to MicroBiz........... -- (98) (202) (68) --
-------- -------- --------- ------ ------
Net cash used in investing
activities.................. (393) (1,418) (904) (406) (340)
-------- -------- --------- ------ ------
Cash flows from financing
activities:
Cash proceeds from initial
public offering................ 4,562 -- -- -- --
Cash proceeds from exercise of
stock options.................. 375 -- 552 69 23
Cash proceeds from exercise of
warrants and the unit purchase
option, net of offering costs. -- 134 6,779 6,732 --
Repurchase of shares from
Gates/FA....................... -- -- (875) -- --
Advances from line of credit,
net............................ -- 1,200 2,579 (1,200) 1,290
Cost of pending warrant
redemption..................... -- (47) -- 47 --
-------- -------- --------- ------ ------
Net cash provided by
financing activities........ 4,937 1,287 9,035 5,648 1,313
-------- -------- --------- ------ ------
Increase (decrease) in cash. 1,817 (1,957) (187) 333 --
Cash at beginning of period..... 327 2,144 187 187 --
-------- -------- --------- ------ ------
Cash at end of period........... $ 2,144 187 -- 520 --
======== ======== ========= ====== ======
Supplemental information:
Interest paid.................. $ 170 439 15 14 144
======== ======== ========= ====== ======
Income taxes paid.............. $ 26 76 2,309 1,069 1,285
======== ======== ========= ====== ======
Supplemental non-cash
information:
Note issued in connection with
the purchase of MicroBiz...... $ -- 300 -- -- --
======== ======== ========= ====== ======
</TABLE>

See accompanying notes to financial statements.

F-7
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1995 AND 1996, AND DECEMBER 31, 1996

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

ScanSource, Inc. ("Company") is a leading distributor of specialty
technology products, principally including Automatic Identification and Point
of Sale equipment. The Company is a South Carolina corporation and its fiscal
year end is June 30.

The balance sheet as of December 31, 1996 and the statements of income and
cash flows for the six-month periods ended December 31, 1995 and 1996 and the
statement of shareholders' equity for the six-month period ended December 31,
1996 have been prepared by management and are unaudited. However, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments), necessary for the fair presentation of the unaudited
information, have been included.

Revenue Recognition

The Company records revenue when products are shipped from the warehouse,
carried out under terms of the agreements described in note 2.

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. The Company has
not experienced significant losses related to receivables from individual
customers or groups of customers in a particular industry or geographic area.
As a result, management believes no additional credit risk beyond amounts
provided for collection losses is inherent in the Company's accounts
receivable.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives, whereas
leasehold improvements are amortized over the shorter of the lease term or the
estimated useful life:

Leasehold improvements 4-8 years
Furniture and equipment 3-5 years

Maintenance, repairs and minor renewals are charged to expense as incurred.
Additions, major renewals and betterments to property and equipment are
capitalized. Realization of carrying value is assessed periodically.

Cash Management System

Under the Company's cash management system, disbursements cleared by the
bank are reimbursed on a daily basis from the line of credit. As a result,
checks issued but not yet presented to the bank are not considered reductions
of cash or accounts payable. Included in accounts payable are $763,000 and
$1,978,000 at June 30, 1996 and December 31, 1996, respectively, for which
checks are outstanding.

F-8
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Inangible Assets

Intangible assets consist primarily of goodwill which is amortized on a
straight-line basis over 15 years. Accumulated amortization was $141,000,
$223,000 and $264,000 at June 30, 1995 and 1996 and December 31, 1996,
respectively. The Company evaluates the recoverability of goodwill and reviews
the amortization periods on an annual basis. Recoverability is measured on the
basis of anticipated undiscounted cash flows from operations. At June 30, 1995
and 1996 and December 31, 1996, no impairment was indicated.

Vendor Programs

Funds received from vendors for price protection, product rebates, marketing
or training programs are recorded net of direct costs as adjustments to
product costs, or a reduction of selling, general and administrative expenses
according to the nature of the program.

The Company does not provide warranty coverage of its product sales.
However, to maintain customer relations, the Company facilitates vendor
warranty policies by accepting for exchange, with the Company's prior
approval, most defective products within 30 days of invoicing. Defective
products received by the Company are subsequently returned to the vendor for
credit or replacement.

Income Taxes

The Company records income taxes in accordance with Statement of Financial
Accounting Standards No. 109. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.

Recent Accounting Pronouncements

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company either recognize in its
financial statements costs related to its employee stock-based compensation
plans, such as stock option and stock purchase plans, or make pro forma
disclosures of such costs in a footnote to the financial statements.

Fair Value of Financial Instruments

The Company values financial instruments as required by FASB Statement No.
107, "Disclosures About Fair Value of Financial Instruments".

F-9
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The carrying value of financial instruments such as cash, accounts
receivable, and accounts payable approximated their fair values, based upon
the short maturities of these instruments.

The carrying amount of borrowings under the bank credit agreement
approximates fair value because interest rates on these instruments
approximate current market interest rates.

Use 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(2) OPERATIONS AGREEMENTS

(a) From December 1992 to September 1994, the Company operated under an
agreement with Gates/FA Distributing, Inc. ("Gates/FA"). An officer of
Gates/FA was a director of the Company. The chief executive officer and
several directors and shareholders of the Company were also directors and
shareholders of Gates/FA.

Under the agreement, Gates/FA provided accounts payable, warehousing,
shipping and receiving, and limited management information system (MIS)
services. The Company paid Gates/FA for these services as a percentage of the
cost of all products shipped to the Company's customers, recorded as cost of
goods sold. Payments to Gates/FA, which ended in September 1994, were
approximately $127,000 and $60,000 for the years ended June 30, 1994 and 1995,
respectively. For the years ended June 30, 1994 and 1995, approximately
$12,300,000 and $5,700,000, respectively, of the Company's purchases were made
through Gates/FA.

The Company paid Gates/FA monthly interest on working capital used by
Gates/FA, which had title to inventory held on the Company's behalf.
Approximately $180,000 and $10,000 of interest for the years ended June 30,
1994 and 1995, respectively, was paid to Gates/FA.

In December 1992, Gates/FA agreed to a non-compete contract in the data
collection or bar code industry, and in return, received an option to purchase
250,000 shares of the Company's common stock at $1.50 per share. On December
30, 1993, Gates/FA exercised this option and was a 11.5% shareholder of the
Company at June 30, 1995. These shares were repurchased by the Company in
March 1996. (See (b) below).

F-10
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATMENTS (CONTINUED)

(b) Under terms of an Agreement to Terminate Distribution Services with
Gates/FA, the Company agreed to purchase the inventory held on its behalf by
Gates/FA and assume sole responsibility for accounts payable to vendors for
all future purchases related to such inventory. In connection with this
transaction, a deposit with Gates/FA of $1,266,000 was applied to the purchase
of inventory. Gates/FA also agreed to a more limited covenant not to compete
for a period reduced from two years to one year from the termination of
services to the Company.

As compensation for reducing the non-compete term and ending the operations
agreement before its scheduled expiration, Gates/FA agreed to pay the Company
$1.4 million. Of this amount, $650,000 was received on September 26, 1994 and
the remaining $750,000 was collected by April 1996 as described below. The
Company recognized the $1.4 million as other income in the statement of
operations ratably over the term of the noncompete agreement from September
1994 to August 1995, net of approximately $100,000 of expenses incurred by the
Company to move its inventory and connect to a new computer system. For the
year ended June 30, 1995, the Company recognized $1,000,000 (net of additional
moving costs of $100,000 in Note 2(d)) as other income. The remaining $200,000
of the amount was shown as deferred gain at June 30, 1995 and was recognized
as other income in fiscal 1996, along with $80,000 of related income taxes.

Under terms of the termination agreement, Gates/FA had the conditional right
to put its 250,000 shares of the Company's common stock for $3.00 per share to
the Company. The Company had an option to call the shares at $3.50 per share,
which it exercised on March 19, 1996. To ensure that the Company had
sufficient liquidity to purchase the shares, Gates/FA negotiated to hold back
$750,000 of its contract termination payment at the time of the contract
renegotiation. The Company collected this amount on March 19, 1996 and used it
to pay $750,000 of the $875,000 call price of the repurchased shares.

(c) From September 1994 to May 1995, the Company's warehousing and MIS
services were provided under an agreement with a third party. Costs under this
agreement were not materially higher as a percentage of sales than costs
previously paid to Gates/FA.

(d) In May 1995 the Company rented space in a third-party facility in
Memphis, Tennessee, and began performing its product handling and management
information services (MIS) internally. The Company incurred approximately
$100,000 of expense to move its inventory to the new facility. In June 1996 a
Company officer and director was elected to the Board of Directors of the
third party. For the fiscal year ended June 30, 1996 the Company paid
approximately $144,000 to this third party. Management believes the pricing of
all transactions with the third party is representative of arm's length costs,
and is comparable to terms which could be negotiated with unrelated parties.

F-11
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(3) ACQUISITION

In July 1994, the Company purchased the equipment distribution portion of
MicroBiz Corporation's business for $300,000 in cash and approximately
$300,000 to be paid over two years, based upon the sales performance of
certain former MicroBiz customers. The $300,000 based upon sales performance
was paid during the years ended June 30, 1995 and 1996. The purchase included
certain customer lists and distribution contracts and MicroBiz agreeing not to
compete for a period of 42 months. The Company also paid $231,000 for
MicroBiz' equipment inventory. The Company agreed to provide up to $45,000 in
certain marketing programs to MicroBiz, and after costs of the transaction of
$5,000, recorded goodwill for approximately $650,000.

(4) OPERATING LEASES

The Company leases office space and a telephone system under non-cancellable
operating leases which expire through 1999. Future minimum rentals are as
follows: $83,000, $15,000 and $6,000 for the years ended June 30, 1997, 1998
and 1999, respectively. Rent expense was approximately $33,000, $73,000, and
$74,000 for the years ended June 30, 1994, 1995 and 1996, and $38,000 and
$37,000 for the six months ended December 31, 1995 and 1996, respectively.

(5) RELATED-PARTY TRANSACTIONS

In December 1992 the Company's chief executive officer sold his ownership in
Datascan Corporation ("Datascan"), a customer of the Company. The Company had
sales of approximately $827,000 to Datascan during the year ended June 30,
1994. The Company had no sales to Datascan after June 30, 1994.

In June 1994, the Company loaned an officer of the Company $40,000 to be
repaid under terms of a note at 7.25% interest, in interest only payments for
three years, with the principal balance due at June 9, 1997. During 1996, the
Company modified the loan to include additional advances of $43,000 to be
repaid under the same terms as the original note.

In July 1995, the Company was granted 19% ownership of Transition Marketing
(Transition), in exchange for the Company's commitment to use Transition as
its contract provider of marketing services. The Company invested $119,000 in
Transition in September 1996 to increase its ownership to 42% at December 31,
1996. The investment in Transition is accounted for under the equity method.
The Company purchased $278,000 of marketing services from Transition for the
year ended June 30, 1996 and $85,000 and $89,000 for the six months ended
December 31, 1995 and 1996 and had loaned, at a 9% interest rate, $122,000 to
Transition at June 30, 1996 which was repaid in October 1996. A Company
officer and director is a member of the Board of Directors of Transition.
Management believes the pricing of all transactions with Transition is
representative of arm's length costs, and is comparable to terms which could
be negotiated with unrelated parties.

F-12
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) STOCK OPTIONS AND EQUITY TRANSACTIONS

On July 1, 1993, the Company implemented an incentive stock option plan
which reserved 200,000 shares of common stock for issuance to key employees.
The plan provides for three-year vesting of the options at a rate of 33% per
year. The options are exercisable over 10 years, and options are not to be
granted at less than the fair market value of the underlying shares at the
date of grant.

A summary of activity in the incentive stock option plan through June 30,
1995 and 1996 is as follows:

<TABLE>
<CAPTION>
1995 1996
----------------------- -----------------------
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Stock options outstanding:
Beginning of year............. 43,000 $1.50 - 4.50 111,834 $ 1.50 - 8.88
Granted....................... 78,000 8.00 - 8.88 3,500 12.50
Exercised..................... -- -- (17,167) 1.50 - 8.00
Terminated.................... (9,166) 4.35 - 8.00 (3,000) 8.00
------- ------------ ------- --------------
End of year................... 111,834 $1.50 - 8.88 95,167 $ 1.50 - 12.50
======= ============ ======= ==============
Exercisable, end of year....... 13,834 42,000
======= =======
</TABLE>

The Company has issued additional options and warrants to officers,
directors, former directors and employees of Transition, including options
issued under the directors' stock option plan, which reserved 65,000 shares of
common stock for issuance to non-employee directors. These options vest over
varying periods up to three years. The options are generally exercisable over
10 years, and options are not to be granted at less than fair market value of
the underlying shares at the date of grant.

Following is a summary of activity of all options and warrants not included
in the employee plan shown above:

<TABLE>
<CAPTION>
1995 1996
---------------------- -----------------------
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Stock options and warrants
outstanding:
Beginning of year............. 140,000 $1.50 - 3.75 205,000 $ 1.50 - 9.75
Granted....................... 65,000 8.56 - 9.75 40,000 14.13 - 15.75
Exercised..................... -- -- (50,000) 9.75
------- ------------ ------- --------------
End of year................... 205,000 $1.50 - 9.75 195,000 1.50 - 15.75
======= ============ ======= ==============
Exercisable................... 95,000 168,333
======= =======
</TABLE>

F-13
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(7) INCOME TAXES

Income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ---------
<S> <C> <C> <C>
June 30, 1994:
Federal......................................... $ 251,000 (134,000) 117,000
State and local................................. 48,000 (22,000) 26,000
---------- -------- ---------
$ 299,000 (156,000) 143,000
========== ======== =========
June 30, 1995:
Federal......................................... $1,314,000 (427,000) 887,000
State and local................................. 160,000 (50,000) 110,000
---------- -------- ---------
$1,474,000 (477,000) 997,000
========== ======== =========
June 30, 1996:
Federal......................................... $1,382,000 (292,000) 1,090,000
State and local................................. 158,000 (55,000) 103,000
---------- -------- ---------
$1,540,000 (347,000) 1,193,000
========== ======== =========
</TABLE>

Income taxes for the six months ended December 31, 1995 and 1996 were
provided at the estimated rates of approximately 39% and 38%, respectively.

Income tax expense differed from the amount computed by applying the Federal
income tax rate of 34% as a result of the following:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
------------------------------
1994 1995 1996
--------- -------------------
<S> <C> <C> <C>
Computed "expected" tax expense................. $ 169,000 853,000 1,037,000
Increase (decrease) in income taxes resulting
from:
Change in beginning of the period balance of
the valuation allowance for deferred tax
assets allocated to income tax expense........ (96,000) -- --
Additional provision for income taxes.......... 50,000 68,000 84,000
State and local income taxes, net of Federal
income tax expense............................ 17,000 73,000 68,000
Other.......................................... 3,000 3,000 4,000
--------- -------- ----------
$143,000 997,000 1,193,000
========= ======== ==========
</TABLE>

F-14
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(7) INCOME TAXES (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability are presented
below:

<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
-------- ---------
<S> <C> <C>
Deferred tax assets:
Valuation and other reserves............................. $573,000 766,000
Inventory, principally due to differences in
capitalization........................................... 64,000 235,000
Intangibles, principally due to differences in
amortization............................................. 18,000 22,000
-------- ---------
Net deferred tax asset.................................. 655,000 1,023,000
Deferred tax liability
Plant and equipment, principally due to differences in
depreciation............................................. (27,000) (48,000)
-------- ---------
Net deferred tax asset.................................. $628,000 975,000
======== =========
</TABLE>

For the years ended June 30, 1995 and 1996 no valuation allowance was
provided. Management believes that a valuation allowance is not considered
necessary based upon the level of historical taxable income and the
projections for future taxable income over the periods during which the
deferred tax assets are deductible.

(8) EMPLOYEE BENEFIT PLAN

Effective October 22, 1993, the Company established a defined contribution
plan under Section 401(k) of the Internal Revenue Code. This plan covers all
employees meeting certain eligibility requirements. For the years ended June
30, 1994, 1995 and 1996 and the six months ended December 31, 1995 and 1996,
the Company provided a matching contribution of $6,000, $8,000 and $18,000,
respectively, and $3,000 and $10,000, respectively, which was equal to one-
half of each participant's contribution, up to a maximum matching contribution
of $500 per participant. The Company can change its matching contributions
annually and can make discretionary contributions in addition to matching
contributions. Employer contributions are vested over a period of 3 to 5
years.

(9) SALES TO A SIGNIFICANT CUSTOMER

Sales to a significant customer were approximately $1,730,000 for the year
ended June 30, 1994. For the years ended June 30, 1995 and 1996 no single
customer accounted for more than 5% of the Company's sales.

F-15
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(10) PUBLIC OFFERING OF COMMON STOCK

On March 25, 1994, the Company closed its initial public offering of
1,150,000 units for $5 each. Each unit consisted of one share of common stock
and one redeemable common stock purchase warrant. The Company used the net
proceeds from the offering of approximately $4,560,000 to pay its trade
accounts payable to Gates/FA of approximately $1,660,000, to purchase its
inventory from Gates/FA for approximately $1,300,000, and to fund the purchase
of MicroBiz for approximately $531,000 (see note 3 above). The remainder of
the net proceeds was invested in short-term certificates of deposit.

(11) LINE OF CREDIT

In October 26, 1995, the Company closed a line of credit agreement with a
bank whereby the Company can borrow up to $8 million, based upon 80% of
eligible accounts receivable and 40% of non-IBM inventory at the 30-day LIBOR
rate of interest plus 2.35%. The LIBOR rate was 5.63% at June 30, 1996. The
outstanding balance on the line of credit was approximately $3,779,000, on a
loan base of which exceeded $8 million, leaving approximately $4,221,000
available at June 30, 1996. The revolving credit facility is secured by
accounts receivable and inventory. The agreement contained certain financial
covenants including minimum net worth and current ratio requirements and a
maximum debt to tangible net worth ratio. The Company was either in compliance
with the various covenants or had obtained waivers of non-compliance at June
30, 1996. See note 13.

On April 8, 1996, the Company signed an agreement for wholesale financing
with IBM Credit Corporation (ICC), collateralized by IBM inventory. The
Company had accounts payable of $3,501,000 and $7,645,000 to ICC at June 30,
1996 and December 31, 1996. See note 13.

(12) EARNINGS PER SHARE

At June 30, 1995, warrants to acquire 1,130,000 shares of the Company's
common stock at $5.50 per share were outstanding. The warrants were
exercisable beginning March 18, 1995 and were to expire March 18, 1999. In
connection with the Company's initial public offering of units, the Company
sold a unit purchase option (UPO) for the right to purchase up to 100,000
units at $6 per unit. The UPO became exercisable beginning March 18, 1995 and
was to expire on March 18, 1999; 80,000 units were outstanding on the UPO at
June 30, 1995 and 42,000 units were outstanding at June 30, 1996 and December
31, 1996, respectively.

On September 19, 1995, the Company redeemed its then outstanding common
stock purchase warrants. Prior to the redemption date, substantially all of
the outstanding warrants were exercised, generating proceeds of $6.3 million
net of estimated costs of approximately $100,000.

Earnings per share and common equivalent share (EPS) were computed by
dividing net income by the weighted average number of shares of common stock
and common stock equivalents outstanding. The number of shares was increased
by the number of shares issuable upon the exercise of the warrants and the UPO
when the market price of either the common stock or units, or both, exceed the
exercise price of the warrants or the UPO, respectively. This increase in the
number of shares was reduced by the number of shares that are assumed to have
been purchased with the proceeds from the exercise of the warrants or UPO.
Such purchases were assumed to have been made at the average price of the
common stock during that part of the year when the market price of the common
stock or units exceeded the exercise price of the warrants or UPO.

F-16
<PAGE>

SCANSOURCE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(12) EARNINGS PER SHARE (CONTINUED)

For 1994 earnings per share calculations, the warrants were considered
equivalents for 103 days of the year since the average market price of common
stock and units was $8.58 and $12.42, respectively, through June 30, 1994,
exceeding the exercise prices of both the warrant and the UPO. Proceeds from
assumed exercise of the warrants and UPO were assumed to be used first to
repurchase outstanding shares (limited to 20% of total shares outstanding) and
the remainder to pay trade debt and be invested for the 103-day period. Net
income was then adjusted for the after-tax effects of the interest expense
savings and interest earned during those 103 days.

Supplemental fully diluted earnings per share is $.15 for the year ended
June 30, 1994 and was computed as if the initial public offering of units had
occurred on the first day of fiscal 1994. Supplemental weighted average shares
are 3,229,000 and were computed as if the warrants and the UPO were exercised
at the average market price of $8.58 and $12.42, respectively, and the
proceeds assumed used as described in the preceding paragraph. Proforma net
income for the year ended June 30, 1994 is $478,000 and was computed as
described in the previous paragraph.

(13) SUBSEQUENT EVENTS (UNAUDITED)

In November 1996, the Company renegotiated the line of credit to allow
borrowings up to $15 million for a period extending to October 31, 1998 under
similar terms and conditions as the previous agreement. The Company's interest
rate is the 30-day LIBOR rate plus a rate varying from 2.00% to 2.65% tied to
the Company's debt-to-net worth ratio ranging from 1:1 to 2:1. At December 31,
1996, the interest rate was 7.66%, and the outstanding balance on the line of
credit was $5,069,000 on a loan base of $12,173,000, leaving $7,104,000
available.

In November 1996, the Company negotiated a stock rotation with IBM, whereby
$6.5 million of inventory will be returned to IBM beginning as early as
February 5, 1997. This stock rotation will result in reductions to inventory
and the related payable to IBM Credit Corporation.

In December 1996, the Company's shareholders approved an increase in the
number of shares reserved under the Company's employee stock option plan to
280,000 shares.

F-17
<PAGE>

[INSIDE BACK COVER GRAPHICS]

ScanSource logo in upper right corner
Left margin box with supporting text: "Comprehensive marketing capabilities:
trade publications, direct mail, product catalog, newsletters, lead management,
trade shows, sales promotions"

Picture(s) Caption Description of Picture
- ---------- ------- ----------------------

1 & 2 Advertising in An example gatefold ad with ScanSource logo
cooperation with and seven featured vendors
venders

3 National industry ScanSource booth at a convention center
trade shows trade show

4 Product catalogs Cover of ScanSource's most recent catalog
(3 times per year)

5 Sales promotion Symbol Technologies "super bowl ticket stub"

6 & 7 Advertising in Covers of two industry periodicals
trade magazines

8 The Company A Solutions--USA logo
organizes and
operates its
own quarterly
trade shows

<PAGE>

[Back Cover of Prospectus]

[ScanSource Logo]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses (other than underwriting discounts and commissions) in
connection with the issuance and distribution of the securities being
registered, all of which will be paid by the Registrant, are as follows:

<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 11,675
NASD Filing Fee.................................................... 4,353
Nasdaq NMS Listing Fee............................................. 17,500
Printing and Engraving Expenses.................................... 115,000*
Legal Fees and Expenses............................................ 90,000*
Accounting Fees and Expenses....................................... 50,000*
Blue Sky Fees and Expenses......................................... 10,000*
Transfer Agent and Registrar Fees and Expenses..................... 12,000*
Miscellaneous Expenses............................................. 89,472*
--------
Total.............................................................. $400,000
========
</TABLE>
- --------
Estimated*

ITEM 14.INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Except as hereinafter set forth, there is no statute, charter provision,
bylaw, contract or other arrangement under which any controlling person,
director or officer of the Registrant is insured or indemnified in any manner
against liability which such person may incur in such person's capacity as
such.

Section 33-8-500 et seq. of the South Carolina Business Corporation Act of
1988, as amended (the "South Carolina Act"), provides the Registrant with
broad powers and authority to indemnify its directors and officers and to
purchase and maintain insurance for such purposes and mandates the
indemnification of the Registrant's directors under certain circumstances. The
Registrant's Bylaws also provide the Registrant with the power and authority
to the fullest extent legally permissible under the South Carolina Act to
indemnify its directors and officers, persons serving at the request of the
Registrant or for its benefit as directors or officers of another corporation
and persons serving as the Registrant's employees, representatives or agents
in certain circumstances. Pursuant to such authority and Bylaws provisions,
the Registrant may advance expenses or purchase insurance against certain
liabilities that may be incurred by it and its officers and directors.
Reference is also made to the discussion in the Prospectus under the caption
"Description of Capital Stock--Certain Provisions of Articles and Bylaws."

The Registrant's Amended and Restated Articles of Incorporation contain a
provision which eliminates, to the fullest extent permitted by law, director
liability for monetary damages for breaches of the fiduciary duty of care or
other duties as a director.

ITEM 15.RECENT SALES OF UNREGISTERED SECURITIES.

During the period since the incorporation of the Registrant in December
1992, the securities identified below were issued by the Registrant without
registration under the Securities Act. On December 10, 1992, shortly following
its incorporation, the Registrant issued shares of common stock and preferred
stock to the following shareholders for cash consideration of $1.00 per share
of preferred stock and $0.01 per share of common stock, plus the execution by
each of the undersigned (except Datascan Corporation) of a guarantee of a
portion of the Registrant's obligation to Gates/Arrow Distributing, Inc.
(formerly Gates/FA Distributing, Inc.) ("Gates").

II-1
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
SHAREHOLDER OF COMMON STOCK OF PREFERRED STOCK
- ----------- ---------------- ------------------
<S> <C> <C>
Datascan Corporation........................ 50,000 --
Dennis Gates................................ -- 90,000
Carl Krezdorn............................... -- 16,667
Irwin Lieber................................ -- 50,000
Steven H. Owings............................ 200,000 100,000
Eli Oxenhorn................................ -- 100,000
Steve Roberson.............................. -- 16,666
Janet K. Rollins............................ -- 10,000
Ronald A. Seitz............................. -- 16,667
Woodland Partners........................... -- 100,000
</TABLE>

All of the shares listed above were issued pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). In August 1993, the Registrant repurchased the
50,000 shares of its common stock held by Datascan Corporation for $2.00 per
share.

In December 1992, in connection with its engagement of Gates to provide
various product handling, systems integration, credit line and accounts
payable functions, the Registrant issued to Gates options to purchase 250,000
shares of the Registrant's common stock at an exercise price of $1.50 per
share. In December 1993, Gates exercised such option and acquired 250,000
shares of the Registrant's common stock for an aggregate purchase price of
$375,000. Such options and the shares issued upon their exercise were issued
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act. In March 1996, the Registrant repurchased the 250,000 shares
of its common stock held by Gates for $3.50 per share.

In April 1993, the Registrant issued 52,630 shares of its common stock to
Michael T. Hill in connection with the acquisition by the Registrant of the
assets of Alpha Data Systems, Inc. All of such shares were issued pursuant to
the exemption from registration contained in Section 4(2) of the Securities
Act.

In September 1993, in connection with services rendered and to be rendered
in connection with participation on the Strategic Planning Committee of the
Board of Directors of the Registrant, the Registrant authorized the issuance
of warrants to purchase 50,000 shares of the Registrant's common stock at an
exercise price of $2.00 per share to each of Barry Rubenstein and Eli
Oxenhorn. At the direction of Mr. Rubenstein and Mr. Oxenhorn, such warrants
to purchase an aggregate of 100,000 shares of common stock were issued to Rev-
Wood Merchant Partners, a general partnership of which Mr. Rubenstein and Mr.
Oxenhorn are the sole general partners. Subsequently, such warrants were
reissued as warrants for 50,000 shares to each of Mr. Rubenstein and Mr.
Oxenhorn on the same terms. Such warrants were issued and reissued pursuant to
the exemption from registration contained in 4(2) of the Securities Act, and
all shares under such warrants were registered on Form S-8 filed March 21,
1996.

In January 1994, the Registrant issued one share of its common stock in
exchange for each share of its preferred stock still held of record by each of
the persons to whom shares of such preferred stock were originally issued in
December 1992 as listed above. Such shares of common stock were issued in
exchange for such shares of preferred stock pursuant to the exemption from
registration contained in Section 3(a)(9) of the Securities Act.

II-2
<PAGE>

ITEM 16(A). EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
1* - Form of Underwriting Agreement.
3.1 - Amended and Restated Articles of Incorporation of the Registrant.
(Incorporated by Reference to Exhibit 3.1 to Registrant's Form SB-
2 filed with the Commission on February 7, 1994, Registration No.
33-75026-A).
3.2 - Bylaws of the Registrant (Incorporated by Reference to Exhibit 3.2
to Registrant's Form SB-2 filed with the Commission on February 7,
1994, Registration No. 33-75026-A).
4.1 - Form of Common Stock Certificate (Incorporated by Reference to
Exhibit 4.1 to Registrant's Form SB-2 filed with the Commission on
February 7, 1994, Registration No. 33-75026-A).
5 - Opinion of Nexsen Pruet Jacobs & Pollard, LLP.
10.9 - Stock Option Agreement dated July 1, 1993 covering stock options
issued to Michael L. Baur. (Incorporated by Reference to Exhibit
10.9 to the Registrant's Form SB-2 filed with the Commission on
February 7, 1994, Registration No. 33-75026-A).
10.10 - 1993 Incentive Stock Option Plan (As Amended) of the Registrant
and Form of Stock Option Agreement.
10.11 - 1994 Stock Option Plan for Outside Directors of the Registrant and
Form of Stock Option Agreement. (Incorporated by Reference to
Exhibit 10.11 to the Registrant's Form SB-2 filed with the
Commission on February 7, 1994, Registration No. 33-75026-A).
10.13 - Stock Option Agreement dated December 30, 1993 covering stock
options issued to Irwin Lieber. (Incorporated by Reference to
Exhibit 10.13 to the Registrant's Form SB-2 filed with the
Commission on February 7, 1994, Registration No. 33-75026-A).
10.18 - Agreement to Terminate Distribution Services dated June 24, 1994
between the Registrant and Gates/FA Distributing, Inc.
(Incorporated by Reference to Exhibit 99.1 to Registrant's Form 8-
K filed with the Commission on June 6, 1994).
10.19 - Stock Option Agreement dated September 1, 1995 between Globelle,
Inc., the Registrant, and Dennis Gates. (Incorporated by reference
to Exhibit 10.19 to the Registrant's Form 10-KSB for the fiscal
year ended June 30, 1996).
10.20 - Letter agreement dated September 1, 1995 between the Registrant
and Transition Marketing, Inc. (Incorporated by reference to
Exhibit 10.20 to the Registrant's Form 10-KSB for the fiscal year
ended June 30, 1996).
10.21 - Software License Agreement dated April 18, 1995 between the
Registrant and Technology Marketing Group, Inc. d/b/a Globelle,
including letter agreement dated November 22, 1995 between the
parties with respect to stock options. (Incorporated by reference
to Exhibit 10.21 to the Registrant's registration statement on
Form S-3 filed with the Commission on December 29, 1995,
Registration No. 33-81043).
10.22 - Schedule of Material Details of Unit Purchase Option Agreements
dated March 18, 1994, between the Registrant and each of David M.
Nussbaum, Robert Gladstone, Roger Gladstone, and Richard
Buonocoure (Form of Unit Purchase Option Agreement incorporated by
reference to Exhibit 4.3 to the Registrant's Form SB-2 filed with
the Commission on March 2, 1994, Registration No. 33-75026-A).
10.23 - Stock Warrant dated November 29, 1995 from the Registrant to Eli
Oxenhorn.
10.24 - Stock Warrant dated November 29, 1995 from the Registrant to Barry
Rubenstein.
10.25** - Agreement for Wholesale Financing (Security Agreement) dated April
8, 1996 between the Registrant and IBM Credit Corporation,
including letter agreement dated April 17, 1996 between the
parties.
10.26 - Intercreditor Agreement dated April 8, 1996 among the Registrant,
IBM Credit Corporation, and Branch Banking and Trust Company.
10.27 - Loan and Security Agreement dated November 25, 1996 between the
Registrant and Branch Banking and Trust Company.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
10.28 - Employment Agreement dated as of January 1, 1997 between the
Registrant and Steven H. Owings.
10.29 - Employment Agreement dated as of January 1, 1997 between the
Registrant and Michael L. Baur.
10.30 - Employment Agreement dated as of January 1, 1997 between the
Registrant and Jeffery A. Bryson.
10.31 - Stock Option Agreement dated July 18, 1996 covering stock options
granted to Steven R. Fischer.
10.32 - Stock Option Agreement dated July 18, 1996 covering stock options
granted to James G. Foody.
10.33 - Stock Option Agreement dated December 3, 1996 covering stock
options granted to Steven H. Owings.
10.34 - Stock Option Agreement dated December 3, 1996 covering stock
options granted to Michael L. Baur.
10.35** - Distribution Agreement dated October 1, 1994 between the
Registrant and Symbol Technologies, Inc.
10.36** - Distribution Agreement dated January 1, 1996 between the
Registrant and IBM Corporation.
10.37 - Stock Option Agreement dated January 17, 1997 covering options
granted to Steven H. Owings.
10.38 - Stock Option Agreement dated January 17, 1997 covering options
granted to Michael L. Baur.
10.39 - Stock Option Agreement dated January 17, 1997 covering options
granted to Jeffery A. Bryson.
11 - Statement Re: Computation of Per Share Earnings.
23.1 - Consent of KPMG Peat Marwick LLP.
23.2 - Consent of Nexsen Pruet Jacobs & Pollard, LLP (included in their
opinion filed as Exhibit 5).
27 - Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Confidential Treatment pursuant to 17 CFR (S)(S) 200.80, 200.83 and 230.406
and 5 USC (S) 502 has been requested regarding certain portions of the
indicated Exhibit, which portions have been filed separately with the
Commission.

ITEM 16(B).

FINANCIAL STATEMENTS SCHEDULES.

Not Applicable.

ITEM 17.

UNDERTAKINGS.

(a) Insofar as indemnification for liabilities under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 24 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

(b) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenville, State of
South Carolina, on January 23, 1997.

SCANSOURCE, INC.

/s/ Steven H. Owings
By: _________________________________
STEVEN H. OWINGS
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER

KNOW ALL MEN BY THESE PRESENCE, that each person whose signature appears
below hereby constitutes and appoints Steven H. Owings, Michael L. Baur, and
Jeffery A. Bryson, or any one of them, their true and lawful attorneys-in-fact
and agents, with full power of substitution and re-substitution for them and
in their name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration
Statement or a registration statement filed pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same with all exhibits thereto and any
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premise, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all the said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.

SIGNATURES TITLE DATE

/s/ Steven H. Owings Chairman of the January 23,
- ------------------------------------- Board, Chief 1997
STEVEN H. OWINGS Executive Officer,
and Director
(principal
executive officer)

/s/ Jeffery A. Bryson Chief Financial January 23,
- ------------------------------------- Officer and 1997
JEFFERY A. BRYSON Treasurer
(principal
financial and
accounting officer)

/s/ Michael L. Baur President and January 23,
- ------------------------------------- Director 1997
MICHAEL L. BAUR

/s/ Steven R. Fischer Director January 23,
- ------------------------------------- 1997
STEVEN R. FISCHER

/s/ James G. Foody Director January 23,
- ------------------------------------- 1997
JAMES G. FOODY

II-5
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
1* - Form of Underwriting Agreement.
3.1 - Amended and Restated Articles of Incorporation of the
Registrant. (Incorporated by Reference to Exhibit 3.1 to
Registrant's Form SB-2 filed with the Commission on February
7, 1994, Registration No. 33-75026-A).
3.2 - Bylaws of the Registrant (Incorporated by Reference to
Exhibit 3.2 to Registrant's Form SB-2 filed with the
Commission on February 7, 1994, Registration No. 33-75026-
A).
4.1 - Form of Common Stock Certificate (Incorporated by Reference
to Exhibit 4.1 to Registrant's Form SB-2 filed with the
Commission on February 7, 1994, Registration No. 33-75026-
A).
5 - Opinion of Nexsen Pruet Jacobs & Pollard, LLP.
10.9 - Stock Option Agreement dated July 1, 1993 covering stock
options issued to Michael L. Baur. (Incorporated by
Reference to Exhibit 10.9 to the Registrant's Form SB-2
filed with the Commission on February 7, 1994, Registration
No. 33-75026-A).
10.10 - 1993 Incentive Stock Option Plan (As Amended) of the
Registrant and Form of Stock Option Agreement.
10.11 - 1994 Stock Option Plan for Outside Directors of the
Registrant and Form of Stock Option Agreement. (Incorporated
by Reference to Exhibit 10.11 to the Registrant's Form SB-2
filed with the Commission on February 7, 1994, Registration
No. 33-75026-A).
10.13 - Stock Option Agreement dated December 30, 1993 covering
stock options issued to Irwin Lieber. (Incorporated by
Reference to Exhibit 10.13 to the Registrant's Form SB-2
filed with the Commission on February 7, 1994, Registration
No. 33-75026-A).
10.18 - Agreement to Terminate Distribution Services dated June 24,
1994 between the Registrant and Gates/FA Distributing, Inc.
(Incorporated by Reference to Exhibit 99.1 to Registrant's
Form 8-K filed with the Commission on June 6, 1994).
10.19 - Stock Option Agreement dated September 1, 1995 between
Globelle Corporation, the Registrant, and Dennis Gates.
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Form 10-KSB for the fiscal year ended June 30,
1996).
10.20 - Letter agreement dated September 1, 1995 between the
Registrant and Transition Marketing, Inc. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Form 10-KSB
for the fiscal year ended June 30, 1996).
10.21 - Software License Agreement dated April 18, 1995 between the
Registrant and Technology Marketing Group, Inc. d/b/a
Globelle, including letter agreement dated November 22, 1995
between the parties with respect to stock options.
(Incorporated by reference to Exhibit 10.21 to the
Registrant's registration statement on Form S-3 filed with
the Commission on December 29, 1995, Registration No. 33-
81043).
10.22 - Schedule of Material Details of Unit Purchase Option
Agreements dated March 18, 1994, between the Registrant and
each of David M. Nussbaum, Robert Gladstone, Roger
Gladstone, and Richard Buonocoure (Form of Unit Purchase
Option Agreement incorporated by reference to Exhibit 4.3 to
the Registrant's Form SB-2 filed with the Commission on
March 2, 1994, Registration No. 33-75026-A).
10.23 - Stock Warrant dated November 29, 1995 from the Registrant to
Eli Oxenhorn.
10.24 - Stock Warrant dated November 29, 1995 from the Registrant to
Barry Rubenstein.
10.25** - Agreement for Wholesale Financing (Security Agreement) dated
April 8, 1996 between the Registrant and IBM Credit
Corporation, including letter agreement dated April 17, 1996
between the parties.
10.26 - Intercreditor Agreement dated April 8, 1996 among the
Registrant, IBM Credit Corporation, and Branch Banking and
Trust Company.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
10.27 - Loan and Security Agreement dated November 25, 1996 between
the Registrant and Branch Banking and Trust Company.
10.28 - Employment Agreement dated as of January 1, 1997 between the
Registrant and Steven H. Owings.
10.29 - Employment Agreement dated as of January 1, 1997 between the
Registrant and Michael L. Baur.
10.30 - Employment Agreement dated as of January 1, 1997 between the
Registrant and Jeffery A. Bryson.
10.31 - Stock Option Agreement dated July 18, 1996 covering stock
options granted to Steven R. Fischer.
10.32 - Stock Option Agreement dated July 18, 1996 covering stock
options granted to James G. Foody.
10.33 - Stock Option Agreement dated December 3, 1996 covering stock
options granted to Steven H. Owings.
10.34 - Stock Option Agreement dated December 3, 1996 covering stock
options granted to Michael L. Baur.
10.35** - Distribution Agreement dated October 1, 1994 between the
Registrant and Symbol Technologies, Inc.
10.36** - Distribution Agreement dated January 1, 1996 between the
Registrant and IBM Corporation.
10.37 - Stock Option Agreement dated January 17, 19997 covering
options granted to Steven H. Owings.
10.38 - Stock Option Agreement dated January 17, 1997 covering
options granted to Michael L. Baur.
10.39 - Stock Option Agreement dated January 17, 1997 covering
options granted to Jeffrey A. Bryson.
11 - Statement Re: Computation of Per Share Earnings.
23.1 - Consent of KPMG Peat Marwick LLP.
23.2 - Consent of Nexsen Pruet Jacobs & Pollard, LLP (included in
their opinion filed as Exhibit 5).
27 - Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.

** Confidential Treatment pursuant to 17 CFR (S)(S) 200.80, 200.83 and 230.406
and 5 USC (S) 502 has been requested regarding certain portions of the
indicated Exhibit, which portions have been filed separately with the
Commission.

<PAGE>

EXHIBIT 5
---------

OPINION OF NEXSEN PRUET JACOBS & POLLARD, LLP
<PAGE>

Exhibit 5
---------

Nexsen Pruet Jacobs & Pollard, LLP
1441 Main Street, Suite 1500
Columbia, South Carolina 29201
(803) 771-8900

January 23, 1997

Reply to Columbia

ScanSource, Inc.
6 Logue Court, Suite G
Greenville, South Carolina 29615

RE: Form S-1 Registration Statement

Gentlemen:

We have acted as counsel to ScanSource, Inc., a South Carolina
corporation (the "Company"), in connection with the registration of 2,300,000
shares of common stock, no par value per share, of the Company (the "Common
Stock") pursuant to a registration statement on Form S-1 initially filed with
the Securities and Exchange Commission (the "Commission") on January 24, 1997
(the "Registration Statement").

We have examined and are familiar with the Articles of Incorporation and
the Bylaws of the Company, and have examined the originals, or copies certified
or otherwise identified to our satisfaction, of corporate records, including
minute books, of the Company. We have also examined the Registration Statement
and such statutes and other records, instruments and documents pertaining
thereto that we have deemed necessary to examine for the purposes of this
opinion. In our examination, we have assumed the completeness and authenticity
of any document submitted to us as an original, the completeness and conformity
to the originals of any document submitted to us as a copy, the authenticity of
the originals of such copies, the genuineness of all signatures and the legal
capacity and mental competence of natural persons.

On the basis of and in reliance upon the foregoing, we are of the opinion
that the Common Stock registered under the Registration Statement when duly
issued and delivered as described in the Registration Statement (in the form
declared effective by the Commission) and duly purchased and paid for, will be
legally issued, fully paid and nonassessable.

This opinion is being rendered to be effective as of the effective date
of the Registration Statement. We hereby consent to the filing of this opinion,
or copies thereof, as an exhibit to the Registration Statement and to the
statement made regarding our firm under the caption "Legal Matters" in the
prospectus included in the Registration Statement, but we do not thereby admit
that we are within the category of persons whose consent is required under the
provisions of the Securities Act of 1933, as amended, or the rules and
regulations promulgated by the Securities and Exchange Commission thereunder.

Very truly yours,

NEXSEN PRUET JACOBS & POLLARD, LLP

By: /s/ G. MARCUS KNIGHT
-------------------------------
G. Marcus Knight

<PAGE>

EXHIBIT 10.10
-------------

1993 INCENTIVE STOCK OPTION PLAN (AS AMENDED) OF THE REGISTRANT
AND FORM OF STOCK OPTION
<PAGE>

EXHIBIT 10.10
-------------

SCANSOURCE, INC.
1993 INCENTIVE STOCK OPTION PLAN
(AS AMENDED)

1. Purpose. The purposes of this 1993 Incentive Stock Option Plan (the
"Plan") are to: (1) closely associate the interests of the employees of
ScanSource, Inc. (the "Company") with the shareholders by reinforcing the
relationship between employees' rewards and shareholder gains; (2) provide
selected employees with an equity ownership in the Company commensurate with
Company performance, as reflected in increased shareholder value; (3) maintain
competitive compensation levels; and (4) provide an incentive to employees for
continuous employment with the Company. The stock options granted under the
Plan are intended to qualify as incentive stock options within the meaning of
Internal Revenue Code Section 422.

2. Amount of Stock. The total number of shares of Common Stock to be
subject to options granted on and after July 1, 1993 pursuant to the Plan shall
not exceed 280,000 shares of the Company's Common Stock. In the event that
options granted under this Plan shall lapse without being exercised in whole or
in part, other options may be granted covering the shares not purchased under
such lapsed options.

3. Stock Option Committee. The Board of Directors shall from time to
time appoint a Committee (the "Committee"), which may also be the Compensation
Committee of the Board of Directors, to serve under this Plan. The Committee
shall consist of two or more directors.

4. Eligibility and participation. Options may be granted pursuant to
the Plan to any officer or employee of the Company. From time to time the
Committee shall select the officers and employees to whom options may be granted
by the Board of Directors and shall determine the number of shares to be covered
by each option so granted. Future as well as present officers and employees
(including officers and employees who are directors but who are not members of
the Committee) shall be eligible to participate in the Plan. Directors who are
members of the Committee or who are not officers or employees of the Company are
not eligible to participate in the Plan. No option may be granted under the
Plan after June 30, 2003.

5. Option Agreement. The terms and provisions of options granted
pursuant to the Plan shall be set forth in an agreement, herein called Option
Agreement, between the Company and the employee receiving the same. The Options
may be in such form, not inconsistent with the terms of this Plan, as shall be
approved by the Board of Directors.

6. Price. The purchase price per share of Common Stock purchasable
under options granted pursuant to the Plan shall not be less that 100 percent of
the fair market value at the time the options are granted. The purchase price
per share of Common Stock purchasable under options granted pursuant to this
Plan to a person who owns more than 10 percent of the voting power of the
Company's voting stock shall not be less than 110 percent of the fair market
value of such shares, at the time the options are granted. For the purposes of
the preceding sentence (a) the employee shall be considered as owning the stock
owned directly or indirectly by or for himself, the stock which the employee may
purchase under outstanding options and the stock owned, directly or indirectly,
by or for his brothers and sisters (whether of the whole or half blood), spouse,
ancestors, and lineal descendants and (b) stock owned directly or indirectly, by
or for a corporation, partnership, estate, or trust shall be considered as being
owned proportionately by or for its shareholders, partners, or beneficiaries.
For all purposes of this Plan, the fair market value of the Common Stock of the
Company shall be determined in good faith at the time of the grant of any option
by decision of the Stock Option Committee. In making such determination, the
Stock Option Committee shall not take into account the effect of any
restrictions on the Common Stock other than restrictions which, by their terms,

1
<PAGE>

will never lapse. The full purchase price of shares purchased shall be paid
upon exercise of the option. Under certain circumstances such purchase price
per share shall be subject to adjustment as referred to in Section 10 of this
Plan.

7. Option period. No option granted pursuant to the Plan shall be
exercisable after the expiration of ten years from the date the option is first
granted. No option granted pursuant to the Plan to a person then owning more
than 10 percent of the voting power of the Company's voting stock shall be
exercisable after the expiration of five years from the date the option is first
granted. For the purposes of the preceding sentence (a) the employee shall be
considered as owning the stock owned directly or indirectly by or for himself,
the stock which the employee may purchase under outstanding options and the
stock owned, directly or indirectly, by or for his brothers and sisters (whether
of the whole or half blood), spouse, ancestors, and lineal descendants and (b)
stock owned directly or indirectly, by or for a corporation, partnership,
estate, or trust shall be considered as being owned proportionately by or for
its shareholders, partners, or beneficiaries. The expiration date stated in the
Option Agreement is hereafter called the Expiration Date.

8. Termination of employment. The Option Agreement shall provide that
upon the occurrence of the employee ceasing to be employed by the Company as a
result of a termination of employment for cause by the Company, any unexercised
option of employee shall terminate and become null and void immediately upon
such termination of employment. Upon a termination of employment by reason of
disability, death or retirement or a termination at the Company's or the
employee's election (other than a termination for cause by the Company), the
Option Agreement shall provide that an outstanding and unexercised option may be
exercised during a time not exceeding the following periods:

(a) the one-year period following the date of such termination of the
employee's employment in the case of a disability (within the meaning of
Section 22(e)(3) of the Code),

(b) the one-year period following the date of an employee's death, and

(c) the three-month period following the date of such termination in the
case of retirement on or after attainment of age 65, or termination in the
case of disability other than as described in (a) above, or termination at
the Company's or the employee's election (other than termination for cause
by the Company).

In no event, however, shall any such period extend beyond the Expiration Date.

9. Assignability. The Option Agreement shall provide that the option
granted thereby shall not be transferable or assignable by the employee
otherwise than by will or by the laws of descent and distribution or pursuant to
a qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employee Retirement Income Security Act, or
the Rules thereunder. During the lifetime of the employee, the option granted
shall be exercisable only by the employee.

10. Adjustment in case of stock splits, stock dividends, etc. The Option
Agreement may contain such provisions as the Board of Directors may approve as
equitable concerning the effect upon options granted and the option price due to
(a) stock dividends upon, or subdivisions, split-ups, combinations,
consolidations or reclassifications of, the securities purchasable under the
option, or (b) proposals to merge or consolidate the Company or to sell all or
substantially all of its assets, or to liquidate or dissolve the Company.

11. Stock for Investment. The Option Agreement shall provide that the
employee shall upon each exercise of a part or all of the option granted
represent and warrant that his purchase of stock pursuant to such option is for
investment only, and not with a view to distribution involving a public
offering. At any time the Board of Directors of the Company may waive the
requirement of such a provision in any Option Agreement entered into under this
Stock Option Plan of the Company. The Option Agreement may also provide such

2
<PAGE>

additional restrictions and requirements concerning the exercise of options and
issuance of shares as the Company determines in its discretion are necessary to
meet all applicable laws, rules, and regulations, and to obtain such approvals
as may be required by any governmental agencies, including state and Federal
securities agencies and national securities exchanges.

12. Amendment of the Plan. The Board of Directors of the Company may
from time to time alter, amend, suspend or discontinue the Plan and make rules
for its administration, except that the Board of Directors shall not amend the
Plan in any manner which would have the effect of preventing options issued
under the Plan from being "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986. However, nothing in this Plan shall be
deemed to prevent the Board of Directors from issuing non-qualified stock
options to any officer or employee.

13. Options discretionary. The granting of options under the Plan shall
be entirely discretionary with the Stock Option Committee and nothing in the
Plan shall be deemed to give any officer or employee any right to participate in
the Plan or to receive options.

14. Limitation as to amount. No person to whom options are granted
hereunder shall receive options, first exercisable during any single calendar
year, for shares, the fair market value of which (determined at the time of
grant of the options) exceeds $100,000. Accordingly, no optionee shall be
entitled to exercise options in any single calendar year, for shares of Common
Stock the value of which (determined at the time of grant of the options)
exceeds $100,000.

15. Stockholder approval. The Plan will be submitted to the
stockholders of the Company for approval by the holders of a majority of the
outstanding shares of stock of the Company. If the Plan is not approved by the
holders of a majority of the outstanding shares of stock of the Company by June
30, 1994, then the Plan shall terminate and any options granted hereunder shall
be void and of no further force or effect.

3
<PAGE>

SCANSOURCE, INC. INCENTIVE STOCK OPTION AGREEMENT

GRANT OF INCENTIVE STOCK OPTION

Date of Grant: , 19
------------- --

THIS GRANT, dated as of the date of grant first stated above (the "Date
of Grant"), is delivered by ScanSource, Inc., a South Carolina corporation
("ScanSource"), to (the "Grantee"), who is an officer
------------------------
or employee of ScanSource.

WHEREAS, the Board of Directors of ScanSource (the "Board") has adopted,
subject to shareholder approval, the ScanSource, Inc. 1993 Incentive Stock
Option Plan (the "Plan"); and,

WHEREAS, the Plan provides for the granting of incentive stock options by
the Board to officers and employees of ScanSource to purchase shares of the
Common Stock of ScanSource (the "Stock"), in accordance with the terms and
provisions thereof; and

WHEREAS, the Board considers the Grantee to be a person who is eligible
for a grant of incentive stock options under the Plan, and has determined that
it would be in the best interest of ScanSource to grant the incentive stock
options documented herein.

NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:

1. Grant of Option. Subject to the terms and conditions hereinafter set forth,
ScanSource, with the approval and at the direction of the Board, hereby grants
to the Grantee, as of the Date of Grant, an option to purchase up to
-------
shares of Stock at a price of $ per share, the fair market value. Such
-------
option is hereinafter referred to as the "Option" and the shares of stock
purchasable upon exercise of the Option are hereinafter sometimes referred to as
the "Option Shares." The Option is intended by the parties hereto to be, and
shall be treated as, an incentive stock option (as such term is defined under
section 422 of the Internal Revenue Code of 1986 (the "Code")).

2. Installment Exercise. Subject to such further limitations as are provided
herein, the Option shall become exercisable in three (3) installments, the
Grantee having the right hereunder to purchase from ScanSource the following
number of Option Shares upon exercise of the Option, on and after the following
dates, in cumulative fashion:

(a) on and after the first anniversary of the Date of Grant, up to one-
third (ignoring fractional shares) of the total number of Option Shares;

(b) on and after the second anniversary of the Date of Grant, up to an
additional one-third (ignoring fractional shares) of the total number of Option
Shares; and

3. Termination of Option.

(a) The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of ten (10) years from the Date of Grant (the
"Expiration Date").

SCANSOURCE, INC. Incentive Stock Option Agreement
Grant of Incentive Stock Option
1
<PAGE>

(b) Upon the occurrence of the Grantee's ceasing to be employed by
ScanSource as a result of a termination of employment for cause by the Company,
the Option, to the extent not previously exercised, shall terminate and become
null and void immediately upon such termination of the Grantee's employment.
Upon a termination of the Grantee's employment by reason of disability, death or
retirement, or a termination at the Company's or the employee's election (other
than a termination for cause by the Company), the Option may be exercised during
the following periods, but only to the extent that the Option was outstanding
and exercisable on any such date of termination:

(i) the one-year period following the date of such termination of the
Grantee's employment in the case of a disability (within the meaning
of Section 22(e)(3) of the Code),

(ii) the six-month period following the date of issuance of letters
testamentary or letters of administration to the executor or
administrator of a deceased Grantee, in the case of the Grantee's
death during his employment by the Employer, but not later than one
year after the Grantee's death, and

(iii) the three-month period following the date of such termination in
the case of retirement on or after attainment of age 65, or
termination in the case of disability other than as described in (i)
above, or termination at the Company's or the employee's election
(other than termination for cause by the Company).

In no event, however, shall any such period extend beyond the Expiration Date.

(c) In the event of the death of the Grantee, the Option may be exercised
by the Grantee's legal representative(s), but only to the extent that the Option
would otherwise have been exercisable by the Grantee.

(d) A transfer of the Grantee's employment between ScanSource and any
subsidiary of ScanSource, or between any subsidiaries of ScanSource, shall not
be deemed to be a termination of the Grantee's employment.

(e) Notwithstanding any other provisions set forth herein or in the Plan,
if the Grantee shall (i) commit any act of malfeasance or wrongdoing affecting
ScanSource, (ii) breach any covenant not to compete or employment contract with
ScanSource, or (iii) engage in conduct that would warrant the Grantee's
discharge for cause (excluding general dissatisfaction with the performance of
the Grantee's duties, but including any act of disloyalty or any conduct clearly
tending to bring discredit upon ScanSource), any unexercised portion of the
Option shall immediately terminate and be void.

4. Exercise of Options.

(a) Subject to such further limitations as are provided herein, the
Option shall be exercisable at any time and from time to time during the period
commencing one (1) year from the Date of Grant and ending ten (10) years (five
(5) years for 110 percent shareholders as described in the Plan) from the Date
of Grant. The Grantee may exercise the Option with respect to all or any part
of the number of Option Shares then exercisable hereunder by giving the
Secretary of ScanSource written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof, which date shall be at least five
days after the giving of such notice unless an earlier time shall have been
mutually agreed upon.

(b) Full payment (in U.S. dollars) by the Grantee of the option price for
the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Secretary, in whole or in part through the surrender of previously
acquired shares of Stock at their fair market value on the exercise date.

SCANSOURCE, INC. Incentive Stock Option Agreement
Grant of Incentive Stock Option
2
<PAGE>

On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, ScanSource shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as ScanSource
may elect) upon full payment for such Option Shares. The Grantee shall upon
each exercise of a part or all of the option granted represent and warrant that
his purchase of stock pursuant to such option is for investment only, and not
with a view to distribution involving a public offering. The obligation of
ScanSource to deliver Stock shall, however, be subject to the condition that if
at any time the Board shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Option or the issuance or purchase of
Stock thereunder, the Option may not be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.

(c) If the Grantee fails to pay for any of the Option Shares specified in
such notice or fails to accept delivery thereof, the Grantee's right to purchase
such Option Shares may be terminated by ScanSource. The date specified in the
Grantee's notice as the date of exercise shall be deemed the date of exercise of
the Option, provided that payment in full for the Option Shares to be purchased
upon such exercise shall have been received by such date.

5. Adjustment of and Changes in Stock of ScanSource. In the event of a
reorganization, recapitalization, change of shares, stock split, spin-off, stock
dividend, reclassification, subdivision, consolidation or combination of shares,
merger, consolidation, rights offering, or any other change in the corporate
structure or shares of capital stock of ScanSource, the Board may make such
adjustment as it deems appropriate in the number and kind of shares of Stock
subject to the Option or in the option price; provided, however, that no such
adjustment shall give the Grantee any additional benefits under the Option.

6. No Rights of Stockholders. Neither the Grantee nor any personal
representative shall be, or shall have any of the rights and privileges of, a
stockholder of ScanSource with respect to any shares of Stock purchasable or
issuable upon the exercise of the Option, in whole or in part, prior to the date
of exercise of the Option.

7. Non-Transferability of Option. During the Grantee's lifetime, the Option
hereunder shall be exercisable only by the Grantee or any guardian or legal
representative of the Grantee, and the Option shall not be transferable except,
in case of the death of the Grantee, by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act, or the Rules thereunder, nor shall the Option be
subject to attachment, execution or other similar process. In the event of (a)
any attempt by the Grantee to alienate, assign, pledge, hypothecate or otherwise
dispose of the Option, except as provided for herein, or (b) the levy of any
attachment, execution or similar process upon the rights or interest hereby
conferred, ScanSource may terminate the Option by notice to the Grantee and it
shall thereupon become null and void.

8. Employment Not Affected. Neither the granting of the Option nor its exercise
shall be construed as granting to the Grantee any right with respect to
continuance of employment of the Employer. Except as may otherwise be limited by
a written agreement between the Employer and the Grantee, the right of the
Employer to terminate at will the Grantee's employment with it at any time
(whether by dismissal, discharge, retirement or otherwise) is specifically
reserved by ScanSource, as the employer, and is acknowledged by the Grantee.

9. Amendment of Option. The Option may be amended by the Board or the Committee
at any time (i) if the Board or the Stock Option Committee determines, in its
sole discretion, that amendment is necessary or advisable in the light of any
addition to or change in the Internal Revenue Code of 1986 or in the regulations
issued thereunder, or any federal or state securities law or other law or
regulation, which change occurs after the Date of Grant and by its terms applies
to the Option; or (ii) other than in the circumstances described in clause (i),
with the consent of the Grantee.

SCANSOURCE, INC. Incentive Stock Option Agreement
Grant of Incentive Stock Option
3
<PAGE>

10. Notice. Any notice to ScanSource provided for in this instrument shall be
addressed to it in care of its Secretary at its executive offices at 6 Logue
Court, Suite G, Greenville, South Carolina 29615, and any notice to the Grantee
shall be addressed to the Grantee at the current address shown on the payroll
records of ScanSource. Any notice shall be deemed to be duly given if and when
properly addressed and posted by registered or certified mail, postage prepaid.

12. Incorporation of Plan by Reference. The Option is granted pursuant to the
terms of the Plan, the terms of which are incorporated herein by reference, and
the Option shall in all respects be interpreted in accordance with the Plan. The
Stock Option Committee shall interpret and construe the Plan and this
instrument, and its interpretations and determinations shall be conclusive and
binding on the parties hereto and any other person claiming an interest
hereunder, with respect to any issue arising hereunder or thereunder.

13. Governing Law. The validity, construction, interpretation and effect of
this instrument shall exclusively be governed by and determined in accordance
with the law of the State of South Carolina, except to the extent preempted by
federal law, which shall to such extent govern.

IN WITNESS WHEREOF, ScanSource has caused its duly authorized officers to
execute and attest this Grant of Incentive Stock Option, and the Grantee has
placed his or her signature hereon, effective as of the Date of Grant.

SCANSOURCE, INC.

By:
-------------------------------
Its: President

Attest:

----------------------------------
Secretary

ACCEPTED AND AGREED TO:

By:
-------------------------------
Grantee

SCANSOURCE, INC. Incentive Stock Option Agreement
Grant of Incentive Stock Option
4

<PAGE>

EXHIBIT 10.22
-------------

SCHEDULE OF MATERIAL DETAILS OF UNIT PURCHASE OPTION AGREEMENTS
DATED MARCH 18, 1994, BETWEEN THE REGISTRANT AND EACH OF
DAVID M. NUSSBAUM, ROBERT GLADSTONE, ROGER GLADSTONE,
AND RICHARD BUONOCOURE (FORM OF UNIT PURCHASE OPTION
AGREEMENT INCORPORATED BY REFERENCE TO EXHIBIT 4.3
TO THE REGISTRANT'S FORM SB-2 FILED WITH THE
COMMISSION ON MARCH 2, 1994, REGISTRATION NO. 33-75026-A)
<PAGE>

EXHIBIT 10.22
-------------

SCHEDULE OF MATERIAL DETAILS
OF
OUTSTANDING UNIT PURCHASE OPTION AGREEMENTS

The Unit Purchase Option Agreements of the four option holders listed below are
identical to the form of agreement (Incorporated by reference to Exhibit 4.3 to
the Registrant's Form SB-2 filed with the Commission on March 2, 1994,
Registration No. 33-75026-A) in all material respects, except for the identity
of the option holder and the number of units subject to the agreement, as set
forth below:
<TABLE>
<CAPTION>
Option Holder Number of Units
------------- ---------------
<S> <C>
David M. Nussbaum 13,500
Robert Gladstone 13,500
Roger Gladstone 13,500
Richard Buonocore 1,500

</TABLE>

<PAGE>

EXHIBIT 10.23
-------------

STOCK WARRANT DATED NOVEMBER 29, 1995 FROM
THE REGISTRANT TO ELI OXENHORN

<PAGE>
Exhibit 10.23
-------------

Eli Oxenhorn
Right to Purchase
50,000 Shares
Date: November 29, 1995

SCANSOURCE, INC.
Incorporated under the Laws
of the State of South Carolina

STOCK WARRANT

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. THE CORPORATION WILL NOT HONOR TRANSFER
OF THIS WARRANT OR THE UNDERLYING SHARES EXCEPT UPON RECEIPT OF EVIDENCE
SATISFACTORY TO THE CORPORATION, WHICH MAY INCLUDE AN OPINION OF COUNSEL,
THAT THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR
THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT
VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.

BY ACCEPTANCE OF THIS WARRANT, THE HOLDER HEREOF COVENANTS THAT IT WILL
COMPLY IN ALL RESPECTS WITH THE RESTRICTIONS ON TRANSFER SET FORTH HEREIN.

For good and valuable consideration, the receipt and sufficiency of which
are acknowledged, SCANSOURCE, INC., a South Carolina corporation (the
"Corporation"), hereby grants unto ELI OXENHORN (the "Purchaser"), a Warrant to
purchase up to Fifty Thousand (50,000) shares of the authorized and unissued
common stock, no par value, of the Corporation (the "Common Stock") at the price
and upon the terms and conditions described herein, exercisable serially and
from time to time upon presentation of this Warrant and payment of the purchase
price at the principal office of the Corporation as follows:

1. Warrant Price: Exercise of this Warrant requires the payment of
$2.00 in cash or other immediately available U.S. funds to the Corporation for
each share of Common Stock purchased hereunder.

2. Warrant Period: This Warrant and the Purchaser's rights hereunder
shall expire, to the extent not previously exercised, on September 27, 1998.

3. Warrant Exercise: At any time until the expiration of this Warrant,
the Purchaser may exercise this Warrant serially and from time to time by
providing written notice (an "Exercise Notice") to the Corporation at the
Corporation's notice address set forth below, whereupon closing of the purchase
of the shares subject to an Exercise Notice shall take place on the date set
forth in such Exercise Notice (but not sooner than 5 business days nor later
than 10 business days after the date such Exercise Notice is received by the
Corporation) or on such other date as the Corporation and the Purchaser shall
agree. Closing shall take place at the principal office of the Corporation or
at such other place as the Corporation and the Purchaser shall agree.

4. Transfer Upon Exercise: Upon delivery to the Corporation of any
Exercise Notice by the Purchaser, the Corporation shall timely deliver or cause
to be delivered to the Purchaser on the date of closing at the place of closing
(as specified above) such stock certificate(s) as are necessary to complete the
transfer of shares of Common Stock required by this Warrant and such Exercise
Notice. Upon delivery to the Purchaser of such stock certificate(s), the
Purchaser shall pay the Warrant Price for such shares to the Corporation as set
forth above.

5. Restrictions on Warrant: This Warrant is not transferable, and
Purchaser may not transfer or assign any right or interest in this Warrant in
whole or in part without the Corporation's prior written consent.

6. Restrictions on Common Stock: The shares of Common Stock purchased
pursuant to this Warrant shall be subject to the following transfer restrictions
which shall be legended on the stock certificate(s) evidencing such shares of
Common Stock:

THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES AND

STOCK WARRANT 1

<PAGE>

REGULATIONS THEREUNDER AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS. THE CORPORATION WILL NOT HONOR TRANSFER OF THESE SHARES EXCEPT UPON
RECEIPT OF EVIDENCE SATISFACTORY TO THE CORPORATION, WHICH MAY INCLUDE AN
OPINION OF COUNSEL, THAT THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN
COMPLIED WITH OR THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH
TRANSFER WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.

7. Reservation of Shares: The Corporation shall retain and reserve for
the benefit of the Purchaser a sufficient number of authorized shares of Common
Stock to satisfy the Corporation's obligations under this Warrant.

8. Anti-Dilution Features: In the event that during the period in
which this Warrant remains outstanding, any change is made in the Common Stock
subject to this Warrant through merger, consolidation, reorganization,
recapitalization, share exchange, stock dividend, stock distribution, stock
split, reverse stock split, stock reclassification, liquidating dividend,
combination of shares, change in corporate structure or otherwise, then the
Corporation shall give the Purchaser prompt written notice of such action in
reasonable detail (together with all relevant information) at the Purchaser's
notice address set forth below. In the event this Warrant is not expired or
exercised in full in advance of any of such events, upon completion of such
event the Warrant Price per share and/or the number of shares of Common Stock
subject to this Warrant as set forth above shall be adjusted equitably so that
the Purchaser shall be entitled to acquire from the Corporation for a
proportionate aggregate price an equity and economic position in the Corporation
consistent with the equity and economic position in the Corporation available to
the Purchaser under this Warrant on the date hereof. If the Corporation and the
Purchaser are unable to agree upon such adjustment, then such adjustment shall
be determined by the Corporation's independent accountants, with such
determination to be conclusive, absent manifest error.

9. Miscellaneous: This Warrant shall inure to the benefit of the
Purchaser and its successors and permitted assigns and shall be binding upon the
Corporation and its successors and assignees. This Warrant may be modified or
amended, and rights and obligations hereunder may be waived, only in writing,
signed by the Purchaser and the Corporation. This Warrant shall be governed by
and construed in accordance with the laws of the State of South Carolina. The
parties consent to jurisdiction and venue for any dispute arising hereunder in
the courts for Greenville County, South Carolina. All terms and provisions of
this Warrant shall be severable from all other terms and provisions of this
Warrant. Notices required or permitted hereunder must be in writing and shall
be deemed given when placed in the U.S. certified mail, return receipt
requested, with postage prepaid, addressed to the recipient at the notice
address set forth below, or when personally delivered to the recipient.

10. Previous Warrant Replaced: This Warrant is issued by the
Corporation to the Purchaser pursuant to the assignment on September 21, 1995 by
Rev-Wood Merchant Partners, a New York general partnership ("Rev-Wood"), to the
Purchaser of one-half of the interest of Rev-Wood in that warrant for the
purchase of 100,000 shares of Common Stock issued by the Corporation on
September 27, 1993 to Rev-Wood (the "First Warrant"), and to such extent, this
Warrant supersedes and replaces for all purposes such interest of Rev-Wood in
the First Warrant.

IN WITNESS WHEREOF, the Corporation has executed this Warrant under seal
to be effective as of the 29th day of November 1995.

CORPORATION:
-----------

SCANSOURCE, INC.

By: /s/ STEVEN H. OWINGS
----------------------------------
Its: CEO
--------------------------------

Corporation's Notice Address:

ScanSource, Inc.
6 Logue Court, Suite G
Greenville, South Carolina 29615

Purchaser's Notice Address:

Eli Oxenhorn
56 The Intervale
Roslyn Estates, New York 11576

STOCK WARRANT 2

<PAGE>

EXHIBIT 10.24
-------------

STOCK WARRANT DATED NOVEMBER 29, 1995 FROM
THE REGISTRANT TO BARRY RUBENSTEIN
<PAGE>

Exhibit 10.24
-------------

Barry Rubenstein Right to Purchase
50,000 Shares
Date: November 29, 1995

SCANSOURCE, INC.
Incorporated under the Laws
of the State of South Carolina

STOCK WARRANT

BY ACCEPTANCE OF THIS WARRANT, THE HOLDER HEREOF COVENANTS THAT IT WILL
COMPLY IN ALL RESPECTS WITH THE RESTRICTIONS ON TRANSFER SET FORTH HEREIN.

For good and valuable consideration, the receipt and sufficiency of which
are acknowledged, SCANSOURCE, INC., a South Carolina corporation (the
"Corporation"), hereby grants unto BARRY RUBENSTEIN (the "Purchaser"), a Warrant
to purchase up to Fifty Thousand (50,000) shares of the authorized and unissued
common stock, no par value, of the Corporation (the "Common Stock") at the price
and upon the terms and conditions described herein, exercisable serially and
from time to time upon presentation of this Warrant and payment of the purchase
price at the principal office of the Corporation as follows:

1. Warrant Price: Exercise of this Warrant requires the payment of
$2.00 in cash or other immediately available U.S. funds to the Corporation for
each share of Common Stock purchased hereunder.

2. Warrant Period: This Warrant and the Purchaser's rights hereunder
shall expire, to the extent not previously exercised, on September 27, 1998.

STOCK WARRANT 1
<PAGE>

IN WITNESS WHEREOF, the Corporation has executed this Warrant under seal
to be effective as of the 29th day of November 1995.

CORPORATION:
-----------

SCANSOURCE, INC.

By: /s/ STEVEN H. OWINGS
---------------------------------
Its: CEO
-------------------------------

Corporation's Notice Address:

ScanSource, Inc.
6 Logue Court, Suite G
Greenville, South Carolina 29615

Purchaser's Notice Address:

Barry Rubenstein
39 Woodland Road
Roslyn, New York 11576

STOCK WARRANTS 2

<PAGE>

EXHIBIT 10.25
-------------

AGREEMENT FOR WHOLESALE FINANCING (SECURITY AGREEMENT)
DATED APRIL 8, 1996 BETWEEN THE REGISTRANT AND IBM CREDIT CORPORATION,
INCLUDING LETTER AGREEMENT DATED APRIL 17, 1996 BETWEEN THE PARTIES*

- -----------------------------------
* Confidential Treatment pursuant to 17 CFR (S)(S) 200.80, 200.83, and 230.406
and 5 USC (S) 502 has been requested regarding certain portions of the indicated
Exhibit, which portions have been filed separately with the Commission.
<PAGE>

Exhibit 10.25
-------------
Confidential Treatment Requested

IBM Credit Corporation Stamford, CT 06904

AGREEMENT FOR WHOLESALE FINANCING
(SECURITY AGREEMENT)

TO: IBM CREDIT CORPORATION DATE: April 8, 1996

In the course of our business, we acquire inventory and want you to
finance our purchase of such inventory under the following terms and conditions:

1. You may in your sole discretion from time to time decide the amount
of credit you extend to us, notwithstanding any prior course of conduct between
us. You may combine all of your advances to make one debt owed by us.

2. You may in your sole discretion decide the amount of funds, if any,
you will advance on any inventory we may seek to acquire. We agree that any
decision to advance funds on any inventory will not be binding on you until such
time as the funds are actually advanced.

3. All financing provided by you to us will be used exclusively for the
acquisition of inventory for which you have approved us to receive financing
pursuant to the terms of this Agreement (the "Approved Inventory"). From time
to time, you will identify such trademarks and tradenames to us in writing.
When you advance funds, you may send us a Statement of Transaction or other
statement if you choose. If you do, we will have acknowledged the debt to be an
account stated and we will have agreed to the terms of the financing programs
identified on such statement, unless we notify you in writing of any question or
objection within seven (7) days after it is mailed to us.

4. To secure payment of all of our current and future debts to you
whether under this Agreement, any guaranty that we now or hereafter execute, or
any other agreement between us, whether direct or contingent, we grant you a
security interest in all of our inventory, equipment, fixtures, accounts,
contract rights, chattel paper, instruments, reserves, documents of title,
deposit accounts and general intangibles, whether now owned or hereafter
acquired, and all attachments, accessories, accessions, substitutions and/or
replacements thereto and all proceeds thereof. All of the above assets are
defined pursuant to the provisions of Article 9 of the Uniform Commercial Code
and are hereinafter collectively referred to as the "Goods". This security
interest is also granted to secure our debts to all of your affiliates. We will
hold all of the Goods financed by you, and, unless otherwise agreed to by you,
the proceeds thereof, in trust for you and we will immediately account for and
remit directly to you, unless otherwise agreed to by you, all such proceeds when
payment is required under the terms of our financing program with you. Unless
otherwise agreed to by you, you may directly collect any amount owed to us with
respect to the Goods and credit us with all sums received by you. Your title,
lien or security interest will not be impaired by any payments we make to the
seller or anyone else or by our failure or refusal to account to you for
proceeds.

5. Our principal place of business located at: 6 Logue Court, Ste G,
Greenville, South Carolina 29615 and we represent that our business is conducted
as a SOLE PROPRIETORSHIP, PARTNERSHIP, X CORPORATION (check applicable
--- --- ---
term). We will notify you immediately of any change in our identity, name, form
of ownership or management, and of any change in our principal place of
business, or any additions or discontinuances of other business locations. The
Goods will be kept at our principal place of business. We will immediately
notify you if any of the Goods are kept at any other address. We and our
predecessors have done business during the last six (6) months only under the
following names: SCANSOURCE, INC. This paragraph is for informational purposes
only, and is not in any manner intended to limit the extent of your security
interest in the Goods.

6. We promise that the Goods are and will remain free from all claims
and liens superior to yours unless otherwise agreed to by you, and that we will
defend the Goods against all other claims and demands. We will not rent, lease,
lend, demonstrate, pledge, transfer or secrete any of the Goods or use any of
the Goods for any purpose other than exhibition and sale to buyers in the
ordinary course of business, without your prior written consent. We will
execute all documents you may request to confirm or perfect your security
interest in the Goods. We warrant and represent that we are not in default in
the payment of any principal, interest or other charges relating to any
indebtedness owed to any third party, and no event has occurred under the terms
of any agreement, document, promissory note or other instrument, which with or
without the passage of time and/or the giving of notice constitutes or would

1
<PAGE>

constitute an event of default thereunder. We will promptly provide our year-
end financial statement to you after our fiscal year ends and, if requested by
you, we will also promptly provide our financial statement to you after each
calendar quarter.

Each financial statement that we submit to you, is and will be correct and will
accurately represent our financial condition. We further acknowledge your
reliance on the truthfulness and accuracy of each financial statement that we
submit to you in your extension of various financial accommodations to us.

7. We will pay all taxes, license fees, assessments and charges on the
Goods when due. We will immediately notify you of any loss, theft, or
destruction of or damage to any of the Goods. We will be responsible for any
loss, theft or destruction of Goods. We will keep the Goods insured for their
full insurable value against loss or damage under an "all risk" insurance
policy. We will obtain insurance under such terms and in amounts as you may
specify, from time to time, with companies acceptable to you, with a loss-payee
or mortgagee clause payable to you to the extent of any loss to the Goods and
containing a waiver of all defenses against us that is acceptable to you. We
agree to provide you with written evidence of the required insurance coverage
and loss-payee or mortgagee clause. We assign to you all amounts owed to us
under any insurance policy, and we direct any insurance company to make payment
directly to you to be applied to the unpaid debt owed you. We further grant you
an irrevocable power of attorney to endorse any checks or drafts and sign and
file all of the necessary papers, forms and documents to initiate and settle any
insurance claims with respect to the Goods. If we fail to pay any of the above-
referenced costs, charges, or insurance premiums, or if we fail to insure the
Goods, you may pay such costs, charges and insurance premiums, and the amounts
paid will be considered an additional debt owed by us to you.

8. You have the right to enter upon our premises from time to time, as
you in your sole discretion may determine for your sole benefit, and all without
any advance notice to us, to: examine the Goods; appraise them as security;
verify their condition and non-use; verify that all Goods have been properly
accounted for; verify that we have complied with all terms and provisions of
this Agreement; and assess, examine, and make copies of our books and records.
Any collection by you of any amounts we owe under our financing programs with
you at or during your examination of the Goods does not relieve us of our
continuing obligation to pay our indebtedness owed to you in accordance with the
terms of such financing programs.

9. We agree to immediately pay you the full amount of the principal
balance owed you on each item of inventory financed by you at the time such
inventory is sold, lost, stolen, destroyed, or damaged, whichever occurs first,
unless you have agreed in writing to provide financing to us on other terms. We
also agree to provide you, upon your request, an inventory report which
describes all the Approved Inventory in our possession (excluding any inventory
financed by you under the Demonstration and Training Equipment Financing Option
and the Rental Equipment Financing Option). Regardless of the terms of any
scheduled payment financing program with you, if you determine, after conducting
an inspection of all of our inventory, that the current outstanding indebtedness
owed by us to you exceeds the aggregate wholesale invoice price of the Approved
Inventory in our possession, we agree to immediately pay to you an amount equal
to the difference between such outstanding indebtedness and the aggregate
wholesale invoice price of such inventory. We will make all payments to you at
your appropriate branch office. Any checks or other instruments delivered to
you to be applied against our outstanding obligations will constitute
conditional payment until the funds represented by such instruments are actually
received by you. You may apply payments to reduce finance charges first and
then principal, irrespective of our instructions. Further, you may apply
principal payments to the oldest (earliest) invoice for the inventory financed
by you, but, in any case, all principal payments will first be applied to such
inventory which is sold, lost, stolen, destroyed, damaged, or otherwise disposed
of. If we sign any instrument for the amount of credit extended, it will be
evidence of our obligation to pay and will not be payment. Any discount,
rebate, bonus, or credit for the inventory granted to us by any third party will
not, in any way, reduce the debt we owe you, until you have received payment in
cash.

10. During each year or part of a year in which you have extended credit
to us, we will pay you finance charges on the total amount of credit extended to
us in the amount agreed to between us from time to time. The period, during
which any third party provides a finance charge subsidy for us, will be included
in the calculation of the annual percentage rate of the finance charges. Such
finance charges may be applied by you to cover any amounts expended for your:
appraisal and examination of the Goods; maintenance of facilities for payment;
assistance in support of our retail sales; your commitments to manufacturers or
distributors to finance shipments of Goods to us; recording and filing fees;
expenses incurred in obtaining additional collateral or security; and any costs
and expenses incurred by you arising out of the financing you extend to us. We
also agree to pay you additional charges which will include: late payment fees;
flat charges; charges for receiving NSF checks from us; renewal charges; and any
other charges applicable to our financing program with you. Unless we hereafter
otherwise agree in writing, the finance charge and additional charges agreed
upon will be your applicable finance charge and additional charges for the class
of Goods involved, prevailing from time to time at your principal place of
business. You will send us, at monthly or other intervals, a statement of all
charges due on our account with you. We will have acknowledged the charges due,
as indicated on the statement, to be an account stated, unless we object in
writing to you within seven (7) days after it is mailed to us. This statement
may be adjusted by you at any time to conform to applicable law and this
Agreement. It any manufacturer or distributor fails to provide a finance charge
subsidy for us, as agreed, we will be responsible for and pay to you all finance
charges billed to our account.

2
<PAGE>

11. Any of the following events will constitute a default by us under
this Agreement: we breach any of the terms, warranties or representations
contained in this Agreement or in any other agreements between us or between us
and any of your affiliates; any guarantor of our indebtedness to you under this
Agreement or any other agreements breaches any of the terms, warranties or
representations contained in any guaranty or other agreements between any
guarantor and you; any representation, statement, report or certificate made or
delivered by us or any of our representatives, employees or agents or by any
guarantor to you is not true and correct; we fail to pay any of the liabilities
or indebtedness owed to you or any of your affiliates when due and payable under
this Agreement or under any other agreements between us or between us and any of
your affiliates; you determine that you are insecure with respect to any of the
Goods or the payment of our debt owed to you; we abandon the Goods or any part
thereof; we or any guarantor become in default in the payment of any
indebtedness owed to any third party; a judgement issues on any money demand
against us or any guarantor; an attachment, sale or seizure is issued against us
or any of the Goods; any part of the Goods are seized or taken in execution; the
death of the undersigned if the business is operated as a sole proprietorship or
partnership, or the death of any guarantor; we cease or suspend our business; we
or any guarantor make a general assignment for the benefit of creditors; we or
any guarantor become insolvent or voluntarily or involuntarily become subject to
the Federal Bankruptcy Code, state insolvency laws or any act for the benefit of
creditors; any receiver is appointed for any of our or any guarantor's assets,
or any guaranty pertaining to our indebtedness to you is terminated for any
reason whatsoever; we lose any franchise, permission, license or right to sell
or deal in any Goods which you finance; we or any guarantor misrepresent our
respective financial condition or organizational structure; or you determine, in
your sole discretion, that the Goods, any other collateral given to you to
secure our indebtedness to you, or our or any guarantor's net worth has
decreased in value, and we have been unable, within the time period prescribed
by you, to either provide you with additional collateral in a form and substance
satisfactory to you or reduce our total indebtedness by an amount sufficient to
satisfy you. In the event of a default:

(a) You may, at any time at your election, without notice or demand to
us do any one or more of the following: declare all or any part of the
indebtedness we owe you immediately due and payable, together with all court
costs and all costs and expenses of your repossession and collection activity,
including, but not limited to, all attorney's fees; exercise any or all rights
of a secured party under applicable law; and/or cease making any further
financial accommodations or extending any additional credit to us. All of your
rights and remedies are cumulative.

(b) We will segregate, hold and keep the Goods in trust, in good order
and repair, only for your benefit, and we will not exhibit, transfer, sell,
further encumber, otherwise dispose of or use for any other purpose whatsoever
any of the Goods.

(c) Upon your oral or written demand, we will immediately deliver the
Goods to you, in good order and repair, at a place specified by you, together
with all related documents; or you may, in your sole discretion and without
notice or demand to us, take immediate possession of the Goods, together with
all related documents.

(d) We waive and release: any claims and causes of action which we
may now or ever have against you as a direct or indirect result of any
possession, repossession, collection or sale by you of any of the Goods and the
benefit of all valuation, appraisal and exemption laws. If you seek to take
possession of any of the Goods by court process, we irrevocably waive any
notice, bonds, surety and security relating thereto required by any statute,
court rule or otherwise.

(e) We appoint you or any person you may delegate as our duly
authorized Attorney-In-Fact to do, in your sole discretion, any of the
following: endorse our name on any notes, checks, drafts or other forms of
exchange received as payment on any Goods for deposit in your account; sell,
assign, transfer, negotiate, demand, collect, receive, settle, extend or renew
any amounts due on any of the Goods; and exercise any rights we have in the
Goods.

If we bring any action or assert any claim against you which arises out of this
Agreement, any other agreement or any of our business dealings, in which we do
not prevail, we agree to pay you all costs and expenses of your defense of such
action or claim including, but not limited to, all attorney's fees. If you fail
to exercise any of your rights or remedies under this Agreement, such failure
will in no way or manner waive any of your rights or remedies as to any past,
current or future default.

12. We agree that if you conduct a private sale of any Goods by
soliciting bids from ten (10) or more other dealers or distributors in the type
of Goods repossessed by or returned to you hereunder, any sale by you of such
property in bulk or in parcels within 120 days of (a) your taking physical
possession and control of such Goods or (b) when you are otherwise authorized to
sell such Goods, whichever occurs last, to the bidder submitting the highest
cash bid therefor, will be deemed to be a commercially reasonable means of
disposing of the same. We agree that commercially reasonable notice of any
public or private sale will be deemed given to us if you send us a notice of
sale at least seven (7) days prior to the date of any public sale or the time
after which a private sale will be made. If you dispose of any such Goods other
than as herein contemplated, the commercial reasonableness of such sale will be
determined in accordance with the provisions of the Uniform Commercial Code as
adopted by the state whose laws govern this Agreement.

3
<PAGE>

We agree that you do not warrant the Goods. We will pay you in full even if the
Goods are defective or fail to conform to any warranties extended by any third
party. Our obligation to you will not be affected by any dispute we may have
with any third party. We will not assert against you any claim or defense we
may have against any third party. We will indemnify and hold you harmless
against any claims or defenses asserted by any buyer of the Goods by reason of:
the condition of any Goods; any representations made about the Goods; or for any
and all other reasons whatsoever.

13. We grant to you a power of attorney authorizing any of your
representatives to: execute or endorse on our behalf any documents, financing
statements and instruments evidencing our obligations to you; supply any omitted
information and correct errors in any documents or other instruments executed by
or for us; do any and every act which we are obligated to perform under this
Agreement; and do any other things necessary to preserve and protect the Goods
and your rights and security interest in the Goods. We further authorize you to
provide to any third party any credit, financial or other information on us that
is in your possession.

14. Time is of the essence in this Agreement. This Agreement will be
effective from the date of its acceptance at your branch office. We acknowledge
receipt of a true copy and waive notice of your acceptance of it. If you commit
to advance funds under this Agreement, you will have accepted it. This
Agreement will remain in force until one of us gives notice to the other that it
is terminated. If we terminate this Agreement, you may declare all or any part
of the indebtedness we owe you due and payable immediately. If this Agreement
is terminated, we will not be relieved from any obligation to you arising out of
your advances or commitments made before the effective date of termination.
Your rights under this Agreement and your security interest in present and
future Goods will remain valid and enforceable until all our debts to you are
paid in full. We agree that we cannot assign this Agreement without your prior
written consent. This Agreement will protect and bind your and our respective
heirs, representatives, successors and assigns. It can be varied only by a
document signed by your and our authorized representatives. If any provision of
this Agreement or its application is invalid or unenforceable, the remainder of
this Agreement will not be impaired or affected and will remain binding and
enforceable. If we are a corporation, this Agreement is executed with the
authority of our Board of Directors, and with shareholder approval, if required
by the law. All notices you send to us will be sufficiently given if mailed or
delivered to us at our address shown in paragraph 5.

15. The laws of the State of Georgia will govern this Agreement. We
agree that venue for any lawsuit will be in the State or Federal Court within
the county, parish, or district where your branch office, who provides the
financial accommodations, is located. We hereby waive any right to change the
venue of any action brought against us by you.

16. If we have previously executed any security agreements relating to
the Goods with you, we agree that this Agreement is intended only to amend and
supplement such written agreements, and will not be deemed to be a novation or
termination of such written agreements. In the event the terms of this
Agreement conflict with the terms of any prior security agreement that we
previously executed with you, the terms of this Agreement will control in
determining the agreement between us.

17. We waive all exemptions and homestead laws to the maximum extent
permitted by law. We waive any statutory right to notice or hearing prior to
your attachment, repossession or seizure of the Goods. We further waive any and
all rights of set-off we may have against you. WE AGREE THAT ANY PROCEEDING IN
WHICH WE, OR YOU OR ANY OF YOUR AFFILIATES, OR OUR ASSIGNS ARE PARTIES, AS TO
ALL MATTERS AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, OR
THE RELATIONS AMONG THE PARTIES LISTED IN THIS PARAGRAPH WILL BE TRIED IN A
COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. WE HEREBY WAIVE ANY
RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING.

ATTEST:

/s/ LEAH H. CAMPBELL ScanSource, Inc.
- ------------------------------- ---------------------------------
Secretary Customer

Print Name: Leah A. Campbell By: /s/ JEFFERY A. BRYSON
------------------- ------------------------------

Print Name: Jeffrey A. Bryson
----------------------

Title: CFO, Treasurer
---------------------------

(CORPORATE SEAL)

4
<PAGE>

SECRETARY'S CERTIFICATE OF RESOLUTION

I certify that I am the Secretary and the official custodian of certain
records, including the certificate of incorporation, charter, by-laws and
minutes of the meeting of the Board of Directors of the corporation named below,
and that the following is a true, accurate and compared extract from the minutes
of the Board of Directors of the corporation adopted at a special meeting
thereof held on due notice, at which meeting there was present a quorum
authorized to transact the business described below, and that the proceedings of
the meeting were in accordance with the certificate of incorporation, charter
and by-laws of the corporation, and that they have not been revoked, annulled or
amended in any manner whatsoever.

Upon motion duly made and seconded, the following resolution was
unanimously adopted after full discussion: "RESOLVED, That the several
officers, directors and agents of this corporation, or any one or more of them,
are hereby authorized and empowered on behalf of this corporation: to obtain
financing from IBM Credit Corporation ("IBM Credit") in such amounts and on such
terms as such officers, directors or agents deem proper; to enter into security
and other agreements with IBM Credit relating to the terms upon which financing
may be obtained and security to be furnished by this corporation therefor; from
time to time to supplement or amend any such agreements; and from time to time
to pledge, assign, guaranty, mortgage, grant security interest in and, otherwise
transfer to IBM Credit as collateral security for any obligations of this
corporation to IBM Credit and its affiliated companies; whenever and however
arising, any assets of this corporation, whether now owned or hereafter
acquired; hereby ratifying, approving and confirming all that any of said
officers, directors or agents have done or may do in the premises."

IN WITNESS WHEREOF, I have executed and affixed the seal of the
corporation on the date stated below.

Dated: 4/8, 1996 /s/ LEAH A. CAMPBELL
-------------------------------- ---------------------------------
Secretary

ScanSource, Inc.
---------------------------------
Corporate Name

5
<PAGE>

Confidential Treatment Requested

- -------------------------- -----------------------------
IBM Credit Corporation P.O. Box 105061
Atlanta, GA 30348-9990
800/678-6900

April 17, 1996

Mr. Michael Baur
Scansource, Inc.
6 Logue Court
Greenville, SC 29615

Dear Mr. Baur:

We are pleased to have you as part of the IBM Credit Corporation Remarketer
Financing Program. Your approved credit line is $ [*] .

To facilitate the administration of the program, an IBM Credit Corporation ("IBM
Credit") Dealer Account Number [*] has been established. Please use this
number in your future communications with us regarding this program.

The Remarketer Financing Program you have been approved for is the Scheduled
Payment Plan (SPP). With this program, you remit a single payment in [*].
Depending upon the date of each invoice, payments are due on the 5th, 15th and
25th of the month following your purchase. There are no financing charges
associated with this program for [*].

When the inventory financing program is made available to you, all new orders
will be processed by the franchisor under the inventory financing program.

IBM Credit is dedicated to providing the best possible customer service and
financing programs which meet the changing needs of our customers. Your input
is essential as we strive to remain your first choice for remarketer financing,
and we have found that our most valuable feedback comes immediately following a
completed transaction.

Accordingly, IBM Credit headquarters will be contacting you within the next
several days for your insight into "How we're doing". We would appreciate your
participation in this brief telephone survey which will allow you to share your
ideas and suggestions on how we could make your future business transactions
with us even easier.

IBM Credit sincerely appreciates this opportunity to provide a service to your
organization and we look forward to a mutually beneficial business relationship.
Please contact your Remarketer Financing Advisor, Joe Gibbons, at 800-678-6900
if you have questions.

Sincerely,

/s/ KATHY MITCHELL for
Denise Dixon
Contract Administrator

* Redacted pursuant to application for confidential treatment.

<PAGE>

EXHIBIT 10.26
-------------

INTERCREDITOR AGREEMENT DATED APRIL 8,, 1996 AMONG
THE REGISTRANT, IBM CREDIT CORPORATION, AND
BRANCH BANKING AND TRUST COMPANY
<PAGE>

Exhibit 10.26
-------------

INTERCREDITOR AGREEMENT

This Intercreditor Agreement ("Agreement") is hereby made this 8th day of
April, 1996, by and between Branch Banking and Trust Company of South Carolina
("Lender"), with a place of business located at Greenville, South Carolina, and
IBM Credit Corporation ("IBM Credit") with a place of business located at
Atlanta, Georgia, and pertains to certain assets of ScanSource, Inc.
("Customer").

RECITALS

WHEREAS, IBM Credit and Lender (each a "Party" and collectively, the "Parties")
have each filed or intend to file a financing statement or statements under the
applicable Uniform Commercial Code ("UCC") giving notice of a security interest
in all or some of the assets of Customer.

WHEREAS, Customer has requested and arranged for separate financing from IBM
Credit and from Lender, each being secured by certain assets of Customer.

WHEREAS, IBM Credit and Lender desire to agree to the relative priority of their
respective security interests in and to certain of Customer's assets, whether
now owned or hereafter acquired, which are identified in Attachment A hereto as
"IBM Credit Collateral" and "Lender Collateral" respectively, and each party is
willing to subordinate its security interest in accordance with this Agreement.
Attachment A is incorporated herein and may only be revised or amended upon
written agreement between the parties hereto. Only one Attachment A, the one
reflecting the most recent date, shall be in force at any time, with respect to
Customer.

NOW, THEREFORE, in consideration of the foregoing and mutual covenants contained
herein, the parties hereby agree as follows:

1. Definition. "Senior Collateral" shall mean (i) with respect to IBM
Credit, the IBM Credit Collateral and (ii) with respect to Lender, the Lender
Collateral.

2. This Agreement shall amend and restate in its entirety all prior
agreements between the parties hereto relating to their relative priorities and
security interests in Customer's assets.

3. Each Party hereby expressly subordinates to the other Party all of its
right, title and interest which it may presently have or which it may hereafter
acquire from Customer in and to the other Party's Senior Collateral, wherever
located, whether now owned by Customer or hereafter acquired or existing.

4. This Agreement shall constitute a continuing agreement of
subordination, and the Parties may without notice to the other Party provide
financing to or on behalf of Customer on the basis of this Agreement.

5. The respective priorities of IBM Credit and Lender in the assets of
Customer which are not covered by this Agreement shall be determined in
accordance with the provisions of the applicable UCC or other applicable law.

6. The subordinations and priorities specified herein are applicable
regardless of the time, manner, or order of attachment or perfection of security
interests, or the time or order of filing of any financing statements, or in the
giving or failure to give notice of the acquisition or expected acquisition of
any purchase money security interest or any other security interest; provided,

1
<PAGE>

however, if for any reason, a security interest of a Party to which a security
interest of the other Party is hereby subordinated is not perfected or is
avoidable, then the subordinations and relative priority agreements provided
herein shall not be effective as to the particular collateral which is the
subject of the unperfected or avoidable security interest.

7. Each Party agrees to refrain from taking any action against the other
Party's Senior Collateral to recover the Customer's obligations unless it shall
have obtained such other Party's prior written consent or the Customer shall
have repaid in full all of the obligations owed to such other Party and the
financing arrangements between the Customer and such other Party shall have been
terminated.

8. This Agreement may be terminated by either Party upon written notice
at least sixty (60) days prior to the effective date of the requested
termination. No termination shall impair the rights or priorities, or other
interests created or acquired hereunder by either Party with respect to any of
either Party's Senior Collateral for any credit extended or committed prior to
the effective date of termination.

9. This Agreement may not be amended except by written agreement between
IBM Credit and Lender, and shall be governed by and construed according to the
laws of the State of South Carolina.

10. This Agreement shall be binding upon, and shall inure to the benefit
of, each of the parties hereto and their respective successors and assigns.

11. This Agreement is solely for the benefit of IBM Credit and Lender and
is not intended to, nor shall it be considered as benefiting any other person,
including without limitation the Customer.

12. This Agreement may be executed in one or more counterparts which
together shall constitute one document. Each such counterparts shall be deemed
to be an original when so executed and delivered to the other Party to this
Agreement.

IN WITNESS WHEREOF, the duly authorized representatives of Lender and IBM
Credit have executed this Intercreditor Agreement as of the date set forth
above.

IBM CREDIT CORPORATION BRANCH BANKING AND TRUST COMPANY OF
SOUTH CAROLINA

By: /s/ ROBERT J. HALAPIN By: /s/ DAVID L. HENN
------------------------------- --------------------------------

Print Name: Robert J. Halapin Print Name: David L. Henn
----------------------- ---------------------

Title: AOM-Credit Title: VICE PRESIDENT
---------------------------- -----------------------

2
<PAGE>

ATTACHMENT A TO INTERCREDITOR AGREEMENT

This is Attachment A to that certain Intercreditor Agreement dated April 8,
1996, by and between Branch Banking and Trust Company of South Carolina
("Lender") and IB Credit Corporation ("IBM Credit") pertaining to certain assets
of ScanSource, Inc. ("Customer").

This Attachment A supplements that certain Intercreditor Agreement referred to
above, and supersedes any other Attachment A, dated or undated, to such
Intercreditor Agreement.

PART 1. IBM Credit Collateral

A. All of the following assets of Customer, whether now owned or hereafter
acquired:

(a) all inventory and equipment manufactured or sold by or bearing the
trademarks or tradenames of the companies listed in subpart B below; and all
parts, accessories, accessions, exchanges, substitutions, replacements,
reclaimed units, returns and repossessions thereof, and all additions and
attachments thereto, and all documents of title arising therefrom; and

(b) all price protection payments, credits, discounts, incentive payments,
rebates, and refunds which at any time are due to Customer with respect to or in
connection with any inventory and equipment described in (a) above; and

(c) all cash proceeds (excluding, however, accounts and proceeds of
accounts arising from the sale of the IBM Credit Collateral by the Customer) of
the foregoing and insurance proceeds payable by reason of loss or damage to any
of the foregoing.

B. Names of Companies

International Business Machines Corporation

PART 2. Lender Collateral

C. All of the assets of Customer, including, but not limited to; all
inventory, accounts receivable, equipment, furniture, fixtures, general
intangibles, whether now owned or hereafter acquired including proceeds thereof
and any additions or substitutions therefor, EXCEPT those assets described in
PART 1 of this Attachment.

IN WITNESS WHEREOF, the duly authorized representatives of IBM Credit and
Lender have executed this Attachment A on the date set forth above.

IBM CREDIT CORPORATION BRANCH BANKING AND TRUST COMPANY OF
SOUTH CAROLINA

By: /s/ ROBERT J. HALAPIN By: /s/ DAVID L. HENN
--------------------------- ---------------------------------

Title: AOM-Credit Title: VICE PRESIDENT
------------------------ ------------------------------

<PAGE>

EXHIBIT 10.27
-------------

LOAN AND SECURITY AGREEMENT DATED NOVEMBER 25, 1996 BETWEEN
THE REGISTRANT AND BRANCH BANKING AND TRUST COMPANY
<PAGE>

Exhibit 10.27
-------------

LOAN AND SECURITY AGREEMENT
---------------------------

THIS LOAN AND SECURITY AGREEMENT is entered into as of November 25, 1996, by and
between Scansource, Inc., a South Carolina, Corporation ("Borrower"), and BRANCH
BANKING AND TRUST COMPANY OF SOUTH CAROLINA, a South Carolina banking
corporation ("Bank").

STATEMENT OF PURPOSE
--------------------

Borrower has requested Bank, and Bank has agreed, to extend a Revolving Credit
Loan to Borrower in an initial maximum aggregate principal amount outstanding
not to exceed FIFTEEN MILLION DOLLARS ($15,000,000.00). Bank may, in its sole
discretion without any obligation or requirement to do so, extend additional
credit to Borrower in excess of the initial maximum aggregate principal amount
which additional credit shall be subject to the terms and conditions of this
Agreement and shall be secured by the Loan Documents. In consideration of the
promises contained in this Agreement, Borrower and Bank enter into the following
Agreement on the terms and conditions set out below.

AGREEMENT
---------

SECTION I. DEFINITIONS.
-----------

When used in this Agreement, the following terms shall have the following
meanings (defined terms shall have the same meaning when used in either the
singular or plural):

"Accounts," "Chattel Paper," "Documents," "Equipment," "General Intangibles,"
-------- ------------- --------- --------- -------------------
"Goods," "Instruments," and "Inventory" shall have the same respective meanings
- ------ ----------- ---------
as are given to those terms in the Uniform Commercial Code of South Carolina.

"Adjusted LIBOR Rate" shall have the meaning assigned to it in the Addendum to
-------------------
the Revolving Credit Promissory Note.

"Affiliate" means a Person (other than a Subsidiary): (i) which, directly or
---------
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with, Borrower; (ii) which beneficially owns or holds
five percent (5%) or more of any class of the voting stock of Borrower; or (iii)
five percent (5%) or more of the voting stock (or in the case of a Person which
is not a corporation, five percent (5%) or more of the equity interests) of
which is beneficially owned or held by Borrower or a Subsidiary. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

"Applicable Margin" means the margin which will be added to LIBOR, as defined in
-----------------
the Addendum to the Revolving Credit Promissory Note, to form the Adjusted LIBOR
Rate. Such margin will vary depending on the Borrower's Indebtedness to
Tangible Net Worth ratio, as determined by the Borrower's quarterly 10Q reports
to be provided to the Bank. The margin adjustments will become effective upon
the Bank's receipt of such 10Q reports. The margin adjustments will occur no
more than once per quarter and such adjustments are as set forth herein below:

Debt to Tangible Net Worth Margin
-------------------------- ------

Less than or equal to 1.00:1.00 200 basis points

Between 1.01:1.00 and 1.25:1.00 210 basis points

Between 1.26:1.00 and 1.50:1.00 215 basis points

Between 1.51:1.00 and 1.75:1.00 240 basis points

Between 1.76:1.00 and 2.00:1.00 265 basis points

"Agreement" means this Loan and Security Agreement.
---------

"Availability" means the difference, from time to time, between the lesser of
------------
the (i) Commitment, or (ii) Borrowing Base, reduced by the (A) aggregate
principal amount of the Revolving Credit Loan outstanding, and (B) Letter of
Credit Reserve.

"Borrowing Base" means, based on the most recent Collateral Report which as of
--------------
the date of determination has been received by Bank, the aggregate of (A) 80% of
the net amount of Eligible Receivables, and (B) 40% of the net amount of
Eligible Raw Inventory and 40% of Eligible Finished Inventory. Bank, in its
sole and unqualified discretion, may, from time to time apply a greater or
lesser percentage to Eligible Receivables and Eligible Inventory in determining
the Borrowing Base.

"Business Day" shall mean each day when Bank is open for business.
------------

"Closing" shall have the meaning assigned to it in Paragraph 3.01.
-------

1
<PAGE>

"Collateral" shall mean all of the property described in Paragraph 4.02 and any
----------
other property, of every kind and nature, which is the subject of any other
agreement securing any part or all of the Obligations.

"Collateral Report" means a report on Bank's standard form, or in such other
-----------------
form as Bank may require, prepared by Borrower in accordance with Bank's
instructions and delivered to the Bank within 15 days of each month-end,
certified by the Chief Financial Officer or other authorized officer of
Borrower, regarding the Receivables and Inventory of Borrower and other
Collateral, if applicable.

"Collections" shall have the meaning assigned to it in Paragraph 2.04(A).
-----------

"Commitment" shall have the meaning assigned to it in Paragraph 2.01(A).
----------

"Default Rate" shall mean the Prime Rate plus three hundred and fifty (350)
------------
basis points. "Prime Rate" shall mean that interest rate so denominated and set
by Bank from time to time as an interest rate basis for borrowings. The Prime
Rate is one of several interest rate bases used by Bank, and Bank lends at rates
above and below the Prime Rate.

"Eligible Finished Inventory" means all Inventory of Borrower which: (i) is
---------------------------
owned by Borrower, free and clear of any security interest, liens and claims
whatsoever, including but not limited to lien of IBM Credit Corporation; (ii)
Borrower has the right to convey as security for the Obligations; (iii) is in
first class order, condition and repair and which is in salable condition; (iv)
has been held by Borrower for sale or lease less than six (6) months without
being sold and/or leased; (v) is finished and not work-in-process; (vi) is
stored and/or housed at a location owned, leased or otherwise controlled by
Borrower; (vii) does not cause and/or present unusual danger to the health
and/or safety of individual(s) and/or the environment; (viii) does not violate
any Laws; and (ix) is otherwise deemed eligible by Bank in its sole discretion.

"Eligible Inventory" means all Eligible Finished Inventory and Eligible Raw
------------------
Inventory of Borrower.

"Eligible Raw Inventory" means all Inventory of Borrower which satisfies all of
----------------------
the requirements for constituting Eligible Finished Inventory with the exception
of subparts (iv) and (v), and which is otherwise deemed eligible by Bank in its
sole discretion.

"Eligible Receivables" means those Receivables of Borrower, each of which meets
--------------------
the following requirements: (i) such Receivable arose in the ordinary course of
Borrower's business, (ii) the right to payment has been fully earned by
completed performance and, if Inventory is involved, such Inventory has been
shipped by Borrower (or if not shipped by Borrower, are held by Borrower under a
"bill and hold" arrangement approved in writing by Bank in its sole discretion),
(iii) the Receivable includes only that portion which is not subject to any
offset, defense, counterclaim, credit, allowance or adjustment, (iv) Borrower's
title to such Receivable is absolute and is subject to no prior assignment,
claim, lien or security interest, (v) the full amount reflected on Borrower's
books and on any invoice or statement delivered to Bank related to such
Receivable is owing to Borrower and no partial payment has been made on such
Account, (vi) such Receivable is due and payable not more than thirty (30) days
from invoice date and no more than ninety (90) days (or such other period as
Bank may by written notice to Borrower approve) have elapsed from invoice date;
(vii) such Receivable did not arise out of a contract or purchase order
containing provisions prohibiting assignment thereof or the creation of a
security interest therein, and Borrower has received no note, trade acceptance,
draft or other instrument with respect to such Receivable or in payment of such
Account, (viii) Borrower has received no notice of the death of the account
debtor or of the dissolution, termination of existence, insolvency, bankruptcy,
appointment of a receiver for any part of the property of, or assignment for the
benefit of creditors made by, the account debtor, (ix) such Receivable is not
payable by any Affiliate of Borrower, (x) such Receivable is not payable by any
foreign Person (provided that Persons present in possessions of the United
States of America shall not be considered foreign Persons), unless such
Receivable is payable in the full amount of the face value of such Receivable in
United States dollars and is supported by an irrevocable letter of credit in
form and substance acceptable to Bank and issued by a bank satisfactory to Bank
(and, if requested by Bank, such letter of credit or the proceeds thereof, as
Bank shall require, have been assigned to Bank); (xi) such Receivable is not
payable by the United States of America or any political subdivision or agency
thereof, unless Bank and Borrower have complied with the Assignment of Claims
Act with respect to such Receivable; (xii) the account debtor for such
Receivable is not located in the State of New Jersey unless Borrower has filed a
Notice of Business Activities Report with the New Jersey Division of Taxation
for the then current year; (xiii) such Receivable is not payable by any Person
who is the account debtor for other Receivables and who is past due (as provided
in (vi) above) with regard to fifty percent (50%) or more of the aggregate
amount of such other Receivables; (xiv) such Receivable is not, at the
discretion of Bank, deemed doubtful for collection for whatever reason; (xv)
such Receivable is not a contra account; (xvi) such Receivable is not an account
in dispute for any reason; (xvii) such Receivable does not represent a
commission or expense receivable; and (xviii) such Receivable does not represent
a retainage associated with a receivable.

"ERISA" shall have the meaning assigned to it in Paragraph 5.01(I).
-----

"Event of Default" shall have the meaning assigned to it in Paragraph 7.01.
----------------

"Fixed Assets" means any asset that would, in accordance with GAAP, be required
------------
to be classified and accounted for as a capital asset.

"GAAP" means generally accepted accounting principles in the United States
----
consistently applied.

"Indebtedness" means, as to Borrower, all items of indebtedness, obligation or
------------
liability for borrowed money, for the deferred purchase price of fixed assets or
services, or otherwise, whether matured or unmatured, liquidated or
unliquidated, direct or contingent, joint or several, including, but without
limitation: (i) all indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse; (ii) all indebtedness in effect
guaranteed, directly or indirectly, through agreements, contingent or otherwise,
to: (A) purchase such indebtedness; (B) purchase, sell or lease (as lessee or
lessor) property, products, materials or supplies or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such indebtedness or to assure the owner of the indebtedness against loss; or
(C) supply funds to or in any other manner invest in the debtor; (iii) all

2
<PAGE>

indebtedness secured by (or for which the holder of such indebtedness has a
right, contingent or otherwise, to be secured by) any mortgage, deed of trust,
pledge, lien, security interest or other charge or encumbrance upon property
owned or acquired subject thereto, whether or not the liabilities secured
thereby have been assumed; (iv) capitalized lease obligations; (v) current
liabilities in respect of unfunded vested benefits under plans covered by ERISA
and the regulations issued thereunder; or (vi) obligations under acceptance
facilities.

"Laws" means all ordinances, statutes, rules, regulations, orders, injunctions,
----
writs or decrees of any government or political subdivision or agency thereof,
or any court or similar entity established by any authority thereof, including,
without limitation, the Environmental Protection Act, the Occupational Safety
and Health Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental, Response, Compensation and Liability Act of 1980, and the
Superfund Reauthorization and Amendments Act of 1986, all as amended from time
to time, and all rules and regulations issued under any of such laws.

"Letter of Credit Obligations" means all obligations of Borrower and any
----------------------------
Affiliate or Subsidiary of Borrower to repay Bank all amounts advanced by Bank
in connection with any letter(s) of credit or similar arrangement(s), whether
heretofore, now or hereafter issued on behalf of Borrower or any of its
Affiliates or Subsidiaries.

"Letter of Credit Reserve" shall have the meaning assigned to it in Paragraph
------------------------
2.01.

"Loan" means the Revolving Credit Loan.
----

"Loan Documents" means this Agreement and any other document evidencing,
--------------
securing or otherwise relating to the Obligations, or required to be delivered
by Borrower under this Agreement, as any such documents may be extended,
modified, renewed or substituted.

"Lock Box Account" shall have the meaning assigned to it in Paragraph 2.04(A).
----------------

"Obligations" means (i) the obligation of Borrower to pay the principal of and
-----------
interest on the Loan in accordance with the terms of the Revolving Credit
Promissory Note and this Agreement and to satisfy all of its other liabilities
to Bank under this Agreement, whether now existing or hereafter incurred,
including any extensions, modifications, renewals or substitutions; (ii) the
obligation of Borrower to repay to Bank all amounts advanced by Bank under this
Agreement on behalf of Borrower, including, but without limitation, advances for
principal or interest, payments to prior secured parties, mortgagees or lienors,
or for taxes, levies, insurance, rent, repairs to or maintenance or storage of
any of the Collateral; and (iii) the obligation of Borrower to reimburse Bank,
on demand, for all of Bank's reasonable expenses and costs, including the
reasonable fees and expenses of its counsel, in connection with the preparation,
entering into, administration, amendment, modification or enforcement of this
Agreement and the documents required under this Agreement, including, without
limitation, any proceeding brought or threatened to enforce payment of any of
the obligations referred to in clauses (i) and (ii) above.

"Other Obligations" means all obligations, liabilities, Indebtedness, duties and
-----------------
responsibilities of Borrower to Bank other than the Obligations, under any and
all agreements, instruments and other documents, whether now existing or
hereafter incurred, including any extensions, modifications, renewals or
substitutions thereof.

"Permitted Liens" means (i) liens for taxes, assessments or similar charges,
---------------
incurred in the ordinary course of business that are not yet due and payable or
that are being contested in good faith and with due diligence by appropriate
proceedings; (ii) pledges or deposits made in the ordinary course of business to
secure payment of workers' compensation, or to participate in any fund in
connection with workers' compensation, unemployment insurance, old-age pensions
or other social security programs; (iii) liens of mechanics, materialmen,
warehousemen, carriers or other like liens, securing obligations incurred in the
ordinary course of business that are not yet due and payable; (iv) good faith
pledges or deposits made in the ordinary course of business to secure
performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases, not in excess of twenty percent (20%) of the
aggregate amount due thereunder, or to secure statutory obligations, or surety,
appeal, indemnity, performance or other similar bonds required in the ordinary
course of business; (v) encumbrances consisting of zoning restrictions,
easements or other restrictions on the use of real property, none of which
materially impairs the use of such property by Borrower in the operation of its
business, and none of which is violated in any material respect by existing or
proposed restrictions on land use; (vi) liens in favor of Bank; (vii) other
existing liens set forth or described on Exhibit "A", and any renewals and
----------
extensions thereof; (viii) purchase money security interests granted to secure
the purchase price of assets which receives the prior written approval of Bank;
and (ix) the following, if the validity or amount is being contested in good
faith by appropriate and lawful proceedings, so long as levy and execution have
been stayed and continue to be stayed and they do not, in the aggregate,
materially detract from the value of the property of Borrower, or materially
impair their use in the operation of its business: (A) claims or liens for
taxes, assessments or charges due and payable and subject to interest or
penalty; (B) claims, liens and encumbrances upon, and defects of title to, real
or personal property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the merits; (C) claims
or liens of mechanics, materialmen, warehousemen, carriers or other like liens;
and (D) adverse judgments on appeal.

"Person" means any individual, corporation, partnership, association, joint-
------
stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency.

"Prime Rate" shall have the meaning assigned to it in Paragraph 2.05.
----------

"Rate" shall have the meaning assigned to it in Paragraph 2.05.
----

"Receivables" means all obligations of every kind at any time owing to Borrower
-----------
(whether now existing or hereafter arising, and whether classified under the
Uniform Commercial Code as Accounts, Instruments, Contract Rights, Chattel
Paper, General Intangibles or otherwise), all proceeds thereof, all security
therefor and all of Borrower's rights to goods or other property sold or leased
which may be represented by such property.

"Records" means correspondence, memoranda, tapes, discs, papers, books and other
-------
documents, or transcribed information of any type, whether expressed in ordinary
or machine language.

3
<PAGE>

"Revolving Credit Loan" shall have the meaning assigned to it in Paragraph
---------------------
2.01(A).

"Revolving Credit Promissory Note" shall have the meaning assigned to it in
--------------------------------
Paragraph 2.02.

"Subsidiary" of a Person means any corporation of which more than fifty percent
----------
(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly or indirectly, through one or more intermediaries, by such
Person.

"Tangible Net Worth" means, at any date, the shareholders' equity determined in
------------------
accordance with GAAP, less (i) all accounts receivable due from shareholders,
-----
directors, officers, Affiliates, Subsidiaries, partners, members or managers,
and (ii) the net value of all intangible assets, plus all Indebtedness which is
----
fully and expressly subordinated in writing to Bank and Bank's right to receive
payment in full of all the Obligations and Other Obligations, on terms and
conditions acceptable to Bank.

SECTION II. THE LOAN.
--------

2.01 The Revolving Credit Loan.
-------------------------

(A) Subject to the terms of this Agreement, Bank has agreed to make available
to Borrower for Borrower's use from time to time during the term of this
Agreement, pursuant to the Credit Line Sweep Account Service Agreement, a
total line of credit ("Revolving Credit Loan") at any time equal to the
lesser of (a) $15,000,000.00 ("Commitment") or (b) the Borrowing Base;
provided, however, Bank shall retain as a non-disbursed reserve from the
Revolving Credit Loan an amount equal to the Letter of Credit Obligations
(the "Letter of Credit Reserve"). Borrower shall submit a completed
Collateral Report to Bank at least once a month (within 15 days of month-
end) so long as any Obligations are outstanding.

(B) Notwithstanding anything contained in this Agreement or any other Loan
Document to the contrary, unless otherwise agreed by Bank, the aggregate
outstanding principal amount of advances based on (i) Eligible Inventory
shall at no time exceed Five Million and no/100 DOLLARS ($5,000,000.00);
and (ii) Eligible Receivables shall at no time exceed FIFTEEN MILLION AND
NO/100 DOLLARS ($15,000,000). In the event the aggregate amount of
Eligible Inventory-based advances and/or Eligible Receivables-based
advances shall at any time exceed the foregoing limits (whether by reason
of Bank classifying Eligible Inventory and/or Eligible Receivables as
ineligible, or otherwise), Borrower shall immediately, without demand,
repay so much of the Loan as is necessary in order that the aggregate
amount of Inventory-based advances and/or Eligible Receivables-based
advances shall not exceed such limits. Borrower agrees that the amount
advanced and the acceptability and value of Inventory and/or Eligible
Receivables are and shall be entirely in Bank's sole discretion and that
Bank shall have the right at any time to revise any limit placed by Bank
upon the amount of such advances or upon the valuation of Inventory and/or
Eligible Receivables, or Bank may, in its sole discretion, refuse to make
further advances. Inventory values shall not exceed the lower of cost or
market and, if applicable, shall be reduced by the LIFO reserve.

2.02 The Revolving Credit Promissory Note. The Loan shall be evidenced by a
------------------------------------
promissory note, payable to the order of Bank in the amount of Bank's Commitment
(the "Revolving Credit Promissory Note").

2.03 Payment of Principal on the Revolving Credit Promissory Note.
------------------------------------------------------------

(A) Unless sooner payable by reason of an Event of Default and acceleration
under Paragraphs 7.01 and 7.02, the principal of the Revolving Credit
Promissory Note and the remaining Obligations shall be payable on the
termination of this Agreement; provided, however, that Borrower may borrow,
pay, reborrow and repay the Loan from time to time; provided, further,
however, that the aggregate outstanding principal amount of the Loan shall
at no time exceed the lesser of the Commitment or the Borrowing Base, less
the amount of the Letter of Credit Reserve. In addition, that portion of
the Obligations consisting of the principal amount of the Loan shall be
payable to the extent of any Collections with respect to the Receivables,
which Collections may be applied as described in Paragraph 2.04 on the date
such Collections are received.

(B) In the event that the aggregate principal amount of the Loan outstanding
shall at any time exceed the lesser of the Commitment or the Borrowing
Base, less the amount of the Letter of Credit Reserve, Borrower shall
immediately upon demand repay so much of the Loan as is necessary in order
that the aggregate principal amount of the Loan outstanding shall not
exceed the lesser of the Commitment or the Borrowing Base, less the amount
of the Letter of Credit Reserve.

2.04 Payment and Collections.
-----------------------

(A) Borrower shall maintain at Borrower's expense an account (the "Lock Box
Account") with Bank in Borrower's name and to which all monies, checks,
notes, drafts or any other form of payment relating to and/or proceeds of
the Receivables (the "Collections") shall be deposited for application on
account of the Obligations and the Other Obligations as provided in this
Paragraph 2.04; and (i) direct each of its account debtors in writing to
remit all payments with respect to Receivables for deposit in the Lock Box
Account in such form as Bank may approve; in each case no later than the
first Business Day following receipt of Bank's election under this
Paragraph. Borrower shall not be permitted to withdraw any amounts from
the Lock Box Account or change the procedures under Bank's Lock Box Account
agreement. Borrower further agrees not to change any directive to its
account debtors as described in clause (ii) above without the prior written
consent of Bank, and in the event Borrower changes any such instructions to
its account debtors without Bank's consent, Borrower acknowledges and
agrees that such actions would be an express violation of this Agreement,
would cause irreparable damage to Bank for which there would be no adequate
remedy at law, and agrees and consents to specific performance of the terms
and provisions of this Agreement. Borrower acknowledges and agrees that
all Collections to the Lock Box Account shall be swept from the Lock Box
Account with such frequency as Bank may desire. Borrower further
acknowledges that all Collections shall be the sole and exclusive property
of Bank, to the extent of the outstanding Obligations and Other
Obligations, immediately upon the receipt of such items in the Lock Box
Account by Bank, by Borrower if received by Borrower (in which event
Borrower shall hold all such items in trust for Bank prior to delivery to
Bank) or otherwise; provided, however, that no such item received by Bank
shall constitute payment to Bank unless such item is actually collected by
Bank. Notwithstanding anything to the contrary in this Agreement, all

4
<PAGE>

Collections shall, solely for purposes of determining the occurrence of an
Event of Default, be deemed received upon actual receipt by Bank, unless
such item is subsequently dishonored for any reason whatsoever.

(B) Upon Bank's election under Paragraph 2.04(A). Borrower appoints any person
that Bank may from time to time designate as Borrower's attorney with
power, at any time hereafter, to (i) endorse Borrower's name on any checks,
notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Bank's possession; (ii) sign Borrower's name on
any invoice or bill of lading relating to any Collateral, on drafts against
customers, on schedules and assignments of Receivables, on notices of
assignment, financing statements and other public records, on verifications
of accounts and on notices to customers; (iii) sign Borrower's name to the
proofs of claim against any account debtor on behalf of Borrower; (iv)
notify the post office authorities to change the address for delivery of
Borrower's Lockbox mail to an address designated by Bank; (v) receive, open
and dispose of all Lockbox mail addressed to Borrower; (vi) send requests
for verification of Accounts to customers or account debtors and (vii) do
all things necessary to carry out this Agreement. Neither Bank nor the
attorney will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law in connection with the activities
described in or contemplated by the first sentence of this Paragraph
2.04(B), except for such acts or omissions which constitute gross
negligence, willful misconduct or bad faith. This power, being coupled
with an interest, is irrevocable so long as any Receivables assigned to
Bank or in which Bank has a security interest remain unpaid or until the
Obligations and Other Obligations have been fully satisfied.

(C) After the occurrence of an Event of Default, Borrower irrevocably waives
the right to direct the application of any and all payments at any time or
times hereafter which may be received by Bank from or for the benefit of
Borrower, and Borrower does hereby irrevocably agree that Bank shall have
the continuing exclusive right to apply and reapply any and all such
payments received at any time or times hereafter in such manner as Bank may
deem advisable, notwithstanding any entry by Bank upon any of its books and
records.

(D) To the extent that Borrower makes a payment(s) to Bank or Bank enforces its
security interests and liens or exercises its right of set-off, and such
payment(s) or the proceeds of such enforcement or set-off are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable claim, then
to the extent of such recovery, the liability originally intended to be
satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set-off had not
occurred and shall be Obligations secured by the Collateral.

2.05 Interest Rate and Fees.
-----------------------

(A) Interest on the Loan shall accrue and be paid as follows:

(1) Interest on the principal balance of the Loan, from time to time
outstanding, will accrue at the Adjusted LIBOR Rate. Changes in the
Adjusted LIBOR Rate shall be effective on the date of such change.

(2) Interest shall be calculated on the basis of a three hundred sixty (360)
day year, and interest shall be charged for the actual number of days the
Loan is outstanding, and shall be payable by Borrower on the 26th day of
each month, commencing the 26th day of the calendar month immediately
following the date of this Agreement or if such day is not a Business Day,
on the next succeeding business day. Such payments of interest shall be
effected by Bank's debits on the dates such interest is due on Borrower's
account with Bank, or, if insufficient funds are in such account, by
advances of the Loan to Borrower on the date such interest is due, subject
to the provisions hereof and so long as there is Availability. Bank is
authorized by Borrower to effect such payment of interest (and any other
amounts due under this Agreement to Bank from Borrower or any Subsidiary or
Affiliate) by such debits or such advances as the case may be. In the
event there are insufficient funds in such account and there is no
Availability, Borrower shall be required to pay such interest to Bank when
due.

(3) Upon and after the occurrence of an Event of Default, and during the
continuance of such Event of Default, the Obligations shall bear interest
at the Default Rate per annum.

(B) If, at any time, the Adjusted LIBOR Rate shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum rate of
interest permitted by any applicable Laws, then, for such time as the
Adjusted LIBOR Rate would be deemed excessive, its application shall be
suspended and there shall be charged instead the maximum rate of interest
permissible under such Laws and any amounts collected in excess of the
permissible amount shall be deemed a prepayment of principal on the
Revolving Credit Promissory Note.

(C) On the execution of this Agreement, Borrower shall pay to Bank a commitment
fee of six tenths of one percent (.06%) of the initial maximum aggregate
principal amount of the Loan extended under this Agreement, and, in the
event this Agreement is extended pursuant to Paragraph 8.01, Borrower shall
also pay six tenths of one percent (.06%) of the maximum aggregate
principal amount of the credit line available to Borrower at the time of
each extension. Borrower shall pay an examination fee not to exceed TWO
THOUSAND DOLLARS ($2,000.00) per examination, plus reasonable travel
expenses, to be reimbursed as incurred by Bank for audits of the books and
records of Borrower as authorized under this Agreement. The Bank reserves
the right to perform an unlimited number of on-site examinations but may
only charge Borrower for four (4) on-site examinations per year. Bank is
authorized by Borrower to effect any such payments by debiting Borrower's
account with Bank on the date such amounts are due, or otherwise as
described in Paragraph 2.05(A)(2).

2.06 Payment to Bank. All sums payable to Bank under this Agreement shall be
---------------
paid in United States dollars in immediately available funds to Bank at its
principal office in Greenville, South Carolina. Bank may, at its sole
discretion, effect payment of all such sums by debiting Borrower's account with
Bank or as otherwise described in Paragraph 2.05(A)(2). Bank shall send Borrower
statements of all amounts due under this Agreement, which statements shall be
considered correct and conclusively binding on Borrower absent manifest error
unless Borrower notifies Bank to the contrary within thirty (30) days of the
receipt by Borrower of any statement which it deems to be incorrect.

2.07 Compensating Balances. Please see Schedule "AA" attached hereto and
---------------------
incorporated herein.

5
<PAGE>

2.08 Banking Relationship. If the Borrower fails to maintain its primary
--------------------
depository relationship with the Bank throughout the term of the Loan, the
Applicable Margin shall be increased by one quarter of one percent (.25%).

SECTION III. CONDITIONS PRECEDENT.
--------------------

The obligation of Bank to make the Loan under this Agreement is subject to the
following conditions precedent:

3.01 Documents Required for the Closing. Borrower shall have delivered to Bank
----------------------------------
on or prior to the date of this Agreement ("Closing"), the Revolving Credit
Promissory Note to the order of Bank and for a principal amount equal to the
Commitment and shall have delivered to Bank on or prior to the date of Closing
or concurrently with the Closing, the following:

(A) Duly executed UCC financing statements;

(B) A certified (as of the date of Closing) copy of resolutions of Borrower's
board of directors or other governing body or authority authorizing the
execution, delivery and performance of this Agreement, the Revolving Credit
Promissory Note, and the Loan Documents;

(C) A certificate (as of the date of Closing) of Borrower's Secretary or other
official having similar responsibilities as to the incumbency and
signatures of the officers of Borrower signing this Agreement, the
Revolving Credit Promissory Note, the Loan Documents and each other
document to be delivered pursuant hereto;

(D) A certificate (as of the date of Closing) signed by the President or a Vice
President or other official having similar responsibilities of Borrower and
to the effect that: (i) the representations and warranties set forth in
Paragraph 5.01 are true as of the date of the Closing; and (ii) no Event of
Default under this Agreement, and no event which, with the giving of notice
or passage of time or both, would become an Event of Default, has occurred
as of such date;

(E) A Collateral Report dated no more than one month prior to Closing;

(G) An opinion from legal counsel for Borrower as to the status of Borrower,
the enforceability of the Loan Documents, and such other matters as Bank
shall require;

(H) Bank's standard form lock box, cash management or account sweep agreement;

(L) Such other documents or agreements as Bank or its counsel may reasonably
require to evidence or secure the Loan including, without limitation, any
security agreement or such other documents required to cross-default and
cross-collateralize the Obligations and the Other Obligations.

3.02 Certain Events. At the time of Closing or any borrowing under the
--------------
Revolving Credit Promissory Note:

(A) No Event of Default shall have occurred and be continuing, and no event
shall have occurred and be continuing that, with the giving of notice or
passage of time or both, would be an Event of Default;

(B) No material adverse change shall have occurred in the financial or
operating condition or prospects of Borrower since the date of this
Agreement;

(D) Each request for an advance of the Loan shall constitute a representation
and warranty by Borrower as to: (i) the satisfaction in respect of such
request of the conditions referred to in (A), (B) and (C) of this
Paragraph; (ii) the proper segregation of all of Borrower's Inventory
located at 3655 Knight Road, Suites 4-11, Memphis, Tennessee 38118 from all
assets of any landlord, other tenants, sublessor, or sublessee or any other
party; (iii) the fact that all of Borrower's Inventory, in any location, is
properly labelled as such; and (iv) that all Inventory is located only as
permitted and described herein.

SECTION IV. COLLATERAL SECURITY.
-------------------

4.01 Composition of the Collateral. The Collateral shall stand as one general,
-----------------------------
continuing collateral security for all Obligations and may be retained by Bank
until all Obligations and Other Obligations have been satisfied in full.

4.02 Rights in Property Held by Borrower. As security for the prompt
-----------------------------------
satisfaction of all Obligations, Borrower assigns to Bank all of its right,
title and interest in and to, and grants Bank a lien upon and security interest
in, all of the following, wherever located, whether now owned or hereafter
acquired, together with all replacements, attachments, accessions, alterations,
accessories, products and proceeds (including, without limitation, insurance
proceeds) thereof: all assets of the Borrower, including but not limited to:
(i) Accounts; (ii) Inventory (including goods intended for sale, use or lease by
Borrower or to be furnished by Borrower under contracts of service), all raw
materials, work-in-process, finished goods, Inventory that may be rejected,
returned, reclaimed, repossessed or stopped in transit, and materials and
supplies; (iii) Goods, (iv) Equipment; (v) Chattel Paper; (vi) General
Intangibles (including without limitation tax refund claims); (vii) Instruments;
(viii) Documents; (ix) rights as seller of Inventory; (x) Receivables;(xi) all
Records pertaining to any Collateral; and (xii) to the extent not otherwise
specified above, the assets, properties and rights described on the attached
Exhibit "B".
- -----------

4.03 Priority of Liens. The liens on all Collateral shall be first and prior
-----------------
liens except for Permitted Liens.

4.04 Financing Statements.
--------------------

(A) Borrower will: (i) join with Bank in executing such financing statements
(including amendments and continuation statements) in form satisfactory to
Bank; (ii) pay or reimburse Bank for all costs and taxes of filing or

6
<PAGE>

recording in such public offices as Bank may designate; and (iii) take such
other steps as Bank may reasonably direct, including the noting of Bank's
lien on the Collateral and on any certificates of title, all to perfect
Bank's interest in the Collateral.

(B) In addition to the foregoing, and not in limitation:

(1) A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in any appropriate
office; and

(2) To the extent lawful, Borrower appoints Bank as its attorney-in-fact
(without requiring Bank to act as such) to execute any financing statement
in the name of Borrower, and to perform all other acts that Bank deems
appropriate to perfect and continue its security interest in, and to
protect and preserve, the Collateral, including leasing warehouses to Bank
or its designee, transferring Collateral thereto or to public warehouses,
placing and maintaining signs, appointing custodians and maintaining such
Records with respect to the Collateral as Bank may reasonably request. If
any Collateral is in the possession or control of any other party, Borrower
shall notify all such parties of Bank's security interest therein, and
instruct all such parties to hold all such Collateral for Bank's account
and subject to Bank's instructions.

4.05 Landlords' Waivers. Borrower will cause the landlord/owner of any real
------------------
property leased by Borrower to execute and deliver to Bank, within sixty (60)
days of the date hereof, an instrument in form and substance satisfactory to
Bank, by which such landlord/owner waives its rights, if any, to any part of the
Collateral.

4.06 Cross Collateralization. The Collateral shall constitute cross-collateral
-----------------------
for the Other Obligations, without apportionment or designation as to any
particular Other Obligation, and all of such Other Obligations howsoever and
whensoever incurred shall be secured by all of the Collateral, howsoever and
whensoever acquired, and Bank shall have the right in its sole discretion, to
determine the order in which Bank's rights in or remedies against the Collateral
are to be exercised and which portions of the Collateral are to be proceeded
against and the order of application of proceeds of the Collateral as against
any particular Other Obligation. Bank shall have no obligation to marshall any
of the Collateral or apply the same in any fashion. In addition to the
Collateral, all liens, security interests and collateral with respect to any
Other Obligations shall constitute cross-collateral for all Obligations without
apportionment or designation as to any particular Obligation, and all
Obligations howsoever and whensoever incurred shall be secured by all such other
collateral, howsoever and whensoever acquired, and Bank shall have the right, in
its sole discretion, to determine the order in which Bank's rights in or
remedies against such other collateral are to be exercised and which portions of
the other collateral are to be proceeded against and the order of application of
proceeds of the other collateral against particular Obligations. Bank shall
have no obligation to marshall any of such other collateral or apply the same in
any fashion.

4.07 Location of Collateral. The Collateral shall be kept only at the following
----------------------
locations: 6 Logue Court, Suite G, Greenville, South Carolina 29615 and 3655
Knight Road Suites 4-11, Memphis, Tennessee 38118, and shall not be removed
except for purposes of sale in the regular course of Borrower's business.
Borrower shall provide Bank with written notice ten (10) days prior to any
change in the location of any of the places where any part of the Collateral is
kept or the establishment of any new, or the discontinuance of any existing,
places of business or places where Collateral is kept.

4.08 Sale of Inventory. Until the occurrence of an Event of Default, Borrower
-----------------
may, subject to the provisions of this Agreement and the Loan Documents, sell
finished Inventory in the ordinary course of Borrower's business; however, in no
event shall Borrower make any sale of Inventory outside the ordinary course of
business or which would cause a breach of Borrower's warranties, representations
and covenants under this Agreement. A sale of Inventory in the ordinary course
of Borrower's business does not include a transfer in partial or total
satisfaction of a debt owing by Borrower. Borrower agrees to report the receipt
or creation of all sales or other dispositions of Inventory to Bank and promptly
deliver such proceeds to Bank. Borrower agrees to execute and deliver to Bank,
in form satisfactory to Bank, a formal assignment or schedule of Receivables or
other proceeds resulting from the sale or other disposition of Inventory, but in
the absence of such assignment or schedule this Agreement shall constitute such
assignment or schedule and the grant of a security interest therein.

4.09 Processing of Inventory. Borrower authorizes Bank to pay and charge to
-----------------------
Borrower any amounts Bank deems necessary for any processing or finishing of
Inventory in order to obtain a release of such Inventory from any processor,
mechanic, artisan or finisher. Borrower agrees to pay Bank all of Bank's
expenses of processing, finishing, selling and storing, handling, insuring and
shipping the Inventory and any and all of the other costs and expenses which
Bank may incur in protecting or enforcing Bank's security interest in the
Inventory or the proceeds or products thereof. All sums payable by Borrower
under this Paragraph shall be due on demand, deemed a part of the Obligations
and secured by the Collateral, including the Inventory.

4.10 Exculpation of Bank. Unless directly caused by the Bank's willful
-------------------
misconduct, Bank shall not be liable or responsible for and Borrower releases
Bank from any and all causes of action or claims which Borrower may now or
hereafter have for any loss or damage to Borrower claimed to be caused by or
arising from: (a) the safekeeping of Collateral; (b) any damage to any
Collateral occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value of Collateral; or (d) any act or default of any carrier,
warehouseman, bailee or forwarding agency. All risk of loss, damage or
destruction of Collateral shall be borne by Borrower.

7
<PAGE>

SECTION V. REPRESENTATIONS AND WARRANTIES.
------------------------------

5.01 Original. To induce Bank to enter into this Agreement, Borrower represents
--------
and warrants to Bank as follows:

(A) Borrower is a corporation duly organized, validly existing and in good
standing under the Laws of the state of its incorporation or organization;
Borrower has the lawful power to own its properties and to engage in the
business it conducts, and is duly qualified and in good standing as a
foreign corporation in the jurisdictions where the nature of its business
or the location of property owned by it makes such qualification necessary;
the states in which Borrower is qualified to do business are set forth on
Exhibit "C"; the addresses of all places of business of Borrower, the
- -----------
addresses at which any of the Collateral is or shall be located are as set
forth in Exhibit "D"; and Borrower maintains its books and records relating
-----------
to Accounts, Contract Rights and General Intangibles at its offices at 6
Logue Court, Suite G, Greenville, S.C. 29615.

(B) Borrower is not in default with respect to any of its existing
Indebtedness.

(C) The execution of this Agreement, the Revolving Credit Promissory Note and
the Loan Documents, and the performance of the transactions contemplated
hereunder and thereunder will not (or, with the passage of time, the giving
of notice, or both): (i) violate the charter or bylaw provisions of
Borrower, or, to the best of Borrower's knowledge, violate any Laws or
result in a default under any contract, agreement or instrument to which
Borrower is a party or by which Borrower or its property is bound; or (ii)
result in the creation or imposition of any security interest in, or lien
or encumbrance upon, any of the assets of Borrower, except in favor of
Bank.

(D) Borrower has the power and authority to enter into and perform its
obligations under this Agreement, the Revolving Credit Promissory Note and
the Loan Documents, and has taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, the
Revolving Credit Promissory Note and the Loan Documents.

(E) This Agreement and the Loan Documents are, and the Revolving Credit
Promissory Note and all other Loan Documents when executed and delivered
will be, valid, binding and enforceable in accordance with their respective
terms subject as to enforcement of remedies to bankruptcy, insolvency,
reorganization or other Laws relating to the enforcement of creditors'
rights generally and to moratorium laws from time to time in effect and to
limitations on equitable remedies.

(F) Except as otherwise permitted in this Agreement (in connection with
Permitted Liens or otherwise), Borrower has filed all federal, state and
local tax returns and other tax-related reports, unless contested in good
faith by appropriate proceedings, it is required by Laws to file prior to
the date of this Agreement and which are material to the conduct of its
business; has paid or caused to be paid all taxes, assessments and other
governmental charges that are due and payable prior to the date of this
Agreement, and has made adequate provision for the payment of such taxes,
assessments or other charges accruing but not yet payable; Borrower has no
knowledge of any deficiency or additional assessment in connection with any
taxes, assessments or charges not provided for on its books.

(G) All financial statements delivered to Bank have been prepared in accordance
with GAAP. Such financial statements contain no material misstatement or
omission and fairly present the financial condition, assets and liabilities
of Borrower and its Subsidiaries on a consolidated basis as of the
respective dates thereof and the results of operations of Borrower and its
Subsidiaries on a consolidated basis as of the respective dates thereof and
for the respective periods then ended. Since the date of the most recent
financial statement, there has been no material adverse change in assets,
liabilities, financial condition or prospects of Borrower or any Subsidiary
or in the results of operations of Borrower or any Subsidiary, and neither
Borrower nor any of its Subsidiaries has incurred any obligation or
liability that materially and adversely affect its financial condition,
business operations or properties, or has entered into any material
contract not contemplated by this Agreement and not in the ordinary course
of business consistent with past practice.

(H) Each consent, approval or authorization of, or filing, registration or
qualification with, any Person required to be obtained or effected by
Borrower in connection with the execution and delivery of this Agreement,
the Revolving Credit Promissory Note and the Loan Documents or the
undertaking or performance of any Obligation has been duly obtained or
effected.

(I) All Defined Benefit Pension Plans, if any, as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower
meet, as of the date of this Agreement, the minimum funding standards of
Section 302 of ERISA, and with respect to all Employee Benefit Plans, as
defined in ERISA, of Borrower, no Reportable Event or Prohibited
Transaction, as defined in ERISA, has occurred.

(J) Borrower has no Subsidiaries except as shown on attached Exhibit "E".
-----------

(K) All Inventory (i) is and shall be of good and merchantable quality, free
from any and all defects and not obsolete except as noted in Borrower's
periodic Inventory reports provided to Bank; (ii) is and shall be subject
to internal controls and management procedures (including, but not limited
to, a physical inventory) conducted by Borrower and satisfactory to Bank;
and (iii) meets and shall meet all standards imposed by any governmental
authority having jurisdiction over such Inventory, its use and/or sale. No
Inventory (a) has been or shall be consigned without Bank's prior written
consent; and (b) is or shall ever be stored with a bailee, warehouseman or
similar party without Bank's prior written consent and in such event
Borrower will, concurrently with delivery to such party, cause any such
party to issue and deliver to Bank, in form acceptable to Bank, warehouse
receipts in Bank's name evidencing the storage of such Inventory.

(L) There are no material actions, suits, investigations or proceedings pending
or, to the knowledge of Borrower, threatened against or affecting Borrower
before any court or administrative officer or agency. Borrower is not in
violation of or in default under any applicable Law, order, decree, writ
or injunction.

(M) Borrower has good, indefeasible and merchantable title in fee simple (or
its equivalent under applicable law) to, and ownership of, the assets
reflected in Borrower's most recent financial statement delivered to Bank,

8
<PAGE>

and all of its other assets, free and clear of all liens, claims, security
interests and encumbrances, except for the Permitted Liens and as shown on
Exhibit "A".
- -----------

(N) No dangerous, hazardous or toxic substances, pollutants, contaminants,
chemicals, wastes or materials, within the meaning of any applicable Laws
(collectively "Hazardous Substances") are unlawfully stored or located upon
any premises owned by Borrower. Borrower has not stored or located any
Hazardous Substances upon any premises leased, controlled or used by
Borrower or any of its Subsidiaries. To the best of Bank's knowledge, no
part of any such premises, including the groundwater located thereon and
thereunder, is presently contaminated by any such Hazardous Substance. All
activities and operations of Borrower and its Subsidiaries meet the
requirements of all applicable environmental Laws. Borrower has never sent
a Hazardous Substance to a site which, pursuant to any Law, (i) has been
placed on the "National Priorities List" or "CERCLIS List" of hazardous
wastes (or any similar state list) or (ii) is subject to a claim, an
administrative order or other request to take removal or remedial action or
to pay for the cost of cleaning up such a site. Borrower has timely filed
all reports required to be filed, has acquired all necessary certificates,
approvals and permits and has generated and maintained all required data,
documentation and records under applicable environmental Laws.

(O) No representation or warranty by Borrower contained in this Agreement or in
any certificate or other document furnished by Borrower pursuant to this
Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make such representation or warranty not
misleading in light of the circumstances under which it was made.

5.02 Survival. All the representations and warranties set forth in Paragraph
--------
5.01 shall survive until all Obligations are satisfied in full.

SECTION VI. BORROWER'S COVENANTS.
--------------------

Borrower covenants and agrees with Bank that, so long as Borrower may borrow
under the Commitment and so long as any of the Obligations remain unsatisfied,
it will comply with the following covenants:

6.01 Affirmative Covenants.
---------------------

(A) Borrower will use the proceeds of the Loan only for the following
purposes(s): finance permanent working capital requirements and no other
purpose. Borrower will furnish Bank such evidence as it may reasonably
require with respect to such use(s).

(B) Borrower will furnish Bank:

(1) Within fifteen (15) days after the close of each monthly accounting period
in each fiscal year: (a) income statements of Borrower for such monthly
period; (b) balance sheets of Borrower as of the end of such monthly
period; (c) current aging of all accounts payable and accounts receivable;
and (d) an Inventory report in such form and content as Bank may reasonably
require, all in reasonable detail, subject to year-end audit adjustments
and certified by Borrower's President or Chief Financial Officer to have
been prepared in accordance with GAAP except for any inconsistencies
explained in such certificate. Borrower will provide the Bank with
earnings reports and press releases as soon as available.

(2) Within fifty-five (55) days after the close of each quarter in each fiscal
year, Borrower's 10Q report.

(3) Within one hundred twenty (120) days after the close of each fiscal year
(A) financial statements (income statement, balance sheet and statement of
cash flows at a minimum) of Borrower, as of the end of such year, in
reasonable detail, including all supporting schedules and comments; the
statements to be unqualified and audited by independent certified public
accountants acceptable to Bank, and certified by such accountants to have
been prepared in accordance with GAAP, except for any inconsistencies
explained in such certificate. Bank shall have the right, from time to
time, to discuss Borrower's affairs directly with Borrower's independent
certified public accountants after notice to Borrower and opportunity of
Borrower to be present at any such discussions; (B) a 10K report.

(4) Contemporaneously with each quarterly and year-end financial report
required by the foregoing paragraphs (1), (2), and (3), a certificate of
the President or Chief Financial Officer of Borrower stating that he has
individually reviewed the provisions of this Agreement and that a review of
the activities of Borrower during such yearly or quarterly period, as the
case may be, has been made by him or under his supervision, with a view to
determining whether Borrower has fulfilled all its obligations under this
Agreement, and that, to the best of his knowledge, Borrower has observed
and performed each undertaking contained in this Agreement and is not in
default in the observance or performance of any of the provisions of this
Agreement or, if Borrower shall be in default, specifying all such defaults
and events of which it may have knowledge.

(5) By the fifteenth (15th) day of each month, an aging of Receivables, dated
as of the last day of the immediately preceding monthly accounting period.

(6) At least monthly during the term of this Agreement, a Collateral Report
dated no more than three business days prior to its submission to Bank.

(7) Two copies of its Annual Corporation Tax Returns within thirty (30) days of
filing.

(8) Such other financial information as the Bank may reasonably request from
time to time.

(C) Borrower shall at all times comply with all Securities and Exchange
Commission reporting requirements, rules and/or regulations, as applicable
to Borrower.

(D) Borrower will maintain, or cause to be maintained, public liability
insurance and fire and extended coverage insurance on all assets owned by
it, all in such form and amounts as are consistent with industry practices
and with such insurers as may be satisfactory to Bank. Such policies shall

9
<PAGE>

contain a provision whereby they cannot be canceled except after at least
thirty (30) days' written notice to Bank. Such policies to the extent they
insure any of the Collateral shall be payable to Bank as its interest may
appear. Borrower will furnish to Bank such evidence of insurance as Bank
may require. Borrower agrees that, in the event it fails to pay or cause
to be paid the premium on any such insurance, Bank may do so and be
reimbursed by Borrower therefor on demand with interest thereon at Bank's
Rate. Borrower assigns to Bank any returned or unearned premiums that may
be due Borrower upon cancellation of any such policies for any reason
whatsoever and directs the insurers to pay Bank any amounts so due. Bank
is appointed Borrower's attorney-in-fact (without requiring Bank to act as
such) to endorse any check which may be payable to Borrower and to collect
such returned or unearned premiums or the proceeds of such insurance, and
any amount so collected may be applied by Bank toward satisfaction of any
of the Obligations or Other Obligations.

(E) Borrower will pay or cause to be paid when due, all taxes, assessments and
charges or levies imposed upon it or its property or which it is required
to withhold and pay over, except where contested in good faith by
appropriate proceedings with adequate reserves therefor having been set
aside on its books. Borrower shall pay or cause to be paid all such taxes,
assessments, charges or levies forthwith whenever foreclosure on any lien
that attaches appears imminent.

(F) Borrower will, when requested so to do, make available for inspection and
photocopy by duly authorized representatives of Bank any of its books and
Records, and will furnish Bank any information regarding its business
affairs and financial condition within a reasonable time after request by
Bank.

(G) Borrower will take all necessary steps to preserve its existence and
franchises and comply with all present and future Laws applicable to it in
the operation of its business, and all material agreements to which it is
subject.

(H) Borrower will collect its Accounts and Receivables only in the ordinary
course of business.

(I) Borrower will keep accurate and complete Records of its Accounts, Inventory
and Receivables consistent with sound business practices, which in the case
of Inventory shall itemize and describe the kind, type, quality and
quantity, cost therefor and selling price thereof, and the daily
withdrawals therefrom and the additions thereto.

(J) Borrower will pay when due (or within applicable grace periods) all
Indebtedness due third Persons, except when the amount is being contested
in good faith by appropriate proceedings and with adequate reserves having
been set aside on the books of Borrower.

(K) Borrower will notify Bank promptly if it becomes aware of the occurrence of
any Event of Default or of any fact, condition or event that with the
giving of notice or passage of time or both, could become an Event of
Default, or of the failure of Borrower to observe any of its undertakings
under this Agreement.

(L) Borrower will notify Bank ten (10) days in advance of any change in the
location of any of its places of business or of the establishment of any new, or
the discontinuance of any existing, place of business or of the locations at
which any of the Collateral is kept.

(M) Borrower will: (1) fund all its Defined Benefit Pension Plans, if any, in
accordance with no less than the minimum funding standards required under ERISA;
(2) furnish Bank, promptly after the filing of the same, with copies of all
reports or other statements filed with the United States Department of Labor or
the Internal Revenue Service with respect to all Employee Benefit Plans; and (3)
promptly advise Bank of the occurrence of any Reportable Event or Prohibited
Transaction (as defined in ERISA) with respect to any Employee Benefit Plan.

(N) Borrower will furnish to Bank written reports, in addition to the other
reports and certificates required of Borrower under this Agreement,
detailing the aging and collection of Receivables, and containing such
information as Bank may specify. Such reports shall be furnished by
Borrower to Bank as provided above.

(O) If any Inventory, the sale of which gave rise to an Account, in excess of
$100,000.00 in the aggregate in any fiscal year is returned to or
repossessed by Borrower, Borrower shall promptly report any such return or
repossession to Bank in writing and, if within three Business Days after
receipt by Bank of such written report, Bank fails to issue specific
instructions to Borrower concerning such Inventory, Borrower shall have the
right to dispose of such Inventory in accordance with sound business
practices, subject, however, to Bank's security interest in such Collateral
and in any proceeds arising from the disposition of such Inventory.

(P) Borrower will maintain at all times a Tangible Net Worth of not less than
$14,400,000.00 as of June 30, 1996, which amount shall increase by not less
than $300,000.00 as of the end of each of Borrower's quarter-ended periods.
Quarterly compliance shall be measured by the Borrower's quarterly 10Q
report and annual compliance will be measured by the Borrower's accountant-
prepared audited fiscal year-end financial statements.

(Q) Borrower will maintain a maximum total Indebtedness to Tangible Net Worth
ratio of 2.0 to 1.0 during the term of the Loan. For purposes of this
Subparagraph (Q), all Indebtedness which is fully and expressly
subordinated in writing to Bank and Bank's right to payment in full of all
of the Obligations and Other Obligations, on terms and conditions
acceptable to Bank, shall be deemed excluded from the term "Indebtedness."

(R) Borrower shall allow Bank and its agents and representatives at all times
to have access to Borrower's premises for purposes of examining and
inspecting the Collateral and all Records pertaining thereto.

(S) Borrower shall maintain all of its Equipment in good working order and
condition, and shall not permit any Equipment to become a fixture to real
estate or an accession to any other property. Borrower shall, immediately
upon Bank's demand, deliver to Bank any and all evidences of ownership of,
certificates of title to and applications for title to any of the
Equipment.

6.02 Negative Covenants.
------------------

10
<PAGE>

(A) Borrower will not change its name, enter into any merger, consolidation,
reorganization or recapitalization, or reclassify its capital stock or
other equity interests, except for a merger between Borrower and a domestic
Subsidiary of Borrower, so long as Borrower is the surviving or continuing
corporation in any such merger.

(B) Borrower will not sell, transfer, lease or otherwise dispose of all or
(except in the ordinary course of business) any material part of its assets
except (1) a transfer of any property to a Subsidiary of Borrower and (2)
dispositions expressly permitted by this Agreement.

(C) Borrower will not mortgage, pledge, grant or permit to exist a security
interest in or lien upon any of its assets of any kind, now owned or
hereafter acquired, except for Permitted Liens.

(D) Borrower will not, without Bank's prior written consent, become liable,
directly or indirectly, as guarantor or otherwise, for any obligation of
any other Person, except for the endorsement of commercial paper for
deposit or collection in the ordinary course of business.

(E) Borrower will not incur, create, assume or permit to exist any Indebtedness
except: (1) the Loan; (2) Indebtedness existing as of this date; (3)
business expenses and trade indebtedness incurred in the ordinary course of
business; (4) contingent Indebtedness permitted by Paragraph 6.02(D); (5)
Indebtedness permitted by this Agreement; (6) During fiscal year 1997,
additional Indebtedness of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000.00);

(F) During fiscal year 1997, Borrower's capital expenditures shall not exceed
SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND NO/100 DOLLARS ($750,000.00).

(G) Borrower will not redeem, purchase or retire any of its capital stock or
other equity interests except pursuant to any existing agreement shown on
the attached Exhibit "F".
-----------

(H) Borrower will not acquire any stock in, or all or substantially all of the
assets of, any Person other than its Subsidiaries.

(I) Borrower will not furnish Bank any certificate or other document that
contains any untrue statement of material fact or that omits to state a
material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.

(J) Borrower will not directly or indirectly apply any part of the proceeds of
the Loan to the purchasing or carrying of any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or any regulations, interpretations or rulings issued thereunder.

(K) Borrower shall not incur operating leases for machinery, real estate or
equipment which in the aggregate annually require payments in excess of ONE
HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00).

SECTION VII. DEFAULT
-------

7.01 Events of Default. The occurrence of any one or more of the following
-----------------
events shall constitute an Event of Default under this Agreement:

(A) Borrower shall fail to make payment of any of the Obligations when due or
declared due, and such failure shall continue for three (3) days after
receipt by the Borrower of written notice from Bank.

(B) Borrower shall fail to observe or perform any non-monetary obligation to be
observed or performed by it under this Agreement or under any of the Loan
Documents or any other documents to which it is a party relating to the
Loan, and such failure shall continue for fifteen (15) days after receipt
by the Borrower of written notice from the Bank.

(C) Borrower shall fail to make payment of any Other Obligation when due or
declared due, and such failure shall continue beyond any applicable grace
period therefor.

(D) Borrower shall fail to observe or perform any non-monetary obligation to be
observed or performed by it in connection with any Other Obligation, and
such failure shall continue beyond any applicable grace period therefor.

(E) Borrower shall fail to pay any Indebtedness and such failure shall continue
beyond the later of (i) any applicable grace period therefor or (ii) three
(3) days after receipt of written notice from Bank to Borrower, or Borrower
shall suffer to exist any other event of default under any agreement
relating to such Indebtedness.

(F) Any financial statement, representation, warranty or certificate made or
furnished by Borrower to Bank in connection with this Agreement or as an
inducement to Bank to enter into this Agreement, or in any separate
statement or document to be delivered under this Agreement to Bank, shall
be materially false, incorrect or incomplete when made.

(G) Borrower shall admit in writing its inability to pay its debts as they
mature, or shall make an assignment for the benefit of or any of its
creditors.

(H) Proceedings in bankruptcy or for reorganization of Borrower, or for the
readjustment of any of its debts, under the Bankruptcy Code, as amended, or
under any other Laws, whether state or federal, for the relief of insolvent
debtors, now or hereafter existing, shall be commenced by Borrower, or
shall be commenced against Borrower and shall not be discharged within
sixty (60) days of their commencement.

(I) A receiver, custodian or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for
the dissolution or the full or partial liquidation of Borrower, and such
receiver, custodian or trustee shall not be discharged within sixty (60)
days of his appointment, or such proceedings shall not be discharged within

11
<PAGE>

sixty (60) days of their commencement, or Borrower shall discontinue
business or materially change the nature of its business.

(J) Borrower shall suffer final judgment(s) for payment of money aggregating in
excess of TWENTY-FIVE THOUSAND DOLLARS and NO/100 DOLLARS ($25,000.00) and
shall not discharge all such judgment(s) within a period of sixty (60) days
unless, pending further proceedings, execution has not been commenced or if
commenced has been effectively stayed.

(K) A judgment creditor of Borrower shall lawfully obtain and retain for at
least five (5) days possession of any material portion of the Collateral by
any lawful means, including, but without limitation, levy, distraint,
replevin or self-help.

(L) The cancellation, termination, expiration, qualification or any other
change in any agreement guaranteeing the obligations of Borrower under the
Revolving Credit Promissory Note or this Agreement.

(M) The failure of the Intercreditor Agreement by and between the Bank and IBM
Credit Corporation dated as of April 8, 1996, the Attachment A thereto and any
and all modifications, amendments or supplements thereto, to adequately protect
the Bank's interest in the Collateral, in Bank's sole discretion.

(N) The failure of the Borrower to provide to the Bank the Landlords' Waivers
required in Section 4.05 hereof within the time allotted therein.

(O) The failure of the Borrower to provide the Bank with a recorded copy of the
Uniform Commercial Code Termination Statement executed by International Business
Machines referencing a financing statement filed on March 29, 1994, No. 94-
294410, as well as the official results of a UCC-1 financing statement search
request, certified correct by the Secretary of State of the State of Tennessee,
evidencing only those filings approved by the Bank, in its sole discretion, each
of such documents to be provided to the Bank within forty-five (45) days of the
date of this Agreement.

(P) The failure of the Borrower to provide the Bank with a Good-Standing
Certificate from the State of Tennessee within sixty (60) days of the date of
this Agreement.

7.02 Acceleration. Bank may, immediately and without notice upon the occurrence
------------
of an Event of Default, declare all Obligations to be, and the Obligations shall
become, due and payable without further action of any kind.

7.03 Remedies. After any acceleration, as provided for in Paragraph 7.02, the
--------
Commitment of Bank shall terminate and Bank shall have, in addition to the
rights and remedies given it by this Agreement, the Revolving Credit Promissory
Note and the Loan Documents, all rights and remedies allowed by all applicable
Laws, including, but without limitation, the Uniform Commercial Code as enacted
in any jurisdiction in which any Collateral may be located and the right to take
legal action against Borrower or institute proceedings for the collection of all
amounts unpaid and outstanding under the Revolving Credit Promissory Note.
Without limiting the generality of the foregoing, Bank may immediately, without
demand of performance and without other notice (except as specifically required
by this Agreement or the Loan Documents) or demand whatsoever to Borrower, all
of which are expressly waived, and without advertisement, sell at public or
private sale or otherwise realize upon, at such place as Bank may determine, or
elsewhere, the whole or, from time to time, any part of the Collateral, or any
interest which Borrower may have in the Collateral. After deducting from the
proceeds of sale or other disposition of the Collateral all expenses (including
all reasonable expenses for legal services), Bank shall apply such proceeds
toward the payment of the Obligations. Any remainder of the proceeds after
satisfaction in full of the Obligations shall be distributed as required by
applicable Laws. Notice of any sale or other disposition shall be given to
Borrower at least fifteen (15) days before the time of any intended public sale
or of the time after which any intended private sale or other disposition of the
Collateral is to be made, which Borrower agrees shall be reasonable notice of
such sale or other disposition. Borrower agrees to assemble, or to cause to be
assembled, at its own expense, the Collateral at such place or places as Bank
shall reasonably designate. At any such sale or other disposition, Bank may, to
the extent permissible under applicable Laws, purchase the whole or any part of
the Collateral, free from any right of redemption on the part of Borrower which
right is waived and released. Without limiting the generality of any of the
rights and remedies conferred upon Bank under this Paragraph, Bank may, to the
full extent permitted by applicable Laws:

(A) Enter upon the premises of Borrower, and take immediate possession of the
Collateral, either personally or by means of a receiver appointed by a
court of competent jurisdiction;

(B) At Bank's option, use, operate, manage and control the Collateral in any
lawful manner;

(D) Maintain, repair, renovate, alter or remove the Collateral as Bank may
determine in its reasonable discretion, and discharge any liens, security
interests or other encumbrances and any taxes at any time levied or placed
on any of the Collateral;

(E) Notify account debtors that Receivables have been assigned to Bank and
collect them directly in Bank's name;

(F) Endorse Borrower's name on any check, note, acceptance, draft or other form
of payment or security payable to Borrower that may come into the
possession of Bank; sign Borrower's name on any invoice or bill of lading
relating to any Receivable and on drafts against account debtors and on
drafts against letters of credit issued for the benefit of account debtors;

(G) Notify the post office authorities to change the address for delivery of
Borrower's Lockbox mail to an address designated by Bank and receive, open
and dispose of all Lockbox mail addressed to Borrower;

(H) Require that all full or partial payments of Receivables which are made
directly to Borrower or which otherwise come into Borrower's possession be
received by Borrower in trust for Bank and immediately delivered by
Borrower to Bank in the form received; and

12
<PAGE>

(I) Make such payments and incur such costs as Bank deems necessary to enforce
the payment or performance of the Obligations, all such costs being due on
demand, deemed a part of the Obligations and secured by the Collateral.

SECTION VIII. TERMINATION.
-----------

8.01 Term. This Agreement shall terminate on October 31, 1998 ("Original Term")
----
if not terminated sooner by the Bank, as provided herein. Either Bank or
Borrower may terminate this Agreement and its Commitment at the end of the
Original Term or any renewal term by giving the other prior written notice of
its intention to terminate. In addition, Bank may terminate this Agreement at
any time without further notice following the occurrence of an Event of Default
under Paragraph 7.01.

8.02 Effect of Termination. No termination of this Agreement shall in any way
---------------------
(i) affect or impair Bank's security interest in and lien on the Collateral (or
any other collateral or security) or any real estate or any other right or
privilege under this Agreement or under the Revolving Credit Promissory Note or
any other agreement related to this Agreement, (ii) relieve Borrower from any of
its duties and obligations under this Agreement or under the Revolving Credit
Promissory Note or such other agreements including, without limitation, the
Obligations or (iii) relieve any other Person primarily or secondarily liable
for the Obligations from its obligations and duties to Bank.

SECTION IX. MISCELLANEOUS.
-------------

9.01 Appointment of Bank as Attorney in Fact. Borrower appoints Bank its
---------------------------------------
attorney-in-fact (without requiring Bank to act as such) with power and for the
purposes of taking such action as, and at the times permitted by Paragraph 7.03
(A) through (I). This power, being coupled with an interest, shall be
irrevocable so long as any part of the Obligations is outstanding.

9.02 Further Assurance. From time to time, Borrower will execute and deliver to
-----------------
Bank such additional documents and will provide such additional information as
Bank may reasonably require to carry out the terms of this Agreement and be
informed of Borrower's status and affairs.

9.03 Notices. Any notices or consents required or permitted by this Agreement
-------
shall be in writing and shall be deemed to have been validly served, given or
received three (3) days after deposit in the United States Mails, with postage
prepaid, return receipt requested, or on the date of delivery to the Bank or
Borrower, as applicable, by hand delivery, telex or telegram, as follows, unless
such address is changed by written notice given in accordance with the terms of
this Agreement:

<TABLE>
<CAPTION>
(A) If to Borrower:
<S> <C> <C>

Scansource, Inc.
6 Logue Court Suite G
Greenville, S.C. 29615

Attn: Jeffery A. Bryson

(B) If to Bank: With a copy to:

Branch Banking and Trust Company Nelson Mullins Riley & Scarborough
P.O. Box 408 P.O. Box 10084
Greenville, S.C. 29602 Greenville, S.C. 29603

Attn: Richard C. Carver Attn: Shonna W. Felkel

</TABLE>

9.04 Waiver and Release by Borrower. To the maximum extent permitted by
------------------------------
applicable Laws, Borrower:

(A) Waives (except as may otherwise be provided in this Agreement): (1)
presentment for payment, demand, protest, notice or non-payment or dishonor
and of protest with respect to the Revolving Credit Promissory Note; and
(2) notice and opportunity to be heard, after acceleration in the manner
provided in Paragraph 7.02, before exercise by Bank of the remedies of
self-help, set-off or of other summary procedures permitted by any
applicable Laws or by any agreement with Borrower and, except where
required by this Agreement or by any applicable Laws, notice of any other
action taken by Bank; and

(B) Releases Bank and its officers, attorneys, agents and employees from all
claims for loss or damage caused by any act or omission on the part of any
of them except gross negligence or willful misconduct.

9.05 Applicable Law. The substantive laws of South Carolina shall govern the
--------------
construction of this Agreement and the rights and remedies of the parties.

9.06 Binding Effect, Assignment and Entire Agreement. This Agreement shall
-----------------------------------------------
inure to the benefit of, and shall be binding upon, the respective successors
and permitted assigns of the parties. Borrower has no right to assign any of
its rights or obligations under this Agreement without the prior written consent
of Bank. This Agreement, and the documents executed and delivered pursuant to
this Agreement, constitute the entire agreement between the parties, and may be
amended only by a writing signed by each party.

9.07 Severability. If any provision of this Agreement shall be held invalid
------------
under any applicable Laws, such invalidity shall not affect any other provision
of this Agreement that can be given effect without the invalid provision, and,
to this end, the provisions are severable.

9.08 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one and the same instrument.

13
<PAGE>

9.09 Seal. This Agreement is intended to take effect as an instrument under
----
seal.

IN WITNESS WHEREOF, the parties have duly executed this Agreement under
seal as of the date first above written.

WITNESSES: BANK:
----

/s/ JAMES C. BRICE BRANCH BANKING AND TRUST COMPANY OF
- --------------------------- SOUTH CAROLINA

By: /s/ RICHARD C. CARVER
- --------------------------- ---------------------------------
Name: Richard C. Carver
Title: Vice President

BORROWER:
--------

SCANSOURCE, INC., a South Carolina corporation

By: /s/ JEFFERY A. BRYSON
---------------------------------
Name: Jeffery A. Bryson
Title: Chief Financial Officer
ATTEST:

/s/ LEAH GANGLOFF Secretary
- -------------------

[AFFIX CORPORATE SEAL]

14
<PAGE>

INDEX OF EXHIBITS

A. List of Existing Liens

B. Collateral Description

C. List of States Where Borrower is Qualified to Transact
Business

D. List of Places of Business of Borrower

E. List of Subsidiaries of Borrower

F. Agreements

<PAGE>

EXHIBIT 10.28
-------------

EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 1997 BETWEEN
THE REGISTRANT AND STEVEN H. OWINGS
<PAGE>

EXHIBIT 10.28
-------------
EMPLOYMENT AGREEMENT
--------------------

This Employment Agreement is effective as of the 1st day of January, 1997
("Effective Date"), by and between SCANSOURCE, INC., a South Carolina
corporation ("Employer"), and STEVEN H. OWINGS ("Employee").

WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer, in accordance with the terms and conditions hereinafter
set forth:

NOW, THEREFORE, in consideration of the mutual promises herein set forth,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties, intending to be legally bound, agree as
follows:

1. Term of Employment. Employer hereby agrees to employ Employee to
------------------
perform the duties described in Section 2 below subject to and in accordance
---------
with the terms and conditions hereof, and Employee hereby accepts such
employment. The term of employment hereunder shall commence on the Effective
Date and shall continue through June 30, 1999.

2. Duties of Employee.
------------------

A. In accepting employment by Employer, Employee shall undertake
and assume the responsibility of performing for and on behalf of Employer the
duties of Chief Executive Officer of Employer in Greenville, South Carolina.
Except with his written consent, Employee shall not be permanently assigned to
(i) any position of lower professional status, or (ii) a location outside of
Greenville County, South Carolina. It is further understood and agreed that any
expansion, contraction or other modification of Employee's duties shall not
result in any change in Employee's compensation as stated in Section 3, unless
---------
Employer and Employee specifically shall agree otherwise in a duly executed
amendment of this Agreement.

B. During the term of this Agreement, Employee shall be a full-
time employee of Employer and shall devote sufficient time and efforts to his
duties to satisfy the needs of Employer and as Employer reasonably directs.
Employee shall perform all of his duties hereunder to the best of his ability
and shall not, directly or indirectly, engage or participate in any activities
in conflict with the best interests of Employer and will conduct all of
Employee's activities in strict loyalty to Employer.

3. Compensation. As compensation for the services to be rendered by
------------
Employee for Employer under this Agreement, Employee shall be compensated on the
following basis:

A. Base Salary. An annual Base Salary of Ninety-six Thousand and
-----------
No/100 ($96,000.00) Dollars, plus any raises or other compensation approved by
the Board of Directors of Employer, payable in pay periods as determined by
Employer, but in no event less frequently than monthly.

B. Vacation. Twenty (20) business days of paid vacation time
--------
each year during the term of this Agreement. Such vacation days are to be taken
at such time or times as Employee may reasonably request, subject to the
Employer's convenience and prior approval, which approval shall not be
unreasonably withheld. Vacation time shall not accumulate year to year.
---

C. Incentive Bonus. An "Incentive Bonus" in an amount and in the
---------------
manner determined as follows:

A cash bonus, (i) payable with respect to the period beginning January 1,
1997 and ending June 30, 1997 and (ii) the fiscal years ending June 30, 1998 and
1999, equal to 1.0% of the Operating Income of Employer, as defined below.

For purposes of this Agreement, "Operating Income" shall mean (a) with
regard to the six (6) month period from January 1, 1997 through June 30, 1997,
the amount reflected for the line item identified as Operating Income on

Employment Agreement
Between Steven H. Owings and SanSource,Inc.

1
<PAGE>

Employer's audited financial statement for the fiscal year ending June 30, 1997
less the amount identified as Operating Income for the six (6) month period
- ----
ending December 31, 1996 as stated in the Company's financial statement for such
period and (b) with regard to the fiscal years ending June 30, 1998 and 1999 the
amount reflected for the line item identified as Operating Income on Employer's
audited financial statements for such fiscal years. For purposes of this
Agreement, the Employer's calculation of Operating Income and the Incentive
Bonus amount shall be conclusive and binding absent fraud or manifest and
material error.

The Incentive Bonus shall be paid to the Employee in monthly installments
with each monthly installment being equal to Seventy percent (70%) of the
Incentive Bonus computed using the Operating Income determined by the financial
statement prepared for each month during the term of this Agreement. The
balance of the Incentive Bonus shall be paid with respect to each fiscal year
immediately following the auditor's approval of the release of year end
earnings. Employer shall have no right of reimbursement in the event the amount
advanced in monthly installments exceeds the Incentive Bonus as finally
computed.

D. Other Benefits. Other benefits (including life insurance,
--------------
disability insurance, health insurance, participation in pension, profit sharing
and other retirement plans, paid leave, etc.) reasonably comparable to those
benefits, if any, generally provided to other senior executives of Employer.

The compensation stated above is intended to be the total compensation
paid to Employee pursuant to this Agreement.

4. Confidentiality and Secrecy. Employee acknowledges that in, and as
---------------------------
a result of, his employment hereunder, he will be making use of, acquiring,
and/or adding to confidential information of a special and unique nature and
value relating to Employer's business, including without limitation, copyrights,
proprietary information, trade secrets, systems, procedures, manuals,
confidential reports, records, lists of customers and projects, the nature and
type of services rendered by Employer, the equipment and methods used and
preferred by Employer's customers, and the fees paid by them (all of which are
deemed for all purposes to be confidential and proprietary). As a material
inducement to Employer to enter into this Agreement and to pay to Employee the
compensation stated in Section 3, Employee covenants and agrees that during the
---------
term of his employment hereunder, and for two (2) years after the termination
thereof, he shall not, directly or indirectly, make use of, or disclose to any
person, any confidential information of Employer or its affiliates.

5. Covenants Against Competition. In view of the unique value to
-----------------------------
Employer of the services of Employee for which Employer has contracted
hereunder, because of the confidential information to be obtained by or
disclosed to Employee, as hereinabove set forth, and because Employee's
employment hereunder will result in Employee's development of a unique
relationship with customers, suppliers and employees, as a material inducement
to Employer to enter into this Agreement and to pay to Employee the compensation
stated in Section 3, Employee covenants and agrees as follows:
---------

A. During Employee's employment hereunder, and for a period of
two (2) years after the termination of Employee's employment with Employer for
any reason, Employee shall not directly or indirectly solicit or divert
employment of any employee of Employer's business or employ any person employed
by Employer if such person was employed by Employer within twelve (12) months of
the last day Employee was employed by Employer.

B. During Employee's employment hereunder, and for a period of
two (2) years after the termination of Employee's employment with Employer for
any reason, Employee shall not directly or indirectly solicit, divert or
convert, or assist another person or entity to solicit, divert or convert,
Employer's customers to any other company or entity.

C. Employee shall not within the geographic area specified below
(a) during Employee's employment hereunder, engage in any business or perform
any services, directly or indirectly, in competition with the business of
Employer or have any interest, whether as a proprietor, partner, employee,
stockholder (directly or beneficially), principal, agent, consultant, director,
officer, or in any other capacity or manner whatsoever, in any enterprise that
shall so engage; and (b) for a period of two (2) years after the termination of
Employee's employment with Employer for any reason, engage in any business or
perform any services, directly or indirectly, in competition with the business
of Employer as such business is being conducted on the date of such termination
or have any interest, whether as a proprietor, partner, employee, stockholder
(directly or beneficially), principal, agent, consultant, director, officer, or
in any other capacity or manner whatsoever, in any enterprise that shall so
engage. Notwithstanding the above provisions of this Section 5(C), Employee
shall be permitted to own for investment purposes only, directly or
beneficially, up to (but not more than) 2% in the aggregate of the stock of a
competing corporation which is publicly-traded on a national stock exchange or
the NASDAQ National Market System, so long as Employee is not a controlling
person of, or a member of a group that controls, such corporation and Employee

Employment Agreement
Between Steven H. Owings and SanSource,Inc.

2
<PAGE>

is not otherwise affiliated in any capacity with such corporation. The
restrictions of Section 5(C)(a) shall apply anywhere within each state where an
---------------
active customer of Employer is located during the term of Employee's employment
hereunder and the restrictions of Section 5(C)(b) shall apply anywhere within
---------------
each state where an active customer of Employer is located at the time of the
termination of Employee's employment hereunder for any reason.

Employee's obligations under this Section 5 shall survive any termination
---------
of employment hereunder.

6. Reasonableness, Enforceability and Remedies.
-------------------------------------------

A. Employee has carefully read and considered the provisions of

Sections 4, 5, and 6, and, having done so, agrees that the restrictions set
- --------------------
forth in such Sections, including, but not limited to, the time period of
--------
restriction and geographic limitations set forth in Section 5, are fair and
---------
reasonable and are reasonably required for the protection of the interests of
Employer, its officers, directors, and other employees and its affiliates.

B. In the event that, notwithstanding the foregoing, any of the
provisions of Sections 4, 5, or 6 or any parts thereof shall be held to be
-------------------
invalid or unenforceable, the remaining provisions or parts thereof shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable portions or parts had not been included therein. In the event
that any provision of Sections 4 or 5 relating to the time period and/or
---------------
geographic restrictions and/or related aspects shall be declared by a court of
competent jurisdiction to exceed the maximum restrictiveness such court deems
reasonable and enforceable, the time period and/or geographic area and/or
related aspects deemed reasonable and enforceable by the court shall become and
thereafter be the maximum restriction in such regard, and the restriction shall
remain enforceable to the fullest extent deemed reasonable by such court.

Sections 4 or 5, Employer, in addition to and not in limitation of, any other
- ---------------
rights, remedies, or damages available to Employer under this Agreement, shall
be entitled to a permanent injunction in order to prevent or restrain any such
breach by Employee or by Employee's partners, agents, representatives, servants,
employers, employees, consulting clients, and/or any and all persons directly or
indirectly acting for or with him.

D. Employee covenants and agrees that if he shall violate any of
his covenants or agreements under Sections 4 or 5, Employer shall be entitled
---------------
to: (i) an accounting and repayment of all profits, compensation, commissions,
remuneration, or other benefits that Employee directly or indirectly has
realized and/or may realize as a result of, growing out of, or in connection
with, any such violation; (ii) recover actual damages incurred by Employer or
its affiliates as a result of any such violation; (iii) any injunctive relief to
which Employer is or may be entitled at law, in equity, or under this Agreement;
and (iv) exercise its other rights respecting a breach of this Agreement as set
forth herein. The remedies set forth herein shall be the sole and exclusive
remedies to which Employer is entitled for violation of Sections 4 or 5.
---------------

7. Termination.
-----------

A. For Cause by Employer. Notwithstanding any other provision
---------------------
hereof, Employer may terminate Employee's employment under this Agreement
immediately at any time for "cause." For purposes hereof the term "cause" shall
include, but not be limited to, the commission of any of the following by
Employee: dishonesty; theft; unethical business conduct; indictment for a
felony; indictment for a misdemeanor involving moral turpitude; drug or alcohol
addiction or abuse; incompetence in the performance of material duties on behalf
of Employer; violation of the terms and provisions of this Agreement; wilful or
recurring insubordination; or failure to attempt to comply in good faith with
the reasonable instructions of Employer. All compensation (including without
limitation the Base Salary, Incentive Bonus, and all perquisites and fringe
benefits) to which Employee would otherwise be entitled shall be discontinued
and forfeited as of the effective date of such termination.

B. Without Cause by Employer. Notwithstanding any other
-------------------------
provision hereof, Employer may terminate Employee's employment under this
Agreement at any time without cause. All compensation (including without
limitation the Base Salary, Incentive Bonus and all perquisites and fringe
benefits) to which Employee would otherwise be entitled shall continue to be
paid to Employee through the original expiration date of this Agreement as if
Employee remained employed under this Agreement.

Employment Agreement
Between Steven H. Owings and SanSource,Inc.

3
<PAGE>

C. By Employee. Employee may, with or without cause, terminate
-----------
this Agreement upon thirty (30) days prior written notice to Employer. In the
event of such termination, all compensation (including without limitation the
Base Salary, Incentive Bonus, and all perquisites and fringe benefits) to which
Employee would otherwise be entitled (for periods after the effective date of
such termination) shall be discontinued and forfeited as of the effective date
of such termination. Employee shall be paid Employee's pro rata portion of the
Incentive Bonus, if any, based upon the number of days in the calendar that the
Employee was a full-time employee of Employer. Such portion of the Incentive
Bonus shall be paid at the time and in the manner prescribed in Section 3.
---------

8. Burden and Benefit. This Agreement shall be binding upon, and shall
------------------
inure to the benefit of, Employer and Employee, and their respective heirs,
personal and legal representatives, successors and assigns.

9. Governing Law/Jurisdiction. The construction and interpretation of
--------------------------
this Agreement shall at all times and in all respects be governed by the laws of
the State of South Carolina. Employee and Employer hereby (i) agree that any
litigation, action or proceeding arising out of or relating to this Agreement
may be instituted in a state or federal court in the City and State of
Greenville, South Carolina, (ii) waives any objection which such party might
have now or hereafter to any such litigation, action or proceeding based upon
improper venue or inconvenient forum, and (iii) irrevocably submits to the
jurisdiction of such courts in any such litigation, action or proceeding. For
all purposes of this Agreement, Employee and Employer hereby submit to the venue
and jurisdiction of the courts in the State of South Carolina, irrevocably
consent to personal jurisdiction of such courts, and further agree that service
of process upon Employee and Employer may be effected pursuant to United States
mail.

10. Usage. The section and paragraph headings contained in this
-----
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Terms such as "hereof",
"hereunder", "hereto", "herein" and words of similar import shall refer to this
Agreement in its entirety and all references shall refer to specified portions
of this Agreement, unless the context clearly requires otherwise.

11. Severability. The provisions of this Agreement shall be deemed
------------
severable, and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity and enforceability of
the other provisions. Without limiting the generality of the foregoing or of
Section 6, each provision, sub-provision, part, and sub-part of Sections 4, 5
- --------- -------------
and 6 shall be deemed severable.
- -----

12. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding by and between Employer and Employee with respect to the
employment of Employee, and no representations, promises, agreements, or
understandings, written or oral, not contained herein shall be of any force or
effect. No change or modification of this Agreement shall be valid or binding
unless it is in writing and signed by the party intended to be bound. No waiver
of any provision of this Agreement shall be valid unless it is in writing and
signed by the party against whom the waiver is sought to be enforced. No valid
waiver of any provision of this Agreement at any time shall be deemed a waiver
of any other provision of this Agreement at such time or at any other time.

13. Notice. Any notice, request, approval, consent, demand or other
------
communication hereunder shall be effective if in writing and upon the first to
occur of the following: (i) upon receipt by the party to whom such notice,
request, approval, consent, demand or other communication is being given; or
(ii) three (3) business days after being duly deposited in the U.S. Mail,
certified, return receipt requested, and addressed as follows:

Employee: Steven H. Owings
--------- 116 Tuscany Way
Greer, South Carolina 29650

Employer: ScanSource, Inc.
-------- 6 Logue Court, Suite G
Greenville, South Carolina 29615
Attn: Michael L. Baur

Employment Agreement
Between Steven H. Owings and SanSource,Inc.

4
<PAGE>

The parties hereto may change their respective addresses by notice in writing
given to the other party to this Agreement.

IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement under seal to be effective as of the day and year first above written.

EMPLOYER:

SCANSOURCE, INC. (SEAL)

By: /s/ MICHAEL L. BAUR
------------------------------------
Its: President
-----------------------------------

EMPLOYEE:

/s/ STEVEN H. OWINGS (SEAL)
---------------------------------
STEVEN H. OWINGS

Employment Agreement
Between Steven H. Owings and SanSource,Inc.

<PAGE>

EXHIBIT 10.29
-------------

EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 1997 BETWEEN
THE REGISTRANT AND MICHAEL L. BAUR
<PAGE>

Exhibit 10.29
-------------
EMPLOYMENT AGREEMENT
--------------------

This Employment Agreement is effective as of the 1st day of January, 1997
("Effective Date"), by and between SCANSOURCE, INC., a South Carolina
corporation ("Employer"), and MICHAEL L. BAUR ("Employee").

WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer, in accordance with the terms and conditions hereinafter
set forth:

2. Duties of Employee.
------------------

A. In accepting employment by Employer, Employee shall undertake
and assume the responsibility of performing for and on behalf of Employer the
duties of President of Employer in Greenville, South Carolina. Except with his
written consent, Employee shall not be permanently assigned to (i) any position
of lower professional status, or (ii) a location outside of Greenville County,
South Carolina. It is further understood and agreed that any expansion,
contraction or other modification of Employee's duties shall not result in any
change in Employee's compensation as stated in Section 3, unless Employer and
---------
Employee specifically shall agree otherwise in a duly executed amendment of this
Agreement.

3. Compensation. As compensation for the services to be rendered by
------------
Employee for Employer under this Agreement, Employee shall be compensated on the
following basis:

A. Base Salary. An annual Base Salary of Eighty-seven Thousand
-----------
and No/100 ($87,000.00) Dollars, plus any raises or other compensation approved
by the Board of Directors of Employer, payable in pay periods as determined by
Employer, but in no event less frequently than monthly.

B. Vacation. Fifteen (15) business days of paid vacation time
--------
each year during the term of this Agreement. Such vacation days are to be taken
at such time or times as Employee may reasonably request, subject to the
Employer's convenience and prior approval, which approval shall not be
unreasonably withheld. Vacation time shall not accumulate year to year.
---

C. Incentive Bonus. An "Incentive Bonus" in an amount and in the
---------------
manner determined as follows:

A cash bonus payable with respect to each of the fiscal years ending June
30, 1997, 1998 and 1999, equal to 2.5% of the Operating Income of Employer, as
defined below.

For purposes of this Agreement, "Operating Income" shall mean the amount
reflected for the line item identified as Operating Income on Employer's audited
financial statements for the fiscal years ending June 30, 1997, 1998 and 1999.
The Employer's calculation of Operating Income and the Incentive Bonus amount
shall be conclusive and binding absent fraud or manifest and material error.

The Incentive Bonus shall be paid to the Employee in monthly installments
with each monthly installment being equal to Seventy percent (70%) of the

EMPLOYMENT AGREEMENT
Between Michael L. Baur and ScanSource, Inc.

1
<PAGE>

Incentive Bonus computed using the Operating Income determined by the financial
statement prepared for each month during the term of this Agreement. The
balance of the Incentive Bonus shall be paid with respect to each fiscal year
immediately following the auditor's approval of the release of year end
earnings. Employer shall have no right of reimbursement in the event the amount
advanced in monthly installments exceeds the Incentive Bonus as finally
computed.

The compensation stated above is intended to be the total compensation
paid to Employee pursuant to this Agreement.

EMPLOYMENT AGREEMENT
Between Michael L. Baur and ScanSource, Inc.

2
<PAGE>

Employee's obligations under this Section 5 shall survive any termination
---------
of employment hereunder.

6. Reasonableness, Enforceability and Remedies.
-------------------------------------------

A. Employee has carefully read and considered the provisions of

C. Employee acknowledges that the services he is to render are of
a special and unusual character with a unique value to Employer, the loss of
which cannot adequately be compensated by damages in an action at law. In the
event of a breach or threatened breach by Employee of any of the provisions of
Sections 4 or 5, Employer, in addition to and not in limitation of, any other
- ---------------
rights, remedies, or damages available to Employer under this Agreement, shall
be entitled to a permanent injunction in order to prevent or restrain any such
breach by Employee or by Employee's partners, agents, representatives, servants,
employers, employees, consulting clients, and/or any and all persons directly or
indirectly acting for or with him.

7. Termination.
-----------

EMPLOYMENT AGREEMENT
Between Michael L. Baur and ScanSource, Inc.

3
<PAGE>

such termination) shall be discontinued and forfeited as of the effective date
of such termination. Employee shall be paid Employee's pro rata portion of the
Incentive Bonus, if any, based upon the number of days in the calendar that the
Employee was a full-time employee of Employer. Such portion of the Incentive
Bonus shall be paid at the time and in the manner prescribed in Section 3.
---------

Employee: Michael L. Baur
--------- 102 High Plains Rd.
Simpsonville, South Carolina 29681

Employer: ScanSource, Inc.
-------- 6 Logue Court, Suite G
Greenville, South Carolina 29615
Attn: Steven H. Owings

The parties hereto may change their respective addresses by notice in writing
given to the other party to this Agreement.

EMPLOYMENT AGREEMENT
Between Michael L. Baur and ScanSource, Inc.

4
<PAGE>

IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement under seal to be effective as of the day and year first above written.

EMPLOYER:

SCANSOURCE, INC. (SEAL)

By: /s/ STEVEN H. OWINGS
----------------------------------
Its: CEO
-------------------------------

EMPLOYEE:

/s/ MICHEAL L. BAUR (SEAL)
-------------------------------------
Michael L. Baur

EMPLOYMENT AGREEMENT
Between Michael L. Baur and ScanSource, Inc.

<PAGE>

EXHIBIT 10.30
-------------

EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 1997 BETWEEN
THE REGISTRANT AND JEFFERY A. BRYSON
<PAGE>

EXHIBIT 10.30
-------------

EMPLOYMENT AGREEMENT
--------------------

This Employment Agreement is effective as of the 1st day of January, 1997
("Effective Date"), by and between SCANSOURCE, INC., a South Carolina
corporation ("Employer"), and JEFFERY A. BRYSON ("Employee").

WHEREAS, Employer desires to employ Employee, and Employee desires to be
employed by Employer, in accordance with the terms and conditions hereinafter
set forth:

2. Duties of Employee.
------------------

A. In accepting employment by Employer, Employee shall undertake
and assume the responsibility of performing for and on behalf of Employer the
duties of Chief Financial Officer of Employer in Greenville, South Carolina.
Except with his written consent, Employee shall not be permanently assigned to
(i) any position of lower professional status, or (ii) a location outside of
Greenville County, South Carolina. It is further understood and agreed that any
expansion, contraction or other modification of Employee's duties shall not
result in any change in Employee's compensation as stated in Section 3, unless
---------
Employer and Employee specifically shall agree otherwise in a duly executed
amendment of this Agreement.

3. Compensation. As compensation for the services to be rendered by
------------
Employee for Employer under this Agreement, Employee shall be compensated on the
following basis:

A. Base Salary. An annual Base Salary of Sixty Thousand and
-----------
No/100 ($60,000.00) Dollars, plus any raises or other compensation approved by
the Board of Directors of Employer, payable in pay periods as determined by
Employer, but in no event less frequently than monthly.

C. Incentive Bonus. An "Incentive Bonus" in an amount and in the
---------------
manner determined as follows:

A cash bonus payable with respect to each of the fiscal years ending June
30, 1997, 1998 and 1999, equal to 1.0% of the Operating Income of Employer, as
defined below.

Employee Agreement
Between Jeffery A. Bryson and ScanSource, Inc.

1
<PAGE>

statement prepared for each month during the term of this Agreement. The
balance of the Incentive Bonus shall be paid with respect to each fiscal year
immediately following the auditor's approval of the release of year end
earnings. Employer shall have no right of reimbursement in the event the amount
advanced in monthly installments exceeds the Incentive Bonus as finally
computed.

The compensation stated above is intended to be the total compensation
paid to Employee pursuant to this Agreement.

Employee Agreement
Between Jeffery A. Bryson and ScanSource, Inc.

2
<PAGE>

Employee's obligations under this Section 5 shall survive any termination
---------
of employment hereunder.

6. Reasonableness, Enforceability and Remedies.
-------------------------------------------

A. Employee has carefully read and considered the provisions of

7. Termination.
-----------

Employee Agreement
Between Jeffery A. Bryson and ScanSource, Inc.

3
<PAGE>

Employee would otherwise be entitled (for periods after the effective date of
such termination) shall be discontinued and forfeited as of the effective date
of such termination. Employee shall be paid Employee's pro rata portion of the
Incentive Bonus, if any, based upon the number of days in the calendar that the
Employee was a full-time employee of Employer. Such portion of the Incentive
Bonus shall be paid at the time and in the manner prescribed in Section 3.
---------

Employee: Jeffery A. Bryson
--------- 102 Robin Rd.
Greenville, South Carolina 29609

Employer: ScanSource, Inc.
-------- 6 Logue Court, Suite G
Greenville, South Carolina 29615
Attn: Steven H. Owings

The parties hereto may change their respective addresses by notice in writing
given to the other party to this Agreement.

Employment Agreement
Between Jeffery A. Bryson and ScanSource, Inc.

4
<PAGE>

IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement under seal to be effective as of the day and year first above written.

EMPLOYER:

SCANSOURCE, INC. (SEAL)

By: /s/ STEVEN H. OWINGS
---------------------------------
Its: CEO
------------------------------

EMPLOYEE:

/s/ JEFFERY A. BRYSON (SEAL)
------------------------------
JEFFERY A. BRYSON

Employment Agreement
Between Jeffery A. Bryson and ScanSource, Inc.

<PAGE>

EXHIBIT 10.31
-------------

STOCK OPTION AGREEMENT DATED JULY 18, 1996 COVERING
STOCK OPTIONS GRANTED TO STEVEN R. FISHER
<PAGE>

Exhibit 10.31
-------------

STOCK OPTION AGREEMENT

This Option Agreement made as of the 18th day of July 1996 (the "Date of
Grant") by and between SCANSOURCE, INC., a South Carolina corporation (the
"Company") and Steven R. Fisher ("Optionee").

To afford Optionee the opportunity to purchase shares of no par value
common stock of the Company (the "Stock"), and in consideration of the mutual
agreements and other matters set forth herein, the Company and Optionee hereby
agree as follows:

1. Grant of Option. The Company hereby grants to Optionee the right
---------------
and option (the "Option") to purchase all or any part of 5,000 shares of the
authorized and unissued shares of the Stock on the terms and conditions set
forth herein (the "Option Shares"). The number of shares subject to the Option
shall be adjusted for any stock splits, stock dividends or other issuance or
redemption of shares by the Company. This Option shall not be treated as an
incentive stock option within the meaning of Section 422A(b) of the Internal
Revenue Code of 1986, as amended (the "Code").

2. Purchase Price. The purchase price per share of the Stock to be
--------------
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Eleven dollars and 25/100 and ($11.25) per share of the Stock, the closing
price of the stock on July 17, 1996.

3. Exercise and Closing. This Option shall be exercisable by written
--------------------
notice addressed to the Company at its executive offices, provided, however,
that no exercise shall be permitted unless the dollar value of the purchase
exceeds one thousand ($1,000.00) dollars or the exercise exhausts the Stock
subject to the Option. No fraction of a share of the Stock shall be transferred
by the Company upon any exercise of this option. Closing of the purchase of the
shares of the stock as to which this Option may be exercised shall take place in
the offices of the Company on or before thirty days following the receipt by the
Company of the written notice of exercise by Optionee. The Purchase Price
multiplied by the number of shares as to which this Option is exercised shall be
paid in full to the Company at the time of such closing in cash (including
check, bank draft, or money order payable to the order of the Company).

4. Term. This Option shall be exercisable during the period commencing
----
on July 18, 1996 and ending on July 19, 2006. This Option may be exercised
during the term hereof only by Optionee during Optionee's lifetime, except that
if Optionee dies during the term of this Option Agreement, Optionee's estate, or
the entity which acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Optionee, may exercise this
Option in full at any time during the term of the Option.

5. Transferability. These Options are not transferable or assignable,
---------------
in whole or in part, by Optionee, otherwise than by will or the laws of descent
and distribution.

6. Stock Restriction. Optionee understands that at the time of the
-----------------
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of the Option to Purchase have not been registered under the Securities
Act of 1933, as amended (the "Act"), or under any state securities law, and that
the Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising the
Option shall be purchased by Optionee for investment without a view to
distribution within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated unless such transfer has been registered
under the Act and applicable state securities laws, or the transfer duly
qualifies for an applicable exemption from the registration requirements of the
Act and any applicable state securities laws. In any event, Optionee agrees
that the shares of the Stock which Optionee may acquire by exercising the Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state.

In addition, Optionee agrees that (i) certificates representing the share of the
Stock purchased under the Option may hear such restrictive legend or legends as
the Company's legal counsel deems appropriate in order to assure compliance with
applicable securities laws, (ii) the Company may refuse to register the transfer
of the shares of the Stock purchased under the Option on the stock transfer
records of the Company if such proposed transfer would, in the opinion counsel
satisfactory to the Company, constitute a violation of any applicable securities

1
<PAGE>

laws, and (iii) the Company may give related instructions to its transfer agent
to stop registration of the transfer of the shares of Stock purchased under the
Option.

7. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.

8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of South Carolina.

IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly
executed by its duly authorized officer and Optionee has executed this Option
Agreement, all as of the day and year first above written.

SCANSOURCE, INC.

By: /s/ JEFFERY A. BRYSON
----------------------------------------
Its: Chief Financial Officer

Optionee:

By: /s/ STEVEN R. FISHER
---------------------------------------

<PAGE>

EXHIBIT 10.32
-------------

STOCK OPTION AGREEMENT DATED JULY 18, 1996 COVERING
STOCK OPTIONS GRANTED TO JAMES G. FOODY
<PAGE>

Exhibit 10.32
-------------

STOCK OPTION AGREEMENT

This Option Agreement made as of the 18th day of July 1996 (the "Date of
Grant") by and between SCANSOURCE, INC., a South Carolina corporation (the
"Company") and James G. Foody ("Optionee").

5. Transferability. These Options are not transferable or assignable,
---------------
in whole or in part, by Optionee, otherwise than by will or the laws of descent
and distribution.

1
<PAGE>

Act and any applicable state securities laws. In any event, Optionee agrees
that the shares of the Stock which Optionee may acquire by exercising the Option
shall not be sold or otherwise disposed of in any manner which would constitute
a violation of any applicable securities laws, whether federal or state.

7. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.

8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of South Carolina.

SCANSOURCE, INC.

By: /s/ JEFFERY A. BRYSON
----------------------------------------
Its: Chief Financial Officer

Optionee:

By: /s/ JAMES G. FOODY
----------------------------------------

<PAGE>

EXHIBIT 10.33
-------------

STOCK OPTION AGREEMENT DATED DECEMBER 3, 1996 COVERING
STOCK OPTIONS GRANTED TO STEVEN H. OWINGS
<PAGE>

Exhibit 10.33
-------------

STOCK OPTION AGREEMENT

This Option Agreement made as of this 3rd day of December, 1996 (the
"Date of Grant") by and between SCANSOURCE, INC., a South Carolina corporation
(the "Company") and Steven H. Owings ("Optionee").

1. Grant of Option. The Company hereby grants to Optionee the right
---------------
and option (the "Option") to purchase all or any part of 30,000 shares of the
authorized and unissued shares of the Stock on the terms and conditions set
forth herein (the "Option Shares"). The number of shares subject to the Option
shall be adjusted for any stock splits, stock dividends or other issuance or
redemption of shares by the Company. This Option shall not be treated as an
incentive stock option within the meaning of Section 422A(b) of the Internal
Revenue Code of 1986, as amended (the "Code").

2. Purchase Price. The purchase price per share of the Stock to be
--------------
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Fourteen dollars and 50/100 and ($14.50) per share of the Stock, the closing
price of the stock on December 2, 1996.

4. Term. This Option shall be exercisable during the period commencing
----
on December 3, 1996 and ending on December 4, 2006. This Option may be
exercised during the term hereof only by Optionee during Optionee's lifetime,
except that if Optionee dies during the term of this Option Agreement,
Optionee's estate, or the entity which acquires this Option by will or the laws
of descent and distribution or otherwise by reason of the death of Optionee, may
exercise this Option in full at any time during the term of the Option.

5. Transferability. These Options are not transferable or assignable,
---------------
in whole or in part, by Optionee, otherwise than by will or the laws of descent
and distribution.

1
<PAGE>

7. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.

8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of South Carolina.

SCANSOURCE, INC.

By: /s/ JEFFERY A. BRYSON
------------------------
Its: Chief Financial Officer

Optionee:

By: /s/ STEVEN H. OWINGS
-----------------------

<PAGE>

EXHIBIT 10.34
-------------

STOCK OPTION AGREEMENT DATED DECEMBER 3, 1996 COVERING
STOCK OPTIONS GRANTED TO MICHAEL L. BAUR

<PAGE>

Exhibit 10.34
-------------

STOCK OPTION AGREEMENT

This Option Agreement made as of this 3rd day of December, 1996 (the
"Date of Grant") by and between SCANSOURCE, INC., a South Carolina corporation
(the "Company") and Michael L. Baur ("Optionee").

ScanSource, Inc. wishes to afford Optionee the opportunity to purchase
and to sell some of the Company's shares in consideration of the mutual
agreements and other matters set forth herein. The Company and Optionee hereby
agree as follows:

A. OPTION TO PURCHASE

1. Grant of Option to Purchase. The Company hereby grants to Optionee
----------------------------
the right and option to purchase all or any part of 16,000 shares of the issued
and outstanding shares of stock on the terms and conditions set forth herein
(the "Option Shares"). The number of shares subject to this Option to Purchase
shall be adjusted for any stock splits, stock dividends or other issuance or
redemption of shares by the Company. This Option shall not be treated as an
incentive stock option within the meaning of Section 422A(b) of the Internal
Revenue Code of 1986, as amended (the "Code").

2. Purchase Price. The purchase price per share of the Stock to be
---------------
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Fourteen dollars and 50/100 and ($14.50) per share of the Stock, the closing
price of the stock on December 2, 1996.

3. Exercise and Closing. Subject to such further limitations as are
---------------------
provided herein, the Option to Purchase shall become exercisable in three (3)
installments, the Optionee having the right hereunder to purchase from
ScanSource the following number of Option Shares upon exercise of the Option, on
and after the following dates, in cumulative fashion:

(a) on and after the first anniversary of the Date of Grant, up to
one-third (ignoring fractional shares) of the total number of
Option Shares;

(b) on and after the second anniversary of the Date of Grant, up
to an additional one-third (ignoring fractional shares) of the
total number of Option Shares; and

This Option shall be exercisable by written notice addressed to the Company at
its executive offices, provided, however, that no exercise shall be permitted
unless the dollar value of the purchase exceeds one thousand ($1,000.00) dollars
or the exercise exhausts the Stock subject to this Option to Purchase. No
fraction of a share of the Stock shall be transferred by the Company upon any
exercise of this option. Closing of the purchase of the shares of the stock as
to which this Option may be exercised shall take place in the offices of the
Company on or before thirty days following the receipt by the Company of the
written notice of exercise by Optionee. The Purchase Price multiplied by the
number of shares as to which this Option is exercised shall be paid in full to
the Company at the time of such closing in cash (including check, bank draft, or
money order payable to the order of the Company).

4. Term. The Option and all rights hereunder with respect thereto, to
-----
the extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of ten (10) years from the Date of Grant (the
"Expiration Date"). This Option may be exercised during the term hereof only by
Optionee during Optionee's lifetime, except that if Optionee dies during the
term of this Option Agreement, Optionee's estate, or the entity which acquires
this Option by will or the laws of descent and distribution or otherwise by
reason of the death of Optionee, may exercise this Option in full at any time
during the term of the Option, but only as to the number of shares of the Stock
that Optionee was entitled to purchase hereunder as of the date of Optionee's
death. If Optionee's employment with the Company terminates by reason of
disability (within the meaning of Section 22(e)(3) of the Code), this Option may
be exercised in full by Optionee (or Optionee's duly authorized representative)
at any time during the period of one year following such termination, but only
as to the number of shares of the Stock that Optionee was entitled to purchase

1
<PAGE>

hereunder as of the date Optionee's employment so terminates. If Optionee's
employment with the Company terminates prior to the expiration of the term of
this Option for any reason other than death or disability, this Option shall
terminate without any further obligation of the Company effective sixty days
following the date Optionee's employment so terminates.

B. MISCELLANEOUS

1. Transferability. These Options are not transferable or assignable,
----------------
in whole or in part, by Optionee, otherwise than by will or the laws of descent
and distribution.

2. Stock Restriction. Optionee understands that at the time of the
------------------
execution of this Option Agreement, the shares of the Stock issuable upon
exercise of the Option to Purchase have not been registered under the Securities
Act of 1933, as amended (the "Act"), or under any state securities law, and that
the Company currently does not intend to effect any such registration. Optionee
agrees that the shares of the Stock which Optionee may acquire by exercising the
Option to Purchase shall be purchased by Optionee for investment without a view
to distribution within the meaning of the Act, and shall not be sold,
transferred, assigned, pledged, or hypothecated unless such transfer has been
registered under the Act and applicable state securities laws, or the transfer
duly qualifies for an applicable exemption from the registration requirements of
the Act and any applicable state securities laws. In any event, Optionee agrees
that the shares of the Stock which Optionee may acquire by exercising the Option
to Purchase shall not be sold or otherwise disposed of in any manner which would
constitute a violation of any applicable securities laws, whether federal or
state.

In addition, Optionee agrees that (i) the certificates representing the shares
of the Stock purchased under the Option to Purchase may hear such restrictive
legend or legends as the Company's legal counsel deems appropriate in order to
assure compliance with applicable securities laws, (ii) the Company may refuse
to register the transfer of the shares of the Stock purchased under the Option
to Purchase on the stock transfer records of the Company if such proposed
transfer would, in the opinion of counsel satisfactory to the Company,
constitute a violation of any applicable securities laws, and (iii) the Company
may give related instructions

to its transfer agent to stop registration of the transfer of the shares of
Stock purchased under the Option to Purchase.

3. Binding Effect. This Agreement shall be binding upon and inure to
---------------
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.

4. Governing Law. This Agreement shall be governed and construed in
--------------
accordance with the laws of the State of South Carolina.

SCANSOURCE, INC.

By: /s/ JEFFERY A. BRYSON
------------------------
Chief Financial Officer

Optionee:

/s/ MICHAEL L. BAUR
--------------------------

<PAGE>

EXHIBIT 10.35
-------------

DISTRIBUTION AGREEMENT DATED OCTOBER 1, 1994 BETWEEN
THE REGISTRANT AND SYMBOL TECHNOLOGIES, INC*

- -------------------------------
* Confidential Treatment pursuant to 17 CFR (S)(S) 200.80, 200.83, and 230.406
and 5 USC (S) 502 has been requested regarding certain portions of the indicated
Exhibit, which portions have been filed separately with the Commission.
<PAGE>

Exhibit 10.35
-------------
Confidential Treatment Requested

SYMBOL TECHNOLOGIES, INC.
DISTRIBUTION AGREEMENT

As of October 1, 1994 , Symbol Technologies, Inc., a Delaware corporation
having is principal place of business at 116 Wilbur Place, Bohemia, NY 11716
("Symbol"), and ScanSource, a South Carolina corporation having its principal
place of business at Greenville, South Carolina ("Distributor"), agree as
follows:

1. APPOINTMENT. Symbol appoints Distributor an authorized distributor of
its Products within the United States and Puerto Rico (the "Territory"). Symbol
remains free to distribute its Products within the Territory through other
distributors or dealers. As used in this Agreement, "Products" means all
products offered for sale by Symbol generally as set forth and described in
Symbol's current price list. Products may be added to or deleted from the price
list by Symbol on sixty days prior written notice to Distributor.

2. RESPONSIBILITIES OF DISTRIBUTOR. Distributor will use its reasonable best
efforts to:

a. maintain a competent and aggressive sales force and otherwise promote the
sale, lease, or other distribution of the Products, TO RESELLERS ONLY,
within the Territory;

b. maintain a representative inventory of Products in reasonably sufficient
quantities to provide adequate and timely delivery to Distributor's
customers; and

c. participate in such training programs as may be offered by Symbol.

3. RESPONSIBILITIES OF SYMBOL. Symbol will use its reasonable best efforts
to:

a. furnish Distributor with current price and product information in suitable
electronic formats and with a reasonable supply of such printed sales
literature, books, catalogues, and the like as Symbol may prepare and make
available such training and technical and sales support as may be
necessary to assist Distributor in effectively carrying out its activities
under this Agreement;

b. advertise the Products throughout the Territory, inform the public that
Distributor is an authorized distributor of the Products, encourage
customers or potential customers potential customers for the Products to
order the same from its distributors (including Distributor), and refer to
its distributors (including Distributor) leads and orders involving
quantities of Products normally handled by distribution; and

c. establish and maintain quality control manufacturing, handling and testing
procedures, and such other programs as are necessary to ensure that the
Products, as manufactured and sold to Distributor are of the highest
quality and reliability, are in full compliance with all applicable laws,
standards, codes and regulations, are duly marked and labeled and are
suitable for resale or other distribution.

4. REPORTS AND AUDITS. Within fifteen business days after the end of each
month, Distributor will send to Symbol in a mutually agreeable format, (i) a
stock status report showing the month end on-hand quantities of Products by
device type and warehouse location and (ii) a point of sale report showing each
sale of the Products for the month by device type, selling location, customer
name and address, and sale price. No more than twice during any year, at
reasonable times and upon reasonable prior notice employees of Symbol may (i)
conduct a physical inventory of Products in any stocking location (or, in
automated facilities, observe cycle counts and related methodology) or (ii)
audit such business records, located at Distributor's corporate headquarters, as
pertain solely to the purchase of Products hereunder during any such year.

5. ORDERS; DELIVERY; RESCHEDULING; CANCELLATION

A. ORDERS Distributor will place written, telefaxed, or electronically
interchanged purchase orders with written confirmation within thirty days,
which will include the Products ordered, quantities requested, delivery
dates, prices, and shipping instructions (when necessary). Symbol will
acknowledge each order in writing, by telefax or electronic interchange
within ten business days of the receipt thereof and will confirm the
requested shipment date or specify an alternative shipment date
("Acknowledged Shipment Date").

B. SHIPPING All shipments are F.O.B. Symbol's point of manufacture.

1
<PAGE>

C. RESCHEDULING AND CANCELLATION Distributor may, on at least thirty days
prior written notice, reschedule or cancel the Acknowledged Shipment Date
of any order without cost or penalty.

D. DISTRIBUTOR'S ACCEPTANCE Distributor's acceptance of an order will occur
upon its receipt of the Products, unless Distributor notifies Symbol
within thirty business days of such receipt that the products are
defective or do not conform to Symbol's applicable warranty, the terms of
this Agreement, or Distributor's order.

E. DOA'S Products received by Distributor that are defective on arrival will
be handled under standard procedures then currently in place for DOA's and
expedited replacement.

6. PRICES. The paces for Products will be as set forth in Symbol's Price
list in effect as of the date of this Agreement, subject to discounts equal to
Level "8" in the attached "Distributor Product and Discount Schedule". For
discount levels above Level 7, see attached Addendum. Prices are also subject to
change from such date forward upon at least sixty days prior written notice from
Symbol to Distributor.

A. PRICE INCREASES Prior to the effective date of a price increase,
Distributor may order Products for delivery within the term at the prior
(i.e., lower) price. Products shipped under orders submitted by
Distributor prior to the effective date of any price increase will be
shipped and invoiced at the price in effect at the time of order
placement, providing shipment occurs within 90 days.

B. PRICE DECREASES In the event Symbol decreases the price of any Product,
Distributor will receive a credit equal to the difference between the
price paid for the Product by Distributor (less any prior credits taken by
Distributor on such Product) and the new decreased price for the Product
multiplied by the quantity of such Product in Distributor's inventory, or
in transit to Distributor, on the effective date of the decrease. Price
protection will also apply to all Products returned to Distributor by its
customers within sixty days of the effective date. Distributor will submit
to Symbol within sixty business days following the later of the effective
date of such price decrease or the date Distributor actually receives
notice thereof, a list of the Products upon which such credit is due. All
Products shipped after the effective date of any price decrease will be
shipped and invoiced at the price in effect at the time of shipment.

C. SUPPLIER'S REPRESENTATION Symbol represents and warrants that its
practices and policies, including prices and discounts, comply with all
applicable laws.

D. TAXES AND OTHER CHARGES Distributor will pay any applicable sales or use
taxes pertaining to its purchase of the Products (and, if Products are to
be delivered to points outside the United States, the cost of packing,
duties, licenses, and fees) if Included as a separate item on the invoices
sent by Symbol to Distributor.

E. TERMS Terms of payment are two percent 20 net 45 days.

7. RETURN OF PRODUCT

A. [*]

8. PRODUCT CHANGES

A. OBSOLESCENCE AND MODIFICATION Symbol reserves the right to discontinue
the manufacture or sale of, or otherwise render or treat as obsolete, any
or all of the Products (or to modify the design or manufacture of any
Product so as to preclude or limit Distributor's sales of such Product)
upon at least ninety days prior written notice to Distributor. Distributor
may, in its discretion, within sixty days of its receipt of such notice,
notify Symbol in writing of its intention to return any or all such
Products which remain in its inventory for a credit equal to the net price
paid by Distributor for such Products. The Products will be returned
within sixty days of the date of Distributor's receipt of Symbol's return
authorization.

B. INTRODUCTION OF NEW PRODUCTS Symbol will give Distributor at least thirty
days prior written notice of the introduction of any new Products that
preclude or materially limit Distributor from selling any Products in its
inventory and will work with Distributor to resell the affected inventory.
If, despite such efforts, affected Product still remains in Distributor's

* Redacted pursuant to application for confidential treatment.

<PAGE>

inventory, Symbol will replace it with the new Products within one hundred
twenty days of the official public announcement, or Symbol's first
shipment, of such new Products, whichever occurs first, for only the net
cost difference, plus shipping.

9. WARRANTY. The Products will be covered by Symbol's standard warranties,
copies of which are included in Product packaging, plus ninety days for resale
stocking.

10. COMPLIANCE WITH LAWS. Despite anything to the contrary contained in
Addendum I or elsewhere in this Agreement, Symbol will indemnify Distributor
against, and hold it harmless from, any cost, loss, damage, or liability
(including reasonable attorney's fees) arising from or related to Symbol's
conduct or the failure, or alleged failure, of the Products, as manufactured and
sold to Distributor to fully comply with all applicable Laws, standards, codes,
specifications, and regulations or to be suitable for resale or other
distribution by Distributor as contemplated by this Agreement. All warranty and
indemnification provisions of this Agreement will survive the termination
hereof.

11. INTELLECTUAL PROPERTY. Symbol will indemnify, defend and otherwise hold
harmless Distributor, its affiliates and its customers from all cost, loss,
damage, or liability arising from any proceeding or claim brought or asserted
against Distributor, its affiliates or its customers to the extent such
proceeding or claim is based on an allegation that the Products, any part
thereof, or their distribution or use infringe any patent, copyright, trademark,
trade secret, right in a mask work, or any similar claim, if Distributor
notifies Symbol of any such proceeding or claim promptly after it becomes known
and provides all the assistance and cooperation to Symbol that is reasonably
requested. Symbol will not be liable to Distributor under this paragraph to the
extent that any claim is based on a use for which the Product or part was not
designed, or an alteration of the Product by Distributor or at its direction
which caused the infringement.

12. TERM AND TERMINATION

A. Term This Agreement is effective once signed by both parties and until
terminated in accordance with the provisions of this paragraph. Either
party may at any time terminate this Agreement without cause and far its
convenience by giving sixty days prior written notice to the other. Symbol
and Distributor represent that they have considered the making of
expenditures in preparing to perform under this Agreement. In that regard,
both parties acknowledge that neither party will in any way be liable to
the other for any loss, expense, or damage (including special,
consequential or incidental damages) by reason of any termination of this
Agreement without cause, excepting only the then current value of equipment
purchased or improvements made by either party and dedicated to the
Products or services of such other party.

B. EVENTS OF DEFAULT Any of the following is a default under this Agreement:
i. the assignment of this Agreement by either party without the prior
written consent of the other party.

ii. either party's failure to cure any breach of this Agreement within
sixty days following written notice thereof from the other (or, if not
curable within sixty days, if the cure is not commenced within that
period and thereafter diligently completed); and,

iii. the assignment by either party of its business for the benefit of
creditors, or the filing of a petition by either party under
Bankruptcy Code or any similar statute, or the filing of such a
petition against either of them which is not discharged or stayed
within sixty days, or the appointment of a receiver or similar officer
to take charge of either party's property, or any other act indicative
of bankruptcy or insolvency.

C. REMEDIES UPON DEFAULT In the event of either party's default, the other
party may terminate this Agreement for cause by written notice and/or avail
itself of any remedy available at law or equity.

D. RETURN OF INVENTORY In the event of any termination of this Agreement,
Symbol may, at its option, repurchase from Distributor any or all unsold
Products designated by Distributor from its inventory at the price paid
therefor by Distributor, less any prior credits taken by Distributor on
such Products. If Distributor terminates this Agreement without cause, or
Symbol terminates it with cause, the price will be reduced by a five
percent handling charge and Distributor will pay all freight and shipping

3
<PAGE>

charges (which otherwise will be paid by Symbol). In the event of any
termination, Symbol will, at Distributor's request, honor any Distributor
purchase order then outstanding.

Symbol will only accept those Products which are in their original unopened
packaging or are undamaged and in merchantable condition. No termination
of this Agreement will affect any obligation of either party to pay amounts
due to the other hereunder.

13. MARKETING COMMUNICATION.

[*]

14. NOTICES. Notices under this Agreement will be deemed given when delivered
by hand or deposited in the United States mail as certified mail, postage
prepaid, addressed to the president of either party at its then principal place
of business.

15. TRADEMARKS. This Agreement does not create, and neither party will have
any right in, or to the use of, any mark, name, style, or logo of the other
party. Distributor is, however, hereby granted a nonexclusive right to use
Symbol's marks, names, or logos to identify itself as an authorized distributor
of the Products and for advertising and promoting its services under this
Agreement.

16. CONFIDENTIAL INFORMATION. Each party will receive and maintain in
confidence all proprietary information, trade secrets or other know-how
belonging to the other (including but not limited to knowledge of manufacturing
or technical processes, financial and systems data, and customer information)
provided that any such information, secrets, or know-how is expressly designated
as being confidential, except and to the extent that disclosure is required by
law, regulation, or court order, or enters into the public domain through no
fault of the party obligated to maintain such confidentiality. Without limiting
the foregoing, all material and information made known to Symbol by Distributor
pursuant to paragraph 4 of this Agreement is hereby designated as confidential.

17. CREDITS. In the event Distributor is entitled to a credit from Symbol
which exceeds Distributor's obligation to Symbol at the time, Symbol will
promptly pay the amount of such excess to Distributor.

18. AUTHORIZATION NOT UNREASONABLY WITHHELD. Whenever any consent, action, or
authorization is required or requested of either party hereunder, it will not be
unreasonably withheld or delayed. Any required return authorization will be
granted within thirty days from the day it is requested.

19. FORCE MAJEURE. Neither party will bear any liability to the other for any
failure or delay to the extent that it results from acts of God, labor
difficulties, inability to obtain materials, or any other cause beyond such
party's reasonable control.

20. RELATIONSHIP OF PARTIES. The parties are independent contractors, each in
full control of its business. Under no circumstances will either party have the
right or authority to act or make any commitment on behalf of or bind the other
or represent the other as its agent in any way.

21. PUBLICITY. This Agreement is confidential within the meaning of paragraph
16. Except as required by law, no press release or other like publicity
regarding the relationship between Distributor and Symbol, this Agreement, or
its termination will be made without the other party's prior approval.

22. SOFTWARE. Symbol warrants that it is the owner or licensee of all
software provided to Distributor under this Agreement (whether or not included
or embedded in any other Product) and has the authority to permit Distributor to
use or resell or sublicense the software to third parties. Distributor will not
resell or sublicense the software without the license agreement provided by
Symbol for that purpose and will advise Symbol of any known breach of the terms
thereof.

23. GENERAL

A. ENTIRE AGREEMENT This Agreement supersedes all prior communications or
understandings between Distributor and Symbol and constitutes the entire
agreement between the parties with respect to the matters covered herein.
In the event of a conflict or inconsistency between the terms

* Redacted pursuant to application for confidential treatment.

4
<PAGE>

of this Agreement and those of any order, quotation, acknowledgment, or
other communication from one party to the other, the terms of this
Agreement will be controlling.

B. AMENDMENT This Agreement cannot be changed in any way except by a writing
signed by the party against which the enforcement of the change is sought.

C. GOVERNING LAW This Agreement is made in, governed by, and will be
construed solely in accordance with, the internal laws of the State of New
York. Any action brought under or in connection with this Agreement must
be instituted in the state or federal forum covering the defending party's
principal place of business. In any such action, the prevailing party's
reasonable legal fees will be paid by the other party.

D. REFORMATION In the event any provision of this Agreement is held to be
invalid or unenforceable for any reason, such invalidity or
unenforceability will attach only to such provision and will not affect or
render invalid or unenforceable any other provision of this Agreement. Any
such provision may be reformed by a court of competent jurisdiction so as
to render the same valid or enforceable while most nearly effectuating the
intent of the parties.

E. ASSIGNMENT Neither party has the right to assign this Agreement in whole
or in part without the prior written consent of the other except to
another corporation wholly-owned by or under common control with it. For
purposes hereof, an assignment includes without limitation, a merger, sale
of assets or business, or other transfer of control by operation of law or
otherwise.

Each party has entered this Agreement by having an authorized representative
sign below.

FOR SYMBOL
Name J. Callahan
----------------------------------------------------
Signature /s/ J. CALLAHAN
-----------------------------------------------
Title Vice President
---------------------------------------------------
Date 10/29/94
----------------------------------------------------

FOR DISTRIBUTOR
Name Steve Owings
----------------------------------------------------
Signature /s/ STEVE OWINGS
-----------------------------------------------
Title CEO
---------------------------------------------------
Date Oct. 27, 1994
----------------------------------------------------

5
<PAGE>

ADDENDUM I

To Symbol Technologies, Inc. Distribution Agreement between
Symbol Technologies, Inc. ("Symbol") and ScanSource, Inc. ("ScanSource"),
dated October 1, 1994
----------------

- --------------------------------------------------------------------------------

This Addendum is attached and made an integral part of the above-referenced
agreement between the parties. All provisions and terms of the former remain in
effect, except as modified below:

I. PARAGRAPH 6 "PRICES":
--------------------

Distributor is entitled to Discount Level [*] in exchange for a commitment to
purchase and take delivery of at least $ [*] in Symbol products during the
term of the agreement. The discounts will be as set forth in the Distributor
Product and Discount Schedule for Level [*], plus [*] percent ([*]%) additional
discount for Category [*] products. Category [*] products remain at [*]%.

[*]

II. PARAGRAPH 7 "RETURN OF PRODUCT":
-------------------------------

[*]

Agreed to this date by the parties

FOR SYMBOL: FOR SCANSOURCE:

FOR SYMBOL
Name J. Callahan Name Steve Owings
---------------------------------- ---------------------------------
Signature/s/ J. CALLAHAN Signature /s/ STEVE OWINGS
----------------------------- -----------------------------
Title Vice President Title CEO
--------------------------------- ---------------------------------
Date 10/29/94 Date Oct. 27, 1994
---------------------------------- ----------------------------------

* Redacted pursuant to application for confidential treatment.

6
<PAGE>

DISTRIBUTOR
+-------------------------------+
| PRODUCT AND DISCOUNT SCHEDULE |
+-------------------------------+
ATTACHMENT TO SYMBOL DISTRIBUTOR AGREEMENT

CATEGORY A: ALL HANDHELD BARCODE SCANNING PRODUCTS:
- ---------- --------------------------------------
LS2XXX, LS85XX, LS3XXX, LT17XX, HF2000
LSS24XX, LS9100, WK1780, WK2080

CATEGORY B: OTHER SCANNING PRODUCTS:*
- ---------- -----------------------
LL5XX, SL67XX, SL95XX, LS6XXX, PDF1000, PDF6000,
PL140, LL425 (SYSTEM), LS5000
PORTABLE TERMINALS
------------------
PDT31XX, PDT1475*, RFT15XX*, SDT*, PDT3300, LDT3805,
PRC3310, VRC3910, LRT3800, APS3395, DATAWANDS*

CATEGORY C: DATA MANAGEMENT PRODUCTS, PEN-BASED TERMINALS,
- ---------- -----------------------------------------------
ACCESSORIES, PERIPHERALS, & CABLES
----------------------------------
PPT4100, LS5100, LS5200, DM8XX, LL7XX, MS7X, WANDS, POWER
SUPPLIES, PS100X*, RF BASE STATIONS, NETWORK CONTROLLERS,
CRADLES, ADAPTORS, ACCESSORIES, SCAN STANDS, INTELLISTANDS,
SMART STANDS, TRANSCEIVERS, LL425 CABLE, TRAINING COURSES &
VIDEOS
DEVELOPMENT SOFTWARE
--------------------
UBASIC, POWERGEN, LIBRARIES, PERFORM SOFTWARE, ETC.
LL500 USER DOCUMENTATION, SERIES 3000ADK

CATEGORY D: APPLICATION SOFTWARE & OEM PRODUCTS*
- ---------- -----------------------------------
ALL THIRD PARTY APPLICATIONS* Products designated with an
asterisk have a 90 day warranty to end user. All others are
warranted for one year.

+-----------------------------------------------------------------------------+
| DISTRIBUTOR DISCOUNT SCHEDULE |
| DISCOUNT FROM LIST PRICE (PERCENT) |
| |
| DISC CERT. MINIMUM CREDIT ANNUAL PRODUCT CATEGORY |
| LEVEL LEVEL LIMIT REQUIRED VOLUME (000'S) A B C D |
| ----- ----- -------------- -------------- - - - - |
| 6 5C $105,000 2,000 - 3,999 [*] [*] [*] [*] |
| |
| 7 6C $215,000 OVER 4,000 [*] [*] [*] [*] |
| |
| - 7C $21,5000 OVER 4,000 [*] [*] [*] [*] |
| |
| 8 OVER 6,000 [*] |
+-----------------------------------------------------------------------------+

* Redacted pursuant to application for confidential treatment.

7
<PAGE>

EXHIBIT D
SYMBOL TECHNOLOGIES, INC.
VALUE ADDED RESELLER AGREEMENT
+---------------------------------+
| Cooperative Marketing Partner |
| REFERRAL FEE PAYMENT SCHEDULE |
+---------------------------------+

The following referral fee payment rates are in effect for qualifying conditions
set forth in paragraph 4 of the Value Added Reseller Agreement for VARS or in
the Cooperative Marketing Partner (CMP) Agreement for CMP's. Conditions for
earning such referral fees are set forth therein. Symbol reserves the right to
change all fees in Exhibit D without notice.

+------------------------------------------------------------------+
| |
| Discount provided Referral Fee Amount Earned as |
| to End-user by Symbol a % of Net Cost to End-user |
| --------------------- ----------------------------- |
| 0-10% [*] |
| ----------------------------------------------------- |
| 11-20% [*] |
| ----------------------------------------------------- |
| 21-30% [*] |
| ----------------------------------------------------- |
| 31-40% [*] |
| ----------------------------------------------------- |
| 41-50% [*] |
| ----------------------------------------------------- |
| >50% [*] |
+------------------------------------------------------------------+

* Redacted pursuant to application for confidential treatment.

<PAGE>

EXHIBIT 10.36
-------------

DISTRIBUTION AGREEMENT DATED JANUARY 1, 1996 BETWEEN
THE REGISTRANT AND IBM CORPORATION*

- -----------------------
* Confidential Treatment pursuant to 17 CFR (S)(S) 200.80, 200.83, and 230.406
and 5 USC (S) 502 has been requested regarding certain portions of the indicated
Exhibit, which portions have been filed separately with the Commission.
<PAGE>

Exhibit 10.36
-------------
Confidential Treatment Requested

IBM BUSINESS PARTNER AGREEMENT IBM
BUSINESS
MANAGING INDUSTRY REMARKETER PROFILE PARTNER

- --------------------------------------------------------------------------------

We welcome you as an IBM Business Partner.

This Profile covers the details of your authorization to market our Products to
Customers. Like you, we are committed to providing the highest quality Products
to the Customer. As our managing industry remarketer, please let us know if you
have any questions or problems with our Products.

By signing below, each of us agrees to the terms of the following (collectively
called the "Agreement"):

(a) this Profile;

(b) Remarketer General Terms (Z125-4800-07 05/95); and

This Agreement and its applicable Transaction Documents are the complete
agreement regarding this relationship, and replace any prior oral or written
communications between us. Once this Profile is signed, 1) any reproduction of
this Agreement or a Transaction Document made by reliable means (for example,
photocopy or facsimile) is considered an original and 2) all Products you order
and Services you perform under this Agreement are subject to it.

Revised Profile (yes/no): no Date received by IBM: 02/20/96
------ --------------

Agreed to: (IBM Business Partner name) Agreed to:
SCANSOURCE International Business Machines
GREENVILLE, SC 29615 Corporation

By /s/ STEVEN H. OWINGS By /s/ TERRY WEBB
----------------------------------- --------------------------------
Authorized signature Authorized signature

Name (type or print): Steven H. Owings Name (type or print): Terry Webb

Date 1/29/96 Date: 3/8/96

IBM Business Partner address: IBM Office address:
SCANSOURCE 4111 NORTHSIDE PARKWAY, LO8C3
ATLANTA, GA 30327-3098
6 LOGUE COURT, SUITE G
GREENVILLE, SC 29615
<PAGE>

After signing please return a copy of this Profile to the local "IBM Office
address" shown above.

DETAILS OF OUR RELATIONSHIP

1. CONTRACT-PERIOD START DATE (MONTH/YEAR): 01/96 DURATION (MONTHS): 12
------- ----
The start date is always the first day of a month. The start date does not
change with a revised Profile.

2. RELATIONSHIP APPROVAL/ACCEPTANCE OF ADDITIONAL TERMS:
For our approved relationship, each of us agrees to the terms of the
following Attachments by signing this Profile. Copies of those Attachments
are included. Please make sure you have them (and the Remarketer General
Terms) and notify us if any are missing.

APPROVED
AUTHORIZED RELATIONSHIP (YES/NO) ATTACHMENT
1) Managing Industry Remarketer yes Z125-4579-06 07/95 and
--- Z125-4805-09 07/95

Industry Remarketer Attachment: yes
Attachment for SureOne Point-of-Sale ---
Terminal (4614)
THE FOLLOWING OFFERING HAS ADDITIONAL
TERMS IN THE APPLICABLE ATTACHMENT.

1) Market Development Fund yes Z125-5215-00 03/94
---

3. NAME AND ADDRESS OF YOUR AGGREGATOR, IF APPLICABLE:
You may receive Products through this Aggregator. By selecting this
Aggregator, you agree that it (and not we) will provide the functions
identified in the Remarketer General Terms as the Aggregator's
responsibility.

N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

4. PRODUCT APPROVAL:
The following Products are listed in either the Industry Remarketer Exhibit,
the Dealer Exhibit, the Software Remarketer Exhibit, or the Managing Industry
Remarketer- Schedule A. The terms of the applicable Exhibit or Schedule A
apply to the Products listed in it. Approval to market the Products includes
approval for you to acquire them for development purposes.

APPROVED TO MARKET TO
RESELLERS(1) (YES/NO)
SYSTEM TYPES
1) IBM RISC System/6000 no
--
2) IBM 9402 no
--
3) IBM 9404 (2) no
--
4) IBM 9406 no
--
5) IBM 4694 and IBM 4695 Retail POS Products yes
---
6) IBM Network Integration no
--

SYSTEM UNITS (3) (4) yes
---
1) IBM PC
as workstations
2) IBM PC Server yes
as workstations ---

2 of 5
<PAGE>

3) ThinkPad yes
as workstations ---

PRODUCT CATEGORIES
1) IBM Finance Products - Category J1 no
--
2) IBM Storage Products (5)
Category S1 Products (6) no
--
Category S2 Products (7) no
--
Category S3 Products (6) (7) no
--
Category S4 Products (6) no
--

(1) You may market only to resellers approved by us who 1) market Products
together with their value-added enhancement (which we have previously
approved) and 2) do not market to other resellers. When we approve you
for Products listed in the Industry Remarketer Exhibit, you are also
approved for their associated Programs and peripherals listed in the
Industry Remarketer and Dealer Exhibits. When we approve you to market
personal computer Products, you are also approved for their associated
Programs and peripherals listed in the Dealer Exhibit.
(2) The IBM 9404 Models 300, 310, 320 and 30S, which are only available as
model conversions, may be made available to you on an exception basis.
(3) May be available from an Aggregator.
(4) May only be used, in conjunction with your value added enhancement, as 1)
peripherals to IBM System Types, or 2) peripherals to point-of-sale
systems.
(5) Remarketers approved to market the IBM RISC System/6000 and the IBM AS/400
System Types, may market IBM Storage Products.
(6) Your resellers may remarket these Products without a value-added
enhancement.
(7) You are also approved for Category S1 Products.

EXCLUSIONS, IF APPLICABLE:
Although included by reference above, you are not approved for these individual
Products.

N/A
--------------- --------------- ---------------
--------------- --------------- ---------------
--------------- --------------- ---------------

3 of 5
<PAGE>

5. AUTHORIZED LOCATIONS:

TOTAL NUMBER OF AUTHORIZED LOCATIONS LISTED IN THIS PROFILE: 1
---
- -------------------------------------------------------------------------------
Loc. ID Authorized Location (street address, city, state, ZIP code)
- -------------------------------------------------------------------------------
83639 6 LOGUE COURT
GREENVILLE, SC 29615
- -------------------------------------------------------------------------------
MINIMUM RENEWAL CRITERIA
- -------------------------------------------------------------------------------
Product Name Volumes/Revenue/Other
---------------------------------------------------------------------
POS PRODUCTS
---------------------------------------------------------------------

---------------------------------------------------------------------

---------------------------------------------------------------------
MINIMUM NUMBER OF TRAINED PERSONNEL
---------------------------------------------------------------------
Product/Course Name Mgmt Sales Prog Support Service
---------------------------------------------------------------------

---------------------------------------------------------------------

- -------------------------------------------------------------------------------
Loc. ID Authorized Location (street address, city, state, ZIP code)
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
MINIMUM RENEWAL CRITERIA
---------------------------------------------------------------------
Product Name Volumes/Revenue/Other
---------------------------------------------------------------------

---------------------------------------------------------------------

4 of 5
<PAGE>

6. YOUR COMMITMENT, IF APPLICABLE:

A) This section identifies by System Type (1): your Contract Period System
Revenue Commitment (2); its Applicable Discount Percentage (3); and, the
Minimum Revenue Attainment you are required to achieve at the mid-point of
your Contract Period, in order to maintain the current discount percentage
(4). At your request we will review your Revenue Attainment, any time
during the contract period to determine if you qualify for a higher
discount percentage.

At the mid-point of your contract period, IBM will review your Revenue
Attainment by System Type. If it is less than the amount specified in
column (4), your discount percentage will be adjusted downward one level
for the remainder of the contract period.

<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) (2) (3) (4)
System Type System Revenue Applicable Discount Six Months'* Minimum
Commitment Percentage Revenue Attainment to
Maintain Current
Discount Percentage
- ---------------------------------------------------------------------------------------------------
IBM RISC N/A Commercial - Machines NA Programs NA NA
--- -- -- --
Federal** - Machines NA Programs NA
-- --
System/6000
- ---------------------------------------------------------------------------------------------------
</TABLE>

*12 Months if you have a 24-month Contract
**The discount which applies to sales to the Federal Government are listed in
the Industry Remarketer Federal Discount Schedule F.

B) This applies only to those Products listed in the Industry Remarketer
Exhibit which require a quantity commitment.

COMMITTED COMMITTED QUANTITY OF
CATEGORY PRODUCTS BY CATEGORY

- ---------------------------------------- ----------------------------------

7. ASSIGNMENT OF WARRANTY SERVICE RESPONSIBILITY, IF APPLICABLE:
You assign to us, or an IBM Premier Personal Computer Servicer, Warranty
Service responsibility for the following Dealer Exhibit Machines.

TYPE/MODEL TYPE/MODEL TYPE/MODEL TYPE/MODEL

- ------------ ------------ ------------ ------------

Unless you wish to make this assignment to us, please specify the name of the
IBM Premier Personal Computer Servicer:

- ---------------------------------------------------------------------

8. ADDITIONAL TERMS:

The attached Transaction Document, "Schedule A," contains additional terms.
Please make sure you have it and notify us if it is missing.

5 of 5
<PAGE>

ATTACHMENT TO IBM BUSINESS PARTNER AGREEMENT - REMARKETER

MANAGING INDUSTRY REMARKETER ATTACHMENT

ATTACHMENT FOR SUREONE POINT-OF-SALE TERMINAL (SUREONE)

The terms included in this Attachment amend the above agreement for the period
beginning January 1, 1996 and ending December 31, 1996.

1
<PAGE>

IBM BUSINESS PARTNER AGREEMENT - REMARKETER

MANAGING INDUSTRY REMARKETER - ATTACHMENT

This Attachment for Machine Type 4614 Point-of-Sale Terminal (hereinafter
referred to as SureOne) is added to your-IBM Business Partner Agreement -
Remarketer.

The following terms and conditions apply to the acquisition and resale of the
IBM 4614 only and are in addition to those contained in the IBM Business Partner
Agreement - Remarketer.

RESPONSIBILITIES

SCANSOURCE (YOU)

[*]

* Redacted pursuant to application for confidential treatment.

2
<PAGE>

[*]

IBM

[*]

IBM ORDERING REQUIREMENTS

[*]

DELIVERY TO IRA

[*]

* Redacted pursuant to application for confidential treatment.

3
<PAGE>

WARRANTY SERVICE

[*]

RETURNS

[*]

WITHDRAWN SUREONE PRODUCTS

[*]

FORECASTS

[*]

PRICE REDUCTION CREDIT PROVISIONS

[*]

LEAD MANAGEMENT

[*]

ENDING OF ATTACHMENT

[*]

* Redacted pursuant to application for confidential treatment.

4
<PAGE>

[*]

* Redacted pursuant to application for confidential treatment.

5
<PAGE>

IBM BUSINESS PARTNER AGREEMENT

REMARKETER GENERAL TERMS

- -------------------------------------------------------------------------------
TABLE OF CONTENTS

Section Title Page

1. Definitions..................................... 2
2. Agreement Structure............................. 3
3. Our Relationship................................ 4
4. Marketing Funds and Promotional Offerings....... 7
5. Status Change................................... 7
6. Export of Products.............................. 7
7. Federal Reporting Requirements.................. 8
8. Ordering and Delivery........................... 8
9. Inventory Adjustments........................... 9
10. Prices and Price Changes........................ 10
11. Invoicing, Payment, and Taxes................... 10
12. Title........................................... 11
13. Risk of Loss.................................... 12
14. Engineering Changes............................. 12
15. Licensed Internal Code.......................... 12
16. Programs........................................ 13
17. Installation and Warranty....................... 13
18. Warranty Service................................ 14
19. Marketing of IBM Maintenance Services........... 16
20. Patents and Copyrights.......................... 16
21. Liability....................................... 17
22. Trademarks...................................... 18
23. No Property Rights.............................. 19
24. Changes to the Agreement Terms.................. 19
25. Ending the Agreement............................ 19
26. Waiver of Noncompliance......................... 20
27. Electronic Communications....................... 20
28. Geographic Scope................................ 21
29. Governing Law................................... 21

1 of 21
<PAGE>

IBM BUSINESS PARTNER AGREEMENT

REMARKETER GENERAL TERMS

- --------------------------------------------------------------------------------

1. DEFINITIONS

AGGREGATOR is our remarketer who we authorize to acquire Products from us
to supply to its Customers who are also our remarketers. In addition, we
may authorize a remarketer to supply our Products to others (for example,
our industry remarketers). An "Aggregator" is responsible for ordering,
delivery, invoicing, payment, taxes, price reductions and inventory
adjustments. In your Profile, we specify 1) the identity of your
"Aggregator," if any, or 2) if we approve you as an "Aggregator."

AUTHORIZED LOCATION is a site, controlled and operated by you, at which we
authorize you to perform your responsibilities under this Agreement. We
may specify in your Profile certain requirements to which you must adhere
at each Authorized Location (such as, minimum renewal criteria and minimum
number of trained personnel).

CUSTOMER is either an End User, or a reseller who does not market to other
resellers We specify in your Profile if we authorize you to provide
Products to End Users, resellers, or both.

CUSTOMER-SET-UP MACHINE is an IBM Machine that you (or your Customer) set
up according to our instructions.

END USER is anyone, unaffiliated with you (except if you are a qualified
educational institution), who acquires Products for its own use and not for
resale.

MACHINE is an IBM or non-IBM machine, its features, conversions, upgrades,
elements, accessories, cables, or any combination of them (provided by us
or your Aggregator) that we approve you to provide to your Customers.

PRODUCT is a Machine, Program, or Service.

PROGRAM is an IBM or non-IBM licensed program (provided by us or your
Aggregator) that we approve you to provide to your Customers. The term
"Program" does not include Licensed Internal Code.

SERVICE is assistance (for example, Product maintenance) that we approve
you to perform or market. The term "Service" includes use of a resource
(such as a network) that we approve you to provide to your Customers.

2 of 21
<PAGE>

2. AGREEMENT STRUCTURE

The Remarketer General Terms apply to all our remarketers.

PROFILES

We specify the details of our relationship (for example, the type of
remarketer you are) in a document called a "Profile." Each of us agrees to
the terms of the Profile, the Remarketer General Terms, and the applicable
Attachments referred to in the Profile, (collectively called the
"Agreement"), by signing the Profile.

ATTACHMENTS

We describe additional terms that apply to our relationship in documents
called "Attachments." For example, we describe the additional terms that
apply specifically to dealers in an Attachment. Several Attachments may
apply to you. We specify in your Profile the Attachments that apply.

TRANSACTION DOCUMENTS

We will provide to you the appropriate "Transaction Documents" that confirm
the details of your order or provide additional information about our
relationship. The following are examples of Transaction Documents with
examples of the information they may contain:

1. invoices (item, quantity, price, and amount due);

2. addenda (trial period and trial Products); and

3. exhibits (eligible Products, warranty information, and other Product-
specific information). We may change the terms of an exhibit on
written notice.

CONFLICTING TERMS

If there is a conflict among the terms in the various documents, those of
an Attachment prevail over those of the Remarketer General Terms. The
terms of a Profile prevail over those of both of these documents. The
terms of a Transaction Document prevail over those of all the documents.

OUR ACCEPTANCE OF YOUR ORDER

A Product becomes subject to this Agreement when we accept your order by

1. sending you a Transaction Document; or

3 of 21
<PAGE>

2. providing the Product to you.

ACCEPTANCE OF THE TERMS IN A TRANSACTION DOCUMENT

You accept the terms in a Transaction Document by doing any of the
following:

1. signing it;

2. accepting the Product described in the Transaction Document;

3. providing the Product to your Customer; or

4. making any payment for the Product.

3. OUR RELATIONSHIP

MUTUAL RESPONSIBILITIES

Each of us agrees that under this Agreement:

1. the Products we approve you to market are complex in nature and require
that you provide high quality support, both before and after the sale,
to ensure Customer satisfaction;

2. we offer a money-back guarantee to End Users for certain Products. You
agree to inform the Customer of the terms of this guarantee before the
applicable sale. For any such Product, you agree to 1) accept its
return within the time frame we specify, 2) refund the full amount paid
to you for it, and 3) dispose of it (including all its components) as
we specify. We will pay transportation charges for return of the
Product to us and will give you an appropriate credit;

3. you are an independent contractor. Neither of us is a legal
representative or agent of the other. Neither of us is legally a
partner of the other (for example, neither of us is responsible for
debts incurred by the other), and you are not our employee or
franchisee;

4. each is free to enter into similar agreements with others, to market
competitive Products, and to conduct its business in whatever way it
chooses, provided there is no conflict with this Agreement. We may
increase or decrease the number of our remarketers, the types of
distribution channels, and the number of participants in such channels;

5. each is free to establish its own prices and terms and neither of us
will discuss its customer prices and terms in the presence of the
other;

4 of 21
<PAGE>

6. all information exchanged is nonconfidential. If either of us requires
the exchange of confidential information, it will be made under a
signed confidentiality agreement;

7. we will provide you with access to our information systems only in
support of your authorized marketing activities. Programs associated
with these systems are subject to the terms of their applicable license
agreements, except that you may not transfer them;

8. neither of us will bring a legal action against the other more than two
years after the cause of action arose; and

9. you may acquire an insignificant number of Products for your own
internal use.

YOUR OTHER RESPONSIBILITIES

You agree not to do any of the following:

1. assign, or otherwise transfer, this Agreement or your rights under it,
delegate your obligations, or appoint another reseller (including a
related company) - or agent to represent you or to market our Products,
without our prior written consent. Any attempt to do so is void;

2. assume or create any obligations on our behalf, or make any
representations or warranties about us or our Products, other than
those we authorize; or

3. conduct your business in a way (for example, failure to maintain the
highest quality professionalism in all your dealings with Customers)
that adversely affects our reputation or goodwill.

You agree to:

1. sell only to End Users, unless otherwise specified in this Agreement,

2. be responsible for Customer satisfaction with our Products and all your
related activities, and participate in Customer-satisfaction programs
as we determine. For example, if we request, you agree to provide us
with the names and addresses of all End Users who have acquired our
Products from you;

3. actively and diligently promote our Products;

4. ensure that your compensation or incentive plans for your employees who
market our Products are not unfair to us in comparison with your plans
for competitive products you market;

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5. meet, during the contract period, any minimum renewal criteria
specified in your Profile. These criteria are a measurement of the
performance expected of you (such as sales);

6. maintain trained personnel and comply with any certification
requirements;

7. provide us with relevant financial information about your business
enterprise on request;

8. furnish sales receipts to your Customers before or upon delivery of
Products. You agree to specify on the sales receipt your Customer's
name and address, the Machine type/model and serial number, installed
location, date of sale, any non-IBM alterations or attachments made,
and the Warranty Service provider;

9. provide us with any Customer documents we require, within 10 days of
the applicable transaction (for example, End User signing of our
license or maintenance agreement);

10. provide us with sales and inventory information for our Products on
request;

11. retain records by location of each Product transaction (for example, a
sale or credit) for five years and of each warranty claim for three
years. Records must include (as applicable) Machine type/model and
serial number, Authorized Location to which distributed, and Customer
name and address;

12. assist us in tracing and locating Products;

13. provide us with sufficient, free, and safe access to your facilities,
at a mutually-convenient time, for us to fulfill our obligations. If
you become aware of any unsafe conditions or hazardous materials to
which our personnel would be exposed at any of your facilities, you
agree to notify us promptly; and

14. comply with all laws and regulations (such as those governing consumer
transactions).

OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT

We may periodically review your performance under this Agreement. You
agree to provide us with relevant records on request. We have the right to
reproduce them, retain the copies, and audit your compliance with this
Agreement on your premises during your normal business hours. We may use
an independent auditor for this.

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4. MARKETING FUNDS AND PROMOTIONAL OFFERINGS

You agree to use any marketing funds and promotional offerings according to
our guidelines. For Products you provide to resellers, you agree to
administer and disburse these funds or offerings in a proportional and
equitable manner. You also agree to keep records of such funds or
offerings for three years.

We may withhold or recover marketing funds and promotional offerings if you
breach any of the terms of this Agreement. Upon notice of termination, any
marketing funds and promotional offerings will no longer be available for
use by, or accrual to, you.

5. STATUS CHANGE

You agree to give us prompt written notice (unless precluded by law or
regulation) of any change, or anticipated change, in your financial
condition, business structure, or operating environment (for example, a
material change in equity ownership or management, closing or relocation of
an Authorized Location, or any change to information supplied in your
application). Such change or failure to give notice may result in
termination of this Agreement.

6. EXPORT OF PRODUCTS

You are not authorized to actively market Products outside the geographic
scope of this Agreement, and you agree not to use anyone else to do so.

If a Customer acquires a Product for export, our responsibilities under
this Agreement no longer apply to that Product. You agree to use your best
efforts to ensure that your Customer complies with United States export
laws and regulations, and any import requirements of the destination
country. Before the sale of a Product, you agree to prepare a support plan
for it and obtain your Customer's agreement to that plan. Within one month
of sale, you agree to provide us with the Customer's name and address,
Machine type/model and serial number, date of sale, and destination
country.

We exclude these Products from:

1. attainment of your minimum renewal criteria;

2. attainment of your committed quantities:

3. qualification for applicable promotional offerings and marketing funds;
and

4. qualification for any lower prices.

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We may also reduce future supply allocations to you by the number of
exported Products.

The license agreement of certain Programs state the country in which the
license is valid. Such Programs may not be exported.

7. FEDERAL REPORTING REQUIREMENTS

To comply with Federal law, you agree not to employ or compensate any
individuals to perform activities under this Agreement (without our prior
written approval) who were, within the last two years:

1. members of the armed forces in a pay grade of 0-4 or higher; or

2. civilians employed by the Department of Defense with a pay rate equal
to, or greater than, the minimum rate for a grade GS-13.

You agree to provide us with any information that we need to comply with
this law.

8. ORDERING AND DELIVERY

You may order Products either from us or your Aggregator. We accept orders
for withdrawn Products subject to their availability.

On our request, you agree to make reasonable efforts to use our automated
order-entry system. You agree to pay all expenses associated with it.

We will mutually agree to a location to which we ship Products. We will
use reasonable efforts to meet your requested delivery dates for Products
you order from us. We select the method of transportation and pay
associated charges for Products we ship.

You agree to notify us within 20 days of receipt, of any discrepancies
between our shipping manifest and the Products received from us. We will
work with you to reconcile any differences.

CANCELLATION OF AN ORDER

You may cancel an order for a Product before we ship it. We may charge you
a cancellation charge. We determine this charge by multiplying the amount
we charge you for the Product by the cancellation-charge percent. We will
inform you in writing of that percent. The cancellation charge does not

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apply to a Product if 1) we postpone its shipment for more than 15 days
from its estimated shipment date and 2) you cancel your order before
shipment.

We may not be able to honor a cancellation request received less than 10
business days before the Product's estimated shipment date. If you return
such Product, our inventory-adjustment terms apply.

DELAYED SHIPMENT OF A PRODUCT

Circumstances may arise where we delay the shipment of a Product due to our
inability to meet the original estimated shipment date. If this delay
causes the estimated shipment date to be after the end of your contract
period, the terms of this Agreement apply to that Product. It will be
treated as if you had acquired it during the contract period.

9. INVENTORY ADJUSTMENTS

For purposes of rebalancing your inventory, we will inform you in writing
which Products you may return to us for credit, their inventory-adjustment
categories, and any terms associated with these categories. We will issue
a credit to you when we accept the returned Product. You may use the
credit only after we issue it.

We may charge you a handling charge for returned Products. We determine
this charge by multiplying the inventory-adjustment credit amount for the
Product by the handling-charge percent. We will inform you n writing of
that percent. You agree to pay shipping charges for Products you return.
They must be in our original, undamaged packages (unopened for Machines),
and without any non-IBM labels.

Certain Products may be acquired only as Machines and Programs packaged
together as a solution. These Products must be returned with all their
components intact. However, we do not require the shipping container to be
unopened for some of these Products (for example, Selected Academic
Solutions), as we determine.

Returned Products must be unused and in new condition. You agree to ensure
that the Products are free of any legal obligations or restrictions that
prevent their return. We accept them only from locations to which we ship
Products.

We will reject any returned Product that does not comply with these terms
and send it back to you at your expense.

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10. PRICES AND PRICE CHANGES

We will specify the prices for each Product and inform you of any changes.
Price increases do not apply to you if we receive your order before the
effective date of the increase. You receive the benefit of a price
decrease for Products we ship on or after the effective date.

PRICE-REDUCTION CREDITS

If we decrease the price for a Product, you may be eligible to receive a
price-reduction credit for eligible Products in your inventory. We will
specify the Product's price-reduction credit category and associated terms
in writing, and will inform you periodically of any changes. You may use
the credit only after we issue it.

ADDITIONAL CHARGES

Depending on the circumstances, additional charges may apply. For example,
if we perform a Service for you, we charge an additional amount. We will
notify you in advance if these charges apply.

FEE PAYMENTS

When you perform certain activities, such as those we may specify in
exhibits, we will pay you a fee.

11. INVOICING, PAYMENT, AND TAXES

Payment in full is due upon receipt of our invoice. You agree to pay as we
specify in the invoice. We may offset any amounts due you, or designated
for your use (for example, marketing funds or promotional offerings),
against amounts due us or any of our subsidiaries.

You agree to pay amounts equal to any applicable taxes resulting from any
transaction under this Agreement. This does not include taxes based on our
net income. You are responsible for personal property taxes for each
Product from the date we ship it to you or the End User.

You agree to provide us with valid reseller-exemption documentation for
each applicable taxing jurisdiction to which we ship Products. Otherwise,
we will charge you all applicable state and local taxes or duties. You

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agree to notify us promptly if this documentation is revoked or modified.
You are liable for any claims or assessments that result from any taxing
jurisdiction refusing to recognize your exemption.

FAILURE TO PAY ANY AMOUNTS DUE

If your account becomes delinquent, you agree that we may do one or more of
the following:

1. impose a finance charge, up to the maximum permitted by law, on the
delinquent portion of the balance due;

2. require cash payment on or before delivery of any Products;

3. repossess any Products. If we do so, you agree to pay all expenses
associated with repossession and collection, including reasonable
attorney's fees. You agree to make the Products available to us at a
site that is mutually convenient;

4. terminate this Agreement; or

5. pursue any other remedy available at law.

In addition, if your account with any of our subsidiaries becomes
delinquent, we may invoke any of these options allowable by law.

12. TITLE

As an Aggregator, when you order a Machine from us, we do not transfer
title to you. As any other remarketer, when you order a Machine, we
transfer title to you when the Machine is shipped by us or your Aggregator.

Any prior transfer of title to a Machine to you is void from its inception
when 1) it is accepted as a returned Machine, or 2) the End User finances
it through the IBM Credit Corporation.

We do not transfer title to Programs.

PURCHASE MONEY SECURITY INTEREST

We reserve a purchase money security interest in a Machine, and you grant
us a purchase money security interest in your proceeds from the sale of,
and your accounts receivable for a Product, until we receive the amounts
due for a feature, conversion, or upgrade involving the removal of parts
that become our property, we reserve the security interest until we receive

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the amounts due and the removed parts. You agree to sign an appropriate
document (for example, a "UCC-1") to permit us to perfect our purchase
money security interest.

END USER LEASE FINANCING

If an End User obtains a lease for a Machine for legitimate financing
purposes, you may transfer title to the Machine to the lessor. You may
finance End Users' Product acquisitions.

13. RISK OF LOSS

We bear the risk of loss for a Product until its initial delivery from us.

14. ENGINEERING CHANGES

You agree to allow us to install at a mutually-convenient location
mandatory engineering changes (such as those required for safety) on all
Machines in your inventory and to use your best efforts to enable us to
install such engineering changes on your Customers' Machines. Mandatory
engineering changes are installed at our expense and any removed parts
become our property.

During the warranty period, we manage and install engineering changes at:

1. your or your Customers' locations for Machines for which we provide
Warranty Service; and

2. your location for other Machines. Alternatively, we will provide you
with the parts (at no charge) and instructions to do the installation
yourself. We will reimburse you for your labor at a rate we specify.

15. LICENSED INTERNAL CODE

Certain Machines we specify (called "Specific Machines" use Licensed
Internal Code (called "Code"). The IBM Corporation owns copyrights in Code
and owns all copies of Code, including all copies made from them.

We will identify each Specific Machine in writing. We grant the rightful
possessor of a Specific Machine a license to use the Code (or any
replacement we provide) on or in conjunction with, only the Specific
Machine designated by serial number, for which the Code is provided. We
license the Code to only one rightful possessor at a time. You agree that
you are bound by the terms of the separate license agreement that we will
provide to you.

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YOUR RESPONSIBILITIES

You agree to inform your Customer, and record on the sales receipt, that
the Machine you provide is a Specific Machine using Licensed Internal Code.
You agree to 1) provide the applicable license agreement to your Customer
before the sale and 2) ensure that the agreement is signed before a sale to
an End User.

16. PROGRAMS

For certain Programs, we require End Users to sign our license agreements.
You agree to ensure those signatures are obtained and the appropriate
supplements are issued before those Programs are provided. All other
Programs (called "Program Packages") are licensed under the terms of the
agreements provided with them.

When you make authorized copies of Programs, you agree to reproduce the
copyright notice and any other legend of ownership on the copies. When we
provide you with service materials for Programs, you agree to copy and
distribute those materials to End Users.

You agree to refund the amount paid for

1. an IBM Program Package returned to you because the End User does not
accept the terms of the license (for example, by not opening the media
envelope or not using the Program). However, if such Program is
packaged together with other Programs or Machines as a solution, all
components must be returned. In this case, you agree to refund the
amount paid for all the components; and

2. any defective IBM Program returned to you under the terms of its
warranty.

In either case, you may return the IBM Product to us, at our expense, for
credit.

17. INSTALLATION AND WARRANTY

For a Machine to function properly, it must be installed in a suitable
physical environment. For a Machine we install, we will ensure that it is
in good working order and meets the criteria specified in its Official
Published Specifications before we consider it installed. We provide
instructions to enable the setup of Customer-set-up Machines. We are not
responsible for the installation of Programs or non-IBM Machines.

With each IBM Machine we ship, we include a copy of our statement of
limited warranty. We will provide a copy to you. You agree to make it

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available to the End User for review before the sale. We provide non-IBM
Products on an "AS IS" basis. However, non-IBM manufacturers, suppliers, or
publishers may provide their own warranties to you.

DATE OF INSTALLATION

We calculate the expiration of an IBM Machine's warranty period from the
Machine's Date of installation.

The Date of Installation for a Machine we are responsible for installing is
the business day after the day 1) we install it or 2) we make it available
for installation, if you (or the End User) defer installation. Otherwise
(for example, if others install it or break its warranty seal), it is the
day we deliver the Machine to you (or the End User).

The Date of Installation for a Customer-set-up Machine:

1. that we ship to the End User (or to you for your own use), is the fifth
business day after the day the Machine is received;

2. that you ship, is the earlier of 1) the second business day after the
End User receives the Machine or 2) the day you or your Customer place
the Machine in use: or

3. is the same as the Date of Installation for a Machine that we install,
if the Customer-set-up Machine is being installed with, and attached
to, it.

If we authorize you to install Programs on a Machine at an Authorized
Location (and therefore you set up the Machine), we do not consider this as
the Date of Installation, as long as you promptly ship the Machine to the
End User.

You (or your Customer, if other than an End User) must record the Machine's
Date of Installation on the End User's sales receipt. You must also notify
us upon our request.

18. WARRANTY SERVICE

We will inform you in writing who is responsible for providing Warranty
Service for Machines. We do so by specifying the Warranty Service category
for each Machine.

WHEN WE ARE RESPONSIBLE FOR SERVICING MACHINES

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When we are responsible for providing Warranty Service, we do so for the
IBM Machine during its warranty period at no charge to keep it in, or
restore it to good working order. In this case, you are not authorized to
perform Warranty Service. You agree to convey all (or the remaining
portion) of our warranty to your Customer.

WHEN YOU ARE RESPONSIBLE FOR SERVICING MACHINES

When you are responsible for providing Warranty Service, you agree to do
the following according to the Service support guidelines we provide:

1. maintain Warranty Service capability;

2. ensure that it is performed only by personnel trained to our standards
and consistent with our service terms and statement of limited
warranty;

3. provide it even for Machines that the End User did not acquire from
you; and

4. submit only valid warranty-reimbursement requests to us that are within
the specified time limits.

We will:

1. train you to provide Warranty Service. We provide training, at no
charge, for the minimum number of your Service personnel that we
require. Additional training may be provided for a fee;

2. provide you with necessary technical information; and

3. pay you for Warranty Service performed and exchange (or reimburse you
for) parts.

MAINTENANCE PARTS

We sell maintenance parts for use in providing Warranty Service and for
maintaining Machines. You may sell such parts to others for use in
maintaining Machines.

ASSIGNMENT OF WARRANTY SERVICE RESPONSIBILITY FOR MACHINES WITH ON-SITE
TYPE OF SERVICE

For a Machine that we designate as having on-site type of service
(performed at the Customer's location as opposed to the warranty provider's
service location), you may assign Warranty Service responsibility to us or
to anyone else authorized by us to provide it. You agree to:

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1. ensure that the assignee accepts Warranty Service responsibility for
each Machine assigned to it;

2. provide a copy of the sales receipt to the assignee:

3. notify your Customer of the assignment; and

4. remain responsible for your Customer's satisfaction with that Service.

If you assign Warranty Service responsibility for all units of a Machine
type to us, you are no longer required to be Warranty Service capable for
that Machine type.

When you accept Warranty Service responsibility from another of our
remarketers, you may not reassign that responsibility and are responsible
for Customer satisfaction with that Service.

WARRANTY SERVICE FOR NON-IBM PRODUCTS

For non-IBM Products that we do not warrant and other non-IBM equipment
that a Customer may reasonably believe is warranted by us, you agree to
inform your Customer in writing, before the sale, that we do not warrant
them. You also agree to inform your Customer 1) that the Products or
equipment are non-IBM, 2) of the applicable warranty (if any), and 3) of
the procedure to obtain any warranty service.

19. MARKETING OF IBM MAINTENANCE SERVICES FOR A FEE

When you have marketed a Machine you are approved to market, to an End
User, you may market our Maintenance Services on eligible machines in that
account and receive a fee from us for marketing the Maintenance Services on
those machines. We may specify additional terms in a relationship
Attachment (for example, an Industry Remarketer Attachment). We provide
Maintenance Services to the End User under the terms of our applicable
agreement, signed by the End User. You agree to provide us with any
required documents signed by you or the End User, as applicable, and inform
the End User of our service procedures.

We will not pay you the fee if the machine is already under our Maintenance
Services or if the Maintenance Services had been terminated on the machine
within the prior six months at the same account.

20. PATENTS AND COPYRIGHTS

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For purposes of this section only the term Product includes Licensed
Internal Code and excludes Services.

If a third party claims that a Product we provide under this Agreement
infringes that party's patent or copyright, we will defend you against that
claim at our expense and pay all costs, damages, and attorney's fees that a
court finally awards, provided that you:

1. promptly notify us in writing of the claim; and

2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations.

If such a claim is made or appears likely to be made, about a Product in
your inventory, you agree to permit us to either enable you to continue to
market and use the Product, or to modify or replace it. If we determine
that none of these alternatives is reasonably available, you agree to
return the Product to us on our written request. We will then give you an
appropriate credit, as we determine, which will be either 1) the price you
paid us for the Product (less any price-reduction credit) or 2) the
depreciated price.

This is our entire obligation to you regarding any claim of infringement.

CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE

We have no obligation regarding any claim based on any of the following:

1. your modification of a Product, or a Program's use in other than its
specified operating, environment;

2. the combination, operation, or use of a Product with any product, data,
or apparatus that we did not provide; or

3. infringement by a non-IBM Product alone, as opposed to its combination
as part of a system of Products that we provide.

21. LIABILITY

Circumstances may arise where, because of a default or other liability, one
of us is entitled to recover damages from the other. In each such instance,
regardless of the basis on which damages can be claimed, the following
terms apply.

OUR LIABILITY

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We are responsible for

1. payments referred to in our patent and copyright terms described
above:

2. bodily injury (including death), and damage to real property and
tangible personal property caused by our Products: and

3. the amount of any other actual- loss or damage. up to the greater of
$100,000 or the charges (if recurring, 12 months' charges apply) for
the Product that is the subject of the claim.

ITEMS FOR WHICH WE ARE NOT LIABLE

Under no circumstances are we liable for any of the following:

1. third-party claims against you for losses or damages (other than those
under the first two items above);

2. loss of, or damage to, your records or data; or

3. economic consequential damages (including lost profits or savings) or
incidental damages, even if we are informed of their possibility.

YOUR LIABILITY

In addition to damages for which you are liable under law and the terms of
this Agreement, you will indemnify us for claims by others made against us
(particularly regarding statements, representations' or warranties not
authorized by us) arising out of your conduct under this Agreement or as a
result of your relations with anyone else.

22. TRADEMARKS

We will provide you with advertising guidelines for our togos, trade and
service marks, trade names, emblems, and titles (collectively called
"Trademarks"). We will notify you in writing of the title you are
authorized to use. You may also use the IBM Business Partner emblem
associated with that title. You may use the Trademarks only as described
in the guidelines and only in association with the Products we approve you
to market.

On our request, you agree to change or stop using any advertising or
promotional material that does not comply (as we determine) with our
guidelines or this Agreement. When this Agreement ends, you agree to
promptly stop using our Trademarks. If you do not, you agree to pay any
expenses and fees that we incur in getting you to stop.

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You agree that any goodwill attaching to our Trademarks as a result of your
use of them belongs to us. You agree not to register or use any mark that
is confusingly similar to any of our Trademarks.

23. NO PROPERTY RIGHTS

Your rights under this Agreement are not property rights and therefore. you
cannot transfer them to anyone else or encumber them in any way. For
example, you may not sell your authorization to market our Products or your
right to use our Trademarks.

24. CHANGES TO THE AGREEMENT TERMS

In order to maintain flexibility in our relationships, we may change the
terms of this Agreement by giving you one month's written notice. However,
these changes are not retroactive. They apply as of the effective date we
specify in the notice. If you do not accept a change, you must inform us
in writing before its effective date. If you do so, any future change will
not apply to you. However, if you sign a revised Profile, then all prior
changes become effective.

Otherwise, for a change to be valid, both of us must sign it. Additional or
different terms in any order or written communication from you are void.

25. ENDING THE AGREEMENT

This Agreement ends when terminated or when the contract period ends.

You may terminate this Agreement, with or without cause, on one month's
written notice.

We may terminate this Agreement, with or without cause, on three months'
written notice. If the termination is for cause, we may (at our
discretion) allow you a reasonable opportunity to cure. If you fail to do
so, the date of termination is that specified in the notice. However,
certain acts or omissions are so serious as to warrant immediate
termination. If you repudiate this Agreement, materially breach any of its
terms, or make any material misrepresentation to us, we may terminate this
Agreement at any time, on written notice. Examples of a material breach
are violation of our status-change terms, violation of our trademark terms,
submission of a false warranty claim, unauthorized sale to a reseller, and
failure to maintain Customer satisfaction. You agree that our only
obligation is to provide the notice called for in this section and we are
not liable for any claims or losses if we do so.

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At the end of this Agreement, you agree to:

1. pay for or return to us, at our discretion, any Products for which you
have not paid: and

2. allow us, at our discretion, to repurchase any other Products in your
possession or control at the price you paid us, less any credits
issued to you.

Products to be returned must be unused, in new condition, and in your
inventory (or in transit from us) on the day this Agreement ends. We will
inspect the Products and reserve the right to reject them. You agree to
pay ail shipping charges. Products returned to you under our money-back
guarantee terms may be used and we pay their shipping charges.

At the end of this Agreement, you must immediately pay us all amounts due.
We may offset any amounts due you against amounts due us or any of our
subsidiaries. Any terms of this Agreement, which by their nature extend
beyond the day this Agreement ends, remain in effect until fulfilled, and
apply to respective successors and assignees.

We may permit you to continue to provide Products after this Agreement
ends. If we do so, you agree to provide those Products under the terms of
this Agreement.

26. WAIVER OF NONCOMPLIANCE

Failure by either of us to insist on strict performance or to exercise a
right when entitled, does not prevent us from doing so at a later time,
either in relation to that default or any subsequent one.

27. ELECTRONIC COMMUNICATIONS

Each of us may communicate with the other by electronic means. Therefore,
you agree to utilize electronic communications with us. if and as we
specify In such case, both of us agree to the following for all electronic
communications:

1. an identification code (called a "USERID") contained in an electronic
document is legally sufficient to verify the sender's identity and the
document's authenticity:

2. an electronic document that contains a USERID is a signed writing. and

3. an electronic document, or any computer printout of it, is an original
when maintained in the normal course if business.

ELECTRONIC DATA INTERCHANGE

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We may provide Electronic Data Interchange (Called "EDI") Options to you
Electronic invoicing and electronic payment are examples of these Options.
When using EDI Options, each of us agrees:

1. when a bank is involved, to pay our respective bank charges and to
promptly notify the other of any changes to the bank payment process;
and

2. to promptly notify the other of any changes to the technology,
process, or information upon which the EDI transactions are based.

We will specify respective responsibilities for the EDI Option you choose.

28. GEOGRAPHIC SCOPE

All your rights and all our obligations are valid only in the United States
and Puerto Rico.

29. GOVERNING LAW

The laws of the State of New York govern this Agreement.

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IBM BUSINESS PARTNER AGREEMENT -- REMARKETER
MANAGING INDUSTRY REMARKETER ATTACHMENT

- --------------------------------------------------------------------------------

These terms are in addition (unless otherwise noted), to those of the Industry
Remarketer Attachment and prevail over them.

1. VALUE-ADDED ENHANCEMENT
These terms replace those of the Value-Added Enhancement section of the
Industry Remarketer Attachment.

You agree to market Products only to resellers we approve, who market those
Products together with their value-added enhancement (which we have
previously approved) to End Users (and not to other resellers). You may
also market Products to the reseller for their internal use. Such sales do
not count towards your Commitment attainment or minimum renewal criteria.
Resellers may provide, without their value added enhancement. 1) Products
for their internal use, 2) up to 25% of the personal computer system units,
including associated features and options, in each transaction, and 3)
certain Products we specify to you. In any case, you are still responsible
for all your obligations under this Agreement. You agree to collect from
the reseller (and provide to us) applicable documentation that we require
of resellers. We provide Product support to you tend not to End Users or
resellers). We reserve the right to withdraw any reseller's approval.

2. MARKETING OF PRODUCTS

These terms replace those of the Marketing of Products section of the
=====================================================================
Industry Remarketer Attachment.
===============================

You agree to:

1. market only to approved resellers and not to End Users:

2. provide Products to the reseller only after you receive confirmation
from us that we have received and accepted the signed Industry
Remarketer Affiliate Document of Understanding.

3. require the reseller to market our Products in a manner not contrary
to this Agreement;

4. ensure that the reseller is trained and capable of providing the
support required to maintain Customer satisfaction;

5. use your best efforts to ensure that for each Product the reseller
markets, the reseller maintains the required records (and obtains them

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<PAGE>

for us on request) and provides the applicable money-back guarantee,
warranty information, license agreement, and sales receipt;

6. notify us within one month when you terminate your relationship with a
reseller.

7. when you no longer have a relationship with a reseller, acquire and
maintain a copy of that reseller's records (including sales and credit
receipts): and

8. notify us within 10 days of the installation of Products.

You may acquire Products for your internal use at your discount at the time
we ship the Products. You agree not to remarket such Products for 24
months from their Date of Installation. These Products do not count toward
your minimum renewal criteria or any Commitment.

DEALER EXHIBIT PRODUCTS
For Products listed in the Dealer Exhibit, you also agree to:

1. market, support (including set up and test), and service them only at
Authorized Locations; and

2. receive and place them (and their maintenance parts) in inventory only
at Authorized Locations or ship-to locations (and not at resellers' or
End Users' locations). Maintenance parts are only available for
Machines listed in the Dealer Exhibit and for Warranty Service
Category B Machines listed in the Industry Remarketer Exhibit.

3. RESELLER SUPPORT

You agree that you are responsible for providing support to your resellers
(and that we are not). At a minimum, you will provide the following to
your resellers:

1. Product configuration assistance;

2. verification of the operation of the Product:

3. Product installation assistance;

4. Product technical usage support:

5. information regarding the Product's technical function;

6. explanation of the functions and expected performance of the Product:

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7. Product announcements. brochures. and promotional information:

8. general Product administrative support; and

9. information regarding applicable courses we provide and the course
enrollment procedures.

You also agree to assist us, in a manner we specify, in the proportional
distribution of our offerings and services to your resellers.

You are responsible for your reseller satisfaction.

4. END USER SUPPORT

You must provide Warranty Service and Program Services to the End User, if
applicable. You are responsible for End User satisfaction. You must ensure
that the reseller does not display or market our Products in a retail store
or similar location. You must require the reseller to do the following:

1. provide facilities to demonstrate the enhancement;

2. select Products that best meet the End Users' needs;

3. ensure that a completed license agreement is signed by the End User,
where applicable, before a Program is distributed:

4. verify the operation, and explain the functions and expected
performance, of the Products and the enhancement to End Users;

5. provide support (such as documentation and technical assistance) for
the Products, the enhancement, and other products it requires;

6. inform the End Users, upon their request, of applicable courses that
we provide and how to enroll in them:

7. assist the End Users with the installation of Products; and

8. select, develop, procure, integrate, and install all elements of the
enhancement and any updates to it.

However, you must inform the End Users that you are ultimately responsible
for End User satisfaction.

5. DEVELOPMENT SYSTEMS AND DEMONSTRATION SYSTEMS

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These terms replace those of the Development Systems section of the
Industry Remarketer Attachment.

DEVELOPMENT SYSTEM PRODUCTS

We may allow you to acquire Products for resellers, primarily for their use
in developing, testing, supporting, and demonstrating their value added
enhancement. We call these "Development System" Products. We may also
approve you to acquire Products for your resellers for their exclusive use
in developing, supporting and testing their value-added enhancement. Such
Products may not be used for demonstration purposes.

We will provide applicable Warranty Services, and you will provide Program
Services and all other support for Development System Products used by the
resellers, even if they did not acquire them from you. Each reseller must
agree to comply with these terms (as applicable) as though it were
acquiring the Development System directly from us. If you or the reseller
does not comply with these terms we may refuse to provide you with
additional Development Systems at Development System discounts.

DEMONSTRATION SYSTEM PRODUCTS

We may allow you to acquire Products for your use primarily for
demonstration and testing purposes and for supporting your industry
remarketer affiliates. We call these "Demonstration System" Products.

DEVELOPMENT SYSTEM PRODUCTS AND DEMONSTRATION SYSTEM PRODUCTS

If the Development System or Demonstration System is a Machine for which
there is a field upgrade available, and you have acquired the maximum
number of Demonstration System Machines for your contract period, or if
your reseller has acquired the maximum number of Development System
Machines for a calendar year, you may acquire the field upgrade (but not a
replacement Machine) as a Development or Demonstration System, as
applicable. A Development or Demonstration System may not be resold,
leased or transferred for 12 months from the Date of Installation of the
Product (or its Machine upgrade).

For Programs, you must ensure that, when required, the applicable license
agreement is signed by the reseller and the completed supplement issued
before the Program is distributed. We make Programs, and their upgrades if
applicable, available to you at a 100% discount for use on an authorized
Development or Demonstration System. Certain Programs may require your
payment of a fee. We will specify such Programs and their fee.

For a Development or Demonstration System (other than Programs) we will
specify its applicable discount or price, as applicable. You may not
combine this offering with any other discount or allowance. A Development
or Demonstration System may not be resold, leased, or transferred for 12

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months from its Date of Installation (or its Machine upgrade). You agree
not to resell, lease or transfer Programs you acquire under these terms.

We specify, in the applicable Exhibit, 1) the maximum quantity of each
Development System Product you may acquire for your reseller in a calendar
year, 2) the maximum number of Demonstration System Products you may
acquire during your contract period.

Development or Demonstration System Products do not count toward your
minimum renewal criteria or any Commitment.

6. CHANGES IN EQUITY OWNERSHIP

Your managing industry remarketer authorization will immediately terminate
if your business structure changes such that 50% or more of your equity
ownership is held other than as specified in your application.

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IBM BUSINESS PARTNER AGREEMENT - REMARKETER
INDUSTRY REMARKETER ATTACHMENT

- --------------------------------------------------------------------------------

1. VALUE-ADDED ENHANCEMENT

You agree to market Products only with your value-added enhancement that we
approve as part of an integrated solution for End Users. Certain Products
we specify to you may not require a value-added enhancement. However, you
may provide up to 25% of the personal computer system units, including
associated features and options, in each transaction without such
enhancement. If we withdraw approval of any such enhancement we also
withdraw your authorization as our industry remarketer with regard to that
specific enhancement. You are responsible for your enhancement, (and we
are not).

You agree to market Products only to End Users for whom your enhancement is
the primary reason for acquiring Products (a sale without a required value-
added enhancement is an additional example of a material breach). Unless
we specify otherwise in writing, you will market only to such End Users who
intend ongoing use of that enhancement as a significant part of their
business operations. Your enhancement is not required to be the primary
reason for acquiring upgrades to systems you have installed with your
enhancement and where your enhancement is still in productive use.
Upgrades include peripherals, programs and processor upgrades. However,
your enhancement must be the primary reason for a processor upgrade
requiring a processor serial number change. You agree to assist the End
Users to achieve productive use of Products promptly after acquisition.

If we inform you in writing of a specific industry code, you agree to
market only to End Users within that code. We may provide certain
installation planning assistance. We provide Product support to you (and
not to End Users).

You agree to:

1. provide facilities to demonstrate your enhancement;

2. verify the operation. and explain the functions and expected
performance, of the Products and your enhancement to End Users;

3. provide support (such as documentation and technical assistance) for
the Products, your enhancement, and other products it requires; and

4. select, develop, procure integrate, and install all elements of your
enhancement and any updates to it.

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2. USE OF AGENTS

To assist you in the successful installation and your ongoing End User
support requirements for the Products you are approved to market as an
Industry Remarketer - Mid-Range, you may contract for the necessary skills
with IBM Authorized Business Partners, who may perform such activities
directly for your End User. However, you are responsible for your End
User's satisfaction with such installation and support activities. You
agree to indemnify IBM from any liability for the activities performed by
such parties. Additionally, you may select IBM to perform such activities.
In that event, IBM assumes customer satisfaction responsibilities for its
activities.

We may allow you to use an agent to represent you for other activities. If
so we will provide written guidelines to you.

3. MARKETING OF PRODUCTS

You agree to:

1. select Products that best meet the End Users' needs;

2. order Products in sufficient time to be shipped during the contract
period for them to count toward your minimum renewal criteria or any
Commitment:

3. receive Products (listed in the Industry Remarketer Exhibit) only at
Authorized Locations or ship-to locations (including End Users'
locations);

4. inform the End Users, upon their request, of applicable courses that
we provide and how to enroll in them;

5. assist the End Users with the installation of Products; and

6. if you are approved as an industry remarketer of mid-range computer
Products, notify us within 10 days of the installation of Products.

For Products listed in the Dealer Exhibit, you also agree to:

1. market, support (including setup and test) and service them only at
Authorized Locations or at End Users' locations; and

2. receive and place them (and their maintenance parts) in inventory only
at Authorized Locations or ship-to locations (and not at End Users'
locations). Maintenance parts are only available for Machines listed
in the Dealer Exhibit.

For Products listed in the Dealer Exhibit which we announce as withdrawn
from marketing, you may market them to resellers and to End Users without

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your value-added enhancement. However, you may not market withdrawn
certified Products to resellers.

When you market withdrawn Products to resellers you agree to:

1. distribute Products fairly.

2. require your resellers to retain the necessary records (such as sales
and credit receipts):

3. identify the resellers to us; and

4. notify the resellers in writing that such Products are made available
for marketing only in the United States and Puerto Rico.

4. ASSOCIATION WITH AN AGGREGATOR

If you acquire IBM Personal System Products from an Aggregator, your
Aggregator is authorized to set up and test those Products for you on your
request. If the setup includes preloaded IBM Programs, you must ensure
that the End User has agreed to the terms of the applicable license
agreement prior to the preload.

5. INTERNAL USE OF PRODUCTS

If we authorize you as an industry remarketer of mid-range computer
Products, we allow you to acquire certain of those Products which you are
approved to market, for your own internal use within your remarketing
operations only and not for any other use including End User productive
use, even if such use is managed within your business enterprise. Your
value-added enhancement is not required for such acquisitions. The
Industry Remarketer Exhibit includes further details.

You may acquire Products for your internal use at your discount level at
the time we ship the Products. You agree not to remarket such Products for
24 months from their Date of Installation. These Products do not count
toward your minimum renewal criteria or any Commitment.

6. PRICES AND PRICE CHANGES FOR INDUSTRY REMARKETER EXHIBIT PRODUCTS

The following terms apply for Products listed in the Industry Remarketer
Exhibit.

A price decrease is effective on the date specified in our notice to you.
We apply the associated discount to the decreased single-unit price for
Products not yet shipped, provided you accept any related changes in terms.

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Otherwise, you may select 1) the decreased price without discount or 2) the
discounted price available to you before the decrease.

Prices increases do not apply to you if we receive your order prior to the
effective date of the increase and if we ship your order within six months
of the date we receive it.

We may increase a recurring charge at any time. However, the effective
date of the increase may not be less than 90 days from the date of our
notice to you, and will be effective on the first day of the applicable
invoice period specified in the notice.

DISCOUNTS

We provide a discount schedule for Products listed in the Industry
Remarketer Exhibit. Some discount schedules have deeper discounts available
when you agree to acquire, as applicable, 1) a specific quantity of
Products from a specific Product Category, or 2) a minimum revenue amount
as specified in the Exhibit. We call this your "Commitment". If you change
your Commitment, you may subject to a higher or lower discount, as
applicable. The discount applies only to Products acquired after the
effective date of your Commitment change.

To determine your discounted price, we apply the applicable discount to the
Products lowest single-unit price in effect between the date we receive
your order and our date of shipment, if such shipment is within six months
of our receipt of your order. For Products shipped beyond the six months
period, the discount is applied to the single-unit price in effect on our
date of shipment.

Unless we specify otherwise, discounts do not apply to Program upgrades,
accessories, or field-installed Machine features, conversions, or upgrades.

If during our review of your compliance with this Agreement, we find you
have materially breached the terms of our relationship, in addition to our
rights under law and the terms of this Agreement, for the applicable
transactions, you will refund the discount you received from us and
reimburse us for all administrative expenses associated with our compliance
review activity.

7. RE-WORK EXPENSE

If you alter, defer, or cancel an order for Products and we incur expenses
to re-work the Products, we will invoice you for the actual expenses
incurred. For orders cancelled after shipment, the re-work charge is in
addition to the inventory adjustment handling charge specified in the
Industry Remarketer Exhibit.

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8. INSTALLATION OF MACHINE FEATURES, CONVERSIONS, AND UPGRADES

For Machines listed in the Industry Remarketer Exhibit, we may require that
Machine features, conversions, and upgrades be installed only on
designated, serial-numbered Machines. You represent that you have the
permission of the owner (if you are not the owner of the Machine) and any
lien holders to 1) install features, conversions, and upgrades and 2)
transfer removed parts to us.

Some of these transactions (called "Net-Priced" transactions) include
associated replacement parts. We provide these parts on an exchange basis.
All removed parts in a Net-Priced transaction become our property.
Replacement parts assume the service status of the parts they replace. For
a Net-Priced transaction, you or your Customer must allow us to install it
within 30 days of its delivery and to recover the removed parts.
Otherwise, we may terminate the transaction, and the feature, conversion,
or upgrade must be returned to us at your expense.

9. IBM INDUSTRY REMARKETER EXHIBIT PROGRAMS

You agree to have one license for each Program you provide to End Users,
that is listed in the Industry Remarketer Exhibit. A Program which we
provide to you at no charge and which is licensed for use with a
Development System fulfills this requirement. You are responsible for
copying and distributing the Programs you provide to End Users. On our
request, you agree to also distribute documentation.

You agree to:

1. ensure that, when required, the applicable license agreement is signed
by the End User and the completed supplement is issued (with a copy
sent to us) before you copy and distribute the Program. Failure to
provide us with the signed agreements promptly after they are signed
is a material breach of this Agreement and cause for its immediate
termination;

2. promptly notify us if you become aware of any violation (or threatened
violation) of the license terms, and give us reasonable assistance in
enforcing our rights;

3. promptly notify us if the End User provides you with any required
notices under the license.

4. provide the End User with all Program Services we make available to
you; and

5. copy and distribute to the End User any defect-correction information
and subsequent Program releases we provide.

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COPYING AIX PROGRAMS CONTAINING THIRD-PARTY CODE

If you are approved to market IBM RISC System/6000 AIX Programs containing
third-party code, you may neither 1) delegate your right to copy these
Programs nor 2) make copies that contain modifications you created from the
use of UNIX(R) or OSF/1(R) source code.

We do not grant you any rights to any trademarks of AT&T Technologies,
Inc., UNIX System Laboratories, Inc., or any of their affiliates.

You will not adopt a name for your product which is confusingly similar to
any trademark of AT&T Technologies, Inc., UNIX System Laboratories, Inc.,
or any of their affiliates.

You agree to:

1. maintain accurate records of the number of copies made;

2. provide us quarterly statements of the number of copies made in that
calendar quarter; and

3. annually, upon request, make all relevant records available for audit
by us, AT&T Technologies, Inc., UNIX System Laboratories, Inc., and
Open Software Foundation, Inc.(R)

PAYMENT

The following are the bases on which we may require the amount payable for
a Program to be paid:

1. one-time;

2. recurring (for example, a monthly license charge); or

3. a combination of both (for example, an initial charge and an annual
license charge).

We will specify the amount and basis for the particular Program.

Programs licensed to you on a recurring-charge basis are licensed for the
period indicated in our invoice. You may market such Programs only on the
same basis as licensed to you. You may not charge an End User a one-time
charge for a Program you license from us on a recurring-charge basis.
However, you may charge the End User whatever amount you wish for the
recurring charge.

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(R) UNIX is a registered trademark of UNIX System Laboratories, Inc.
(R)OSF/1 and Open Software Foundation are registered trademarks of Open
Software Foundation, Inc.

10. DEVELOPMENT SYSTEMS

We may allow you to acquire Products for use primarily in developing,
testing. supporting, or demonstrating your value-added enhancement. We
call these Development System Products. We may also approve you to acquire
Products under these terms, for the exclusive use of development, support
and testing your value-added enhancement. Such Products may not be used for
demonstration purposes.

If you have a Development System Product that is a Machine for which there
is a field upgrade available, and you have acquired the maximum number of
Development System Products you may acquire for the contract period, you
may acquire the field upgrade (but not a replacement Machine) as a
Development System Product.

You agree not to resell, lease, or transfer a Development System Product
for 12 months from the Date of Installation of the Product (or its Machine
upgrade).

For a Development System Product listed in the Industry Remarketer Exhibit
(other than Programs), we will specify either a Development System price or
a Development System discount.

We make Programs, and their upgrades if applicable, available to you at a
100 percent discount, for use on an authorized Development System. Certain
Programs may require your payment of a fee. We will specify such Programs
and their fee. You agree not to resell, lease or transfer Programs you
acquire under these terms.

For a Development System Product listed in the Dealer Exhibit, we will
specify a Development System price.

We will specify, in the applicable Exhibit, the maximum quantity of each
Development System Product that you may acquire. If you are an industry
remarketer of mid-range computer Products, you must have a Development
System for each system type that you are approved to market.

We will provide applicable Warranty and Program Services for Development
System Products listed in the Industry Remarketer Exhibit. You are
responsible for these Services for Development System Products listed in
the Dealer Exhibit.

Development System Products do not count toward your minimum renewal
criteria or any Commitment. If you use a Development System Product in a

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manner that does not comply with these terms, we may charge you the
difference between what you paid and the full price.

You may not combine this offering with any other discount or allowance.

11. PRELOAD OF PROGRAMS

For certain Machines specified in the applicable Exhibit, we will, on your
request, preload programs you select onto those on-order Machines.

We will:

1. send you a utility program and a kit containing blank tapes and
instructions so you can provide us with tapes containing the programs
selected for preload;

2. make production copies of the tapes you send us, use those copies to
load the Machine, and verify that the process is successfully
completed;

3. verify that the Machine is successfully delivered in a preloaded
condition: and

4. retain the tapes for at least three months following the shipment of
the last Machine for which preloading is ordered. You may request a
shorter retention period in writing. At the end of that period, we
will erase the programs from all tapes in our possession.

You agree to:

1. have a license for each IBM Program for which you order preloading;

2. ensure that the applicable license agreement is signed by the End User
and the completed supplement is issued (with a copy sent to us). You
must do this before we ship the Machine;

3. obtain approval from each owner of each non-IBM program you send us to
copy, to -

a. make as many copies as we may need to support the preload
process, and

b. reproduce, in each copy, only those copyright notices that appear
within the program;

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4. provide us with programs and documentation according to the
instructions that accompany the kit we send to you. You agree to
return the entire kit and utility program;

5. provide us with tapes at least four weeks before the scheduled
shipment of the Machine for which you require preloading;

6. not send us any information that is confidential or proprietary to
anyone; and

7. pay any applicable charges for preloading. Any discount that applies
to the Machine also applies to preload charges.

12. TRIAL PRODUCTS

We may offer certain Products as "Trial Products." If you are approved for
a Trial Product, you may provide it to End Users for evaluation purposes,
or (if we agree) you may use it as part of a Development System. You may
either return or retain a Trial Product. If you do not wish to retain it,
you must notify us in writing before the end of the trial period.
Otherwise, we will consider the Product to be retained.

We will list in an Addendum the specifics of a trial, such as Trial period,
Trial Products, and, if applicable, the End User. We reserve the right to
withdraw a trial at any time.

If the End User is participating in the trial, you agree to ensure that we
receive the applicable agreement signed by you and the End User. You agree
to provide the End User with the necessary details of the trial.

We do not transfer title to Trial Products during the trial period. We
will service and support them, and bear the risk of loss (except for theft
or vandalism].

You agree:

1. to inform us of each Trial Product's location;

2. that the Product may not be moved to another location or altered,
without our prior written approval. However, you may attach a non-IBM
product or device to an IBM Machine without notice. You may not make
any alteration or attachment that creates a safety hazard or renders
maintenance of the Machine impractical;

3. to return, at the end of the trial period, all Products (including any
copies of Programs) not retained. The Products should be returned

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unaltered and in the same condition as when delivered to you.
Alternatively, for Programs, you may destroy all copies; and

4. to furnish all labor for unpacking and packing.

If you retain a Trial Product, payment is due on the business day following
the last day of the trial period. For a Machine, we transfer title to you
and no longer bear the risk of loss as of that day. However, the warranty
period begins on the Date of Installation.

13. TRADE-IN MACHINES

We may specify certain Machines as eligible for trade-in. We will list in
an Addendum such items as the Machine you agree to purchase (called the
"Replacement Machine") and the Machine you agree to return to us (called
the "Replaced Machine"). When we accept a Replaced Machine, we give you
credit towards the purchase from us of other, eligible Machines. You
agree to ensure that the same End User who was using the Replaced Machine,
acquires the Replacement Machine. A Trial Machine may qualify as a
Replacement Machine.

For the Replaced Machine, you agree to:

1. restore an IBM Machine to its unaltered condition;

2. have it in operating condition on the day before it is available for
pickup;

3. furnish all labor for packing; and

4. ensure that title to it is free of any legal obligations or
restrictions on the day it is picked up, unless the IBM Credit
Corporation owns both the Replacement and Replaced Machines.

For the Replaced Machine, we will:

1. arrange for its pickup at your or the End User's location;

2. bear the risk of loss after it is picked up; and

3. pay normal transportation charges.

The credit we give is in addition to any other discount for which the
Replacement Machine may be eligible. The Replacement Machine counts toward
your Commitment, unless the Replaced Machine was previously counted toward

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that Commitment. You agree to pay the full amount due for the Replacement
Machine. You may not reduce your payment in anticipation of receiving the
credit.

If both Machines in a trade-in are used as part of a Development System,
the Replaced Machine is not subject to Development System adjustment
charges.

14. MARKETING OF IBM SERVICES FOR A FEE

We approve you to market, and will pay you a fee, for eligible Services you
market 1) as our industry remarketer to End Users, or 2) as our managing
industry remarketer, to resellers. You, or if you are a managing industry
remarketer, your reseller, may market Services on any eligible machine in
an account when 1) the End User to which the Service is marketed acquired
your IBM approved value-added enhancement from you, or if you are a
managing industry remarketer, from your reseller, and the enhancement is
installed on one or more Machines you are approved to market, regardless of
who marketed the Machine to the End User, or 2) you, or if you are a
managing industry remarketer, your reseller, marketed a Machine to the End
User under an IBM Business Partner relationship which did not require an
IBM approved value-added enhancement.

Services may be marketed on eligible non-IBM machines regardless of whether
an IBM approved value- added enhancement is installed on a Machine in the
account.

We specify the eligible Sen/ices, and the percentages used to determine
your fee, in an Exhibit:

We will not pay you the fee if the machine is already under the Service or
if the Service had been terminated on the machine within the prior six
months at the same account.

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IBM BUSINESS PARTNER AGREEMENT - REMARKETER
MARKET DEVELOPMENT FUND ATTACHMENT

- --------------------------------------------------------------------------------

These terms are in addition to those of the Industry Remarketer and Managing
Industry Remarketer Attachments. If there is a conflict among terms, the terms
of this Attachment will prevail. This Market Development Fund program will end
on December 1, 1994. We do not guarantee that it will be renewed or, if it is,
that it will be structured in the same way.

1. MUTUAL RESPONSIBILITIES

Each of us agrees to:

1. jointly develop a market development fund plan (specified in an
Addendum) for our RISC System/6000 Products; and

2. participate in quarterly reviews (for example, of marketing strategy
and market development activities).

2. OUR OTHER RESPONSIBILITIES

We will:

1. set up a market development fund to support your marketing of our RISC
System/6000 Products to resellers;

2. credit this fund with an amount which will be the greater of 1) [*]
percent of your 1993 Product attainment multiplied by [*] percent, or
2) $ [*]. Amounts we credit to the fund belong to us until we
disburse them for an approved market development activity. Therefore,
the fund and all amounts we credit to it belong to us. Any amounts
remaining in the market development fund after December 15, 1994, are
forfeited by you;

3. determine Your eligibility for disbursements from the fund:

4. reimburse you for preapproved expenses, for which you submit an
invoice and any other documentation that we may require.
Reimbursement amounts will not exceed your available market
development fund balance. We will provide reimbursements from the
fund based on the reimbursement percent we specify in the Addendum.
If this percent is less than 100, then you are responsible for the
balance;

5. change the reimbursement percent solely at our discretion;

* Redacted pursuant to application for confidential treatment.

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<PAGE>

6. reimburse you, in the following quarter, for approved expenses which
we do not reimburse (due to an insufficient market development fund
balance) in the quarter you submitted them; and

7. periodically reconcile disbursements from the fund to amounts credited
to the fund.

3. YOUR OTHER RESPONSIBILITIES

You agree to:

1. perform the activities specified in the market development fund plan;

2. use disbursements from the tuna to market our RISC System/6000
Products to resellers, according to the guidelines we provide;

3. submit our reimbursement form on a quarterly basis, by the dates
specified in the Addendum. You also agree to submit invoices for
reimbursement from the fund (if applicable), as we specify: and
4. retain records (according to our guidelines) for three years of your
use of a disbursement and expenses associated with the fund.

4. ENDING THE ATTACHMENT

This Attachment ends the earlier of 1) its termination or 2) December 1,
1994. When this Attachment ends, any Addendum under it will also end.
Either of us may terminate this Attachment, with or without cause, on one
month's written notice. We may terminate this Attachment at any time if
you materially breach any of its terms.

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IBM BUSINESS PARTNER AGREEMENT - REMARKETER
MANAGING INDUSTRY REMARKETER - SCHEDULE A

- --------------------------------------------------------------------------------

These terms are in addition to those of the Industry Remarketer and Dealer
Exhibits and prevail over them. We may change these terms by giving you written
notice. These discount schedules apply to specific Products as identified in
the IBM Industry Remarketer Exhibit (Z125-4096). Those RISC System/6000, AS/400,
IBM Point of Sale Products, and Network Integration Products identified with an
"A" in the MIR column of the Industry Remarketer Exhibit are available to you at
the discounts described below.

1. RISC SYSTEM/6000 AND AS/400 DISCOUNT SCHEDULES

A. RISC SYSTEM/6000 PRODUCTS
-------------------------

1) Included in Category A of the Industry Remarketer Exhibit;

Annual Revenue Discount Base
Entry-$9.99M [*]%
$10.0-14.99M [*]%
$15.0-19.99M [*]%
$20M + [*]%

Includes Field Installed Features and Model Conversions.

Includes Software and 1/0.

RISC System/6000 Software Group to Group Upgrades, where
available, are eligible for the same discount as the base license
they are upgrading.

2) Not included in the Industry Remarketer Exhibit.

- RISC System/6000 Machine Type 7020 Model 40P
discount is [*]% (Dealer Exhibit terms and conditions).

- Managing Industry remarketers (MIRs) currently
approved for the IBM RISC System/6000 are authorized to
market the IBM 7586 Model 43P Industrial Computer to their
Industry Remarketer Affiliates.

7586 Model 43P is subject to standard Industrial
Computer discounts. Contact an IBM representative for the

* Redacted pursuant to application for confidential treatment.

Page 1 of 12

<PAGE>
applicable discounts. The following remarketer information
applies for the 7586 Model 43P.

- Price Reduction Category: 5
- Inventory Adjustment Category: 6
- Annual System Revenue Performance applies.
- The product is a customer setup machine.
- The product does not contain licensed internal code.

Please refer to IBM announcement letter, 595-104, dated
10/31/95, for complete terms and information on this
product.

7573 Model 001 and 7574 Model 001 Industrial Graphics
Displays.

These Products are eligible for the RISC System/6000 Products
discount grid, listed in this Schedule, that applies to
Category A Products of the Industry Remarketer Exhibit. The
following Remarketer information applies for these Products:

- Price Reduction Category: 5
- Inventory Adjustment Category: 6
- Annual System Revenue Performance applies
- The Product is a customer setup machine.
- The Product does not contain licensed internal code.

B. AS/400 PRODUCTS
---------------

INCLUDED IN CATEGORY B OF THE INDUSTRY REMARKETER EXHIBIT

Machine Type Discount

9401/P03 [*]%
9402 [*]% (9402 Model 236 new machine orders are available at a
30% discount).
9404 [*]% (9404/3XX Models available on an exception
basis only)
9406 [*]%

. AS/400 Field Installed Features and Model Conversions for AS/400
Machine Types 9401/9402/9404/9406: [*]%

. AS/400 Software and I/O Products: [*]%

- Field Installed Features and Models Conversion for AS/400 I/O
Products: [*]%
- ASI400 Software Group to Group Upgrades, where available, are
eligible for the same discount as the base license being
upgraded.

* Redacted pursuant to application for confidential treatment.

Page 2 of 12
<PAGE>

C. EXCEPTIONS
----------

The following exclusions and maximums apply and prevail over the
Discount Schedules above:

CATEGORY A
----------

The discount for RISC System/6000 Machine Type 7248 (all models), as
well as Model Conversions for Machine Type 7248, is [*]%.

Discount Caps

Maximum discount
5765-496 = [*]%
5775-526 = [*]%
5601-263 = [*]% (Processor Category D5, 1-2 User Tier Only)
5621-027 = [*]%
5765-083 = [*]%
7010 = [*]% (Models 140, 150, and 160 are available at a
single discount of [*]% and may be marketed
independent of the standard Value-Added
Enhancement requirement. Orders for field
installed features and model upgrades are
available at the discounts described in the
Annual Revenue table of Schedule A.

CATEGORY A1 - Architecture and Engineering Series Programs and CAD/CAM
-----------
Programs

These licensed programs may only be marketed to those IBM Industry
Remarketer Affiliates who have been approved for those Products as
their Approved Value-Added Enhancement.

The following Licensed Programs are available at a [*]% discount:

5696-054 5696-055 5696-057
5696-060 5696-061 5697-186

CATEGORY B
----------

The IBM 9337 is available at a [*]% discount for new machine orders.

CATEGORY B1
-----------

The following Licensed Programs are available at a [*]% discount:

* Redacted pursuant to application for confidential treatment.

Page 3 of 12
<PAGE>

5696-024 5696-025 5696-026 5696-027 5696-029
5696-030 5696-034 5733-CLS 5733-CSB 5733-CSC
5733-CSR 5733-CSS 5733-CS5 5733-CS7 5733-CS9
5733-055 5733-056 5738-FNT 5738-FS1 5738-0S1

The following Licensed Programs are available at a [*]% discount:

5696-006

The following Licensed Programs are available at a [*]% discount:

5620-ABL

CATEGORY G1
-----------

7526, 7526 discount = [*]%

CATEGORY M
----------

The following Licensed Programs are available at a [*]% discount:

5696-237 5896-238 5696-239 5696-240 5696-347
5765-117 5765-118 5765-119 5765-121 5765-148
5765-152 5765-532 5765-533 5765-534 5765-537
5765-538 5765-540

The following Licensed Programs are available al a [*]% discount:

5601-260 5696-108 5696-236 5765-316

The following Licensed Programs are available at a [*]% discount:

5765-191 5765-192 5765-193 5765-263 5765-337
5765-338 5765-339 5765-340 5765-341 5765-342
5765-347 5765-348 5765 440 5765 441 5765-442
5765 443 5765-605 5765-606 5765-607

The following Licensed Programs are available at a [*]% discount:

5765-527

CATEGORY X
----------

Products included in this category are available for marketing by both
AS/400 and RISC System/6000 Remarketers.

The following Licensed Programs are available at a [*]% discount:

5621-159 5622-275 5622-276

The following Licensed Programs are available at a [*]% discount:

* Redacted pursuant to application for confidential treatment.
Page 4 of 12
<PAGE>

5798-RZB

D. PRINTERS FROM THE IBM PRINTING SYSTEMS COMPANY
----------------------------------------------

The printers from the IBM Printing Systems Company may be marketed without
the standard Value-Added Enhancement requirement, and are available via the
IBM Printing Systems Company Remarketer Exhibit, for reference purposes,
available Products are listed in Category L of the Industry Remarketer
Exhibit. These printers are available at a [*]% discount, with the
following exceptions:

3930/03D, 03S = [*]%
4232/302 = [*]%
42471A00 = [*]%
6252/P08, P12 = [*]%
6400/004 = [*]%
6408/A00 = [*]%
6412/A00, CTO, CTA = [*]%

E. DEALER EXHIBIT PRODUCTS
-----------------------

3476, 3486, 3487, 3488 maximum = [*]%

F. IBM UNINTERRUPTIBLE POWER SUPPLY (UPS)
--------------------------------------

1) Discount Schedule for UPS Products.

CATEGORY MACHINE TYPE MODEL ELIGIBLE DISCOUNT
K5 9910 Bxx* [*]%
Exx* [*]%
B30, B50, EP5 [*]%
EP8, E80, U33 [*]%

MES orders for Machines in this Category are not eligible for a discount.

* Except for models specifically listed at a different discount.

2) Discount Schedule for ail other UPS Products:

KVA CAPACITY MIR DISCOUNT
(less than) 3 KVA [*]%
3 (less than) 18 KVA [*]%
= (greater than) 18 KVA Quoted on request.

2. IBM STORAGE PRODUCTS

* Redacted pursuant to application for confidential treatment.

Page 5 of 12
<PAGE>

Products included in categories S1, S3, and S4 of the IR Exhibit may be
marketed by Industry Remarketer Affiliates independent of the standard
Value-Added Enhancement requirement.

Category S1 All Products = [*]%
Category S2 3490/CXX, EXX = [*]%
3494 = [*]%
Category S3 7135 = [*]%
Category S4 All Products = [*]%
Category SS 5765-564 = [*]%

MES orders are eligible for the same discount as the base machine,, unless
otherwise indicated.

3. IBM POINT OF SALE PRODUCTS

POINT OF SALE TERMINAL

Machine Type* Discount
4694 [*]%
4695 [*]%

Includes Field Installed features and ModeJ Conversions.

* IBM Point of Sale Products acquired under the terms of this
Schedule are subject to the following Inventory Adjustment and Price
Reduction Credit Provisions:

INVENTORY ADJUSTMENT PROVISIONS

Each quarter of your contract period, you must report your inventory of
approved IBM Products as of the last calendar day of the preceding quarter.
You must use a form provided by IBM and the completed inventory form must
be received by IBM no later than the 10th workday of the new quarter.

The maximum number of units of a Product you may return in a given quarter
is equal to the number of units of such Product you reported as the final
inventory for the previous contract period quarter. You may return these
Products only once per contract period quarter. If Products being returned
are accompanied by an order for new Products in an amount equal to or
greater than the dollar value of the Products being returned, no Inventory
Adjustment Charge will apply. If Products are returned without an
accompanying order of equal or greater value, a [*]% Inventory Adjustment
Charge will apply to all Products being returned.

PRICE REDUCTION CREDIT PROVISIONS

* Redacted pursuant to application for confidential treatment.

Page 6 of 12

<PAGE>

Price Reduction Credits are based on a nine (9) month look back and are
applicable to machine type/models and associated field installed features
and model conversions shipped from IBM as MES orders. In order to quality
for a Price Reduction Credit, the following criteria must be met:

-The Products must have been shipped by IBM during the 9-month period
immediately preceding the effective date of the decrease.
-The Products must be in the original unopened packaging.
-The Products Date of Installation must not have occurred as of the
effective date of the decrease.
-The Product was not ordered for Development System installation.

You must use a form provided by IBM to report that inventory in your
possession as of the effective date of the decrease and to certify the
above requirements. IBM may request copies of invoices, including any
credit invoices, issued to you by IBM for the Products you are requesting
credit on.

IBM Customer Agreement Licensed Programs do not qualify for Price Reduction
Credits.

4. IBM NETWORK INTEGRATION PRODUCTS

Products included in this section have unique certification requirements.
Please contact your IBM representative for details. Products included in
this section are available at the discounts described below. MES orders
for installed features and model conversions are available at the same
discount as the base machine type/model it is ordered for installation on.

CATEGORY D
Eligible
Type/Model Discount
8250/All [*]%
8260/All [*]%
8281 and 8282 [*]%

6611/120 [*]%
6811/125 [*]%
6611/145 [*]%
6611/175 [*]%

2210 [*]%
9741/001 [*]%

CATEGORY D1

* Redacted pursuant to application for confidential treatment.

Page 7 of 12
<PAGE>

Licensed Programs included in Category D1 are available at a 37% discount
with the following exceptions:

5648-016 [*]%
5765-368 [*]%

5. MANAGING INDUSTRY REMARKETER DEMONSTRATION SYSTEM

Managing Industry Remarketers may acquire the following quantities of
Demonstration System Products each contract period for use in supporting,
recruiting, and training their Industry Remarketer Affiliates.

Demonstration Products are made available to the MIR at the Development
System Discounts specified in the Industry Remarketer Exhibit.

Demonstration Products must be retained by the MIR for a minimum of twelve
months from the Date of Installation.

Refer to the Managing Industry Remarketer Attachment for additional terms.

PRODUCT QUANTITY AVAILABLE
------- ------------------

RISC System/6000 Processors [*]
POWERparallel Processors (9076) [*]
AS/400 Processors [*]
- 9401/P03 [*]
* Network Integration Products [*]
* Point of sale Products [*]
** Storage Products [*]

* MIRS may acquire the quantities indicated for each machine type they are
approved to market in these Categories.

** MIRs may acquire up to 10 of the Products they are approved to market in
these Categories.

MIRs may acquire Products from the Complementary Categories in these
quantities that IBM has indicated in the maximum number of these Products
that will attach to their Demonstration System Processor Type.

6. FEDERAL DISCOUNTS

Managing Industry Remarketers authorized to market the RISC System/6000 or
Network Integration Products to Industry Remarketer Affiliates may acquire
Products for installation in a Federal account under the following discount

* Redacted pursuant to application for confidential treatment.

Page 8 of 12
<PAGE>

schedules. MIR specific revenue commitments and discounts are identified in
the individual MIR's Profile. Please contact your IBM representative for
details.

A. MANAGING INDUSTRY REMARKETER FEDERAL DISCOUNT SCHEDULE
------------------------------------------------------

1) RISC SYSTEM/6600 PRODUCTS
-------------------------

Discounts
Annual System
Revenue Performance* Hardware Software

Entry-$9,999,999 [*]% [*]%
$10,000,000 - $14,999,999 [*]% [*]%
$15,000,000 - $19,999,999 [*]% [*]%
$20,000,000 and over [*]% [*]%

* This discount schedule is based on a single RISC System/6000 revenue
commitment for Products acquired for both federal and commercial
installations.

a) The hardware Products in Category A on the IR Exhibit (Z12S-4096)
are eligible for the hardware discounts above.

b) The software Products in Category A are eligible for the software
discounts listed above.

c) Some Products listed in the Network Integration Products Federal
Discount Schedule below may also be eligible RISC System/6000
Products. These Products may be acquired at the discounts listed
below by IBM Authorized MIRs approved to market RISC System/6000
Products to Industry Remarketer Affiliates.

d) All other authorized Products are available at the standard
MIR/IR published discounts.

2) NETWORK INTEGRATION PRODUCTS FEDERAL DISCOUNT SCHEDULE
------------------------------------------------------

Machine Type Description Discount
Category O 6611 Network Processor - Model 12x [*]%
8260 Multiprotocol Intelligent Switching Hub [*]%
9741 High Speed Inverse Multiplexor [*]%
2210 Nways Multiprotocol Router [*]%
2217 Nways Multiprotocol Concentrator [*]%
Category D1 5648-016 Multiprotocol Network Program [*]%
Category K1 9309 Rack Enclosure Expansion Unit [*]%
Category K2 3299 Multiplexor Hub

* Redacted pursuant to application for confidential treatment.

Page 9 of 12
<PAGE>

a) Hardware Products specifically listed above are eligible for discounts
listed above when sold to Federal End Users.

b) All additional Network Integration Products are eligible to IBM Authorized
Industry Remarketers approved to remarket Network Integration Products are
available at standard MIR/IR published discounts.

B. FEDERAL END USER DEFINITION
---------------------------

The following definition of "end user" applies when marketing to federal
Government accounts:

A) "Federal End User" includes federal government agencies or any other
entity listed in GSA Order ADM 4800.2D, including those entities
listed in Appendices A, B, and G of the Order, and any successor Order
which may be published by the GSA in the federal Register. The term
Federal End User also includes federal government cost reimbursement
prime contractors and management and operating contractors that
receive proper authorization under FAR Part 51 from federal agencies
to make federal purchases or acquisitions where licenses granted and
title to equipment vest in the federal government.

B) The IR may propose an integrated solution through a higher-tier
federal contractor in fulfillment of a specific government procurement
where title to the IBM equipment passes directly to the federal
government. In no event shall the IR permit transfer of title for any
IBM equipment purchased under this Agreement to other than the federal
government. Under no circumstances may the IR assign any of its
responsibilities under the IR Agreement to the Federal End User.

7. IBM SERVICES OFFERINGS
----------------------
MANAGING INDUSTRY REMARKETER
Service Offering DISCOUNT FEE PERCENT (1)

Maintenance
-----------
Maintenance Service [*] [*]%
Corporate Service Offering(CSO) [*] [*]%
Mid Range Service Offering (MRSO) [*] [*]%
Entry Systems Service for Remarketers (ESSR) (2) (2)
Corporate Service Offering for Remarketers (CSO/R) (2) (2)

Continuing Support
------------------
Support Family Services
AS/400 [*]% [*]%
AIX [*]% [*}%

* Redacted pursuant to application for confidential treatment.

Page 10 of 12
<PAGE>

Customized Operational Services
ESCON Migration Services [*]% [*]%
SiteManager [*]% [*]%

Project Support (3)
-------------------
Customized Operational services (4) [*]% [*]%

Customized Operational Services Equipment
Air Conditioners and Chillers [*]% [*]%
Surge Suppressors [*]% [*]%
Uninterruptible Power Supplies(UPS)
Less than 3 KVA [*]% [*]%
3 to 18 KVA [*]% [*]%
Greater than 18 KVA Upon Request [*]%
Liebert DataPad* [*]% [*]%

Systems Integration [*] [*]%
Application Design & Development [*] [*]%

Other Services (Examples)
LAN Doctor Services, SmoothStart, Softinstall [*]% [*]%

NOTES:
-----
(1) The fee percent is applied to the Servico's one-time or recurring
charge that IBM invoices the End User. For a recurring charge, we
apply the percent to [*] times the monthly charge.

(2) Eligible machines, discounts and periodic payment percentages are
contained in the Exhibit for Corporate Service Option (Z125-3928) and
Remarketer Exhibit for CSO Option (Z125 4170), and Remarketer Exhibit
for Entry Systems Service (Z125-4254), as applicable.

Payments are made quarterly for CSO and for ESS based upon the amount
of adjusted charges invoiced during the quarter period.

PAYMENT ADJUSTED
Percent Charges Invoiced

[*]% $ 0 - $12,499
[*]% 12,500 - 49,999
[*]% 50,000 - 124,999
[*]% 125,000 or greater

(3) Fees are paid on the total contract amount, including non-IBM
Products, but excluding services which you, or your reseller we

* Redacted pursuant to application for confidential treatment.

Page 11 of 12
<PAGE>

approve, perform as a subcontractor. Services offered by ISSC,
EduQuest, and Education and Training are excluded.

(4) The fee percent or discount is applied to the Service's charge,
excluding moving company charges.

* The following is a trademark of the indicated companies: DataPad
(Liebert)

Page 12 of 12

<PAGE>

EXHIBIT 10.37
-------------

Stock Option Agreement dated January 17, 1997
Covering Options Granted to Steven H. Owings

<PAGE>

Exhibit 10.37
-------------

STOCK OPTION AGREEMENT

This Option Agreement made as of this 17th day of January, 1997 (the
"Date of Grant") by and between SCANSOURCE, INC., a South Carolina corporation
(the "Company") and Steven H. Owings ("Optionee").

1. Grant of Option. The Company hereby grants to Optionee the right
---------------
and option (the "Option") to purchase all or any part of 70,000 shares of the
authorized and unissued shares of the Stock on the terms and conditions set
forth herein (the "Option Shares"). The number of shares subject to the Option
shall be adjusted for any stock splits, stock dividends or other issuance or
redemption of shares by the Company. This Option shall not be treated as an
incentive stock option within the meaning of Section 422A(b) of the Internal
Revenue Code of 1986, as amended (the "Code").

2. Purchase Price. The purchase price per share of the Stock to be
--------------
purchased pursuant to the exercise of this Option (the "Purchase Price") shall
be Sixteen dollars and 50/100 and ($16.50) per share of the Stock, the closing
price of the stock on January 16, 1997.

4. Term. This Option shall be exercisable during the period commencing
----
on January 17, 1997 and ending on January 17, 2007. This Option may be
exercised during the term hereof only by Optionee during Optionee's lifetime,
except that if Optionee dies during the term of this Option Agreement,
Optionee's estate, or the entity which acquires this Option by will or the laws
of descent and distribution or otherwise by reason of the death of Optionee, may
exercise this Option in full at any time during the term of the Option.

5. Transferability. These Options are not transferable or assignable,
---------------
in whole or in part, by Optionee, otherwise than by will or the laws of descent
and distribution.

1
<PAGE>

7. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.

8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of South Carolina.

SCANSOURCE, INC.

By: /s/ JEFFERY A. BRYSON
------------------------
Its: Chief Financial Officer

Optionee:

By: /s/ STEVEN H. OWINGS
-----------------------

<PAGE>

EXHIBIT 10.38
-------------

STOCK OPTION AGREEMENT DATED JANUARY 17, 1997
COVERING OPTIONS GRANTED TO MICHAEL L. BAUR
<PAGE>

Exhibit 10.38
-------------

STOCK OPTION AGREEMENT

This Option Agreement made as of this 17th day of January, 1997 (the
"Date of Grant") by and between SCANSOURCE, INC., a South Carolina corporation
(the "Company") and Michael L. Baur ("Optionee").

1. Grant of Option. The Company hereby grants to Optionee the right
---------------
and option (the "Option") to purchase all or any part of 10,000 shares of the
authorized and unissued shares of the Stock on the terms and conditions set
forth herein (the "Option Shares"). The number of shares subject to the Option
shall be adjusted for any stock splits, stock dividends or other issuance or
redemption of shares by the Company. This Option shall not be treated as an
incentive stock option within the meaning of Section 422A(b) of the Internal
Revenue Code of 1986, as amended (the "Code").

5. Transferability. These Options are not transferable or assignable,
---------------
in whole or in part, by Optionee, otherwise than by will or the laws of descent
and distribution.

<PAGE>

7. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.

8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of South Carolina.

SCANSOURCE, INC.

By: /s/ JEFFERY A. BRYSON
------------------------
Its: Chief Financial Officer

Optionee:

By: /s/ MICHAEL L. BAUR
-----------------------

<PAGE>

EXHIBIT 10.39
-------------

STOCK OPTION AGREEMENT DATED JANUARY 17, 1997
COVERING OPTIONS GRANTED TO JEFFERY A. BRYSON
<PAGE>

Exhibit 10.39
-------------

STOCK OPTION AGREEMENT

This Option Agreement made as of this 17th day of January, 1997 (the
"Date of Grant") by and between SCANSOURCE, INC., a South Carolina corporation
(the "Company") and Jeffery A. Bryson ("Optionee").

5. Transferability. These Options are not transferable or assignable,
---------------
in whole or in part, by Optionee, otherwise than by will or the laws of descent
and distribution.

1
<PAGE>

7. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of any successors to the Company and all persons lawfully claiming
under Optionee.

8. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of South Carolina.

SCANSOURCE, INC.

By: /s/ STEVEN H. OWINGS
------------------------
Its: Chief Executive Officer

Optionee:

By: /s/ JEFFERY A. BRYSON
-----------------------

<PAGE>

EXHIBIT 11
----------

STATEMENT RE: COMPUTATION
OF PER SHARE EARNINGS

<PAGE>

Exhibit 11

SCANSOURCE, INC
COMPUTATION OF HISTORICAL EARNINGS PER SHARE - PRIMARY

Income per share calculations:
<TABLE>
<CAPTION>

Fiscal year ended June 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>

Net income $ 352 1,511 1,858
Interest effect of assumed warrant
and UPO exercise (1) 30 140 21
----------- ----------- -----------

382 1,651 1,879

Weighted average number
of common and common
equivalent shares are as
follows:

Weighted average common
shares outstanding 1,194 2,153 3,088

Shares issued from assumed
exercise of options and
warrants (2) 312 1,118 468
----------- ----------- -----------

Weighted average number
of common and common
equivalent shares
outstanding 1,506 3,271 3,556
=========== =========== ===========

Per share data:
Net income $ 0.25 0.50 0.53
=========== =========== ===========

</TABLE>
(1) Amount represents the interest effect of the assumed exercise of warrants
and UPO. Proceeds from assumed exercise of warrants and UPO were assumed
to be used first to repurchase outstanding shares (limited to 20% of total
shares outstanding) and the remainder to pay debt and be invested.

(2) Shares issued from assumed exercise of options, warrants and UPO include
the number of incremental shares which would result from applying the
treasury stock method for options, warrants and UPO. (APB 15, paragraph 38
and Staff Accounting Bulletin No. 83)

<PAGE>
SCANSOURCE, INC
COMPUTATION OF HISTORICAL EARNINGS PER SHARE - FULLY DILUTED

Income per share calculations:
<TABLE>
<CAPTION>

Fiscal year ended June 30,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income $ 352 1,511 1,858
Interest effect of assumed warrant
and UPO exercise (1) 30 140 21
--------- --------- ---------

382 1,651 1,879

Weighted average number
of common and common
equivalent shares are as
follows:

Weighted average common
shares outstanding 1,194 2,153 3,088

Shares issued from assumed
exercise of options and
warrants (2) 469 1,118 472
--------- --------- ---------

Weighted average number
of common and common
equivalent shares
outstanding 1,663 3,271 3,560
========= ========= =========

Per share data:
Net income $ 0.23 0.50 0.53
========= ========= =========
</TABLE>

(1) Amount represents the interest effect of the assumed exercise of
warrants and UPO. Proceeds from assumed exercise of warrants and UPO
were assumed to be used first to repurchase outstanding shares (limited
to 20% of total shares outstanding) and the remainder to pay debt and be
invested.

<PAGE>

EXHIBIT 23.1
------------

CONSENT OF KPMG PEAT MARWICK LLP
<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
ScanSource, Inc.:

We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.

/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP

Greenville, South Carolina
January 23, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENT AS OF AND FOR THE SIX MONTH PERIOD ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 8,909
<ALLOWANCES> 733
<INVENTORY> 25,169
<CURRENT-ASSETS> 35,572
<PP&E> 1,887
<DEPRECIATION> 533
<TOTAL-ASSETS> 37,987
<CURRENT-LIABILITIES> 16,240
<BONDS> 0
0
0
<COMMON> 11,958
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 37,987
<SALES> 42,110
<TOTAL-REVENUES> 42,110
<CGS> 36,382
<TOTAL-COSTS> 3,598
<OTHER-EXPENSES> 26
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 1,961
<INCOME-TAX> 745
<INCOME-CONTINUING> 1,216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,216
<EPS-PRIMARY> .35
<EPS-DILUTED> .35

</TABLE>