-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SZM/KBh6hEvLOIBMtreo/dfYm08DPX4FvpfgMRiREXyBE0hBoMSVI5m3aLU5TQRZ DjbYBn1pTQP5aqKV/lmXUQ== 0001047469-98-011718.txt : 19980327 0001047469-98-011718.hdr.sgml : 19980327 ACCESSION NUMBER: 0001047469-98-011718 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INACOM CORP CENTRAL INDEX KEY: 0000818815 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 470681813 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13311 FILM NUMBER: 98574470 BUSINESS ADDRESS: STREET 1: 200 FARNAM EXECUTIVE CTR STREET 2: 10810 FARNAM DR CITY: OMAHA STATE: NE ZIP: 68154 BUSINESS PHONE: 4023923900 MAIL ADDRESS: STREET 1: 10810 FARNAM DRIVE STREET 2: SUITE 200 CITY: OMAHA STATE: NE ZIP: 68154 FORMER COMPANY: FORMER CONFORMED NAME: VALCOM INC DATE OF NAME CHANGE: 19910812 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (Mark one) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 27, 1997 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NO. 0-16114 INACOM CORP. (Exact name of registrant as specified in its charter) DELAWARE 47-0681813 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 10810 FARNAM, OMAHA, NEBRASKA 68154 (Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code: (402) 392-3900 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE TITLE OF EACH ON WHICH CLASS REGISTERED - ---------------- ------------------ Common Stock, New York Stock $.10 Par Value Exchange
Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock on March 25, 1998 as reported on New York Stock Exchange (NYSE), was approximately $432,000,000. At March 25, 1998 there were outstanding 15,335,963 common shares of the Company. DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy Statement for Registrant's 1998 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PAGE 1 OF 42 INDEX TO EXHIBITS, PAGE 41 PART I ITEM 1. BUSINESS. GENERAL DESCRIPTION OF BUSINESS. InaCom Corp., a Delaware corporation ("Inacom" or the "Company"), is a leading single-source provider of information technology products and technology management services designed to enhance the productivity of information systems primarily for Fortune 1000 clients. The Company offers a comprehensive range of integrated life cycle services to manage the entire technology life cycle including: (1) technology planning, (2) technology procurement, (3) technology integration, (4) technology support, and (5) technology management. Inacom's expertise includes the integration of voice and data communications. Inacom sells its products and services through a marketing network of 51 Company-owned business centers (at December 27, 1997) throughout the United States that focus on serving large corporations. The Company also has a network of approximately 1,000 value-added resellers (at December 27, 1997) that typically have a regional, industry, or specific product focus. The Company has international affiliations in Europe, Asia, Central and South America, the Caribbean, Middle East, Africa, Canada, and Mexico to satisfy the technology management needs of its multinational clients. Inacom's expertise in procurement, configuration, and delivery of personal computers, peripherals and software from a wide range of major vendors enables the Company to customize information systems to meet specific client needs. In addition, Inacom provides its clients with numerous benefits including in-depth product knowledge and experience, competitive pricing from its purchasing arrangements, and a wide array of services supporting client needs on an on-going basis. HISTORY AND STRATEGY The Company has been providing information technology products and technology management services since 1982, and communications products and services since 1987. The Company was established as a division of Valmont Industries, Inc. ("Valmont") in 1982 and became a wholly owned-subsidiary of Valmont in 1985 under the name ValCom, Inc. The Company completed an initial public offering of its common stock in 1987 and changed its name to Inacom Corp. in 1991. Inacom's strategy is to grow net earnings and increase economic value added to enhance shareholder value. To achieve these goals, Inacom provides comprehensive solutions to improve the productivity of its clients' information systems. Key elements of the Company strategy are: (1) to leverage client relationships to continue expanding higher-margin services revenues, (2) to capitalize on the trend toward build-to-order/configure-to-order systems, (3) to expand offerings and geographic coverage through strategic acquisitions, and (4) to capitalize on the convergence of data and voice communications. INTEGRATED LIFE CYCLE SERVICES As a single-source provider of technology products and services, the Company strives to help its clients optimize their information technology investments and control ongoing costs throughout the life cycle of the clients' technology systems. The Company combines a process improvement approach along with tools and practices gained by experience and trained personnel to assist its clients in managing the entire life cycle and costs of distributed technology. TECHNOLOGY PLANNING. Technology planning services involve assisting clients in designing and developing standardized technology platforms. The services include determining standard hardware technology, application software, operating system software, and networking platforms. The Company assists its clients with the selection and standardization of manufacturer brands (such as IBM, Compaq, Hewlett-Packard, Microsoft, Lotus, and others) and assists its clients in studying the total cost, performance and capabilities of these brands and products. 2 Technology planning services performed by the Company also include the development of strategies for deployment of distributed technology systems within its clients' businesses. The Company assists its clients in decisions to lease or purchase, determining replacement cycles and centralizing acquisition processes. To assist clients with technology planning, the Company has developed specific products and programs such as Policy Based Management-TM-, Tactical Enterprise Network Assessment-TM- and Enterprise Technology Blueprint-TM-. TECHNOLOGY PROCUREMENT. Technology procurement services generally involve coordinating the technology purchase process, requisitioning technology products, processing, tracking and reporting on the status of orders, customizing hardware and software configurations, direct shipment, and shipment tracking. The demand for cost-effective customized technology systems has driven a significant change in industry procurement methods including the trend toward build-to-order programs. Compaq, IBM and Hewlett-Packard have chosen Inacom for participation in their build-to-order programs. Inacom has invested over $42 million in its state-of-the-art assembly and delivery systems to provide build-to-order capabilities. The facilities are strategically located in Swedesboro, New Jersey, Omaha, Nebraska, and Ontario, California to provide prompt and cost-effective delivery nationwide. The Company also focuses its technology procurement services on shortening the delivery time of technology products, improving compliance to standards in its clients' organizations, assisting in negotiating hardware and software agreements on behalf of its clients, and providing other services that minimize its clients' costs. The Company provides certain clients with on-site technical procurement specialists who assist and manage the technology procurement process at client locations nationwide. These procurement specialists are technically oriented and focus on process improvement and operational efficiencies in the procurement process. The Company's Inacommerce-TM- and Inacommerce Plus-TM- software provide an easy to use internet-based procurement management system that allows a business client to determine real-time product availability and order status along with a custom configurator to assist the client in designing a technology solution from its desktop computer. The Company's VISION-TM- 2000 software also allows a business client to determine daily product availability, custom configure and order its technology solution. The Company's Direct Express delivery program reduces the number of steps in the procurement process by shipping products directly to the location selected by the business client. TECHNOLOGY INTEGRATION. The Company provides technology integration services to its clients in an effort to assist clients in obtaining technology that achieves the clients' business goals. The Company has products and services available to assist, design and support clients' wide area networks (WANs) and local area networks (LANs) and to manage software procurement and license control. The Company employs high-end technical systems engineers and systems consultants who perform technology integration services at client locations. These systems engineers and systems consultants, and the project managers who coordinate their activities, are contracted to the client for hourly rates or for fixed-price extended contracts. TECHNOLOGY SUPPORT. The Company provides its clients ongoing support in their distributed technology systems primarily in two major areas: "break/fix" hardware maintenance and installation, moves, additions, and changes ("IMACs"). These functions are similar, but differ in the timing and level of service. The Company's break/fix hardware maintenance capabilities are supported directly by the Company's help desk operation, HelpCentral-TM-. Centralized break/fix hardware maintenance provides coordination, problem solving, tracking and control of the clients' hardware maintenance needs. IMAC distributed support services are managed through various scheduling and reporting tools that are interrelated with the Company's VISTA-TM-, VISION-TM-, Inacommerce-TM-, and Inacommerce Plus-TM- 3 information systems. Additionally, the Company provides distributed support services to its clients by providing on-site technical personnel that may be involved in various support activities, including LAN administration, network monitoring, general deskside support, and some end-user training. The Company also offers convergence solutions centered around WAN's, computer and telephone integration, desktop video conferencing, and wireless data communications. These services include specialized support programs, maintenance programs and specialized software. The Company provides communication network services with advanced digital capabilities enabling voice, data and video communications, utilizing AT&T, Frontier and Westinghouse networks. The Company's communications services also include long distance, inbound 800 service, calling cards, and teleconferencing featuring account codes and enhanced billing and customized call reports which allow business clients to restrict and track telecommunications activity. TECHNOLOGY MANAGEMENT. The Company provides technology management services that assess the current state and future needs of a client's distributed technology network to maximize the value of the client's investment in its networked systems. The technology management services provided through remote management centers assist clients in the control and reliability of LAN/WAN environments, provide a study of adequate network speed and responsive user services, and monitor the infrastructure and system capabilities to satisfy clients' current and future needs. The Company has developed specific products and programs to assist its clients in the technology management function, including Inacom Network Patrol-TM- and Inacom Network Baseline.-TM- The Company has also developed a comprehensive program called Inacom Asset Advantage-TM- that contains tools and process improvement techniques to assist its clients' in the inventorying, tracking and controlling of distributed technology assets. This program helps clients meet financial, risk management, custodial, warranty, maintenance, service, and refreshment objectives. The products, including Inacom Asset Roll-Call-TM-, can be integrated with HelpCentral-TM- and also integrated with the other life cycle products and programs to help lower the total ownership cost of clients' technology. Additionally, the Company's Computer Resources International and Boston Computer Exchange business units provide customized asset registry, asset tracking services and disposal services to its clients. PRODUCTS AND VENDORS Computer products include microcomputers, workstations, servers, monitors, printers, and operating systems software. The Company currently distributes computer products from such leading vendors as Compaq, IBM, Hewlett-Packard, Toshiba, Lexmark, Novell, Microsoft, Oracle, 3Com, SynOptics, Cisco, Intel, and Network General. Compaq, IBM and Hewlett-Packard, collectively, represented approximately 63% and 65% of the Company's net revenues in fiscal 1997 and 1996, respectively. Communications products and services include phone systems, voice mail, voice processing, data network equipment, multiple small office-home office offerings, and maintenance. The Company also offers network services including long distance, 800 service, calling cards, wide area value-added data networking, video conferencing, and cellular communications. The products of Lucent Technologies and the services of AT&T constitute approximately 85% of the voice and data systems sold by the Company. The Company has negotiated purchase arrangements, including price, delivery, training, and support, directly with most major vendors. The Company's agreements with its vendors are generally on a non-exclusive basis and may be terminated by the vendors on notice typically ranging from 30 to 90 days. The agreements with vendors generally contain provisions with respect to product cost, price protection, returns, and product allocations; the Company is entitled to price protection with all major vendors on eligible products in the Company's inventory in the event of vendor price reductions. Certain vendors also sponsor payment programs with several financial service organizations to facilitate product sales through the business centers. In addition, the Company's primary vendors provide various incentives for 4 promoting and marketing their products which typically range from 1% to 5% of purchases. The three major forms of vendor incentives received by the Company are co-operative funds, market development funds and vendor rebates. Co-operative funds are earned based upon the sale of the vendor's products and generally must be utilized to offset the costs associated with advertising and promotion pursuant to programs established by the respective vendor. Market development funds are earned based upon the Company's purchases from the vendor and generally must be used for market development activities approved by the respective vendor. Vendor rebates are based upon the Company's attaining purchase volume targets established with the vendor. Rebates generally can be used at the Company's discretion. MARKETING NETWORK At December 27, 1997, computer products and services were sold through a marketing network of approximately 1,000 business centers located throughout the United States, of which 51 are Company-owned. Communications products and services are provided through a network of 14 direct sales offices and contractual relationships with approximately 240 dealers. The Company has international affiliations in Europe, Asia, Central and South America, the Caribbean, Middle East, Africa, Canada, and Mexico to satisfy the technology management needs of its multinational clients. The Company's direct sales force in the Company-owned business centers enables the Company to establish relationships with major corporate clients for purposes of marketing the Company's technology management services. INTERNATIONAL CAPABILITIES AND FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS AND EXPORT SALES The Company has no foreign locations or material export sales. To satisfy the technology management service needs of its multinational clients, InaCom International, a subsidiary of the Company, has international affiliations in Europe, Asia, Central and South America, the Caribbean, Middle East, Africa, Canada, and Mexico. International Computer Group (ICG) Paris, an affiliation of leading independent organizations in various countries, provides pc-related products and services to international corporate clients. Inacom's capabilities in international project management and local resources of the affiliated members allow Inacom to serve the global needs of its multinational clients' information technology projects. Inacom Latin America, an Inacom subsidiary, provides international logistics and configuration services in Mexico, the Caribbean, and Central and South America. SEASONAL FACTORS IN BUSINESS The fourth quarter of the Company's fiscal year generally produces higher revenues, due principally to year-end purchases made by business customers. CLIENTS Inacom believes its client base of large and medium-sized businesses is most likely to benefit from the cost savings obtainable through the technology management services offered by the Company. Inacom is not dependent for a material part of its business upon a single or a few clients and the loss of any one client would not have a material adverse effect on the Company's business. SERVICE MARK AND TRADEMARK The Company holds United States service mark and trademark registrations for the marks "Inacom", "ValCom" and "Inacomp". The Company also has certain state registrations. The Company claims common law rights to the marks based on adoption and use. To the Company's knowledge, there are no pending interference, opposition or cancellation proceedings, or litigation threatened or claimed, with respect to the marks in any jurisdiction. 5 GOVERNMENT REGULATION The Company is subject to various federal, state and local laws and regulations affecting businesses generally such as laws and regulations concerning employment, workplace safety and protection of the environment. The Company is also subject to federal and state laws regulating franchise relationships which generally impose registration and/or disclosure requirements on the Company in the offer and sale of franchises and also regulate related advertisements. The Company believes it is in substantial compliance with all such laws and regulations. COMPETITION All aspects of the technology management services industry are highly competitive. The technology management industry continues to experience a significant amount of consolidation. In the future Inacom may face fewer but larger and better financed competitors as a consequence of such consolidation. The Company's marketing network competes for potential clients, including national accounts, with numerous resellers and distributors. Several computer manufacturers have expanded their channels of distribution, pricing and product positioning and compete with the Company's marketing network for potential clients. Other competitors operate mail-order or discount stores offering clones of major vendor products. The Company also competes with other computer technology providers in the recruitment and retention of franchisees and independently-owned resellers. The Company competes in the computer services industry with a large number of service providers, including IBM through its Global Services division, Andersen Consulting, CompuCom, EDS, ENTEX, GE Capital Technology Management Service, IKON Offices Solutions, and Vanstar. Competition in communication products and services is also intense, and includes entities which are also significant vendors to the Company, such as Lucent Technologies and AT&T. Certain competitors and manufacturers are substantially larger than the Company and have greater financial, technical, service, and marketing resources. The Company's marketing network competes primarily on the basis of professionalism and client contact, quality of product line, availability of products, service, after-sale support, price, and quality of end-user training. EMPLOYEES At December 27, 1997, the number of employees was approximately 4,200. None of the employees is covered by a collective bargaining agreement. The Company considers its relations with employees to be good. BACKLOG The backlog of orders for products distributed by the Company was $47.5 million at the close of the 1997 fiscal year compared to $59.3 million at the close of the 1996 fiscal year and $35.5 million at the close of the 1995 fiscal year. Such orders are not necessarily firm since large customers may place orders with several computer resellers and accept products from the first computer reseller to provide delivery. 6 CERTAIN BUSINESS FACTORS THIS REPORT, INCLUDING DOCUMENTS INCORPORATED BY REFERENCE HEREIN, CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO INACOM THAT ARE BASED ON THE BELIEFS OF INACOM MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO INACOM MANAGEMENT. SUCH STATEMENTS REFLECT THE CURRENT VIEW OF INACOM WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING THE RISK FACTORS DESCRIBED IN THIS REPORT. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS BELIEVED, ESTIMATED OR EXPECTED. DEPENDENCE UPON KEY VENDORS Inacom's business is dependent in large measure upon its relationship with key vendors. Inacom derives 63.6% of its computer products revenue from Compaq, IBM and Hewlett-Packard products, and approximately 85% of its communications products and services revenues from Lucent Technologies and AT&T. Inacom's agreements with these vendors are on a non-exclusive basis and may be terminated by the vendors on notice typically ranging from 30 to 90 days. Inacom's business relationships with the key vendors are good but a material adverse effect on Inacom's business would occur if a supply agreement with a key vendor is materially revised, is not renewed or is terminated, key computer vendors materially decreased marketing development funds paid to Inacom, or the supply of products were insufficient or interrupted. IMPACT OF VENDOR INCENTIVE FUNDS The key vendors of Inacom provide various incentives for promoting and marketing their product offerings. Funds or credits received by Inacom are based either on the sales of the vendor's products through the independent reseller and Inacom-owned channels, or on Inacom's purchases from the respective vendor. The three major forms of vendor incentives received by Inacom are co-operative funds, market development funds and vendor rebates. The funds or credits are earned through performance of specific marketing programs or upon completion of objectives outlined by the vendors. These funds or credits from Inacom's primary vendors typically range from 1% to 5% of purchases by Inacom. A material decrease in the level of vendor incentive funding or credits would have a material adverse effect on Inacom's business. INVENTORY MANAGEMENT RISKS The personal computer industry is characterized by rapid product improvement and technological change resulting in relatively short product life cycles and rapid product obsolescence. These factors can place inventory at considerable valuation risk. Inacom's information technology suppliers generally provide price protection intended to reduce the risk of inventory devaluation. However, many of these suppliers have announced plans to reduce the number of days for which they will provide price protection. If the suppliers do not continue current price protection policies or if there are unforeseen product developments, Inacom's business could be materially adversely affected. BUILD-TO-ORDER DELIVERY MODEL Inacom is participating in "build-to-order" programs of Compaq, IBM and Hewlett-Packard. Inacom performs the final assembly of computer products after a customer order is received. The build-to-order program reduces Inacom's inventory requirements, improves margins and increases market share. The potential disadvantages of the build-to-order program include a decrease in the number of days of price protection available from manufacturers; and meeting manufacturers' strict qualification standards for final assembly of computer products. 7 The failure of Inacom to meet the manufacturer qualification standards, or the inability of Inacom to manage its inventory to levels to meet client demands and within the manufacturer's price protection limits, could have a material adverse effect on Inacom's business. DEPENDENCE UPON KEY MANAGEMENT AND TECHNICAL PERSONNEL Inacom depends heavily on its senior management team. Further, Inacom faces intense competition in attracting and retaining qualified technical personnel, including systems engineers and communications specialists. Inacom's strategy for growth in the sale of computer services and communication services depends on its ability to attract and retain qualified technical personnel, including systems engineers and communications specialists. The failure to recruit and retain senior management and technical personnel could have a material adverse effect on Inacom's business. MANAGEMENT OF EXPANDING OPERATIONS AND INCREASED SERVICE FOCUS The Company's growth resulting from expanding operations and its increased focus on the complete life cycle technological needs of its business clients places significant demands on the Company's management, operational and technical resources. Such growth and increased life cycle service focus are expected to continue to challenge the Company's sales, marketing, technical, and support personnel and senior management. The failure to effectively manage its growth and the increased focus on life cycle services could have a material adverse effect on Inacom's business. FUNDING REQUIREMENTS; INTEREST RATE SENSITIVITY Inacom borrows a significant amount of working capital to purchase inventory and to finance accounts receivable. Inacom borrows working capital through an inventory and working-capital financing agreement and a revolving credit facility. Inacom has also raised capital through the public sale of debentures. Inacom's working-capital financing is subject to: interest rate increases because much of the borrowing bears a floating interest rate; and uncertainty because there is no assurance that future borrowing will be available in amounts and on terms acceptable to Inacom. RISK OF FINANCIAL LEVERAGE The Company's business requires significant working capital and the primary sources of such working capital are provided through an inventory and working-capital financing agreement, a revolving credit facility and the public sale of debentures. Inacom's substantial level of debt may impair Inacom's ability to obtain other financing in the future, requires a substantial portion of Inacom's cash flow from operations to pay principal and interest on its indebtedness, and may make Inacom more vulnerable to economic downturns and limit its ability to withstand competitive pressures. Inacom's ability to meet its debt service obligations or to refinance its indebtedness depends on its financial and operating performance, which is subject to prevailing economic conditions and to financial, business and other factors beyond its control. COMPETITION The technology management services industry is highly competitive and continues to experience a significant amount of consolidation. In the future, Inacom may face fewer but larger and better financed competitors as a consequence of such consolidation. Inacom competes for potential clients, including national accounts, with numerous resellers, distributors and service providers. Several computer manufacturers have expanded their channels of delivery, pricing and product positioning and compete with Inacom's marketing network for potential clients. Other competitors operate mail-order or discount stores offering clones of major vendor products. Inacom also competes with computer technology providers in the recruitment and retention of franchisees and independently-owned resellers. Inacom competes in the computer services division with a large number of service providers, including IBM through its Global 8 Services division, Andersen Consulting, EDS, CompuCom Systems, ENTEX, GE Capital Technology Management Services, IKON Office Solutions, and Vanstar Corp. Inacom faces intense competition in the communications products and services industry including competition from its key vendors, Lucent Technologies and AT&T. ACQUISITIONS Inacom acquires businesses and enters into strategic relationships with resellers in selected geographic markets and service areas. Acquisitions involve a number of special risks, including integrating acquired businesses into Inacom's operation, the potential loss of key employees of acquired businesses, accurate valuation of acquired businesses, incurrence of additional debt to finance acquisitions, and financial impact of goodwill amortization. Inacom intends to issue common stock to consummate some acquisitions which will cause dilution to current stockholders. DEPENDENCE ON INFORMATION SYSTEMS The Company depends on a variety of information systems to provide it with a competitive advantage. A failure of Inacom's proprietary procurement and delivery systems or any of its other information systems could prevent Inacom from taking orders and/or shipping product and prevent clients from accessing product availability information from Inacom. Such failure could also prevent Inacom from determining appropriate product processing or the adequacy of inventory levels, and prevent Inacom from reacting to rapidly changing market conditions. YEAR 2000 ISSUES Many computer systems and software programs, including several used by the Company require modification and conversion to allow date code fields to accept dates beginning with the year 2000. Major system failures or erroneous calculations can result if computer systems are not year 2000 compliant. The Company began preparing its computer-based systems in 1996 and is in the final stages of implementing the required changes to make the systems year 2000 compliant. All costs associated with year 2000 compliance that have been incurred by the Company have been expensed and have not been capitalized. The overall cost to the Company of modifications and conversion for year 2000 compliance with relation to the financial statements taken as a whole is not material. The Company is advised by a substantial majority of its vendors and suppliers that a majority of their products are year 2000 compliant, can be upgraded to be year 2000 compliant, or will not be affected by the year 2000 problem. The Company's business could be materially adversely affected if the Company's computer-based systems are not year 2000 compliant in a timely manner, the Company incurs significant additional expenses pursuing year 2000 compliance, the Company's vendors do not timely provide year 2000 compliant products, or the Company is subject to warranty or other claims by the Company's clients related to product failures caused by the year 2000 problem. GROSS MARGIN RISK Gross margins on computer product sales declined over the past several years because of computer product price reductions and intense competition. Gross margins for computer services and communications services may also decline as competition intensifies. Inacom has responded by reducing operating expenses as a percentage of revenue and by focusing on sales of higher-margin computer services and communication services. A material decrease in the gross margin for computer services and communication services or a failure by Inacom to successfully maintain reduction of operating expenses as a percentage of revenue could have a material adverse effect on Inacom's business. 9 ITEM 2. PROPERTIES. The Company leases its principal executive and administrative offices in Omaha, Nebraska, including approximately 102,000 square feet under a lease expiring in July 2012 and approximately an additional 115,000 square feet under a lease expiring in March 2007. The Company leases distribution and configuration facilities in Omaha, Nebraska, including approximately 128,000 square feet under a lease expiring in May 2003 and approximately an additional 65,000 square feet under a lease expiring in March 2007; a distribution and configuration facility in Swedesboro, New Jersey, with approximately 203,000 square feet under a lease expiring in April 2007 and a distribution and configuration facility in Ontario, California, with approximately 179,000 square feet under a lease expiring in July 2006. These facilities serve as the distribution and configuration points for the Company. The land and buildings for all other Company-owned business centers and warehouse facilities are also leased. Most of these leases are operating leases, under which the Company pays maintenance, insurance, repairs, and utility costs. Average terms of these leases are one to five years with options to renew or terminate. ITEM 3. PENDING LEGAL PROCEEDINGS. The Company is involved in a limited number of legal actions arising in the ordinary course of business, the result of none of which is expected to have a material adverse effect on the consolidated financial statements of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company as of March 2, 1998 are listed below in order of their length of service to the Company, together with their ages and all Company positions and offices held by them.
NAME AGE POSITION - ----------------------- --- --------------------------------------------------------- Bill L. Fairfield...... 51 President, Chief Executive Officer and Director David C. Guenthner..... 48 Executive Vice President and Chief Financial Officer Michael A. Steffan..... 46 President, Distribution and Operations and Secretary Cris Freiwald........ . 43 President and General Manager, International Division Leon Kerkman........... 38 Vice President and Corporate Controller Robert A. Schultz...... 55 Group Executive, Information Systems Group Larry Fazzini.......... 50 Senior Vice President, Corporate Resources George DeSola.......... 51 Group Executive, Technology Services Group and President, Inacom Communications Jeff Hartigan.......... 55 Chief Information Officer Steven Ross............ 40 President, Reseller Division and Corporate Marketing Paul Kellenberger...... 37 Vice President, Planning and Business Development
10 Except as set forth below, all of the officers have been associated with the Company in their present position or other capacities for more than the past five years. BILL L. FAIRFIELD has been President, Chief Operating Officer and a Director of the Company since March 1985. He was named Chief Executive Officer in September 1987. Mr. Fairfield serves as a director of Buckle, Inc., Sitel Corporation, and International Computer Group (ICG) Paris. DAVID C. GUENTHNER was named Executive Vice President and Chief Financial Officer in November 1991. Prior to November 1991, Mr. Guenthner was Senior Vice President of Finance and Chief Financial Officer for the Company. MICHAEL A. STEFFAN was named President of Distribution and Operations in December 1995. Mr. Steffan was responsible for the Reseller Division from December 1994 to December 1995 in addition to his position as President of Distribution and Operations, a position he had held since May 1993. Prior to May 1993, Mr. Steffan was Vice President of Corporate Development and Secretary for the Company. CRIS FREIWALD was named President and General Manager of the International Division in November 1994. Mr. Freiwald was Vice President of Corporate Development from May 1993 to November 1994. Prior to May 1993, Mr. Freiwald was Director of Business Development. LEON KERKMAN was named Vice President and Corporate Controller in June 1993. Prior to June 1993, Mr. Kerkman was Corporate Controller, a position he has held since he joined the Company in 1989. ROBERT A. SCHULTZ was named Group Executive of the Information Systems Group in December 1996. Prior to December 1996, Mr. Schultz was the President and General Manager of Direct Operations, a position he has held since April 1994, and the President and General Manager of Client Service Division, a position he had held from January 1993 to December 1996. LARRY FAZZINI was named Senior Vice President of Corporate Resources in September 1997. Prior to September 1997, Mr. Fazzini was the Vice President of Corporate Resources, a position he has held since February 1993 when he joined the Company. Prior to February 1993, Mr. Fazzini was the Director of Human Resources for Sears Business Centers, Inc., a distributor of information technology products and services. GEORGE DESOLA was named Group Executive of the Technology Services Group in December 1996 in addition to his position as President of Inacom Communications, a position he has held since he joined the Company in March 1994. Mr. DeSola was responsible for Corporate Marketing from December 1994 to December 1996 in addition to his position as President of Inacom Communications. Prior to March 1994, Mr. DeSola was the Vice President of Marketing and Customer Service for MCI Communications Corp., a telecommunications company. JEFF HARTIGAN was named Chief Information Officer in May 1995 when he joined the Company. Prior to May 1995, Mr. Hartigan was Vice President of Information Services at Northern Telecommunications Inc. (NORTEL), a telecommunications company. STEVEN ROSS was named President of the Reseller Division and Corporate Marketing in December 1996. Prior to December 1996, Mr. Ross was the President of the Reseller Division, a position he has held since he joined the Company in December 1995. Mr. Ross was Vice President of Sales and Business Development at Intelligent Electronics Inc., a distributor of information technology products, from September 1993 to November 1995. Prior to September 1993, Mr. Ross was the Executive Vice President of Ultimate/Allerion Corp., an international systems integrator company. PAUL KELLENBERGER was named Vice President of Planning and Business Development in March 1997 when he joined the Company. Mr. Kellenberger was the Vice President of Worldwide Channels Computer Group from January 1995 to February 1997 and the General Manager, Canada from February 1994 to December 1994 at Motorola Inc. Prior to February 1994, Mr. Kellenberger was the Director of Marketing, Canada for Digital Equipment Company, an information technology products company. 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. RECENT SALES OF UNREGISTERED SECURITIES In December 1997, the Company acquired Computer Biz Inc., a California corporation ("Computer Biz"), and issued 250,000 shares of Common Stock to the shareholders of Computer Biz as part of the acquisition consideration. The sale of the securities was exempt from registration under Section 4(2) of the Securities Act of 1933 and Regulation D thereunder for transactions not involving a public offering. Additional information required for Item 5 is included with the information set forth under Item 8 below. 12 ITEM 6. SELECTED FINANCIAL DATA.
DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA -------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Income statement data: Revenue..................................... $ 3,896,302 $ 3,102,055 $ 2,200,344 $ 1,800,539 $ 1,545,227 Earnings (loss) before income taxes......... 49,871 31,719 19,833 (3,749) 19,693 Net earnings (loss)......................... 29,456 18,733 11,707 (2,256) 11,975 Earnings (loss) per Share (1) --basic................................... 2.48 1.80 1.17 (0.22) 1.27 --diluted................................. 2.17 1.66 1.16 (0.22) 1.25 Cash dividends per share.................... $ 0 $ 0 $ 0 $ 0 $ 0 Balance sheet data: Working capital............................. $ 257,986 $ 100,303 $ 90,940 $ 78,759 $ 67,936 Total assets................................ 960,539 847,600 624,238 519,875 456,894 Long-term debt.............................. 141,500 55,250 23,667 30,333 20,000 Stockholders' equity........................ $ 325,216 $ 176,830 $ 148,775 $ 135,590 $ 136,491 Statistical information: Revenue change versus prior year............ 25.6% 41.0% 22.2% 16.5% 52.3% Earnings change versus prior year........... 57.2% 60.0% 618.9% (118.8)% 11.6% Earnings (loss) as a percent of beginning equity.................................... 16.7% 12.6% 8.6% (1.7)% 11.8% Selling, general and administrative expenses as a percent of gross margin.............. 80.3% 81.6% 83.1% 95.1% 83.3% Revenue per dollar of assets employed....... $ 4.06 $ 3.66 $ 3.52 $ 3.46 $ 3.38 Current ratio............................... 1.53:1 1.16:1 1.20:1 1.22:1 1.23:1 Long-term debt as a percent of long-term debt and equity........................... 30.3% 23.8% 13.7% 18.3% 12.8% OTHER INFORMATION: Book value per share $ 21.94 $ 16.30 $ 14.85 $ 13.75 $ 13.92 Common stock market prices: High...................................... $ 40.13 $ 39.25 $ 15.25 $ 21.00 $ 25.50 Low....................................... $ 20.00 $ 13.25 $ 7.00 $ 6.87 $ 12.75 Approximate number of shareholders.......... 6,400 5,300 4,300 4,150 3,800 Weighted average shares outstanding --basic................................... 11,900 10,400 10,000 10,000 9,500 --diluted................................. 14,600 11,900 10,100 10,000 9,600 Number of employees at end of year.......... 4,227 2,874 2,196 1,884 1,883 Revenue dollars per employee based on end of year employment........................... $ 922 $ 1,080 $ 1,002 $ 956 $ 821
- ------------------------ (1) Net earnings per share and weighted average shares outstanding are calculated pursant to Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share" which was issued in February 1997, accordingly, prior periods have been restated. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following tables set forth, for the indicated periods, revenues, gross margins, and net earnings and the mix of revenues, gross margin, and net earnings of the Company segmented by the three main classifications.
SUMMARY OF OPERATING RESULTS FISCAL YEAR ENDED DECEMBER ------------------------------------------------------------------------------- 1997 1996(1) 1995 1997 1996(1) 1995 ------------ ------------ ------------ ----------- ----------- ----------- (AMOUNTS IN THOUSANDS) Revenues: Computer products.................... $ 3,547,732 $ 2,885,019 $ 2,047,215 91.1% 93.0% 93.1% Computer services.................... 247,243 136,888 95,476 6.3 4.4 4.3 Communication products and services........................... 101,327 80,148 57,653 2.6 2.6 2.6 ------------ ------------ ------------ ----- ----- ----- Total.............................. $ 3,896,302 $ 3,102,055 $ 2,200,344 100.0% 100.0% 100.0% ------------ ------------ ------------ ----- ----- ----- ------------ ------------ ------------ ----- ----- ----- Gross Margin: Computer products.................... $ 192,946 $ 162,651 $ 122,386 48.1% 57.4% 60.1% Computer services.................... 185,932 103,228 67,599 46.4 36.4 33.2 Communication products and services........................... 22,235 17,480 13,821 5.5 6.2 6.7 ------------ ------------ ------------ ----- ----- ----- Total.............................. $ 401,113 $ 283,359 $ 203,806 100.0% 100.0% 100.0% ------------ ------------ ------------ ----- ----- ----- ------------ ------------ ------------ ----- ----- ----- Net Earnings: Computer products.................... $ 10,747 $ 9,703 $ 5,418 36.5% 51.8% 46.3% Computer services.................... 15,506 7,381 5,272 52.6 39.4 45.0 Communication products and services........................... 3,203 1,649 1,017 10.9 8.8 8.7 ------------ ------------ ------------ ----- ----- ----- Total.............................. $ 29,456 $ 18,733 $ 11,707 100.0% 100.0% 100.0% ------------ ------------ ------------ ----- ----- ----- ------------ ------------ ------------ ----- ----- -----
- ------------------------ (1) Net earnings include the impact of non-recurring charges of $991,000 in the fourth quarter of 1996. The following table sets forth, for the indicated periods, the gross margin percentage of the three main classifications and the consolidated gross margin percentage of the Company.
FISCAL YEAR ENDED DECEMBER ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Gross Margin: Computer products................................................... 5.4% 5.6% 6.0% Computer services................................................... 75.2 75.4 70.8 Communication products and services................................. 21.9 21.8 24.0 Consolidated gross margin............................................. 10.3% 9.1% 9.3%
14 1997 COMPARED TO 1996 REVENUES Revenues for 1997 increased $794.2 million or 25.6% to $3.9 billion when comparing the fiscal year ended December 27, 1997 with the fiscal year ended December 28, 1996. Revenue growth resulted from an increase in all revenue components. Computer product sales increased $662.7 million or 23.0% over 1996, revenues from computer services increased $110.4 million or 80.6% over 1996, and revenues from communication products and services increased $21.2 million or 26.4% over 1996. Computer product revenues increased primarily as a result of an increase in products shipped directly to the end-user client, overall industry growth, and the acquisitions completed by the Company-owned business centers. The increase in computer product revenues related to the acquisitions was approximately $87.4 million for 1997. The increase in computer product sales resulted from an increase in sales through the Company-owned business centers ($411.2 million or 33.0% over 1996) and through an increase in sales through the independent reseller channel ($164.3 million or 9.8% over 1996). Revenues from computer services increased as a result of increased sales efforts for such service offerings, the inclusion of these services with increasing computer product sales, and the recent acquisitions completed by the Company. The increase in computer services sales resulted primarily from an increase in sales through the Company-owned business centers ($65.2 million or 64.5% over 1996). The increase in computer services revenues related to acquisitions was approximately $32.4 million for 1997. Revenues from communication products and services increased as a result of broad based growth from the communications product and service offerings. GROSS MARGINS The increase in the Company's gross margin percentage for 1997 was primarily a result of the increase in the mix of higher-margin computer services versus lower-margin computer products. The decrease in the gross margin percentage for computer products resulted primarily from a decrease in the margin percentage on computer product sales through the Company-owned business centers and the independent reseller channel in 1997. The decrease in gross margin percentage for computer services resulted primarily from an increase in the mix of services to include more rapid growth in lower-margin technology procurement than higher-margin support and systems integration services. The increase in gross margin percentage for the communication products and services resulted from an increase in mix of revenues which included more higher-margin long distance and non-product services as compared to the lower-margin communications product sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative (SG&A) expenses increased $90.9 million or 39.4% in 1997. SG&A as a percent of revenue was 8.3% in 1997 versus 7.5% in 1996. The increase in spending and the related increase in SG&A as a percent of revenues resulted primarily from the costs of handling the increased computer services revenues. The Company also incurred additional costs during the year related to integrating the current year's acquisitions. The increase in SG&A related to acquisitions was approximately $23.9 million in 1997. INTEREST EXPENSE Interest expense for 1997 increased by $8.6 million to $29.0 million. Interest expense increased primarily due to higher average daily borrowings. Average daily borrowings for 1997 were $122.0 million more than the average borrowings during 1996. The average daily borrowing interest rate decreased approximately 26 basis points from 1996. The increase in the average daily borrowings resulted primarily from financing additional accounts receivable resulting from an increase in revenues, and an increase in 15 inventory levels. The decrease in the average daily borrowing interest rate resulted from the Company selling an additional $100 million of accounts receivable in January 1997 for a total of $200 million in accounts receivable financing an asset securitization program, and the issuance of $86.25 million of 4.5% convertible subordinated debentures in November 1997 (see "Liquidity and Capital Resources"). NET EARNINGS Net earnings for 1997 increased 57.2% to $29.5 million compared with net earnings of $18.7 million, which included non-recurring charges of $991,000, for 1996. Share earnings increased to $2.17 per diluted share from the $1.66 per diluted share, which includes non-recurring charges of $0.07 per diluted share, reported for 1996. The increase resulted from the factors discussed above. 1996 COMPARED TO 1995 REVENUE Revenues for 1996 increased $901.7 million or 41.0% to $3.1 billion when comparing the fiscal year ended December 28, 1996 with the fiscal year ended December 30, 1995. Revenue growth resulted primarily from computer product sales which increased $837.8 million or 40.9% during 1996. Revenues from computer services increased $41.4 million or 43.4% over 1995. Revenues from communication products and services increased $22.5 million or 39.0% in 1996. Revenues increased primarily as a result of an increase in products shipped directly to the end-user customer, overall industry growth, the sale of products to new independent resellers and the acquisitions completed by the Company-owned business centers. The increase in revenues related to the acquisitions was approximately $49.4 million for 1996. The increase in computer product sales resulted from an increase in sales through the independent reseller channel ($563.5 million or 50.9% over 1995) and through an increase in sales through the Company-owned business centers ($291.7 million or 29.4% over 1995). Revenues from computer services increased as a result of increased sales efforts for such service offerings and the inclusion of these services with increasing computer product sales. Revenues from communication products and services increased as a result of broad based growth from the communications product and service offerings. GROSS MARGINS The decrease in the Company's gross margin percentage for 1996 was primarily a result of the decrease in the gross margin percentage on computer products, which resulted primarily from a greater proportion of lower-margin independent reseller channel sales in 1996 versus higher-margin computer product sales in the Company-owned business centers. The increase in gross margin percentage for computer services resulted from an increase in the mix of services to include more higher-margin systems integration services versus the support and technology procurement services. The decrease in gross margin percentage for the communication products and services resulted from an increase in mix of revenues which included more lower-margin communications product sales as compared to the higher-margin long distance and non-product services. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A expenses increased $61.9 million or 36.6% in 1996. SG&A as a percent of revenue was 7.5% in 1996 versus 7.7% in 1995. Excluding the impact of non-recurring charges recognized in the fourth quarter of 1996, SG&A expenses increased $60.2 million or 35.6% in 1996. SG&A as a percent of revenue, excluding the impact of the non-recurring charges recognized in the fourth quarter of 1996, was 7.4% in 1996 versus 7.7% in 1995. 16 The increase in spending resulted primarily from the costs of handling the increased product, services and communications revenues. The Company also continued to invest in the infrastructure by opening a technology convergence distribution and configuration center in Ontario, California, during the third quarter of 1996. The Company incurred additional costs during the year related to integrating the current year's acquisitions. The decrease in SG&A as a percent of revenue resulted from leverage achieved through operational efficiencies resulting from current and prior period investments in distribution center automation, information systems and computer service offerings. INTEREST EXPENSE Interest expense for 1996 increased by $5.8 million to $20.4 million. Interest expense increased due to higher average daily borrowings. Average daily borrowings for 1996 were $114.4 million more than the average borrowings during 1995. The average daily borrowing interest rate decreased approximately 0.8 percentage points from 1995. The increase in the average daily borrowings resulted from the Company's decision in the first quarter of 1996 to take advantage of early pay discounts offered by some of the Company's major vendors as well as an increase in accounts receivable and inventory. The increase in accounts receivable is a result of an increase in sales. The decrease in the average daily borrowing interest rate resulted from the Company selling $100 million of accounts receivable in June 1995 and the issuance of $55.25 million of 6% convertible subordinated debentures in June 1996 (see "Liquidity and Capital Resources"). NET EARNINGS Net earnings for 1996 increased 60% to $18.7 million, which includes non-recurring charges of $991,000, compared with net earnings of $11.7 million for 1995. Share earnings increased to $1.66 per diluted share, which includes non-recurring charges of $0.07 per diluted share, from the $1.16 per diluted share reported for 1995. The increase resulted from the factors discussed above. BUSINESS COMBINATION AND NON-RECURRING CHARGES In December 1996, the Company effected two business combinations accounted for as poolings of interest transactions. The overall impact of the combinations with relation to the financial statements taken as a whole are not material and thus prior periods for the Company have not been restated to reflect the business combinations. The Company recognized a non-recurring charge of $991 thousand to net earnings related to the business combinations during the fourth quarter of 1996. The effect of the immaterial poolings was to increase stockholders' equity by approximately $643,000. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are provided through an inventory and working-capital financing agreement of $550.0 million (increased from $350.0 million as of June 27, 1997), convertible subordinated debentures of $141.5 million, and a revolving credit facility of $40.0 million. The $550.0 million facility provided by IBM Credit Corp. can be used by the Company at its discretion, subject to a borrowing base, for its working-capital needs and IBM Corp. inventory purchases. The inventory and working-capital financing agreement expires June 29, 1998. On December 27, 1997, $167.6 million was outstanding under the inventory and working-capital financing agreement, of which the entire balance was related to non-interest bearing trade accounts payable. There were no outstanding balances related to the interest-bearing working-capital portion of the agreement, however, the interest rate would have been 7.6% based on three-month LIBOR. This inventory and working-capital financing agreement is secured by inventory and other assets. The $141.5 million of convertible subordinated debentures consist of $86.25 million of 4.5% convertible subordinated debentures issued in November 1997 and $55.25 million of 6% convertible subordinated debentures issued in June 1996. The $86.25 million of 4.5% convertible subordinated debentures are due November 1, 2004 and are convertible into common stock of the Company at a conversion rate of 25.235 shares per each $1,000 principal amount of debentures (equivalent to a conversion price of $39.63 per 17 share), subject to adjustments under certain circumstances. The 1997 debentures are not redeemable by the Company prior to November 1, 2001 and thereafter the Company may redeem the debentures at various premiums to principal amount. The 1997 debentures may also be redeemed at the option of the holder if there is a Change in Control (as defined in the indenture) at a price equal to 100% of the principal amount plus accrued interest at the date of redemption. The $55.25 million 6% convertible subordinated debentures are due June 15, 2006 and are convertible into common stock of the Company at a conversion price of $24.00 per share, subject to adjustments under certain circumstances. The 1996 debentures are not redeemable by the Company prior to June 16, 2000 and thereafter the Company may redeem the debentures at various premiums to principal amount. The 1996 debentures may also be redeemed at the option of the holder if there is a Change in Control (as defined in the indenture) at a price equal to 100% of the principal amount plus accrued interest at the date of redemption. The $40.0 million revolving credit facility agreement expires in February 1999. On December 27, 1997, there were no outstanding balances under the revolving credit facility, however, the interest rate would have been 7.0% based on three-month LIBOR. The revolving credit facility is secured by inventory and other assets. The debt agreements contain certain restrictive covenants, including the maintenance of minimum levels of working capital, tangible net worth, limitations on incurring additional indebtedness, and restrictions on the amount of net loss the Company can incur. Certain covenants effectively limit the amount of dividends which the Company may pay to the stockholders. Retained earnings on December 27, 1997 would not be restricted as to payments of cash dividends under the most restrictive covenants in such agreements. The Company was in compliance with the covenants contained in the agreements on December 27, 1997. Long-term debt was 30.3% of total long-term debt and equity at December 27, 1997 versus 23.8% at December 28, 1996. The increase was a result of the issuance of $86.25 million of 4.5% convertible subordinated debentures in November 1997. The Company has entered into an agreement to sell $200 million of accounts receivable, with limited recourse, to an unrelated financial institution. The agreement was initially entered into in June 1995 with respect to $100 million of accounts receivable and was amended in January 1997 to sell an additional $100 million of accounts receivable. New qualifying receivables are sold to the financial institution as collections reduce previously sold receivables in order to maintain a balance of $200 million sold receivables. On December 27, 1997, $46.8 million of additional accounts receivable were designated to offset potential obligations under limited recourse provisions; however, historical losses on Company receivables have been substantially less than such additional amount. On December 27, 1997, the implicit interest rate on the receivable sale transaction was 6.2%. The Company occasionally uses derivative financial instruments to limit the effect of increases in the interest rates on any floating-rate debt. The Company does not hold or issue derivative financial instruments for trading purposes. In January 1997 and October 1997, the Company entered into two separate one-year interest rate swap agreements with an unrelated financial institution which resulted in certain floating-rate interest payment obligations becoming fixed-rate interest payment obligations at 5.8% and 5.7%, respectively, with an aggregate notional amount of $100 million per each agreement. As a result of these swap agreements, interest expense was increased by approximately $260 thousand in 1997. The January 1997 agreement expired in January 1998. Operating activities used cash of $39.7 million in 1997 compared to cash used by operating activities of $18.3 million in 1996. The primary factor contributing to the change in cash used by operating activities was the net cash used by inventory and accounts payable. In 1997, inventory increased $30.0 million over 1996 with a corresponding decrease in accounts payable of $27.9 million resulting in net cash used in inventory and accounts payable of $57.9 million. In 1996, inventory increased $31.8 million over 1995 with 18 an offsetting increase in accounts payable of $71.1 million resulting in net cash provided from inventory and accounts payable of $39.3 million. The increase in cash used by inventory and accounts payable was primarily a result of a decrease in inventory turns in addition to the Company taking advantage of early pay discounts with certain major manufacturers during 1997. The increase in cash used by inventory and accounts payable in 1997 versus 1996 was partially offset by a decrease in the amount of cash used for financing accounts receivable. In 1997, accounts receivable levels increased $29.0 million over 1996 net of accounts receivable securitizations. In 1996, accounts receivable levels increased $123.6 million over 1995 net of accounts receivable securitizations. The decrease in cash used by accounts receivable was primarily due to an increase in accounts receivable turns. The Company used $79.0 million in cash for investing activities. Cash of $50.7 million was used to purchase property and equipment and cash of $14.9 million was used for business combinations (See Notes to Consolidated Financial Statements -- Business Combinations). Net cash provided by financing for 1997 totaled $139.8 million, of which $100.0 million was provided from the sale of accounts receivable, $93.0 million was provided from the public sale of 3,000,000 shares of common stock in November 1997, and $86.25 million was provided by the issuance of 4.5% convertible subordinated debentures. The financing proceeds were partially offset by $140.8 million in payments of notes payable. The Company believes the funding expected to be generated from operations and provided by the credit facilities at December 27, 1997 will be sufficient to meet working capital and capital investment needs for the next twelve months. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements of the Company listed in the index appearing under Items 14(a)(1) and (2) hereof are filed as part of this Annual Report on Form 10-K and are incorporated by reference in this Item 8. See also "Index to Financial Statements" on page 24 hereof. Certain quarterly financial data is set forth below.
WEIGHTED AVERAGE SHARES NET PER SHARE(2) OUTSTANDING GROSS NET --------------------------- ------- REVENUES MARGIN EARNINGS BASIC DILUTED BASIC ---------- -------- -------- --------- --------- ------- DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS 1997 First........ $ 841,690 $ 83,243 $ 5,245 $0.48 $0.42 11,000 Second....... 972,214 98,874 6,709 0.59 0.51 11,400 Third........ 1,013,334 105,362 7,229 0.62 0.55 11,600 Fourth....... 1,069,064 113,634 10,273 0.76 0.64 13,500 ---------- -------- -------- --------- --------- ------- Year......... $3,896,302 $401,113 $29,456 $2.48 $2.17 11,900 ---------- -------- -------- --------- --------- ------- ---------- -------- -------- --------- --------- ------- 1996 First........ $ 642,081 $ 57,181 $ 2,990 $0.30 $0.29 10,000 Second....... 769,860 68,133 4,424 0.44 0.42 10,100 Third........ 769,452 73,127 5,041 0.49 0.43 10,300 Fourth....... 920,662 84,918 6,278(1) 0.58 0.51(1) 10,800 ---------- -------- -------- --------- --------- ------- Year......... $3,102,055 $283,359 $18,733(1) $1.80 $1.66(1) 10,400 ---------- -------- -------- --------- --------- ------- ---------- -------- -------- --------- --------- ------- STOCK MARKET PRICE -------------------- DILUTED HIGH LOW ------- ------ ------ DOLLA 1997 First........ 13,600 $40.13 $20.63 Second....... 14,000 32.50 20.00 Third........ 14,100 37.63 31.13 Fourth....... 17,400 39.38 24.38 ------- ------ ------ Year......... 14,600 $40.13 $20.00 ------- ------ ------ ------- ------ ------ 1996 First........ 10,200 $18.50 $13.25 Second....... 10,600 24.25 16.75 Third........ 12,900 35.88 15.38 Fourth....... 13,400 39.25 28.88 ------- ------ ------ Year......... 11,900 $39.25 $13.25 ------- ------ ------ ------- ------ ------
- -------------------------- (1) Includes a charge of $991,000 or $0.09 per basic share and $0.07 per diluted share resulting from non-recurring charges. (2) Net earnings per share is calculated pursuant to Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards(SFAS) No. 128 "Earnings Per Share" which was issued in February 1997, accordingly, prior periods have been restated. The Company's Common Stock is listed on the New York Stock Exchange under the ticker symbol "ICO". Prior to September 12, 1997, the Company's Common Stock traded in the over-the-counter market and was quoted on the National Association of Securities Dealers Automated Quotations ("NASDAQ") National Market System under the symbol "INAC". As of March 2, 1998, the Company estimates there were 6,400 beneficial holders of the Company's Common Stock. The Company has never declared or paid a cash dividend to stockholders. The Board of Directors presently intends to retain all earnings to finance the expansion of the Company's operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon the Company's earnings, capital requirements and other factors. The Company's debt agreements restrict the amount of dividends which may be paid by the Company. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 20 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Except for the information relating to the executive officers of the Company set forth in Part I of this Report, the information called for by items 10, 11, 12 and 13 is incorporated herein by reference to the following sections of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 23, 1998: Certain Stockholders; Election of Directors; Directors Meetings and Compensation; Summary Compensation Table; Option Grants in Fiscal Year 1997; Option Exercises in Fiscal 1997 and Fiscal Year-End Values; and Employment, Consulting and Other Agreements. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) (2) Financial Statements. See index to consolidated financial statements and supporting schedules. (a) (3) Exhibits. See exhibit index, which index is incorporated herein by reference. (b) The Company filed a report on Form 8-K dated November 4, 1997, reporting the issuance and sale of 3,000,000 shares of Company common stock, par value $.10 per share, and $75,000,000 of 4.5% Subordinated Convertible Debentures due November 1, 2004 (the "Debentures") on November 4, 1997. The Company filed a report on Form 8-K dated November 20, 1997 reporting the issuance and sale of an additional $11,250,000 of Debentures on December 20, 1997, following the exercise of an overallotment option by the underwriters. 21 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 27, 1997 AND DECEMBER 28, 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) 22 INDEPENDENT AUDITORS' REPORT The Board of Directors InaCom Corp.: We have audited the accompanying consolidated financial statements of InaCom Corp. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of InaCom Corp. and subsidiaries at December 27, 1997 and December 28, 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 27, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. [/S/KPMG PEAT MARWICK LLP] KPMG Peat Marwick LLP Omaha, Nebraska February 20, 1998 23 INACOM CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE(S) --------- CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Operations -- Three-Year Period Ended December 27, 1997...................... 25 Consolidated Balance Sheets -- December 27, 1997 and December 28, 1996.................................. 26 Consolidated Statements of Stockholders' Equity -- Three-Year Period Ended December 27, 1997................................................................................ 27 Consolidated Statements of Cash Flows -- Three-Year Period Ended December 27, 1997...................... 28 Notes to Consolidated Financial Statements -- Three-Year Period Ended December 27, 1997................. 29 - 38 FINANCIAL STATEMENT SCHEDULE SUPPORTING CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE -- Valuation and Qualifying Accounts........................................................... 39
All other schedules have been omitted as the required information is inapplicable or the information is included in the consolidated financial statements or related notes. 24 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 ------------ ------------ ------------ Revenues: Computer products..................................................... $ 3,547,732 2,885,019 2,047,215 Computer services..................................................... 247,243 136,888 95,476 Communications products and services.................................. 101,327 80,148 57,653 ------------ ------------ ------------ 3,896,302 3,102,055 2,200,344 ------------ ------------ ------------ Direct costs: Computer products..................................................... 3,354,786 2,722,368 1,924,829 Computer services..................................................... 61,311 33,660 27,877 Communications products and services.................................. 79,092 62,668 43,832 ------------ ------------ ------------ 3,495,189 2,818,696 1,996,538 ------------ ------------ ------------ Gross margin............................................................ 401,113 283,359 203,806 Selling, general and administrative expenses............................ 322,218 231,235 169,338 ------------ ------------ ------------ Operating income........................................................ 78,895 52,124 34,468 Interest expense........................................................ 29,024 20,405 14,635 ------------ ------------ ------------ Earnings before income taxes............................................ 49,871 31,719 19,833 Income tax expense...................................................... 20,415 12,986 8,126 ------------ ------------ ------------ Net earnings............................................................ $ 29,456 18,733 11,707 ------------ ------------ ------------ ------------ ------------ ------------ Earnings per share: Basic................................................................. $ 2.48 1.80 1.17 Diluted............................................................... 2.17 1.66 1.16 ------------ ------------ ------------ ------------ ------------ ------------ Common shares and equivalents outstanding: Basic................................................................. 11,900 10,400 10,000 Diluted............................................................... 14,600 11,900 10,100 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 25 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 27, 1997 AND DECEMBER 28, 1996 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
1997 1996 ---------- --------- Current assets: Cash and cash equivalents................................................................ $ 52,592 31,410 Accounts receivable, less allowance for doubtful accounts of $5,941 in 1997 and $4,385 in 1996..................................................................... 252,067 288,407 Deferred income taxes.................................................................... 6,327 3,554 Inventories.............................................................................. 429,362 386,592 Other current assets..................................................................... 7,431 2,335 ---------- --------- Total current assets................................................................... 747,779 712,298 ---------- --------- Property and equipment, at cost............................................................ 175,117 116,970 Less accumulated depreciation.............................................................. 85,270 57,845 ---------- --------- Net property and equipment................................................................. 89,847 59,125 ---------- --------- Other assets, net of accumulated amortization of $17,410 in 1997 and $13,771 in 1996........................................................................... 34,502 27,531 Cost in excess of net assets of business acquired, net of accumulated amortization of $11,662 in 1997 and $7,736 in 1996........................................ 88,411 48,646 ---------- --------- $ 960,539 847,600 ---------- --------- ---------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable......................................................................... $ 409,513 406,753 Notes payable............................................................................ -- 140,770 Income taxes payable..................................................................... 5,908 3,531 Other current liabilities................................................................ 74,372 60,941 ---------- --------- Total current liabilities.................................................................. 489,793 611,995 ---------- --------- Convertible subordinated debentures........................................................ 141,500 55,250 Other long-term liabilities................................................................ 226 73 Deferred income taxes...................................................................... 3,804 3,452 Stockholders' equity: Capital stock: Class A preferred stock of $1 par value. Authorized 1,000,000 shares; none issued...... -- -- Common stock of $.10 par value. Authorized 30,000,000 shares; issued 14,825,049 shares in 1997 and 10,850,008 shares in 1996................................................ 1,482 1,085 Additional paid-in capital............................................................... 216,671 98,153 Retained earnings........................................................................ 107,063 77,607 ---------- --------- 325,216 176,845 Less unearned restricted stock........................................................... -- (15) ---------- --------- Total stockholders' equity................................................................. 325,216 176,830 ---------- --------- $ 960,539 847,600 ---------- --------- ---------- ---------
See accompanying notes to consolidated financial statements. 26 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL UNEARNED TOTAL COMMON PAID-IN RETAINED TREASURY RESTRICTED STOCKHOLDERS' STOCK CAPITAL EARNINGS STOCK STOCK EQUITY ----------- ----------- --------- ----------- ------------- ------------ Balance at December 31, 1994................. $ 1,004 89,314 47,167 (1,533) (362) 135,590 Net earnings................................. -- -- 11,707 -- -- 11,707 Issuance of 4,400 treasury shares as director compensation................................ -- (1) -- 39 -- 38 Issuance of 89,993 treasury shares under stock option plans.......................... -- 240 -- 790 -- 1,030 Issuance of 61,800 treasury shares as stock awards, net of forfeitures.................. -- (25) -- 543 (108) 410 ----------- ----------- --------- ----------- --- ------------ Balance at December 30, 1995................. 1,004 89,528 58,874 (161) (470) 148,775 Net earnings................................. -- -- 18,733 -- -- 18,733 Issuance of 691,131 shares in connection with business combinations....................... 69 6,581 -- -- -- 6,650 Issuance of 132,966 treasury and common shares under stock option plans............. 12 1,956 -- 161 -- 2,129 Issuance of 3,400 shares as director compensation................................ -- 60 -- -- -- 60 Issuance of 2,500 shares as stock awards, net of forfeitures.............................. -- 28 -- -- 455 483 ----------- ----------- --------- ----------- --- ------------ Balance at December 28, 1996................. 1,085 98,153 77,607 -- (15) 176,830 Net earnings................................. -- -- 29,456 -- -- 29,456 Issuance of 3,000,000 shares through public offering, net of offering expenditures...... 300 92,650 -- -- -- 92,950 Issuance of 892,708 shares in connection with business combinations....................... 89 24,394 -- -- -- 24,483 Issuance of 3,300 shares as director compensation................................ -- 66 -- -- -- 66 Issuance of 79,029 shares under stock option plans....................................... 8 1,408 -- -- -- 1,416 Amortization of unearned restricted stock.... -- -- -- -- 15 15 ----------- ----------- --------- ----------- --- ------------ Balance at December 27, 1997................. $ 1,482 216,671 107,063 -- -- 325,216 ----------- ----------- --------- ----------- --- ------------ ----------- ----------- --------- ----------- --- ------------
See accompanying notes to consolidated financial statements. 27 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1997 1996 1995 ------------ ---------- ---------- Cash flows from operating activities: Net earnings.............................................................. $ 29,456 18,733 11,707 Adjustments to reconcile net earnings to net cash used by operating activities: Depreciation and amortization........................................... 31,274 21,814 19,059 Changes in assets and liabilities, net of effects from business combinations: Accounts receivable................................................... (29,028) (123,648) (75,333) Inventories........................................................... (29,994) (31,794) (124,296) Other current assets.................................................. (2,954) 97 (610) Accounts payable...................................................... (27,943) 71,162 105,100 Other liabilities..................................................... (10,461) 20,896 5,444 Income taxes.......................................................... (44) 4,451 1,195 ------------ ---------- ---------- Net cash used by operating activities............................... (39,694) (18,289) (57,734) ------------ ---------- ---------- Cash flows from investing activities: Additions to property and equipment....................................... (50,656) (26,240) (10,346) Business combinations..................................................... (14,850) (23,386) -- (Advances of) receipts from notes receivable.............................. (420) 446 (1,872) Other, including advances to affiliates................................... (13,044) (11,950) (1,051) ------------ ---------- ---------- Net cash used in investing activities............................... (78,970) (61,130) (13,269) ------------ ---------- ---------- Cash flows from financing activities: Principal payments on long-term debt...................................... -- (30,334) (6,667) Proceeds from receivables sold............................................ 100,000 -- 100,000 Proceeds from offering of public stock.................................... 92,950 -- -- (Payments of) proceeds from notes payable................................. (140,770) 63,094 (13,184) Proceeds from long-term debt.............................................. 86,250 55,250 -- Proceeds from the exercise of employee stock options...................... 1,416 2,129 1,030 ------------ ---------- ---------- Net cash provided by financing activities........................... 139,846 90,139 81,179 ------------ ---------- ---------- Net increase in cash and cash equivalents 21,182 10,720 10,176 Cash and cash equivalents, beginning of year 31,410 20,690 10,514 ------------ ---------- ---------- Cash and cash equivalents, end of year $ 52,592 31,410 20,690 ------------ ---------- ---------- ------------ ---------- ----------
See accompanying notes to consolidated financial statements. 28 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) ORGANIZATION The consolidated financial statements include the accounts of InaCom Corp. (Company) and its wholly-owned subsidiaries. The Company is a provider of management technology services which include technology procurement and distribution of microcomputer systems, workstations, networking and telecommunications equipment, systems integration, and support services. All significant intercompany balances and transactions have been eliminated in consolidation. (B) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of computer hardware, software, voice and data equipment, and related materials. (C) OTHER ASSETS Other assets include vendor authorization rights and long-term notes receivable. Vendor authorization rights are being amortized over their contractual life of ten years. (D) COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED The excess of the cost over the fair value of assets of businesses acquired is being amortized over twenty years. The Company assesses the recoverability of intangible assets by determining whether the amortization of the asset balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. (E) DEPRECIATION Depreciation is provided over the estimated useful lives of the respective assets ranging from three to thirty-one years using the straight-line method. (F) INCOME TAXES Deferred tax assets and liabilities are recognized for the estimated 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 in effect for the year in which those temporary differences are expected to be recovered or settled. 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. (G) EARNINGS PER SHARE Earnings per share of common stock have been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to equivalent common shares from dilutive stock options and convertible subordinated debentures. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share", which revised the calculation and presentation provisions of Accounting Principles Board (APB) Opinion 15 and related interpretations. SFAS No. 128, which is effective for periods ending after December 15, 1997, requires companies to present, both currently and retroactively, basic earnings per share and diluted earnings per share instead of primary and fully-diluted earnings per share which was previously required under APB Opinion 15. Accordingly, earnings per share for all periods presented have been restated to apply the provisions of SFAS No. 128. Diluted earnings per share includes an increase to 29 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the numerator of $2.3 million in 1997 and $1.1 million in 1996 for interest expense that would not have been incurred if the convertible subordinated debentures were converted to common stock, and the denominator includes an increase to common shares and equivalents outstanding of 2.7 million shares in 1997, 1.5 million shares in 1996, and 100 thousand shares in 1995, for additional common shares that would have been outstanding if the convertible subordinated debentures and certain stock options were exercised. Had the Company reported earnings per share under the previous APB opinion 15, primary and fully-diluted earnings per share for the years ending December 1997, 1996, and 1995, would have been $2.40, $1.76, $1.14 and $2.13, $1.64, $1.14, respectively. (H) REVENUE AND EXPENSE RECOGNITION The Company recognizes revenue from product sales upon shipment to the customer. Revenues from consulting and other services are recognized as the Company performs the services. (I) MARKETING DEVELOPMENT FUNDS Primary vendors of the Company provide various incentives, in cash or credit against obligations, for promoting and marketing their product offerings. The funds or credits received are based on the purchases or sales of the vendor's products and are earned through performance of specific marketing programs or upon completion of objectives outlined by the vendors. Funds or credits earned are applied to direct costs or selling, general and administrative expenses depending on the objectives of the program. Funds or credits from the Company's primary vendors typically range from 1% to 5% of purchases. (J) RISKS AND UNCERTAINTIES Financial instruments which potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different industries and geographies. To minimize credit concentration risk, the Company utilizes several financial services organizations, which purchase accounts receivable, and performs ongoing credit evaluations of its customers' financial conditions. The Company's business is dependent in large measure upon its relationship with key vendors since a substantial portion of the Company's revenue is derived from the sales of the products of such key vendors. Termination of, or a material change to the Company's agreements with these vendors, or a material decrease in the level of marketing development programs offered by manufacturers, or an insufficient or interrupted supply of vendors' product would have a material adverse effect on the Company's business. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (K) FINANCIAL INSTRUMENTS The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and notes payable approximate fair value because of the short maturity of these instruments. The fair values of the convertible subordinated debentures are based on the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of 30 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) comparable maturity. The estimated fair value of the Company's convertible subordinated debentures at December 27, 1997 and December 28, 1996, approximates book value. The Company occasionally uses derivative financial instruments to limit the effect of increases in the interest rates on any floating-rate debt. The Company does not hold or issue derivative financial instruments for trading purposes. In January 1997 and October 1997, the Company entered into two separate one-year interest rate swap agreements with an unrelated financial institution which resulted in certain floating-rate interest payment obligations becoming fixed-rate interest payment obligations at 5.8% and 5.7%, respectively, with an aggregate notional amount of $100 million per each agreement. As a result of these swap agreements, interest expense was increased by approximately $260 thousand in 1997. The fair value of the swap agreements as of December 27, 1997 was $9.6 thousand. The January 1997 agreement expired in January 1998. (L) CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers cash and temporary cash investments with a maturity of three months or less to be cash equivalents. (M) STOCK-BASED COMPENSATION The Company accounts for stock options in accordance with the provisions of APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Accordingly, the Company has not recognized compensation expense for its options granted in 1997, 1996 and 1995. In 1996, the Company adopted FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. FASB Statement No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in FASB Statement No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of FASB Statement No. 123. (2) BUSINESS COMBINATIONS During 1997 and 1996, the Company completed several acquisitions. The total consideration given for the 1997 acquisitions was $39.4 million which included $14.9 million in cash and 892,708 shares of common stock in transactions accounted for as purchases. The total consideration given for the 1996 acquisitions was $30.5 million which included $23.4 million in cash and 327,495 shares of common stock in transactions accounted for as purchases. The excess purchase price over the estimated fair value of the net assets acquired was $40.0 million in 1997 and $24.2 million in 1996; the excess is being amortized using the straight line method over twenty years. Also during 1996, the Company acquired all the issued and outstanding shares of two network consulting organizations for 272,726 and 90,910 shares of Common Stock, respectively, in transactions accounted for as a pooling of interests. The Company's consolidated financial statements for the year ended December 28, 1996, include the fourth fiscal quarter's activity for the acquired businesses. Prior 31 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (2) BUSINESS COMBINATIONS (CONTINUED) period financial statements were not restated as the results of operations would not have been materially different than those previously reported by the Company. The effect of the immaterial poolings was to increase stockholders' equity by approximately $643,000. If the above business combinations had occurred on January 1, 1995, the pro forma operations of the Company would not have been materially different than that reported in the accompanying consolidated statements of operations. (3) PROPERTY AND EQUIPMENT A summary of property and equipment follows:
1997 1996 ----------- --------- Land, buildings and improvements...................................... $ 22,763 13,911 Furniture, fixtures and equipment..................................... 51,681 27,875 Computer equipment.................................................... 77,783 53,239 Computer parts held for repair and exchange........................... 22,890 21,945 ----------- --------- $ 175,117 116,970 ----------- --------- ----------- ---------
(4) INCOME TAXES Income tax expense (benefit) consists of the following:
1997 1996 1995 ---------- --------- --------- Current: Federal....................................................... $ 19,867 10,195 6,151 State......................................................... 2,969 1,488 943 Deferred: Federal....................................................... (2,251) 1,209 897 State......................................................... (170) 94 135 ---------- --------- --------- $ 20,415 12,986 8,126 ---------- --------- --------- ---------- --------- ---------
The reconciliation of the statutory federal income tax rate and the effective tax rate are as follows:
1997 1996 1995 ----------- ----------- ----------- Statutory federal income tax rate................................ 35.0% 35.0% 35.0% State income taxes, net of federal benefit....................... 3.6 3.2 3.6 Other............................................................ 2.4 2.8 2.4 --- --- --- 41.0% 41.0% 41.0% --- --- --- --- --- ---
32 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (4) INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
1997 1996 --------- --------- Deferred tax assets: Valuation reserves....................................................... $ 6,475 5,726 Accrued expenses not deducted until paid................................. 5,305 2,188 Other.................................................................... 163 -- --------- --------- Total deferred tax assets.............................................. 11,943 7,914 --------- --------- Deferred tax liabilities: Vendor discounts......................................................... 2,374 2,766 Depreciation............................................................. 5,600 4,241 Other.................................................................... 1,446 805 --------- --------- Total deferred tax liabilities......................................... 9,420 7,812 --------- --------- Net deferred tax assets................................................ $ 2,523 102 --------- --------- --------- ---------
There was no valuation allowance for deferred tax assets at December 27, 1997 or December 28, 1996. (5) NOTES PAYABLE AND CONVERTIBLE SUBORDINATED DEBENTURES The Company's primary sources of liquidity are provided through an inventory and working-capital financing agreement of $550.0 million (increased from $350.0 million as of June 27, 1997), convertible subordinated debentures of $141.5 million, and a revolving credit facility of $40.0 million. The $550.0 million facility provided by IBM Credit Corp. can be used by the Company at its discretion, subject to a borrowing base, for its working-capital needs and IBM Corp. inventory purchases. The inventory and working-capital financing agreement expires June 29, 1998. On December 27, 1997, $167.6 million was outstanding under the inventory and working-capital financing agreement, of which the entire balance is included in the accompanying consolidated balance sheet as non-interest bearing trade accounts payable. There were no outstanding balances related to the interest-bearing working-capital portion of the agreement, however, the interest rate would have been 7.6% based on three-month LIBOR. This inventory and working-capital financing agreement is secured by inventory and other assets. The $40.0 million revolving credit facility agreement expires in February 1999. On December 27, 1997, there were no outstanding balances under the revolving credit facility, however, the interest rate would have been 7.0% based on three-month LIBOR. The revolving credit facility is secured by inventory and other assets. The debt agreements contain certain restrictive covenants, including the maintenance of minimum levels of working capital, tangible net worth, limitations on incurring additional indebtedness, and restrictions on the amount of net loss the Company can incur. Retained earnings on December 27, 1997 would not be restricted as to payments of cash dividends under the most restrictive covenants in such agreements. The Company was in compliance with the covenants contained in the agreements on December 27, 1997. 33 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (5) NOTES PAYABLE AND CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED) The $141.5 million of convertible subordinated debentures consist of $86.25 million of 4.5% convertible subordinated debentures and $55.25 million of 6.0% convertible subordinated debentures. In November 1997, the Company issued $86.25 million of 4.5% convertible subordinated debentures due November 1, 2004. The 1997 debentures are convertible into common stock of the Company at a conversion rate of 25.235 shares per each $1,000 principal amount of debentures (equivalent to a conversion price of $39.63 per share), subject to adjustments under certain circumstances. The 1997 debentures are not redeemable by the Company prior to November 1, 2001 and thereafter the Company may redeem the debentures at various premiums to principal amount. The 1997 debentures may also be redeemed at the option of the holder if there is a Change in Control (as defined in the indenture) at a price equal to 100% of the principal amount plus accrued interest at the date of redemption. The net proceeds from the sale of the 4.5% debentures were used to repay, in part, indebtedness and fund other capital requirements. In June 1996, the Company issued $55.25 million of 6.0% convertible subordinated debentures due June 15, 2006. The 1996 debentures are convertible into common stock of the Company at a conversion price of $24.00 per share, subject to adjustments under certain circumstances. The 1996 debentures are not redeemable by the Company prior to June 16, 2000 and thereafter the Company may redeem the debentures at various premiums to par. The 1996 debentures may also be redeemed at the option of the holder if there is a Change in Control (as defined in the indenture) at a price equal to 100% of the principal amount plus accrued interest at the date of redemption. The net proceeds from the sale of the 6.0% debentures were used to reduce a portion of the outstanding balance of the working-capital financing agreement which carried an interest rate at the time of the debenture sale of 7.3% 34 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (6) ACCOUNTS RECEIVABLE AND CREDIT ARRANGEMENTS The Company has entered into an agreement to sell $200 million of accounts receivable, with limited recourse, to an unrelated financial institution. The agreement was initially entered into in June 1995 with respect to $100 million of accounts receivable and was amended in January 1997 to sell an additional $100 million of accounts receivable. New qualifying receivables are sold to the financial institution as collections reduce previously sold receivables in order to maintain a balance of $200 million sold receivables. On December 27, 1997, $46.8 million of additional accounts receivable were designated to offset potential obligations under limited recourse provisions; however, historical losses on Company receivables have been substantially less than such additional amount. On December 27, 1997, the implicit interest rate on the receivable sale transaction was 6.2%. The Company also has floor plan agreements to take advantage of vendor financing programs. The Company has entered into dealer working-capital financing agreements with several financial services organizations which purchase, primarily, accounts receivable from the Company. The Company had contingent liabilities of $2.4 million at December 27, 1997 and $1.8 million at December 28, 1996 relating to these agreements. (7) LEASES The Company operates in leased premises which include the general offices, warehouse facilities and Company-owned branches. Operating lease terms range from monthly to ten years and generally provide for renewal options. Rent expense for operating leases was approximately $17.9 million, $12.0 million and $9.8 million for the three years ended December 27, 1997, respectively. Future minimum operating lease obligations for the years 1998 through 2002 are $14.3 million, $13.2 million, $10.5 million, $8.1 million, and $6.3 million, respectively. It is anticipated that leases will be renewed or replaced as they expire such that future annual lease obligations will approximate rent expense for 1997. (8) EMPLOYEE BENEFIT PLAN The Company maintains a qualified savings plan under Section 401(k) of the Internal Revenue Code (IRC) which covers substantially all full-time employees. Annual contributions to the qualified plan, based on participant's annual pay, are made by the Company. Participants may also elect to make contributions to the plan. Employee contributions are matched by the Company up to limits prescribed by the IRC. Company contributions to the plan approximated $5.1 million in 1997, $3.3 million in 1996 and $2.4 million in 1995. The Company maintains a nonqualified savings plan for employees whose benefits under the qualified savings plans are reduced because of limitations under Federal tax laws. Contributions made to this plan were not material. 35 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (9) LITIGATION The Company is involved in a limited number of legal actions. Management believes that the ultimate resolution of all pending litigation will not have a material adverse effect on the Company's consolidated financial statements. (10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest and income taxes paid are summarized as follows:
1997 1996 1995 ---------- --------- --------- Interest paid........................................................... $ 29,537 19,611 14,054 Income taxes paid....................................................... 20,459 8,176 6,931 ---------- --------- --------- ---------- --------- ---------
Components of cash used for acquisitions as reflected in the consolidated statements of cash flows are summarized as follows:
1997 1996 1995 ---------- --------- --------- Fair value of assets acquired, including goodwill....................... $ 94,098 41,965 -- Liabilities assumed..................................................... (54,748) (11,436) -- Fair value of common stock issued....................................... (24,500) (7,143) -- ---------- --------- --------- Cash paid at closing, net of cash acquired.............................. $ 14,850 23,386 -- ---------- --------- --------- ---------- --------- ---------
(11) STOCK OPTION AND AWARD PROGRAMS The Company has three stock plans approved by the shareholders in 1997, 1994 and 1990, and a nonqualified stock options plan approved by shareholders in 1987. Options granted under the stock plans may be either nonqualified or incentive stock options. The option price, vesting period and term under the stock plans and the nonqualified stock option plan are set by the Compensation Committee of the Board of Directors of the Company. The option price may not be less than the fair market value per share at the time the option is granted. The vesting period of options granted typically ranges from two to five years, and the term of any option granted may not exceed ten years. The stock plans also permit the issuance of restricted or bonus stock awards by the Compensation Committee. At December 27, 1997, the Company had approximately 789,000 shares available for issuance pursuant to subsequent grants under the plans. In addition, the Company awarded 26,750 stock appreciation rights (SARs) to certain employees in 1997. The SARs which were awarded and are currently outstanding have a basis of $38.125 and are exercisable on June 30, 1998, and June 30, 1999. On June 30, 1998 and June 30, 1999, the SARs allow the employees to receive a cash payment equal to the fair market value on that date less the basis or adjusted basis of the SARs. The Company recognizes compensation expense over the term of the SARs based on changes in the fair market value of the Company's stock. 36 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (11) STOCK OPTION AND AWARD PROGRAMS (CONTINUED) Additional information as to shares subject to options is as follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE OPTIONS PRICE ---------- ----------- Options outstanding at December 31, 1994......................................... 800,500 13.01 Granted........................................................................ 157,000 9.82 Exercised...................................................................... (90,000) 10.26 Canceled....................................................................... (68,500) 12.45 ---------- Options outstanding at December 30, 1995......................................... 799,000 12.76 Granted........................................................................ 36,500 35.56 Exercised...................................................................... (133,000) 10.77 Canceled....................................................................... (21,000) 9.56 ---------- Options outstanding at December 28, 1996......................................... 681,500 14.47 Granted........................................................................ 710,950 33.23 Exercised...................................................................... (78,100) 10.28 Canceled....................................................................... (25,200) 34.03 ---------- Options outstanding at December 27, 1997......................................... 1,289,150 24.67 ---------- ----- ---------- ----- Exercisable at December 27, 1997............................................... 464,773 13.74 ---------- ----- ---------- -----
EXERCISABLE AT OPTIONS OUTSTANDING AT DECEMBER 27, 1997 DECEMBER 27, 1997 ----------------------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE REMAINING EXERCISE EXERCISE RANGE OF OPTION EXERCISE NUMBER OF CONTRACTUAL PRICE PER NUMBER OF PRICE PER PRICE OPTIONS LIFE OPTION OPTIONS OPTION - --------------------------- ---------- -------------- ------------- ----------- ------------- $8.00 to 12.00 286,330 5.97 years $ 10.21 252,733 $ 10.26 14.25 to 21.56 284,290 4.95 years 17.36 194,290 16.27 24.00 to 36.56 718,530 7.87 years 33.34 17,750 35.56 ---------- -------------- ------ ----------- ------ $8.00 to 36.56 1,289,150 6.81 years $ 24.67 464,773 $ 13.74 ---------- -------------- ------ ----------- ------ ---------- -------------- ------ ----------- ------
37 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 27, 1997 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (11) STOCK OPTION AND AWARD PROGRAMS (CONTINUED) Pro-forma information regarding net income and earnings per share is required by FASB Statement No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The following weighted-average fair values for these options were estimated at the date of grant using a Black-Scholes option-pricing model with these weighted-average assumptions for 1997, 1996, and 1995:
1997 1996 1995 ---------- ---------- ---------- Fair value of options granted during the year................................ $ 21.51 $ 20.76 $ 6.77 Risk-free interest rate...................................................... 6.0% 6.1% 5.7% Expected dividend yield...................................................... 0.0% 0.0% 0.0% Expected volatility factor................................................... 96.9% 92.5% 94.7% Expected life................................................................ 3.5 years 2.5 years 3.7 years
Since the Company applies APB Opinion No. 25 in accounting for its plans, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company recorded compensation cost based on the fair value at the grant date for its stock options under FASB Statement No 123, the Company's net earnings for 1997, 1996 and 1995 would have been reduced by approximately 4.4%, 1.6% and 0.5%, respectively, and the Company's diluted earnings per share for 1997, 1996 and 1995 would have been reduced by approximately 4.1%, 1.3% and 0.6%, respectively. Pro forma net income reflects only options granted in 1997, 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under FASB Statement No. 123 is not reflected in the pro forma net earnings amounts presented above, because compensation cost is reflected over the options' vesting periods for the 1997, 1996 and 1995 options, respectively. Compensation costs for options granted prior to January 1, 1995 are not considered. 38 SCHEDULE INACOM CORP. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
BALANCE AT CHARGED TO BEGINNING COSTS AND AMOUNTS WRITTEN BALANCE AT END OF PERIOD EXPENSES OFF (1) OF PERIOD ---------- ------------- --------------- --------------- Fiscal year ended December 27, 1997 -- Allowance for doubtful accounts........................... $ 4,385 3,444 1,888 5,941 ---------- ----- ----- ----- ---------- ----- ----- ----- Fiscal year ended December 28, 1996 -- Allowance for doubtful accounts........................... $ 3,537 1,626 778 4,385 ---------- ----- ----- ----- ---------- ----- ----- ----- Fiscal year ended December 30, 1995 -- Allowance for doubtful accounts........................... $ 2,626 2,308 1,397 3,537 ---------- ----- ----- ----- ---------- ----- ----- -----
- ------------------------ (1) The deductions from reserves are net of recoveries. 39 SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on the 26th day of March, 1998. InaCom Corp. By /s/ BILL L. FAIRFIELD ------------------------------------ Bill L. Fairfield, PRESIDENT Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of InaCom Corp. and in the capacities indicated on the 26th day of March, 1998. /s/ BILL L. FAIRFIELD President (Principal Executive Officer) and - ------------------------------------------- Director Bill L. Fairfield /s/ DAVID C. GUENTHNER Executive Vice President and Chief Financial - ------------------------------------------- Officer (Principal Financial and Accounting David C. Guenthner Officer) JOSEPH AUERBACH* Director MOGENS C. BAY* Director JAMES Q. CROWE* Director W. GRANT GREGORY* Director JOSEPH INATOME* Director RICK INATOME* Director GARY SCHWENDIMAN* Director LINDA S. WILSON* Director *Bill Fairfield, by signing his name hereto, signs this Annual Report on behalf of each of the persons indicated. A power of attorney authorizing Bill L. Fairfield to sign the Annual Report on Form 10-K on behalf of each of the indicated directors of Inacom Corp. has been filed herein as Exhibit 24. /s/ BILL L. FAIRFIELD - ------------------------------------------- Bill L. Fairfield ATTORNEY-IN-FACT
40 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------- ----------- 3.1 Restated Certificate of Incorporation of the Company, with amendments............................ 3.2 Bylaws of the Company, as amended to date, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1996. 4.1 Inventory Working Capital Financing Agreement dated June 29, 1995 between InaCom and IBM Credit Corporation, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995. 4.2 Amendments to Inventory Working Capital Financing Agreement incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997 and Annual Report on Form 10-K for the fiscal year ended December 28, 1996. 4.3 Amended and Restated Receivable Purchase Agreement dated as of August 21, 1995 between InaCom, InaCom Finance Corp. and certain financial institutions, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 4.4 Amendments to Amended and Restated Receivable Purchase Agreement incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. 4.5 Amendments to Amended and Restated Receivable Purchase Agreement................................. 4.6 Subordinated Indenture dated June 14, 1996 between the Company and First National Bank of Omaha, and related debenture, with respect to the Company's 6% convertible subordinated debentures due June 15, 2000, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996. 4.7 Subordinated Indenture dated September 30, 1997 between the Company and Norwest Bank Minnesota, National Association and First Supplemental Indenture thereto dated November 4, 1997 incorporated by reference to the Company's Current Report on Form 8-K dated November 4, 1997. 4.8 4.50% Subordinated Convertible Debenture, Due November 1, 2004 incorporated by reference to the Company's Current Report on Form 8-K dated November 4, 1997. 4.9 4.50% Subordinated Convertible Debenture, Due November 1, 2004 incorporated by reference to the Company's Current Report on Form 8-K dated November 20, 1997. 10.1 1987 Stock Option Plan of the Company............................................................ 10.2 1990 Stock Plan of the Company, with amendments thereto, incorporated herein by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.3 1994 Stock Plan of the Company, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 26, 1994. 10.4 1997 Stock Plan of the Company................................................................... 10.5 Executive Incentive Plan.........................................................................
41
EXHIBIT NO. DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------- ----------- 10.6 Nonqualified Deferred Compensation Plan of the Company, incorporated herein by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.7 First Amendment to the Nonqualified Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995. 10.8 Second Amendment to the Nonqualified Deferred Compensation Plan.................................. 10.9 Rick Inatome Consulting Agreement, with amendment thereto, incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995. 10.10 Executive Death Benefit Plan..................................................................... 10.11 Executive Disability Wage Continuation Plan...................................................... 10.12 Form of Severance Benefit Agreement between the Company and seven of its officers, incorporated herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.13 Restricted Stock Agreements between the Company and Bill L. Fairfield, incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.14 Lease Agreement between the Company and Maple Avenue Limited Liability Company dated September 5, 1994, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 24, 1994. 11 Statement re: Computation of Earnings Per Share.................................................. 12 Statement re: Ratio of Earnings to Fixed Charges................................................. 21 Subsidiaries of the Company...................................................................... 23 Consent of KPMG Peat Marwick LLP................................................................. 24 Powers of Attorney............................................................................... 27.1 Financial Data Schedule.......................................................................... 27.2 Financial Data Schedule..........................................................................
Pursuant to Item 601(h)(4) of Regulation S-K, certain instruments with respect to the Company's long-term debt are not filed with this Form 10-K. The Company will furnish a copy of such long-term debt agreements to the Securities and Exchange Commission upon request. Management contracts and compensatory plans are set forth as Exhibits 10.1 through 10.14 above. 42 EX-3.1 2 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF VALCOM, INC. The undersigned corporation hereby amends and restates its Certificate of Incorporation in its entirety. The corporation's present name and the name under which it was originally incorporated is VALCOM, INC. The date of filing of its original Certificate of Incorporation with the Secretary of State of Delaware was February 11, 1985. In accordance with Sections 228 and 141 of the General Corporation Law of the State of Delaware, a written Consent in Lieu of Special Joint Meeting of the Board of Directors and Shareholders was executed on May 27, 1987, by the sole shareholder and all of the directors of the corporation duly adopting amendments to the Certificate of Incorporation and this Restated Certificate of Incorporation in its entirety. The Restated Certificate of Incorporation was adopted in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. ARTICLE I NAME The name of the corporation is VALCOM, INC. ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT Its registered office in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The registered agent in charge thereof at such address is The Corporation Trust Company. ARTICLE III PURPOSE The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Law of Delaware. ARTICLE IV AUTHORIZED SHARES The total number of shares which this corporation shall have authority to issue is Eleven Million (11,000,000) shares, divided into Ten Million (10,000,000) shares of Common Stock of a par value of Ten Cents ($0.10) per share and One Million (1,000,000) shares of Class A Preferred Stock of a par value of One Dollar ($1.00) per share. The Class A Preferred Stock of this corporation may be divided into and issued in one or more series from time to time with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations and restrictions thereof as may be provided in a resolution or resolutions adopted by the Board of Directors. The authority of the Board of Directors includes, but is not limited to, the determination or fixing of the following with respect to shares of such class or any series thereof: (i) the number of shares; (ii) the dividend rate and the date from 1 which dividends are to be cumulative; (iii) whether shares are to be redeemable and, if so, the terms and amount of any sinking fund providing for the purchase or redemption of such shares; (iv) whether shares shall be convertible and, if so, the terms and provisions thereof; (v) what restrictions are to apply, if any, on the issue or reissue of any additional Class A Preferred Stock; and (vi) whether shares have voting rights. ARTICLE V DIRECTORS' POWERS The directors shall have power to make and alter or amend the By-laws, to fix the amount to be reserved as working capital, and to authorize and cause to be executed mortgages and liens, without limitation as to the amount, upon the property and franchise of the corporation. ARTICLE VI INTEREST OF DIRECTORS IN TRANSACTIONS In absence of fraud, no contract or other transaction between the corporation and any other person, corporation, firm, syndicate, association, partnership, or joint venture shall be wholly or partially invalidated or otherwise affected by reason of the fact that one or more of the directors of the corporation are or become directors or officers of such other corporation, firm, syndicate, or association, or members of such partnership or joint venture, or are pecuniarily or otherwise interested in such contractual transaction; provided, that the fact such director or directors of the corporation are so situated or so interested or both, shall be disclosed or shall have been known to the Board of Directors of the corporation. Any director or directors of the corporation who is also a director or officer of such other corporation, firm, syndicate, or association, or a member of such partnership, or contract or transaction, may be counted for the purpose of determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize any such contract or transaction and in the absence of fraud, and as long as he acts in good faith, any such director may vote thereat to authorize any such contract or transaction with like force and effect as if he were not a director or officer of such other corporation, firm, syndicate, or association, or a member of such partnership, or joint venture or pecuniarily or otherwise interested in such contract or transaction. ARTICLE VII INDEMNIFICATION The corporation shall, to the extent required, and may, to the extent permitted by Section 102 and Section 145 of Delaware General Corporation Law as amended from time to time, indemnify and reimburse all persons whom it may indemnify and reimburse pursuant thereto. With respect to acts or omissions occurring on or after May 27, 1987, no director shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any transactions from which the director derived an improper personal benefit. Notwithstanding the foregoing, the indemnification provided for in this Article VII shall not be deemed exclusive of any other rights to which those entitled to receive indemnification or reimbursement hereunder may be entitled under any By-law of this corporation, agreement, vote or consent of stockholders or disinterested directors or otherwise. 2 IN WITNESS WHEREOF, VALCOM, INC. has caused this Restated Certificate of Incorporation to be signed by BILL L. FAIRFIELD, its President, and attested by MICHAEL A. STEFFAN, its Secretary, this 27th day of May, 1987. VALCOM, INC. By: /s/ Bill L. Fairfield ----------------------- BILL L. FAIRFIELD, President ATTEST: By: /s/ Michael A. Steffan ----------------------- MICHAEL A. STEFFAN, Secretary 3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION ValCom, Inc., a corporation existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Shareholder and the Board of Directors of ValCom, Inc., by unanimous joint written consent of said Shareholder and Directors, duly adopted resolutions setting forth a proposed amendment to the Certificate of Incorporation of said Corporation as follows: "BE IT RESOLVED, that the Certificate of Incorporation of the Corporation be amended so as to delete the first paragraph of Article VII of said Certificate in its entirety and insert in place thereof the following paragraph: The corporation shall, to the extent required, and may, to the extent permitted by Section 102 and Section 145 of Delaware General Corporation Law, indemnify and reimburse all persons whom it may indemnify and reimburse pursuant thereto. With respect to acts or omissions occurring on or after May 27, 1987, no director shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any transactions from which the director derived an improper personal benefit. SECOND: That said amendment was duly adopted in accordance with the provisions of Sections 242, 228 and 141(f) of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said ValCom, Inc. has caused this Certificate to be signed by Bill L. Fairfield, President, and attested by Michael A. Steffan, its Secretary, this 14th day of August, 1987. VALCOM, INC. ATTEST: /s/ Michael A. Steffan By: /s/ Bill L. Fairfield - ------------------------ --------------------- Michael A. Steffan, Bill L. Fairfield, Secretary President 4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF VALCOM, INC. VALCOM, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware ("Corporation"), does hereby certify that the amendment to the Corporation's Certificate of Incorporation set forth in the following resolution, as approved by the Corporation's Board of Directors and stockholders, was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware: "RESOLVED, that the Certificate of Incorporation of the Corporation be amended by striking ARTICLE I in its entirety and replacing therefor: ARTICLE I NAME The name of the corporation shall be InaCom Corp." IN WITNESS WHEREOF, VALCOM, INC. has caused this Certificate to be signed and attested by its duly authorized officers this 5th day of August, 1991. VALCOM, INC. By: /s/ Bill L. Fairfield --------------------- BILL L. FAIRFIELD, President ATTEST: /s/ Michael A. Steffan - ---------------------- MICHAEL A. STEFFAN, Secretary 5 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF INACOM CORP. INACOM CORP., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That at a meeting of the Board of Directors of INACOM CORP. a resolution was duly adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation declaring said amendment to be advisable and calling for a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the Board of Directors declare it advisable that the first sentence of ARTICLE IV of the Certificate of Incorporation entitled "AUTHORIZED SHARES" be amended in accordance with Exhibit "A" attached hereto to reflect an increase in the total number of shares which this corporation shall have authority to issue from 11,000,000 shares to 31,000,000 shares by increasing the authorized Common Stock par value of $.10 per share from 10,000,000 shares to 30,000,000 shares." SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware on March 30, 1993, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said INACOM CORP. has caused this Certificate to be signed by BILL L. FAIRFIELD, its President, and attested to by MICHAEL A. STEFFAN, its Secretary, this 30th day of March, 1993. INACOM CORP. ATTEST: /s/ Michael A. Steffan By: /s/ Bill L. Fairfield - ----------------------- --------------------- MICHAEL A. STEFFAN, BILL L. FAIRFIELD, Secretary President 6 EXHIBIT "A" ARTICLE IV AUTHORIZED SHARES (FIRST SENTENCE) The total number of shares which this corporation shall have the authority to issue is Thirty-One Million (31,000,000) shares, divided into Thirty Million (30,000,000) shares of Common Stock of a par value of Ten Cents ($.10) per share and One Million (1,000,000) shares of Class A Preferred Stock of a par value of One Dollar ($1.00) per share. The remainder of this Article shall remain unchanged in its entirety. 7 EX-4.5 3 EXHIBIT 4.5 FIFTH AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT THIS FIFTH AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of September 29, 1997 (this "AMENDMENT"), is among INACOM FINANCE CORP. ("SELLER"), INACOM CORP. ("INACOM"), CLIPPER RECEIVABLES CORPORATION ("PURCHASER"), STATE STREET CAPITAL CORPORATION, as administrator (the "ADMINISTRATOR"), and NORWEST BANK MINNESOTA, N.A., as relationship bank (the "RELATIONSHIP BANK"). BACKGROUND 1. Seller, Inacom, Purchaser, the Administrator and the Relationship Bank are parties to that certain Amended and Restated Receivables Purchase Agreement, dated as of August 21, 1995, as amended by the First Amendment to Amended and Restated Receivables Purchase Agreement, dated as of May 31, 1996, the Second Amendment to Amended and Restated Receivables Purchase Agreement, dated as of November 20, 1996, the Third Amendment to Amended and Restated Receivables Purchase Agreement, dated as of January 8, 1997 and the Fourth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of July 18, 1997 (the "RECEIVABLES PURCHASE AGREEMENT"). 2. The parties desire to amend the Receivables Purchase Agreement in certain respects as set forth herein. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Purchase Agreement. SECTION 2. LIABILITIES TO TANGIBLE NET WORTH. SECTION 7.05(b) of the Receivables Purchase Agreement is hereby amended by inserting immediately after the words "to exceed" where they appear therein the phrase "(i) 6.5 to 1.0 for any period ending prior to July 1, 1998 and (ii)" and by inserting the words "for any period ending thereafter" after the phrase "6.0 to 1.0" where it appears therein. SECTION 3. BACK-UP SERVICER EVENT. The definition of "BACK-UP SERVICER EVENT" that appears in APPENDIX A to the Receivables Purchase Agreement is hereby amended by deleting the phrase "5.0 to 1.0" where it appears in CLAUSE (ii) thereof and substituting therefor the phrase "(x) 6.5 to 1.0 for any period ending prior to July 1, 1998 and (y) 6.0 to 1.0 for any period ending thereafter". SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Seller Party hereby jointly and severally represents and warrants that (i) the representations and warranties contained in SECTION 6.01 of the Receivables Purchase Agreement are true and correct on and as of the date hereof, and after giving effect hereto, as though made on and as of such date, and shall be deemed to have been made on such date and (ii) no event has occurred and is continuing, or would result from this Amendment, that constitutes a Liquidation Event or Unmatured Liquidation Event. SECTION 5. MISCELLANEOUS. This Amendment will not become effective until the rating agencies that rate the Commercial Paper Notes confirm the current rating of such Commercial Paper Notes after giving effect hereto. The Receivables Purchase Agreement, as amended hereby, remains in full force and effect. Any reference to the Receivables Purchase Agreement from and after the date hereof shall be deemed to refer to the Receivables Purchase Agreement as amended hereby, unless otherwise expressly stated. This Amendment shall be governed by, and 9 construed in accordance with, the laws of the State of New York. This Amendment may be executed in any number of counterparts, and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which when taken together shall constitute one and the same agreement. The Seller Parties, jointly and severally, hereby agree to pay on demand all costs and expenses, including reasonable attorneys' fees, incurred by the Purchaser, the Relationship Bank or the Administrator in connection with the preparation or execution of this Amendment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 10 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunder duly authorized, as of the date first above written. INACOM FINANCE CORP. By:/s/ Dave Guenthner ---------------------------- Name Printed:Dave Guenthner -------------------------- Its: CFO --------------------------- INACOM CORP. By:/s/ Dave Guenthner ---------------------------- Name Printed:Dave Guenthner ------------------ Its: CFO -------------------------- CLIPPER RECEIVABLES CORPORATION By:/s/ Anne B. Brennan ---------------------------- Name Printed:Anne B. Brennan ------------------ Its: Secretary -------------------------- STATE STREET CAPITAL CORPORATION, as Administrator By:/s/ David Lister ------------------------------ Name Printed:David Lister -------------------- Its: Vice President ---------------------------- NORWEST BANK MINNESOTA, N.A., as Relationship Bank By:/s/ Jennifer Fallat ------------------------------ Name Printed:Jennifer Fallat -------------------- Its: Corporate Banking Officer ---------------------------- Fifth Amendment to Receivables Purchase Agreement S-1 FOURTH AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of July 18, 1997 (this "AMENDMENT"), is among INACOM FINANCE CORP. ("SELLER"), INACOM CORP. ("INACOM"), CLIPPER RECEIVABLES CORPORATION ("PURCHASER"), STATE STREET CAPITAL CORPORATION, as administrator (the "ADMINISTRATOR"), and NORWEST BANK MINNESOTA, N.A., as relationship bank (the "RELATIONSHIP BANK"). BACKGROUND 1. Seller, Inacom, Purchaser, the Administrator and the Relationship Bank are parties to that certain Amended and Restated Receivables Purchase Agreement, dated as of August 21, 1995, as amended by the First Amendment to Amended and Restated Receivables Purchase Agreement, dated as of May 31, 1996, the Second Amendment to Amended and Restated Receivables Purchase Agreement, dated as of November 20, 1996, and the Third Amendment to Amended and Restated Receivables Purchase Agreement, dated as of January 8, 1997 (the "RECEIVABLES PURCHASE AGREEMENT"). 2. The parties desire to amend the Receivables Purchase Agreement in certain respects as set forth herein. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Purchase Agreement. SECTION 2. DEFAULTED RECEIVABLE. The definition of "Defaulted Receivable" where it appears in APPENDIX A to the Receivables Purchase Agreement is hereby amended by (i) inserting the word "or" immediately before CLAUSE (d) thereof, (ii) deleting the semi-colon and the word "or" that appears immediately after CLAUSE (d) thereof and substituting therefor a period and (iii) deleting CLAUSE (e) thereof in its entirety. The definition of "Eligible Receivable" that appears in APPENDIX A of the Receivables Purchase Agreement is hereby amended by adding a new phrase at the end of PARAGRAPH d thereof, immediately before the semi-colon, as follows: "and which is not owed by an Obligor with ten percent (10%) or more of the aggregate Unpaid Balance of all Receivables owed by such obligor that are Defaulted Receivables". SECTION 3. WAIVER. Purchaser, the Administrator and the Relationship Bank hereby waive the following Liquidation Events: (i) the occurrence of a Liquidation Event pursuant to SECTION 10.01(h)(i) of the Receivables Purchase Agreement for the Cut-Off Dates relating to the months of August through November of 1996 as a result of the inclusion of Defaulted Receivables described in clause (e) of the original definition thereof in the calculation of such ratio; (ii) the occurrence of a Liquidation Event pursuant to SECTION 10.01(h)(ii) of the Receivables purchase Agreement for the Cut-Off Dates for the months of September of 1996 through January of 1997 as a result of the inclusion of Defaulted Receivables described in clause (e) of the original definition thereof in the calculation of such ratio; (iii) the occurrence of a Liquidation Event pursuant to SECTION 10.01(k)(i) of the Receivables Purchase Agreement for the Cut-Off-Dates for the months of November of 1995, February of 1996, May of 1996 and September through November of 1996 as a result of the inclusion of Defaulted Receivables described in clause (e) of the original definition thereof in the calculation of such ratio; (iv) the occurrence of a Liquidation Event pursuant to SECTION 10.01(k)(ii) of the Receivables Purchase Agreement for the Cut-Off Dates for the months of November of 1995, March through July of 1996 and September of 1996 through January of 1997 as a result of the inclusion of Defaulted Receivables described in clause (e) of the original definition thereof in the calculation of such ratio; and (v) a Liquidation Events occurring as the result of the failure of inacom to provide the notice required pursuant to SECTION 7.03(g) of the Receivables Purchase Agreement for the period prior to the date hereof. The foregoing waiver shall only apply with respect to the Liquidation Events specified in the foregoing sentence, and shall not apply to any other now existing or hereafter occurring Liquidation Event. SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Seller Party hereby jointly and severally represents and warrants that (i) the representations and warranties contained in SECTION 6.01 of the Receivables Purchase Agreement are true and correct on and as of the date hereof, and after giving effect hereto, as though made on and as of such date, and shall be deemed to have been made on such date and (ii) no event has occurred and is continuing, or would result from this Amendment, that constitutes a Liquidation Event or Unmatured Liquidation Event. SECTION 5. MISCELLANEOUS. This Amendment will not become effective until the rating agencies that rate the Commercial Paper Notes confirm the current rating of such Commercial Paper Notes after giving effect hereto. The Receivables Purchase Agreement, as amended hereby, remains in full force and effect. Any reference to the Receivables Purchase Agreement from and after the date hereof shall be deemed to refer to the Receivables Purchase Agreement as amended hereby, unless otherwise expressly stated. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. This Amendment may be executed in any number of counterparts, and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which when taken together shall constitute one and the same agreement. The Seller Parties, jointly and severally, hereby agree to pay on demand all costs and expenses, including reasonable attorneys' fees, incurred by the Purchaser, the Relationship Bank or the Administrator in connection with the preparation or execution of this Amendment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunder duly authorized, as of the date first above written. INACOM FINANCE CORP. By:/s/ Dave Guenthner ------------------------------------- Name Printed:Dave Guenthner --------------------------- Its: Executive Vice President & Chief ----------------------------------- Financial Officer INACOM CORP. By:/s/ Dave Guenthner ------------------------------------ Name Printed:Dave Guenthner -------------------------- Its: Executive Vice President & Chief ----------------------------------- Financial Officer CLIPPER RECEIVABLES CORPORATION By:/s/ Tiffany Percival --------------------------------- Name Printed: Tiffany Percival -------------------------- Its: Secretary --------------------------------- STATE STREET CAPITAL CORPORATION, as Administrator By:/s/ David Lister ------------------------------------- Name Printed:David Lister --------------------------- Its: Vice President ---------------------------------- NORWEST BANK MINNESOTA, N.A., as Relationship Bank By:/s/ Jennifer Fallat ------------------------------------- Name Printed:Jennifer Fallat --------------------------- Its: Corporate Banking Officer ---------------------------------- Fourth Amendment to Receivables Purchase Agreement S-1 THIRD AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of January 8, 1997 (this "AMENDMENT"), is among INACOM FINANCE CORP. ("SELLER"), INACOM CORP. ("INACOM"), CLIPPER RECEIVABLES CORPORATION ("PURCHASER"), STATE STREET BOSTON CAPITAL CORPORATION, as administrator (the "ADMINISTRATOR"), and NORWEST BANK MINNESOTA, N.A., as relationship bank (the "RELATIONSHIP BANK"). BACKGROUND 1. Seller, Inacom, Purchaser, the Administrator and the Relationship Bank are parties to that certain Amended and Restated Receivables Purchase Agreement, dated as of August 21, 1995, as amended by the First Amendment to Amended and Restated Receivables Purchase Agreement, dated as of May 31, 1996 and the Second Amendment to Amended and Restated Receivables Purchase Agreement, dated as of November 20, 1996 (the "RECEIVABLES PURCHASE AGREEMENT"). 2. The parties desire to amend the Receivables Purchase Agreement in certain respects as set forth herein. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Purchase Agreement. SECTION 2. PURCHASE LIMIT. SECTION 1.01 of the Receivables Purchase Agreement is hereby amended by deleting the number "$100,000,000" where it appears in CLAUSE (a)(1) of the PROVISO of the first sentence thereof and substituting therefor the number "$200,000,000". SECTION 3. REPRESENTATIONS AND WARRANTIES. Each Seller Party hereby jointly and severally represents and warrants that (i) the representations and warranties contained in SECTION 6.01 of the Receivables Purchase Agreement are true and correct on and as of the date hereof, and after giving effect hereto, as though made on and as of such date, and shall be deemed to have been made on such date and (ii) no event has occurred and is continuing, or would result from this Amendment, that constitutes a Liquidation Event or Unmatured Liquidation Event. SECTION 4. EFFECTIVENESS. This Amendment shall become effective as of January 13, 1997. SECTION 5. MISCELLANEOUS. The Receivables Purchase Agreement, as amended hereby, remains in full force and effect. Any reference to the Receivables Purchase Agreement from and after the date hereof shall be deemed to refer to the Receivables Purchase Agreement as amended hereby, unless otherwise expressly stated. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. This Amendment may be executed in any number of counterparts, and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which when taken together shall constitute one and the same agreement. The Seller Parties, jointly and severally, hereby agree to pay on demand all costs and expenses, including reasonable attorneys' fees, incurred by the Purchaser, the Relationship Bank or the Administrator in connection with the preparation or execution of this Amendment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunder duly authorized, as of the date first above written. INACOM FINANCE CORP. By:/s/ Dave Guenthner ------------------------------------ Name Printed:Dave Guenthner -------------------------- Its: Executive Vice President & Chief ---------------------------------- Financial Officer INACOM CORP. By:/s/ Dave Guenthner ------------------------------------ Name Printed:Dave Guenthner -------------------------- Its: Executive Vice President & Chief ---------------------------------- Financial Officer CLIPPER RECEIVABLES CORPORATION By:/s/ Tiffany Percival ---------------------------------- Name Printed: Tiffany Percival ------------------------ Its: Secretary --------------------------------- STATE STREET BOSTON CAPITAL CORPORATION, as Administrator By:/s/ Paul Schmieder -------------------------------------- Name Printed: Paul Schmieder --------------------------- Its: Senior Associate ----------------------------------- NORWEST BANK MINNESOTA, N.A., as Relationship Bank By:/s/ Jerome W. Fors III ------------------------------------- Name Printed: Jerome W. Fors III -------------------------- Its: Vice President ----------------------------------- Third Amendment to Receivables Purchase Agreement S-1 SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of November 20, 1996 (this "AMENDMENT"), is among INACOM FINANCE CORP. ("SELLER"), INACOM CORP. ("INACOM"), CLIPPER RECEIVABLES CORPORATION ("PURCHASER"), STATE STREET BOSTON CAPITAL CORPORATION, as administrator (the "ADMINISTRATOR"), and NORWEST BANK MINNESOTA, N.A., as relationship bank (the "RELATIONSHIP BANK"). BACKGROUND 1. Seller, Inacom, Purchaser, the Administrator and the Relationship Bank are parties to that certain Amended and Restated Receivables Purchase Agreement, dated as of August 21, 1995, as amended by the First Amendment to Amended and Restated Receivables Purchase Agreement, dated as of May 31, 1996 (the "RECEIVABLES PURCHASE AGREEMENT"). 2. The parties desire to amend the Receivables Purchase Agreement in certain respects as set forth herein. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Purchase Agreement. SECTION 2. RECEIVABLES. The definition of "RECEIVABLE" where it appears in Appendix A to the Receivables Purchase Agreement is hereby amended in its entirety as follows: "RECEIVABLE" means (i) any right to payment from a Person, whether constituting an account, chattel paper, instrument or general intangible, arising from the sale of computer or technology information merchandise or provision of services by an originator, and includes the right to payment of any interest or finance charges and other obligations of such Person with respect thereto (PROVIDED that the term "Receivable" shall not include any such right to payment from the United States government, or an agency or department thereof, or any such right to payment arising from the sale of long distance telephone service, so long as, in each case, the payments related thereto are not commingled with collections in the Lock-Box Accounts) and (ii) any Dealer Financed Receivable. SECTION 3. TERMINATION DATE. The definition of "TERMINATION DATE" that appears in Appendix A to the Receivables Purchase Agreement is hereby amended by deleting the date "August 20, 1998" that appears in PARAGRAPH (d) thereof and substituting therefor the date "August 20, 1999". SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Seller Party hereby jointly and severally represents and warrants that (i) the representations and warranties contained in SECTION 6.01 of the Receivables Purchase Agreement are true and correct on and as of the date hereof, and after giving effect hereto, as though made on and as of such date, and shall be deemed to have been made on such date and (ii) no event has occurred and is continuing, or would result from this Amendment, that constitutes a Liquidation Event or Unmatured Liquidation Event. SECTION 5. MISCELLANEOUS. The Receivables Purchase Agreement, as amended hereby, remains in full force and effect. Any reference to the Receivables Purchase Agreement from and after the date hereof shall be deemed to refer to the Receivables Purchase Agreement as amended hereby, unless otherwise expressly stated. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. This Amendment may be executed in any number of counterparts, and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which when taken together shall constitute one and the same agreement. The Seller Parties, jointly and severally, hereby agree to pay on demand all costs and expenses, including reasonable attorneys' fees, incurred by the Purchaser, the Relationship Bank or the Administrator in connection with the preparation or execution of this Amendment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunder duly authorized, as of the date first above written. INACOM FINANCE CORP. By:/s/ Pat Fitzgerald -------------------------------- Name Printed: Patrick Fitzgerald ----------------------- Its: Director of Financial Services -------------------------------- Assistant Treasurer INACOM CORP. By:/s/ Pat Fitzgerald ----------------------------------- Name Printed: Patrick Fitzgerald ------------------------ Its: Director of Financial Services ---------------------------------- Assistant Treasurer CLIPPER RECEIVABLES CORPORATION By:/s/ Tiffany Percival ----------------------------------- Name Printed: Tiffany Percival ------------------------ Its: Vice President --------------------------------- STATE STREET BOSTON CAPITAL CORPORATION, as Administrator By:/s/ Paul Schmieder -------------------------------------- Name Printed: Paul Schmieder --------------------------- Its: Senior Associate ------------------------------------- NORWEST BANK MINNESOTA, N.A., as Relationship Bank By:/s/ Alan R. Trimetz ------------------------------------- Name Printed: Alan R. Trimetz --------------------------- Its: Vice President ------------------------------------ Second Amendment to Receivables Purchase Agreement S-1 FIRST AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT FIRST AMENDMENT TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of May 31, 1996, by and among INACOM CORP., ("Inacom"), INACOM FINANCE CORP., ("IFC") CLIPPER RECEIVABLES CORPORATION, ("Clipper"), STATE STREET BOSTON CAPITAL CORPORATION, ("State Street"), and NORWEST BANK MINNESOTA, N.A., ("Norwest"). RECITALS WHEREAS, InaCom, IFC, Clipper, State Street and Norwest previously entered into an Amended and Restated Receivables Purchase Agreement (the "Agreement") dated as of August 21, 1995. WHEREAS, InaCom is considering the sale of convertible subordinated debentures in an amount not to exceed eighty-six million two hundred fifty thousand dollars ($86,250,000) (the "Debenture"). WHEREAS, the indebtedness evidenced by the Debenture will be unsecured. WHEREAS, the parties desire to amend the Agreement to clarify certain provisions relating to the Debenture. NOW THEREFORE, in consideration of the above recitals and the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: AGREEMENT 1. The Agreement is amended in the following respects: a. The amount of the Debenture shall be treated as stockholders' equity of InaCom for purposes of defining "Tangible Net Worth." b. The amount of the Debenture shall not be included within the definition of "Total Liabilities" of InaCom. 2. Except as expressly amended hereby, the parties hereto agree that the Agreement and all documents and agreements executed in connection therewith are ratified and confirmed and shall continue in full force and effect. 3. This Amendment may be signed in any number of counterparts each of which shall constitute an original and all of which together shall constitute one and the same document. All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of day and year first above written. INACOM CORP. CLIPPER RECEIVABLES CORPORATION /s/ Leon Kerkman /s/ Tiffany Percival --------------------- ------------------------- By: Leon Kerkman By: TIFFANY PERCIVAL Its: Assistant Secretary Its: Vice President INACOM FINANCE CORP. STATE STREET BOSTON CAPITAL CORPORATION /s/ Leon Kerkman /s/ Jeffrey R. Noord---- ------------------------- ------------------------ By: Leon Kerkman By: Jeffrey R. Noord---- Its: Assistant Secretary Its: Senior Associate NORWEST BANK MINNESOTA, N.A. /s/ Brent Clossey ------------------------ By: Vice President Its: Brent Clossey EX-10.1 4 EXHIBIT 10.1 EXHIBIT 10.1 VALCOM 1987 STOCK OPTION PLAN ARTICLE I NAME AND PURPOSE 1.1 NAME. The name of the Plan shall be the ValCom 1987 Stock Option Plan ("Plan"). 1.2 PURPOSE. The purpose of the Plan is to enable Employees to share in the growth and prosperity of the Company by encouraging stock ownership by Employees and to assist the Company to obtain and retain key management personnel. ARTICLE II DEFINITIONS The terms used herein shall have the following meanings, unless a different meaning is clearly required by the context: 2.1 "Board" shall mean the Board of Directors of the Company. 2.2 "Code" shall mean the Internal Revenue Code of 1954, as amended. 2.3 "Company" shall mean ValCom, Inc., a Delaware corporation. 2.4 "Company Stock" shall mean shares of any class of common stock, which are issued by the Company, with dividend and voting rights no less favorable than the voting power and dividend rights of other common stock issued by the Company. 2.5 "Employee" shall mean any person employed by the Employer or a Subsidiary during a Plan Year. 2.6 "Employer" shall mean the Company. 2.7 "Optionee" is any Employee who is granted options under the Plan. 2.8 "Participant" shall mean any Employee who meets the requirements for Participation in the Plan as described in Article III. 2.9 "Subsidiary" shall mean a corporation which is a "subsidiary corporation" as defined in Section 425 of the Code. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY. Every Employee shall be eligible to become a Participant in the Plan. 3.2 PARTICIPATION. The Employees who shall participate in the Plan and thereby be eligible to receive stock options shall be such key Employees as the Board shall select from time to time. ARTICLE IV LIMITS ON OPTIONS 4.1 NUMBER. The total number of shares for which options may be granted under this Plan shall not exceed in the aggregate 330,000 shares. This number shall be appropriately adjusted if the number of issued shares shall be increased or reduced by change in par value, combination, split-up, reclassification, distribution of a dividend payable in stock, or the like. In the event that any outstanding option issued pursuant to the Plan shall expire or terminate, the shares allocable to the unexercised portion of such option may again be subjected to an option under the Plan. 4.2 NATURE. All options granted under this Plan shall be non-qualified stock options, i.e., options which are not incentive stock options within the meaning of Section 422A of the Code. ARTICLE V ADMINISTRATION The Plan shall be administered by the Board. A majority vote of the Board at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Board, shall be the valid acts of the Board for the purposes of this Plan. The Board shall have plenary authority in its discretion but subject to the express provisions of the Plan, to determine the terms of all options granted under the Plan including, without limitation, the purchase price of the Common Stock covered by each option, the Employees to whom, and the time or times at which, options shall be granted, when an option can be exercised and whether in whole or in installments, and the number of shares covered by each option; any restrictions on the exercisability of the option or the retention of shares acquired under the Plan; and to interpret the Plan and to make all other determinations deemed advisable for the administration of the Plan. The Board shall have the right to require the recipient of any stock option hereunder to remit to the Company an amount sufficient to satisfy all applicable withholding tax requirements prior to or after delivery of any option or stock and to require the recipient to do any other act or acts necessary to satisfy the withholding tax requirements. The Board's determination on the foregoing matters shall be conclusive. The Board may designate employees of the Company to assist the Board in the administration of the Plan and may grant authority to such persons to execute option agreements or other documents on behalf of the Board. Payment in full for the number of shares purchased shall be made to the Company at the time of each exercise. Payment for such shares shall be made in cash, or with the consent of the Board, in shares of the Company's common stock. The interpretation and construction by the Board of any provisions of the Plan or of any option granted under it shall be final. No member of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. ARTICLE VI The terms of options granted under this Plan shall be as follows: (a) The option price shall be fixed by the Board in good faith, but in no event be less than 100 percent of the fair market value of the shares subject to the option on the date the option is granted. The option price shall be paid by the Participant in cash or, at the absolute discretion of the Board, by the transfer of Company stock at the time the option is exercised (valued at the fair market value of such stock at the time of transfer). (b) Options shall not be transferrable otherwise than by will or the laws of descent and distribution, and during an Optionee's lifetime, an option shall be exercisable only by the Optionee. (c) The Board shall fix the term or duration of all options issued under this Plan provided that such term shall not exceed ten years after the date on which the option was granted and shall not extend beyond the Optionee's employment with the Company (except as the Board may otherwise provide in the event of death or disability). The Board shall also set the date or dates on, or after which, each option may be exercised. (d) Each option agreement (and amendments thereof) shall contain such terms and provisions, consistent with the requirements of this Plan, as the Board in its discretion shall determine. Such option agreements need not be identical. ARTICLE VII REORGANIZATION OF THE COMPANY In the event that the Company is succeeded by another corporation in a reorganization, merger, consolidation, acquisition of property of stock, separation or liquidation; or in the event that the Company is dissolved, each outstanding option will terminate, provided that each Optionee shall have the right immediately prior to such dissolution or liquidation, merger or consolidation, to exercise his option provided it does not violate the provisions of Article VI (d) of this Plan. ARTICLE VIII MISCELLANEOUS 8.1 PAYMENT FOR STOCK. No shares shall be delivered upon the exercise of an option until the option price has been paid in full. 8.2 CONTINUATION OF EMPLOYMENT. Neither this Plan nor any option granted hereunder shall confer upon any Employee any right to continue in the employment of the Company or limit in any respect the right of the Company to terminate his employment at any time. 8.3 RULES. The Board may make such rules and regulations and establish such procedures as it deems appropriate for the administration of this Plan. In the event of a disagreement as to the interpretation of this Plan or any amendment hereto or any rule, regulation or procedure thereunder or as to any right or obligation arising from or related to this Plan, the decision of the Board shall be final and binding. ARTICLE IX AMENDMENT, TERMINATION AND EFFECTIVE DATE 9.1 AMENDMENT. The Board may amend the Plan from time to time as it deems desirable; PROVIDED, HOWEVER, the Plan may not be amended to change the number of shares subject to the Plan or to decrease the price at which options may be granted. 9.2 TERMINATION OF THE PLAN. The Board may in its discretion terminate the Plan at any time, but no such termination shall deprive Participants of their rights under outstanding options. Notwithstanding the preceding sentence, no options may be granted pursuant to the Plan later than ten years after the date the Plan is approved by the shareholders of the Company. 9.3 EFFECTIVE DATE. This Plan shall be effective as of July 1, 1987 and options hereunder may be granted at any time subject to the limitations contained within the Plan. EX-10.4 5 EXHIBIT 10.4 INACOM 1997 STOCK PLAN SECTION 1 NAME AND PURPOSE 1.1 NAME. The name of the plan shall be the InaCom 1997 Stock Plan (the "Plan"). 1.2 PURPOSE OF PLAN. The purpose of the Plan is to foster and promote the long-term financial success of the Company and increase stockholder value by (a) motivating superior performance by means of stock incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by Employees and (c) enabling the Company to attract and retain the services of a management team responsible for the long-term financial success of the Company. SECTION 2 DEFINITIONS 2.1 DEFINITIONS. Whenever used herein, the following terms shall have the respective meanings set forth below: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Award" means any Option, Stock Appreciation Right, Restricted Stock, Stock Bonus, or any combination thereof, including Awards combining two or more types of Awards in a single grant. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means the Compensation Committee of the Board, which shall consist of two or more members, each of whom shall be a "non-employee director" within the meaning of Rule 16b-3 as promulgated under the Act. (f) "Company" means InaCom Corp., a Delaware corporation (and any successor thereto) and its Subsidiaries. (g) "Director Award" means an award of Stock and a grant of stock options granted to each Eligible Director pursuant to Section 7.1 without any action by the Board or the Committee. (h) "Eligible Director" means a person who is serving as a member of the Board and who is not an Employee. (i) "Employee" means any employee of the Company or any of its Subsidiaries. (j) "Fair Market Value" means, on any date, the average of the high and low sales prices of the Stock as reported on the national Association of Securities Dealers Automated Quotation system (or on such other recognized market or quotation system on which the trading prices of the Stock are traded or quoted at the relevant time) on such date. In the event that there are no Stock transactions reported on such system (or such other system) on such date, Fair Market Value shall mean the average of the high and low sale prices on the immediately preceding date on which Stock transactions were so reported. (k) "Option" means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an Incentive Stock Option within the meaning of Section 422 of the Code or (ii) a Nonstatutory Stock Option. (l) "Participant" means any Employee designated by the Committee to participate in the Plan. (m) "Plan" means the InaCom Corp. 1997 Stock Plan, as in effect from time to time. (n) "Restricted Stock" shall mean a share of Stock granted to a Participant subject to such restrictions as the Committee may determine. (o) "Stock" means the Common Stock of the Company, par value $.10 per share. (p) "Stock Appreciation Right" means the right, subject to such terms and conditions as the Committee may determine, to receive an amount in cash or Stock, as determined by the Committee, equal to the excess of (i) the Fair Market Value, as of the date such Stock Appreciation Right is exercised, of the number of shares of Stock covered by the Stock Appreciation Right being exercised over (ii) the aggregate exercise price of such Stock Appreciation Right. (q) "Stock Bonus" means the grant of Stock as compensation from the Company, which may be in lieu of cash compensation otherwise receivable by the Participant or in addition to such cash compensation. (r) "Subsidiary" means any corporation or partnership in which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock of such corporation or of the capital interest or profits interest of such partnership. 2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular. SECTION 3 ELIGIBILITY AND PARTICIPATION Except as otherwise provided in Section 7.1, the only persons eligible to participate in the Plan shall be those Employees selected by the Committee as Participants. SECTION 4 POWERS OF THE COMMITTEE 4.1 POWER TO GRANT. The Committee shall determine the Participants to whom Awards shall be granted, the type or types of Awards to be granted, and the terms and conditions of any and all such Awards. The Committee may establish different terms and conditions for different types of Awards, for different Participants receiving the same type of Awards, and for the same Participant for each Award such Participant may receive, whether or not granted at different times. 4.2 ADMINISTRATION. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration and interpretation of the Plan in order to carry out its provisions and purposes. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding, and conclusive for all purposes and upon all persons. SECTION 5 STOCK SUBJECT TO PLAN 5.1 NUMBER. Subject to the provisions of Section 5.3, the number of shares of Stock subject to Awards (including Director Awards) under the Plan may not exceed 1,400,000 shares of Stock. The shares to be delivered under the Plan may consist, in whole or in part, of treasury Stock or authorized but unissued Stock, not reserved for any other purpose. The maximum number of shares of Stock with respect to which Awards may be granted to any one Employee under the Plan is 20% of the aggregate number of shares of Stock available for Awards under Section 5.1. 5.2 CANCELLED, TERMINATED OR FORFEITED AWARDS. Any shares of Stock subject to an Award which for any reason are cancelled, terminated or otherwise settled without the issuance of any Stock shall again be available for Awards under the Plan. 5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any Stock dividend or Stock split, recapitalization (including, without limitation, the payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares, or other similar corporate change, (i) the aggregate number of shares of Stock available for Awards under Section 5.1 and (ii) the number of shares and exercise price with respect to Options and the number, prices and dollar value of other Awards, may be appropriately adjusted by the Committee, whose determination shall be conclusive. If, pursuant to the preceding sentence, an adjustment is made to the number of shares of Stock authorized for issuance under the Plan, a corresponding adjustment shall be made with respect to Director Awards granted pursuant to Section 7.1. SECTION 6 STOCK OPTIONS 6.1 GRANT OF OPTIONS. Options may be granted to Participants at such time or times as shall be determined by the Committee. Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Nonstatutory Stock Options. The Committee shall have complete discretion in determining the number of Options, if any, to be granted to a Participant. Each Option shall be evidenced by an Option agreement that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Stock to which the Option pertains, the exercisability (if any) of the Option in the event of death, retirement, disability or termination of employment, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine. 6.2 OPTION PRICE. Nonstatutory Stock Options and Incentive Stock Options granted pursuant to the Plan shall have an exercise price which is not less than the Fair Market Value on the date the Option is granted. 6.3 EXERCISE OF OPTIONS. Options awarded to a Participant under the Plan shall be exercisable at such times and shall be subject to such restrictions and conditions as the Committee may impose, subject to the Committee's right to accelerate the exercisability of such Option in its discretion. Notwithstanding the foregoing, no Option shall be exercisable for more than ten years after the date on which it is granted. 6.4 PAYMENT. The Committee shall establish procedures governing the exercise of Options, which shall require that written notice of exercise be given and that the Option price be paid in full in cash or cash equivalents, including by personal check, at the time of exercise or pursuant to any arrangement that the Committee shall approve. The Committee may, in its discretion, permit a participant to make payment (i) in Stock already owned by the Participant valued at its Fair Market Value on the date of exercise (if such Stock has been owned by the Participant for at least six months) or (ii) by electing to have the Company retain Stock which would otherwise be issued on exercise of the Option, valued at its Fair Market Value on the date of exercise. As soon as practicable after receipt of a written exercise notice and full payment of the exercise price, the Company shall deliver to the Participant a certificate or certificates representing the acquired shares of Stock. 6.5 INCENTIVE STOCK OPTIONS. Notwithstanding anything in the Plan to the contrary, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, or shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of any Participant affected thereby, to cause any Incentive Stock Option previously granted to fail to qualify for the Federal income tax treatment afforded under Section 421 of the Code. SECTION 7 DIRECTOR AWARDS 7.1 AMOUNT OF AWARD. Each Eligible Director shall receive an annual grant of Stock in the amount of 150 shares of Stock for each Board meeting attended by such Eligible Director (other than meetings by written consent or telephone communications); such grants shall be made on the date of and immediately following the annual meeting of stockholders (beginning with the 1998 annual stockholders' meeting) based on the number of Board meetings attended subsequent to the prior annual stockholders' meeting. In addition, each Eligible Director shall receive an annual grant of a Nonstatutory Stock Option to acquire 1,000 shares of Stock exercisable at the Fair Market Value of the Company's common stock on the date of grant; such grant shall be made on the date of and immediately following the annual meeting of stockholders (beginning with the 1997 Annual Stockholders' Meeting). Furthermore, each Eligible Director who becomes an Eligible Director for the first time on or after January 1, 1997 shall receive a one-time grant of a Nonstatutory Stock Option to acquire 5,000 shares of Stock exercisable at the Fair Market Value of the Company's common stock on the date on which such person first becomes a director of the Company; such options shall become exercisable in one-third increments beginning on the first anniversary of the date of grant. The Stock and Nonstatutory Stock Options awarded to a director hereunder shall be appropriately adjusted in the event of any stock changes as described in Section 5.3. SECTION 8 STOCK APPRECIATION RIGHTS 8.1 SAR'S IN TANDEM WITH OPTIONS. Stock Appreciation Rights may be granted to Participants in tandem with any Option granted under the Plan, either at or after the time of the grant of such Option, subject to such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. Each Stock Appreciation Right shall only be exercisable to the extent that the corresponding Option is exercisable, and shall terminate upon termination or exercise of the corresponding Option. Upon the exercise of any Stock Appreciation Right, the corresponding Option shall terminate. 8.2 OTHER STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may also be granted to participants separately from any Option, subject to such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. SECTION 9 RESTRICTED STOCK 9.1 GRANT OF RESTRICTED STOCK. The Committee may grant Restricted Stock to Participants at such times and in such amounts, and subject to such other terms and conditions not inconsistent with the Plan as it shall determine. Each grant of Restricted Stock shall be subject to such restrictions, which may relate to continued employment with the Company, performance of the Company, or other restrictions, as the Committee may determine. Each grant of Restricted Stock shall be evidenced by a written agreement setting forth the terms of such Award. 9.2 REMOVAL OF RESTRICTIONS. The Committee may accelerate or waive such restrictions in whole or in part at any time in its discretion. SECTION 10 STOCK BONUSES 10.1 GRANT OF STOCK BONUSES. The Committee may grant a Stock Bonus to a Participant at such times and in such amounts, and subject to such other terms and conditions not inconsistent with the Plan, as it shall determine. 10.2 EFFECT ON COMPENSATION. The Committee may from time to time determine to grant a Stock Bonus in lieu of salary or cash bonuses otherwise payable to a Participant. SECTION 11 AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN 11.1 GENERAL. The Board may from time to time amend, modify or terminate any or all of the provisions of the Plan, subject to the provisions of this Section 11.1. The Board may not change the Plan in a manner which would prevent outstanding Incentive Stock Options granted under the Plan from being Incentive Stock Options without the consent of the optionees concerned. Furthermore, the Board may not make any amendment which would (i) materially modify the requirements for participation in the Plan or (ii) increase the number of shares of Stock subject to Awards under the Plan pursuant to Section 5.1, in each case without the consent and approval of the holders of a majority of the outstanding shares of Stock entitled to vote thereon. No amendment or modification shall affect the rights of any Employee with respect to a previously granted Award, nor shall any amendment or modification affect the rights of any Eligible Director pursuant to a previously granted Director Award. 11.2 TERMINATION OF PLAN. No further Options shall be granted under the Plan subsequent to December 31, 2006, or such earlier date as may be determined by the Board. SECTION 12 MISCELLANEOUS PROVISIONS 12.1 BENEFICIARY DESIGNATION. Each Participant under the Plan may from time to time name any beneficiary or beneficiaries (who may be named contingent or successively) to whom any benefit under the Plan is to be paid or by whom any right under the Plan is to be exercised in case of his death. Each designation will revoke all prior designations by the same Participant shall be in a form prescribed by the Committee, and will be effective only when filed in writing with the Committee. In the absence of any such designation, Awards outstanding at death may be exercised by the Participant's surviving spouse, if any, or otherwise by his estate, subject to the terms and conditions of the Award. 12.2 NO GUARANTEE OF EMPLOYMENT OR PARTICIPATION. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary. No Employee shall have a right to be selected as a Participant, or, having been so selected, to receive any future Awards. 12.3 TAX WITHHOLDING. The Company shall have the power to withhold, or require a Participant or Eligible Director to remit to the Company, an amount sufficient to satisfy federal, state, and local withholding tax requirements on any Award under the Plan, and the Company may defer issuance of Stock until such requirements are satisfied. The Committee may, in its discretion, permit a Participant to elect, subject to such conditions as the Committee shall impose, (i) to have shares of Stock otherwise issuable under the Plan withheld by the Company or (ii) to deliver to the Company previously acquired shares of Stock, in each case having a Fair Market Value sufficient to satisfy all or part of the Participant's estimated total federal, state and local tax obligation associated with the transaction. 12.4 CHANGE OF CONTROL. On the date of a Change of Control, all outstanding options and stock appreciation rights shall become immediately exercisable and all restrictions with respect to Restricted Stock shall lapse. "Change of Control" shall mean: (i) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Act (excluding any acquisition or holding by (i) the Company or its subsidiaries or (ii) any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 50% or more of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for the election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. 12.5 COMPANY INTENT. The Company intends that the Plan comply in all respects with Rule 16b-3 under the Act, and any ambiguities or inconsistencies in the construction of the Plan shall be interpreted to give effect to such intention. 12.6 REQUIREMENTS OF LAW. The granting of Awards and the issuance of shares of Stock shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges as may be required. 12.7 EFFECTIVE DATE. The Plan shall be effective upon its adoption by the Board subject to approval by the affirmative vote of the holders of a majority of the shares of Stock present in person or by proxy at a stockholders' meeting. 12.8 GOVERNING LAW. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware. EX-10.5 6 EXHIBIT 10.5 INACOM EXECUTIVE INCENTIVE PLAN 1. PURPOSE. The principal purpose of the InaCom Corp. Executive Incentive Plan (the "Plan") is to provide incentives to executive officers of InaCom Corp. ("InaCom") who have significant responsibility for the success and growth of InaCom and to assist InaCom in attracting, motivating and retaining executive officers on a competitive basis. 2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Compensation Committee of the Board of Directors (the "Committee"). The Committee shall have the sole discretion to interpret the Plan; approve a pre-established objective performance measure or measures annually; certify the level to which each performance measure was attained prior to any payment under the Plan; approve the amount of awards made under the Plan; and determine who shall receive any payment under the Plan. The Committee shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations and guidelines for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable. The Committee's interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including InaCom, its stockholders and any person receiving an award under the Plan. 3. ELIGIBILITY. Executive officers and other key management personnel of InaCom shall be eligible to receive awards under the Plan. The Committee shall designate the executive officers and other key management personnel who will participate in the Plan each year. 4. AWARDS. The Committee shall establish annual and/or long-term incentive award targets for participants. If an individual becomes an executive officer during the year, such individual may be granted eligibility for an incentive award for that year upon such individual becoming an executive officer. The Committee shall also establish annual and/or long-term performance targets which must be achieved in order for an award to be earned under the Plan. Such targets shall be based on earnings, earnings per share, growth in earnings per share, achievement of annual operating profit plans, return on equity performance, economic value added or similar financial performance measures as may be determined by the Committee. The specific performance targets for each participant shall be established in writing by the Committee within ninety days after the commencement of the fiscal year (or within such other time period as may be required by Section 162(m) of the Internal Revenue Code) to which the performance target relates. The performance target shall be established in such a manner than a third party having knowledge of the relevant facts could determine whether the performance goal has been met. Awards shall be payable following the completion of the applicable fiscal year upon certification by the Committee that InaCom achieved the specified performance target established for the participant. Notwithstanding the attainment by InaCom of the specified performance targets, the Committee has the discretion, for each participant, to reduce some or all of an award that would otherwise be paid. However, in no event may a participant receive an award of more than $2,500,000 under the Plan in any fiscal year. 5. MISCELLANEOUS PROVISIONS. InaCom shall have the right to deduct from all awards hereunder paid in cash any federal, state, local or foreign taxes required by law to be withheld with respect to such awards. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of InaCom. The costs and expenses of administering the Plan shall be borne by InaCom and shall not be charged to any award or to any participant receiving an award. 6. EFFECTIVE DATE, AMENDMENTS AND TERMINATION. The Plan shall become effective on March 4, 1997 subject to approval by the stockholders of InaCom at the 1997 Annual Meeting of Stockholders. The Committee may at any time terminate or from time to time amend the Plan in whole or in part, but no such action shall adversely affect any rights or obligations with respect to any awards theretofore made under the Plan. However, unless the stockholders of InaCom shall have first approved thereof, no amendment of the Plan shall be effective which would increase the maximum amount which can be paid to any one executive officer under the Plan in any fiscal year, which would change the specified performance goals for payment of awards, or which would modify the requirement as to eligibility for participation in the Plan. EX-10.8 7 EXHIBIT 10.8 SECOND AMENDMENT TO THE INACOM NONQUALIFIED DEFERRED COMPENSATION PLAN Effective January 1, 1997, the InaCom Nonqualified Deferred Compensation Plan ("Plan") is hereby amended as follows: ARTICLE I The name of the Plan is changed to the InaCom Executive Deferred Compensation Plan. ARTICLE II Section 5.2 of the Plan is amended in its entirety to read as follows: "5.2 EMPLOYER CONTRIBUTIONS. No InaCom (or applicable affiliate) contribution shall be made to a Participant's Account in this Plan until the Participant has contributed the maximum allowable amount to the Qualified Plan ("Qualified Plan Limit"). Once the Qualified Plan Limit is met by the Participant, the Employer shall make a contribution to each Participant's Account in this Plan equal to 75CENTS per dollar of the Employee's Matched Pre-tax Deposits to this Plan; PROVIDED, HOWEVER, the Qualified Plan match and the match under this Plan, in the aggregate, shall not be made to more than 6% of the Participant's Pay. Employee and Employer contributions hereunder shall be made on a per pay period basis." EX-10.10 8 EXHIBIT 10.10 INACOM CORP. EXECUTIVE DEATH BENEFIT PLAN This Plan has been established for the benefit of certain executives of InaCom Corp. and its subsidiaries, in order to retain their services and encourage them to continue the increasing profitability of the Company. SECTION 1. DEFINITIONS. The following terms shall have the meanings set forth below: (a) "Beneficiary" means the person, persons or entity designated by the Participant entitled under Section 3 to receive a Death Benefit after a Participant's death. (b) "Company" means InaCom Corp. and its subsidiaries. (c) "Compensation Committee" means the Compensation Committee of the Company Board of Directors. The Compensation Committee shall be the Plan Administrator. However, the Compensation Committee may designate another committee, person, or entity to serve as Plan Administrator. (d) "Death Benefit" means a benefit payable under Section 3 of this Plan. (e) "Normal Retirement Age" means age 65. (f) "Executive" means an Executive of the Company so designated by the Compensation Committee. (g) "Participant" means an Executive of the Company who has been designated by the Compensation Committee. (h) "Plan" means this Executive Death Benefit Plan, as amended from time to time. (i) "Plan Anniversary Date" means May 1 of each calendar year. SECTION 2. PARTICIPATION. The Compensation Committee shall designate from time to time the Executives who shall be Participants in this Plan. Participation in the Plan shall be conditional as follows: (a) Initial participation in the Plan will be subject to evidence of the Participant's insurability. The Participant shall agree to complete such questionnaires and medical examinations as the Company may request. A Participant shall not be covered by this Plan until such questionnaires and medical examinations are completed and the same evidence the Participant's insurability. (b) The Participant will apply to the Insurance Company designated by the Company for a policy on the life of said Participant. The Participant, or his designee approved by the Company, will be the owner of the policy acquired pursuant to the terms of this Plan and may exercise all the rights of ownership with respect to the policy except as otherwise hereinafter provided. (c) The Participant agrees to pay the Company the cost of pure life insurance protection as determined by applying the lower of the Insurance Company's term rate or the IRS P.S. 58 rate to the insurance protection provided in that year. Upon receipt of the amount which the Participant is required to contribute, the Company will pay the full amount of the premium to the Insurance Company on or before the date the premium is due. The amount paid by the Participant shall be considered as the Participant's contribution, and the remaining amount considered as the Company's contribution. The Participant's obligation to pay this cost shall terminate on the Participant's death, attainment of Normal Retirement Age, or upon any event terminating Participant's participation in the Plan under Section 4, unless the Participant has been notified otherwise by the Compensation Committee. (d) The Participant will collaterally assign the policy, acquired pursuant to the terms of this Plan, to the Company as security for the repayment of the amounts which the Company will pay to the Insurance Company under paragraph (c) of this Section. This repayment will occur at the time benefits are paid due to Participant's death or upon the Participant's termination of Plan participation. This collateral assignment will not be altered or changed without the consent of the Company. While this Plan is in force and effect, the Participant, or his designee, will not sell, transfer, assign, pledge, surrender or otherwise terminate the policy, acquired pursuant to the terms of this Plan, without the Company's consent. (e) The Participant shall execute a Participation Agreement in form and substance satisfactory to the Company (the "Participation Agreement"). SECTION 3. DEATH BENEFIT. (a) If the Participant dies before the Normal Retirement Date, the Beneficiary or Beneficiaries named by the Participant shall be entitled to receive a death benefit in the amount of the life insurance on Participant's life obtained pursuant to this Plan, subject to Section 3(b). The amount of such life insurance will be set forth in the Participation Agreement. This amount is expected to be approximately two times the Participant's compensation paid by the Company during 1992 and reported as income to the Participant for purposes of IRS Form W-2. This amount may be adjusted by the Compensation Committee from time to time. (b) When the Participant dies, the Company shall be entitled to receive the amount of the Death Benefit provided under the policy on the Participant's life in excess of the amount payable to the Participant's Beneficiary or Beneficiaries under paragraph (a) of this Section, but in no event less than the amount due to the Company from the Participant as provided in Section 2(d) of this Plan. SECTION 4. TERMINATION OF PLAN PARTICIPATION. The Participant's participation in this Plan will terminate on the occurrence of any of the following events: (a) Upon the election of the aggrieved party if either the Company or the Participant (i) fails for any reason to make the contribution required by Section 2(c) of this Plan toward payment of any premium due on the policy on the Participant's life acquired pursuant to the terms of this Plan, or (ii) breaches any other provision of this Plan, which breach is not cured within ten (10) days following written notice from the aggrieved party. (b) Repayment in full by the Participant of the contributions made by the Company under Section 2(c) of this Plan toward payment of the premiums due on the policy on the Participant's life acquired pursuant to the terms of this Plan, provided that upon the receipt of such repayment the Company releases the Collateral Assignment of the policy made by the Participant pursuant to Section 2(d) of this Plan. (c) The Participant attaining Normal Retirement Age. (d) Termination of the Participant's employment with the Company and/or its subsidiaries for any reason, voluntarily or involuntarily. (e) Termination of the Plan by the Company. SECTION 5. DISPOSITION OF POLICY ON TERMINATION OF PLAN PARTICIPATION. If a Participant's Plan participation is terminated under paragraph (a), (b), (c), (d) or (e) of Section 4, the Participant shall have thirty days in which to pay the Company the amount which the Company has contributed toward payment of the premiums due on the policy on the Participant's life acquired pursuant to the terms of this Plan. Upon receipt of this amount, the Company shall release the Collateral Assignment of the policy. If the Participant does not repay the amount which the Company has contributed within this thirty day period, the Company may enforce any rights which it has under the Collateral Assignment of the policy. SECTION 6. PLAN ADMINISTRATION. (a) The Compensation Committee shall be the plan administrator of this Plan and shall be solely responsible for its general administration and interpretation and for carrying out the respective provisions hereof, and shall have all such powers as may be necessary to do so. The Compensation Committee may from time to time establish rules for the administration of this Plan and the transactions of its business. Any action by the Compensation Committee shall be final, conclusive and binding on each Participant, Beneficiary and all persons claims by, through or under any Participant, unless an appeal is received by the Compensation Committee within 60 days of the disputed action. The appeal will be reviewed by the Compensation Committee and the decision of the Compensation Committee shall be final, conclusive and binding on the Participant and on all persons claiming by, through or under the Participant. (b) The Company may employ or engage such agents, accountants, actuaries, counsel, other experts and other persons as it shall deem necessary or desirable in connection with the interpretation and administration of this Plan. The Company shall be entitled to rely upon all certificates made by an accountant or actuary selected by Company. The Company and its committees, officers, directors and employees shall not be liable for any action taken, suffered or omitted by them in good faith in reliance upon the advice or opinion of any counsel, accountant, actuary or other expert and all action so taken, suffered or omitted shall be conclusive upon each of them and upon all other persons interested in this Plan. The Company shall indemnify and hold harmless the members of the Compensation Committee for any and all acts taken in the administration or interpretation of this Plan. SECTION 7. COMPANY'S OBLIGATION. The Company's obligations under the Plan is limited to payment of the premiums described in this Plan. The payment of the death benefits contemplated by the Plan shall be the obligation of the Insurance Company. If the Insurance Company shall fail to make any such death benefit payment, for a reason other than the improper failure of the Company to pay a premium required of it by this Agreement, the Company shall not be obligated to make such death benefit payments. SECTION 8. CLAIMS AND CLAIMS REVIEW PROCEDURES. The Participant must make a claim for plan benefits by delivering a written request to the Insurance Company. Upon receipt of such request the Insurance Company may require the claimant to complete such forms and provide such additional information as may be reasonably necessary to establish the claimant's right to a benefit under the Plan. If a claim for benefits is wholly or partially denied, the Insurance Company will be requested to furnish to the claimant a notice of the decision, within ninety (90) days after the receipt of the claim by the Plan. If special circumstances require more than ninety (90) days to process the claim, this period may be extended for up to an additional ninety (90) days by giving written notice to the claimant before the end of the initial 90-day period stating the special circumstances requiring the extension and the date by which a final decision is expected. Failure to provide a notice of decision in the time specified shall constitute a denial of the claim and the claimant shall be entitled to require a review of the denial under the review procedures. The notice to be provided to every claimant who is denied a claim for benefits shall be in writing and shall set forth, in a manner calculated to be understood by the claimant, the following: (a) The specific reason or reasons for the denial; (b) Specific reference to pertinent plan provisions on which the denial is based; (c) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) An explanation of the Plan's claim review procedure describing the steps to be taken by a claimant who wishes to submit his or her claim for review. The purpose of the review procedure is to provide a procedure by which a claimant may have a reasonable opportunity to appeal a denial of a claim to the Plan Administrator for a full and fair review. To accomplish that purpose, the claimant or his duly authorized representative: (a) May request a review upon written application to the Plan Administrator. (b) May review pertinent plan documents; and (c) May submit issues and comments in writing. A claimant (or his duly authorized representative) shall request a review by filing a written application for review with the Plan Administrator at any time within sixty (60) days after receipt by the claimant of written notice of the denial of his claim. The decision on review of a denied claim shall be made in the following manner: (a) The decision on review shall be made by the Plan Administrator, who may in its discretion hold a hearing on the denied claim. The Plan Administrator shall make its decision promptly, which shall ordinarily be not later than sixty (60) days after the Plan's receipt of the request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing. In that case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. If an extension of time is required due to special circumstances, written notice of the extension shall be furnished to the claimant prior to the time the extension commences. (b) The decision on review shall be in writing and shall include specific reasons for the decisions, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. (c) In the event the decision on review is not furnished to the claimant within the time required, the claim shall be deemed denied on review. SECTION 9. AMENDMENT AND TERMINATION. The Company reserves the right to amend or terminate this Plan at any time or times, in whole or in part, by duly adopted resolution of the Board of Directors. However, no such amendment or termination shall affect the rights of a Participant who has died or reached Normal Retirement Age prior to such amendment or termination. SECTION 10. NON-ASSIGNABILITY. This Plan, and the rights, interest, and benefits receivable hereunder from the general assets of the Company shall not be assigned, transferred, pledged, sold, conveyed, or encumbered in any way by the Participant and shall not be subject to execution, attachment, or similar process. Any attempted sale, conveyance, transfer, assignment, pledge, or encumbrance of this Plan or of such rights, interest, and benefits, contrary to the foregoing provisions, or the levy of any attachment or similar process thereupon, shall be null and void and without effect. SECTION 11. LIMITATION OF RIGHTS. Neither the establishment of the Plan nor any amendment thereof will be construed as giving to any Participant or other person any legal or equitable right against the Plan Administrator or the Company, except as expressly provided herein, and in no event will the terms of employment or service of any Participant be modified or in any way be affected hereby. SECTION 12. APPLICABLE LAW. The Plan will be construed and administered and enforced in accordance with ERISA and the laws of the State of Nebraska to the extent that such laws are not preempted by ERISA. EX-10.11 9 EXHIBIT 10.11 INACOM CORP. EXECUTIVE DISABILITY WAGE CONTINUATION PLAN This Plan is intended to qualify as a Wage Continuation Plan pursuant to Section 105 of the Internal Revenue code of 1986, as amended, and is to be interpreted in a manner consistent with the requirements of Section 105. The Plan has been established for the benefit of certain executives of InaCom Corp. and its subsidiaries, in order to retain their services and encourage them to continue the increasing profitability of the Company. ARTICLE I DEFINITIONS The following terms shall have the meanings set forth below: 1.1 "CODE" means the Internal Revenue Code of 1986, as amended from time to time. 1.2 "COMPANY" means InaCom Corp. and its subsidiaries. 1.3 "COMPENSATION COMMITTEE" means the Compensation Committee of the Company Board of Directors. The Compensation Committee shall be the Plan Administrator. However, the Compensation Committee may designate another committee, person, or entity to serve as Plan Administrator. 1.4 "DISABILITY OR DISABLED." For purposes of this Plan, a Participant shall be deemed to be "disabled" when the Participant is entitled to receive disability benefits for disability as defined in the Disability Income Policy being maintained for the Participant under the terms of the Plan. Subject to Article VI, such determination shall be made solely and exclusively by the insurance company in the manner provided for in such Disability Income Policy, and such Participant shall continue to be deemed so disabled, for the purposes of this Plan, until the insurance company ceases to recognize the Participant as being entitled to receive benefits for disability for the purposes of such Disability Income Policy. 1.5 "DISABILITY INCOME POLICY" means the disability insurance policies covering and owned by any Participant under this Plan. 1.6 "EARNED INCOME" means salary, wages, commissions, fees or other remuneration earned by the Participant, whether received or not, after deductions for business expenses other than taxes, and excluding unearned income. Earned income shall include remuneration for services or work performed during such period, but shall not include remuneration received during said period for services or work performed prior thereto. 1.7 "EFFECTIVE DATE" means the Effective Date of this Plan shall be May 1, 1993. 1.8 "EXECUTIVE" means any Executive of the Company so designated by the Compensation Committee. 1.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.10 "LOSS OF EARNED INCOME" means the determination of Loss of Earned Income for purposes of determining Disability under Section 1.4 of this Article I is based on the Participant's average Earned Income for the 12 months before the disability began or any 24 consecutive months out of the prior 60 months, whichever is greater. 1.11 "PARTICIPANT" means any Executive who participates in the Plan pursuant to Section 2.1 hereof and has not, for any reason, become ineligible to participate in the Plan. 1.12 "PLAN" means the InaCom Corp. Executive Disability Wage Continuation Plan as amended from time to time. 1.13 "PLAN YEAR" means the twelve (12) month period commencing on May 1 and ending on April 30. ARTICLE II PARTICIPATION 2.1 PARTICIPATION. The Compensation Committee shall designate from time to time the Executives who shall be Participants in this Plan. 2.2 TERMINATION OF PARTICIPANTS. If a Participant ceases employment other than as a result of Disability, Participation in the Plan shall terminate. Participation in the Plan may thereafter be renewed upon reemployment. ARTICLE III BENEFITS 3.1 DISABILITY INSURANCE. The Company shall pay the premium necessary to maintain in force an individual Disability Income Policy providing for a ninety (90) day waiting period, as each Participant may qualify for, the maximum monthly benefit to be set by the Company; provided, however, the amount of premiums paid by the Company for each Participant shall not exceed the premiums required for a "standard issue" disability policy. Any additional premiums for ratings, additional riders, or similar provisions shall be the obligation of the Participant; provided, further, if a Participant's Disability Income Policy excludes coverage for any medical condition, nothing herein shall be construed to create an obligation of the Company to insure against such condition. The waiting period under an individual disability income policy may be longer than ninety (90) days, if necessary, under the Policy due to the Participant's current physical condition. If a Participant is disabled as defined in the Disability Income Policy described in the preceding paragraph and the Company receives benefits form the insurance company issuing same, then the Company will pay all of said benefits promptly to the disabled Participant. The only obligation of the Company hereunder shall be to pay the premiums on the standard issue Disability Income Policies purchased hereunder. If a Participant fails to deliver to the Company premium statements for any individual Disability Income Policies of which the Participant may be the owner, the Company shall have no duty to procure additional insurance or see that said premiums are paid. If the Insurance Company shall fail to make any disability payment, the Company shall have no obligation to do so. In addition, after the Participant has been disabled for a period of ninety (90) days, the only obligation of the Company under this Plan shall be to forward to Participant any disability insurance benefits received by the Company as a result of the Participant's disability. The premiums or portion thereof, paid by the Company for the disability income policies for each Participant in this Plan shall constitute benefit payments by the Company under this Plan. The premiums shall be paid out of the general assets of the Company. ARTICLE IV FUNDING POLICY AND BASIS OF PAYMENTS TO AND FROM THE PLAN 4.1 FUNDING POLICY. The funding policy of this Plan shall be that all standard premiums for any Disability Income Policy covering any Participant under this Plan shall, upon timely, written notice from the insurance company that payment is due, be paid when due. 4.2 PAYMENTS FROM THE PLAN. The Company's payments from the Plan shall be provided out of the general assets of the Company at the time such payments are to be made, subject to the receipt of payments by the Company from the Disability Income Policy as described in Section 3.1 of the Plan. No specific amounts therefor shall be set aside in advance. In addition, any amounts received by the Participant directly from the insurance company under the terms of any Disability Income Policy being maintained for the Participant by the Company under the terms of this Plan shall also constitute payments from the Plan. 4.3 PAYMENTS TO PARTICIPANTS. Payments to Participants shall be made out of the general assets of the Company (but only to the extent payments are received by the Company under the Disability Income Policy), or by the insurance company under the terms of any Disability Income Policy being maintained by the Company under the terms of this Plan, or both, upon the submission and approval of a claim for benefits made pursuant to the claims procedure, established, as required by ERISA, and set forth below. ARTICLE V COMPANY'S OBLIGATION The Company's obligations under the Plan is limited to payment of the premiums described in this Plan. The payment of the disability benefits contemplated by the Plan shall be the obligation of the Insurance Company. If the Insurance Company shall fail to make any such disability benefit payment, for a reason other than the improper failure of the Company to pay a premium required of it by this Agreement, the Company shall not be obligated to make such disability benefit payments. ARTICLE VI CLAIMS AND CLAIMS REVIEW PROCEDURES The Participant must make a claim for plan benefits by delivering a written request to the Insurance Company. Upon receipt of such request the Insurance Company may require the claimant to complete such forms and provide such additional information as may be reasonably necessary to establish the claimant's right to a benefit under the Plan. If a claim for benefits is wholly or partially denied, the Insurance Company will be requested to furnish to the claimant a notice of the decision, within ninety (90) days after the receipt of the claim by the Plan. If special circumstances require more than ninety (90) days to process the claim, this period may be extended for up to an additional ninety (90) days by giving written notice to the claimant before the end of the initial 90-day period stating the special circumstances requiring the extension and the date by which a final decision is expected. Failure to provide a notice of decision in the time specified shall constitute a denial of the claim and the claimant shall be entitled to require a review of the denial under the review procedures. The notice to be provided to every claimant who is denied a claim for benefits shall be in writing and shall set forth, in a manner calculated to be understood by the claimant, the following: (a) The specific reason or reasons for the denial; (b) Specific reference to pertinent plan provisions on which the denial is based; (c) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) An explanation of the Plan's claim review procedure describing the steps to be taken by a claimant who wishes to submit his or her claim for review. The purpose of the review procedure is to provide a procedure by which a claimant may have a reasonable opportunity to appeal a denial of a claim to the Plan Administrator for a full and fair review. To accomplish that purpose, the claimant or his duly authorized representative: (a) May request a review upon written application to the Plan Administrator. (b) May review pertinent plan documents; and (c) May submit issues and comments in writing. A claimant (or his duly authorized representative) shall request a review by filing a written application for review with the Plan Administrator at any time within sixty (60) days after receipt by the claimant of written notice of the denial of his claim. The decision on review of a denied claim shall be made in the following manner: (a) The decision on review shall be made by the Plan Administrator, who may in its discretion hold a hearing on the denied claim. The Plan Administrator shall make its decision promptly, which shall ordinarily be not later than sixty (60) days after the Plan's receipt of the request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing. In that case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. If an extension of time is required due to special circumstances, written notice of the extension shall be furnished to the claimant prior to the time the extension commences. (b) The decision on review shall be in writing and shall include specific reasons for the decisions, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. (c) In the event the decision on review is not furnished to the claimant within the time required, the claim shall be deemed denied on review. ARTICLE VII PLAN ADMINISTRATION a. The Compensation Committee shall be the plan administrator of this Plan and shall be solely responsible for its general administration and interpretation and for carrying out the respective provisions hereof, and shall have all such powers as may be necessary to do so. The Compensation Committee may from time to time establish rules for the administration of this Plan and the transactions of its business. Any action by the Compensation Committee shall be final, conclusive and binding on each Participant, Beneficiary and all persons claims by, through or under any Participant, unless an appeal is received by the Compensation Committee within 60 days of the disputed action. The appeal will be reviewed by the Compensation Committee and the decision of the Compensation Committee shall be final, conclusive and binding on the Participant and on all persons claiming by, through or under the Participant. b. The Company may employ or engage such agents, accountants, actuaries, counsel, other experts and other persons as it shall deem necessary or desirable in connection with the interpretation and administration of this Plan. The Company shall be entitled to rely upon all certificates made by an accountant or actuary selected by Company. The Company and its committees, officers, directors and employees shall not be liable for any action taken, suffered or omitted by them in good faith in reliance upon the advice or opinion of any counsel, accountant, actuary or other expert and all action so taken, suffered or omitted shall be conclusive upon each of them and upon all other persons interested in this Plan. The Company shall indemnify and hold harmless the members of the Compensation Committee for any and all acts taken in the administration or interpretation of this Plan. ARTICLE VIII TERMINATION OF EMPLOYMENT 8.1 TERMINATION OF INSURANCE. In the event that the employment of a Participant with the Company is terminated for any reason other than "Disability," as previously defined, the Company's obligation to continue paying the premium due on the Participant's Disability Income Policy shall cease and terminate. 8.2 ELECTION TO RETAIN INSURANCE. When a Participant's employment is terminated with the Company, the Participant may elect to retain the Disability Income Policy. This election must be made within sixty (60) days of the date of termination. The Participant must notify the Insurance Company in writing and remit to them the required premium. ARTICLE IX AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate this Plan at any time or times, in whole or in part, by duly adopted resolution of the Board of Directors. However, no such amendment or termination shall affect the rights of a Participant to receive monthly payments hereunder for any Disability arising prior to said amendment or termination. ARTICLE X NON-ASSIGNABILITY This Plan, and the rights, interest, and benefits receivable hereunder from the general assets of the Company shall not be assigned, transferred, pledged, sold, conveyed, or encumbered in any way by the Participant and shall not be subject to execution, attachment, or similar process. Any attempted sale, conveyance, transfer, assignment, pledge, or encumbrance of this Plan or of such rights, interest, and benefits, contrary to the foregoing provisions, or the levy of any attachment or similar process thereupon, shall be null and void and without effect. ARTICLE XI MISCELLANEOUS 11.1 LIMITATION OF RIGHTS. Neither the establishment of the Plan nor any amendment thereof will be construed as giving to any Participant or other person any legal or equitable right against the Plan Administrator or the Company, except as expressly provided herein, and in no event will the terms of employment or service of any Participant be modified or in any way be affected hereby. 11.2 APPLICABLE LAW. The Plan will be construed and administered and enforced in accordance with ERISA and the laws of the State of Nebraska to the extent that such laws are not preempted by ERISA. EX-11 10 EXHIBIT 11 EXHIBIT 11 InaCom Corp. and Subsidiaries Computation of Earnings Per Share of Common Stock (in thousands except per share amounts)
For the years ended December 27, December 28, December 30, 1997 1996 1995 ---- ---- ---- BASIC EARNINGS Earnings applicable to common stock $29,456 $18,733 $11,707 ======= ======= ======= Weighted average common shares outstanding 11,900 10,400 10,000 ====== ====== ====== Basic earnings per share $2.48 $1.80 $1.17 ===== ===== ===== DILUTED EARNINGS Earnings applicable to common stock $ 29,456 $18,733 $11,707 Net interest expense related to convertible debt 2,271 1,057 -- -------- ------- ------- Net income as adjusted $ 31,727 $19,790 $11,707 ======== ======= ======= Weighted average common shares outstanding 11,900 10,400 10,000 Assuming conversion of options outstanding 100 300 100 Assuming conversion of convertible debt 2,600 1,200 -- -------- ------- ------- Weighted average common shares outstanding as adjusted 14,600 11,900 10,100 ======== ======= ======= Diluted earnings per share $2.17 $1.66 $1.16 ==== ==== ====
EX-12 11 EXHIBIT 12 EXHIBIT 12 RATIOS OF EARNINGS TO FIXED CHARGES
1997 1996 1995 1994 1993 (amounts in thousands) Earnings (loss) from continuing operations $29,456 $18,733 $11,707 $(2,256) $11,975 Add provision for income taxes 20,415 12,986 8,126 (1,493) 7,718 ------- ------- ------- ------- ------- 49,871 31,719 19,833 (3,749) 19,693 Fixed Charges: Interest 29,024 20,405 14,635 12,031 8,596 Interest factor portion of rentals 5,981 3,993 3,266 2,851 2,345 ------- ------- ------- ------- ------- Total fixed charges 35,005 24,398 17,901 14,882 10,941 ------- ------- ------- ------- ------- Earnings before income taxes and fixed charges $84,876 $56,117 $37,734 $11,133 $30,634 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 2.42 2.30 2.11 0.75 2.80 ==== ==== ==== ===== =====
For the fiscal year ended December 31, 1994, earnings were insufficient to cover fixed charges by $3.8 million; for such fiscal year the Company incurred non-recurring charges of $7.1 million; exclusive of such charges, the ratio of earnings to fixed charges was 1.23. EX-21 12 EXHIBIT 21 SUBSIDIARIES EXHIBIT 21 Subsidiaries of InaCom Corp. Name State of Incorporation Inacom Communications, Inc...........................................Nebraska Inacom Solutions, Inc................................................Delaware Inacomp Financial Services, Inc......................................Michigan Inacom International, Inc............................................Delaware Inacom Finance Corp..................................................Delaware Perigee Communications, Inc.........................................Minnesota Gorham Clark, Inc....................................................New York Networks, Inc.........................................................Florida Inacom Tennessee, Inc...............................................Tennessee Inacom Professional Services, Inc....................................Nebraska EX-23 13 EXHIBIT 23 EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors InaCom Corp.: We consent to incorporation by reference in the Registration Statement Nos. 33-21438, 33-38385, 33-42277, 33-81240 and 333-25791 on Form S-8 and Registration Statement Nos. 333-11687, 333-14299, 333-25823, 333-36815 and 333-39545 on Form S-3 of InaCom Corp. of our report dated February 20, 1998 relating to the consolidated balance sheets of InaCom Corp. and subsidiaries as of December 27, 1997 and December 28, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows and related financial statement schedule for each of the years in the three-year period ended December 27, 1997, which reports are included or incorporated by reference in the December 27, 1997 Annual Report on Form 10-K of InaCom Corp. KPMG Peat Marwick LLP Omaha, Nebraska March 26, 1998 EX-24 14 EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ Joseph Auerbach ------------------- Joseph Auerbach POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ Mogens C. Bay ----------------- Mogens C. Bay POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ James Q. Crowe ------------------ James Q. Crowe POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ W. Grant Gregory -------------------- W. Grant Gregory POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ Joseph Inatome ------------------ Joseph Inatome POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ Rick Inatome ---------------- Rick Inatome POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ Gary Schwendiman -------------------- Gary Schwendiman POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 27, 1997, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 26th day of February, 1998. /s/ Linda S. Wilson ------------------- Linda S. Wilson EX-27.1 15 EX-27.1 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-27-1997 DEC-29-1996 DEC-27-1997 52,592 0 252,067 5,941 429,362 747,779 89,847 85,270 960,539 489,793 141,500 0 0 1,482 323,734 960,539 3,896,302 3,896,302 3,495,189 3,495,189 322,218 0 29,024 49,871 20,415 29,456 0 0 0 29,456 2.48 2.17
EX-27.2 16 EX-27.2 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR DEC-28-1996 DEC-30-1995 DEC-31-1995 JAN-01-1995 DEC-28-1996 DEC-30-1995 31,410 20,690 0 0 288,407 160,306 4,385 3,537 386,592 352,948 712,298 539,940 59,125 41,501 57,845 44,421 847,600 624,238 611,995 449,000 55,250 0 0 0 0 0 1,085 1,004 175,745 147,771 847,600 624,238 3,102,055 2,200,344 3,102,055 2,200,344 2,818,696 1,996,538 2,818,696 1,996,538 231,235 169,338 0 0 20,405 14,635 31,719 19,833 12,986 8,126 18,733 11,707 0 0 0 0 0 0 18,733 11,707 1.80 1.17 1.66 1.16
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