As filed with the Securities and Exchange Commission on September 25, 1996
Registration No. 333-_________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MIAMI COMPUTER SUPPLY CORPORATION
(Exact name of registrant as specified in its articles of incorporation)
<TABLE>
<S> <C> <C>
Ohio 5110 31-1001529
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
3884 Indian Ripple Road
Dayton, Ohio 45440
(937) 429-5211
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Albert L. Schwarz
President
Miami Computer Supply Corporation
3884 Indian Ripple Road
Dayton, Ohio 45440
(937) 429-5211
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With a copy to:
Timothy B. Matz, Esq. George O'Sullivan, Esq.
Jeffrey A. Koeppel, Esq. O'Sullivan, Graev & Karabell, LLP
Elias, Matz, Tiernan & Herrick L.L.P. 30 Rockefeller Plaza
734 15th Street, N.W., 12th Floor New York, New York 10112
Washington, D.C. 20005
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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================================================================================================================================
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of each Class of to be Offering Price Offering Registration
Securities to be Registered Registered Per Share(1) Price(1) Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per share 1,150,000 shares $9.00 $10,350,000 $3,569.00
================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
===========================================================================
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
Cross Reference Sheet Showing Location in the Prospectus of Information Required
by Items of Form S-1
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<CAPTION>
Registration Statement Item and Caption Prospectus Headings
- -------------------------------------------------------------------- -----------------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside Front Outside Front Cover Page; Cross
Cover Page of Prospectus Reference Sheet
2. Inside Front and Outside Back Cover Page of the Inside Front and Outside Back Cover
Prospectus Pages of the Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings Prospectus Summary; Risk Factors
to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Outside Front Cover Page of the
Prospectus; Underwriting
9. Description of Securities to be Registered Description of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters
11. Information with Respect to the Registrant Outside Front Cover Page; Summary;
Risk Factors; Dividend Policy;
Capitalization; Selected Consolidated
Financial and Operating Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Restrictions on
Acquisition of the Company;
Consolidated Financial Statements
12. Disclosure of Commission Position on Certain Transactions
Indemnification for Securities Act Liabilities
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<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1996
1,000,000 Shares
Miami Computer Supply Corporation
Common Stock
All of the shares of Common Stock, without par value (the "Common Stock"),
offered hereby are being offered by Miami Computer Supply Corporation (the
"Company"). Prior to this offering (the "Offering"), there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $7.00 and $9.00 per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. The Company has submitted an application for the Common Stock to
be quoted and traded on the Nasdaq National Market under the symbol "MCSC."
This Offering involves a high degree of risk. See "Risk Factors" beginning
on page 10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Price Proceeds
to Underwriting to
Public Discounts(1) Company(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................... $ $ $
Total(3)..................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities. See "Underwriting."
(2) Before deducting estimated expenses of $360,000.00 payable by the Company.
(3) The Company has granted the Underwriter a 30-day over-allotment option to
purchase up to 150,000 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriter, the total Price to Public, Underwriting Discounts and
Proceeds to Company will be $____, $____ and $____, respectively. See
"Underwriting."
---------------------
The shares of Common Stock are offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter, and
subject to its right to withdraw, modify, correct and reject orders in whole or
in part. It is expected that delivery of the certificates representing the
shares of Common Stock will be made against payment therefor at the offices of
Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia or in book entry
form through the book entry facilities of the Depository Trust Company on or
about ________, 1996.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is _______________, 1996.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
[IN THE PRINTED VERSION THERE APPEARS A
PHOTO OF A NUMBER OF
THE DIFFERENT PRODUCTS
SOLD BY THE COMPANY]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
[The Company claims a service mark in, and [has filed] an application for,
federal registration of the name "Miami Computer Supply International(SM)" and
the symbol "MCSI(SM)" on __________, 1996. The service mark application is
currently pending at the U.S. Patent and Trademark Office.] All other trademarks
or registered trademarks or service marks appearing in this Prospectus are
trademarks or registered trademarks or service marks of the respective companies
that utilize them.
---------------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent
accountants, together with an opinion thereon expressed by such accountants, and
quarterly reports containing unaudited interim consolidated financial statements
for each of the first three quarters of each fiscal year.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and the notes thereto appearing elsewhere in this Prospectus. Except
as otherwise indicated herein, the information in this Prospectus: (i) has been
adjusted to reflect the recapitalization (the "Recapitalization") of the
Company's common equity from no par voting and no par non-voting common stock to
a single class of Common Stock; (ii) has been adjusted to reflect the increase
in the number of shares of authorized capital stock, from 12,000 shares of
voting and non-voting common stock to 30,000,000 shares of Common Stock and
5,000,000 shares of preferred stock, without par value (the "Preferred Stock");
(iii) has been adjusted to reflect a 200-for-1 stock split (the "Stock Split");
(iv) assumes an initial public offering price of $8.00 per share, the mid-point
of the range set forth on the cover page of this Prospectus; and (v) assumes no
exercise of the Underwriter's overallotment option. The Recapitalization and the
Stock Split were effected on September 25, 1996. See "Description of Capital
Stock." Unless the context otherwise requires, references to Miami Computer
Supply Corporation include its wholly owned subsidiaries.
The Company
Miami Computer Supply Corporation (the "Company") is a distributor of
computer and office automation supplies and accessories, including a line of
computer projection presentation products, principally in the midwest and
northeast regions of the United States and in certain foreign countries. The
Company distributes over 1,800 different core products primarily to middle
market and smaller companies and to governmental, educational and institutional
customers, including federal, state and local governmental agencies,
universities and hospitals and, to a lesser extent, to computer supply dealers.
The Company's net sales increased from $19.6 million in fiscal year 1991 to
$43.3 million in fiscal year 1995, a compound annual growth rate of 22%, while
operating income has increased from $.5 million to $1.6 million over the same
period, a compound annual growth rate of 34%.
The Company's growth in sales is due primarily to the acquisition of four
computer and office automation supply companies over the past five years as well
as the high level of customer satisfaction which the Company attributes to the
following factors: personal service using a highly knowledgeable and motivated
sales force; fulfillment of customer orders on an overnight basis; use of the
most economic and expeditious shipping routes; and automated procedures for
inventory control, order picking and billing which are supported by the
Company's proprietary computer software applications. The Company plans to
continue to focus on achieving a high level of customer satisfaction and intends
to emphasize the acquisition of other end-user computer and office automation
supply companies to increase its sales growth and expand its presence in other
markets.
The Company believes that it has a lower selling and administrative
expense structure due to its ability to sell without the use of retail locations
and its ability to limit its product line solely to computer and office
automation supplies and projection presentation products. The Company
3
<PAGE>
believes that its lower selling and expense structure afford it a competitive
advantage over traditional contract stationers and large office suppliers.
Management believes that the Company is the largest independent end-user
computer and office automation supply distributor in the country.
The Company sells primarily nationally known, name-brand products
manufactured by approximately 500 original equipment manufacturers, including
Hewlett-Packard Company ("Hewlett-Packard"), Lexmark International, Inc.
("Lexmark") and Imation Corp. ("Imation") (formerly a division of 3M
Corporation) for computer supplies, and by Proxima Corporation ("Proxima"),
Epson America, Inc. ("Epson") and LightWare, Inc. ("LightWare") for projection
presentation products. The Company's products include consumable supplies such
as laser toner, copier toner, facsimile machine supplies, ink jet cartridges,
printer ribbons, diskettes, computer tape cartridges and accessories, including
cleaning kits and media storage files, as well as computer projection
presentation hardware which permits the large-scale, high resolution projection
of computer generated slides for presentation at meetings, seminars, lectures,
training rooms and other similar multiple person gatherings. The Company's
products are used in, or in conjunction with, a broad range of computer and
office automation products such as mainframes, intranets, mini, personal, laptop
and notebook computers, laser and ink jet printers, photocopiers, fax machines
and data storage products.
The Company operates one centralized distribution center in Dayton, Ohio
and three smaller regional distribution centers in Rochester, New York,
Louisville, Kentucky and Ann Arbor, Michigan. Each of the Company's other 15
sales offices also maintain a limited inventory of frequently ordered products
in order to facilitate same day delivery.
The Company estimates that the U.S. computer and office automation supply
market totaled approximately $25.1 billion (at retail) in 1995 and that the U.S.
market for projection presentation products totaled approximately $3.0 billion
in 1995. Industry sources indicate that the U.S. computer supply market will
grow at a compound annual rate of approximately 6.8% over the next three years.
The Company believes that the current size of the industry and its potential for
future growth can be attributed, in part, to the increasing automation of the
workplace and the corresponding increase in the demand for computer and office
automation supplies. In addition, newer laser and ink jet printing technologies,
particularly color printers, require significantly more consumable supplies than
older, impact printing technologies.
Unlike the computer hardware or office equipment industry, the Company
believes that the computer and office automation supplies industry is not
generally subject to the risk of rapid technological advances and subsequent
product obsolescence. The demand for consumable goods is not dependent on the
level or type of computer hardware or office equipment sales in any particular
year, but rather reflects the amount and type of equipment already in use. As a
result, the consumable needs for any particular computer or item of office
equipment will often continue for an extended period of time, even after the
manufacture of such computer or office equipment is discontinued. Moreover,
computer hardware is relatively homogeneous, except for different power sources;
computer printers sold in the U.S. are substantially similar to, and use
4
<PAGE>
the same supplies as, printers sold elsewhere in the world. Thus, the Company's
products typically may be sold transnationally without modification.
The Company's business strategy is to increase sales and earnings growth
by:
o Acquiring other computer supply companies in the U.S. and
internationally. With more than 15 years of experience serving the large and
expanding niche computer and office automation supply market, the Company has
garnered specific knowledge regarding the customer base, its competitors and its
suppliers. Accordingly, the Company believes that the domestic and certain
foreign computer supply markets are highly fragmented and consist primarily of
relatively smaller companies which typically sell within limited geographical
areas. The Company has acquired four smaller regional computer and office
automation supply companies including Diversified Data Products, Inc. ("DDP"),
since 1991, which companies accounted for $7.8 million of the Company's $43.3
million in revenues for the year ended December 31, 1995 and for $4.9 million of
the Company's $26.2 million in revenues for the six months ended June 30, 1996.
The Company believes that there is a significant consolidation opportunity
within the industry and, thus, intends to aggressively pursue acquisitions of
other end-user computer and office automation supply companies in the future.
The Company has identified potential acquisition candidates and has had
preliminary discussions with several of such candidates. There are, however, as
of the date of this Prospectus, no understandings, agreements or arrangements
between the Company and any other entity with respect to such an acquisition.
Although other larger, better financed companies are currently engaged in
a rapid consolidation of the office supply industry, and to a lesser extent,
computer supply distributors, the Company believes that it can effectively
compete for acquisitions due to its niche market strategy, its knowledge of, and
existing relationships with, many of the potential acquisition targets and its
ability to offer such targets growth potential and a management philosophy which
is clearly different from the large contract stationer consolidators. The
Company believes that it is currently the only company focusing strictly on
acquiring computer and office automation supply distribution companies. In
addition, the Company believes that it will be able to integrate acquired
companies into its business by, among other things, retaining existing senior
management whenever possible while expanding the Company's revenue base and
centralizing administrative functions, purchasing and information systems to
achieve economies of scale. See "Risk Factors - Integration of Acquisitions,"
"Risk Factors - Ability to Manage Growth" and "Business - Business Strategy -
Acquisition Strategy."
o Increasing revenues by initiating relationships with new customers,
increasing international sales, emphasizing sales of additional products to
existing customers and selling higher margin, state-of-the-art liquid crystal
display ("LCD") projection presentation products.
5
<PAGE>
o Improving operating efficiencies with its in-house computer programming
staff through the use of its advanced computerized inventory system, electronic
data interchange ("EDI") and continued management information system ("MIS")
enhancements to its order processing and financial management systems.
o Adding value to its customer relationships by providing personal
customer contact with its direct sales force and customer service
representatives, special priority and customized service to its very important
customers, precise picking and packaging of customer orders, prompt next-day
delivery with reputable couriers at the most economical price, EDI, order
tracking and free technical advice from its highly trained and knowledgeable
sales force and customer service representatives.
o Strengthening its relationships with manufacturers by increasing sales
and related product offerings which, to date, has resulted, and is expected to
result, in larger discounts and rebates and more cooperative advertising
support.
The stockholders of the Company sold 70.0% of the issued and outstanding
common stock of the Company to an investor group, which includes three directors
and one officer of the Company, a general partnership composed of certain
members of the Company's special counsel and an affiliate of the Underwriter, on
May 30, 1996. See "Business - Overview."
The Company's principal executive offices are currently located at 3884
Indian Ripple Road, Dayton, Ohio 45440, and its telephone number is (937)
429-5211. The Company anticipates that it will complete the relocation of its
principal executive offices in the fourth quarter of 1996 to 4750 Hempstead
Station, Dayton, Ohio, 45429 and its new telephone number will be (937)
291-8282.
6
<PAGE>
The Offering
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<S> <C>
Common Stock offered................................... 1,000,000 shares
Common Stock to be outstanding after the
Offering(1)(2)....................................... 3,388,000 shares
Use of proceeds........................................ To repay indebtedness, for working capital
and general corporate purposes and to
finance the expansion of the Company's
business, including acquisitions.
Nasdaq National Market symbol.......................... "MCSC"
</TABLE>
- ------------------------------
(1) Excludes 150,000 shares of Common Stock that may be issued pursuant to the
Underwriter's over-allotment option. See "Underwriting."
(2) Based on shares outstanding as of June 30, 1996. Excludes 350,000 shares
of Common Stock reserved for future issuance under the Company's stock
option plans. See "Management - Executive Compensation - Employee Benefit
Plans - Stock Plans."
Summary Financial And Operating Data
The summary historical consolidated financial and operating data set forth
below for the years ended December 31, 1993, 1994 and 1995 and for the six
months ended June 30, 1996 have been derived from consolidated financial
statements of the Company which have been audited by Price Waterhouse LLP,
independent accountants whose report is included elsewhere in this Prospectus.
The summary historical consolidated financial and operating data set forth for
the years ended December 31, 1991 and 1992 and the six months ended June 30,
1995 have been derived from the unaudited consolidated financial statements of
the Company, which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results to be obtained for the full fiscal
year. The summary historical consolidated and unaudited pro forma financial data
set forth below should be read in conjunction with "Selected Consolidated
Financial and Operating Data," "Unaudited Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and
accompanying notes thereto included elsewhere in this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
Pro Forma
1991 1992 1993 1994 1995 1995(1)
---- ---- ---- ---- ---- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales...................... $19,567 $23,982 $29,045 $35,690 $43,321 $56,678
Cost of sales.................. 15,401 19,128 23,308 28,250 34,642 46,781
------ ------ ------ ------ ------ ------
Gross profit................... 4,166 4,854 5,737 7,440 8,679 9,897
Selling, general and
administrative expenses...... 3,683 4,231 5,221 6,219 7,125 8,141
Non-cash compensation expense.. -- -- -- -- -- 280
------ ------ ----- ------ ------ ------
Operating income............... 483 623 516 1,221 1,554 1,476
Interest expense............... 138 101 141 204 274 --
Other income................... 11 6 12 11 22 27
------ ------ ----- ------ ------ ------
Income before income taxes..... 356 528 387 1,028 1,302 1,503
Provision for income taxes..... 145 243 165 418 509 594
------ ------ ------ ------ ------ ------
Net income..................... $ 211 $ 285 $ 222 $ 610 $ 793 $ 909
====== ====== ====== ====== ====== ======
Earnings per share
of common stock............... $ 0.09 $ 0.12 $ 0.09 $ 0.26 $ 0.33
Weighted average
number of common stock
outstanding................... 2,400,000 2,400,000 2,356,000 2,320,000 2,388,000
Pro forma earnings per share
of common stock(4)............ $ 0.27
Pro forma weighted average
number of shares of common
stock outstanding(4)......... 3,388,000
Operating Data:
Sales per employee(5).......... $264.4 $307.5 $299.4 $336.7 $401.1 $480.3
Selling, general and
administrative expenses as a
percentage of net sales...... 18.8% 17.6% 18.0% 17.4% 16.4% 14.4%
<CAPTION>
Six Months
Ended June 30,
Pro Forma
1995 1996(2) 1996(3)
------ --------- --------
Statement of Operations Data:
Net sales...................... $21,377 $26,247 $31,465
Cost of sales.................. 16,941 21,162 25,978
------ ------ ------
Gross profit................... 4,436 5,085 5,487
Selling, general and
administrative expenses...... 3,655 4,033 4,368
Non-cash compensation expense.. -- -- --
------ ------ ------
Operating income............... 781 1,052 1,119
Interest expense............... 142 142 --
Other income................... 5 11 11
------ ------ ------
Income before income taxes..... 644 921 1,130
Provision for income taxes..... 270 382 473
------ ------ ------
Net income..................... $ 374 $ 539 $ 657
====== ====== ======
Earnings per share
of common stock............... $ 0.16 $ 0.23
Weighted average
number of common shares
outstanding................... 2,388,000 2,388,000
Pro forma earnings per share
of common stock(4)............ $ 0.19
Pro forma weighted average
number of shares of common
stock outstanding(4)......... 3,388,000
Operating Data:
Sales per employee(5).......... $197.9 $222.4 $266.7
Selling, general and
administrative expenses as a
percentage of net sales...... 17.1% 15.4% 13.9%
</TABLE>
(Table continued on following page)
8
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(Table continued from prior page)
<TABLE>
<CAPTION>
December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at end of period):
Working capital .................................. $ 404,712 $ 660,085 $ 621,053 $ 943,945 $1,510,277
Total assets ..................................... 4,311,247 5,051,644 6,100,416 8,782,314 9,544,136
Long-term debt ................................... -- 124,076 72,413 5,890 477
Total debt ....................................... 1,761,081 1,828,182 2,830,946 3,005,136 3,537,357
Stockholders' equity ............................. 737,545 1,022,545 1,174,180 1,838,915 2,631,788
<CAPTION>
June 30, 1996
As
Actual(2) Adjusted(6)
--------- -----------
Balance Sheet Data (at end of period):
Working capital........................... $1,904,277 $ 8,904,277
Total assets.............................. 13,020,886 13,277,701
Long-term debt............................ -- --
Total debt................................ 5,309,252 --
Stockholders' equity...................... 3,170,421 10,170,421
</TABLE>
- ---------------------
(1) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" as if such events had occurred on
January 1, 1995. The pro forma data do not purport to represent what the
Company's results of operations actually would have been if the foregoing
transactions had actually occurred as of such date or what such results
will be for any future periods. See "Unaudited Pro Forma Financial Data."
(2) Gives effect to the acquisition of DDP by the Company on May 30, 1996.
(3) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" as if such transactions had occurred on
January 1, 1995. See "Unaudited Pro Forma Financial Data."
(4) Gives pro forma effect to the sale by the Company of 1,000,000 shares of
Common Stock pursuant to the Offering as if such transaction had occurred
at the beginning of the fiscal period.
(5) Sales per employee are based on 74, 78, 97, 106, 108, 118, 108, 118 and
118 employees for the years ending 1991, 1992, 1993, 1994, 1995, pro forma
1995, for the six months ended June 30, 1995 and 1996, and for the pro
forma six months ended June 30, 1996, respectively.
(6) Gives pro forma effect to the sale by the Company of 1,000,000 shares of
Common Stock pursuant to the Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds" as if such
transactions had occurred on such date. See "Unaudited Pro Forma Financial
Data."
9
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RISK FACTORS
In addition to other information in this Prospectus, the following factors
should be considered carefully by prospective investors before purchasing any of
the Common Stock offered by this Prospectus.
Financing for Acquisitions; Additional Dilution
If acquisitions are funded by the issuance of additional Common Stock,
such issuance will be without stockholder approval and will dilute current
stockholders and stockholders who purchase shares of Common Stock in this
Offering. Stockholders have no preemptive rights and, therefore, no stockholder
has the right to acquire additional Common Stock in such a circumstance in order
to prevent such dilution. The Company presently intends to register an
additional 6,000,000 shares of its Common Stock with the Securities and Exchange
Commission (the "Commission") under Rule 415 of the Securities Act of 1933, as
amended (the "Securities Act"), as soon as possible after the completion of this
Offering for use by the Company as all or a portion of the consideration to be
paid in future acquisitions. These shares will generally be freely tradeable
after their issuance, unless the sale thereof is contractually restricted. There
can be no assurance that holders of the Common Stock will not be significantly
diluted by future issuances of Common Stock as a result of the Company's
acquisition strategy. Moreover, the issuance of additional shares of Common
Stock may have a negative impact on earnings per share and may negatively impact
the market price of the Common Stock.
Financing for Acquisitions; Leverage
If acquisitions are consummated for cash, it is likely that the Company
will borrow the necessary funds and, accordingly, the Company may become highly
leveraged as a result thereof. If it becomes highly leveraged, the Company may
be more vulnerable to extended economic downturns and its flexibility in
responding to changing economic and industry conditions may be limited. The
degree to which the Company is leveraged could have important consequences to
purchasers of the Common Stock, including the impairment of the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate purposes. The Company's ability
to make principal and interest payments on its current and future indebtedness
and to repay its current and future indebtedness at maturity will be dependent
on the Company's future operating performance, which is itself dependent on a
number of factors, many of which are beyond the Company's control, and may be
dependent on the availability of borrowings under the Credit Facility (defined
below) or other financings. A substantial portion of the Company's current
borrowing capacity under the Credit Facility could be consumed by increased
working capital needs, including future acquisitions.
10
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Possible Need for Additional Financing to Implement Acquisition Strategy
A substantial portion of the net proceeds of the Offering will be used by
the Company to repay its indebtedness under the Credit Facility, leaving
approximately $1.7 million for working capital to finance inventory and
receivables and for general corporate purposes. See "Use of Proceeds." No
portion of this amount has been set aside for the specific purpose of funding
future acquisitions and, therefore, the Company may require additional funds to
implement its acquisition strategy. While the Company's Credit Facility may be
utilized to finance acquisitions, the amount which may be drawn upon by the
Company may be limited. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Credit Facility." Accordingly, the Company
may require additional debt or equity financing for future acquisitions. There
can be no assurance that the Company will be able to obtain additional debt or
equity financing on terms favorable to the Company, or at all, or if obtained,
there can be no assurance that such debt or equity financing will be sufficient
for the financing needs of the Company.
Restrictions Imposed by Debt Arrangements
The Company's outstanding indebtedness consists primarily of borrowings
under the $15.0 million secured revolving credit facility (the "Credit
Facility") provided by National City Bank of Dayton (the "Bank"). The Credit
Facility contains restrictive covenants which may have an adverse effect on the
Company's operations in the future. These covenants include, among other
restrictions: (i) the maintenance of certain financial ratios; (ii) prior notice
to the Bank with respect to (a) the purchase or sale of assets; (b) any merger,
sale or consolidation activity; (c) the creation or acquisition of any
subsidiary or the investment in any equity securities; (d) the entering into any
partnership or joint venture; or (e) the issuance of any equity securities; and
(iii) certain limitations on the incurrence of other indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Credit Facility." These provisions may constrain the Company's
acquisition strategy, may delay, deter, or prevent a takeover attempt that a
shareholder might consider in its best interests and may have an adverse effect
on the market price of the Company's Common Stock. In addition, the Credit
Facility restricts the payment of dividends to no more than 50.0% of the net
income of the Company in the year that the dividend is to be paid. See "Dividend
Policy."
Failure to Implement Acquisition Strategy
Competition for desirable new acquisitions in attractive major
metropolitan markets is expected to increase. No assurance can be given that the
Company will be able to find attractive acquisition candidates or that such
acquisitions can be effected at reasonable prices or in a timely manner, or that
once acquired, the Company will be able to profitably manage such companies. The
failure to complete acquisitions and continue the Company's expansion could have
a material adverse effect on its financial performance.
11
<PAGE>
Risks Relating to International Acquisitions
Expansion into international markets may involve additional risks relating
to such things as currency exchange rates, new and different legal and
regulatory requirements, political and economic risks relating to the stability
of foreign governments and their trading relationship with the United States,
difficulties in staffing and managing foreign operations, differences in
financial reporting, differences in the manner in which different cultures do
business, operating difficulties and other factors.
Integration of Acquisitions
The Company has acquired four computer and office automation supply
businesses in the past five years and intends to actively pursue additional
acquisitions. No assurance can be given that the Company will be able to
successfully integrate its future acquisitions with the Company's existing
systems and operations. The integration of acquired businesses may also lead to
the resignation of key employees of the acquired companies and diversion of
management attention from other ongoing business concerns. The costs of
integration could have an adverse effect on short-term operating results. Any or
all of these factors could have a material adverse effect on the Company's
operations in the future.
Ability to Manage Growth
The Company expects to experience rapid growth that will likely result in
new and increased responsibilities for management personnel and which will
challenge the Company's management, operating and financial systems and
resources. To compete effectively and manage future growth, if any, the Company
will be required to continue to implement and improve its operational, financial
and management information systems, procedures and internal controls on a timely
basis and to expand, train, motivate and manage its work force. There can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's future operations. Any failure to implement
and improve the Company's operational, financial and management systems or to
expand, train motivate or manage employees could have a material adverse effect
on the Company's operating results and financial condition. See "Business."
Dependence on Key Personnel
The Company relies on certain key executives, including its President and
other senior management, with whom it has entered into employment agreements
containing non-competition provisions. The agreements with the President and
Chief Financial Officer entitles such individuals to receive a cash bonus based
on the Company's annual income before taxes, limited, however, beginning in
1997, to no more than 100.0% of their respective base salaries, assuming that
pre-tax profit goals are met. The loss of services of one or more of the
Company's key executives could disrupt and have a material adverse effect on the
operations of the Company. As the Company continues to grow, it will continue to
hire, appoint or
12
<PAGE>
otherwise retain and/or change senior managers and other key executives. There
can be no assurance that the Company will be able to retain its executive
officers and key personnel or attract additional qualified management in the
future. In addition, the success of certain of the Company's acquisitions may
depend, in part, on the Company's ability to retain management personnel of the
acquired companies. The loss of services of senior executive officers could have
a material adverse effect upon the Company's business.
Exchange Rate Fluctuations
Although the Company's operations are not currently subject to material
operational risks associated with fluctuations in exchange rates, because the
Company intends to expand the size and scope of its international operations,
its exposure to fluctuations in exchange rates will be increased. Accordingly,
no assurance can be given that the Company's results of operations will not be
adversely affected in the future by fluctuations in foreign currency exchange
rates.
Dependence on Certain Key Suppliers
Although the Company regularly carries products and accessories
manufactured by approximately 500 original equipment manufacturers, 59.6% of the
Company's net sales in fiscal year 1995 were derived from products supplied by
the Company's ten largest suppliers, with the sale of products supplied by
Hewlett-Packard, Lexmark and Imation accounting for approximately 19.3%, 11.1%
and 7.3% of total net sales, respectively, for the year ended December 31, 1995.
In addition, the Company's business is dependent upon terms provided by its key
suppliers, including pricing and related provisions, product availability and
dealer authorizations. While the Company considers its relationships with its
key suppliers, including Hewlett-Packard, Lexmark and Imation to be good, there
can be no assurance that these relationships will not be terminated or that such
relationships will continue as presently in effect. In addition, changes by one
or more of such key suppliers of their policies regarding distributors or volume
discount schedules or other marketing programs applicable to the Company may
have a material adverse effect on the Company's business. Certain distribution
agreements require the Company to make minimum annual purchases. Under its
distribution agreements with Hewlett-Packard, Lexmark and Imation, the Company
is required to make minimum annual purchases of $5.0 million, $250,000 and
$50,000, respectively. See "Business - Suppliers."
Highly Competitive Industry
The computer and office automation product supply industry is highly
competitive. The Company competes with major full-service office products
distributors, other national and regional computer supply distributors, office
products superstores, direct mail order companies, and, to a lesser extent,
non-specialized retailers. Certain of the Company's competitors, such as office
products superstores and major full-service office products distributors, are
larger and have substantially greater financial and other resources and
13
<PAGE>
purchasing power than the Company. The Company believes that the computer supply
industry will become more consolidated in the future and consequently more
competitive. Increasing competition will result in greater price discounting
which will continue to have a negative impact on the industry's gross margins.
There can be no assurance that the Company will not encounter increased
competition in the future, which could have a material adverse effect on the
Company's business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business - Competition."
Control of Existing Management and Certain Stockholders
Upon completion of the Offering, management of the Company will own
672,520 shares of Common Stock representing approximately 19.9% of the
outstanding shares of Common Stock and Pittsburgh Investment Group LLC ("LLC")
will own 1,613,480 shares of Common Stock representing approximately 47.6% of
the outstanding shares of Common Stock. Consequently, management or LLC, acting
together or independently, will be in a position to exert significant influence
over all matters relating to the Company's business, including decisions
regarding the election of the Company's Board of Directors, the acquisition or
disposition of assets (in the ordinary course of the Company's business or
otherwise), future issuances of Common Stock or other securities of the Company,
and the declaration and payment of dividends on the Common Stock. Management or
LLC, acting together or independently, also may be able to delay, make more
difficult or prevent any business combination involving the Company not approved
by them. See "Principal Stockholders" and "Restrictions on Acquisition of the
Company."
Dependence on Computer Systems
The Company's operations are generally dependent on its proprietary
software applications. Modifications to the Company's computer systems and
applications software will be necessary as the Company executes its expansion
plans and responds to customer needs, technological developments, electronic
commerce requirements and other factors. Such modifications may cause
disruptions in the operations of the Company, delay the schedule for
implementing the integration of newly acquired companies, or cost more to
design, implement or operate than currently budgeted. Such disruptions, delays
or costs could have a material adverse effect on the Company's operations and
financial performance.
The Company does not currently have redundant computer systems or
redundant dedicated communication lines linking its computers to its warehouses,
although all data is stored on two separate hard drives on a continual basis.
The Company has taken precautions to protect itself from events that could
interrupt its operations, including back-up power supplies that allow the
Company's computer system to function in the event of a power outage, off-site
storage of back-up data, fire protection, physical security systems and an early
warning detection and fire extinguishing system. The occurrence of any of these
14
<PAGE>
events could have a material adverse effect on the Company's operations and
financial performance. See "Business - Management Information Systems."
Potential Volatility of Stock Price
Stock prices of many growth companies fluctuate widely, often for reasons
that are unrelated to their actual operating performance. Announcement of new
acquisitions by the Company or its competitors, variations in quarterly
operating results, litigation involving the Company, general conditions
affecting all participants in the computer supply industry, regulatory
developments, and economic or other external factors, may have a significant
impact on the market price and liquidity of the Common Stock. See
"Underwriting."
Immediate and Substantial Dilution to New Investors
New investors in the Common Stock in this Offering will experience
immediate dilution in the net tangible book value of their shares. At the
initial public offering price of $8.00 per share, dilution to new investors will
be $5.06 per share. In the Offering, new investors will purchase 29.5% of the
total outstanding shares and will contribute 99.7% of the total consideration
therefore. See "Dilution." Additional dilution will occur as a result of future
acquisitions by the Company of other computer supply businesses in exchange for
the Common Stock. See "- Financing for Acquisitions; Additional Dilution."
No Dividends
The Company has never paid a dividend on its capital stock and currently
expects to retain its future earnings, if any, for use in the operation and
expansion of its business and does not anticipate paying any such cash dividends
in the foreseeable future. See "Dividend Policy."
Availability of Common Stock and Preferred Stock for Issuance
The Company's Board of Directors has the authority to issue up to
5,000,000 shares of the Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions thereof, including voting rights of the
Preferred Stock, without any further vote or action by the Company's
stockholders. The voting and other rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The Company's Board may
similarly issue additional shares of Common Stock without any further vote or
action by stockholders. Such an issuance could occur in the context of another
public or private offering of shares of Common Stock or Preferred Stock or in a
situation where the Common Stock or Preferred Stock is used to acquire the
assets or stock of another company. The issuance of Common Stock or Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has
15
<PAGE>
no current plans to issue any shares of Common Stock or Preferred Stock other
than as described herein. See "Description of Capital Stock."
Antitakeover Provisions
The Amended and Restated Articles of Incorporation ("Articles") and
Amended and Restated Code of Regulations ("Code of Regulations") of the Company
contain certain provisions which, among other things, permit the establishment
of a "staggered" Board of Directors, limit the personal liability of, and
provide indemnification for, the directors of the Company, require that
stockholders comply with certain requirements before they can nominate someone
for director or submit a proposal before a meeting of stockholders, limit the
ability of stockholders to act by written consent and require a supermajority
vote of stockholders in the event that a "related person" (as defined) attempts
to engage in a business combination with the Company. The Ohio General
Corporation Law, which is applicable to the Company, has certain other
provisions which may be deemed to have antitakeover effects, including statutes
which deal with control share acquisitions, transactions involving interested
stockholders, control bids and the disgorgement of trading profits. See
"Restrictions on Acquisition of the Company."
Impact of Shares Eligible for Future Sale
Future sales by existing stockholders could adversely affect the
prevailing market price of the Common Stock. Upon completion of the Offering,
the Company will have 3,388,000 shares of Common Stock outstanding. All of the
1,000,000 shares offered hereby will be freely tradeable by persons other than
"affiliates" of the Company, as that term is defined in the Securities Act. Upon
expiration of a lock-up agreement between the Company, its officers, directors
and stockholders, and the Underwriter, beginning 270 days after the date of this
Prospectus, or earlier if the Underwriter consents, approximately 716,000 of
additional shares will be eligible for immediate sale in the public market,
subject to compliance with Rule 144.
No Prior Trading Market for Common Stock
Prior to this Offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that an active trading
market will develop or be sustained after this Offering. The initial public
offering price will be determined through negotiations between the Company and
the Underwriter based on several factors and may not be indicative of the market
price of the Common Stock after this Offering. The Company has submitted an
application for the Common Stock to be quoted and traded on the Nasdaq National
Market. The approval of such application is conditioned upon the Company's
demonstration of full compliance with all Nasdaq criteria for initial listing at
the closing of the Offering. See "Underwriting."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering after deducting
estimated Offering expenses and underwriting discounts are estimated to be
approximately $7.0 million, (or approximately $8.1 million if the Underwriter's
over-allotment option is exercised in full). The Company intends to use the net
proceeds to repay amounts outstanding indebtedness under the Company's Credit
Facility with the Bank which, at June 30, 1996, approximated $5.3 million, and
for working capital, in the amount of approximately $1.7 million, to finance
inventory and receivables and for general corporate purposes. The proceeds held
for general corporate purposes may be used, in whole or in part, to finance the
expansion of the Company's business, including possible future acquisitions.
Pending such uses, the net proceeds will be invested in short-term,
interest-bearing investment grade securities.
The Company continues to evaluate potential acquisitions and to identify
and have preliminary discussions with potential acquisition candidates, although
there are, as of the date of this Prospectus, no agreements, arrangements or
understandings between the Company and any other party relating thereto. There
can be no assurance that any acquisition can or will be consummated on terms
favorable to the Company, or at all.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock. The
Company does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business and for general corporate purposes. Any payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, level of indebtedness, general business conditions,
contractual restrictions with respect to the payment of dividends and other
relevant factors. The Credit Facility provides that the payment of dividends is
an event of default unless the dividend is payable solely in cash, no other
event of default is existing and, after giving effect to the proposed dividend,
the aggregate of all dividends paid during any fiscal year of the Company would
not exceed 50.0% of the net income (as defined in the Credit Facility) of the
Company for that fiscal year to the date of such dividend.
17
<PAGE>
DILUTION
At June 30, 1996, the net tangible book value of the Company was $2.9
million or $1.23 per share of Common Stock outstanding. The net tangible book
value per share represents the amount of total assets (excluding intangible
assets) less total liabilities, divided by the total number of shares of Common
Stock outstanding. At June 30, 1996, after giving effect to the sale of the
1,000,000 shares of the Common Stock in the Offering at an assumed initial
public offering price of $8.00 per share and after deduction of estimated
underwriting discounts and Offering expenses payable by the Company and the
application of the net proceeds therefrom as described under "Use of Proceeds,"
the Company would have had 3,388,000 shares of Common Stock outstanding
(3,538,000 shares if the Underwriter's over-allotment option is exercised in
full), and the pro forma net tangible book value would have been $9.9 million
($11.0 million if the Underwriter's over-allotment option is exercised in full)
or $2.94 per share ($3.12 per share if the Underwriter's over-allotment option
is exercised in full). This represents an immediate increase in net tangible
book value of $1.71 per share to existing stockholders and an immediate dilution
in net tangible book value of $5.06 per share to the new investors purchasing
shares of Common Stock in this Offering. The following table illustrates this
per share dilution:
Assumed initial public offering price per share......... $8.00
Net tangible book value per share before
Offering(1)......................................... $1.23
Increase in net tangible book value
per share attributable to new investors............. 1.71
----
Pro forma net tangible book value per share
after the Offering.................................... 2.94
----
Dilution per share to new investors..................... $5.06
====
- ------------------
(1) Based upon 2,388,000 shares of Common Stock outstanding as of June 30,
1996. Does not include 350,000 shares of Common Stock reserved for future
issuance under the Company's Stock Option Plans. See "Management -
Executive Compensation - Employee Benefit Plans - Stock Plans."
18
<PAGE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased by existing stockholders, the
total consideration paid for such shares and the average price per share paid
for such shares by such persons and by the new investors purchasing shares of
Common Stock in this Offering (based on an assumed initial public offering price
of $8.00 per share and before deduction of estimated underwriting discounts and
Offering expenses payable by the Company):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------------- ----------------------------- Average Price
Number Percent(1) Amount Percent Per Share
------------ -------------- ------------ -------------- ----------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 2,388,000 70.5% $ 25,225 00.3% $0.01
New investors.................... 1,000,000 29.5 8,000,000 99.7 $8.00
--------- ----- ---------- -----
Total............................ 3,388,000 100.0% $8,025,225 100.0%
========= ===== ========== =====
</TABLE>
- ----------------------
(1) Assumes no exercise of stock options after June 30, 1996. As of the date
of the consummation of this Offering, there will be outstanding options to
purchase 111,000 shares of Common Stock with an exercise price equal to
the initial public offering price, which options will vest at the rate of
37,000 shares upon the closing of this Offering and 37,000 shares per year
in 1997 and 1998. It is also anticipated that options to purchase 45,000
shares will be issued to non-employee directors immediately after the
Company's 1997 annual meeting of stockholders. To the extent that any
shares reserved for future issuance under the Company's stock option plans
are issued, there will be further dilution to new investors. See
"Management - Executive Compensation - Employee Benefit Plans - Stock
Plans."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company, at June
30, 1996, on an actual basis (after giving effect to the Recapitalization and
the Stock Split) and as adjusted to give effect to the Offering (assuming an
initial public offering price of $8.00 per share, the mid-point of the price
range as set forth on the cover page of this Prospectus) and the application of
the estimated net proceeds therefrom. See "Use of Proceeds." This table should
be read in conjunction with the Consolidated Financial Statements of the Company
and the notes related thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------
As
Actual Adjusted
------------ -----------------
<S> <C> <C>
Short-term debt:
Credit Facility................................................................ $5,300,000 $ --
Current portion of long-term debt.............................................. 9,252 --
---------- --------------
Total short-term debt.......................................................... $5,309,252 $ --
========= ==============
Stockholders' equity:
Preferred Stock, no par value, 5,000,000 shares authorized; none outstanding
actual; 5,000,000 shares authorized; none
outstanding as adjusted....................................................... $ -- $ --
Common stock, no par value, 30,000,000 shares
authorized; 2,388,000 shares issued and outstanding
actual; 30,000,000 shares authorized; 3,388,000 shares
issued and outstanding as adjusted(1)......................................... -- --
Additional paid-in capital..................................................... 304,951 7,304,951
Retained earnings.............................................................. 3,160,196 2,880,470
Unearned compensation.......................................................... (279,726) --
Less: Treasury stock........................................................... (15,000) (15,000)
---------- -----------
Total stockholders' equity.................................................. 3,170,421 10,170,421
--------- ----------
Total capitalization...................................................... $8,479,673 $10,170,421
========= ==========
</TABLE>
- -----------------
(1) Excludes 350,000 shares of Common Stock reserved for future issuance under
the Company's stock option plans. See "Management - Executive Compensation
- Employee Benefit Plans - Stock Option Plans."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected historical consolidated financial and operating data set
forth below for the years ended December 31, 1993, 1994 and 1995 and for the six
months ended June 30, 1996 have been derived from consolidated financial
statements of the Company which have been audited by Price Waterhouse LLP,
independent accountants whose report is included elsewhere in this Prospectus.
The selected historical consolidated financial and operating data set forth for
the years ended December 31, 1991 and 1992 and the six months ended June 30,
1995 have been derived from the unaudited consolidated financial statements of
the Company, which, in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results to be obtained for the full fiscal
year. The selected consolidated and unaudited pro forma financial data set forth
below should be read in conjunction with "Unaudited Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company, and
accompanying notes thereto included elsewhere in this Prospectus.
21
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
Pro
Forma
1991 1992 1993 1994 1995 1995(1)
------------ ----------- -------- --------- -------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................. $19,567 $23,982 $29,045 $35,690 $43,321 $56,678
Cost of sales......................... 15,401 19,128 23,308 28,250 34,642 46,781
------ ------ ------ ------ ------ ------
Gross profit........................ 4,166 4,854 5,737 7,440 8,679 9,897
Selling, general and administrative
expenses........................... 3,683 4,231 5,221 6,219 7,125 8,141
Non-cash compensation expense......... -- -- -- -- -- 280
------ ------ ----- ----- ----- -----
Operating income................... 483 623 516 1,221 1,554 1,476
Interest expense...................... 138 101 141 204 274 --
Other income.......................... 11 6 12 11 22 27
------ ------ ----- ----- ----- -----
Income before income taxes......... 356 528 387 1,028 1,302 1,503
Provision for income taxes............ 145 243 165 418 509 594
------ ------ ----- ----- ----- -----
Net income........................ $ 211 $ 285 $ 222 $ 610 $ 793 $ 909
===== ===== ===== ===== ===== =====
Earnings per share of
common stock......................... $ 0.09 $ 0.12 $ 0.09 $ 0.26 $ 0.33
Weighted average number
of shares of common stock outstanding 2,400,000 2,400,000 2,356,000 2,320,000 2,388,000
Pro forma earnings per share of
common stock(4)...................... $ 0.27
Pro forma weighted average
number of shares of common stock
outstanding(4)....................... 3,388,000
Operating Data:
Sales per employee(5)................. $264.4 $307.5 $299.4 $336.7 $401.1 $480.3
Selling, general and administrative
expenses as a percentage of net
sales............................... 18.8% 17.6% 18.0% 17.4% 16.4% 14.4%
<CAPTION>
Six Months
Ended June 30,
----------------------------------------------
Pro Forma
1995 1996(2) 1996(3)
-------- ------------ --------------
Statement of Operations Data:
Net sales............................. $21,377 $26,247 $31,465
Cost of sales......................... 16,941 21,162 25,978
------ ------ ------
Gross profit........................ 4,436 5,085 5,487
Selling, general and administrative
expenses........................... 3,655 4,033 4,368
Non-cash compensation expense......... -- -- --
------ ------ ------
Operating income................... 781 1,052 1,119
Interest expense...................... 142 142 --
Other income.......................... 5 11 11
------ ------ ------
Income before income taxes......... 644 921 1,130
Provision for income taxes............ 270 382 473
------ ------ ------
Net income........................ $ 374 $ 539 $ 657
====== ====== ======
Earnings per share of
common stock......................... $ 0.16 $ 0.23
Weighted average number
of shares of common stock outstanding 2,388,000 2,388,000
Pro forma earnings per share of
common stock(4)...................... $ 0.19
Pro forma weighted average
number of shares of common stock
outstanding(4)....................... 3,388,000
Operating Data:
Sales per employee(5)................. $197.9 $222.4 $266.7
Selling, general and administrative
expenses as a percentage of net
sales............................... 17.1% 15.4% 13.9%
</TABLE>
(Table continued on following page)
22
<PAGE>
(Table continued from prior page)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1991 1992 1993 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance Sheet Data (at end of period):
Working capital............................ $ 404,712 $ 660,085 $ 621,053 $ 943,945
Total assets............................... 4,311,247 5,051,644 6,100,416 8,782,314
Long-term debt............................. -- 124,076 72,413 5,890
Total debt................................. 1,761,081 1,828,182 2,830,946 3,005,136
Stockholders' equity....................... 737,545 1,022,545 1,174,180 1,838,915
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
--------------------------
As
1995 Actual(2) Adjusted(6)
---- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data (at end of period):
Working capital............................ $1,510,277 $ 1,904,277 $ 8,904,277
Total assets............................... 9,544,136 13,020,886 13,277,701
Long-term debt............................. 477 -- --
Total debt................................. 3,537,357 5,309,252 --
Stockholders' equity....................... 2,631,788 3,170,421 10,170,421
</TABLE>
- --------------------
(1) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" as if such events had occurred on
January 1, 1995. The pro forma data do not purport to represent what the
Company's results of operations actually would have been if the foregoing
transactions had actually occurred as of such date or what such results
will be for any future periods. See "Unaudited Pro Forma Financial Data."
(2) Gives effect to the acquisition of DDP by the Company on May 30, 1996.
(3) Gives pro forma effect to (i) the acquisition of DDP by the Company, and
(ii) the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" as if such transactions had occurred on
January 1, 1995. See "Unaudited Pro Forma Financial Data."
(4) Gives pro forma effect to the sale by the Company of 1,000,000 shares of
Common Stock pursuant to the Offering as if such transaction had occurred
at the beginning of the fiscal period.
(5) Sales per employee are based on 74, 78, 97, 106, 108, 118, 108, 118 and
118 employees for the years ending 1991, 1992, 1993, 1994, 1995, pro forma
1995, for the six months ended June 30, 1995 and 1996, and for the pro
forma six months ended June 30, 1996, respectively.
(6) Gives pro forma effect to the sale by the Company of 1,000,000 shares of
Common Stock pursuant to the Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds" as if such
transactions had occurred on such date. See "Unaudited Pro Forma Financial
Data."
23
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1995 gives effect to (i) the acquisition of DDP by the
Company, and (ii) the Offering and the application of the net proceeds therefrom
as described under "Use of Proceeds" as if such transactions had occurred on
January 1, 1995. The Unaudited Pro Forma Consolidated Statement of Operations
for the six months ended June 30, 1996 gives effect to (i) the acquisition of
DDP by the Company, and (ii) the Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds" as if such transactions
had occurred on January 1, 1995. The unaudited pro forma financial data are
based on the historical financial statements of the Company and DDP and the
assumptions and adjustments described in the accompanying notes. The Unaudited
Pro Forma Consolidated Statements of Operations do not purport to represent what
the Company's results of operations actually would have been if the foregoing
transactions occurred as of the dates indicated or what such results will be for
any future periods.
The Unaudited Pro Forma Consolidated Balance Sheet at June 30, 1996 gives
effect to the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" as if it had occurred on June 30, 1996.
The unaudited pro forma financial statements are based upon assumptions
that the Company believes are reasonable and should be read in conjunction with
the Consolidated Financial Statements of the Company and the accompanying notes
thereto included elsewhere in this Prospectus.
24
<PAGE>
Unaudited Pro Forma Consolidated Statement Of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Transactions The
The Historical and Other Company
Company DDP Adjustments Pro Forma
-------- ---------- ------------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales..................................... $43,321 $13,357 $ -- $ 56,678
Cost of sales................................. 34,642 12,139 -- 46,781
------- ------- ----- ----------
Gross profit................................ 8,679 1,218 9,897
Selling, general and
administrative expenses...................... 7,125 1,016 -- 8,141
Non-cash compensation expense................. -- -- 280(4) 280
------- ------- ----- ----------
Operating income.............................. 1,554 202 280 1,476
Interest expense.............................. 274 167 (441)(1) --
Other income.................................. 22 5 -- 27
------- ------- ----- ----------
Income before income taxes.................... 1,302 40 161 1,503
Provision for income taxes.................... 509 21 64(2) 594
------- ------- ----- ----------
Net income.................................. $ 793 $ 19 $ 97 $ 909
======= ======= ===== ==========
Pro forma net earnings per
share of common stock(3).................... $0.27
=====
Pro forma weighted average
number of shares of
common stock outstanding(3)................. 3,388,000
=========
</TABLE>
- ------------------
(1) Represents the elimination of interest expense due to the use of the
proceeds from the Offering to repay the Company's indebtedness.
(2) Represents the increase in the provision for income taxes required as a
result of increased pro forma income before taxes as a result of the above
adjustment.
(3) Pro forma net earnings per share has been computed using the weighted
average number of common shares outstanding during the period presented,
adjusted for the Offering.
(4) Represents the non-cash compensation expense related to the stock awards
granted by LLC to certain employees which vest immediately upon the
Offering. See "Business - Overview."
25
<PAGE>
Unaudited Pro Forma Consolidated Statement Of Operations
Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Historical
DDP
for the period
January 1, Transactions The
The 1996 to and Other Company
Company(1) May 30, 1996 Adjustments Pro Forma
----------- -------------- -------------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales.................................. $26,247 $ 5,363 $(145)(2) $31,465
Cost of sales.............................. 21,162 4,934 (118)(2) 25,978
------- ------- ------ -------
Gross profit............................. 5,085 429 (27) 5,487
Selling, general and
administrative expenses................... 4,033 335 -- 4,368
------- ------- ------ -------
Operating income........................... 1,052 94 (27) 1,119
Interest expense........................... 142 63 (205)(3) --
-------
Other income............................... 11 -- -- 11
------- ------- ------ -------
Income before income taxes................. 921 31 178 1,130
Provision for income taxes................. 382 16 75(4) 473
------- ------- ------ -------
Net income................................. $ 539 $ 15 $ 103 $ 657
======= ======= ====== =======
Pro forma net earnings per
share of common stock(5).................. $ 0.19
=======
Pro forma weighted average
number of shares of common
stock outstanding(5)...................... 3,388,000
=========
</TABLE>
- --------------------------------
(1) Includes the results of operations of DDP from the date of acquisition,
May 30, 1996.
(2) Represents the elimination of net sales and cost of sales activity between
the Company and DDP for the period January 1, 1996 to May 30, 1996.
(3) Represents the elimination of interest expense due to the use of the
proceeds from the Offering to repay the Company's indebtedness.
(4) Represents the increase in the provision for income taxes required as a
result of increased pro forma income before taxes as a result of the above
adjustments.
(5) Pro forma net earnings per share has been computed using the weighted
average number of common shares outstanding during the period presented,
adjusted for the Offering.
26
<PAGE>
Unaudited Pro Forma As Adjusted Balance Sheet
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------------------
The
The Transaction Company
Company Adjustments Pro Forma
------------ ------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................................... $ 17,074 $ 1,690,748(1) $ 1,707,822
Accounts receivable-net ........................................ 7,403,110 -- 7,403,110
Inventories .................................................... 4,004,950 -- 4,004,950
Prepaid expenses ............................................... 91,067 -- 91,067
Deferred tax assets ............................................ 70,752 -- 70,752
------------ ------------ ------------
Total current assets .......................................... 11,586,953 1,690,748 13,277,701
Property and equipment - net of accumulated
depreciation ................................................... 577,890 577,890
Other assets:
Deposits ....................................................... 204,181 -- 204,181
Cash surrender value officers' life insurance .................. 426,582 -- 426,582
Intangible assets .............................................. 225,280 -- 225,280
------------ ------------ ------------
Total ....................................................... $ 13,020,886 $ 1,690,748 $ 14,711,634
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ................................................. $ 5,300,000 $ (5,300,000)(1) $ --
Accounts payable - trade ....................................... 3,522,609 -- 3,522,609
Accrued expenses, payroll taxes and withholdings ............... 850,815 -- 850,815
Accrued income taxes ........................................... -- -- --
Current portion of long-term debt .............................. 9,252 (9,252)(1) --
------------ ------------ ------------
Total current liabilities ................................... 9,682,676 (5,309,252) 4,373,424
Long-term debt ................................................... -- -- --
Other long-term liabilities ...................................... 103,400 -- 103,400
Deferred taxes ................................................... 64,389 -- 64,389
------------ ------------ ------------
Total liabilities ........................................... 9,850,465 (5,309,252) 4,541,213
Stockholders' equity:
Common stock ................................................... -- -- --
Additional paid-in capital ..................................... 304,951 7,000,000 (2) 7,304,951
Retained earnings .............................................. 3,160,196 (279,726)(3) 2,880,470
Unearned compensation .......................................... (279,726) 279,726 (3) --
------------ ------------ ------------
Treasury common stock ............................................ (15,000) -- (15,000)
------------ ------------ ------------
Total stockholders' equity ................................... 3,170,421 7,000,000 10,170,421
------------ ------------ ------------
Total liabilities and stockholders' equity ................... $ 13,020,886 $ 1,690,748 $ 14,711,634
============ ============ ============
</TABLE>
- -----------------------------------
(1) Represents the repayment of the Company's indebtedness and excess cash
resulting from the use of the proceeds from the Offering.
(2) Represents the estimated net proceeds from the Offering to the Company of
$7.0 million. See "Use of Proceeds."
(3) Represents the non-cash compensation expense related to the stock awards
granted by LLC to certain employees which vest immediately upon the
offering. See "Business - Overview."
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company and the notes thereto,
included elsewhere in this Prospectus.
Overview
The Company's past sales growth has been due, in part, to the acquisition
of four computer and office automation supply companies over the past five
years. The acquisition of DDP in May 1996 is expected to contribute to an
increase in the Company's net sales for the second half of 1996. The Company
intends to significantly increase the scope of its operations through additional
acquisitions. The Company continues to evaluate potential acquisitions and to
identify and have preliminary discussions with potential acquisition candidates,
although there are, as of the date of this Prospectus, no agreements,
arrangements or understandings between the Company and any other party relating
thereto. There can be no assurance that any acquisition can or will be
consummated on terms favorable to the Company, or at all.
Further competition in the non-impact printing supplies and projection
presentation products markets is expected to continue to have a negative effect
on the Company's gross profit percentage. While overall gross profit is expected
to increase as a result of the DDP acquisition, the Company's gross profit
percentage is expected to be lower as a result of increased competition and the
fact that DDP's profit margins are anticipated to be lower than the Company's
other core products.
LLC agreed to provide the three selling stockholders of DDP a stock
incentive so long as such stockholders remain employees of the Company. However,
all shares of common stock of the Company to be issued by LLC in connection with
this incentive will become immediately vested upon an initial public offering of
the Company's common stock. Accordingly, operating income will be negatively
affected by a non-cash compensation charge of $.3 million associated with such
awards at the closing of the Offering.
28
<PAGE>
In the second half of 1996, the Company's interest expense is expected to
be reduced as a result of the reduction in outstanding debt from the use of the
proceeds of the Offering. However, the Company's debt levels are expected to
increase to the extent the Company borrows funds to finance future growth,
particularly through acquisitions.
Results of Operations
As an aid to understanding the Company's operations on a comparative
basis, the following table has been prepared to set forth certain statement of
operations and other data for 1993, 1994 and 1995 and for the six months ended
June 30, 1995 and June 30, 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1993 1994 1995
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $29,045 100.0% $35,690 100.0% $43,321 100.0%
Cost of sales.................... 23,308 80.2 28,250 79.2 34,642 80.0
------ ----- ------ ----- ------ -----
Gross profit................ 5,737 19.8 7,440 20.8 8,679 20.0
Selling, general and
administrative expenses........ 5,221 18.0 6,219 17.4 7,125 16.4
------ ----- ------ ----- ------ -----
Operating income............ 516 1.8 1,221 3.4 1,554 3.6
Interest expense................. 141 .5 204 .5 274 .6
Other income..................... 12 -- 11 -- 22 --
------ ----- ------ ----- ------ -----
Income before income
taxes..................... 387 1.3 1,028 2.9 1,302 3.0
Provision for income taxes....... 165 .5 418 1.2 509 1.2
------ ----- ------ ----- ------ -----
Net income.................. $ 222 .8% $ 610 1.7% $ 793 1.8%
====== ===== ====== ===== ====== =====
Six Months
Ended June 30,
-----------------------------------------
1995 1996(1)
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Net sales........................ $21,377 100.0% $26,247 100.0%
Cost of sales.................... 16,941 79.2 21,162 80.6
------ ----- ------ -----
Gross profit................ 4,436 20.8 5,085 19.4
Selling, general and
administrative expenses........ 3,655 17.1 4,033 15.4
------ ----- ------ -----
Operating income............ 781 3.7 1,052 4.0
Interest expense................. 142 .7 142 .5
Other income..................... 5 -- 11 --
------ ----- ------ -----
Income before income
taxes..................... 644 3.0 921 3.5
Provision for income taxes....... 270 1.3 382 1.4
------ ----- ------ -----
Net income.................. $ 374 1.7% $ 539 2.1%
====== ===== ====== =====
</TABLE>
- ------------------
(1) Includes the results of operations of DDP from the date of acquisition,
May 30, 1996.
29
<PAGE>
Six Months Ended June 30, 1996 and 1995
Net sales. Net sales for the six months ended June 30, 1996 increased by
$4.9 million, or 22.8%, to $26.2 million from $21.4 million for the six months
ended June 30, 1995. This increase is primarily due to increased penetration at
existing customers as the sales force continues to strengthen relationships with
the Company's customer base, increased sales of presentation products and the
acquisition of DDP on May 30, 1996.
Gross profit. Gross profit for the six months ended June 30, 1996
increased by $0.6 million, or 14.6%, to $5.1 million from $4.4 million for the
six months ended June 30, 1995. Gross profit as a percentage of net sales for
the six months ended June 30, 1996 was 19.4% compared to 20.8% for the six
months ended June 30, 1995. The decrease in the gross profit percentage is due
primarily to increased sales of lower margin non-impact supplies (laser and ink
jet supplies), increased price competition for presentation products and lower
overall gross margins achieved by DDP as compared to the Company.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended June 30, 1996 increased by $0.4
million, or 10.3%, to $4.0 million from $3.7 million for the six months ended
June 30, 1995. As a percentage of net sales, selling, general and administrative
expenses was 15.4% for the six months ended June 30, 1996 compared to 17.1% for
the six months ended June 30, 1995. This decrease as a percentage of sales
reflects the Company's ability to support increased sales volumes without a
significant increase in its overhead structure.
Operating income. Operating income from operations for the six months
ended June 30, 1996 increased by $0.3 million to $1.1 million from $0.8 million
for the six months ended June 30, 1995 for the reasons stated above.
Other income. Other income for the six months ended June 30, 1996
increased by $5,628 to $11,114 from $5,486 for the six months ended June 30,
1995. This increase is due primarily to a gain on the disposal of a fixed asset.
Interest Expense. Interest expense for the six months ended June 30, 1996
increased by $785 or .6% to $142,587 from $141,802 for the six months ended June
30, 1995.
Provision for income taxes. The provision for income taxes for the six
months ended June 30, 1996 increased $0.1 million to $0.4 million from $0.3
million for the six months ended June 30, 1995. The Company's effective tax rate
was 41.5% for the six months ended June 30, 1996 as compared to 41.9% for the
corresponding period of the prior year.
30
<PAGE>
Years Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales. Net sales for the year ended December 31, 1995 increased by
$7.6 million, or 21.4%, to $43.3 million from $35.7 million for the year ended
December 31, 1994. Of this net sales increase, $2.4 million or 31.6% of the
increase was attributable to the Company's acquisition of Paper Rolls in June
1994. The remaining increase was primarily a result of increased sales
penetration and product offerings to existing customers.
Gross profit. Gross profit for the year ended December 31, 1995 increased
by $1.2 million, or 16.7%, to $8.7 million from $7.4 million for the year ended
December 31, 1994. Gross profit as a percentage of net sales for the year ended
December 31, 1995 was 20.0% compared to 20.8% for the year ended December 31,
1994. The decrease in the gross profit percentage was due primarily to increased
sales of non-impact printer supplies (laser and ink jet supplies) which have
lower gross margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1995 increased by $0.9
million, or 14.6%, to $7.1 million from $6.2 million for the year ended December
31, 1994. This increase was primarily a result of increased commissions due to
the Company's increased sales volume. As a percentage of net sales, selling,
general and administrative expenses was $16.4% for the year ended December 31,
1995 compared to 17.4% for the year ended December 31, 1994. This decrease as a
percentage of sales reflects the Company's ability to support increased sales
volumes without a significant increase in its overhead structure.
Operating income. Operating income for the year ended December 31, 1995
increased by $0.3 million to $1.6 million from $1.2 million for the year ended
December 31, 1994 for the reasons stated above.
Other income. Other income for the year ended December 31, 1995 increased
to $21,722 from $10,767 in 1994. This increase is due primarily to interest
income.
Interest expense. Interest expense for the year ended December 31, 1995
increased by $0.1 million, or 34.3%, to $0.3 million from $0.2 million for the
year ended December 31, 1994. This increase was due primarily to an increase in
the interest rate associated with the Company's short-term line of credit and to
a lesser extent an increase in amounts outstanding under the line of credit.
Provision for income taxes. The provision for income taxes for the year
ended December 31, 1995 increased $0.1 million to $0.5 million from $0.4 million
for the year ended December 31, 1994. The Company's effective tax rate was 39.1%
for the year ended December 31, 1995 compared to 40.7% for the year ended
December 31, 1994.
31
<PAGE>
Years Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales. Net sales for the year ended December 31, 1994 increased by
$6.6 million, or 22.9%, to $35.7 million from $29.0 million for the year ended
December 31, 1993. Of this net sales increase, $1.6 million or 24.2% of this
increase was attributable to the acquisition of Paper Rolls and Computer
Supplies, Inc. ("Paper Rolls") in June 1994 and $1.1 million or 16.7% of this
increase was related to the acquisition of Datron Computer Products, Inc.,
Rochester, New York ("Datron") in May 1993. The remaining increase was related
primarily to increased sales to the Company's current customer base for both
existing products and new product offerings.
Gross profit. Gross profit for the year ended December 31, 1994 increased
by $1.7 million, or 29.7%, to $7.4 million from $5.7 million for the year ended
December 31, 1993. Gross profit as a percentage of net sales for the year ended
December 31, 1994 was 20.8% compared to 19.8% for the year ended December 31,
1993. The increase in gross profit was attributable primarily to the
acquisitions of Paper Rolls and Datron and the additional products that the
Company was able to offer, as well as an increase in the sale of presentation
products.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1994 increased by $1.0
million, or 19.1%, to $6.2 million from $5.2 million for the year ended December
31, 1993. The increase in selling, general and administrative expenses was due
primarily to increased sales commissions and higher salaries related to the
increased number of employees resulting from the acquisition of Paper Rolls and
Datron. As a percentage of net sales, selling, general and administrative
expenses were 17.4% for the year ended December 31, 1994 compared to 18.0% for
the year ended December 31, 1993. This decrease as a percentage of net sales was
due primarily to improvements made to the Company's information systems which
allowed the Company to support its increased sales activity with existing
staffing levels.
Operating income. Operating income for the year ended December 31, 1994
increased by $0.7 million to $1.2 million from $0.5 million for the year ended
December 31, 1993.
Other income. Other income for the year ended December 31, 1994 decreased
$973 or 8.3% to $10,767 from $11,740 for the year ended December 31, 1993.
Interest expense. Interest expense for the year ended December 31, 1995
increased 44.7% to $0.2 million from $0.1 million in 1993. The increase was
attributable primarily to increased amounts outstanding under the Company's
short-term line of credit and to a lesser extent to an increase in the related
interest rate.
Provision for income taxes. Income tax expense for the year ended December
31, 1994 increased $0.3 million to $0.4 million from $0.2 million for the year
ended December 31,
32
<PAGE>
1993. The Company's effective tax rate was 40.7% for the year ended December 31,
1994 compared to 42.6% for the year ended December 31, 1993.
Liquidity and Capital Resources
Net cash used in operating activities for the six months ended June 30,
1996 was $0.2 million and was primarily due to an increase in accounts
receivable, partially offset by a decrease in inventories and an increase in
accounts payable excluding the effects of the DDP acquisition.
Net cash used in operating activities for the year ended December 31, 1995
was $0.1 million compared to cash provided by operating activities for the year
ended December 31, 1994 of $0.7 million. The net cash used in operating
activities for the year ended December 31, 1995 resulted primarily from an
increase in inventories and accounts receivable and a decrease in accounts
payable. The net cash provided by operating activities for the year ended
December 31, 1994 resulted primarily from an increase in accounts payable,
offset by an increase in accounts receivable and inventories. The use of cash in
operating activities for the year ended December 31, 1993 resulted from an
increase in accounts receivable and a decrease in accounts payable.
Cash provided by investing activities for the six months ended June 30,
1996 was $.04 million due primarily to cash obtained in connection with the
acquisition of DDP. Cash used in investing activities for the years ended
December 31, 1993, 1994 and 1995 was $0.3 million, $0.7 million and $0.4
million, respectively. The use of cash for the years December 31, 1993 and 1994
was due primarily to the acquisition of Datron and Paper Rolls, respectively.
The use of cash for the year ended December 31, 1995 was due to capital
expenditures and investments in officer life insurance policies.
Cash provided by financing activities for the six months ended June 30,
1996 was $0.2 million and was $0.7 million, $0.1 million and $0.4 million for
the years ended December 31, 1993, 1994 and 1995, respectively. Cash provided by
financing activities for such periods resulted primarily from borrowings under
the Company's line of credit.
For fiscal 1996, the Company expects capital expenditures of approximately
$0.3 million (comprised of approximately $0.1 million to be used for upgrading
and enhancing the Company's MIS and approximately $0.2 million for maintenance
capital items). Actual capital expenditures for fiscal 1996 may be greater than
budgeted amounts depending on the level of acquisition activity and other
factors.
The Company believes that its cash on hand, borrowing capacity under the
Credit Facility, capital resources, cash flows and the proceeds from the
Offering will be sufficient to fund its ongoing operations and budgeted capital
expenditures for the remainder of 1996 and 1997, although actual capital needs
may change, particularly in connection with acquisitions which the Company may
make in the future. The Company's long-term
33
<PAGE>
requirements including capital expenditures and acquisitions, are expected to be
financed by a combination of internally generated funds, additional borrowings
and other sources of external financing as needed.
Credit Facility
In September 1996, the Company increased its line of credit with the Bank
from $6.5 million to $15.0 million in order to facilitate the planned expansion
of the Company's business activities, including acquisitions. The Credit
Facility matures on September 11, 1998.
The amount of the Credit Facility that will be available to the Company
may not exceed the lesser of $15.0 million or an amount equal to the sum of:
(i) 85.0% of the net book value of all eligible receivables (i.e., those
receivables less than 90 days old, except that all receivables from any
particular customer will be ineligible if more than 15.0% of the total due from
such customer are aged 90 days or more) plus (ii) an amount equal to the lesser
of either 50.0% of the then value of all inventory, not to exceed 45.0% of the
aggregate unpaid principal balance less the amount secured by inventory acquired
by the Company from Hewlett-Packard and not yet paid for, or if advances are
made against foreign account receivables, not to exceed $2.0 million (the
"Borrowing Base").
The Borrowing Base may be changed by the Bank, in its sole discretion,
from time to time. Borrowings under the Credit Facility bear interest, at the
Company's option, (i) on amounts in excess of $500,000, at the applicable London
Interbank Offered Rate ("LIBOR") per annum determined by the Bank plus 2.0%,
adjustable at the end of each contract period (one, two, three, four or six
months), as defined in the Credit Facility, or (ii) at the Bank's applicable
prime rate (as defined in the Credit Facility). Interest on the Credit Facility
is payable in arrears on the last day of each month and at maturity, except that
interest on loans bearing interest utilizing the LIBOR option is payable on the
last day of the contract period and at maturity, unless the contract period is
longer than 90 days in which case interest is payable every three months.
The Company's ability to utilize the LIBOR option is subject to certain
conditions set forth in the Credit Facility, including the condition that the
LIBOR option must adequately compensate the Bank for making such loan. If the
interest option selected by the Company is deemed ineffective by the Bank, the
Company will be required to pay the Bank interest at the prime rate until an
effective LIBOR election is made. Amounts under the Credit Facility are
available for borrowings and stand-by letters of credit to finance the Company's
working capital requirements and acquisitions. The Company believes that the
amount currently available for borrowing by the Company is $10.2 million, which
the Company believes to be sufficient to fund its current operations. Under the
terms of the Credit Facility, the Company must pay the Bank a quarterly
commitment fee of .25% of the daily difference between $15.0 million and the
aggregate unpaid principal outstanding balance under the Credit Facility.
34
<PAGE>
The principal amount of the Credit Facility may be prepaid without premium
or penalty unless the amount prepaid is subject to the LIBOR option, in which
event the Company would be obligated to pay to the Bank accrued interest, if
any, and a premium based on the principal amount paid and computed for the
period from the date of the last day of the contract period for the amount
subject to the LIBOR option at a rate equal to the excess, if any, of the LIBOR
rate over the bond equivalent yield for U.S. Treasury debt securities for a term
similar to the contract period. Moreover, if, in the Bank's opinion, any event
has occurred which increases the cost of funding or maintaining the LIBOR option
or reduces the amount of any payment to be made to the Bank in respect thereof,
the Company will be obligated to pay to the Bank an amount equal to such cost
increase or reduced payment, as the case may be, and the Company must also pay
to the Bank any amount which reduces the Bank's rate of return and requires the
Bank to increase its capital.
The indebtedness under the Credit Facility is secured by substantially all
of the assets of the Company, including accounts receivable, equipment and
inventory. In addition, the Credit Facility requires that the Company maintain a
tangible net worth of $2.7 million until December 31, 1996, increasing to $3.2
million and thereafter increasing by an amount equal to 50.0% of the Company's
net income annually thereafter, maintain a debt to tangible net worth ratio of
450.0% and annual pre-tax interest coverage (net income plus interest expense
plus income tax) of 150.0% or more of the Company's annual interest expense. The
Company was, at June 30, 1996, and is as of the date hereof, in compliance with
these financial covenants.
Events of default under the Credit Facility include, among other things,
the failure to pay interest and/or principal when due, the failure of the
representations or warranties of the Company to be true and correct, the failure
or repudiation of the performance of the Credit Facility by the Company, any
default of the Company on any other indebtedness where such creditor has the
right to accelerate the maturity of such indebtedness, the entry of any judgment
against the Company, the failure of the Company to provide information to the
Bank, the use of the proceeds of the Credit Facility for any purpose not in the
ordinary course of the Company's business or the occurrence of any event which,
in the Bank's judgment, is likely to have a material adverse effect on the
financial condition, properties or business operations of the Company, or if the
Bank believes that the prospect of payment or the performance of any obligation
evidenced by the Credit Facility is impaired. The occurrence of an event of
default will give the Bank the right to immediately terminate the Credit
Facility and declare any indebtedness outstanding thereunder immediately due and
payable.
The Credit Facility further states that it will be an event of default if
the Company, without first providing to the Bank prior written notice: (i) uses
advances under the Credit Facility to acquire less than a majority interest in
any company or venture; (ii) becomes a party to any merger or consolidation,
purchases all of the assets or business of any corporation or business
enterprise, creates or acquires any subsidiary or makes any investment in any
stock or other equity securities of any kind; or (iii) becomes a party to any
35
<PAGE>
joint venture or partnership, sells or transfers any equity interest in any
subsidiary, or issues any equity interest. Moreover, the Company may not, except
in connection with certain acquisition transactions, without the Bank's prior
consent, make loans or advances to others or borrow any money unless it is
subordinated to borrowings under the Credit Facility, or become a guarantor of
any kind.
Inflation
Certain of the Company's product offerings, particularly paper products,
have been and are expected to continue to be subject to significant price
fluctuations due to inflationary and other market conditions. The Company is
generally able to pass such increased costs on to its customers through price
increases, although the Company may not be able to adjust its prices
immediately. In general, the Company does not believe that inflation has had a
material effect on its results of operations in recent years, and the Company
believes that technological advances have caused its prices on certain products
to decrease.
Inventory Management
The Company manages its inventory by maintaining sufficient quantities of
the most frequently ordered products to achieve high order fill rates while at
the same time attempting to maximize inventory turnover rates. The Company does
not maintain any inventory of certain items, which items, when ordered from the
Company are drop-shipped (i.e., shipped from the manufacturer's loading dock)
directly to the Company's customers. While the Company sells more than 12,900
stock keeping units ("SKUs") or items of merchandise, approximately 1,800 SKUs
account for approximately 70.0% of the Company's revenues. Consequently, the
Company is continually attempting to identify slow moving inventory by use of
its computer software applications and delete those SKUs whenever possible in
order to maximize inventory turns. Inventory balances will fluctuate as the
Company adds new product lines, when it makes large purchases from suppliers to
take advantage of attractive terms and when certain inventory items are deleted.
The Company permits its customers to return defective products (most of
which are then returned by the Company to the manufacturer) and incorrect
shipments for credit against other purchases. During the last three years and
for the six months ended June 30, 1996, the Company's net expense for returns of
the Company's consumable supply products has not been material. To reduce the
risk of loss to the Company due to manufacturer price reductions and slow moving
or obsolete inventory, the Company's agreements with certain manufacturers,
including most of its major suppliers, contain provisions which permit "stock
balancing" (the return of certain products) and price protection, subject to
certain restrictions, pursuant to which the Company obtains credit against
future purchases if the inventory is not sold or if the manufacturer lowers
prices on previously purchased inventory. See "Business - Suppliers."
Recent Accounting Changes
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 established standards for
accounting for stock-based compensation but also allows companies to continue to
account for stock-based compensation under the provisions of Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees" and make certain additional disclosures in the notes to their
financial statements. The new standard is effective for fiscal years beginning
after December 15, 1995. It is the Company's intention to continue to account
for stock-based compensation in accordance with APB Opinion No. 25 and provide
the additional required disclosure in the notes to the consolidated financial
statements.
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BUSINESS
Overview
The Company is a distributor of computer and office automation supplies
and accessories, including a line of computer projection presentation products,
principally in the midwest and northeast regions of the United States and in
certain foreign countries. The Company distributes over 1,800 different core
products to middle market and smaller companies and to governmental, educational
and institutional end-user customers, including federal, state and local
governmental agencies, universities and hospitals and, to a lesser extent, to
computer supply dealers. An end-user is the final customer in the chain of
distribution who will utilize the product sold by the Company.
The Company's growth in sales is due primarily to the acquisition of four
computer and office automation supply companies over the past five years as well
as the high level of customer satisfaction which the Company attributes to the
following factors: personal service using a highly knowledgeable and motivated
sales force; fulfillment of customer orders on an overnight basis; use of the
most economic and expeditious shipping routes; and automated procedures for
inventory control, order picking and billing which are supported by the
Company's proprietary computer software applications. The Company plans to
continue to focus on achieving a high level of customer satisfaction and intends
to emphasize the acquisition of other computer and office automation supply
companies to increase its sales growth and expand its presence in other markets.
The Company believes that it has a lower selling and administrative
expense structure due to its ability to sell without the use of retail locations
and its ability to limit its products line solely to computer supplies. The
Company believes that its lower selling and expense structure afford it a
competitive advantage over traditional contract stationers and large office
suppliers. Management believes that the Company is the largest independent
end-user computer and office automation supply distributor in the country.
The Company sells primarily nationally known, name-branded products
manufactured by approximately 500 original equipment manufacturers, including
Hewlett-Packard, Lexmark and Imation for computer supplies and by Proxima, Epson
and LightWare for projection presentation products. The Company's products
include consumable supplies such as laser toner, copier toner, facsimile machine
supplies, ink jet cartridges, printer ribbons, diskettes, computer tape
cartridges and accessories, including cleaning kits and media storage files, and
computer projection presentation hardware which permits the large-scale, high
resolution projection of computer generated slides for presentation at meetings,
seminars, lectures and other similar multiple person gatherings. The Company's
products are used in, or in conjunction with, a broad range of computer and
office automation products such as mainframe, mini, personal, laptop and
notebook computers, laser and ink jet printers, photocopiers, fax machines and
data storage products.
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The Company's customers place orders directly with one of the Company's
sales representatives, by telephone, facsimile or by EDI, utilizing the
Company's customized facsimile order forms or its comprehensive catalog. Very
Important Customers ("VICs") are given priority treatment by the Company.
The Company operates one centralized distribution center in Dayton, Ohio
and three smaller regional distribution centers in Rochester, New York,
Louisville, Kentucky and Ann Arbor, Michigan. Each of the Company's other 15
sales offices also maintain a limited inventory of frequently ordered products
in order to facilitate same day delivery. Most of the Company's U.S. shipments
are shipped via either United Parcel Service ("UPS") or Roadway Package System
("RPS"), both of which provide a discounted rate to the Company which enables
the Company to offer to its customers next business day or second business day
delivery. The Company charges its customers delivery rates based on the
customer's purchase and on competition on a local and national level.
The Company was founded in March 1981 by Thomas C. Winstel and Richard A.
Newkold, both of whom were previously employed as computer supply salesmen with
another company. Net sales in 1981 were $187,000. By 1987, annual sales had
reached approximately $3.5 million and the Company hired Albert L. Schwarz to
provide the Company with professional executive guidance. The Company's first
acquisition was an asset purchase in 1991. In April 1993, the Company acquired
for cash 100.0% of the outstanding shares of Datron. At that time, Datron's
annual net sales were approximately $2.5 million. In June 1994, the Company
acquired for cash the assets and assumed certain liabilities of Paper Rolls. At
that time, Paper Rolls' annual net sales were approximately $3.2 million. For
continuity and local name recognition purposes, each of Datron and Paper Rolls
is represented to the public to be a "division" of the Company, although there
are no internal consequences of such nomenclature. In both acquisitions, the
Company was able to retain existing senior management by entering into
non-competition and employment agreements, although in the Datron acquisition,
the chief executive officer and sole stockholder of Datron did not remain. In
May 1996, the Company acquired DDP, a computer and office automation supply
company, which purchases and sells products in the domestic and international
wholesale marketplace. The Company intends to implement an aggressive
acquisition program after the Offering. See "--Business Strategy - Acquisition
Strategy."
Prior to May 30, 1996, the Company was closely held by ten stockholders,
including Messrs. Albert L. Schwarz, Thomas C. Winstel, Richard A. Newkold,
Roger E. Turvy, and John C. Huffman, III, all of whom are officers of the
Company, and by five other individuals, four of whom were employees of the
Company and one of whom was the Company's corporate counsel. On April 25, 1996,
the Company, the above-named officers and the corporate counsel entered into a
Stock Purchase Agreement (the "Agreement") with LLC to sell 70.0% of the
Company's issued and outstanding common stock to LLC for $8.0 million,
consisting of cash in the amount of $4.0 million to be paid at the closing of
the Agreement and two year, 8.0% senior promissory notes of LLC (the "LLC
Notes")
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aggregating $4.0 million, secured by the common stock of the Company. The LLC
Notes provide that they will become immediately due and payable on the date that
the Company consummates an initial public offering of its Common Stock. The
Agreement was closed on May 30, 1996, and, at that time, three nominees of LLC
became members the Board of Directors of the Company.
LLC is a Maryland limited liability company whose members include Anthony
W. Liberati, the Manager-President and Chief Executive Officer of LLC and the
Chairman of the Board of the Company, Robert G. Hecht, Vice Chairman of the
Board and a director of the Company, Harry F. Radcliffe, the Manager - Secretary
of LLC and a director of the Company, Michael E. Peppel, the Manager - Treasurer
of LLC, the Chief Financial Officer of the Company and a former stockholder and
officer of DDP, the FBR Private Equity Fund, L.P., an affiliate of the
Underwriter, and the EMTH Partner Investment Fund I, a general partnership
composed of certain members of the Company's special counsel.
On May 20, 1996, LLC executed a Stock Purchase Agreement (the "DDP
Agreement") with DDP and its three stockholders, Messrs. Joseph R. Hollenshead,
III, David J. White and Peppel (who also were the directors and executive
officers of DDP) to acquire 100.0% of the issued and outstanding shares of DDP
common stock. The DDP Agreement provided that LLC would acquire the business of
DDP and that at the time of such acquisition the assets of DDP would be equal to
its liabilities. In consideration therefor, LLC agreed to loan to each of
Messrs. Hollenshead and White $125,000 for a term of one year with interest at
5.0%, the principal and interest to be due at maturity. Pursuant to the DDP
Agreement, if DDP generates pre-tax income of $250,000 during the year ended
December 31, 1996, LLC will cancel such loans.
It was the intent of LLC to combine the businesses of DDP and the Company.
Accordingly, LLC provided the DDP stockholders an opportunity to invest in LLC
on the same terms as other LLC investors and negotiated with the management of
the Company to hire the officers of DDP as officers of the Company. In addition,
LLC agreed to provide the three officers of DDP with a stock incentive in the
Company so long as such officers remain employees of the Company (or of DDP, as
a subsidiary of the Company, as applicable), for the years ended December 31,
1996, 1997 and 1998. Under the DDP Agreement, LLC agreed to transfer to each of
the officers of DDP 4,180 shares of Common Stock of the Company at December 31,
1996, 6,855 shares of Common Stock at December 31, 1997, and 5,685 shares of
Common Stock to each of Messrs. Hollenshead and White, and 14,045 shares of
Common Stock to Mr. Peppel, at December 31, 1998. Upon the consummation of this
Offering, all of such shares will become immediately vested in such individuals.
The DDP Agreement was also consummated on May 30, 1996. On that date, LLC
contributed 100.0% of the common stock of DDP to the Company, resulting in DDP
becoming a wholly owned subsidiary of the Company.
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The Computer Supply Industry
The Company estimates that the U.S. computer and office automation supply
market totaled approximately $25.1 billion (at retail) in 1995 and that the U.S.
market for projection presentation products totaled approximately $3.0 billion
in 1995. Industry sources indicate that the U.S. market for computer and office
automation supplies will grow at a compound annual rate of approximately 6.8%
over the next three years. The Company believes that the current size of the
industry and its potential for future growth can be attributed to: (i) the
increasing automation of the workplace as evidenced by the widespread use of
personal computers ("PCs"), printers and computer network systems, (ii) the
decline in unit prices of computer hardware and peripherals, making them more
affordable to small and medium sized business and individuals, and (iii) the
growth in business presentation and graphic software, which results in more
frequent and repeated use of printers, which typically require a greater amount
of consumable products, and in the use of projection presentation hardware.
The Company believes that advances in printing technologies will further
increase the demand for consumable computer supplies. Printer manufacturers have
lowered the prices of their printers in order to establish a large installed
base. Such companies have come to view the sale of the printer as the
commencement of a relationship with the customer who typically must spend, over
the life of the printer, twice as much on consumable goods as the cost of the
printer itself. Further, color printing, which is expected to grow by
approximately 27.0% per year over the next five years, will further drive the
consumption of supplies. The page coverage or amount of ink used on a
traditional black and white printed page of text is approximately 5.0% of the
page. In contrast, color printing typically covers at least 40.0% of the page,
using significantly more color toner or ink jet supplies which are approximately
25.0% more expensive than black toner or inkjet cartridges.
Industry sources estimate that the market for projection presentation
products was approximately $3.0 billion in 1995 and was growing at a rate of
approximately 30.0% per year. While advances in technology continue to exert
downward pricing pressure on the manufacturers who compete in this market, the
projection presentation products are priced at retail in the range of $2,000 to
$8,000 and currently provide for gross margins higher than other products sold
by the Company.
The Company believes that the role of distributors in the computer and
office automation supply industry has increased in importance in recent years as
an increasing number of end-users find that their need for computer supplies
have increased dramatically and the number of products to choose from and issues
of compatibility of products have proliferated. The Company is able to serve
such users by maintaining a knowledgeable and skilled direct and telephone
marketing sales force and by maintaining the capability of filling most orders
on the same or next business day with delivery on the next business day.
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The Company's Market
The Company believes that its primary market consists of small and medium
size businesses and, to a lesser extent, large businesses, governments and
institutions. The small business segment consists of small businesses having 20
or fewer white-collar employees which has traditionally been served by small
independent retailers located in close proximity to these customers and who
generally sell at the manufacturer's suggested list prices. More recently, this
segment has been targeted by the retail office products superstores and direct
mail order companies, seeking to increase market share by offering lower prices
and a wider product selection. The medium size business segment of this market
consists of a broad range of business and other office automation product users
having 20 to 100 white collar employees. This segment has been historically
serviced by traditional contract stationers and full-service office products
distributors, and to a lesser extent by small local retailers and direct mail
order companies. The Company believes that such companies do not provide all of
the services that these small and medium size businesses need or desire, such as
customized account histories which can tell customers about their order
histories, customized billing and customized packing and shipping to achieve the
most economical and efficient mode of transport and processing prioritization
for the Company's VICs, all of which are offered by the Company.
See "-Products" and "- Management Information Systems."
The large business segment of the market consists of businesses,
governments and institutions having more than 100 white-collar employees which
have historically been served primarily by traditional contract stationers and
full service office products distributors. These customers, many of which
operate at multiple locations, seek competitively priced products, a high level
of value-added service including next day delivery and account relationship
management, credit terms and other information services. Although many of these
organizations have a centralized purchasing function for office and computer
supplies, the Company has found through experience, that such function does not
always serve all departments of these organizations and that certain purchasing
authority has become decentralized. As a result, the Company's sales force
attempts to visit the central purchasing manager as well as the computer network
manager at the subject organization, the PC coordinator, the facilities manager
and the office manager at the subject organization, each of whom may have
different computer supply needs and may have a budget to fulfill such needs.
The Company operates in all business segments of the computer and office
automation supply distribution industry, which the Company believes will
generate approximately $26.8 billion in total U.S. annual sales in 1996.
Historically, the corporate computer supply and office automation distribution
segment has been populated by numerous contract stationers and computer supply
companies, most of which operate in only one metropolitan area and have annual
sales of less than $15.0 million. However, as the computer and office automation
supply distribution industry continues to rapidly consolidate, in large measure
as a result of the consolidation of the office products industry, the Company
believes that many smaller companies will be unable to effectively compete and
will stagnate, be acquired
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by larger companies or will be closed. The Company believes that it is the
largest independent computer and office automation supply company in the United
States. See "- Competition."
Unlike the computer hardware or office equipment industry, the Company
believes that the computer and office automation supply industry is not
generally subject to the risk of rapid technological advances and subsequent
product obsolescence. In general, the demand for computer supplies is not
dependent on the level or type of computer hardware or office equipment sales in
any particular year, but rather reflects the amount and type of equipment
already in use (the "installed base"). As a result, the consumable needs for any
particular computer or office equipment will often continue for an extended
period of time, even after the manufacture of such computer or office equipment
is discontinued. For example, the Company expects that sales of all-in-one toner
cartridges for the Hewlett-Packard Series II laser printer engine are projected
to continue through 1997 even though this particular laser printer engine was
discontinued by the manufacturer in late 1992. Nevertheless, the Company
attempts to insulate itself from the risk of technological obsolescence faced by
manufacturers by: (i) distributing a wide range of brand-name products so that
the Company is not dependent upon the success of any particular computer or
office equipment manufacturer, (ii) carrying primarily consumable supplies for
computer or office equipment which the Company believes has a substantial
installed base, and (iii) entering into agreements with major suppliers under
which the Company can return slow-moving inventory.
Business Strategy
The Company believes that its growth has been primarily attributable to
the Company's acquisition strategy as well as the efforts of its highly trained
and highly motivated direct sales force which engages, on a daily basis, in
face-to-face sales calls with the Company's customers, and to a lesser extent,
in telephone direct marketing. Using the Company's sophisticated, on-line data
base, the Company's salespeople are able to access their customer's sales
history (which includes quantity, price and margin information) and provide the
customer with individualized price and quantity quotations at the time of the
call. This system allows the salesperson maximum flexibility when responding to
customer inquiries and concerns, especially those relating to pricing and
delivery. The Company believes that this ability to be immediately responsive to
the customer's needs provides the Company with a competitive advantage. The
Company also attributes its growth to its wide selection of popular products at
competitive prices, its precise, double-checked picking and packing ability,
same day order processing and shipment, same or next business day delivery and
the quality and breadth of its value-added customer services, such as its VIC
priority treatment, customized billing, customer-dedicated account
representatives, and automated order tracking.
The Company business strategy seeks to build on its strengths as a sales
and service oriented business to increase its market share and achieve continued
sales and earnings
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growth. In particular, the Company intends to implement its strategy by:
(i) expanding the scope of its operations, primarily through strategic
acquisitions of computer and office automation supply distribution companies in
metropolitan markets in the United States and overseas; (ii) increasing its
revenues from its existing and new customer base; and (iii) decreasing its
expenses by utilizing technology to enhance the efficiency of its operations.
Acquisition Strategy. Since 1991, the Company has acquired three operating
computer and office automation supply companies and the assets of a fourth such
business. In August 1991, the Company purchased for $125,000 the inventory of
Datawares Computer and Word Processing Supplies, Inc., Pittsburgh, Pennsylvania
("Datawares") from Datawares' lender. In that transaction, the Company acquired
Datawares' right to distribute products for Hewlett-Packard and obtained
Westinghouse Electric Corporation as a customer. On May 1, 1993, the Company
purchased the stock of Datron for cash in the amount of $133,917 and assumed
liabilities of $394,268 plus payments totaling $512,400 over a five year period
ending on May 1, 1999 for an agreement with the former owner not to compete. If
the Datron gross margin exceeds $931,636 on an annual basis through June 15,
1999, the Company is obligated to make additional annual payments equal to 11.0%
of such excess, not to exceed $17,520 in any one year. No additional payments
were made in 1994 or 1995. In addition, the Company entered into a one year
employment agreement with Datron's sole stockholder for a salary of $121,000.
Datron's revenues for the 12 months ended April 30, 1993 were approximately $2.8
million. The Company purchased the assets of Paper Rolls on July 1, 1994 for
cash of $505,986 and agreed to pay $72,000 over a four year period beginning
July 1, 1994 for agreements with the former owners not to compete and for
goodwill. In addition, the Company entered into four year employment agreements
with the owners of Paper Roll, including, John Schwarz, Jr. and Robert Schwarz,
requiring annual payments, beginning July 1, 1994, of $112,000. Revenues for
Paper Rolls for the twelve months ended June 30, 1994 totaled approximately $3.3
million. In May 1996, LLC acquired DDP from its stockholders and contributed
100.0% of the stock of DDP to the Company. The Company received assets of DDP
totaling $2.7 million and assumed liabilities of DDP totaling $2.7 million.
Revenues for DDP for the 12 months ended May 30, 1996 were $12.7 million. See
"Certain Transactions - Related Party Transactions - Other Transactions."
The Company intends to implement an aggressive acquisition strategy of
entering new markets domestically and internationally on an opportunistic basis
and to acquire end-user computer supply and office automation supply companies.
The typical target company profile for the Company's acquisition strategy is a
computer and office automation supply distributor with a large middle-market
corporate end-user business in a major metropolitan area with sales of between
$5.0 to $50.0 million. Such companies are attractive acquisition candidates
because: (i) the Company believes that such companies have limited growth
potential at their current revenue size in such markets; (ii) of the Company's
knowledge of, and existing relationships with, many of the potential acquisition
targets; (iii) the Company's strategy differs significantly from the strategy of
the large office products consolidators in that the Company does not plan major
employee terminations upon acquisition but expects to maintain the target
company's sales force while integrating the acquired company's
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operating and financial systems; (iv) of the Company's ability to provide such
target company's sales force with expanded product lines to increase their
commission income due to the Company's in-house technical support, broad
supplier relationships and the breadth of its product line; (v) of the Company's
intention to utilize the target company's niche markets and expertise in areas
not focused on by the Company to cross-sell to existing customers; and (vi) of
the Company's management style which provides its sales representatives with
significant autonomy. The Company believes that it is currently the only company
focusing strictly on acquiring end-user computer supply and office automation
distribution companies.
The Company intends to utilize its Common Stock to fund acquisitions
because it believes that such shares will be valued by the market to reflect the
Company's sales and earnings growth potential, the use of Common Stock is
tax-advantaged to the seller because no income tax is due until such shares are
sold and the public market should provide sellers with sufficient liquidity for
their personal and estate planning purposes. As soon as practical after the
closing of this Offering, the Company intends to register up to 6,000,000 shares
of its Common Stock under the Securities Act for use by the Company in
connection with future acquisitions. These shares will generally be freely
tradeable after their issuance, unless the sale thereof is contractually
restricted. The Company may also use cash for some or all of the purchase
consideration. Such cash will be borrowed by the Company under the Credit
Facility, or, to a lesser extent, generated from operations. See "Risk Factors
Financing for Acquisitions; Additional Dilution," "- Financing for Acquisitions
- - Leverage" and "- Possible Need for Additional Financing to Implement
Acquisition Strategy" for additional information relating to the consideration
concerning the financing of such acquisitions.
Revenue Strategy. Another element of the Company's strategy to increase
sales revenues is the initiation of relationships with new customers. This
strategy involves the expansion of the Company's direct sales force through the
acquisition of businesses in different markets and by providing greater
training, support and sales leads to its existing sales force to permit them to
work more efficiently and obtain new customers. Sales growth will also depend
upon the Company having its sales force emphasize vertical marketing,
cross-selling and add-on sales in order to increase its current average order
size. This will be accomplished by learning more about the customer's needs and
purchase habits and making such information available to the sales force at the
time of the sales call through the Company's information management system. The
Company will also emphasize the sales of the higher margin, state-of-the-art LCD
projection presentation products, which have transformed the art of presentation
graphics from transparencies and 35mm slides to highly complex, multi-colored
computer generated presentations. The Company typically does not sell such
products at the lowest price, but offers substantial post-sale technical support
to its customers, free of charge. Such support includes, for the LCD projection
presentation products, set-up and personal operating instruction demonstrations,
telephone technical support and the maintenance of an inventory of hard to find
but commonly needed parts, such as cables and bulbs. The Company believes that
its post-sale service distinguishes it from its competitors
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who market such products as commodities and fail to assist the customer if
complications arise after the sale.
The Company further intends to continue to emphasize cost savings by
strengthening its relationship with manufacturers by increasing sales of such
manufacturer's products, which is expected to result in better discounts and
rebates and more cooperative advertising support and purchasing computer
supplies from foreign and domestic sources when the price offered makes it
attractive to do so. Prices on products carried by the Company may vary from
market to market based on the supply and demand for such products on a global
basis. Management of the Company has been able to take advantage of temporary
over-supply situations in one market by purchasing inventory at what might be
considered "below market" prices in another country. The Company utilizes these
market inefficiencies in order to increase its operating income.
Technology Strategy. The Company also intends to improve its operating
efficiencies, cost control and profit margin monitoring through continuous
enhancements to its customized computer system which provides a link between
management, the sales force and the warehouses. The Company's current MIS and
telephone system have significant upgrade and growth potential. It has been the
Company's practice to increase MIS and telecommunication capacity as the
Company's sales increase. In 1995, the Company invested $205,000 in computer
hardware (a portion of which was financed by the vendor) in order to upgrade the
MIS and telecommunications systems in contemplation of the Company's expansion
plans. The upgrade was designed to enhance the Company's ability to improve
efficiency, monitor its operations, manage its inventory and offer faster and
increased levels of service to its customers. This emphasis on technology has
contributed to a decline in selling, general and administrative expense as a
percentage of net sales from 18.8% in 1991 to 16.4% in 1995 and 15.2% for the
six months ended June 30, 1996.
The Company utilizes its MIS and distribution efficiency to identify its
VICs. The Company awards a VIC designation to customers who purchase $40,000 or
more product in any year. If a VIC calls the Company to ask a question or to
order products, that customer is directed to a customer service representative
who can immediately obtain on the representative's computer screen the
customer's past purchase history with the Company. If the customer desires to
order a product, the customer service representative has computer access to
information on, among other things, all prior purchases made by that customer
and the items and quantities ordered and prices paid, the customer's payment
history, and special billing or delivery instructions. If the item desired is
not in stock, the representative's computer screen will display a list of other
products which may be substituted for the specific out-of-stock item. Once the
order is taken, the computer will display complementary items which the customer
may need or which the customer has forgotten about or may want to acquire in
addition to the ordered product. All VICs are given priority service by the
Company whereby the order is processed in accordance with the specific
instructions of the customer as to billing, packaging and shipping and before
non-VIC orders are processed.
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Products
The Company distributes an aggregate of over 12,940 different computer and
office automation supplies and related products and regularly updates its
product line to reflect advances in technology and to avoid product
obsolescence. The Company's major product categories can generally be classified
as follows:
Non-Impact Printer Supplies. Non-impact printer supplies include toner
cartridges, ink jet cartridges, optical photo conductor kits, copier supplies
and fax supplies. Non-impact printers, such as laser printers, copiers and fax
machines, are rapidly growing in popularity and have a wide range of
applications. Sales of non-impact printer supplies accounted for approximately
35.9% of the Company's total net sales in 1995 and 34.1% of the Company's total
net sales for the six months ended June 30, 1996. The Company also sells
specialized all-in-one toner cartridges for laser printers produced by
manufacturers such as Hewlett-Packard and Lexmark. Sales of these supplies
accounted for approximately 25.9% of the Company's total net sales in 1995 and
25.0% of the Company's total net sales for the six months ended June 30, 1996.
Impact Printer Supplies. Impact printer supplies include printwheels,
ribbons, elements, fonts and other consumable supplies used in impact printers
ranging from electronic typewriters to high speed dot matrix printers. While new
technology is moving toward non-impact printing, the Company believes that a
substantial installed base of impact printers, such as dot matrix printers, is
still in use and requires a continuing amount of consumable computer supplies.
Sales of impact printer supplies accounted for approximately 12.2% of the
Company's total net sales in 1995 and 10.9% of the Company's total net sales for
the six months ended June 30, 1996.
Magnetic Media Products. Magnetic media products include computer tapes,
data cartridges, diskettes, optical disks, recordable compact disks and other
products which store or record computer information and are used in a variety of
computers ranging from notebook and personal computers to large mainframe
computer systems. Sales of magnetic media products accounted for approximately
13.5% of the Company's total net sales in 1995 and 15.5% for the six months
ended June 30, 1996.
Projection Presentation Products. Projection presentation products sold by
the Company include overhead projectors, LCD projection panels, portable
projectors, laser pointers, projection screens and other projection presentation
accessories. Sales of projection presentation products accounted for
approximately 9.4% of the Company's total net sales in 1995 and 10.5% of the
Company's total net sales for the six months ended June 30, 1996.
Accessories and Other Products. Accessories sold by the Company include
cleaning supplies, disk storage boxes, data cartridge storage, point of sale and
bar code supplies, racks, surge protection devices, workstation accessories and
anti-glare screens. The Company also sells a limited number of other products
such as transparencies, banking
46
<PAGE>
supplies and selected business machines. Sales of accessories and other products
accounted for approximately 29.0% of the Company's total net sales in 1995 and
29.0% of the Company's total net sales for the six months ended June 30, 1996.
Suppliers
The Company's computer supply and office automation products are
manufactured by approximately 500 original equipment manufacturers, including
Hewlett-Packard, Lexmark, Imation, Proxima and Epson. During 1995, and for the
six months ended June 30, 1996, approximately 59.9% and 58.5%, respectively, of
the Company's total net sales were derived from products supplied by the
Company's ten largest suppliers. The sale of products supplied by
Hewlett-Packard, Lexmark and Imation accounted for approximately 19.3%, 11.1%
and 7.4% of total net sales for 1995, respectively, and 21.3%, 9.1% and 6.8% of
total net sales for the six months ended June 30, 1996, respectively. The
Company's projection presentation products are manufactured by five original
equipment manufacturers, including Proxima, Epson and LightWare. The Company is
obligated to purchase products from Hewlett-Packard, Lexmark and Imation based
on its distribution agreements with such suppliers in the amounts of $5.0
million, $250,000 and $50,000, respectively.
The Company has entered into written distribution agreements with
Hewlett-Packard, Lexmark, Imation and Proxima and a majority of the other major
suppliers of the products it distributes. As is customary in the industry, these
agreements generally provide non-exclusive distribution rights, have one year
renewable terms, are terminable by either party at any time, with or without
cause, and require notice of certain events such as a change in control of the
Company. In May 1996, LLC acquired 70.0% of the Company from its then current
stockholders. The Company has notified its major suppliers of such change with
no resulting adverse consequences. The Company considers its relationships with
its major suppliers, including Hewlett-Packard, Lexmark and Imation, to be good
and has recently renewed its direct purchasing agreements with Hewlett-Packard
and several other suppliers. The Company is also discussing with several major
suppliers expanded direct purchasing arrangements in order to provide the
Company with a broader product line and increased customer base. There can be no
assurance, however, that a material change in the Company's relationship with
one or more of its major suppliers will not occur and if it does occur, that it
will not have a material adverse effect on the Company's business. See "Risk
Factors - Dependence on Certain Key Suppliers."
Although the Company purchases most of its products directly from
authorized U.S. manufacturers, the Company also purchases products from foreign
and domestic sources. Depending upon product pricing and availability, the
Company also purchases products from secondary sources, such as wholesalers and
selected dealers, other than from the direct manufacturer. During 1995 and for
the six months ended June 30, 1996, approximately 8.2% and 14.4%, respectively,
of the Company's total net sales were derived from the sale of products
purchased from sources other than the direct manufacturer. The Company utilizes
its ability to purchase imported and secondary source products in order to
increase
47
<PAGE>
its operating income and provide its customers with competitive prices. In order
to ensure that such imported and secondary source products are not produced by
unauthorized manufacturers, the Company has established various steps and
procedures which it believes enable it to identify unauthorized products and the
Company does not purchase from such sources. There can be no assurance, however,
that the Company will be completely successful in such efforts or that such
imported and secondary source products will continue to be available.
Certain of the Company's major suppliers offer rebate programs under
which, subject to the Company purchasing certain predetermined amounts of
product, the Company receives rebates of the dollar volume of total rebate
program purchases. The Company also takes advantage of several other programs
offered by substantially all of its suppliers. These programs include price
protection plans under which the Company receives credits against future
purchases if the supplier lowers prices on previously purchased inventory and
stock rotation or stock balancing privileges under which the Company can return
slow moving inventory in exchange for other products.
Sales and Marketing
The Company sells its products to approximately 9,000 middle-market and
smaller companies and to governmental, educational, wholesale and retail
customers, including federal, state and local governmental agencies,
universities and hospitals and, to a lesser extent, to computer supply dealers.
The Company's typical customer is a small to medium sized corporate end-user who
relies on distributors like the Company, that provide high levels of value-added
service. No single customer accounts for more than 5.0% of the Company's sales.
On a pro forma basis, the Company's international sales accounted for
approximately 6.5% of the Company's total net sales for the six months ended
June 30, 1996.
The Company's sales force, as of June 30, 1996, consisted of 51 full-time
sales representatives that work out of the Company's headquarters in Dayton,
Ohio and from its seven sales offices in Ohio, located in Akron/Canton,
Cincinnati, Cleveland, Columbus, Toledo, Zanesville and Youngstown, its four
sales offices in Pennsylvania, located in Erie/Meadville, Davidsville,
Pittsburgh and Philadelphia, its two offices in New York, located in Buffalo and
Rochester and its offices in Indianapolis, Indiana, Louisville, Kentucky and Ann
Arbor and Detroit, Michigan in the United States, and its sales offices in
Leeds, England and Dubai, United Arab Emirates. The Company relies on its direct
sales force to initiate sales contacts, follow up on leads provided by
manufacturers and to engage in face-to-face contact with its customers to
solicit orders and provide service.
The Company's direct sales force markets the Company's products and
services utilizing the Company's full-color catalog and the sales
representative's ability to quote a price to the customer within a range which
maintains the Company's margins but gives the sales representative the
flexibility to price products competitively. The sales force works with the
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Company's customers to simplify and reduce the cost of the computer supply
product procurement process by providing customized facsimile order forms, EDI
processing and customized billing and shipping, and product technical expertise.
Outbound telemarketing sales are primarily directed to federal government and
other corporate customers which have the authority to make their own purchases
or are purchasing specific products under master contracts with specific
manufacturers and which, in part, represent sales in markets in which the
Company does not have an office. The Company ships products to every state in
the United States.
The Company believes that its ability to maintain and grow its customer
and revenue base will depend, in part, on its ability to maintain a high level
of customer satisfaction, as well as competitive prices. The Company believes
that its customers typically purchase computer supply and office automation
products based on an established long-term business relationship with one
primary supplier. The Company establishes and maintains its relationships with
customers by assigning a sales and an in-house customer service representative
to most customers. Sales representatives are compensated almost exclusively on a
commission basis based on the gross margin of sales consummated (which may be
augmented by sales bonus programs offered by certain of the Company's suppliers
in connection with a specific product sales campaign) and receive Company
benefits such as incentive recognition trips if quotas are met. Sales
representatives have frequent contact with their customers and share
responsibility for increasing account penetration and providing customer
service. Sales representatives also are responsible for marketing efforts
directed to prospective customers and for responding to all bid and/or contract
requests for their existing and prospective customers. The Company believes that
its personalized marketing strategy offers it a competitive advantage in
responding to the needs of each customer.
The Company also has an in-house marketing department which assists its
sales representatives by generating leads and sales from existing accounts
resulting from direct mail advertisements and questionnaires and from direct
telephone solicitations.
The Company intends to focus its marketing efforts on the small- and
middle-market segments of the computer supply and office automation products
industry. The Company believes that a significant opportunity exists in these
segments and that the larger office products companies have focused more on the
large corporate segment. The Company sells primarily through direct contact with
customers and does not conduct significant mass market advertising. The Company
utilizes manufacturer cooperative advertising support for direct mail
solicitations, product exhibitions and product gifts.
The Company provides extensive training for new sales personnel with
special emphasis on the need for regular customer contact, response to
customers' demands for product information and the need to inform customers of
technological advancements by the Company's suppliers. The Company's Vice
President - Training and Development provides the Company's sales personnel with
ongoing product-specific training and education
49
<PAGE>
emphasizing computer supplies as well as new technologies, new products and new
product applications. The Vice President - Training and Development trains new
employees, provides sales training at Company sales meetings which are held
approximately three times a year, conducts "ride alongs" where he accompanies
sales representatives on sales calls and provides a post-meeting critique, and
coordinates sales training with the Company's major suppliers. Prior to
employment, all job applicants take an "employment test" which was specifically
designed by a human resources consulting company to determine whether the
prospective employee has the personality which will be conducive to maintaining
a successful career as a salesperson for the Company. The results of this test
is considered as one of many factors in determining whether to hire the
applicant.
In order to ensure that the sales force is performing to its potential,
the Company and each individual salesperson annually reviews and sets sales
goals. The Company regularly monitors the performance of its sales staff by
reviewing sales and margin profitability. The average length of service by the
Company's sales personnel is approximately seven years due, in part, to the fact
that the Company pre-screens qualified applicants, emphasizes continuing
training, sets realistic sales goals and maintains a consistent uniform
commission structure.
Management Information System
Since 1991, the Company has invested approximately $1.1 million in
hardware and software upgrades to its MIS, which is run from an IBM AS/400
computer located at its Dayton, Ohio headquarters, and has automated a large
number of key business functions using on-line, real time systems. These on-line
systems provide management with information concerning sales, inventory levels,
customer payments and other operations which are essential for the Company to
operate as a low cost, high efficiency distributor. Nine of the Company's
offices, which represented 80.7% of the Company's sales volume for 1995 and
82.5% of the Company's sales volume for the six months ended June 30, 1996, have
a direct, full-time dedicated link to the Company's in-house computer system.
Non-linked offices dial in daily. The Company maintains two full-time computer
programmers who work on a continual basis to upgrade the Company's software
capability. The "down time" for the Company's computer system has been
negligible to date.
The implementation of these systems has allowed the Company to offer an
advanced EDI program to its customers so that the Company can communicate
directly with their computer systems and automatically process, send and receive
purchase orders, invoices and acknowledgements. The Company is also able to
offer "customer links" to provide customers with direct access to a specialized
Company database to examine pricing, credit information, product description and
availability and promotions information. This link also allows customers to
place orders directly into the Company's order processing system.
50
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The Company has also invested in advanced telecommunications, voice
response equipment, electronic mail and messaging, automated fax technology,
scanning, bar coding, and automated inventory management.
Distribution
The Company distributes its products from its four warehouse facilities,
located in Dayton, Ohio, Louisville, Kentucky, Rochester, New York and Ann
Arbor, Michigan, although most products are shipped from the primary warehouse
located in Dayton, Ohio. Once an order is input into the Company's computer
system, a picking ticket is printed in the appropriate warehouse where the
inventory is located. This significantly decreases "stock-outs" and backorders
since products may be shipped from more than one warehouse location to arrive at
the customer's office on the next business day. The picking ticket tells the
warehouse personnel where the merchandise is located. The stock is then picked
and sent to the packing department where the items are double-checked against
the picking ticket, packaged and assigned the most economical and efficient mode
of transport, based upon the customer's desires.
The Company believes that the automation brought about by advances in its
MIS have resulted in: (i) more efficient management of its inventory which, in
turn, has reduced the Company's working capital borrowings; (ii) a consistent
picking accuracy rate of approximately 99.5%, thereby reducing shipping errors
and the associated costs of returned merchandise; (iii) significant savings to
its customers as a result of customizing packaging which takes advantage of
weight discounts and provides for less frequent deliveries; and (iv) improved
customer service through later order acceptance times (currently 6:00 p.m.
Eastern Time) and next business day delivery.
When the Company ships packages with UPS or RPS, it will label the package
with the UPS or RPS bar code for tracking purposes. The Company is then able to
track a customer's package from the time it is put on the courier's vehicle
until delivery. The Company's arrangements with UPS and RPS enable the Company
to offer to its customers a discounted shipping rate and next business day
delivery to most U.S. geographic areas. The Company charges its customers
delivery rates based upon the customer's purchase and competition on a local and
national level offered to the Company by UPS on RPS or, if that rate is
unavailable, the local ground delivery rates for this service. However, in
certain markets where the cost of delivery is highly competitive or free to the
customer, the Company will match its delivery charges with those of its direct
competitors. The Company ships virtually all orders for products in stock on the
same day.
The Company's principal executive offices are currently located in Dayton,
Ohio. The Company leases all of its office and warehouse space for use in the
ordinary course of business. The leases expire at various times through 2004 and
some of the Company's leases contain options to renew. The Company expects that
it will be able to renew leases expiring
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<PAGE>
in 1996 at rents which are substantially similar to current rent payments on a
square footage basis.
The Company's sales and warehouse locations are described in the table
below:
Location Square Feet Lease Expiration Date
- -------- ----------- ---------------------
Ann Arbor, Michigan* 5,500 1998
Akron, Ohio 500 1997
Buffalo, New York 500 1997
Cincinnati, Ohio 2,400 1999
Cleveland, Ohio 120 1997
Cleveland, Ohio 95 1997
Columbus, Ohio 1,478 1999
Dayton, Ohio* 7,000 1996
Dayton, Ohio 6,500 1996
Detroit, Michigan 1,075 1997
Indianapolis, Indiana 800 1997
Louisville, Kentucky* 7,500 2004
Pittsburgh, Pennsylvania 1,725 1996
Rochester, New York* 12,032 1997
Toledo, Ohio 256 1998
Leeds, England* 500 1996
Dubai, United Arab
Emirates 600 1996
- -----------------------
* All locations listed above are sales offices except those designated
with an asterisk, which locations include Company warehouses.
The Company has entered into a lease with a partnership composed of
certain executive officers of the Company (the "Draft Partnership") to move its
Dayton, Ohio offices and warehouse to a newly constructed site also located in
Dayton, Ohio in the fourth quarter of 1996. See "Certain Transactions - Related
Party Transactions." The new facility will provide the Company a total of 30,000
square feet of space, expandable by build-out to 62,000 square feet, of which
15,000 square feet will be used as warehouse space and the remainder of which
will be used for offices and other business purposes. The Company expects that
the Company's operations will not be unduly interrupted by the move to the new
Dayton location. The Company anticipates that it will invest approximately
$250,000 for furniture and fixtures for the new facility. The cost of the
relocation is estimated to be approximately $30,000.
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The Company's trade name is "Miami Computer Supply International." The
Company intends to apply for a Federal service mark registration of "Miami
Computer Supply International," "MCSI" and the associated Company logo. No
assurance can be given that any such registration will be granted or that if
granted, such registration will be effective to prevent others from: (i) using
the service mark concurrently; or (ii) preventing the Company from using the
service mark in certain locations.
Subsidiaries
The Company has one wholly owned subsidiary, DDP, which has two
subsidiaries, Diversified Data Products (U.K.) Limited ("DDP-UK") and CEM
(Overseas) Limited ("CEM"). DDP-UK is a United Kingdom private limited company
and CEM is a British Virgin Islands International Business Company. Both DDP-UK,
whose sales office is located in Leeds, England, and CEM, whose sales office is
located in Dubai, United Arab Emirates, engage in the computer supply and office
automation supply distribution business and purchase and sell computer and
office automation supplies internationally. DDP-UK operates in England and DDP
and DDP-UK sell in Germany, France, Australia, New Zealand, Hong Kong, Indonesia
and Singapore, while CEM operates in the United Arab Emirates and sells product
in Kuwait and Saudi Arabia. See "Risk Factors - Risks Relating to International
Acquisitions" and "- Exchange Rate Fluctuations." All financial results of the
subsidiaries are reflected in DDP's Consolidated Financial Statements.
Employees
As of June 30, 1996, the Company had 115 full-time employees and three
part-time employees, of which 48 were in executive and administrative positions,
including accounting, purchasing, credit and management information systems, 53
were in sales and marketing and 14 were in warehousing and related functions.
None of the Company's employees are represented by a labor union, and the
Company has never suffered an interruption of business as a result of a labor
dispute. The Company considers its relations with its employees to be excellent.
Competition
The Company believes that most, if not all, of its customers maintain
several sources of supply for their product requirements. Accordingly, the
Company competes with major full-service office products distributors, other
national and regional computer supply distributors, office products superstores,
direct mail order companies, and, to a lesser extent, non-specialized retailers.
Certain of the Company's competitors, such as office products superstores and
major full-service office products distributors, are larger and have
substantially greater financial and other resources and purchasing power than
the Company. Competition in the Company's industry is generally based on price,
breadth of product lines, product and credit availability, a knowledgeable sales
force, delivery time and the level and quality of customer services. The Company
believes that the computer supply industry will
53
<PAGE>
become more consolidated in the future and thereby more competitive. Increasing
competition will result in greater price discounting which will continue to have
a negative impact on the industry's gross margins. The Company has experienced
relatively consistent gross profit margins while experiencing continuing price
competition. The effect of such competition has been offset primarily by
increased gross profit margins from new product offerings.
The Company believes its competitive advantage over other distributors
includes its ability to efficiently maintain a wide selection of name brand
products in stock ready to be shipped on a same day basis and delivered
overnight, to efficiently distribute its products, to provide innovative and
high quality value-added customer service programs and to respond to changing
customer demand and product development. However, there can be no assurance that
the Company will not encounter increased competition in the future, which could
have a material adverse effect on the Company's business.
Environmental Matters
The Company is subject to federal, state and local laws, regulations and
ordinances that: (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous wastes, or (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances.
The Company currently is not aware of any environmental conditions
relating to present or past waste generation at or from its facilities or
operations, that would be likely to have a material adverse effect on the
financial condition or results of operations of the Company. However, there can
be no assurance that environmental liabilities in the future will not have a
material adverse effect on the financial condition or results of operations of
the Company.
Legal Proceedings
The Company is not involved in any legal proceedings incidental to the
conduct of its business as of the date hereof. The Company maintains general
liability and business interruption insurance coverage in amounts which it
believes to be adequate.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position of the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Anthony W. Liberati 64 Chairman of the Board and Director
Albert L. Schwarz 56 President and Director
Robert G. Hecht 55 Vice Chairman of the Board and Director
Harry F. Radcliffe 46 Treasurer and Director
Thomas C. Winstel 50 Director, Secretary and Vice President -
Presentation Products
Richard A. Newkold 62 Vice President - Training and Development
Roger E. Turvy 56 Vice President - Product Sales and
Development
Michael E. Peppel 29 Vice President - Chief Financial Officer
John C. Huffman, III 38 Vice President - National Sales Manager
Mary Stewart 39 Vice President - Operations
Joseph R. Hollenshead, III 26 President of DDP
David J. White 33 Vice President of International Operations of
DDP
</TABLE>
Anthony W. Liberati. Mr. Liberati has been Chairman of the Board since May
1996, when LLC, of which he is the Manager - President and Chief Executive
Officer and a member, acquired a majority interest in the Company. Commencing in
1982 and until his retirement in August 1995, Mr. Liberati was employed by the
Edward J. DeBartolo Corporation, Youngstown, Ohio (the "DeBartolo Corporation"),
the nation's largest shopping center developer and the owner of the San
Francisco 49ers professional football team. At the time of his retirement, Mr.
Liberati was the Chief Operating Officer of the DeBartolo Corporation. Prior to
his appointment as the Chief Operating Officer, he was the DeBartolo
Corporation's Chief Financial Officer for ten years. Mr. Liberati is a director
of Hawthorne Financial Corporation, Los Angeles, California, a savings
institution holding company which is traded on the Nasdaq National Market, and
is a former member of the Board of Directors of DeBartolo Realty Corporation,
Youngstown, Ohio, a New York Stock Exchange-traded real estate investment
trust. He is a current member of the Board of Directors of Imperial Land
Company, Pittsburgh, Pennsylvania, a privately held land-bank company and
Pennsylvania Capital Bank, Pittsburgh, Pennsylvania, a privately held
Pennsylvania commercial bank. He attended Duquesne University, Pittsburgh,
Pennsylvania.
Albert L. Schwarz. Mr. Schwarz joined the Company in 1987 as President and
a Director. He is the Chairman of the Company's Executive Management Committee,
55
<PAGE>
a committee composed of management which deals with Company operating
issues. Mr. Schwarz was a division controller of Amcast Industries Corp., a New
York Stock Exchange-traded Company which manufactures metal castings located
in Dayton, Ohio from 1984 to 1987. Mr. Schwarz received his MBA from the
University of Dayton, Dayton, Ohio, and his undergraduate degree in accounting
from Wright State University, Fairborn, Ohio. Mr. Schwarz is the brother-in-law
of Mr. Turvy.
Robert G. Hecht. Mr. Hecht became a Director of the Company in May 1996
and is also a member of LLC. Mr. Hecht is the Chief Executive Officer of
Trumbull Corporation, a privately held highway construction company, the
President of Allegheny Asphalt Manufacturing, Inc., a privately held material
supply company and is the Executive Vice President for P.J. Dick Incorporated, a
privately held construction company, all of which are located in Pittsburgh,
Pennsylvania. Mr. Hecht is also a director of Essex Bancorp, Virginia Beach,
Virginia, a savings institution holding company which is traded on the Nasdaq
National Market and of First Home Bancorp, Inc. and First Home Savings Bank,
FSB, a privately held savings institution holding company and federally
chartered savings bank located in Pittsburgh, Pennsylvania. Mr. Hecht received
his Juris Doctor degree from the University of Pittsburgh, Pittsburgh,
Pennsylvania and his undergraduate degree in engineering from the U.S. Naval
Academy. Mr. Hecht is the Co-Chairman of the Washington County Southwestern
Pennsylvania Growth Alliance and a member of the Board of Directors of the
Children's Home of Pittsburgh.
Harry F. Radcliffe. Mr. Radcliffe, an officer and member of LLC, was
elected as a Director in May 1996. Mr. Radcliffe is the President and Chief
Executive Officer of First Home Bancorp, Inc., a privately held savings
institution holding company, and First Home Savings Bank, FSB, a federally
chartered savings bank headquartered in Pittsburgh, Pennsylvania. He is a
director of Essex Bancorp, Virginia Beach, Virginia, a savings institution
holding company which is traded on the Nasdaq National Market and of Hawthorne
Financial Corporation, Los Angeles, California, a savings institution holding
company which is also traded on the Nasdaq National Market. From 1989 to 1993,
Mr. Radcliffe was the President and Chief Executive Officer of First South
Savings Association, a Pennsylvania-chartered stock savings association located
in Pittsburgh, Pennsylvania. Mr. Radcliffe received his degree in economics from
Ohio Wesleyan University.
Thomas C. Winstel. Mr. Winstel co-founded the Company in 1981 and has been
a Director and Vice President of the Company since that time. Mr. Winstel is a
member of the Company's Executive Management Committee. Mr. Winstel received his
marketing degree from the University of Dayton, Ohio.
Richard A. Newkold. Mr. Newkold co-founded the Company in 1981 and has
been a Vice President - Training and Development of the Company since that time.
Mr. Newkold now acts as the Company's full-time sales trainer. He is a member of
the Company's Executive Management Committee.
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<PAGE>
Roger E. Turvy. Mr. Turvy joined the Company in 1981 and has been the Vice
President - Product Sales and Development since that time. Mr. Turvy is a member
of the Company's Executive Management Committee. Mr. Turvy received his degree
in mathematics and business from Miami University, Oxford, Ohio and his MBA from
Ohio State University. Mr. Turvy is the brother-in-law of Mr. Schwarz.
Michael E. Peppel. Mr. Peppel joined the Company in May 1996 and is an
officer and member of LLC. Mr. Peppel is also a member of the Company's
Executive Management Committee. Prior thereto, from November 1990 to May 1996,
he was a director and Chief Financial Officer of Diversified Data Products, Inc.
which was acquired by LLC and contributed to the Company. From April 1987 to
October 1990, he was the money desk manager for the DeBartolo Corporation,
Youngstown, Ohio. Mr. Peppel received his degree in economics and finance from
the University of Notre Dame.
John C. Huffman, III. Mr. Huffman joined the Company in 1981 and is the
Company's National Sales Manager and is a member of the Company's Executive
Management Committee. Mr. Huffman was the General Manager of the Company from
1985 to 1987, the Dayton Sales Manager from 1987 to 1989 and has been the
National Sales Manager since 1989. Mr. Huffman received his degree in business
management from Wright State University, Fairborn, Ohio.
Mary Stewart. Ms. Stewart joined the Company in 1989 as a staff accountant
and is currently the Company's Vice President - Operations. From 1994 to May
1996, Ms. Stewart served the Company as Controller.
Joseph R. Hollenshead, III. Mr. Hollenshead joined the Company in May 1996
and is a member of LLC. He founded DDP in 1988 and has been a director and the
President of DDP since that time. Mr. Hollenshead attended Eastern Michigan
University in Ypsilanti, Michigan.
David J. White. Mr. White joined the Company in May 1996 and is a member
of LLC. He is currently based in Leeds, England as DDP's Vice President of
International Operations. Mr. White was previously a director of DDP from March
1993 to May 1996. Prior thereto, in September 1991 he founded and was the Chief
Operating Officer of CEM (Overseas), Ltd. in Leeds, England and Dubai, United
Arab Emirates, which was acquired by DDP in March 1993. Mr. White was the Export
General Manager of ISA International PLC, a large European computer supply
company, from March 1989 to September 1991 after spending seven years in the
Middle East in the freight forwarding business. Mr. White attended Nunthorpe
College in York, England.
The Board of Directors is elected annually. However, the Articles and Code
of Regulations of the Company provide that the Board may, by resolution of a
majority of the Continuing Directors then in office, divide the Board into two
or three classes as nearly equal in number as possible, each class having not
less than three directors, with one class
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<PAGE>
to be elected annually for a term of two or three years, respectively. Such
"staggering" of the terms of the members of the Board of Directors could make it
easier for incumbent Board members to retain their status and make it more
difficult for stockholders to replace the entire Board of Directors at one
meeting of stockholders. For certain other terms and conditions in the Articles
and the Code of Regulations which also may have an antitakeover effect, see
"Restrictions on Acquisition of the Company." Officers are elected annually by
the Board of Directors and serve at the discretion of the Board. The Company
anticipates that it will continue to hire, appoint or otherwise change senior
managers and other key executives as it continues to grow.
The Board of Directors has an Executive Committee, Compensation Committee
and Audit Committee. The Executive Committee is composed of all members of the
Board of Directors and has the authority to act as the Board of Directors when
the Board is not in session. Actions of the Executive Committee may be taken
upon the affirmative vote of any three of the five directors provided that of
the three directors who are so acting, one must be a non-employee director.
Executive Committee decisions must be ratified by the Board of Directors at its
next regularly scheduled meeting. The Compensation Committee, currently
comprised of Messrs. Liberati, Hecht and Radcliffe, has the authority to approve
salaries and bonuses and other compensation matters for executive officers of
the Company and reviews and approves employee health and benefit plans. The
Audit Committee, currently comprised of Messrs. Liberati, Hecht and Radcliffe
has the authority to recommend the appointment of the Company's independent
auditors and review the results and scope of audits, internal accounting
controls and tax and other accounting-related matters.
The Board of Directors currently meets monthly and is required to meet not
less than quarterly. Non-employee directors currently receive a retainer of
$2,500 per quarter, $1,000 per Board meeting attended and $250 per committee
meeting attended for serving on the Board or any committee of the Board, and are
reimbursed for their out-of-pocket expenses arising from attendance at Board or
committee meetings. They will also participate in the Non-employee Directors
Stock Option Plan. See "- Executive Compensation - Employee Benefit Plans -
Stock Plans - Non-employee Directors Stock Option Plan." Directors who are also
employees receive no compensation for attending such meetings other than their
base salary.
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Executive Compensation
Summary Compensation Table. The following table sets forth individual
compensation paid or accrued by the Company to the President and to each of the
four most highly compensated executive officers (other than the President) of
the Company (the "Named Executive Officers") for all services rendered in all
capacities to the Company and its subsidiaries for the year ended December 31,
1995.
<TABLE>
<CAPTION>
Annual
Compensation
--------------------------
All Other
Name and Position Salary Bonus(1) Compensation(2)
- ----------------- ---------- ----------- -------------------
<S> <C> <C> <C>
Albert L. Schwarz ............................................... $102,000 $164,149 $16,200
President
Thomas C. Winstel................................................ 176,586 52,920 13,200
Vice President - Presentation Products
Richard A. Newkold............................................... 93,600 40,320 13,200
Vice President - Training and Development
Roger E. Turvy................................................... 73,597 33,860 13,200
Vice President - Product Sales and Development
John C. Huffman, III............................................. 90,000 5,000 13,400
Vice President - National Sales Manager
</TABLE>
- -------------------
(1) Bonuses shown for 1995 were paid during 1996. Mr. Schwarz's bonus was
based upon an agreement with the Company pursuant to which he received
10.0% of the total sum of (i) the pre-tax net income, before taxes,
(ii) other officers' bonus expenses, and (iii) the accrued profit sharing
expense. Messrs. Winstel's, Newkold's and Turvy's bonuses were determined
by the President of the Company. Mr. Huffman's bonus was based upon
attaining business plan margin goals. Mr. Schwarz's and Mr. Huffman's
previous employment agreements were terminated on May 30, 1996.
(2) All Other Compensation includes director's fees and expense reimbursement,
car allowance, premiums for split dollar life insurance coverage, sporting
event tickets, annual medical examination expenses, taxable relocation,
temporary housing and/or other executive or employee benefits. There was
no stock option plan in effect during 1995 or the years prior thereto.
Effective May 30, 1996, the annual base salary for each of Messrs.
Schwarz, Winstel, Newkold, Turvy and Huffman was increased. See "- Employment
Contracts." Mr. Peppel became the Company's Vice President - Chief Financial
Officer on May 30, 1996.
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Employment Contracts
On May 30, 1996, in conjunction with the acquisition of the controlling
interest in the Company by LLC, the Company entered into employment contracts
with Messrs. Schwarz, Winstel, Newkold, Turvy, Peppel, Huffman, Hollenshead and
White (the "Executives"), which agreements are substantially similar except for
compensation provisions. Each such agreement terminates on December 31, 1999,
except for the agreements of Messrs. Newkold, Hollenshead and White which
terminate on December 31, 1996, unless sooner terminated for death, physical or
mental incapacity or cause (which is defined as the uncured refusal to perform,
or substantial neglect of, or an intentional failure to perform, a material
portion of the Executive's duties, willful misconduct, breach of a fiduciary
duty involving personal gain, a material breach of the employment agreement, or
a felony conviction), or terminated by the Executive for the failure of the
Company to provide the resources necessary to the fulfillment of the Executive's
responsibilities, the express direction by the Board of Directors to have the
Executive perform any illegal action, the threatened or actual insolvency of the
Company or the failure of the Company to perform its obligations to the
Executive under the employment agreement.
Each Executive's monthly base salary is as set forth in the table below:
<TABLE>
<CAPTION>
Monthly Base Salary
For the Year Ended December 31,
--------------------------------------------------------------
1996 1997 1998 1999
---- ---- ---- -----
<S> <C> <C> <C> <C>
Albert L. Schwarz*................... $9,200 $15,000 $15,900 $16,854
Thomas C. Winstel.................... 9,000 9,800 10,300 10,800
Richard A. Newkold................... 8,200 -- -- --
Roger E. Turvy....................... 7,000 7,800 8,600 9,500
Michael E. Peppel*................... 6,667 10,871 11,523 12,214
John C. Huffman, III................. 10,100 10,700 11,300 12,000
Joseph R. Hollenshead, III........... 6,667 -- -- --
David J. White....................... 6,667 -- -- --
</TABLE>
- ---------------------------
*The increases in the base salary shown in the table will occur if
targeted pre-tax profit goals are not achieved in every prior year. If such
goals are achieved, the base salaries will be $15,000 in 1997, $19,950 in 1998
and $24,938 in 1999 for Mr. Schwarz, and $10,871 in 1997, $14,428 in 1998 and
$18,072 in 1999 for Mr. Peppel, assuming that targeted pre-tax profit goals are
attained in each prior year.
In addition to a base salary, each such Executive is entitled to a bonus
as follows: (i) Mr. Schwarz will receive a bonus of 10.0% of pre-tax profits
before employee profit sharing
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or any other bonuses, which, beginning in 1997, will not exceed the amount of
his base salary in any year; (ii) Mr. Winstel will receive a bonus in the amount
of 40.0% of the Gross Margin (as defined below) of all sales to certain accounts
set forth in Mr. Winstel's agreement which Commission will be paid only when the
amount of commission exceeds his base salary and will be paid in lieu of a base
salary; (iii) Mr. Newkold will receive a bonus as determined by the Board of
Directors in good faith in consideration of his work on acquisitions during the
year and the performance of his other duties; (iv) Mr. Turvy will receive a
commission in the amount of 40.0% of the Gross Margin of the sales to accounts
assigned to him, as maintained in the Company's records, which commission will
be paid only when the amount of commission exceeds his base salary and will be
paid in lieu of a base salary; (v) Mr. Peppel will receive a bonus equal to 9.0%
of the pre-tax profits of the Company before employee profit sharing or any
other bonuses, 60.0% of which shall be paid quarterly, which cash bonus,
beginning in 1997, will not exceed the amount of his base salary in any year;
(vi) Mr. Huffman will be paid a bonus of 0.5% of Gross Margin over $9.0 million
in any calendar year; (vii) Mr. Hollenshead will receive a bonus equal to 15.0%
of the pre-tax income of DDP in excess of $250,000; and (viii) Mr. White will
receive a bonus equal to 15.0% of the pre-tax income of DDP in excess of
$250,000. "Gross Margin" is defined by the employment agreements to mean the
difference of the unit sales price of the product and the actual cost of the
product to the Company. Messrs. Peppel, Hollenshead and White will also receive
certain stock compensation from LLC. See "Certain Transactions - Related Party
Transactions - Other Transactions."
In addition, each of the Executives (except Messrs. Peppel, Hollenshead
and White) utilizes a Company automobile for Company business having a retail
value of up to $35,000, for which the Company pays rent, insurance, repairs,
gas, oil and fees, of up to $1,200 per month.
The Executives are granted up to six weeks vacation annually and are
entitled to participate in and receive the benefits of any pension or other
retirement benefit plan, profit sharing, stock options, employee stock
ownership, or other plans, benefits and privileges given to employees and
executives of the Company, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors. Moreover, the Executive
will be eligible to participate in and be covered by all plans effective
generally for executives of the Company with respect to life, accident or health
insurance, hospitalization, disability and other benefits. If Mr. Newkold is
terminated other than for cause, the Company has agreed to continue to pay for
health insurance for him and his spouse until he reaches age 65 and thereafter
to pay premiums for Medicare Supplemental Insurance for him and his spouse on a
policy selected by Mr. Newkold until he becomes 70 years old. The Company will
pay or reimburse the Executive for all reasonable out-of-pocket expenses
incurred or paid by him in connection with the performance of his duties under
the agreement. The contracts also provide for the indemnification of the
Executives to the extent permitted by the Company's Articles, Code of
Regulations and applicable law, and the valuation and purchase of the
Executive's shares of Common Stock of the Company if he is terminated for cause
prior to December 31, 1999 (or December 31, 1996 in the case of Messrs.
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Newkold, White and Hollenshead) and the Common Stock is not, at the time of
termination, publicly traded.
In consideration of the above, the Executive also has agreed, during the
term of the agreement and for 12 months after the termination of the agreement,
not to compete with the Company in any area which is within a 100-mile radius of
any existing office of the Company. All disputes are to be resolved using
alternative dispute resolution procedures (such as arbitration) rather than
litigation.
The Company has, in the past, entered into employment and non-competition
agreements with the senior management of the companies it has acquired and may
do so in the future.
Employee Benefit Plans
Stock Plans.
1996 Stock Option Plan. Effective September 19, 1996, the Board of
Directors of the Company adopted the 1996 Stock Option Plan (the "Stock Option
Plan") which was approved by the stockholders of the Company at a special
meeting of stockholders held on _______ __, 1996. Options will be awarded under
the Stock Option Plan after the Offering is completed.
The Stock Option Plan is designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company and to reward key employees for outstanding performance and the
attainment of targeted goals. The Stock Option Plan provides for the grant of
incentive stock options intended to comply with the requirements of Section 422
of the Internal Revenue Code, as amended (the "Code"). The Company has reserved
250,000 shares of Common Stock for issuance pursuant to the exercise of Options
granted under the Stock Option Plan, subject to adjustment. In the event of a
stock split, reverse stock split or stock dividend, the number of shares of
Common Stock under the Stock Option Plan, the number of shares to which any
Option relates and the exercise price per share under any option will be
adjusted to reflect such increase or decrease in the total number of shares of
the Common Stock outstanding.
The Stock Option Plan will be administered and interpreted by a committee
of the Board of Directors ("Option Committee") composed of non-employee
directors. Unless sooner terminated, the Stock Option Plan will be in effect
until September 19, 2006, ten years from the date of the adoption of the Stock
Option Plan by the Board of Directors.
Under the Stock Option Plan, the Option Committee will determine, among
other things, which officers and key employees will be granted Options, the
performance goals which must be met to receive Options, the number of shares
subject to each Option, the
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exercise price of the Option, whether such Options may be exercised by
delivering other shares of Common Stock or other consideration and when such
Options become exercisable. The per share exercise price of all Options is
required by the Code to be at least equal to the fair market value of a share of
Common Stock on the date the Option is granted. The Code also requires that the
aggregate fair market value of the Common Stock with respect to which the
Options are exercisable for the first time by the Optionee during any calendar
year cannot exceed $100,000. Moreover, any person who owns 10.0% or more of the
voting power of the Common Stock may not receive Options whose exercise price is
less than 110.0% of the fair market value of a share of Common Stock of the
Company on the date of grant.
Options will become vested and exercisable in the manner specified by the
Option Committee and all Options will become fully vested and exercisable in the
event of a change in control of the Company, as defined in the Stock Option
Plan. Each Option or portion thereof will be exercisable at any time on or after
it vests and is exercisable until ten years after its date of grant or three
months after the date on which the optionee's employment terminates, unless
extended by the Option Committee to a period not to exceed five years from such
termination. However, failure to exercise Options within three months after the
date on which the optionee's employment terminates may result in adverse tax
consequences to the optionee. Options are non-transferable except by will or the
laws of descent and distribution.
Under current provisions of the Code, the federal income tax treatment of
incentive stock options is as follows. An optionee who meets certain holding
period requirements will not recognize income at the time the option is granted
or at the time the option is exercised, and a federal income tax deduction
generally will not be available to the Company at any time as a result of such
grant or exercise.
Immediately after the closing of this Offering, the following number of
Options will be granted to the following executive officers of the Company with
an exercise price equal to the initial public offering price: 51,000 to Mr.
Schwarz, 45,000 to Mr. Peppel and 15,000 to Mr. Winstel. These Options are
subject to a three year vesting schedule which provides that one-third of such
Options will vest annually.
Non-employee Directors Stock Option Plan. The Company's Non-employee
Directors Stock Option Plan (the "Directors Plan") will provide for automatic
grants of non-qualified stock options on the date of each annual meeting of
stockholders, commencing with the 1997 annual stockholders meeting, to each
non-employee director of the Company, so long as shares of Common Stock remain
available under the Directors Plan. The Directors Plan calls for the grant of
options covering 15,000 shares of Common Stock to each person who is then a
non-employee director at the first annual meeting of shareholders following the
closing of this Offering, which options will vest in 5,000 share increments. The
first increment will vest immediately, the second will vest on the date of the
second annual meeting of shareholders following the closing of this Offering and
the last increment will
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vest on the date of the third annual meeting of shareholders following this
Offering, except that all such options shall become immediately vested if the
Company engages in a Business Combination, as defined by the Articles. See
"Restrictions or Acquisition of the Company - Amended and Restated Articles of
Incorporation, Code of Regulations and Other Provisions." Commencing on the date
of the second annual meeting of shareholders held following the closing of this
Offering, and on the date of each such meeting thereafter, each person who is a
non-employee director, other than the non-employee directors who received the
15,000 share grants at the first such meeting, will be automatically granted a
non-qualified stock option to purchase 5,000 shares of the Common Stock, not to
exceed 15,000 shares for any director. All of the options granted hereunder,
except for the options granted on the date of the first annual meeting, shall
become immediately exercisable in full on the date of grant. The exercise price
of each option is the fair market value of the Common Stock on the date of
grant. These options are also subject to a three year vesting schedule which
provides that one-third of such options will vest annually. Each option expires
upon the earlier of ten years after grant or one year after the death of the
recipient director. A total of 100,000 shares of Common Stock has been reserved
for future grants of options under the Directors Plan. No options have yet been
granted under the Directors Plan.
401(k) Plan. The Company has a 401(k) plan for all employees (the "401(k)
Plan"), age 21 or older, with one year of service. The 401(k) Plan is a
contributory defined contribution plan which is intended to qualify under
Section 401(k) of the Code. Participants may contribute to the 401(k) Plan by
salary reduction up to 20.0% of annual compensation for the year. Such
contribution defers the employee's earnings up to a maximum of $9,500 in each
plan year, indexed annually. The Company may, in its discretion, determine each
year to make a matching contribution out of current or accumulated pre-tax
profit equal to up to 50.0% of the amount deferred by the employee, with a
maximum contribution of 1.5% of the employee's compensation. An employee's
contributions to the 401(k) Plan as well as all employer matching contributions
are vested after one year or 1,000 hours of service at any time during a plan
year. All funds contributed to the 401(k) Plan are held in a trust fund, which
are invested at the direction of the employee in any one or more of five
separate mutual funds: a stock growth fund, an aggressive stock growth fund, a
growth and income equity fund, an income fund and a money market fund.
Contributions by the Company to the 401(k) Plan were $44,852 for the year ended
December 31, 1995.
Section 125 C Cafeteria Plan. All Company employees are eligible to
participate in the Company's Section 125 C Cafeteria Plan (the "C Plan") which
permits employees to deduct all or a portion of their gross wages prior to the
calculation of federal income tax, FICA and Medicare deductions and state income
tax, to be used to pay for the following permissible benefits: group health
insurance, long and/or short-term disability insurance, child care or dental
insurance.
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Profit Sharing Plan. All Company employees (excluding sales personnel and
officers) who have been employed for the calendar year and through the date of
distribution (March 15 of the following year) are eligible to participate in the
Company's profit sharing plan (the "Profit Sharing Plan") which was inaugurated
in 1995. Assuming that the Company achieves projected pre-tax income for the
year, 3.0% of the Company's pre-tax income is set aside for distribution (the
"Profit Sharing Pool") under the Profit Sharing Plan. Employees are entitled to
a portion of the Profit Sharing Pool based on the employee's number of years of
service as of the end of the Profit Sharing Plan year (a "Unit"). Managers of
the Company, who are designated annually, have their Units multiplied times
three, and part-time employees who work an average of 30 hours per week earn
fractions of Units based on the number of hours worked in a 2,080 hour year.
Under the Profit Sharing Plan, one-third of the Profit Sharing Pool is awarded
based on Units and two-thirds is awarded based on the employee's individual
performance as determined by the employee's immediate supervisor. The Company
recorded an expense of $44,852 for the Profit Sharing Plan in 1995.
Split Dollar Life Insurance Agreements. In December 1995, the Company
entered into "split dollar" life insurance agreements, which were amended on May
30, 1996 in conjunction with the acquisition of control of the Company by LLC
(the "Split Dollar Agreements"), with Messrs. Schwarz, Winstel, Newkold and
Turvy (the "Insureds") pursuant to which the Company purchased, and currently
pays the premiums on, and the income tax gross-up at a 40% tax rate for, term
life insurance policies in the face amounts of $1,550,000, $2,300,000,
$1,600,000 and $1,050,000, respectively. While the Company is the owner of the
policies, the Split Dollar Agreements state that the beneficiaries of the
Insureds will be entitled to receive the face value of the policies upon the
death of the Insureds, less the policies' cash value, which, at June 30, 1996,
approximated $112,810, $76,725, $117,864 and $80,316, respectively. The Insureds
have the right to purchase the policies from the Company when they reach age 65
for their then cash surrender values. The cost to the Company for the premiums
for 1995 (the tax gross-up amount was not paid during 1995 for any of the
Insureds) was $40,000 for Mr. Schwarz, $30,000 for Mr. Winstel, $30,000 for Mr.
Newkold and $30,000 for Mr. Turvy and in 1996 will be $44,415 for Mr. Schwarz,
$33,560 for Mr. Winstel, $36,235 for Mr. Newkold and $32,979 for Mr. Turvy. The
Split Dollar Agreements will terminate during the Insureds' lifetimes upon:
(i) the total cessation of the Company's business, or (ii) the bankruptcy,
receivership or dissolution of the Company, and (iii) the Insureds may terminate
the Split Dollar Agreements at any time upon written notice.
Compensation Committee Interlocks and Insider Participation
The Board established a Compensation Committee on August 13, 1996. The
Compensation Committee is currently comprised of Messrs. Liberati, Hecht and
Radcliffe. None of the executive officers of the Company currently serves on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions. The only
transaction which effected the members of the
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Compensation Committee, or their affiliates, during 1996 (there were none in
1995) was the Stock Split of the Company's Common Stock effected on September
25, 1996.
CERTAIN TRANSACTIONS
Related Party Transactions
Lease Agreements. The Company has entered into a lease with Draft
Partnership ("Lessor") for a 30,000 square foot office and warehouse building in
Dayton, Ohio. The general partners of Draft Partnership are James F. Rowland,
the lessor of the Company's current Dayton executive office and warehouse
location and the builder of the new facility (owning a 50% partnership
interest), and Messrs. Schwarz, Winstel, Newkold and Turvy, each of whom own a
12.5% partnership interest. The lease is for a term of ten years commencing upon
delivery of the completed building (which is expected to be in the fourth
quarter of 1996) for a base monthly rental of $20,000 plus the difference
between $1.5 million and the total cost of construction, subject to a
proportionate increase each year after July 1999 based on the increase in the
Consumer Price Index ("CPI"). The Company is responsible for paying all taxes,
public liability insurance but not fire and property damage insurance, and all
utilities on the leased premises. Provided that the Company is not in default
under the lease, it has the option to renew the term of the lease for two
successive terms of five years each, commencing on the expiration of the initial
term. The Lessor has agreed to maintain the exterior of the building, all
structural components and the parking lot, while the Company has agreed to
maintain the interior, including glass, mechanical, electrical, plumbing,
heating and air conditioning, as well as grounds maintenance. In addition, the
Company has indemnified the Lessor against any claims which may arise out of the
Company's occupancy of the leased premises or any act of the Company or its
employees, agents, invitees or licensees.
Management of the Company believes that the terms and conditions of such
lease are no less favorable than those that could be obtained from a
non-affiliated third party in the local real estate market for similar
office/warehouse structures and, although the Company has not obtained a third
party opinion regarding the fairness of the above-described transaction, the
Company believes that the rental and other payments under the lease are at or
below current comparable rates in the local market.
John Schwarz and Robert Schwarz, two employees and stockholders of the
Company who are brothers (but not related to Albert L. Schwarz) and who were
stockholders of Paper Rolls at the time of the acquisition by the Company of the
assets of Paper Rolls in June 1994, and their parents are among the lessors of
the Company's 7,500 square foot office/warehouse facility in Louisville,
Kentucky. This lease is for a ten year term, expiring in June 2004, at a rental
of $2,000 per month, plus an annual increase based on the CPI with the base
month being July 1994. Rent adjusts annually on the first day of July. The
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Company, as lessee, is obligated to pay the taxes, insurance and utilities for
the property and has indemnified the lessors against all liability arising from
injury or damage during the term of the lease to any person or property
occasioned wholly or in part by any act or omission of the Company or any guest,
servant, assign or sub-tenant of the Company.
Management of the Company believes that the terms and conditions of such
lease are no less favorable than those that could be obtained from a
non-affiliated third party in the local real estate market for similar
office/warehouse structures and, although the Company has not obtained a third
party opinion regarding the fairness of the above-described transaction, the
Company believes that the rental and other payments under the lease are at or
below current comparable rates in the local market.
Other Transactions. In connection with the acquisition of control of the
Company in May 1996, LLC purchased 70.0% of the issued and outstanding shares of
voting and non-voting common stock of the Company for $8.0 million in cash and
notes (which notes are due and payable on the effective date of such offering)
or $4.78 per share. Messrs. Liberati, Hecht, Radcliffe, Peppel, Hollenshead and
White (and an investment fund of the Underwriter and of the special counsel to
the Company) are members of LLC. The stockholders of the Company who sold shares
to LLC included Messrs. Schwarz, Winstel, Newkold, Turvy, Huffman and a family
limited partnership affiliated with Mr. Schwarz.
In addition, at the same time, LLC purchased 100.0% of the issued and
outstanding common stock of DDP for a $250,000 loan to Messrs. Hollenshead and
White, stockholders of DDP, which loan is completely cancelable if DDP generates
pre-tax income of $250,000 for the year ended December 31, 1996 and partially
cancelable based upon the amount of pre-tax income generated by DDP which is
less than $250,000. Mr. Peppel was a director and the Chief Financial Officer
and a selling stockholder of DDP, but received no cash consideration in the
transaction. LLC contributed all of the shares of common stock of DDP to the
Company on May 30, 1996. See "Summary - Recent Change of Control of the
Company," "Risk Factors - Control of Existing Management and Certain
Stockholders" and "Dilution."
In conjunction with the purchase of DDP by LLC, LLC agreed to provide the
three selling stockholders of DDP, including Mr. Peppel, a stock incentive so
long as such stockholders remain employees of DDP, as a subsidiary of the
Company, for the years ended December 31, 1996, 1997 and 1998. Under the Stock
Purchase Agreement by and among LLC, DDP and the selling stockholders of DDP
(Messrs. Hollenshead, Peppel and White), LLC has agreed to transfer to each of
the selling stockholders 4,180 shares of Common Stock of the Company at December
31, 1996, 6,855 shares of Common Stock at December 31, 1997, and 5,685 shares to
two of the selling stockholders, and 14,045 shares of Company Common Stock to
Mr. Peppel, at December 31, 1998. If this Offering is consummated, all of such
shares will become immediately vested in the DDP selling stockholders (including
Mr. Peppel) as of the date of such consummation. See "Business - Overview" and
"Principal Stockholders."
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Limitations on Liability and Indemnification Matters. The Company has
adopted provisions in its Articles that eliminate to the fullest extent
permissible under Ohio law the liability of its directors to the Company or its
stockholders for monetary damages except to the extent that it is proved by
clear and convincing evidence that the director took or failed to take action,
and that such action or failure to act involved an act or omission undertaken
with the deliberate intent to cause injury to the Company or was undertaken with
reckless disregard for the best interests of the Company. The Articles do not,
however, affect the liability of directors for the granting of unlawful loans,
dividends or distributions of assets. Under Ohio law, directors will not be
found to have violated their duties to the corporation unless it is proved by
clear and convincing evidence that the director has not acted in good faith, in
a manner he reasonably believes to be in, or not opposed to, the best interests
of the corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances, in any action brought against
the director. However, a director will not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
reliance on information, opinions or reports prepared by counsel or the
Company's auditors to be unwarranted. A director, in determining what he
reasonably believes to be in the best interests of the Company, is allowed by
the General Corporation Law of the State of Ohio ("OGCL") to consider the
interests of the Company's stockholders, and may, in his discretion, consider:
(i) the interests of the Company's employees, suppliers, creditors and
customers; (ii) the local and national economy; (iii) community and societal
considerations; and (iv) the long-term as well as the short-term interests of
the Company and its stockholders, including the possibility that these interests
may be best served by the continued independence of the Company. This limitation
of liability provision is designed to ensure that the ability of the Company's
directors to exercise their best business judgment in managing the Company's
affairs, subject to their continuing fiduciary duties to the Company and its
stockholders, is not unreasonably impeded by exposure to potentially high
personal costs or other uncertainties of litigation.
The Articles also provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, because such person is or was a director, officer, employee or
agent of the Company. Under the terms of the Company's Articles, such
indemnification also will be provided to any person who is or was serving at the
request of the Company as a director, officer, employee, agent or in certain
other capacities of another corporation, partnership, joint venture, trust or
certain other enterprises. Such indemnification is furnished to the full extent
provided by law against expenses (including attorneys' fees), judgments, fines,
excise taxes and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding; if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to a criminal action, if he had no
reasonable cause to believe his conduct was unlawful. However, in an action by
or in the right of the Company, no indemnification will be made if such person
is adjudged liable for negligence or misconduct in the performance of his duty
to the Company unless the court determines that despite such liability, but in
view of all of the
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circumstances, such person is fairly and reasonably entitled to indemnity for
expenses as determined by the court, or unless such action is for an unlawful
loan, dividend or distribution of assets. The indemnification provisions also
permit the Company to pay reasonable expenses in advance of the final
disposition of any action, suit or proceeding as authorized by the Company's
Board of Directors, provided that the indemnified person provides an undertaking
to repay the Company if it is ultimately proved by clear and convincing evidence
in court that his action or failure to act involved an act or omission
undertaken with the deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company and to
reasonably cooperate with the Company concerning the action, suit or proceeding.
The rights of indemnification provided in the Company's Articles are not
exclusive of any other rights which may be available under the Articles or Code
of Regulations of the Company, any insurance or other agreement, by vote of
stockholders or disinterested directors or otherwise. In addition, the Articles
authorize the Company to maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Company or with another entity
at the request of the Company, whether or not the Company would have the power
to provide indemnification to such person. The Company intends to obtain
director and officer liability insurance coverage.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, it is the published opinion of the
Commission that such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
At the present time, there is no pending litigation or proceedings
involving a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not presently
aware of any other threatened litigation or proceeding which may result in a
claim for such indemnification.
PRINCIPAL STOCKHOLDERS
At September 11, 1996, the Company had 2,388,000 shares of its Common
Stock outstanding which were held by 11 stockholders of record.
The following table sets forth as of September 11, 1996 certain
information with respect to the beneficial ownership of the Common Stock, and as
adjusted to reflect the sale of the shares offered hereby, for (i) each person
or entity (including any "group" as defined by Section 13(d)(3) of the
Securities Exchange Act of 1934) known to the Company to be the beneficial owner
of more than 5.0% of the issued and outstanding shares of Common Stock of the
Company, (ii) each director and each Named Executive Officer (See "Management -
Executive Compensation"), and (iii) all current directors and executive officers
as a group.
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The address for all directors and executive officers of the Company is 3884
Indian Ripple Road, Dayton, Ohio 45440.
<TABLE>
<CAPTION>
Number of
Shares Beneficially Number of Shares
Owned Before the Beneficially Owned
Offering(1) After Offering
----------------------------- --------------------------
Name Amount Percent Amount Percent
---- --------- ------- --------- --------
<S> <C> <C> <C> <C>
Pittsburgh Investment Group LLC(2)......................... 1,672,000 70.0% 1,613,480 47.6%
Anthony W. Liberati(3)..................................... -- -- -- --
Albert L. Schwarz(4)....................................... 17,600 * 17,600 *
Robert G. Hecht(5)......................................... -- -- -- --
Harry F. Radcliffe(6)...................................... -- -- -- --
Thomas C. Winstel.......................................... 176,000 7.4 176,000 5.2
Richard A. Newkold......................................... 106,000 4.4 106,000 3.1
Roger E. Turvy(7).......................................... 136,000 5.7 136,000 4.0
Michael E. Peppel(8)....................................... -- -- 25,080 *
John C. Huffman, III....................................... 20,000 * 20,000 *
Mary Stewart............................................... -- -- -- --
Joseph R. Hollenshead, III(9).............................. -- -- 16,720 *
David J. White(10)......................................... -- -- 16,720 *
The Schwarz Family Limited Partnership(11)................. 158,400 6.6 158,400 4.7
All directors and executive officers as a group (12
persons)(12).............................................. 614,000 25.7 672,520 19.9
</TABLE>
- ----------------------
* Less than 1.0%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
that are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
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(2) The business address of LLC is Birmingham Towers, Suite 701, 2100
Wharton Street, Pittsburgh, Pennsylvania 15203. An investment fund
sponsored by the Underwriter and an investment fund composed of certain
of the members of the Company's special counsel are members of LLC.
(3) Does not include the shares of Common Stock owned by LLC. Mr. Liberati
is the Manager - President and Chief Executive Officer of LLC and, as
such, may be deemed to have the power to vote or direct the voting of,
and to dispose and direct the disposition of, the shares of Company
Common Stock owned by LLC.
(4) Does not include the shares owned by the Schwarz Family Limited
Partnership. The general partner of the Schwarz Family Partnership is the
Albert L. Schwarz Family Trust, of which Mr. Schwarz is the sole trustee
and members of his immediate family are the beneficiaries. See footnote
(11), below. Mr. Schwarz disclaims beneficial ownership of the shares
owned by the Schwarz Family Limited Partnership.
(5) Does not include the shares of Common Stock owned by LLC. Mr. Hecht is a
member, but not an officer of, LLC.
(6) Does not include the shares of Common Stock owned by LLC. Mr. Radcliffe
is the Manager - Secretary of LLC and, as such, may be deemed to have the
power to vote or direct the voting of, and to dispose and direct the
disposition of, the shares of the Common Stock owned by LLC.
(7) Includes 24,000 shares of Common Stock owned by Mr. Turvy's spouse who
is an employee of the Company.
(8) Includes the 25,080 shares which will be vested in Mr. Peppel pursuant
to the Stock Purchase Agreement by and between DDP, the selling
stockholders of DDP (including Mr. Peppel) and LLC upon the consummation
of this Offering. See "Certain Transactions - Related Party Transactions
- Other Agreements." Does not include the shares of Common Stock owned by
LLC. Mr. Peppel is the Manager - Treasurer of LLC and, as such, may be
deemed to have the power to vote or direct the voting of, and to dispose
or direct the disposition of, the shares of Company Common Stock owned by
LLC.
(9) Does not include the shares of Common Stock owned by LLC. Mr.
Hollenshead is a member, but not an officer of LLC. Includes the 16,720
shares which will be vested in Mr. Hollenshead pursuant to the Stock
Purchase Agreement by and between DDP, the selling stockholders of DDP
(including Mr. Hollenshead) and LLC upon the Consummation of this
Offering. See "Certain Transactions - Related Party Transactions - Other
Agreements."
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(10) Does not include the shares of Common Stock owned by LLC. Mr. White is a
member, but not an officer of LLC. Includes the 16,720 shares which will
be vested in Mr. White pursuant to the Stock Purchase Agreement by and
between DDP, the selling stockholders of DDP (including Mr. White) and LLC
upon the consummation of this Offering. See "Certain Transactions -
Related Party Transactions - Other Agreements."
(11) Does not include shares of Common Stock owned individually by Albert L.
Schwarz, who is the trustee of the Schwarz Family Trust, an inter vivos
revocable Ohio trust, which is the general partner of the Schwarz Family
Limited Partnership, an Ohio limited partnership. The address for the
Schwarz Family Limited Partnership is 453 Rolling Timber Trail, Kettering,
Ohio 45429.
(12) Does not include shares of Common Stock owned by LLC. Includes shares
held by the Schwarz Family Limited Partnership.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 30,000,000 shares of Common Stock, and
5,000,000 shares of Preferred Stock. The amount of authorized shares of Common
Stock and Preferred Stock reflects the Recapitalization of the Company's equity
from two classes of common stock (voting common stock, without par value, and
non-voting common stock, without par value) to a single class of Common Stock,
without par value, and the Preferred Stock, without par value, as well as the
Stock Split which increased the number of authorized shares from 12,000 shares
of common stock to the number of authorized shares of Common Stock and Preferred
Stock set forth above. The Recapitalization resulted from the filing by the
Company of the Amended and Restated Articles of Incorporation on September 25,
1996. Both the Recapitalization and the Stock Split were effective as of
September 25, 1996. All outstanding shares of Common Stock are fully paid and
nonassessable. Upon the consummation of the Offering, there will be 3,388,000
shares of Common Stock outstanding and no shares of Preferred Stock outstanding.
The Board of Directors may issue additional shares of Common Stock or Preferred
Stock from time to time without the approval of the stockholders.
The following summary description of the Company's capital stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
description of the Company's capital stock contained in the Company's Articles,
a copy of which has been filed with the Commission. Reference is made to the
Articles for a detailed description of the provisions summarized below.
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Common Stock
Dividends. Subject to the prior rights of the holders of any shares of
preferred stock that may be outstanding, the Company may pay dividends as
declared from time to time by the Board of Directors out of funds legally
available therefor. The holders of Common Stock will be entitled to receive and
share equally in such dividends as may be declared by the Board of Directors.
Voting Rights. Except as provided in any resolution or resolutions adopted
by the Board of Directors establishing any series of preferred stock, the
holders of Common Stock possess exclusive voting rights in the Company. Each
holder of shares of Common Stock is entitled to one vote for each share held on
all matters voted upon by stockholders. No holder of the capital stock of the
corporation shall be permitted to cumulate his votes in the election of
directors.
Liquidation. Subject to the prior rights of the holders of any shares of
Company Preferred Stock that may be outstanding, in the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of the Common Stock would generally be entitled to
receive pro rata, after payment of all debts and liabilities of the Company, all
remaining assets of the Company available for distribution.
Preemptive Rights; Redemption. Holders of the Common Stock do not have any
preemptive rights with respect to any shares of capital stock of the Company. In
addition, the Common Stock is not subject to any redemption provisions.
Preferred Stock
None of the Company's authorized Preferred Stock is issued or outstanding.
The Company is authorized to issue 5,000,000 shares of Preferred Stock.
The Board of Directors has the authority to issue the Preferred Stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation of
such series, without any further vote or action by the Company's stockholders.
The Preferred Stock may be issued in distinctly designated series, may be
convertible into Common Stock and may rank prior to the Common Stock as to
dividend rights, liquidation preferences, or both, and may have full or limited
voting rights. Accordingly, the issuance of Preferred Stock could adversely
affect the voting and other rights of holders of Common Stock.
The authorized but unissued shares of Preferred Stock and the authorized
but unissued and unreserved shares of Common Stock are available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other
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<PAGE>
general corporate purposes. Except as otherwise required to approve a
transaction in which the additional authorized shares of Preferred Stock would
be issued or as may be required by the National Association of Securities
Dealers, Inc. (the "NASD") to maintain the quotation of the Common Stock on the
Nasdaq National Market, no stockholder approval would be required for the
issuance of these shares. The issuance of Common or Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the market price of, and the voting and
other rights of, the holders of Common Stock. Except for this Offering, the
Company has no current plans to issue any shares of Common or Preferred Stock.
Transfer Agent
The transfer agent for the Common Stock is the Registrar and Transfer
Company, Cranford, New Jersey.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
Amended and Restated Articles of Incorporation, Code of Regulations
and Other Provisions
General. The following discussion is a general summary of certain
provisions of the Articles and Code of Regulations relating to nominations and
stockholder proposals, special meetings of stockholders, business combinations
and amendments to the Articles and Code of Regulations, which may be deemed to
have an anti-takeover effect. The following description of certain of the
provisions of the Articles and Code of Regulations of the Company is necessarily
general and reference should be made in each case to such Articles and Code of
Regulations, each of which is set forth as an exhibit to the Company's
Registration Statement filed with the Commission. See "Additional Information."
Capitalized terms not otherwise defined shall have the meanings set forth in the
Articles and Code of Regulations.
Nominations and Stockholder Proposals. Article VII.D. of the Articles
governs nominations for election to the Board of Directors, and requires all
nominations for election to the Board of Directors other than those made by the
Board to be made by a stockholder who has complied with the notice provisions in
that section. Article IX.C. of the Articles provides that only such business as
shall have been properly brought before an annual meeting of stockholders shall
be conducted at the annual meeting. Business may be brought before the meeting
by or at the direction of the Board of Directors or otherwise must be properly
brought before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Company. In both
instances, written notice of a stockholder nomination or stockholder proposal
must be communicated to the attention of
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<PAGE>
the Company's secretary and either delivered to, or mailed and received at, the
principal executive offices of the Company for the first such annual meeting
after the filing of the Articles, at the close of business on the tenth day
following the date on which notice of such meeting is first given to
stockholders and, thereafter, not less than 60 days prior to the anniversary
date of the mailing of proxy materials by the Company in connection with the
immediately preceding annual meeting of stockholders of the Company. Each such
notice shall include specified matters set forth in the Articles, including
information relating to the proposal or the nominee or nominees and to the
stockholder who has made the nomination or proposal and any stockholder known to
be supporting such nomination or proposal.
The procedures regarding stockholder nominations and stockholder proposals
will provide the Board of Directors with the information which will be necessary
to evaluate a stockholder nominee to the Board and stockholder proposals and
other relevant information, such as existing stockholder support for the nominee
or business proposal, as well as the time necessary to consider and evaluate
such information in advance of the applicable meeting. The proposed procedures,
however, will provide incumbent directors advance notice of a dissident slate of
nominees for director or of a business proposal not favored by the Board, and
will make it easier for the Board to solicit proxies resisting such nominees or
business proposal. This may make it easier for the incumbent directors to retain
their status as directors or to defeat a stockholder proposal, even when certain
stockholders view the dissident nominations or business proposal as in the best
interests of the Company or its stockholders. In this sense, this provision can
be seen as advantageous to incumbent management and may discourage takeover
attempts.
Special Meetings of Stockholders. Article IX.A. of the Company's Articles
provides that special meetings of the Company's stockholders, for any purpose or
purposes, may only be called by the Chairman of the Board, the President or a
majority of the Whole Board of Directors and a majority of the Continuing
Directors, as defined below, or by holders of not less than 50% of all votes
entitled to be cast on any issue proposed to be considered at such special
meeting. The provisions in the Articles accordingly effectively require a
majority vote of the stockholders or enable the Chairman of the Board, the
President or a majority of the Whole Board of Directors and a majority of the
Continuing Directors to determine if it is appropriate for the Company to incur
the expense of a special meeting in order to present a proposal to stockholders.
Business Combinations. Article X of the Articles governs any proposed
"Business Combination" (defined generally to include certain sales, purchases,
exchanges, leases, transfers, dispositions or acquisitions of assets, mergers or
consolidations, or certain reclassifications of securities of the Company)
between the Company, on the one hand, and a Related Person, on the other hand. A
"Related Person" is defined generally to include any person, partnership,
corporation, group or other entity (other than the Company or LLC) which is the
Beneficial Owner (as defined) of 10.0% or more of the shares of the Company
entitled to vote ("Voting Shares") generally in an election of directors (i.e.,
control).
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<PAGE>
Under Article X.B., if certain specified conditions (discussed in the
following four paragraphs) are not met, the Company may not become a party to
any Business Combination without the prior affirmative vote at a meeting of the
Company's stockholders by the holders of at least 80.0% of the Voting Shares,
voting separately as a class, and by an Independent Majority of Stockholders,
which is defined to mean the holders of a majority of the outstanding Voting
Shares that are not Beneficially Owned (as defined), directly or indirectly, by
a Related Person. If such approval were obtained, the specified conditions would
not have to be met. Such conditions also would not have to be met if the Board
of Directors approved the Business Combination at times and by votes specified
in the Articles.
The conditions necessary to avoid the vote of 80.0% of the Company's
outstanding Voting Shares and of an Independent Majority of Stockholders include
conditions providing that, upon consummation of the Business Combination, all of
the Company's stockholders would receive at least a certain minimum price per
share for their shares. The ratio of the price to be received by the
stockholders (other than the Related Person) in the Business Combination to the
market price of the Company's shares immediately before the announcement of the
Business Combination would have to be at least as great as the ratio of (i) the
highest per share price paid by the Related Person in acquiring any of the
Company Common Stock prior to the Business Combination to (ii) the market price
per share of the Company Common Stock immediately before the initial acquisition
of any shares by the Related Person. A similar condition would apply in the case
of the price to be paid for any outstanding shares of the Company's Preferred
Stock. These requirements generally are designed to ensure that the stockholders
receive the benefit of any premium paid by the Related Person in acquiring any
of its holdings. The price to be received by stockholders in the Business
Combination also would have to be not less than the highest per share price paid
by the Related Person in acquiring any of its holdings.
Another condition necessary to avoid the increased vote requirements is
that the consideration to be received in the Business Combination by holders of
stock must be in the same form and of the same kind as the consideration paid by
the Related Person in acquiring stock already owned by it (except to the extent
that each individual stockholder might agree to accept consideration of a
different form or kind in exchange for all or part of the shares which he or she
owns). Thus, for example, if the Related Person had acquired his or her initial
share interest for cash, the remaining stockholders would have to be offered
cash in the Business Combination and would not have to accept stock or debt of
another corporation or institution.
In order to avoid the supermajority voting requirements of Article X.B.,
the Related Person also would have to comply with certain other conditions after
he or she acquired his or her 10.0% interest in the Company. These conditions
include the following: (i) the Related Person must ensure that the Company's
Board of Directors included representation by "Continuing Directors" (generally,
those directors at the time of effectiveness of the Articles, whether or not a
Related Person or Associate or Affiliate (as defined) of a Related Person, and
those directors who are not affiliated with the Related Person and who are
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elected as directors prior to the time the Related Person became such or with
the recommendation of a majority of other Continuing Directors) in proportion to
the holdings of the other stockholders; (ii) the Related Person must have
refrained from acquiring additional capital stock of the Company with certain
limited exceptions, and must have refrained from acquiring additional Voting
Shares, or securities convertible into or exchangeable for Voting Shares, after
he or she became a Related Person; (iii) the Related Person must not have
received certain specified benefits from the Company, such as loans or
guarantees, and, except with the approval of a majority of the directors and a
majority of the Continuing Directors, must not have made any major change in the
Company's business or equity capital structure or entered into any contract with
the Company; and (iv) except as approved by a majority of the directors and a
majority of the Continuing Directors, there must have been no failure to pay
dividends on any outstanding Company Preferred Stock, no reduction in annual
dividends paid on the Company Common Stock, and increases in annual dividends as
necessary to reflect any reclassification, recapitalization, reorganization or
similar transaction which has the effect of reducing the number of outstanding
shares of stock. Finally, a proxy statement must have been sent to stockholders
in connection with the Business Combination. Such proxy statement must contain
the recommendations, if any, of the Continuing Directors, and of any investment
banking firm selected by a majority of the Continuing Directors, as to the
fairness of the Business Combination from the point of view of the stockholders.
If all of the foregoing conditions are met, the increased voting
requirements described above would be dispensed with and the Business
Combination would require only such approval, if any, as would otherwise be
required by Ohio law.
Article X is intended to provide minimum safeguards for stockholders who
do not accept a takeover attempt and continue to hold their shares after the
attempt succeeds and the control of the Company is acquired by a Related Person.
The requirement of an 80.0% stockholder vote probably means that a Business
Combination which fails to meet the minimum price and other conditions might not
be accomplished against the opposition of the incumbent Board of Directors,
members of which, along with the executive officers of the Company and LLC, will
beneficially own 2,286,000 shares or 67.4% of the Common Stock after the
Offering, which amount does not include shares of Common Stock which may be
immediately acquired upon the vesting of outstanding stock rights. See
"Principal Stockholders."
The provisions would not restrict another company which merely desired to
exercise control over the Company and did not intend to effect a subsequent
Business Combination. Moreover, these provisions may not apply to an attempted
combination with a person not a Related Person. On the other hand, if another
company obtaining control over the Company were not willing to meet the price
and other conditions of Articles X.B., the holders of just over one-fifth of the
outstanding Voting Shares could block a Business Combination supported by the
remaining stockholders. The result is that Business Combinations favored by a
majority of stockholders might not be approved. Article X.B. might also
discourage a tender offer for the Company's stock because of the resulting need
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either to observe the minimum price requirements or to obtain an 80.0%
stockholder vote as a precondition to any subsequent Business Combination. This
might have the effect of preventing temporary fluctuations in the market price
of the stock of the Company which could result from actual or rumored takeover
attempts.
Amendment of Articles and Code of Regulations. Article XI of the Company's
Articles provides that any amendment of the Articles must be first approved by a
majority of the Board of Directors and thereafter by the holders of two-thirds
of the shares of the Company entitled to vote in an election of directors, but
the approval of 75.0% of the shares of the Company entitled to vote in an
election of directors is required for any amendment to Articles VI (pre-emptive
rights), VII (directors), VIII (indemnification), IX (relating to meetings of
stockholders), and XI (amendments). In addition, Article X.E. of the Company's
Articles provides that Article X may not be changed, amended or repealed without
the affirmative vote of the holders of at least 80.0% of the Voting Shares and
by an Independent Majority of Stockholders (as such terms are defined, see
"- Business Combinations"). However, any such change, amendment or repeal to
Article X of the Company's Articles approved by two-thirds of the Whole Board of
Directors and a majority of the Continuing Directors, as defined, is not subject
to the approval requirements of Article X.E.
Article XI of the Articles provides that the Code of Regulations of the
Company may be adopted, altered, amended or repealed by the affirmative vote of
a majority of the stockholders of the Company at any regular or special meeting
of the stockholders called for that purpose.
Ohio General Corporation Law. The General Corporation Law of the State of
Ohio, the state in which the Company is incorporated and maintains its principal
executive office, contains certain provisions that may have the effect of
delaying, deterring or preventing a change in control of the Company. All
information set forth below regarding the OGCL is necessarily general in nature
and reference should be made to the OGCL for more specific, detailed
information.
Control Share Acquisition. Because the Articles are silent on this matter,
Section 1701.831 of the OGCL regarding shareholder review of control share
acquisitions will apply to the Company. A "control share acquisition" is defined
as the acquisition, directly or indirectly, by any person of shares of an Ohio
corporation having fifty or more stockholders (an "Ohio Public Company") that,
when added to all other shares of the corporation in respect of which such
person may exercise or direct the exercise of voting power, would entitle such
person, immediately after such acquisition, directly or indirectly, alone or
with others, to exercise or direct the exercise of the voting power of the
corporation in the election of directors within any of the following ranges of
voting power: (i) one fifth or more, but less than one third; (ii) one third or
more, but less than a majority; or (iii) a majority or more. No person may make
a control share acquisition unless: (i) the shareholders of the corporation by a
majority vote (excluding the shares held by the person
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proposing the control share acquisition), at a special meeting held for such
purpose, to authorize such acquisition, and (ii) such acquisition is consummated
no later than 360 days following such shareholder authorization. The special
meeting of shareholders must be preceded by the filing by the person proposing
the control share acquisition of a statement which details the proposed
acquisition and notice of the special meeting.
Transactions Involving Interested Shareholders. Chapter 1704 of the OGCL
regulates certain transactions by Ohio Public Companies and a person who,
directly or indirectly, alone or with others, can exercise or direct the
exercise of 10.0% of the voting power of the Ohio Public Company in an election
of directors (the "Interested Shareholder"). Although the Articles of the
Company have been amended to make Chapter 1704 inapplicable to the Company,
Section 1704.05(F)(2) requires that the Company be precluded from engaging in a
Chapter 1704 transaction until September 25, 1997. A "Chapter 1704 transaction"
is a merger, consolidation, combination or majority share acquisition between
the Ohio Public Company and the Interested Shareholder, a purchase, lease, sale,
distribution, dividend, mortgage, pledge or other disposition of at least 5.0%
of the assets, or 5.0% of the outstanding shares or 10.0% of the earnings power
or income of the Ohio Public Company by, to or with an Interested Shareholder,
the issuance or transfer to an Interested Shareholder of any shares, or rights
to acquire shares, of the Ohio Public Company if the shares or rights have an
aggregate fair market value equal to 5.0% of all outstanding shares of the Ohio
Public Company, the adoption of a plan for the dissolution or liquidation of the
Ohio Public Company by or on behalf of an Interested Shareholder, or a
reclassification, recapitalization, merger or consolidation of the Company, the
effect of which is to increase the proportionate shares of the Ohio Public
Company's outstanding shares owned by the Interested Shareholder. After
September __, 1997, any such transactions will be governed by Article X of the
Company's Articles. See "- Business Combinations."
Control Bids. No person may make a control bid for the Common Stock of the
Company pursuant to a tender offer or a request or invitation for tenders until
such person has filed with the Ohio Division of Securities (the "Division") and
the Company a control bid information statement. A "control bid" is defined by
Section 1707.01 of the OGCL as the purchase or offer to purchase any equity
security of a company located in Ohio, which has more than 10.0% of its record
equity security holders who are residents of such state, from a resident of Ohio
where, after such purchase, the offeror would own more than 10.0% of any class
of the issued and outstanding equity securities of such issuer. Within three
calendar days of the filing of the control bid information statement, the
Division may summarily suspend the continuation of the control bid if the
Division determines that the information given in the information statement does
not provide full disclosure to offerees of all material information relating to
the control bid. A hearing will be scheduled on such suspension. In addition, no
offeror may make a control bid that is not made to all holders residing in Ohio,
or that is not made to such holders on the same terms as the control bid made to
holders residing outside of the state of Ohio. Further, no offeror may acquire
from any resident of Ohio any equity security within two years following the
last acquisition of any security of the same class pursuant to a control bid by
such offeror unless the resident
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is afforded, at the time of the later acquisition, a reasonable opportunity to
dispose of the security to the offeror upon substantially the same terms as
those provided in the earlier control bid.
Disgorgement. For the purpose of preventing manipulative practices by a
person who makes a proposal, or publicly discloses the intention or possibility
of making a proposal, to acquire control of the Company, Section 1707.043 of the
OGCL states that any profit in excess of $250,000 realized, directly or
indirectly, from the disposition of any equity securities of the Company by a
person who, within 18 months before the disposition, directly or indirectly,
alone or in concert with others, made a proposal, or publicly disclosed the
intention or possibility of making a proposal, to acquire control of the
Company, inures to the Company and is recoverable by the Company by an action
brought within two years after the date of the disposition of such securities.
Anti-Takeover Effects. The Board of Directors believes that the foregoing
provisions in the Articles of the Company are prudent and, together with
applicable state law, will reduce vulnerability to takeover attempts and certain
other transactions that are not negotiated with and approved by the Board of
Directors of the Company. The Board of Directors believes that these provisions
are in the best interests of the Company and its current and future
stockholders. In the Board of Directors' judgment, the Board of Directors is in
the best position to determine the true value of the Company and to negotiate
more effectively for what may be in the best interests of its stockholders.
Accordingly, the Board of Directors believes that it is in the best interests of
the Company and its current and future stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors and that these
provisions will encourage such negotiations and discourage hostile takeover
attempts. It is also the Board of Directors' view that these provisions should
not discourage persons from proposing a merger or other transaction at prices
reflective of the true value of the Company and where the transaction is in the
best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to the Company's
stockholders of the foregoing provisions, these provisions also may have the
effect of discouraging a future takeover attempt in which stockholders might
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. The Board of Directors, however, has
concluded that the potential benefits of these provisions outweigh their
possible disadvantages. The Board of Directors of the Company is not aware of
any present effort that might be made to acquire control of the Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of
the Company. Sales of substantial shares of Common Stock in the public market
following this Offering could adversely affect the market price of the Common
Stock prevailing from time to time.
Upon completion of this Offering, the Company will have approximately
3,388,000 shares of Common Stock outstanding. Of these shares, all of the shares
sold in this Offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares purchased by an
existing "affiliate" of the Company as that term is defined in the Securities
Act (an "Affiliate"), which shares will be subject to the resale limitations of
Rule 144 adopted under the Securities Act ("Rule 144"). On the date of this
Prospectus, _________ "restricted shares" as defined in Rule 144 will be
outstanding. Of such shares, and without consideration of the contractual
restrictions described below, _______ shares would be available for immediate
sale in the public market without restriction pursuant to Rule 144(k). Beginning
90 days after the date of this Prospectus, and without consideration of the
contractual restrictions described below, _______ additional shares would be
eligible for sale in reliance upon Rules 144 or Rule 701 promulgated under the
Securities Act. An additional _______ shares will become available for sale in
reliance upon Rule 144 at various dates after ____, 1996.
All stockholders of the Company have agreed not to directly or indirectly,
offer, sell, agree to sell, grant any option for the sale of, or otherwise
dispose (or announce any offer, sale, grant of an option for sale of other
disposition) of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
the Common Stock, for a period of 270 days after the consummation of the
Offering, without the prior written consent of the Underwriter. The Underwriter
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. As a result of
these contractual restrictions and the provisions of Rules 144 and 701, all of
the restricted shares will be available for sale in the public market after
___________, 1997.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least two years
(including the holding period of any prior owner except an Affiliate of the
Company) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding; or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an
81
<PAGE>
Affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Subject to the
contractual restrictions described above, "144(k) shares" may therefore be sold
immediately upon the completion of this Offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Exchange Act, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after the
date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than Affiliates subject only to the manner of sale provisions of
Rule 144 and by Affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements. As soon as practical after the closing of
their Offering, the Company intends to register under Rule 415 of the Securities
Act up to 6,000,000 shares of its Common Stock under the Securities Act for use
by the Company in connection with future acquisitions. These shares will
generally be freely traceable after their issuance, unless the sale thereof is
contractually restricted.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Company and Friedman, Billings, Ramsey & Co., Inc. (the
"Underwriter"), the Underwriter has agreed to purchase, and the Company has
agreed to sell, all of the shares of Common Stock offered hereby.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will be obligated to purchase all of the shares of Common Stock if any are
purchased.
The Underwriter proposes initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $___ per share of Common Stock. After the initial public offering, the
offering price and concession may be changed.
82
<PAGE>
The Company has granted the Underwriter an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an aggregate of 150,000
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price less the underwriting discount. If the Underwriter
exercises such over-allotment option, then the Underwriter will have a firm
commitment, subject to certain conditions, to purchase such of the additional
shares as it may require.
At the request of the Company, up to 100,000 shares of Common Stock in the
Offering have been reserved for sale at the initial public offering price to the
Company's officers, directors, employees and customers. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such shares. Any reserved shares not purchased will
be offered by the Underwriter to the general public on the same basis as the
other shares available in the Offering.
The Company, its directors, executive officers and stockholders, including
LLC, have agreed that they will not, directly or indirectly, offer, sell, agree
to sell, grant any option for the sale of, or otherwise dispose (or announce any
offer, sale, grant of an option for sale or other disposition) of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock for a period of 270 days after the consummation of the Offering
without the prior written consent of the Underwriter except that the Company may
issue shares of Common Stock in connection with acquisitions.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make in respect thereof.
The Underwriter has informed the Company that the Underwriter does not
intend to confirm sales to accounts over which it exercises discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock. There can be no assurance that any active trading market will develop for
the Common Stock or as to the price at which the Common Stock may trade in the
public market from time to time subsequent to the Offering. The initial offering
price will be determined through negotiations between the Company and the
Underwriter. Among the factors to be considered in making such determination
will be prevailing market conditions, the Company's financial and operating
history and condition, its prospects and the prospects for its industry in
general, the management of the Company and recent market prices of securities of
companies in industries similar to that of the Company.
The Company has applied to have the Common Stock quoted and traded on the
Nasdaq National Market under the symbol "MCSC."
The Company has agreed to pay the Underwriter a non-accountable expense
allowance equal to 100.0% of the Underwriter's out-of-pocket expenses in excess
of $75,000 up to a
83
<PAGE>
maximum of $75,000, 100.0% of such expenses in excess of $187,500 up to a
maximum of $37,500, and 50.0% of such expenses in excess of $225,000. The
Company has also engaged the Underwriter to act as financial advisor, placement
agent and underwriter to the Company in connection with certain financings,
sales, transfers, mergers, consolidations, or other similar transactions
involving the Company during the period ending 24 months after the closing of
the Offering. In connection with such engagement, the Company has paid the
Underwriter a retainer fee of $25,000 which will be credited against the
underwriting discount paid to the Underwriter upon the closing of the Offering.
As of the date of this Prospectus, FBR Private Equity Fund, L.P., a
Delaware limited partnership, and an affiliate of the Underwriter, beneficially
owned 11.5% of LLC, the controlling stockholder of the Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. Certain
legal matters will be passed upon for the Underwriter by O'Sullivan, Graev &
Karabell, LLP, New York, New York. As of the date of this Prospectus, a general
partnership composed of certain members of Elias, Matz, Tiernan & Herrick L.L.P.
beneficially owned 12.6% of LLC.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and June 30, 1996 and for each of the three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996 included in
this Prospectus have been so included and in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of DDP, as of December 31, 1995 and
1994 and May 30, 1996 and for each of the two years in the period ended December
31, 1995 and for the period January 1, 1996 through May 30, 1996 included in
this Prospectus have been so included and in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
84
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (which includes all amendments thereto) under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted from the Prospectus as permitted by the rules
and regulations promulgated by the Commission. For further information
pertaining to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules thereto, which may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission, Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and, in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
Upon consummation of this Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith will file reports and other
information with the Commission. Such reports and other information (including
proxy and information statements) filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10007; and Chicago Regional Office, 500
West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed
rates. In addition, the Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company. If the Company is listed on the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") National Market System after the
Offering, such information may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.,
20006.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
<TABLE>
<S> <C>
Report of Independent Accountants...................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996......... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995 and for the six months ended June 30, 1996................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and for the six months ended June 30, 1996................................... F-5
Notes to Consolidated Financial Statements............................................. F-6
DIVERSIFIED DATA PRODUCTS, INC.
Report of Independent Accountants...................................................... F-17
Consolidated Balance Sheets as of December 31, 1994 and 1995 and May 30, 1996.......... F-18
Consolidated Statements of Operations for the years ended December 31, 1994 and
1995 and for the period from January 1, 1996 to May 30, 1996.......................... F-19
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and
1995 and for the period from January 1, 1996 to May 30, 1996.......................... F-20
Notes to Consolidated Financial Statements............................................. F-21
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of
Miami Computer Supply Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Miami Computer Supply
Corporation and its subsidiaries (the Company) at June 30, 1996, December 31,
1995 and 1994, and the results of their operations and their cash flows for the
six months ended June 30, 1996, and for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
August 21, 1996,
except for Note 17
which is as of September 25, 1996.
F-2
<PAGE>
Miami Computer Supply Corporation
Consolidated Balance Sheet
December 31, 1994 and 1995, and June 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
------------ --------
<S> <C> <C> <C>
1994 1995 1996
Assets
Current assets
Cash $ 97,081 $ 1,900 $ 17,074
Accounts receivable (Note 4) 5,008,301 5,155,236 7,403,110
Inventories 2,332,005 2,943,504 4,004,950
Prepaid expenses 30,094 37,155 91,067
Deferred tax assets (Note 10) 70,184 69,052 70,752
----------- ----------- -----------
Total current assets 7,537,665 8,206,847 11,586,953
----------- ----------- -----------
Property and equipment - net of accumulated
depreciation (Note 6) 477,506 535,241 577,890
----------- ----------- -----------
Other assets:
Deposits 101,663 96,749 204,181
Cash surrender value officers' life insurance 258,880 419,779 426,582
Intangible assets 406,600 285,520 225,280
----------- ----------- -----------
767,143 802,048 856,043
----------- ----------- -----------
Total assets $ 8,782,314 $ 9,544,136 $13,020,886
=========== =========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Line-of-credit (Note 5) $ 2,932,661 $ 3,531,467 $ 5,300,000
Accounts payable - trade 2,503,839 2,132,480 3,522,609
Accrued expenses, payroll taxes and withholdings 806,725 805,796 850,815
Accrued income taxes 283,910 221,414 --
Current portion of long-term debt (Note 5) 66,585 5,413 9,252
----------- ----------- -----------
Total current liabilities 6,593,720 6,696,570 9,682,676
Long-term debt (Note 5) 5,890 477 --
Other long-term liabilities 284,120 163,640 103,400
Deferred taxes (Note 10) 59,669 51,661 64,389
----------- ----------- -----------
Total liabilities 6,943,399 6,912,348 9,850,465
Stockholders' equity (Note 12):
Common stock, no par value; 12,000 shares authorized,
1,194 shares outstanding at December 31, 1994,
11,940 shares outstanding at December 31, 1995,
and June 30, 1996, respectively -- -- --
Additional paid-in capital 25,225 25,225 304,951
Retained earnings 1,828,690 2,621,563 3,160,196
Unearned compensation (Note 12) -- -- (279,726)
----------- ----------- -----------
1,853,915 2,646,788 3,185,421
Less - Treasury common stock, at cost
(shares 1994 - 6; 1995 - 60; 1996 - 60) 15,000 15,000 15,000
----------- ----------- -----------
Total stockholders' equity 1,838,915 2,631,788 3,170,421
----------- ----------- -----------
Total liabilities and stockholders' equity $ 8,782,314 $ 9,544,136 $13,020,886
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
Miami Computer Supply Corporation
Consolidated Statement of Operations
Years Ended December 31, 1993, 1994 and 1995, and the Six Months Ended
June 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
----------------------------------- ------------
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Net sales $ 29,044,731 $ 35,690,105 $ 43,320,922 $ 26,247,459
Operating costs:
Cost of sales 23,307,988 28,249,947 34,641,904 21,161,836
Selling, general and
administrative expenses 5,221,024 6,219,104 7,124,661 4,033,438
------------ ------------ ------------ ------------
Total operating costs 28,529,012 34,469,051 41,766,565 25,195,274
------------ ------------ ------------ ------------
Operating income 515,719 1,221,054 1,554,357 1,052,185
Interest expense (141,081) (204,406) (274,077) (142,587)
Other income 11,740 10,767 21,722 11,114
------------ ------------ ------------ ------------
Income before income taxes 386,378 1,027,415 1,302,002 920,712
Provision for income taxes
(Note 10) 164,743 417,680 509,129 382,079
------------ ------------ ------------ ------------
Net income $ 221,635 $ 609,735 $ 792,873 $ 538,633
============ ============ ============ ============
Earnings per share of common
stock $ .09 $ .26 $ .33 $ .23
============ ============ ============ ============
Weighted average number of
common shares outstanding 2,356,000 2,320,000 2,388,000 2,388,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
Miami Computer Supply Corporation
Consolidated Statement of Cash Flows
Years Ended December 31, 1993, 1994 and 1995, and Six Months Ended June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
-------------------------------------- ------------
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Cash provided from (used in) operating activities:
Net income $ 221,635 $ 609,735 $ 792,873 $ 538,633
Adjustments for items not affecting funds
from operations:
Depreciation and amortization 179,691 244,439 292,211 144,679
Provision for obsolete inventory 91,651 24,491 11,791 --
Deferred income taxes (36,780) 2,097 (6,876) --
------------ ------------ ------------ ------------
456,197 880,762 1,089,999 683,312
Changes in assets and liabilities
net of effects of acquisitions of
businesses:
Accounts receivable (523,495) (975,350) (146,935) (1,363,445)
Inventories 53,131 (696,691) (623,290) 262,765
Prepaid expenses (8,737) 23,201 (7,061) (35,953)
Deposits (2,782) (23,543) 4,914 (107,432)
Accounts payable - trade (349,415) 1,021,975 (371,359) 563,953
Accrued expenses 153,466 176,526 (929) (17,752)
Accrued income taxes (92,110) 278,019 (62,496) (215,064)
------------ ------------ ------------ ------------
(769,942) (195,863) (1,207,156) (912,928)
------------ ------------ ------------ ------------
Cash (used in) provided by
operating activities (313,745) 684,899 (117,157) (229,616)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (122,269) (125,769) (228,866) (62,530)
Investment in cash surrender value
officers' life insurance (84,239) (75,871) (160,899) (6,803)
Purchase of Datron Products, Inc. (130,611) -- -- --
Purchase of Paper Rolls &
Computer Supplies, Inc. -- (505,986) -- --
Cash included in the acquisition of
Diversified Data Products, Inc. -- -- -- 109,467
------------ ------------ ------------ ------------
Cash (used in) provided by
investing activities (337,119) (707,626) (389,765) 40,134
------------ ------------ ------------ ------------
Cash flows from financing activities:
Borrowings under line-of-credit 850,942 9,682,562 12,707,419 6,041,274
Payments under line-of-credit -- (9,441,469) (12,108,613) (5,772,741)
Principal payments on long-term debt (60,858) (66,905) (66,585) (3,637)
Payments under non-competition agreements (68,320) (111,480) (120,480) (60,240)
Purchase of treasury stock (70,000) (95,000) -- --
Proceeds from sale of treasury stock -- 150,000 -- --
------------ ------------ ------------ ------------
Cash provided by financing
activities 651,764 117,708 411,741 204,656
Net increase (decrease) in cash 900 94,981 (95,181) 15,174
Cash - Beginning of year 1,200 2,100 97,081 1,900
------------ ------------ ------------ ------------
Cash - End of year $ 2,100 $ 97,081 $ 1,900 $ 17,074
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. Organization and Operations
Miami Computer Supply Corporation (the "Company") sells a wide variety of
computer supplies to corporate customers, governmental agencies,
universities, hospitals and, to a lesser extent, computer supply dealers.
Its primary sales products include laser printer supplies, printer
cartridges, ribbons, presentation products and paper. The Company operates
one centralized distribution center in Dayton, Ohio and three smaller
distribution centers in Rochester, New York, Louisville, Kentucky and Ann
Arbor, Michigan. The Company also maintains 15 sales offices primarily in
the midwest and northeast regions of the United States. The Company
provides next-day delivery of ordered items.
Effective May 30, 1996, Pittsburgh Investment Group LLC (LLC) acquired 70
percent of the outstanding shares of the Company for $4.0 million in cash
and $4.0 million in promissory notes. Concurrent with this acquisition,
LLC also acquired from third parties 100 percent of the outstanding common
stock of Diversified Data Products, Inc., a Michigan corporation (DDP) and
contributed its stock in DDP to the Company. As a result, DDP, a computer
supply and office automation distributor, became a wholly owned subsidiary
of the Company on May 30, 1996.
The operating results and cash flows of DDP have been included in the
consolidated statement of operations and the consolidated statement of
cash flows for the six months ended June 30, 1996 from the date of
acquisition.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Consolidation
All subsidiaries which are wholly-owned are included in the consolidated
financial statements. Intercompany accounts and transactions are
eliminated.
Revenue Recognition
Revenues from the sale of products are recognized upon passage of title to
the customer which coincides with shipment.
Inventories
Inventories are stated at lower of cost or market. Cost is determined
using a weighted average method. Inventories consist primarily of products
held for resale.
Derivative Instruments
Forward foreign currency contracts are used to manage currency risks
relating to existing assets or liabilities denominated in a foreign
currency. Gains or losses are recognized in income in the current period.
Net contract values are included in receivables or payables as
appropriate.
F-6
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Fair Value of Financial Instructions
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and deposits - The carrying amount reported in the balance sheet
approximates fair value.
Foreign currency exchange contracts - The fair value of the Company's
foreign exchange contracts is estimated based on quoted market prices of
comparable contracts.
Short- and long-term debt - The carrying amounts of the Company's
borrowings approximate their fair value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful
lives of the assets. Depreciation and amortization periods are as follows:
Estimated
useful lives
------------
Furniture and fixtures 5 to 7 years
Equipment 3 to 7 years
Leasehold improvements 3 to 5 years
Vehicles 5 years
Retirement and Disposal of Properties
The cost of properties retired or otherwise disposed of, together with the
accumulated depreciation provided thereon, is eliminated from the accounts.
This net gain or loss is recognized in other income and expense.
Long-Lived Assets
The Company assesses impairment of assets on an annual basis using a
discounted cash flow approach.
Income Taxes
Income taxes are recognized during the year in which transactions enter
into the determination of financial statement income. Deferred tax assets
and liabilities are recognized for the future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets
and liabilities.
F-7
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Insurance
The Company maintains life insurance policies on its key employees which
are recorded at the net cash surrender value.
Earnings Per Share
Earnings per common share is calculated based on the weighted average
number of shares of common stock and common stock equivalents outstanding
during each period.
Advertising Costs
Costs of advertising are expensed as incurred.
3. Acquisitions
Effective May 30, 1996, LLC contributed its stock in DDP to the Company.
See also discussion in Note 1. The acquisition of DDP by the Company has
been accounted for using the purchase method of accounting; and
accordingly, the purchase price has been allocated to the assets based upon
the fair value of the liabilities assumed as of May 30, 1996.
The purchase price was allocated as follows:
Cash $ 109,467
Accounts receivable - net 1,152,626
Inventories 1,327,685
Other assets 79,484
----------
Purchase price $2,669,262
==========
The operating results of DDP have been included in the statement of
operations from the date of acquisition. The following unaudited pro forma
information has been prepared assuming that this acquisition had taken
place at the beginning of the respective periods. This pro forma financial
information is presented for information purposes only and may not be
indicative of what the actual results of operations might have been if the
acquisition had been effective at the beginning of 1995.
Six Months
Year Ended Ended
December 31, June 30,
1995 1996
---- ----
(Unaudited)
Net sales $56,677,622 $31,466,073
Net income $811,969 $537,339
Earnings per share $.34 $.23
F-8
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Effective June 30, 1994, the Company acquired the assets and the ongoing
business of Paper Rolls & Computer Supplies, Inc. ("Paper Rolls"), a
computer supply distributor located in Louisville, Kentucky for cash of
$505,986. In addition, the Company agreed to pay $72,000 over a 4-year
period beginning July 1, 1994, for agreements with the former owners not
to compete and for goodwill.
The acquisition has been accounted for using the purchase method of
accounting; and accordingly, the purchase price has been allocated to the
assets purchased based upon the fair values at the date of acquisition.
The purchase price was allocated as follows:
Accounts receivable - net $295,530
Inventories 155,185
Property and equipment 55,271
Intangible asset - Noncompetition agreement 32,000
Goodwill 40,000
-------
Purchase price $577,986
========
The operating results of Paper Rolls have been included in the statement
of operations from the date of acquisition. The following unaudited pro
forma information has been prepared assuming that this acquisition had
taken place at the beginning of the respective periods. This pro forma
financial information is presented for information purposes only and may
not be indicative of what the actual results of operations might have been
if the acquisition had been effective at the beginning of 1993.
Year Ended
December 31,
----------------------------
1993 1994
(Unaudited)
Net sales $32,580,767 $37,362,867
Net income $238,212 $610,601
Earnings per share $.10 $.26
In connection with the acquisition, employment agreements were entered
into with certain of the former owners. As part of the employment
agreement, two of these officers were granted an option to purchase up to
30 shares of the Company's stock for a period of four years from the
acquisition date at book value as determined by the Company's Board of
Directors on an annual basis. The exercise price of the options was
equivalent to the determined book value. These options were exercised in
1994.
F-9
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
On May 3, 1993, the Company acquired all of the outstanding shares of
Datron Computer Products, Inc. ("Datron"), a computer supply distributor
located in Rochester, New York, for a cash payment of $133,917 and
assumption of $394,268 in liabilities. In addition, the Company agreed to
pay $512,400 over a 5-year period beginning on May 1, 1994, for an
agreement with the former owner not to compete.
The acquisition has been accounted for using the purchase method of
accounting; and accordingly, the purchase price has been allocated to the
assets purchased based upon the fair value at the date of acquisition.
The purchase price was allocated as follows:
Accounts receivable - net $ 302,371
Inventories 110,658
Property and equipment 57,065
Intangible asset - Noncompetition agreement 512,400
Other assets 58,091
----------
Purchase price $1,040,585
==========
The Company's obligations under the purchase agreement with Datron are
guaranteed by certain officers of the Company (see Note 5).
The operating results of Datron have been included in the statement of
operations from the date of acquisition. On the basis of a pro forma
consolidation of the results of operations as if the acquisition had taken
place at the beginning of the fiscal 1993 rather than at April 30, 1993,
net sales would have been $29,248,282 for the year ended December 31,
1993. Net income would have been $219,229 and earnings per share would
have been $.09, respectively, for the year ended December 31, 1993. Such
pro forma amounts are unaudited and are not necessarily indicative of what
the actual results of operations might have been if the acquisition had
been effective at the beginning of 1993.
4. Accounts Receivable
<TABLE>
<CAPTION>
December 31, June 30,
----------------- --------
1994 1995 1996
<S> <C> <C> <C>
Trade customers $4,763,109 $5,071,100 $7,187,569
Other 251,192 90,136 226,541
---------- ---------- ----------
5,014,301 5,161,236 7,414,110
Less - Allowance for doubtful
accounts (6,000) (6,000) (11,000)
---------- ---------- ----------
$5,008,301 $5,155,236 $7,403,110
========== ========== ==========
</TABLE>
F-10
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
5. Borrowing Arrangements
The following is a summary of the Company's borrowings:
<TABLE>
<CAPTION>
December 31, June 30,
----------------- --------
1994 1995 1996
<S> <C> <C> <C>
Short-term debt:
Line-of-credit $932,661 $3,531,467 $ 5,300,000
-------- ---------- -----------
Long-term debt:
Agreement dated January 27, 1993,
maturing on January 26, 1997;
interest rate 10.25% $ 10,777 $ 5,890 $ 3,252
Agreement dated November 10, 1992,
maturing on November 10, 1995;
interest rate 6.75% 61,698 -- --
Agreement dated November 30, 1993,
maturing on November 30, 1996;
interest rate at prime rate plus 2% -- -- 6,000
Less - Current portion (66,585) (5,413) (9,252)
-------- ---------- -----------
Total long-term debt $ 5,890 $ 477 $ --
======== ========== ===========
</TABLE>
The Company's line-of-credit agreements allow borrowings up to $6,500,000.
The line-of-credit agreements bear interest at either the LIBOR rate plus
2 percent (7.5 percent at June 30, 1996) or the prime rate (8.25 percent
at June 30, 1996). These agreements are collateralized by all assets of
the Company, and guaranteed by certain officer shareholders. $4,500,000 of
the line-of-credit matures on May 30, 1997, while $1,500,000 matures on
April 30, 1997. See Note 15 regarding an increase to its line-of-credit
agreement.
An irrevocable letter of credit in the amount of $390,000 was delivered by
the Company to the former owner of Datron Computer Products, Inc., on May
3, 1993, as security for the performance of all of the Company's
obligations under the purchase agreement (see Note 3). The letter of
credit expires on April 30, 1999, and may be drawn upon if the Company
fails to make any payment under the purchase agreement. The face amount of
the letter of credit is reduced $78,000 annually beginning on May 1, 1995.
A one percent annual commitment fee is payable on the letter of credit. No
amounts have been drawn against the letter of credit.
F-11
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
6. Property and Equipment
Property and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- ----------
1994 1995 1996
<S> <C> <C> <C>
Furniture and fixtures $ 245,460 $ 252,894 $ 393,134
Equipment 740,962 952,173 1,012,828
Leasehold improvements 48,059 48,059 48,059
Vehicles 98,717 98,113 110,681
---------- ---------- ----------
1,133,198 1,351,239 1,564,702
Less - Accumulated depreciation 655,692 815,998 986,812
---------- ---------- ----------
$ 477,506 $ 535,241 $ 577,890
========== ========== ==========
</TABLE>
7. Retirement Plan
The Company has an employee savings plan (the Savings Plan) that qualifies
as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. All employees 21 years of age with one year or more of
service are eligible to participate in the Savings Plan. The Company
matches 50 percent of the employee contributions, with a maximum
contribution of 1.5 percent of the employee's compensation. Contributions
to the Savings Plan were $30,118, $41,940 and $55,083 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $33,573 for the six
months ended June 30, 1996.
8. Profit Sharing Plan
The Company established a profit sharing plan (Profit Plan) January 1,
1995, that covers administrative employees. Contributions to the Profit
Plan are based on three percent of the Company's pre-tax profit and are
distributed to the employees according to the provisions of the agreement.
Contributions to the Profit Plan by the Company were $44,852 for the year
ended December 31, 1995, and $26,878 for the six months ended
June 30, 1996.
9. Intangible Assets
Intangible assets include noncompetitive agreements with the former owners
of Datron Computer Products, Inc., and Paper Rolls & Computer Supplies,
Inc. The agreements have terms of 4 to 5 years. The gross value assigned
is $544,400. Accumulated amortization was $174,800 and $285,280 at
December 31, 1994 and 1995, respectively, and $340,520 at June 30, 1996.
Amortization expense approximated $106,480 and $110,480 for the years
ended December 31, 1994 and 1995, respectively, and $55,240 for the six
months ended June 30, 1996.
F-12
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
10. Income Taxes
The provision (benefit) for taxes on income consists of the following:
1993 1994 1995
Current:
Federal $ 139,315 $ 322,000 $ 395,085
State 62,208 93,583 120,920
--------- --------- ---------
201,523 415,583 516,005
Deferred:
Federal (36,773) (363) (6,296)
State (7) 2,460 (580)
--------- --------- ---------
(36,780) 2,097 (6,876)
--------- --------- ---------
Total tax provision $ 164,743 $ 417,680 $ 509,129
========= ========= =========
Deferred tax assets and liabilities comprise the following:
1994 1995
Deferred tax assets:
Inventory $ 46,387 $ 40,951
State tax accrual 21,401 25,704
Other 5,032 10,305
-------- --------
Total deferred tax assets 72,820 76,960
Deferred taxes:
Depreciation (62,305) (59,569)
-------- --------
Total deferred taxes (62,305) (59,569)
-------- --------
Net deferred tax asset $ 10,515 $ 17,391
======== ========
F-13
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
1993 1994 1995
U.S. federal statutory rate
applied to income before tax $ 131,369 $ 349,321 $ 442,681
State income taxes, net of
federal income tax effect 41,053 63,388 79,424
Permanent differences 5,114 10,617 14,860
Adjustment to prior year tax
accruals (12,793) (5,941) (27,869)
Other -- 295 33
--------- --------- ---------
$ 164,743 $ 417,680 $ 509,129
========= ========= =========
The effective tax rates for the six months approximates the federal and
state statutory rate of 35 percent and 6 percent, respectively.
11. Operating Leases
The Company leases certain office space and automobiles under various
operating leases. Lease terms range from 1 to 5 years. Leases which expire
are generally renewed or replaced by similar leases and renewal options.
At December 31, 1995, the Company's future minimum rental payments with
respect to noncancelable operating leases with terms in excess of one year
were as follows:
1996 $239,215
1997 192,663
1998 84,646
1999 47,006
2000 24,000
Later years 84,000
--------
Total future minimum lease payments $671,530
========
F-14
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
12. Common Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Shares Unearned paid-in Retained Treasury
outstanding Compensation capital earnings stock
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 1,200 -- $25,225 $ 997,320 $ --
Purchase of treasury stock (28) -- -- -- (70,000)
Net income -- -- -- 221,635 --
------ -------- -------- ---------- --------
Balance, December 31, 1993 1,172 -- 25,225 1,218,955 (70,000)
Net income -- -- -- 609,735 --
Purchase of treasury stock (38) -- -- -- (95,000)
Sale of treasury stock 60 -- -- -- 150,000
------ -------- -------- ---------- --------
Balance, December 31, 1994 1,194 -- 25,225 1,828,690 (15,000)
Net income -- -- -- 792,873 --
Stock dividend 10,746 -- -- -- --
------ -------- -------- ---------- --------
Balance, December 31, 1995 11,940 -- 25,225 2,621,563 (15,000)
Stock awards issued -- (279,726) 279,726 -- --
Net income -- -- -- 538,633 --
------ -------- -------- ---------- --------
Balance, June 30, 1996 11,940 (279,726) $304,951 $3,160,196 $(15,000)
====== ======== ======== ========== ========
</TABLE>
On December 1, 1995, the Articles of Incorporation of the Company were
amended and restated to provide for voting and nonvoting shares. As of the
same date, the Board of Directors approved a stock dividend of nine
nonvoting shares for each voting share outstanding as of that date. All
applicable share and per share data have been adjusted for the stock
dividend.
In conjunction with the purchase of DDP by LLC, LLC agreed to provide the
three selling stockholders of DDP a stock incentive so long as such
stockholders remain employees of the Company. LCC agreed to transfer a
total of 58,520 shares of the Company's common stock owned by LLC to the
employees over a three year period ending December 31, 1998. However,
upon an initial public offering of the Company's common stock, all such
shares will become immediately vested. The market value of the stock
award is recognized as compensation expense over the vesting period. The
value of the awards not yet recognized as compensation expense is
reflected as unearned compensation in stockholders' equity.
13. Supplemental Disclosures of Cash Flow Information
Cash payments for the following items amounted to:
December 31, June 30,
------------------------------------ --------
1993 1994 1995 1996
Interest $141,249 $204,377 $263,846 $133,458
Income taxes $295,567 $140,733 $578,501 $648,189
14. Commitments and Contingencies
The Company sells its products to corporate customers, governmental
agencies, universities, hospitals and, to a lesser extent, computer supply
dealers primarily in the Midwest and Northeast regions of the United
States. Credit risk with respect to trade accounts receivable is generally
diversified due to the large number of entities comprising the Company's
customer base.
In connection with the Datron acquisition, the Company is obligated to
make income participation payments to the former owner based on the
Company's gross profits for the
F-15
<PAGE>
Miami Computer Supply Corporation
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
five years ending April 30, 1999. The annual payment under this provision
shall not exceed $17,520 in any one year. For 1995 and 1994, no payments
were made. Under purchase accounting principles, purchase consideration
that is payable upon the outcome of a contingency is not recorded at the
acquisition date unless the outcome of the contingency is determinable
beyond reasonable doubt. At such time, as the payments of amounts under
the provision becomes finally determined, the additional liability will be
recorded, and the value of the assets acquired will be increased in like
amount.
In connection with the acquisition of DDP, LLC issued a loan to certain of
the former stockholders in an amount of $250,000. This amount is subject
to repayment based upon DDP generating specified income levels. To the
extent such levels are achieved, the loan will be forgiven. However, if
such levels are not achieved, partial repayment of the loans is required.
When repayment of the loan becomes finally determined, if any, the value
of the assets acquired will be increased in like amount.
15. Insurance
The Company has a self-insurance medical plan which covers $37,000 per
individual insured per year for the policy year ended March 1, 1997.
Medical claims in excess of this amount are insured with a commercial
insurance carrier. In connection with this plan, the Company maintains
cash and short term U.S. treasury notes on deposit totaling $84,526 and
$79,409 at December 31, 1994 and 1995, respectively, and $38,788 at June
30, 1996, to fund claims.
The Company recorded expenses under the self-insurance medical plan of
$235,328, $193,771 and $176,850 for the years ended December 31, 1993,
1994 and 1995, respectively, and $137,589 for the six-months ended June
30, 1996.
16. Subsequent Event
On September 11, 1996, Miami increased its line-of-credit from $6,500,000
to $15,000,000. The credit agreement matures on September 11, 1998. This
agreement provides borrowings up to an amount determined pursuant to a
borrowing base formula which includes various categories of collateral.
The interest rate on the credit facility is selected by the Company and
can fluctuate between the prime rate and LIBOR plus 2 percent. The
facility also contains covenants to maintain a minimum tangible net worth
(as defined by the agreement) and certain interest coverage rates.
17. Common Stock Split
On September 25, 1996, the Stockholders approved a recapitalization of the
Company's common equity and 200-for-1 stock split as of that date. All
applicable share and per share data have been adjusted to reflect the
stock split.
F-16
<PAGE>
Report of Independent Accountants
To the Stockholder of
Diversified Data Products, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Diversified Data Products,
Inc. and its subsidiaries (the Company), at May 30, 1996, and December 31, 1995
and 1994, and the results of their operations and their cash flows for the
period January 1, 1996 through May 30, 1996, and for each of the two years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 12 to the consolidated financial statements, all of the
Company's outstanding common stock was acquired by a third party on
May 30, 1996.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
July 31, 1996
F-17
<PAGE>
Diversified Data Products, Inc.
Consolidated Balance Sheet
December 31, 1994 and 1995, and May 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, May 30,
----------------------- -------
1994 1995 1996
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,389 $ 11,760 $ 109,467
Accounts receivable, less allowance for
doubtful accounts of $2,038, $5,000 and $5,000 1,601,559 1,125,958 1,152,626
Inventories 1,463,223 2,212,249 1,327,685
Prepaid expenses 8,453 23,271 17,959
Deferred tax asset 693 1,700 1,700
---------- ---------- ----------
Total current assets 3,083,317 3,374,938 2,609,437
Property and equipment - Net of accumulated
depreciation (Note 4) 137,217 95,512 81,512
Goodwill - net of accumulated amortization (Note 3) 128,171 124,820 123,424
---------- ---------- ----------
Total assets $3,348,705 $3,595,270 $2,814,373
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 171,819 $ 39,084 $ 256,398
Line-of-credit (Note 5) 1,500,000 1,500,000 1,500,000
Accounts payable 1,023,730 1,369,544 839,860
Accrued income taxes 26,234 6,868 --
Accrued liabilities 3,711 50,984 53,274
Current portion of long-term debt 12,000 12,000 7,000
---------- ---------- ----------
Total current liabilities 2,737,494 2,978,480 2,656,532
Deferred taxes (Note 7) 14,247 12,730 12,730
Long-term debt (Note 5) 12,000 -- --
---------- ---------- ----------
Total liabilities 2,763,741 2,991,210 2,669,262
Stockholders' equity (Note 8 and Note 12):
Common stock, $1 par value, 50,000 shares
authorized, 8,250 shares issued and
outstanding at December 31, 1994,
December 31, 1995, and May 30, 1996 8,250 8,250 8,250
Additional paid-in capital 139,095 139,095 136,861
Retained earnings 437,619 456,715 --
---------- ---------- ----------
Total stockholders' equity 584,964 604,060 145,111
---------- ---------- ----------
Total liabilities and stockholders' equity $3,348,705 $3,595,270 $2,814,373
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-18
<PAGE>
Diversified Data Products
Consolidated Statements of Operations
Years Ended December 31, 1994 and 1995, and the Period January 1, 1996
through May 30, 1996
- -------------------------------------------------------------------------------
Year Ended Period Ended
December 31, May 30,
-------------------------- ------------
1994 1995 1996
Net sales $18,068,615 $13,356,700 $ 5,363,269
Operating costs:
Cost of sales 16,388,187 12,138,992 4,933,563
Selling, general and
administrative expenses 1,469,235 1,015,270 335,420
----------- ----------- -----------
Total operating costs 17,857,422 13,154,262 5,268,983
----------- ----------- -----------
Operating income 211,193 202,438 94,286
Interest expense 142,508 167,150 63,384
Other income (expense) - net 2,003 4,918 5
----------- ----------- -----------
Income before income taxes 70,688 40,206 30,907
Provision for income taxes
(Note 7) 35,757 21,110 16,150
----------- ----------- -----------
Net income $ 34,931 $ 19,096 $ 14,757
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-19
<PAGE>
Diversified Data Products, Inc.
Consolidated Statement of Cash Flows
Years Ended December 31, 1994 and 1995, and the Period January 1, 1996, through
May 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, May 30,
------------------------ ------------
1994 1995 1996
<S> <C> <C> <C>
Cash provided from (used in) operating activities:
Net income $ 34,931 $ 19,096 $ 14,757
Adjustments for items not affecting
funds from operations:
Depreciation and amortization 29,238 36,076 15,396
Gain on disposition of furniture
fixtures and equipment -- (335) --
Deferred taxes 13,554 (2,524) --
--------- ----------- --------
77,723 52,313 30,153
Changes in assets and liabilities:
Accounts receivable (575,318) 427,060 (26,668)
Inventories (145,844) (700,495) 884,564
Prepaid expenses (8,453) (14,818) 5,312
Other assets 5,300 -- --
Accounts payable 338,862 345,814 (529,684)
Accrued liabilities 2,460 47,273 2,290
Accrued income taxes (46,766) (19,366) (6,868)
--------- ----------- --------
(429,759) 85,468 328,946
Cash (used in) provided by
operating activities (352,036) 137,781 359,099
--------- ----------- --------
Cash flows from investing activities:
Proceeds from sale of property
and equipment -- 9,315 --
Purchases of furniture, fixtures
and equipment (86,277) -- --
--------- ----------- --------
Cash (used in) provided by
investing activities (86,277) 9,315 --
--------- ----------- --------
Cash flows from financing activities:
Dividend payment -- -- (473,706)
Proceeds from line of credit 766,807 1,500,000 450,000
Payments under line of credit (500,000) (1,500,000) (450,000)
Payments of notes payable (12,000) (12,000) (5,000)
Proceeds (payments) of bank overdraft 171,819 (132,725) 217,314
--------- ----------- --------
Cash provided by (used in)
financing activities 426,626 (144,725) (261,392)
--------- ----------- --------
(Decrease) increase in cash and cash
equivalents (11,687) 2,371 97,707
Cash and cash equivalents at beginning of period 21,076 9,389 11,760
--------- ----------- --------
Cash and cash equivalents at end of period $ 9,389 $ 11,760 $109,467
========= =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-20
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. Organization and Operations
The accompanying consolidated financial statements include the accounts of
Diversified Data Products, Inc. (the "Company"), its wholly owned
subsidiaries, Diversified Data Products U.K., Ltd., located in the United
Kingdom and Compass Export Marketing (CEM) Overseas, Limited located in
Dubai, United Arab Emirates. The Company is engaged in the purchase and
distribution of computer supplies on a domestic and international basis.
Substantially all of the Company's sales are to companies engaged in the
retail distribution of computer supplies.
2. Significant Accounting Policies
The period ended May 30, 1996, as referred to throughout the consolidated
financial statements comprises January 1, 1996 through May 30, 1996
("period ended May 30, 1996").
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Consolidation
All subsidiaries which are wholly owned and under common control are
included in the consolidated financial statements. Intercompany accounts
and transactions are eliminated.
Revenue Recognition
Revenues from the sale of products are recognized upon passage of title to
the customer, which coincides with shipment.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid
investments with original maturities of 3 months or less.
Inventories
Inventories are stated at lower of cost or market. Cost is determined
using a weighted average method. Inventories consist primarily of
purchased goods held for resale.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful
lives of the assets. Depreciation and amortization periods are as follows:
Estimated
useful lives
------------
Furniture and fixtures 5 to 7
Equipment 5
Vehicles 5
F-21
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Retirement and Disposal of Properties
The cost of properties retired or otherwise disposed of, together with the
accumulated depreciation provided thereon, is eliminated from the
accounts. The net gain or loss is recognized in other income and expense.
Long-Lived Assets
The Company assesses impairment of assets on an annual basis using a
discounted cash flow approach.
Income Taxes
Income taxes are recognized in the year in which transactions enter into
the determination of financial statement income. Deferred tax assets and
liabilities are recognized for the future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets
and liabilities.
Foreign Currency Transactions
For the Company's subsidiary located in the United Kingdom, the functional
currency is the U.S. dollar.
Derivative Instruments
Forward foreign currency contracts are used to manage currency risks
relating to existing assets or liabilities denominated in a foreign
currency. Gains or losses are recognized in income in the current period.
Net contract values are included in receivables or payables as
appropriate.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents - The carrying amount reported in the balance
sheet approximates fair value.
Foreign currency exchange contracts - The fair value of the Company's
foreign exchange contracts is estimated based on quoted market prices of
comparable contracts.
Short- and long-term debt - The carrying amounts of the Company's
borrowings approximate their fair value.
3. Purchase of Compass Export Marketing
On March 31, 1993, the Company purchased Compass Export Marketing U.K.
(CEM U.K.) and a company under common control of CEM U.K.,
CEM-Overseas. The transaction was accounted for as a purchase in
accordance with Accounting Principles Board (APB) Opinion No. 16. CEM
U.K. became a wholly owned subsidiary of the Company and changed its
name to Diversified Data Products U.K., Ltd. The purchase price for
CEM U.K. and CEM-Overseas totaled approximately $710,000, including
the assumption of liabilities. DDP issued 2,750 shares of DDP common
stock to the shareholder of CEM in exchange for 100 percent ownership
of CEM U.K. and CEM-Overseas. Goodwill of approximately $134,000 was
recorded in connection with this acquisition and is being amortized on
a straight-line basis over 40 years.
F-22
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Accumulated amortization was $5,864, $9,215 and $10,611 at December 31,
1994, December 31, 1995 and May 30, 1996, respectively. The amortization
life chosen was based upon the long-term business plan of the Company to
expand operations internationally.
4. Property and Equipment
Property and equipment consist of the following:
December 31, May 30,
------------------------- ---------
1994 1995 1996
Furniture and fixtures $ 153,122 $ 153,122 $ 153,122
Vehicles 44,130 35,150 35,150
--------- --------- ---------
197,252 188,272 188,272
Less - Accumulated
depreciation (60,035) (92,760) (106,760)
--------- --------- ---------
$ 137,217 $ 95,512 $ 81,512
========= ========= =========
5. Borrowing Arrangements
December 31, May 30,
-------------------------- ------------
1994 1995 1996
Short-term debt:
Line-of-credit, due
on demand $ 1,500,000 $ 1,500,000 $ 1,500,000
----------- ----------- -----------
Long-term debt:
Agreement dated October 6,
1993, maturing on
November 30, 1996 $ 24,000 $ 12,000 $ 7,000
Less - Current portion (12,000) (12,000) (7,000)
----------- ----------- -----------
Total long-term debt $ 12,000 $ -- $ --
=========== =========== ===========
The Company's line-of-credit allows borrowings up to $1,500,000. The
line-of-credit bears interest at the prime rate plus 1.75 to 2.0 percent
(10.0 percent at May 30, 1996, and 9.75 percent at December 31, 1995,
payable monthly). This line-of-credit is collateralized by all the assets
of the Company, and is guaranteed by the officer shareholders. The
line-of-credit expired on April 30, 1996, and was extended on
substantially similar terms through July 31, 1996. See also Note 12
regarding repayment of the line-of-credit.
F-23
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The note payable bears interest at the prime rate plus 2.5 percent (10.75
percent at May 30, 1996). Payments are due in monthly installments of
$1,000 plus interest. The note is collateralized by certain assets of the
Company and is due November 30, 1996.
In connection with the line-of-credit agreement, the Company has agreed to
certain covenants including, but not limited to, maintenance of specified
levels of current assets in excess of current liabilities and maintenance
of specified levels of debt-to-equity ratios. At December 31, 1995, the
Company was not in compliance with certain covenants. A waiver of covenant
compliance was received for the related violations at December 31, 1995,
extending through December 31, 1996.
6. Operating Leases
The Company leases office space and vehicles under various operating
leases. Leases which expire are generally renewed or replaced by similar
leases and renewal options.
The approximate minimum annual lease payments for noncancelable lease
agreements with terms in excess of one year are approximately as follows:
1996 $ 74,000
1997 51,000
1998 39,000
--------
$164,000
========
7. Income Taxes
The provision for income taxes consists of the following:
1994 1995
---- ----
Current federal $22,203 $ 11,134
Current foreign -- 12,500
Deferred federal (benefit) expense 13,554 (2,524)
------- --------
Total tax expense $35,757 $ 21,110
======= ========
F-24
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Deferred tax assets and liabilities include the following:
December 31,
--------------------
1994 1995
Deferred tax assets:
Receivables $ 693 $ 1,700
Deferred taxes:
Property, plant and equipment (14,247) (12,730)
-------- ---------
Net deferred taxes $(13,554) $(11,030)
======== ========
The difference between the U.S. federal income tax statutory rate and the
Company's effective income tax rate is as follows:
1994 1995
-------- --------
U.S. federal statutory rate applied
to income before tax $ 24,035 $ 13,670
Graduated tax rates (11,527) (10,809)
Permanent differences 8,388 8,056
Foreign tax rates 10,405 10,039
Adjustment to prior year tax accrual 3,518 --
Other 938 154
-------- --------
Provision for income taxes $ 35,757 $ 21,110
======== ========
The 1996 provision for income taxes was recorded using an estimated
effective tax rate of approximately 50 percent.
8. Stockholders' Equity
The authorized capital stock of the Company consists of 50,000 shares of
common stock, $1.00 par value, of which 8,250 shares were outstanding as
of December 31, 1994, December 31, 1995, and May 30, 1996. A liquidating
dividend was paid to the shareholders prior to the close of business on
May 30, 1996. See Note 12.
F-25
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Changes in stockholders' equity are as follows:
<TABLE>
<CAPTION>
Additional
Shares Common paid-in Retained
outstanding stock capital earnings
----------- ----- -------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 8,250 $8,250 $139,095 $ 402,688
Net income -- -- -- 34,931
----- ------ -------- ---------
Balance, December 31, 1994 8,250 $8,250 $139,095 $ 437,619
Net income -- -- -- 19,096
----- ------ -------- ---------
Balance, December 31, 1995 8,250 $8,250 $139,095 $ 456,715
Net income -- -- -- 14,757
Dividend payment -- -- (2,234) (471,472)
----- ------ -------- ---------
Balance, May 30, 1996 8,250 $8,250 $136,861 $ --
===== ====== ======== =========
</TABLE>
9. Cash Flows
Cash paid during 1994, 1995 and for the period ended May 30, 1996, for
interest and income taxes was as follows:
December 31, May 30,
--------------------- ------
1994 1995 1996
Interest $133,509 $152,590 $63,384
Income taxes $ 68,976 $ 43,000 $25,000
During the year ended December 31, 1995, the Company accepted $48,531 of
inventory in satisfaction of an account receivable of the same amount. The
value of the inventory accepted was based upon negotiated terms between
the parties.
10. Derivative Instruments - Forward Foreign Currency Contracts
The Company remains at risk for possible changes in the market value of
the derivative instrument; however, such risk should be mitigated by
changes in the underlying hedged item. The Company is also exposed to
credit risk in the event of nonperformance by counter parties. The
creditworthiness of counter parties is subject to continuing review and
full performance is anticipated.
F-26
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The following table sets forth quantitative information of the derivative
instruments:
<TABLE>
<CAPTION>
Fair value Carrying amount Recorded Aggregate
assets assets deferred contract
(In thousands) (liabilities)(a) (liabilities) gain or (loss) values (b)
---------------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
December 31, 1995:
Forward foreign
currency
contracts (c)
Payables $(203) $ (1) $-- $202
----- ----- --- ----
Total $(203) $ (1) $-- $202
===== ===== === ====
May 30, 1996:
Forward foreign
currency
contracts (c)
Payables $(403) $ (4) $-- $399
Receivables 110 (2) -- 112
----- ----- --- ----
Total $(293) $ (6) $-- $511
===== ===== === ====
</TABLE>
(a) The fair value amounts for currency contracts are based on dealer
quotes of forward prices covering the remaining duration of the
foreign exchange contract.
(b) Contract or notional amounts do not quantify risk exposure, but are
used in the calculation of cash settlements under the contracts.
The contract or notional amounts do not reflect the extent to which
positions may offset one another.
(c) The forward foreign currency contracts mature in 1996.
The Company had no outstanding forward foreign currency contracts at
December 31, 1994.
F-27
<PAGE>
Diversified Data Products, Inc.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
11. Business Segment Information - Results of Foreign Operations
The Company operates in one business segment that sells computer and
office automation supplies. Included in the segment information are U.S.
operations and two non-U.S. operations which are wholly owned subsidiaries
located in Leeds, United Kingdom and Dubai, United Arab Emirates.
<TABLE>
<CAPTION>
U.S. Non-U.S.
1994 Total operations operations
---- ----- ---------- ----------
<S> <C> <C> <C>
Net sales $18,068,615 $13,041,663 $5,026,952
Identifiable assets $3,348,705 $2,098,227 $1,250,478
Income before taxes $70,688 $101,292 $(30,604)
U.S. Non-U.S.
1995 Total operations operations
---- ----- ---------- ----------
Net sales $13,356,700 $8,382,644 $4,974,056
Identifiable assets $3,595,270 $2,106,760 $1,488,510
Income before taxes $40,206 $38,061 $2,145
Period Ended
May 30, U.S. Non-U.S.
1996 Total operations operations
---- ----- ---------- ----------
Net sales $5,363,269 $3,812,154 $1,551,115
Identifiable assets $2,814,373 $1,718,828 $1,095,545
Income before taxes $30,907 $56,662 $(25,755)
</TABLE>
12. Change in Ownership
May 30, 1996, the Company's stockholders sold their interest in the
Company to Pittsburgh Investment Group (LLC). Immediately thereafter, LLC
contributed all of such shares of DDP to Miami Computer Supply
Corporation, an Ohio corporation (MCSC), resulting in DDP becoming a
wholly owned subsidiary of MCSC.
Prior to the stockholders of DDP selling their investment in the Company,
a liquidating dividend totaling $473,706 was distributed.
In June 1996, MCSC advanced the Company the funds necessary to repay the
line-of-credit balance.
F-28
<PAGE>
(Inside Back Cover Page)
[Warehouse Elevation Drawing]
<PAGE>
No person is authorized in connection with any offering made hereby to give any
information or to make any representations other than those contained in this
Prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by the Company, or the Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any securities other than the securities to which it relates or an
offer to sell or the solicitation of an offer to buy such securities by any
person in any jurisdiction in which it is unlawful for such person to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances imply that the information contained
herein is correct as of any date subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................... 3
Risk Factors................................................. 10
Use of Proceeds.............................................. 17
Dividend Policy.............................................. 17
Dilution..................................................... 18
Capitalization............................................... 20
Selected Consolidated Financial and Operating Data........... 21
Unaudited Pro Forma Financial Data........................... 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 28
Business..................................................... 37
Management................................................... 55
Certain Transactions......................................... 66
Principal Stockholders....................................... 69
Description of Capital Stock................................. 72
Restrictions on Acquisition of the Company................... 74
Shares Eligible for Future Sale.............................. 81
Underwriting................................................. 82
Legal Matters................................................ 84
Experts...................................................... 84
Additional Information....................................... 85
Index to Financial Statements................................ F-1
Until ________, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
1,000,000 Shares
[LOGO]
MIAMI COMPUTER SUPPLY
CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
_____________, 1996
--------------------
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following statement sets forth the estimated amount of expenses
(other than underwriting discounts and commissions) to be borne by the
Registrant in connection with the Offering.
SEC filing fees................................. $ 3,569.00
NASD filing fees................................ 1,535.00
Nasdaq filing fees.............................. 5,000.00
Printing, postage and mailing................... *
Legal fees and expenses......................... *
Blue Sky fees and expenses...................... *
Accounting fees and expenses.................... *
Miscellaneous fees and expenses................. *
----------
Total........................................... $ *
==========
- -----------------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
The Company is an Ohio corporation. Section 1701.59 of the Ohio General
Corporation law (the "OGCL") states:
"(B) A director shall perform his duties as a director, including his
duties as a member of any committee of the directors upon which he may serve, in
good faith, in a manner he reasonably believes to be in or not opposed to the
best interests of the corporation, and with the care that an ordinarily prudent
person in a like position would use under similar circumstances. In performing
his duties, a director is entitled to rely on information, opinions, reports, or
statements, including financial statements and other financial data, that are
prepared or presented by:
(1) One or more directors, officers, or employees of the corporation
who the director reasonably believes are reliable and competent in the matters
prepared or presented;
(2) Counsel, public accountants, or other persons as to matters that
the director reasonably believes are within the person's professional or expert
competence;
II-1
<PAGE>
(3) A committee of the directors upon which he does not serve, duly
established in accordance with a provision of the articles or the regulations,
as to matters within its designated authority, which committee the director
reasonably believes to merit confidence.
(C) For purposes of division (B) of this section:
(1) A director shall not be found to have violated his duties under
division (B) of this section unless it is proved by clear and convincing
evidence that the director has not acted in good faith, in a manner he
reasonably believes to be in or not opposed to the best interests of the
corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances in any action brought against a
director, including actions involving or affecting any of the following:
(a) A change or potential change in control of the corporation,
including a determination to resist a change or potential change in control made
pursuant to division (F)(7) of section 1701.13 of the Revised Code.
(b) A termination or potential termination of his service to the
corporation as a director;
(c) His service in any other position or relationship with the
corporation.
(2) A director shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause reliance on
information, opinions, reports, or statements that are prepared or presented by
the persons described in divisions (B)(1) to (3) of this section to be
unwarranted.
(3) Nothing contained in this division limits relief available under
section 1701.60 of the Revised Code.
(D) A director shall be liable in damages for any action he takes or
fails to take as a director only if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation. Nothing contained in this division affects the liability of
directors under section 1701.95 of the Revised Code or limits relief available
under section 1701.60 of the Revised Code. This division does not apply if, and
only to the extent that, at the time of a director's act or omission that is the
subject of complaint, the articles for the regulations of the corporation state
by specific reference to this division that the provisions of this division do
not apply to the corporation.
(E) For purposes of this section, a director, in determining what he
reasonably believes to be in the best interests of the corporation, shall
consider the interests of the corporation's shareholders and, in his discretion,
may consider any of the following:
II-2
<PAGE>
(1) The interests of the corporation's employees, suppliers, creditors,
and customers;
(2) The economy of the state and nation;
(3) Community and societal considerations;
(4) The long-term as well as short-term interests of the corporation
and its shareholders, including the possibility that these interests may be best
served by the continued independence of the corporation.
(F) Nothing contained in division (C) or (D) of this section affects
the duties of either of the following:
(1) A director who acts in any capacity other than his capacity as a
director;
(2) A director of a corporation that does not have issued and
outstanding shares that are listed on a national securities exchange or are
regularly quoted in an over-the-counter market by one or more members of a
national or affiliated securities association, who votes for or assents to any
action taken by the directors of the corporation that, in connection with a
change in control of the corporation, directly results in the holder or holders
or a majority of the outstanding shares of the corporation receiving a greater
consideration for their shares than other shareholders."
Section 1701.13(E) of the OGCL states:
"(E)(1) A corporation may indemnify or agree to indemnify any person
who was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or other
enterprise, against expenses, including attorney's fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of it self, create
a presumption that the person did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
II-3
<PAGE>
(2) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor, by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation, as a director, trustee, officer, employee,
member, manager, or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or a partnership, joint venture,
trust, or other enterprise, against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any of
the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to the
corporation unless, and only to the extent that, the court of common pleas of
the court in which such action or suit was brought determines, upon application,
that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case, upon a determination that indemnification of the director,
trustee, officer, employee, member, manager or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
division (E)(1) or (2) of this section. Such determination shall be made as
follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are to parties to or threatened with
the action, suit, or proceeding referred to in division (E)(1) or (2) of this
section;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an
II-4
<PAGE>
attorney, who has been retained by or who has performed services for the
corporation or any person to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the action,
suit, or proceeding referred to in division (E)(1) or (2) of this section was
brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and, within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division (E)(1) or (2)
of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in division (E)(1) or (2)
of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in division (E)(1) or (2)
of this section is pursuant to section 1701.95 of the Revised Code, expenses,
including attorney's fees, incurred by a director in defending the action, suit,
or proceeding shall be paid by the corporation as they are incurred, in advance
of the final disposition of the action, suit, or proceeding, upon receipt of an
undertaking by or on behalf of the director in which he agrees to do both of the
following:
(i) Repay such amount if it is provided by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation;
(ii) Reasonably cooperate with the corporation concerning the action,
suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in defending any action,
suit, or proceeding referred to in division (E)(1) or (2) of this section, may
be paid by the corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding, as authorized by the directors
in the specific case, upon the receipt of an undertaking by or on behalf of
II-5
<PAGE>
the director, trustee, officer, employee, member, manager, or agent to repay
such amount, if it ultimately is determined that he is not entitled to be
indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles, the regulations, any agreement, a
vote of shareholders or disinterested directors, or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
their offices or positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, member, manager, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including, but not limited to, trust funds, letters of
credit, or self-insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee,
member, manager, or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or a partnership, joint venture,
trust, or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section. Insurance may be purchased from or maintained
with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of expenses as
they are incurred, indemnification, insurance, or other protection that may be
provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions
(E)(1) and (2) of this section do not create any obligation to repay or return
payments made by the corporation pursuant to division (E)(5)(6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entity, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee, member, manager, or agent or another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the new or surviving corporation as he would if he
had served the new or surviving corporation in the same capacity."
The Amended and Restated Articles of Incorporation ("Articles") of the
Company also limit the liability of, and provide indemnification to, directors
and officers of the Company. Article VIII of the Company's Articles states:
II-6
<PAGE>
"A. Limitation of Liability. No director shall be personally liable to
the Corporation or its stockholders for monetary damages for any act or omission
by such director as a director; provided that a director's liability shall not
be limited or eliminated to the extent that it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Corporation, or was undertaken with reckless disregard for the best
interests of the Corporation. No amendment to or repeal of this Article VIII.A.
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
B. Indemnification. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, by reason of the fact that such
person is or was a director, trustee, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, trustee, officer, employee, member, manager or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited liability
company, partnership, joint venture, trust or other enterprise or employee
benefit plan, against liability and expenses (including court costs and
attorney's fees), judgments, fines, excise taxes and amounts paid in
satisfaction, settlement or compromise actually and reasonably incurred by such
person in connection with such action, suit or proceeding to the full extent
authorized by Section 1701.13 of the OGCL or any successor provision thereto.
C. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, employee or agent of the Corporation in defending an action, suit or
proceeding described in Article VIII.B. shall be paid by the Corporation as they
are incurred, in advance of the final disposition of such action, suit or
proceeding, as authorized by the Board of Directors only upon receipt of written
affirmation by or on behalf of such person in which he agrees to do both of the
following: (i) repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with the deliberate intent to cause
injury to the Corporation or undertaken with reckless disregard for the best
interests of the Corporation, and (ii) reasonably cooperate with the Corporation
concerning the action, suit or proceeding.
D. Other Rights and Remedies. The indemnification provided by this
Article VIII shall not be deemed to exclude any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Corporation's Articles of Amendment, any insurance or other agreement, trust
fund, letter of credit, surety bond, vote of stockholders or disinterested
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, member, manager or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person; provided that no indemnification shall be made to or on behalf
of an individual in
II-7
<PAGE>
respect of any of the following: (i) any claim, issue, or matter as to which
such person is adjudged to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless, and only to the extent that,
a court of competent jurisdiction determines that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper; or (ii) any action or suit in which the only liability asserted
against a director is pursuant to Section 1701.95 of the OGCL or any successor
thereto.
E. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the Corporation, or was
serving at the request of the Corporation as a director, officer, employee,
member, manager or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, partnership, joint venture, trust or
another enterprise or employee benefit plan, against any liability asserted
against him or incurred by him in any such capacity, or arising out of his
status, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article or the OGCL.
F. Modification. The duties of the Corporation to indemnify and to
advance expenses to a director, officer, employee or agent provided in this
Article VIII shall be in the nature of a contract between the Corporation and
each such director, officer, employee or agent and no amendment or repeal of any
provision of this Article VIII shall alter, to the detriment of such director,
officer, employee or agent, the right of such person to the advance of expenses
or indemnification related to a claim based on an act or failure to act which
took place prior to such amendment or repeal."
Article X of the Company's Code of Regulations states:
"(a) A director of the Corporation shall not be personally
liable for monetary damages for action taken, or any failure to take action, as
a director, to the extent set forth in the Corporation's Amended and Restated
Articles of Incorporation, which provisions are incorporated herein with the
same affect as if they were set forth herein.
II-8
<PAGE>
(b) The Corporation shall indemnify any person who is a
director, officer, employee or agent of the Corporation to the extent set forth
in the Corporation's Amended and Restated Articles of Incorporation, which
provisions are incorporated herein with the same affect as if they were set
forth herein."
In addition, the Company intends to obtain a directors and officers
liability insurance policy relating to certain actions or omissions which may be
taken, or omitted to be taken, by the directors and officers of the Company, as
well as a policy which insures against errors and omissions in the offering
documents relating to the offer and sale of the Common Stock to the public.
Item 15. Recent Sales of Unregistered Securities.
Not Applicable.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules are filed as a part of
this Registration Statement are as follows:
(a) List of Exhibits
1.0 Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of Miami Computer Supply
Corporation.
3.2 Amended and Restated Code of Regulations of Miami Computer Supply
Corporation.
4.0 Form of Stock Certificate of Miami Computer Supply Corporation.
5.0 Form of opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality.*
10.1 Lease by and between Rowland Investments and Miami Computer Supply,
Inc. dated January 16, 1991.
10.2 Lease by and between Draft Partnership and Miami Computer Supply, Inc.
dated October 26, 1995.
10.3 Lease by and between John Schwarz, Sr., Marcella Schwarz, John Schwarz,
Jr. and Robert T. Schwarz and Miami Computer Supply, Inc. dated June
30, 1994.
10.4 Miami Computer Supply, Inc. Profit Sharing Plan.
10.5 Miami Computer Supply, Inc. Section 125C Cafeteria Plan.
10.6 Commercial Note: Revolving Credit Line by and between Miami Computer
Supply, Inc. and National City Bank of Dayton dated September 11, 1996.
10.7 Epson Authorized Reseller Agreement dated June 28, 1995.
10.8 Proxima Reseller Agreement dated May 29, 1996.
10.9 Hewlett Packard U.S. Reseller Channel Agreement as amended January 1,
1996.
10.10 Lexmark Dealer Agreement dated November 1986.
10.11 3M Authorized Distributor Agreement dated January 27, 1987.
10.12 Employment Agreement by and between Miami Computer Supply, Inc. and
Albert L. Schwarz dated May 30, 1996.
10.13 Employment Agreement by and between Miami Computer Supply, Inc. and
Thomas C. Winstel dated May 30, 1996.
II-9
<PAGE>
10.14 Employment Agreement by and between Miami Computer Supply, Inc. and
Richard A. Newkold dated May 30, 1996.
10.15 Employment Agreement by and between Miami Computer Supply, Inc. and
Roger E. Turvy dated May 30, 1996.
10.16 Employment Agreement by and between Miami Computer Supply, Inc. and
Michael E. Peppel dated May 30, 1996.
10.17 Employment Agreement by and between Miami Computer Supply, Inc. and
John Huffman, III dated May 30, 1996.
10.18 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Albert L. Schwarz dated December 1, 1995.
10.19 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Thomas C. Winstel dated December 1, 1995.
10.20 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Richard A. Newkold dated December 1, 1995.
10.21 Split Dollar Agreement by and between Miami Computer Supply, Inc. and
Roger E. Turvy dated December 1, 1995.
10.22 Letter from Pittsburgh Investment Group LLC to Albert L. Schwarz dated
May 30, 1995 regarding the split dollar agreements.
10.23 Miami Computer Supply Corporation 1996 Stock Option Plan.
10.24 Miami Computer Supply Corporation Non-employee Director Stock Option
Plan.
21.0 Subsidiaries of the registrant.
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in
Exhibit 5.0)
23.2 Consent of Price Waterhouse LLP.
24.0 Power of Attorney (included in Signature Page of this Registration
Statement).
27.0 Financial Data Schedule.
- ------------
* To be filed by amendment
II-10
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under
the rules of Regulation S-X.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Form S-1 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dayton,
Ohio on September __, 1996.
MIAMI COMPUTER SUPPLY CORPORATION
By: /s/ ALBERT L. SCHWARZ
------------------------------
Albert L. Schwarz
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Albert L. Schwarz or Michael E. Peppel to execute in the name
of such person and to file any amendment to this Registration Statement that
Registrant deems appropriate, and appoints each such agent as his
attorney-in-fact to sign on his behalf individually and in each capacity stated
below and file all amendments and post-effective amendments to this Registration
Statement.
<TABLE>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ ANTHONY W. LIBERATI Chairman of the Board September __, 1996
- -----------------------------------
Anthony W. Liberati
/s/ ALBERT L. SCHWARZ Director and President September __, 1996
- ----------------------------------- (Principal executive officer)
Albert L. Schwarz
/s/ ROBERT G. HECHT Director and Vice Chairman September __, 1996
- ----------------------------------- of the Board
Robert G. Hecht
<PAGE>
/s/ HARRY F. RADCLIFFE Director and Treasurer September __, 1996
- -----------------------------------
Harry F. Radcliffe
/s/ THOMAS C. WINSTEL Director, Secretary and Vice September __, 1996
- ----------------------------------- President
Thomas C. Winstel
/s/ MICHAEL E. PEPPEL Vice President - Chief September __, 1996
- ----------------------------------- Financial Officer
Michael E. Peppel (Principal financial officer
and principal accounting
officer)
</TABLE>
ARTICLES
OF
AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
MIAMI COMPUTER SUPPLY, INC.
The undersigned, Albert L. Schwarz, President, and Thomas C. Winstel,
Secretary, of Miami Computer Supply, Inc., an Ohio corporation for profit,
do hereby certify to the Secretary of State of the State of Ohio (the
"Secretary") as follows that:
The following Articles of Amendment and Restatement ("Articles of
Amendment") hereby amend and completely restate the Amended and Restated
Articles of Incorporation ("Articles of Incorporation") of Miami Computer
Supply, Inc. (the "Corporation"), as filed with the Secretary on December 8,
1995.
Upon the filing (the "Effective Time") of these Articles of Amendment
pursuant to the Ohio General Corporation Law (the "OGCL"), (i) the 1,194 shares
of the Corporation's Voting Common Shares without par value, issued and
outstanding immediately prior to the Effective Time (the "Old Voting Common
Stock") shall be reclassified as and changed into 238,800 validly issued, fully
paid and non-assessable shares of Common Stock authorized by Article V hereof,
and (ii) the 10,746 shares of the Corporation's Nonvoting Common Shares without
par value, issued and outstanding immediately prior to the Effective Time (the
"Old Nonvoting Common Stock") shall be reclassified as and changed into
2,149,200 validly issued, fully paid and non-assessable shares of Common Stock
authorized by Article V hereof. This recapitalization shall represent a 200 for
1 stock split. Each certificate that heretofore represented a share or shares of
Old Voting Common Stock or Old Nonvoting Common Stock shall, immediately after
the Effective Time, represent the number of shares of Common Stock into which
the shares of Old Voting Common Stock and Old Nonvoting Common Stock represented
by such certificates shall have been reclassified. [Check Ltd. Partnership
issue]
The Articles of Amendment were unanimously adopted by a resolution of the
Board of Directors of the Corporation on August 13, 1996, which resolution set
forth the proposed amendment and restatement and declared it advisable and
directed that the proposed amendment and restatement be submitted for
consideration by the stockholders of the Corporation. The Articles of Amendment
were approved by all of the stockholders of the Corporation who would be
entitled to notice of a meeting held for that purpose by unanimous written
consent on September 18, 1996.
The Corporation desires to restate its Articles of Incorporation as
currently in effect and the provisions set forth in the Articles of Amendment
include each and every charter provision currently in effect. The following
Articles of Amendment hereby amend and restate the Articles of Incorporation in
its entirety and were adopted to supersede and take the place of the Articles
of Incorporation and all amendments thereto, as follows:
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 2
ARTICLE I
NAME; PURPOSE OF AMENDMENT AND RESTATEMENT
A. Name. The name of the corporation is Miami Computer Supply Corporation
(hereinafter referred to as the "Corporation").
B. Purpose of Amendment and Restatement. These amended and restated
Articles of Incorporation take the place and supersede the Corporation's
existing Articles of Incorporation as heretofore amended.
ARTICLE II
DURATION
Duration. The period of duration of the existence of the Corporation is
perpetual.
ARTICLE III
PURPOSE; EFFECTIVE DATE
Purpose and Effective Date. The purpose of the Corporation is to sell
computer equipment, accessories and supplies in the United States of America and
in other countries at such times and places and in such manner as may be
permitted under the applicable laws of the United States, the State of Ohio and
the several states and to engage in any other lawful activity or business for
which a corporation may be incorporated under the OGCL. The Corporation shall
have all of the general powers of a corporation as provided by the OGCL. These
Articles of Amendment shall become effective upon the date that they are
accepted by the Secretary for record.
ARTICLE IV
PRINCIPAL OFFICE; STATUTORY AGENT
Principal Office and Registered Agent. The address of the principal office
of the Corporation in the State of Ohio is currently 3884 Indian Ripple Road,
Dayton, Ohio 45440, and after October 31, 1996, shall be 4750 Hempstead Station,
Dayton, Ohio 45429, until such time as the Board of Directors shall direct the
establishment of a different principal office in compliance with the
Corporation's Code of Regulations (the "Regulations") and applicable Ohio law.
The name of the statutory agent at such addresses is Albert L. Schwarz, who is a
resident citizen of the State of Ohio.
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 3
ARTICLE V
CAPITAL STOCK
Capital Stock. Immediately before the filing of these Articles of
Amendment, the Corporation had the authority to issue up to twelve thousand
(12,000) common shares without par value, of which one thousand, two hundred
(1,200) were Voting Common Shares and ten thousand, eight hundred (10,800) were
Nonvoting Common Shares. Pursuant to these Articles of Amendment, the total
number of shares of capital stock which the Corporation has authority to issue
is thirty-five million (35,000,000), of which thirty million (30,000,000) shall
be common stock, no par value per share (hereinafter the "Common Stock") and of
which five million (5,000,000) shall be preferred stock, no par value per share
(hereinafter the "Preferred Stock"). The Board of Directors shall have the
authority to establish series of unissued shares of any class of capital stock
by fixing and determining the number, designations, preferences, limitations and
relative rights, including voting rights, of the shares of any series so
established to the same extent that such number, designations, preferences,
limitations and relative rights could be stated if fully set forth in these
Articles of Amendment. Except to the extent required by governing law, the
shares of capital stock may be issued from time to time by resolution of the
Board of Directors without further approval of stockholders. The Corporation
shall have the authority to purchase its capital stock out of funds lawfully
available therefor, which capital stock, unless otherwise stated herein or in
any resolution relating to the Preferred Stock, shall constitute authorized but
unissued shares and may then be issued by the Corporation as set forth herein.
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations, and the
relative rights, preferences and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Article V (or in any resolution
or resolutions adopted by the Board of Directors pursuant hereto), the exclusive
voting power shall be vested in the Common Stock, the holders thereof being
entitled to one vote for each share of such Common Stock standing in the
holder's name on the books of the Corporation. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, holders of Common Stock shall be entitled to
receive pro rata the remaining assets of the Corporation after the payment or
provision for payment of the Corporation's debts and liabilities and after the
holders of any class of stock having preference over the Common Stock have been
paid in full any sums to which they may be entitled.
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 4
B. Preferred Stock. The Board of Directors is hereby expressly authorized
to provide, by resolution or resolutions, out of the unissued shares of
Preferred Stock, for series of Preferred Stock. Before any shares of any such
series are issued, the Board of Directors shall fix, and hereby is expressly
empowered to fix, by resolution or resolutions, the following provisions of the
shares thereof:
(a) The designation of such series, the number of shares to constitute
such series and the stated value thereof;
(b) Whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(c) The dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of this class;
(d) Whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(e) The amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(f) Whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of this
class or any other securities, and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued;
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 5
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock and
whether such shares may be reissued as shares of the same or any other series of
preferred stock;
(j) The limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(k) The conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(l) Any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, shall be identical, except that
there may be variations in respect of: the dividend or distribution rate; the
dates from which dividends thereon shall accrue and/or be cumulative; the dates
of the payment of dividends; redemption rights and price; liquidation price;
sinking fund requirements; conversion rights; and restrictions on the issuance
of shares of the same series or of any other class or series.
Prior to the issuance of any shares of a series of capital stock
established by resolution adopted by the Board of Directors, if such issuance is
the first issuance of shares of such series since the resolution was adopted,
the Corporation shall file with the Secretary for record articles of amendment
as required by the OGCL. Upon the filing of such articles of amendment with the
Secretary, the resolution establishing and designating the series and fixing and
determining the preferences, limitations and relative rights thereof shall
become an amendment of these Articles of Amendment.
ARTICLE VI
NO PREEMPTIVE RIGHTS
No Preemptive Rights. No holder of the capital stock of the Corporation
shall be entitled as such, as a matter of right or otherwise, to subscribe for
or purchase any part of any new or additional issue of equity or debt of any
class or series whatsoever, of the Corporation, or of securities convertible
into equity or debt of any class whatsoever, whether now or hereafter
authorized, or whether issued for cash or other consideration or by way of a
dividend.
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 6
ARTICLE VII
BOARD OF DIRECTORS
Directors. The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors. The current number of directors
of the Corporation is five (5). The names of the current members of the Board of
Directors of the Corporation are: Robert G. Hecht, Anthony W. Liberati, Harry F.
Radcliffe, Albert L. Schwarz and Thomas C. Winstel. The business address of each
member of the Board of Directors of the Corporation is 3884 Indian Ripple Road,
Dayton, Ohio 45440.
Except as otherwise fixed pursuant to the provisions of Article V hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors, the number of directors shall be determined by resolution
of the majority of the entire Board of Directors as provided in the
Corporation's Regulations, as may be amended from time to time, provided,
however, that the number of directors shall not be less than three nor greater
than twenty-one. Directors shall be elected by a plurality of the votes cast
by the holders of shares entitled to vote in the election of directors at a
meeting of stockholders at which a quorum is present. No holder of the capital
stock of the Corporation shall be permitted to cumulate his votes in the
election of directors.
A. Classification and Term. The Board of Directors, other than those
directors who may be elected by the holders of any class or series of stock
having preference over the Common Stock as to dividends or upon liquidation,
may, by resolution of the majority of the Whole Board of Directors and a
majority of the Continuing Directors then in office (as defined by Article X) be
divided into two or three classes as nearly equal in number as possible, each
class having not less than three directors, with one class to be elected
annually, as set forth in the Regulations of the Corporation. The terms of all
of the current directors shall expire at the annual meeting of stockholders to
be held in 1997 and, unless the Board is divided into classes as permitted
hereby, all Directors shall be elected annually.
B. Vacancies. Except as otherwise fixed pursuant to the provisions of
Article V hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors, any vacancy occurring in the Board of Directors,
whether due to an increase in the number of directors or otherwise, shall be
filled by a majority vote of the Whole Board of Directors and a majority of the
Continuing Directors then in office (as defined by Article X) though less than a
quorum of the Board of Directors, or by a sole remaining director, and any
director so chosen shall be elected until the expiration of such unexpired term
and until such director's successor shall have been elected and qualified.
Whenever the holders of any class or series of shares or group of classes or
series of shares are entitled to elect one or
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 7
more directors by the provisions of these Articles of Amendment, any vacancies
in such directorships and any newly created directorships of such class or
series to be filled by reason of increase in the number of such directors shall
be filled by the affirmative vote of a majority vote of the Whole Board of
Directors and a majority of the Continuing Directors then in office (as defined
by Article X), though less than a quorum of the Board of Directors, or by a sole
remaining director, and any director so chosen shall be elected until the
expiration of such unexpired term and until such director's successor shall have
been elected and qualified. When the number of directors is changed, the Board
of Directors shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided that no decrease in
the number of directors shall shorten the term of any incumbent director.
C. Removal. Subject to the rights of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation to elect
directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office (i) by the Board
of Directors, if by order of court he has been found to be of unsound mind, or
if he is adjudicated bankrupt, or if, within sixty (60) days from the date of
his election he does not qualify as a director by accepting in writing his
election or by acting at a meeting of directors, or (ii) with or without cause
by an affirmative vote of not less than two-thirds of the votes eligible to be
cast by stockholders at a duly constituted meeting of stockholders called
expressly for such purpose. Whenever the holders of any class or series of
capital stock of the Corporation are entitled to elect one or more directors by
the provisions of these Articles of Amendment or any amendment or supplement
thereto, only the holders of shares of that class or series of capital stock
shall be entitled to vote for or against the removal of any director elected by
the holders of the shares of that class or series. At least thirty (30) days
prior to such meeting of stockholders, written notice shall be sent to the
director whose removal will be considered at the meeting.
D. Nominations of Directors. Nominations of candidates for election as
directors of the Corporation at any annual meeting of stockholders may be made
(i) by, or at the direction of, a majority of the Board of Directors, or (ii) by
any stockholder entitled to vote at such annual meeting. Only persons nominated
in accordance with the procedures set forth in this Article VII.D. shall be
eligible for election as directors at an annual meeting. Ballots bearing the
names of all the persons who have been nominated for election as directors at an
annual meeting in accordance with the procedures set forth in this Article
VII.D. shall be provided for use at the annual meeting.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Article VII.D. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 8
principal office of the Corporation not less than (i) with respect to an
election to be held at any annual meeting of stockholders of the Corporation,
(a) for the first such annual meeting after the filing of these Articles of
Amendment, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders, and (b) thereafter, sixty
(60) days prior to the anniversary date of the mailing of proxy materials by the
Corporation in connection with the immediately preceding annual meeting of
stockholders of the Corporation; and (ii) with respect to a special meeting of
stockholders for the election of directors, the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director and as to the stockholder giving the notice (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Corporation
stock which are beneficially owned by such person on the date of such
stockholder notice, and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies with respect to nominees
for election as directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, but not
limited to, information required to be disclosed by Items 4, 5, 6 and 7 of
Schedule 14A (or any successors of such items); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such stockholder and any other stockholders known by such stockholder
to be supporting such nominees and (ii) the class and number of shares of
Corporation stock which are beneficially owned by such stockholder on the date
of such stockholder notice and, to the extent known, by any other stockholders
known by such stockholder to be supporting such nominees on the date of such
stockholder notice. At the request of the Board of Directors, any person
nominated by, or at the direction of, the Board for election as a director at an
annual or special meeting of stockholders shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Article VII.D. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article VII.D. in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of the
deficiency in the notice. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary within such
period of time, not to exceed five (5) days from the date such deficiency notice
is given to the stockholder, as the Board of Directors or such committee thereof
shall reasonably determine. If the deficiency is not cured within such period,
or if the Board of Directors or such committee thereof reasonably determines
that the additional information provided by the stockholder, together with
information previously provided, does not satisfy the requirements of this
Article VII.D. in any material respect, then the Board of Directors may reject
such stockholder's
<PAGE>
Miami Computer Supply, Inc.
Articles of Amendment
Page 9
nomination. The Secretary of the Corporation shall notify a stockholder in
writing whether his nomination has been made in accordance with the time and
informational requirements of this Article VII.D. Notwithstanding the procedures
set forth in this paragraph, if neither the Board of Directors nor such
committee thereof makes a determination as to the validity of any nominations by
a stockholder, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the nomination was made in accordance with
the terms of this Article VII.D. If the presiding officer determines that a
nomination was made in accordance with the terms of this Article VII.D., he
shall so declare at the annual meeting and ballots shall be provided for use at
the meeting with respect to such nominee. If the presiding officer determines
that a nomination was not made in accordance with the terms of this Article
VII.D., he shall so declare at the annual meeting and the defective nomination
shall be disregarded.
Notwithstanding the foregoing, and except as otherwise required by law or
by further articles of amendment of these Articles of Amendment, whenever the
holders of any one or more series of Preferred Stock shall have the right,
voting separately as a class, to elect one or more directors of the Corporation,
the provisions of this Article VII.D. shall not apply with respect to the
director or directors elected by such holders of Preferred Stock.
E. Discharge of Duties. In discharging the duties of their respective
positions, the Board of Directors, committees of the Board and individual
directors shall, in considering the best interests of the Corporation, consider
the effects of any action upon the Corporation's stockholders, employees,
suppliers, creditors, customers, the economy of the State of Ohio and of the
United States of America, the communities in which offices or other
establishments of the Corporation or any subsidiary are located, the long-term
as well the short-term interests of the Corporation and its stockholders,
including the possibility that these interests may be best served by the
continued independence of the Corporation, and all other pertinent factors.
ARTICLE VIII
INDEMNIFICATION, ETC. OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS
A. Limitation of Liability. No director shall be personally liable to the
Corporation or its stockholders for monetary damages for any act or omission by
such director as a director; provided that a director's liability shall not be
limited or eliminated to the extent that it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Corporation, or was undertaken with reckless disregard for the best
interests of the Corporation. No amendment to or repeal of this Article VIII.A.
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation
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for or with respect to any acts or omissions of such director occurring prior to
such amendment.
B. Indemnification. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, by reason of the fact that such person is or was a
director, trustee, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee, officer,
employee, member, manager or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, partnership, joint
venture, trust or other enterprise or employee benefit plan, against liability
and expenses (including court costs and attorney's fees), judgments, fines,
excise taxes and amounts paid in satisfaction, settlement or compromise actually
and reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent authorized by Section 1701.13 of the OGCL or any
successor provision thereto.
C. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, employee or agent of the Corporation in defending an action, suit or
proceeding described in Article VIII.B. shall be paid by the Corporation as they
are incurred, in advance of the final disposition of such action, suit or
proceeding, as authorized by the Board of Directors only upon receipt of written
affirmation by or on behalf of such person in which he agrees to do both of the
following: (i) repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with the deliberate intent to cause
injury to the Corporation or undertaken with reckless disregard for the best
interests of the Corporation, and (ii) reasonably cooperate with the Corporation
concerning the action, suit or proceeding.
D. Other Rights and Remedies. The indemnification provided by this Article
VIII shall not be deemed to exclude any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the
Corporation's Articles of Amendment, any insurance or other agreement, trust
fund, letter of credit, surety bond, vote of stockholders or disinterested
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, member, manager or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person; provided that no indemnification shall be made to or on behalf
of an individual in respect of any of the following: (i) any claim, issue, or
matter as to which such person is adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless, and only to
the extent that, a court of competent jurisdiction determines that, despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court
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shall deem proper; or (ii) any action or suit in which the only liability
asserted against a director is pursuant to Section 1701.95 of the OGCL or any
successor thereto.
E. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the Corporation, or was
serving at the request of the Corporation as a director, officer, employee,
member, manager or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, partnership, joint venture, trust or
another enterprise or employee benefit plan, against any liability asserted
against him or incurred by him in any such capacity, or arising out of his
status, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article or the OGCL.
F. Modification. The duties of the Corporation to indemnify and to advance
expenses to a director, officer, employee or agent provided in this Article VIII
shall be in the nature of a contract between the Corporation and each such
director, officer, employee or agent and no amendment or repeal of any provision
of this Article VIII shall alter, to the detriment of such director, officer,
employee or agent, the right of such person to the advance of expenses or
indemnification related to a claim based on an act or failure to act which took
place prior to such amendment or repeal.
ARTICLE IX
MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS
A. Special Meetings of Stockholders. Except as otherwise required by law
and subject to the rights of the holders of any class or series of Preferred
Stock, special meetings of the stockholders of the Corporation may be called
only by (i) the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the Whole Board of Directors and a majority of
the Continuing Directors then in office (as defined by Article X), (ii) the
Chairman of the Board, (iii) the President, or (iv) the holders of not less than
50 percent of all votes outstanding and entitled to be cast on any issue
proposed to be considered at such special meeting. A request for a special
meeting of stockholders by stockholders of the Corporation shall state the
purpose of the meeting and the matters proposed to be acted on. The Secretary of
the Corporation shall inform the stockholders who make the request for the
special meeting of the reasonably estimated cost of preparing and mailing a
notice of the meeting and on payment of such costs to the Corporation, the
Secretary shall notify each stockholder entitled to notice of the special
meeting.
B. Action Without a Meeting. Any action permitted to be taken by the
stockholders at a meeting may be taken without a meeting if consent in writing
setting forth the action
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so taken shall be signed by all of the stockholders who would be entitled to
vote at a meeting for such purpose and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it, and both are filed with the Secretary of the Corporation as part of
the corporate records.
C. Stockholder Proposals. At an annual meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been brought before the annual meeting by, or at the direction of,
(a) the Board of Directors or (b) any stockholder of the Corporation who
complies with all the requirements set forth in this Article IX.C.
Proposals, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Article IX.C. For stockholder proposals
to be included in the Corporation's proxy materials, the stockholder must comply
with all the timing and informational requirements of Rule 14a-8 of the Exchange
Act (or any successor regulation). With respect to stockholder proposals to be
considered at the annual meeting of stockholders but not included in the
Corporation's proxy materials, the stockholder's notice shall be delivered to,
or mailed and received at, the principal office of the Corporation (a) for the
first such annual meeting after the filing of these Articles of Amendment, at
the close of business on the tenth day following the date on which notice of
such meeting is first given to stockholders, and (b) thereafter not less than
sixty (60) days prior to the anniversary date of the mailing of proxy materials
by the Corporation in connection with the immediately preceding annual meeting
of stockholders of the Corporation. Such stockholder's notice shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(b) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business and, to the extent known, any other
stockholders known by such stockholder to be supporting such proposal, (c) the
class and number of shares of the Corporation stock which are beneficially owned
by the stockholder on the date of such stockholder notice and, to the extent
known, by any other stockholders known by such stockholder to be supporting such
proposal on the date of such stockholder notice, and (d) any financial interest
of the stockholder in such proposal (other than interests which all stockholders
would have).
The Board of Directors may reject any stockholder proposal not timely made
in accordance with the terms of this Article IX.C. If the Board of Directors, or
a designated committee thereof, determines that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Article IX.C. in any material respect, the Secretary of the Corporation shall
promptly notify such stockholder of the deficiency in the notice. The
stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five (5)
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days from the date such deficiency notice is given to the stockholder, as the
Board of Directors or such committee thereof shall reasonably determine. If the
deficiency is not cured within such period, or if the Board of Directors or such
committee thereof determines that the additional information provided by the
stockholder, together with information previously provided, does not satisfy the
requirements of this Article IX.C. in any material respect, then the Board of
Directors may reject such stockholder's proposal. The Secretary of the
Corporation shall notify a stockholder in writing whether his proposal has been
made in accordance with the time and informational requirements of this Article
IX.C. Notwithstanding the procedures set forth in this paragraph, if neither the
Board of Directors nor such committee thereof makes a determination as to the
validity of any stockholder proposal, the presiding officer of the annual
meeting shall determine and declare at the annual meeting whether the
stockholder proposal was made in accordance with the terms of this Article IX.C.
If the presiding officer determines that a stockholder proposal was made in
accordance with the terms of this Article IX.C., he shall so declare at the
annual meeting and ballots shall be provided for use at the meeting with respect
to any such proposal. If the presiding officer determines that a stockholder
proposal was not made in accordance with the terms of this Article IX.C., he
shall so declare at the annual meeting and any such proposal shall not be acted
upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed and
received as herein provided.
ARTICLE X
CERTAIN BUSINESS COMBINATIONS AND ACQUISITIONS OF STOCK
A. Definitions and Related Matters.
(a) Affiliate. An "Affiliate" of, or a Person "affiliated with," a
specified Person means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
(b) Associate. The term "Associate" when used to indicate a
relationship with any Person means:
(i) Any corporation or organization (other than the Corporation
or a Subsidiary of the Corporation) of which such Person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10
percent or more of any class of equity securities;
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(ii) Any trust or other estate in which such Person has a 10
percent or greater beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity;
(iii) Any relative or spouse of such Person, or any relative of
such spouse who has the same home as such Person; or
(iv) Any investment company registered under the Investment
Company Act of 1940 for which such Person or any Affiliate or
Associate of such Person serves as investment advisor.
(c) Beneficial Owner. A Person shall be considered the "Beneficial
Owner" of any shares of stock (whether or not owned of record):
(i) With respect to which such Person or any Affiliate or
Associate of such Person directly or indirectly has or shares
(1) voting power, including the power to vote or to direct the voting
of such shares of stock and/or (2) investment power, including the
power to dispose of or to direct the disposition of such shares of
stock;
(ii) Which such Person or any Affiliate or Associate of such
Person has (1) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
and/or (2) the right to vote pursuant to any agreement, arrangement or
understanding (whether such right is exercisable immediately or only
after the passage of time); or
(iii) Which are Beneficially Owned within the meaning of (i) or
(ii) of this Article X.A.(c) by any other Person with which such
first-mentioned Person or any of its Affiliates or Associates has any
agreement, arrangement or understanding, written or oral, with respect
to acquiring, holding, voting or disposing of any shares of stock of
the Corporation or any Subsidiary of the Corporation or acquiring,
holding or disposing of all or substantially all, or any Substantial
Part, of the assets or businesses of the Corporation or a Subsidiary
of the Corporation.
For the purpose only of determining whether a Person is the Beneficial
Owner of a percentage specified in this Article X of the outstanding Voting
Shares, such shares shall be deemed to include any Voting Shares which may be
issuable pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights,
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warrants, options or otherwise and which are deemed to be Beneficially Owned by
such Person pursuant to the foregoing provisions of this Article X.A.(c).
(d) Business Combination. A "Business Combination" means:
(i) The sale, exchange, lease, transfer or other disposition to
or with a Related Person or any Affiliate or Associate of such Related
Person by the Corporation or any of its Subsidiaries (in a single
transaction or a series of related transactions) of all or
substantially all, or any Substantial Part, of its or their assets or
businesses (including, without limitation, any securities issued by a
Subsidiary);
(ii) The purchase, exchange, lease or other acquisition by the
Corporation or any of its Subsidiaries (in a single transaction or a
series of related transactions) of all or substantially all, or any
Substantial Part, of the assets or business of a Related Person or any
Affiliate or Associate of such Related Person;
(iii) Any merger or consolidation of the Corporation or any
Subsidiary thereof into or with a Related Person or any Affiliate or
Associate of such Related Person or into or with another Person which,
after such merger or consolidation, would be an Affiliate or an
Associate of a Related Person, in each case irrespective of which
Person is the surviving entity in such merger or consolidation;
(iv) Any reclassification of securities, recapitalization or
other transaction (other than a redemption in accordance with the
terms of the security redeemed) which has the effect, directly or
indirectly, of increasing the proportionate amount of Voting Shares of
the Corporation or any Subsidiary thereof which are Beneficially Owned
by a Related Person, or any partial or complete liquidation, spinoff
or splitup of the Corporation or any Subsidiary thereof; provided,
however, that this Article X.A.(d)(iv) shall not relate to any
transaction of the types specified herein that have been approved by
the affirmative vote of at least two-thirds of the Whole Board of
Directors and a majority of the Continuing Directors; or
(v) The acquisition upon the issuance thereof of Beneficial
Ownership by a Related Person of Voting Shares or securities
convertible into Voting Shares or any voting securities or securities
convertible into voting securities of any Subsidiary of the
Corporation, or the acquisition upon the issuance thereof of
Beneficial Ownership by a Related Person of any rights,
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warrants or options to acquire any of the foregoing or any combination
of the foregoing Voting Shares or voting securities of a Subsidiary.
As used in this definition, a "series of related transactions" shall be
deemed to include not only a series of transactions with the same Related Person
but also a series of separate transactions with a Related Person or any
Affiliate or Associate of such Related Person.
Anything in this definition to the contrary notwithstanding, this
definition shall not be deemed to include any transaction of the type set forth
in Article X.A.(d)(i) through X.A.(d)(iii) between or among any two or more
Subsidiaries of the Corporation or the Corporation and one or more Subsidiaries
of the Corporation if such transaction has been approved by the affirmative vote
of at least two-thirds of the Whole Board of Directors and a majority of the
Continuing Directors on or prior to the Date of Determination.
(e) Continuing Director. A "Continuing Director" shall mean:
(i) Each of the present directors of the Corporation as set forth
in Article VII, whether or not such person is a Related Person or an
Affiliate or Associate of a Related Person, except that such
designation shall in no way be deemed to affect or change or diminish
the fiduciary duties of such person to the Corporation;
(ii) An individual who is unaffiliated with a Related Person and
who was a member of the Board of Directors prior to the time that a
Related Person acquired 10% or more of the Voting Shares; or,
(iii) An individual who is unaffiliated with a Related Person and
who is designated before his or her initial election as a Continuing
Director by a majority of the then Continuing Directors.
(f) Date of Determination. The term "Date of Determination" means:
(i) The date on which a binding agreement (except for the
fulfillment of conditions precedent, including, without limitation,
votes of stockholders to approve such transaction) is entered into by
the Corporation, as authorized by its Board of Directors, and another
Person providing for any Business Combination; or,
(ii) If such an agreement as referred to in Article X.A.(f)(i)
above is amended so as to make it less favorable to the Corporation
and its stockholders, the date on which such amendment is approved by
the Board of Directors of the Corporation; or,
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(iii) In cases where neither Article X.A.(f)(i) nor (ii) shall be
applicable, the record date for the determination of stockholders of
the Corporation entitled to notice of and to vote upon the transaction
in question.
A majority of the Continuing Directors shall have the power and duty to
determine the Date of Determination as to any transaction under this Article X.
Any such determination shall be conclusive and binding for all purposes of this
Article X.
(g) Fair Market Value. The term "Fair Market Value" shall mean:
(i) In the case of stock, the highest closing sale price during
the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange
- Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange or the American Stock Exchange,
or, if such stock is not listed on such exchanges, on the principal
United States securities exchange registered under the Exchange Act on
which such shares are listed, or, if such shares are not listed on any
such exchange, the highest closing price with respect to a share of
such stock during the 30-day period preceding the date in question on
the National Market System of the National Association of Securities
Dealers Automated Quotations ("NASDAQ") System, or, if not listed on
the National Market System, the highest mean of the closing bid and
asked quotations on the NASDAQ System during such 30-day period or any
system then in use, or, if no such quotations are available, the fair
market value on the date in question of a share as determined by a
majority of the Continuing Directors in good faith; and
(ii) In the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
a majority of the Continuing Directors in good faith.
(h) Independent Majority of Stockholders. The term "Independent
Majority of Stockholders" shall mean the holders of a majority of the
outstanding Voting Shares that are not Beneficially Owned or controlled,
directly or indirectly, by a Related Person.
(i) Offer. The term "Offer" shall mean every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value;
provided that the term "Offer" shall not include: (a) inquiries directed solely
to the management of the Corporation and not intended to be communicated to
stockholders which are designed to elicit an indication of management's
receptivity to the basic structure of a potential acquisition with respect to
the amount of cash and/or securities, manner of acquisition and formula for
determining price,
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or (b) non-binding expressions of understanding or letters of intent with the
management of the Corporation regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
(j) Person. The term "Person" shall mean any person, partnership,
corporation, or group or other entity (other than the Corporation, any
Subsidiary of the Corporation or a trustee holding stock for the benefit of
employees of the Corporation or its Subsidiaries, or any one of them, pursuant
to one or more employee benefit plans or arrangements). When two or more Persons
act as a partnership, limited partnership, syndicate, association or other group
for the purpose of acquiring, holding or disposing of shares of stock, such
partnership, syndicate, association or group shall be deemed a "Person."
(k) Related Person. The term "Related Person" shall mean any Person
who or which is (a) the Beneficial Owner, as of the Date of Determination, or
immediately prior to the consummation of a Business Combination, of 10% or more
of the Voting Shares; or (b) an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the announcement of a Business
Combination was the Beneficial Owner, directly or indirectly, of 10% or more of
the then outstanding Voting Shares; or (c) an assignee of or has otherwise
succeeded to any Voting Shares which were at any time within the two-year period
immediately prior to the announcement of a Business Combination Beneficially
Owned by any Related Person, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not involving
a public offering within the meaning of the Securities Act of 1933, but shall
not include Pittsburgh Investment Group LLC or any successor thereto.
(l) Substantial Part. The term "Substantial Part" as used with
reference to the assets of the Corporation, of any Subsidiary or of any Related
Person means assets having a value of more than 10% of the total consolidated
assets of the Corporation and its Subsidiaries as of the end of the
Corporation's most recent fiscal year ending prior to the time the determination
is being made.
(m) Subsidiary. The term "Subsidiary" shall mean any corporation or
other entity of which the Person in question owns not less than 50 percent of
any class of equity securities, directly or indirectly.
(n) Voting Shares. The term "Voting Shares" shall mean shares of the
Corporation entitled to vote generally in the election of directors.
(o) Whole Board of Directors. The term "Whole Board of Directors"
shall mean the total number of directors which the Corporation would have if
there were no vacancies.
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(p) Certain Determinations with Respect to Article X.
(i) A majority of the Continuing Directors shall have the power
to determine for the purposes of this Article X, on the basis of
information known to them: (1) the number of Voting Shares of which
any Person is the Beneficial Owner, (2) whether a Person is an
Affiliate or Associate of another, (3) whether a Person has an
agreement, arrangement or understanding with another as to the matters
referred to in the definition of "Beneficial Owner" as hereinabove
defined, (4) whether the assets subject to any Business Combination
constitute a "Substantial Part" as hereinabove defined, (5) whether
two or more transactions constitute a "series of related transactions"
as hereinabove defined, (6) any matters referred to in Article
X.A.(p)(ii) below, and (7) such other matters with respect to which a
determination is required under this Article X.
(ii) A Related Person shall be deemed to have acquired a share of
the Corporation at the time when such Related Person became a
Beneficial Owner thereof. With respect to shares owned by Affiliates,
Associates or other Persons whose ownership is attributable to a
Related Person under the foregoing definition of Beneficial Owner, if
the price paid by such Related Person for such shares is not
determinable, the price so paid shall be deemed to be the higher of
(1) the price paid upon acquisition thereof by the Affiliate,
Associate or other Person or (2) the market price of the shares in
question (as determined by a majority of the Continuing Directors) at
the time when the Related Person became the Beneficial Owner thereof.
(q) Fiduciary Obligations. Nothing contained in this Article X shall
be construed to relieve any Related Person from any fiduciary obligation imposed
by law.
B. Approval of Business Combination.
(a) Except as provided in Article X.B.(b), neither the Corporation nor
any of its Subsidiaries shall become party to any Business Combination without
the prior affirmative vote at a meeting of the Corporation's stockholders of:
(i) The holders of not less than 80 percent of the outstanding
Voting Shares, voting separately as a class, and
(ii) An Independent Majority of Stockholders.
Such favorable votes shall be in addition to any stockholder vote which
would be required without reference to this Article X.B.(a) and shall be
required notwithstanding the
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fact that no vote may be required, or that some lesser percentage may be
specified by law or otherwise.
(b) The provisions of Article X.B.(a) shall not apply to a particular
Business Combination, and such Business Combination shall require only such
stockholder vote (if any) as would be required without reference to this Article
X.B., if all of the conditions set forth in subparagraphs (i) through (vii)
below are satisfied:
(i) The ratio of (1) the aggregate amount of the cash and the
Fair Market Value of the other consideration to be received per share
of Common Stock (as defined in Article V) of the Corporation in such
Business Combination by holders of Common Stock other than the Related
Person involved in such Business Combination, to (2) the market price
per share of the Common Stock immediately prior to the announcement of
the proposed Business Combination, is at least as great as the ratio
of (x) the highest per share price (including brokerage commissions,
transfer taxes and soliciting dealers' fees) which such Related Person
has theretofore paid in acquiring any Common Stock prior to such
Business Combination, to (y) the market price per share of Common
Stock immediately prior to the initial acquisition by such Related
Person of any shares of Common Stock; and
(ii) The aggregate amount of the cash and the Fair Market Value
of other consideration to be received per share of Common Stock in
such Business Combination by holders of Common Stock, other than the
Related Person involved in such Business Combination, is not less than
the highest per share price (including brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by such Related Person in
acquiring any of its holdings of Common Stock; and
(iii) If applicable, the ratio of (1) the aggregate amount of the
cash and the Fair Market Value of other consideration to be received
per share of Preferred Stock (as defined in Article V) of the
Corporation in such Business Combination by holders of Preferred Stock
other than the Related Person involved in such Business Combination,
to (2) the market price per share of the Preferred Stock immediately
prior to the announcement of the proposed Business Combination, is at
least as great as the ratio of (x) the highest per share price
(including brokerage commissions, transfer taxes and soliciting
dealers' fees) which such Related Person has theretofore paid in
acquiring any Preferred Stock prior to such Business Combination to
(y) the market price per share of Preferred Stock immediately prior to
the initial acquisition by such Related Person of any shares of
Preferred Stock; and
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(iv) If applicable, the aggregate amount of the cash and the Fair
Market Value of other consideration to be received per share of
Preferred Stock in such Business Combination by holders of Preferred
Stock, other than the Related Person involved in such Business
Combination, is not less than the highest per share price (including
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by such Related Person in acquiring any of its holdings of
Preferred Stock; and
(v) The consideration (if any) to be received in such Business
Combination by holders of stock other than the Related Person (whether
Common Stock or Preferred Stock) involved shall, except to the extent
that a stockholder agrees otherwise as to all or part of the shares
which he owns, be in the same form and of the same kind as the
consideration paid by the Related Person in acquiring Common Stock
already owned by it; and
(vi) After such Related Person became a Related Person and prior
to the consummation of such Business Combination:
(1) such Related Person shall vote his shares in such a
manner as to cause, to the extent necessary and within his power
as a stockholder, the Board of Directors of the Corporation to
include at all times representation by Continuing Directors
proportionate to the ratio that the number of Voting Shares of
the Corporation from time to time owned by stockholders who are
not Related Persons bears to all Voting Shares of the Corporation
outstanding at the time in question (with a Continuing Director
to occupy any resulting fractional position among the directors);
(2) such Related Person shall not have acquired from the
Corporation, directly or indirectly, any shares of the
Corporation (except (x) upon conversion of convertible securities
acquired by it prior to becoming a Related Person or (y) as a
result of a pro rata stock dividend, stock split or division of
shares or (z) in a transaction which satisfied all applicable
requirements of this Article X);
(3) such Related Person shall not have acquired any
additional Voting Shares of the Corporation or securities
convertible into or exchangeable for Voting Shares except as a
part of the transaction which resulted in such Related Person
becoming a Related Person;
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(4) such Related Person shall not have (x) received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or
other financial assistance or tax credits provided by the
Corporation or any Subsidiary, or (y) made any major change in
the Corporation's business or equity capital structure or entered
into any contract, arrangement or understanding with the
Corporation except any such change, contract, arrangement or
understanding as may have been approved by the favorable vote of
not less than a majority of the Whole Board of Directors and a
majority of the Continuing Directors of the Corporation; and
(5) except as approved by a majority of the Whole Board of
Directors and a majority of the Continuing Directors, there shall
have been: (x) no failure to declare and pay at the regular date
therefor any dividends (whether or not cumulative) on any
outstanding Preferred Stock; (y) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock); and (z) an increase
in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the stock; and
(vii) A proxy statement complying with the requirements under the
Exchange Act shall have been mailed to all holders of Voting Shares
for the purpose of soliciting stockholder approval of such Business
Combination. Such proxy statement is not required to be filed with or
approved by the Securities and Exchange Commission unless otherwise
required by law. Such proxy statement shall contain at the front
thereof, in a prominent place, any recommendations as to the
advisability (or inadvisability) of the Business Combination which the
Continuing Directors, or any of them, may have furnished in writing
and, if deemed advisable by a majority of the Continuing Directors, an
opinion of a reputable investment banking firm as to the fairness (or
lack of fairness) of the terms of such Business Combination from the
point of view of the holders of Voting Shares other than any Related
Person (such investment banking firm to be selected by a majority of
the Continuing Directors, to be furnished with all information it
reasonably requests, and to be paid a reasonable fee for its services
upon receipt by the Corporation of such opinion).
(c) For purposes of Article X.B.(b)(i) through X.B.(b)(iv) hereof, in
the event of a Business Combination upon consummation of which the Corporation
would be
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Miami Computer Supply, Inc.
Articles of Amendment
Page 23
the surviving corporation or company or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination or
within one year after consummation thereof a plan of liquidation or dissolution
of the Corporation will be effected), the term "other consideration to be
received" shall include (without limitation) Common Stock retained by the
stockholders of the Corporation other than Related Persons who are parties to
such Business Combination.
(d) The provisions of this Article X.B. shall not apply to (i) any
Business Combination approved by two-thirds of the Whole Board of Directors of
the Corporation at a time prior to the acquisition of 10 percent or more of the
outstanding Voting Shares of the Corporation by the Related Person, or (ii) any
Business Combination approved by two-thirds of the Whole Board of Directors and
a majority of the Continuing Directors after such acquisition.
C. Evaluation of Business Combinations, Etc. In connection with the
exercise of its judgment in determining what is in the best interest of the
Corporation and its stockholders when evaluating a Business Combination or a
proposal by another Person or Persons to make a Business Combination or a tender
or exchange offer, the Board of Directors of the Corporation shall, in addition
to considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant: (i) the social and economic effects of the transaction on the
Corporation and its Subsidiaries and their respective employees, customers,
creditors and other elements of the communities in which the Corporation and its
Subsidiaries operate or are located; (ii) the business and financial condition
and earnings prospects of the acquiring Person or Persons, including, but not
limited to, debt service and other existing or likely financial obligations of
the acquiring Person or Persons, and the possible effect of such conditions upon
the Corporation and its Subsidiaries and the elements of the communities in
which the Corporation and its Subsidiaries operate or are located; and (iii) the
competence, experience and integrity of the acquiring Person or Persons and its
or their management.
D. Voting Rights of Certain Control Shares. The Corporation shall be
governed by Section 1701.831 of the OGCL "Shareholder Review of Proposed Control
Share Acquisitions," or its successor, and hereby adopts such language and
provisions and incorporates the same herein by reference as though it were
written out herein in full.
E. Amendments, Etc. of this Article X. Notwithstanding any other provisions
of these Amended and Restated Articles of Incorporation or the Regulations of
the Corporation (and notwithstanding the fact that some lesser percentage may be
specified by law, these Amended and Restated Articles of Incorporation or the
Regulations of the Corporation), this Article X shall not be amended, altered,
changed, or repealed without the affirmative vote of (i) the holders of 80% or
more of the outstanding Voting Shares, voting
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Miami Computer Supply, Inc.
Articles of Amendment
Page 24
separately as a class, and (ii) an Independent Majority of Stockholders;
provided, however, that this Article X.E. shall not apply to, and such vote
shall not be required for, any such amendment, change or repeal recommended to
stockholders by the favorable vote of not less than two-thirds of the Whole
Board of Directors, including a majority of the Continuing Directors, and any
such amendment, change or repeal so recommended shall require only the vote, if
any, required under the applicable provisions of the Act, these Amended and
Restated Articles of Incorporation and the Regulations of the Corporation.
F. Election Under Chapter 1704 the OGCL. Pursuant to Section
1704.05(F)(1)(a), the Corporation has expressly elected not to be governed by
the provisions of Chapter 1704 of the OGCL.
ARTICLE XI
AMENDMENT OF ARTICLES OF INCORPORATION AND REGULATIONS
A. Articles of Incorporation. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in these Articles of Amendment,
in the manner now or hereafter prescribed by law, and all rights conferred upon
stockholders herein are granted subject to this reservation. No amendment,
addition, alteration, change or repeal of these Articles of Amendment shall be
made unless it is first approved by the Board of Directors of the Corporation
pursuant to a resolution adopted and declared advisable by the affirmative vote
of a majority of the directors then in office, and thereafter is approved, at an
annual or special meeting, by the holders of two-thirds of the shares of the
Corporation entitled to vote generally in an election of directors, voting
together as a single class, unless any class or series of shares is entitled to
vote thereon as a class, in which event the proposed amendment shall be adopted
upon receiving the affirmative vote of the holders of a majority of the shares
within each class or series of outstanding shares entitled to vote thereon as a
class and of at least two-thirds of the total outstanding shares entitled to
vote thereon, provided that, notwithstanding anything contained in these
Articles of Amendment to the contrary, (i) the affirmative vote of the holders
of at least 75 percent of the shares of the Corporation entitled to vote
generally in an election of directors, voting together as a single class, unless
any class or series of shares is entitled to vote thereon as a class, in which
event the proposed amendment shall be adopted upon receiving the affirmative
vote of the holders of 75 percent of the shares within each class or series of
outstanding shares entitled to vote thereon as a class and of at least 75
percent of the total outstanding shares entitled to vote thereon, shall be
required to amend, adopt, alter, change or repeal any provision inconsistent
with Articles VI (relating to preemptive rights), VII (relating to the Board of
Directors), VIII (relating to indemnification), IX (relating to meetings of
stockholders), and this Article XI, and (ii) Article X shall be amended in the
manner specified in Article X.E.
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Miami Computer Supply, Inc.
Articles of Amendment
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B. Code of Regulations. The stockholders may adopt, alter, amend or repeal
the Regulations of the Corporation pursuant to Section 1701.11 of the OGCL or
any successor thereto.
WE, THE UNDERSIGNED, being the duly authorized President and Secretary of
Miami Computer Supply, Inc. for the purpose of amending and restating the
Articles of Incorporation of the Corporation pursuant to the Ohio General
Corporation Law, do make these Articles of Amendment and Restatement of the
Articles of Incorporation of Miami Computer Supply, Inc., hereby acknowledging
and certifying, under the penalties of perjury, that this is the act and deed of
Miami Computer Supply, Inc. and that, to the best of our knowledge, information
and belief, the matters and the facts herein stated are true in all material
respects, and accordingly, we have hereunto set our hands this 24th day of
September, 1996.
MIAMI COMPUTER SUPPLY, INC.
WITNESSED: /s/ Thomas C. Winstel By: /s/ Albert L. Schwarz
----------------------- ------------------------
Thomas C. Winstel Albert L. Schwarz
Secretary President
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
MIAMI COMPUTER SUPPLY CORPORATION
ARTICLE I
OFFICES
The following Amended and Restated Code of Regulations (the "Regulations")
of Miami Computer Supply Corporation, Dayton, Ohio, were duly adopted by the
stockholders of the Corporation as of September 18, 1996:
1.1 Principal Office and Statutory Agent. The principal office of Miami
Computer Supply Corporation (the "Corporation") shall be located in the State of
Ohio at such place as may be fixed from time to time by the Board of Directors
upon filing of such notices as may be required by law, and the statutory agent
shall have a business office identical with such principal office.
1.2 Other Offices. The Corporation may have other offices within or outside
the State of Ohio at such place or places as the Board of Directors may from
time to time determine.
ARTICLE II
STOCKHOLDERS' MEETINGS
2.1 Meeting Place. All meetings of the stockholders shall be held at the
principal office of the Corporation, or at such other place within or without
the State of Ohio as shall be determined from time to time by the Board of
Directors, and the place at which any such meeting shall be held shall be stated
in the notice of the meeting.
2.2 Annual Meeting Time. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the first Monday of
the fourth month following the close of each fiscal year of the Corporation at
the hour of 10:00 a.m., if not a legal holiday, and if a legal holiday, then on
the next succeeding day not a legal holiday, at the same hour, or at such other
date and time as may be determined by the Board of Directors and stated in the
notice of such meeting.
2.3 Organization. Each meeting of the stockholders shall be presided over
by the Chairman of the Board, or by the President, or if neither the Chairman,
nor the President is present, by a Vice President or such other officer as
designated by the Board of Directors. The Secretary, or in his or her absence a
temporary Secretary, shall act as secretary of each meeting of the stockholders.
In the absence of the Secretary and any temporary Secretary,
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Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 2
the chairman of the meeting may appoint any person present to act as secretary
of the meeting. The chairman of any meeting of the stockholders, unless
prescribed by law or unless the Chairman of the Board has otherwise determined,
shall determine the order of the business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussions
as shall be deemed appropriate by him in his sole discretion.
2.4 Special Meetings. Special meetings of the stockholders for any purpose
may be called at any time in the manner provided in the Corporation's Amended
and Restated Articles of Incorporation, which are incorporated herein with the
same effect as if they were set forth herein.
2.5 Notice.
(a) Notice of the time and place of the annual meeting of stockholders
shall be given by delivering personally, leaving at his or her residence or
usual place of business or by mailing to the stockholder's address as it appears
on the records of the Corporation a written or printed notice of the same to
each stockholder of record stating the place, day and hour of the meeting, at
least seven (7) days and not more than sixty (60) days prior to the meeting, to
each stockholder of record entitled to vote at such meeting and to each other
stockholder entitled to notice of said meeting.
(b) At least seven (7) days and not more than sixty (60) days prior to
the meeting, a written or printed notice of each special meeting of
stockholders, stating the place, day and hour of such meeting, and the purpose
or purposes for which the meeting is called, shall be either delivered
personally, left at his or her residence or principal place of business or
mailed to each stockholder of record entitled to vote at such meeting at such
stockholder's address as it appears on the records of the Corporation and to
each other stockholder entitled to notice of said meeting.
(c) A person entitled to notice of any meeting of stockholders may
waive such notice if her or she: (i) before or after the meeting signs a waiver
of notice which is filed with the records of the stockholders' meeting, or
(ii) is present at the meeting in person or by proxy.
(d) A meeting of stockholders, either annual or special, convened on
the date for which it was called may be adjourned from time to time without
further notice to a date not more than one hundred and twenty (120) days after
the original record date. When any stockholders' meeting, either annual or
special, is adjourned and if a new record date is fixed for an adjourned meeting
of stockholders, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any written
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Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 3
notice of the time and place of any meeting adjourned, unless a new record date
is fixed therefor, other than an announcement at the meeting at which such
adjournment is taken.
2.6 Voting List. A complete list of the stockholders entitled to vote at
any meeting of stockholders, or any adjournment thereof, shall be made by the
Secretary, arranged in alphabetical order, with the address of and number of
shares registered in the name of each, which list shall be produced at any
meeting of stockholders for the examination of any stockholder, upon the request
of any stockholder at any meeting of stockholders. The Stock Ledger shall be the
only evidence as to who are the stockholders entitled to examine the Stock
Ledger, the voting list required by these Amended and Restated Regulations or
the books of the Corporation, or to vote in person or by proxy at any meeting of
the stockholders.
2.7 Quorum; Voting. Except as otherwise required by law:
(a) A quorum for the transaction of business at any annual or special
meeting of stockholders shall consist of stockholders representing, either in
person or by proxy, a majority of the outstanding capital stock of the
Corporation entitled to vote on that matter at such meeting, except as otherwise
provided by statute, the Amended and Restated Articles of Incorporation (the
"Amended and Restated Articles") or these Amended and Restated Regulations; but
in the absence of such a quorum, the holders of a majority of the shares
represented at the meeting shall have the right successively to adjourn the
meeting to a specified date. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the original meeting.
The absence from any meeting of the number of shares required by law, the
Amended and Restated Articles of Incorporation or these Amended and Restated
Regulations for action upon one matter shall not prevent action at such meeting
upon any other matter or matters which may properly come before the meeting, if
the number of shares required in respect of such other matters shall be present.
(b) With respect to any other matter other than the election of
directors, the votes of a majority of all votes cast at any properly called
meeting or adjourned meeting of stockholders at which a quorum, as defined
above, is present, shall be sufficient to approve any matter which properly
comes before the meeting, unless the proposition or question is one upon which
by express provisions of law or of the Amended and Restated Articles of
Incorporation or these Amended and Restated Regulations, a different vote is
required, in which case with express provision shall govern and establish the
number of votes required to determine such proposition or questions.
(c) Directors are to be elected by a plurality of votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Stockholders shall not be permitted to cumulate their votes for the
election of directors. If, at any
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Miami Computer Supply Corporation
Amended and Restated Code of Regulations
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meeting of the stockholders, due to a vacancy or vacancies or otherwise,
directors of more than one class of the Board of Directors are to be elected,
each class of directors to be elected at the meeting shall be elected in a
separate election by a plurality vote.
2.8 Voting of Shares. Except as otherwise provided in these Amended and
Restated Regulations or to the extent that voting rights of the shares of any
class or classes are limited or denied by the Amended and Restated Articles of
Incorporation, each stockholder, on each matter submitted to a vote at a meeting
of stockholders, shall have one (1) vote for each share of stock registered in
his name on the books of the Corporation.
2.9 Closing of Transfer Books and Fixing Record Date. For the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof, or entitled to receive payment of any
distribution by the Corporation or a share dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period not to exceed sixty (60) days preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a record
date for any such determination of stockholders, such date to be not more than
sixty (60) days preceding the date fixed for payment, the date of the meeting or
any other such date.
2.10 Proxies. A stockholder may vote either in person or by proxy executed
in writing by the stockholder, or his duly authorized attorney-in-fact. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
2.11 Voting of Shares in the Name of Two or More Persons. When ownership
stands in the name of two or more persons, in the absence of written directions
to the Secretary of the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting. In
the event an attempt is made to cast conflicting votes by more than one person
and the number executing consents exceeds the number executing objections to
consents, the former may act for all, and likewise if the number executing
objections to consents shall exceeds the number executing consents, the greater
number may act for all and if only one person attends the meeting, or executes a
consent and no other of said persons executes an objection to such consent, then
that one person may act for all, and if an even number attend the meeting and a
majority of all the persons so attending do not agree on any particular issue or
if one or more execute consents and a like number execute objections to
consents, each person so
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Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 5
attending or executing consents or objections to consents may act with respect
to an equal number of shares.
2.12 Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by the chairman of the board, president, any
vice president, the secretary or the treasurer of the corporation holding such
shares and any such officer shall conclusively be deemed to have authority to
vote on behalf of such corporation and to appoint proxies and execute consents,
waivers or releases unless it appears by a certified copy of the regulations,
bylaws or a resolution of the board of directors or executive committee of such
corporation that such authority does not exist or is vested in some other
officer or person. Shares registered in the name of another held by a fiduciary
may be voted by him or her, either in person or by proxy, on proof of the fact
that legal title to the stock has devolved on him, or her in a fiduciary
capacity and that he or she is qualified to act in that capacity. A stockholder
whose shares are pledged shall be entitled to vote such shares until the shares
have been transferred into the name of the pledgee, and thereafter the pledgee
shall be entitled to vote the shares so transferred, but this Amended and
Restated Regulation does not affect the validity of any agreement between the
pledgor and pledgee as to the giving of proxies or the exercise of voting
rights.
2.13 Stockholder Proposals. Stockholder proposals shall be made in
accordance with the provisions of the Corporation's Amended and Restated
Articles of Incorporation, which provisions are incorporated herein with the
same effect as if they were set forth herein.
2.14 Inspectors. For each meeting of stockholders, the Board of Directors
in advance of the meeting, may appoint one or more inspectors of election. If
for any meeting the inspector(s) appointed by the Board of Directors shall be
unable to act or the Board of Directors shall fail to appoint any inspector, one
or more inspectors may be appointed at the meeting by the chairman thereof. Such
inspectors shall determine the number of shares outstanding, the voting rights
with respect to each, the shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, receive and canvass
the votes for the election of directors and or any proposal voted on by ballot
and/or by proxy and hear and determine all challenges and questions arising in
connection with the vote, count and tabulate all votes, consents, waivers and
releases, determine and announce the result and do all acts as are proper to
conduct the election or vote with fairness to all stockholders. In all cases
where the right to vote upon any share of the Corporation shall be questioned,
it shall be the duty of the inspectors to examine the Stock Ledger of the
Corporation as evidence of the shares held, and all shares that appear standing
thereon in the name of any person or persons may be voted upon by such person or
persons. Each inspector before entering upon the duties of such office shall
take an oath to execute his or her duties with strict impartiality and to the
best of his or her ability.
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Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 6
ARTICLE III
BOARD OF DIRECTORS
3.1 Number and Powers. The management of all the affairs, property and
interests of the Corporation shall be vested in a Board of Directors. The Board
of Directors shall consist of five (5) persons as of the effective date of these
Amended and Restated Regulations. Directors need not be residents of the State
of Ohio nor hold stock of the Corporation. The Board of Directors, other than
those who may be elected by the holders of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation, may, by
resolution of the majority of the Whole Board of Directors and a majority of the
Continuing Directors then in office (as defined by Article X of the Amended and
Restated Articles), be divided into two or three classes as nearly equal in
number as possible, each class having not less than three directors, with one
class to be elected annually. At each annual meeting of stockholders subsequent
to the effective date of the Amended and Restated Articles, if the Board is
divided into two or three classes, directors elected to succeed those whose
terms are expiring shall be elected for a term of office to expire at the second
or third succeeding annual meeting of stockholders, respectively, and when their
respective successors are elected and qualified. Unless the Board is divided
into classes as permitted hereby, all Directors shall be elected annually. No
holder of the capital stock of the Corporation shall be permitted to cumulate
his votes in the election of directors. In addition to the powers and
authorities expressly conferred upon it by these Amended and Restated
Regulations and the Amended and Restated Articles, the Board of Directors may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Amended and Restated Articles or by these
Amended and Restated Regulations directed or required to be exercised or done by
the stockholders.
3.2 Change of Number. The number of directors may at any time be increased
or decreased by a vote of a majority of the Whole Board of Directors and a
majority of the Continuing Directors, as such terms are defined in the Amended
and Restated Articles, provided that no decrease shall have the effect of
shortening the term of any incumbent director except as provided in Sections 4.3
and 4.4 hereunder.
3.3 Vacancies. All vacancies in the Board of Directors shall be filled in
the manner provided in the Corporation's Amended and Restated Articles, which
provisions are incorporated herein with the same effect as if they were set
forth herein.
3.4 Removal of Directors. Directors may be removed in the manner provided
in the Corporation's Amended and Restated Articles, which provisions are
incorporated herein with the same effect as if they were set forth herein.
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Miami Computer Supply Corporation
Amended and Restated Code of Regulations
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3.5 Regular Meetings. Regular meetings of the Board of Directors shall be
held at least once each quarter on such day as the Board of Directors by
resolution shall prescribe and at such hour as may be stated in the notice of
the meeting. Meetings of committees of the Board shall be held as prescribed by
resolution of the Board of Directors or by resolution of such committee. At
least two (2) days' notice of the time and place of each meeting shall be
personally delivered, mailed, sent by facsimile with receipt confirmed by
telephone at the director's residence or principal place of business or given by
telephone to each member of the Board or such committee. Such notice shall be
deemed to be delivered when deposited in the mail so addressed with postage
prepaid. Neither the business to be transacted at, nor the purpose of, any
regular meeting need be specified in the notice or any waiver of notice of such
meeting. Regular meetings of the Board of Directors or any committee may be held
at the principal place of business of the Corporation or at such other place or
places, either within or without the State of Ohio, as the Board of Directors or
such committee, as the case may be, may from time to time designate. The annual
meeting of the Board of Directors shall be held without notice immediately after
the adjournment of the annual meeting of stockholders, for the purpose of
organizing the Board, electing officers and members of committees and
transacting other business.
3.6 Special Meetings.
(a) Special meetings of the Board of Directors may be called at any
time by the Chairman, the President or by a majority of the authorized number of
directors, to be held at the principal place of business of the Corporation or
at such other place or places as the Board of Directors or the person or persons
calling such meeting may from time to time designate. Notice of all special
meetings of the Board of Directors shall be given to each director by at least
two (2) days' service of the same by facsimile with receipt confirmed by
telephone, telephone or personally, and by at least three (3) days' service when
delivered by mail at the address at which the director is most likely to be
reached. Such notice shall be deemed to be delivered when deposited in the mail
so addressed with postage prepared. Such notice need not specify the business to
be transacted at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for such
committee by the Board of Directors, or in the absence of such specification, in
the manner and with the notice required for special meetings of the Board of
Directors.
3.7 Quorum.
(a) A majority of the Whole Board of Directors of the Corporation, as
such term is defined in the Amended and Restated Articles, at the time of a
meeting of the Board of
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Amended and Restated Code of Regulations
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Directors shall be necessary at all meetings to constitute a quorum for the
transaction of business. At any meeting of the Board, no action shall be taken
(except adjournment, in the manner provided below) until after a quorum has been
established.
(b) The act of a majority of directors who are present at a meeting at
which a quorum previously has been established (or at any adjournment of such
meeting, provided that a quorum previously shall have been established at such
adjourned meeting) shall be the act of the Board of Directors, regardless of
whether or not a quorum is present at the time such action is taken. In
determining the number of directors who are present at the time any such action
is taken (for the purpose of establishing the number of votes required to take
action on any proposition or question submitted to the Board), any director who
is in attendance at such meeting but who, for just cause, is disqualified to
vote on such proposition or question, shall not be considered as being present
at the time of such action.
(c) In the event a quorum cannot be established at the beginning of a
meeting, a majority of the directors present at the meeting, or the director, if
there be only one person, or the Secretary of the Corporation, if there be no
director present, may adjourn the meeting from time to time until a quorum be
present. Only such notice of such adjournment need be given as the Board may
from time to time prescribe.
3.8 Waiver of Notice. Attendance of a director at a meeting of directors
shall constitute a waiver of notice of such meeting, except where a director
attends for the express purpose of objecting, prior to or at the commencement of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A waiver of notice signed by the director or
directors, whether before or after the time stated for the meeting, shall be
equivalent to the giving of notice.
3.9 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless the director announces his
dissent at the meeting and his dissent shall be entered in the minutes of the
meeting, or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting, before the adjournment thereof,
or shall forward such dissent by certified mail, return receipt requested,
bearing a postmark from the United State Postal Service to the Secretary of the
Corporation within a reasonable time after the adjournment of the meeting. Such
right to dissent shall not apply to a director who voted in favor of such action
or failed to make his dissent known at the meeting.
3.10 Executive, Audit and Other Committees.
(a) Standing or special committees may be appointed from its own
number by the Board of Directors from time to time and the Board of Directors
may from time to time
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Miami Computer Supply Corporation
Amended and Restated Code of Regulations
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invest such committees with such powers as it may see fit, subject to such
conditions as may be prescribed by the Board. An Executive Committee may be
appointed by resolution passed by a majority of the Whole Board of Directors. It
shall have and exercise all of the authority of the Board of Directors, except
in reference to the filling of vacancies among the directors or in any committee
of the directors. An Audit Committee may be appointed by a resolution approved
by a majority of the Whole Board of Directors, as such term is defined in the
Corporation's Amended and Restated Articles, and at least a majority of the
members of the Audit Committee shall be directors who are not also officers of
the Corporation. The Audit Committee shall recommend independent auditors to the
Board of Directors annually and shall review the Corporation's budget, the scope
and results of the audit performed by the Corporation's independent auditors and
the Corporation's system of internal control with management and such
independent auditors, and such other duties as may be assigned to such
Committee. All committees so appointed shall consist of not less than three (3)
directors, keep regular minutes of the transactions of their meetings and shall
cause them to be recorded in books kept for that purpose at the principal office
of the Corporation. The designation of any such committee, and the delegation of
authority thereto, shall not relieve the Board of Directors, or any member
thereof, of any responsibility imposed by law.
(b) Unless otherwise provided by the Board of Directors, a majority of
the members of any committee shall constitute a quorum for the transaction of
business at any meeting of such committee and the acts of a majority of the
members present at a meeting at which a quorum is present shall be the acts of
the committee.
3.11 Remuneration. Directors, as such, may receive a stated salary for
their service, and by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of such Board. Members of standing or special committees may be
allowed like compensation for attending committee meetings.
3.12 Action by Directors Without a Meeting. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be and filed with the minutes of the
proceedings of the Board or Committee. Such consent shall have the same effect
as a unanimous vote.
3.13 Action of Directors by Communications Equipment. Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time.
<PAGE>
Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 10
3.14 Nominations. Nominations of candidates for election as directors at
any annual meeting of stockholders shall be made in the manner set forth in the
provisions of the Corporation's Amended and Restated Articles, which provisions
are incorporated herein with the same effect as if they were set forth herein.
3.15 Presiding Officer. The Chairman of the Board shall preside at all
meetings of the Board of Directors at which the Chairman is present. In the
Chairman's absence, the Vice Chairman (if any) shall preside. In the absence of
the Chairman and/or Vice Chairman, the Board shall select a chairman of the
meeting from among the directors present.
ARTICLE IV
CAPITAL STOCK
4.1 Certificates. Certificates of stock shall be issued in numerical order,
and each stockholder shall be entitled to a certificate signed by the Chairman
of the Board, President or a Vice President, and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and may be sealed with the
seal of the Corporation or a facsimile thereof. The signatures of such officers
may be facsimiles if the certificate is manually signed on behalf of a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an officer before
the certificate is issued, it may be issued by the Corporation with the same
effect as if the person were an officer on the date of issue. Each certificate
of stock shall state:
(a) that the Corporation is organized under the laws of the State of
Ohio;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series,
if any, which such certificate represents;
(d) the par value of each share represented by such certificate; and
(e) the designations and preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption and the differences of the relative rights
and preference between the shares of each series to the extent that they have
been set and the authority of the Board of Directors to set the relative rights
and preferences of subsequent series, or a statement that the Corporation shall
provide such information to any stockholder upon request and without charge
within five (5) days after receipt of written request therefor.
<PAGE>
Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 11
4.2 Transfers.
(a) Transfers of stock shall be made only upon the stock transfer
books of the Corporation, kept at the principal office of the Corporation or at
its principal place of business, or at the office of its transfer agent or
registrar, by the person or person named in the certificate or by the attorney
lawfully constituted in writing representing such person or persons and upon
surrender of the certificate or certificates being transferred which certificate
shall be properly endorsed for transfer or accompanied by a duly executed stock
power. Whenever a certificate is endorsed by or accompanied by a stock power
executed by someone other than the person or persons named in the certificate,
evidence of authority to transfer shall also be submitted with the certificate.
All certificates surrendered to the Corporation for transfer shall be cancelled.
(b) The Board of Directors shall have the power and authority to make
all such rules and regulations as it shall deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation.
(c) Transfer agents and registrars for the Corporation's stock shall
be banks, trust companies or other corporations located within or without the
State of Ohio as shall be appointed by the Board of Directors. The Board shall
also define the authority of such transfer agents and registrars. The Board of
Directors may, by resolution, open a share register in any state of the United
States, and may employ an agent or agents to keep such register, and to record
transfers of shares therein.
(d) The Corporation shall not transfer shares of capital stock of the
Corporation and no person shall have the right to receive shares of capital
stock of the Corporation in any transaction which is deemed by the Board of
Directors to be "control share acquisition" as defined by Section 1704 of the
OGCL unless such acquisition is determined to be in the best interests of the
Corporation by a majority of the Whole Board of Directors and a majority of the
Continuing Directors and the Board of Directors consents to such transfer prior
to any transfer to any interested shareholder (as defined by Section
1704.01(C)(8) of the OGCL).
4.3 Registered Owner. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of Ohio. The Board of Directors may adopt by
resolution a procedure whereby a stockholder of the Corporation may certify in
writing to the Corporation that all or a portion of the shares registered in the
name of such stockholder are held for the account of a specified person or
persons.
<PAGE>
Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 12
4.4 Mutilated, Lost or Destroyed Certificates. In case of any mutilation,
loss or destruction of any certificate of stock, another may be issued in its
place upon receipt of satisfactory proof of such mutilation, loss or
destruction. The Board of Directors may impose conditions on such issuance and
may require the giving of a satisfactory open penalty bond with surety or
indemnity to the Corporation in such sum as they might determine and upon the
payment of the Corporation's reasonable costs incident thereto, or establish
such other procedures as they deem necessary.
4.5 Fractional Shares or Scrip. The Corporation may but is not obliged to
(a) issue fractions of a share which shall entitle the holder to exercise voting
rights, to receive dividends thereon, and to participate in any of the assets of
the Corporation in the event of liquidation; (b) arrange for the disposition of
fractional interests by those entitled thereto; (c) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
shares are determined; or (d) issue scrip in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip aggregating a full share, and unless otherwise provided,
does not entitle its holder to exercise voting rights, receive dividends, or
participate in the assets of the Corporation in the event of liquidation.
4.6 Shares of Another Corporation. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President or a Vice President of the Corporation.
ARTICLE V
OFFICERS
5.1 Designations. The officers of the Corporation shall be a Chairman of
the Board, a President, a Secretary and a Treasurer, such Vice Presidents,
Assistant Secretaries and Assistant Treasurers as the Board may designate, each
of whom shall be elected by a majority vote of the Board of Directors for one
year at their first meeting after the annual meeting of stockholders, and who
shall hold office until their successors are elected and qualify. The Board of
Directors also may elect or authorize the appointment of such other officers as
the business of the Corporation may require. Any two or more offices may be held
by the same person, but may not execute, acknowledge or verify an instrument
required by law to be executed, acknowledged or verified by two or more
officers. The Board of Directors may appoint a Vice Chairman of the Board, but
the person holding that position shall not be considered an officer of the
Corporation.
5.2 Powers and Duties. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or
<PAGE>
Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 13
determine. In the absence of action of the Board of Directors, the officers
shall have such powers and duties as may be provided in these Amended and
Restated Regulations and as generally pertain to their respective offices.
5.3 Delegation. In the case of absence or inability to act of any officer
of the Corporation and of any person herein authorized to act in his place, the
Board of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any directors or other person whom it may
select.
5.4 Vacancies. Vacancies in any office arising from any cause may be filled
by a vote of a majority of the Whole Board of Directors, as such term is defined
in the Amended and Restated Articles, at any regular or special meeting of the
Board.
5.5 Other Officers. Directors may appoint such other officers and agents as
it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.6 Term; Removal. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the Whole Board of Directors, as
such term is defined in the Corporation's Amended and Restated Articles, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
5.7 Salaries. The salaries and other compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
ARTICLE VI
DIVIDENDS AND FINANCE
6.1 Dividends. Subject to the conditions and limitations imposed by the
OGCL, dividends may be declared by the Board of Directors and paid by the
Corporation.
6.2 Reserves. There may be set aside out of the net earnings of the
Corporation such sum or sums as the directors from time to time in their
absolute discretion deem expedient as a reserve fund to meet contingencies or
for any other proper purpose.
6.3 Depositories. The monies of the Corporation shall be deposited in the
name of the Corporation in such financial institution or financial institutions
or trust company or trust companies as the Board of Directors shall designate,
and shall be drawn out only by
<PAGE>
Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 14
check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors. All checks,
drafts or other orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the Corporation and in such manner as shall
from time to time be determined by resolution of the Board of Directors. In the
absence of such a resolution, the President, and Vice President - Chief
Financial Officer shall be deemed authorized to sign such documents.
6.4 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contracts or execute and deliver any
instrument in the name and on behalf of the Corporation. Such authority may be
general or confined to specific instances. Unless otherwise directed by the
Board of Directors, the Chairman of the Board shall have the authority to bind
the Corporation to those contracts made in the ordinary and usual course of
business of the Corporation.
6.5 Loans. No loan shall be contracted on behalf of the Corporation and no
evidence of indebtedness shall be issued in its name unless authorized by the
Board of Directors. Such authority may be general or confined to specific
purposes.
ARTICLE VII
CORPORATE SEAL
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the custody of the Secretary of the
Corporation, and may provide for one or more duplicates thereof to be kept in
the custody of such other officer of the Corporation as the Board may prescribe.
ARTICLE VIII
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of its stockholders and Board of
Directors; and it shall keep at its principal office, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of the shares held by
each. Any books, records and minutes may be in written form or any other form
capable of being converted into written form within a reasonable time.
<PAGE>
Miami Computer Supply Corporation
Amended and Restated Code of Regulations
Page 15
ARTICLE IX
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the last day of December
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board of Directors. The appointment of such accountants shall be subject
to annual ratification by the stockholders.
ARTICLE X
PERSONAL LIABILITY OF DIRECTORS; INDEMNIFICATION
(a) A director of the Corporation shall not be personally liable for
monetary damages for action taken, or any failure to take action, as a director,
to the extent set forth in the Corporation's Amended and Restated Articles,
which provisions are incorporated herein with the same affect as if they were
set forth herein.
(b) The Corporation shall indemnify any person who is a director,
officer, employee or agent of the Corporation to the extent set forth in the
Corporation's Amended and Restated Articles, which provisions are incorporated
herein with the same affect as if they were set forth herein.
ARTICLE XI
AMENDMENTS
Amendments. These Regulations may be altered, amended or repealed only in
the manner set forth in the Corporation's Amended and Restated Articles, which
provisions are incorporated herein with the same effect as if they were set
forth herein.
As adopted by the stockholders of the Corporation this 18th day of
September, 1996.
/s/ Thomas C. Winstel
-------------------------
Thomas C. Winstel
Secretary
[Stock certificate number] [Number of shares]
______ _______
COMMON STOCK, NO PAR VALUE
MIAMI COMPUTER SUPPLY CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO
This certifies that ________________________________ is the registered
holder of _________________________ fully paid and non-assessable shares of the
Common Stock, no par value per share, of Miami Computer Supply Corporation,
Dayton, Ohio (the "Corporation"), incorporated under the laws of the State of
Ohio.
The shares evidenced by this Certificate are subject to restrictions on
Transfer (noted on the reverse side hereof), and further are transferable only
on the books of the Corporation by the holder hereof, in person or by a duly
authorized attorney or legal representative, upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
subject to all the provisions of the Amended and Restated Articles of
Incorporation and Amended and Restated Code of Regulations of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
Dated: _______________ ____, 1996
(SEAL)
___________________________ __________________________________
Thomas C. Winstel Albert L. Schwarz
Secretary President
<PAGE>
Countersigned and Registered:
_____________________ TRUST COMPANY
(__________, ____) Transfer Agent
and Registrar
By:
______________________
Authorized Signature
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
Dayton, Ohio
Common Stock, No Par Value
The shares represented by this Certificate are subject to limitations and
restrictions as set forth in the Amended and Restated Articles of Incorporation
("Articles") of the Corporation which are on file in the office of the Ohio
Secretary of State, and the Amended and Restated Code of Regulations
("Regulations") of the Corporation which are on file with the Secretary of the
Corporation. The Corporation will furnish to any stockholder upon request and
without charge a full statement of the designations, preferences, limitations
and relative rights of the shares of each class authorized to be issued. The
Articles and Regulations, inter alia: (i) deny preemptive rights of stockholders
to acquire unissued equity or debt of the Corporation or securities convertible
into any class or series of any equity or debt of the Corporation; (ii) prohibit
cumulative voting in the election of directors; (iii) permit the Board of
Directors to issue additional shares of the Common Stock, no par value per
share, and to issue shares of preferred stock, no par value per share, without
further stockholder action; (iv) permit the Board of Directors to set the
designations, rights, preferences and limitations of the preferred stock without
further stockholder action; and (v) require prior notice to the Board of
Directors in the event of a stockholder proposal or nomination to the Board of
Directors. This notice is not an amendment or supplement to the Articles and is
given solely as notice of the existence thereof.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____ Custodian ______
TEN ENT -- as tenants by the (Cust) (Minor)
entireties Under Uniform Gifts to
JT TEN -- as joint tenants with Minors Act __________
right of survivorship (State)
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________
________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________ shares of Common Stock represented by this Certificate,
and do hereby irrevocably constitute and appoint _________________ as Attorney,
to transfer the said shares on the books of the within named Corporation, with
full power of substitution.
Dated: ___________________
NOTICE: The signature(s) to ___________________________________
this assignment must
correspond with the name(s)
as written upon the face of
the certificate in every ___________________________________
particular, without
alteration or enlargement
or any change whatever. -----------------------------------
Signature(s) must be guaranteed by
a commercial bank or trust company
or a member firm of a major stock
exchange.
-----------------------------------
EXHIBIT 5
[Form of EMTH Legal Opinion]
September __, 1996
Board of Directors
Miami Computer Supply Corporation
3884 Indian Ripple Road
Dayton, Ohio 45440
Gentlemen:
We have acted as special counsel to Miami Computer Supply Corporation
(the "Company") in connection with the preparation and filing by the Company
with the Securities and Exchange Commission ("SEC") of a Registration Statement
on Form S-1 under the Securities Act of 1933, as amended (the "Act"), relating
to the issuance of up to an aggregate of 1,150,000 shares of common stock, no
par value per share (the "Common Stock"), of the Company, of which (a) 1,000,000
shares will be sold in a public offering by Friedman, Billings, Ramsey & Co.,
Inc., Arlington, Virginia, the underwriter (the "Underwriter") named in the
underwriting agreement dated __________, 1996 (the "Underwriting Agreement"), on
a firm commitment basis, and (b) 150,000 shares will be purchased by the
Underwriter from the Company solely to cover over-allotments, if any.
Capitalized terms defined in the Form S-1 and not otherwise defined herein are
used herein with the meanings as so defined.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Form S-1 and such corporate
records, agreements, documents and other instruments, including the Underwriting
Agreement, and such certificates or comparable documents of public officials and
of officers and representatives of the Company, and have made such inquiries of
such officers and representatives, as we have deemed relevant or necessary as a
basis for the opinions hereinafter set forth.
In such examination, we have assumed without independent verification
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of documents submitted
to us as certified or photostatic copies and the
<PAGE>
Miami Computer Supply Corporation
September __, 1996
Page 2
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers of the
Company, and we have also relied upon the representations and warranties of the
Company contained in the Underwriting Agreement and have relied upon the
accuracy and completeness thereof without independent verification. Certain
partners of this firm are members of an investment partnership which owns 12.6%
of Pittsburgh Investment Group LLC ("LLC"). LLC owns, as of the date of this
letter 70.0% of the issued and outstanding Common Stock of the Company.
Based on the foregoing, and subject to the qualifications stated herein,
as of the date hereof, we are of the opinion that:
i. The 1,000,000 shares of Common Stock of the Company to be issued and
sold by the Company have been duly authorized and, when issued and sold as
contemplated in the Form S-1 and the Underwriting Agreement upon receipt of the
required consideration therefor, will be validly issued, fully paid and
non-assessable.
ii. The 150,000 shares of Common Stock of the Company to be sold by the
Company upon exercise of the Underwriter's over-allotment option have been duly
authorized and, when issued and sold as contemplated in the Form S-1 and the
Underwriting Agreement upon receipt of the required consideration therefor, will
be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Form
S-1 and to the reference to our firm under the caption "Legal Matters" in the
Prospectus included therein.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By:
---------------------------------
Timothy B. Matz, a Partner
EXHIBIT 10.1
1
AGREEMENT OF LEASE
Parties. This Lease, dated, for reference purposes only, January 16, 1991, is
made by and between Rowland Investments, an Ohio Partnership, 3900 Indian Ripple
Road, Dayton, Ohio 45440 (herein called "Lessor") and Miami Computer Supply,
Inc. (herein called "Lessee") hereby agree as follows:
Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the
term, at the rental, and upon the conditions set forth herein, that certain real
property situated in the County of Greene, State of Ohio, commonly known as
3884-3890 Indian Ripple Road, Beavercreek, Ohio 45440.
Term. The term of this Lease shall be for (5) five years, commencing on March 1,
1991, and ending on February 28, 1996. Tenant is given the option to renew the
Lease for an additional (2) two year period. Said option shall be exercised by
giving written notice no less than (180) one hundred eighty days prior to the
expiration of the initial term.
Rent. Lessee shall pay to Lessor as Rent for the Premises during
the term of the Lease as follows:
Year One: March 1991-February 1992
Base office space $59,760.00
Storage space $ 1,320.00
Addition $ 8,010.00
----------
TOTAL $69,090.00
The sum of ($69,090.00) SIXTY NINE THOUSAND NINETY DOLLARS AND NO
CENTS
Year Two: March 1992-February 1993
Base office space $63,360.00
Storage space $ 1,320.00
Addition $ 8,010.00
----------
TOTAL $72,690.00
The sum of ($72,690.00) SEVENTY-TWO THOUSAND SIX HUNDRED NINETY DOLLARS AND NO
CENTS.
<PAGE>
2
Year Three: March 1993-February 1994
Base office space $63,360.00
Storage space $ 1,320.00
Addition $ 8,010.00
----------
TOTAL $72,690.00
The sum of ($72,690.00) SEVENTY-TWO THOUSAND SIX HUNDRED NINETY DOLLARS AND NO
CENTS.
Year Four: March 1994-February 1995
Base office space $63,360.00
Storage space $ 1,320.00
Addition $ 8,010.00
----------
TOTAL $72,690.00
The sum of ($72,690.00) SEVENTY-TWO THOUSAND SIX HUNDRED NINETY DOLLARS AND NO
CENTS.
Year Five: March 1995-February 1996
Base office space $66,528.00
Storage space $ 1,320.00
Addition $ 8,010.00
----------
TOTAL $75,858.00
The sum of ($75,858.00) SEVENTY-FIVE THOUSAND EIGHT HUNDRED FIFTY-EIGHT DOLLARS
AND NO CENTS.
Payable in monthly installments:
Year One (1) $5,757.50
Year Two (2) $6,057.50
Year Three (3) $6,057.50
Year Four (4) $6,057.50
Year Five (5) $6,321.50
Rent shall be paid in advance on the first day of each month of the term hereof.
Rent shall be payable in lawful money of the United States of America to the
Lessor at the following address: Rowland Investments P.O. Box 292618, Kettering,
Ohio 45429, or may be hand delivered to 3900 Indian Ripple Road, Dayton, Ohio
45440, or to such persons or at such other places as Lessor may designate in
writing. Rent shall be paid without offset, notice or demand. If rent is not
received by the fifth day of the month, a late fee of five percent (5%) will be
added to the amount due.
<PAGE>
3
Year One (1) Late Payment $287.88 Totaling $6,045.38
Year Two (2) Late Payment $302.88 Totaling $6,360.38
Year Three (3) Late Payment $302.88 Totaling $6,360.38
Year Four (4) Late Payment $302.88 Totaling $6,360.38
Year Five (5) Late Payment $316.08 Totaling $6,637.58
Rent for the optional period will be ($75,858) SEVENTY FIVE THOUSAND EIGHT
HUNDRED FIFTY EIGHT DOLLARS AND NO CENTS per year, payable in monthly
installments of ($6,321.50) SIX THOUSAND THREE HUNDRED TWENTY-ONE DOLLARS AND
FIFTY CENTS per month.
Security Deposit. Lessee has deposited with Lessor ($3,900.00) THREE THOUSAND
NINE HUNDRED DOLLARS AND NO CENTS as security for Lessee's faithful performance
of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges
due hereunder, or otherwise defaults with respect to any provision of this
Lease, Lessor may use, apply or retain all or any portion of said deposit for
the payment of rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said retained security deposit,
Lessee shall within (10) ten days after written demand therefore deposit cash
which Lessor in an amount sufficient to restore said deposit to the full amount
hereinabove stated and Lessee's failure to do so shall be a material breach of
this Lease. Lessor shall not be required to keep said deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said security deposit.
Use. The Premises shall be used and occupied as an office and warehouse space
for Miami Computer Supply, Inc. or any other use which is reasonably comparable
and for no other purpose.
Lessee shall not use or store hazardous or toxic substances on or about the
Premises. Lessee shall not discharge into the sanitary sewer any substances
deemed hazardous or toxic by the Greene County Sanitary Engineer.
Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time during the last 120 days of the term
<PAGE>
4
hereof place on or about the Premises any ordinary "For Lease" signs, all
without rebate of rent or liability to Lessee.
Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
Condition of Premises. Lessor shall deliver the Premises to Lessee clean and
free of debris on Lease commencement date (Unless Lessee is already in
possession) and Lessor further warrants to Lessee that the plumbing, lighting,
air conditioning, heating and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of the Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within (30) thirty days after the lease commencement date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
hereunder.
Except as otherwise provided in this Lease, Lessee hereby accepts the Premises
in their condition existing as of the Lease commencement date or the date that
Lessee takes possession of the Premises, whichever is earlier, subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and any covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
Damage or Destruction to Premises. If the Premises are rendered untenantable by
fire or other casualty, Lessee shall have the option to vacate the premises
subject to local authority) within (10) ten days and will pay no further rent
following the damage or destruction and Lessor will refund to Lessee the
unearned portion of any rent paid in advance prorated to the date of damage or
destruction. If the Premises are not repaired by Lessor, within a reasonable
time, to its original condition, Lessee at his option, may terminate this lease.
Repairs. Except for damage or destruction caused by fire or other casualty,
Lessor will be responsible to maintain and repair the exterior of the building
in which the premises are located, including upkeep of the ground, such as lawn
mowing an upkeep of
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5
the parking lot and maintaining the common area. However, it does not include
maintenance within the Lessee Premises. Lessee will be responsible to maintain
and repair the interior of the Premises including plumbing, (all fixtures and
equipment), heating and air conditioning, and electrical system, with
($1,000.00) ONE THOUSAND DOLLARS AND NO CENTS maximum for any given calendar
year any amount over will be paid by Lessor.
Utilities. Lessee shall pay the electric, gas, water and waste removal costs and
all other utilities attributable to Lessee's use.
Assignment and Sublease. Lessee may not assign this Lease, or any part thereof,
without the prior written consent of the Lessor. Lessee may not sublet unless
written consent is obtained from Lessor. Lessor's consent to assignment or
subletting shall not be unreasonably withheld.
Insurance. Lessee agrees, at its on expense, to maintain in full force during
the lease term, a policy or policies of comprehensive liability insurance,
including property damage, written by one or more responsible insurance
companies licensed to do business in the State of Ohio, which will insure Lessee
and Lessor (and such other persons, firms or corporations as are designated by
Lessor) against liability for injury to persons and/or property and death of any
person or persons occurring in or about the premises; Each such policy shall be
approved as to form and insurance company by Lessor. The liability under such
insurance shall not be less than FIVE HUNDRED THOUSAND DOLLARS for any one
person injured or killed, and not less than TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000.00) for loss from damage or destruction of property. If, in the
considered opinion of Lessor's insurance advisor, the amount of such coverage is
not adequate, Lessee agrees to increase said coverage to such amounts as
Lessor's insurance advisor and Lessee's insurance advisor mutually agree is
adequate. Lessee shall provide Lessor with copies of certificates of all said
policies including an endorsement which states that such insurance shall not be
cancelled except ater (20) twenty days notice in writing to Lessor.
Lessee agrees that all personal property in said Premises shall be and remain at
his risk and Lessor shall not be liable for any damage to or loss to such
personal property arising from any acts of negligence of any other persons, nor
from leaking of the roof, or from bursting, leaking or overflowing of water,
sewers, or steam pipes, or from heating, air conditioning, or plumbing fixtures
or from electrical wires or fixtures or from any other cause whatsoever, nor
shall Lessor be liable for any injury to the person of the Lessee, or other
persons in said Premises; the Lessee expressly agrees to save the Lessor
harmless in all such cases.
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6
Lessee agrees that Lessee will not permit or do anything which would increase
the rate of fire insurance upon said Premises, and that should said rate be
increased by reason of Lessee's use of said Premises Lessee will pay Lessor the
difference in fire insurance premiums over and above the cost of premiums which
would be incurred by Lessor without Lessee's use of the Premises.
Mutual Waiver of Subrogation: Lessor and Lessee hereby waive all causes of
action and rights of recovery against each other and their agents, employees,
licensees and invitees for any injury to or death of any person or loss or
damage occurring to the Premises, the building in which the Premises are
situated, or the improvements, fixtures or other personal property located in or
about the Premises or building resulting from any perils covered by insurance,
regardless of the cause or origin of such loss or damage (including without
limitation the negligence of either party or their respective agents, employees,
licensees, and invitees), to the extent of any recovery on or under any policy
or policies of insurance will not be invalidated in whole or in part by reason
thereof.
Improvements and Alterations. Lessee shall not have the right to make any
alterations, improvements, and/or additions to the Premises which affect the
exterior thereof or any structural, mechanical or electrical components thereof
without first obtaining Lessor's consent. All alterations, additions,
improvements and fixtures, other than trade fixtures not affixed to realty,
which may be made or installed by either of the parties hereto upon the Premises
and which in any manner are attached to the floors, walls, or ceiling, shall at
the option of the Lessor, become the property of the Lessor, and at the
termination of this Lease, shall remain upon and be surrendered with the
Premises. Nevertheless, wall-mounted items such as cabinetry, and such property
as are attached or connected to the plumbing shall remain the property of the
Lessee; upon the removal of wall- mounted items, Lessee shall be responsible for
any repairs to the walls, floors, ceilings necessitated by the removal. Upon
surrender of the Premises, Lessee shall have the right to remove any and all of
his/her equipment and all other personal property owned and used by his/her
business. Lessee shall bear the costs of repairs for any damage caused by the
removal of such "trade fixtures" or other removeable items.
The plumbing facilities shall not be used for any other purpose than that which
they are constructed, and no foreign substances of any kind shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from a
violation of this provision shall be borne by Lessee, who shall or whose
employees, agents or invitees shall have caused it.
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7
Eminent Domain. If all or any part of the Premises is taken by, or sold under
threat of appropriation, this Lease will terminate as of the date of such taking
or sale. The entire award or compensation paid for the property taken or
acquired, and for damages to residue, if any, will belong entirely to Lessor and
no amount will be payable to Lessee.
Default. In the event that: (a) the rent, or any part thereof, remains unpaid
for (30) thirty days after it becomes due; (b) Lessee's interest herein is sold
under execution or other legal process; (c) Lessee makes an assignment for the
benefit of creditors; (d) any proceeding in bankruptcy or for a wage earner's
plan, an arrangement or reorganization, or any other proceeding under any
insolvency law, is instituted by or against Lessee; (e) a receiver or trustee is
appointed for the property of Lessee; or (f) Lessee fails to keep any of the
other covenants of this Lease, it will be lawful for Lessor to re-enter and
possess the Premises and thereupon, at Lessor's option this Lease shall
terminate.
Quiet Enjoyment. Lessor agrees that if Lessee pays the rents and keeps and
performs the covenants of this Lease on the part of Lessee to be kept and
performed, Lessee will peaceably and quietly occupy the premises during the term
hereof without any hindrance, ejection or molestation by Lessor or any other
person lawfully claiming under Lessor.
Binding Effect. This Lease and the agreements of Lessor and Lessee contained
herein shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective parties.
Signs. Any outside signs placed on leased premises must be approved by Lessor,
and if required by law, by appropriate zoning authorities. Lessee may have an
outside sign, limited to one panel 24 inches high by 225 inches long paid for by
Lessee. The sign showing the individual name of Lessee, or company name,
provided it meets the requirements of Lessor. The cost of the sign to be paid by
Lessee.
Cancellation of Agreement of Lease. Should Lessee desire to terminate this
Agreement of Lease between March 1, 1994 and February 28, 1996, the following
four (4) conditions must be fully satisfied:
1. The Lessee will provide the Lessor a written notice of intent to
terminate the Agreement of Lease One Hundred Eighty (180) days prior to the
termination date.
2. The Lessee has paid the Lessor all rent due to date.
3. On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the interior premises to Lessor in the same condition as
when received, ordinary wear and
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8
tear excepted, clean and free of debris. Lessee shall repair any damage to the
premises occassioned by the installation or removal of Lessee's trade fixtures,
furnishings and equipment. Notwithstanding anything to the contrary otherwise
stated in this Lease, Lessee shall leave the power panels, electrical
distribution systems, lighting fixtures, heating systems, air conditioning and
plumbing on the premises in good operating condition.
4. The Lessee will pay Lessor fifty percent (50%) of all future
financial obligations thirty (30) days prior to the terminaiton date. These
monies are paid to Lessor as compensation for cancellation of the Agreement of
Lease.
If these above conditions are not fully satisfied the Agreement of Lease will
not be terminated and all Lessee obligations of the Agreement of Lease remain in
force.
Upon Satisfaction of Conditions to Terminate Lease.
1. After Lessor receives the above payments from the Lessee and the
above obligations are fully satisfied the Lessor will terminate the Agreement of
Lease and Lessee will have no further monetary obligations to Lessor for the
Cancellation of the Agreement of Lease.
2. If the Lessor is able to re-lease the vacated space of the Lessee
within the remaining period of the terminated Lease, the Lessor will reimburse
to the Lessee an amount equal to the pro-rata share of the leased space.
3. Thirty days after termination of this Lease and vacation of
premises, an equitable adjustment shall be made concerning advance rent and any
advance payments made by Lessee to Lessor. Lessor shall, in addition, return to
Lessee so much of Lessee's security deposit as has not heretofore been applied
by Lessor.
In witness whereof, Lessor and Lessee have executed this Agreement of Lease on
the ______ day of _____________, 1991.
Signed and acknowledged in the presence of:
Witness Rowland Investments
By:
Date:
Witness Miami Computer Supply, Inc.
By:
Title:
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9
Date:
State of Ohio
County of Greene
Be it remembered, that on the ____ day of ________________ 1991 before me, a
Notary Public in and for said county, Personally came ____________ for Rowland
Investments, the Lessor, an acknowledged the signing thereof to be their
voluntary act and deed.
In testimony whereof, I have hereunto subscribed my name and affixed my official
seal on the day and year aforesaid.
Notary Public
State of Ohio
County of Greene
Be it remembered, that on the ______day of __________________1991, before me a
Notary Public in and for said County, Personally came __________________, the
Lessee, and acknowledged the signing thereof to be his voluntary act and deed.
In testimony whereof, I have hereunto subscribed my name and affixed my official
seal on the day and year aforesaid.
Notary Public
EXHIBIT 10.2
LEASE AGREEMENT
THIS LEASE, made by and between DRAFT PARTNERSHIP, an Ohio general
partnership, hereinafter referred to as "Lessor", and MIAMI COMPUTER SUPPLY,
INC., an Ohio corporation, hereinafter referred to as "Lessee".
WITNESSETH:
1. LEASED PREMISES
In consideration of the rents hereinafter reserved and all terms,
conditions, covenants and agreements hereinafter contained, the Lessor hereby
leases to the Lessee, and the Lessee hereby leases from the Lessor the property
described in Exhibit "A" attached hereto and fully incorporated herein. Said
property is hereinafter called the "Leased Property" or "Leased Premises" and
shall include all the rights, easements and appurtenances thereunto belonging
and usually had and enjoyed therewith.
2. TERM AND OCCUPANCY
A. The term of this Lease shall be for a period of ten (10) years
commencing on the "Commencement Date", as hereinafter defined and referred to,
and to be fully completed and ended on the day immediately preceding the tenth
anniversary date thereof.
B. For purposes hereof, Commencement Date shall mean the first day of
the month immediately preceding when the Leased Premises are "Available for
Occupancy" which for purposes hereof shall mean when the Leased Premises are
substantially completed such that the Lessee may commence its use and occupancy.
C. Lessee shall be entitled to possession of the Leased Premises on the
Commencement Date unless otherwise agreed by Lessor.
3. RENT
A. During the term of this Lease, the Lessee shall pay to Lessor as
rentals hereunder the "Base Monthly Rental" as such term is hereinafter defined
and referred to, payable in advance on the first business day of each month at
such place that Lessor may direct in writing.
B. The Base Monthly Rental for the period commencing on the
Commencement Date and continuing through June, 1999 shall be $20,000.00. The
Base Monthly Rental has been determined based on a "Total Cost" as such term is
hereinafter defined and referred to of $1,500,000.00. Total Cost shall mean all
of the costs incurred by Lessor, hard and soft, to acquire the Leased Property,
construct the improvements thereon, and to finance such
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acquisition and/or construction. In the event the actual Total Cost is less or
more than $1,500,000.00 the Base Monthly Rental shall be adjusted by multiplying
$20,000.00 times a fraction, the numerator of which is the actual Total Cost and
the denominator of which is $1,500,000.00. Lessor shall furnish Lessee with an
itemization of the actual Total Cost prior to the Commencement Date.
C. Commencing on the first day of July, 1999 and on the first day of
each and every July thereafter, hereinafter referred to as the "Adjustment
Date(s)", the Base Monthly Rental for such twelve (12) month period shall be
adjusted on the basis of any increases in the "CPI Index" as hereinafter defined
and referred to. In no event shall such Base Monthly Rental be decreased.
D. As of the first Adjustment Date and every Adjustment Date
thereinafter the Base Monthly Rental shall be increased in the same proportion
as any increases in the CPI Index during the "Applicable Review Period", which
for purposes hereof shall mean June 1, 1998 through June 1, 1999 and the period
from the preceding Adjustment Date to the current Adjustment Date.
E. Lessee shall continue to make the Base Monthly Rental payments then
in effect until notified by Lessor in writing of any increases at which time
such Base Monthly Rental shall be adjusted.
F. The CPI Index shall mean the Consumer Price Index for All Urban
Consumers, U.S. City Average, All Items (1982-84=100) published by the Bureau of
Labor Statistics, U.S. Department of Labor. If at any time during the term of
this Lease the foregoing index shall cease to be published, the Lessor and
Lessee shall, by mutual agreement, determine an alternate index or method to
compute the Base Monthly Rental hereunder.
G. In the event any rental payment hereunder is not paid with ten (10)
days after its due date, Lessee agrees to pay an additional amount to Lessor
equal to 10% of such payment as a late charge unless waived by Lessor.
4. RENEWAL OPTIONS
Provided that Lessee is not in default hereunder, Lessee may renew the
term hereby granted for two (2) successive terms of five (5) years each,
commencing on the expiration of the initial term, subject to all of the terms,
covenants and conditions of this Lease. Said options shall be exercised by
Lessee giving written notice to Lessor of its intent to so exercise at least one
hundred eighty (180) days prior to the expiration of the initial term or the
renewal term, whichever the case may be.
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5. USE
The Lessee agrees that the Leased Premises are to be used for Lessee's
distribution business and corporate offices, and for such other and further
things as are necessary and proper in connection with its business, subject to
present and future zoning ordinances of the local governmental authorities, as
the same may be lawfully enforced, resistance to which, if any, shall be at the
cost and expense of the Lessee.
6. LAWS AND REGULATIONS
Lessee shall, at Lessee's sole cost and expense, promptly comply with
all statutes, ordinances, rules, orders, regulations and/or requirements of all
county, municipal, state, federal and other applicable governmental authorities
now in force, or which may hereinafter be in force, pertaining to the Leased
Premises and shall faithfully observe in the use of Leased Premises all
municipal and county ordinances and state and federal statutes now in force or
which may hereinafter be in force.
7. MAINTENANCE, REPAIR AND REPLACEMENT
A. Lessor. The Lessor shall maintain, repair and replace the exterior
of the building, all structural components of such building and the parking lot.
B. Lessee. Except those items which are the responsibility of the
Lessor, Lessee agrees to maintain, repair and make all necessary replacements to
the interior of the building, including without limitation, all glass,
mechanical, electrical, plumbing, heating and air conditioning systems, which
Lessor represents are in operable and working condition on the execution date of
this Lease. Lessee shall also be responsible for all snow removal, grass cutting
and landscaping.
C. Right of Entry. In the event that the Lessee shall fail neglect or
refuse to make any necessary repairs and/or replacements as required above, then
the Lessor or Lessor's agents, upon reasonable notice being first given to
Lessee, shall have the right to enter upon the Leased Premises for the Purpose
of making any necessary repairs and/or replacements. The cost of any such repair
or replacement shall be born by the Lessee, and the amount thereof shall be
deemed to be, and be paid as additional rent.
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8. INSURANCE
A. Insurance. During the term of this Lease, Lessor shall provide and
maintain fire and extended coverage and vandalism and malicious mischief
insurance covering the Leased Premises against loss or damage by fire and
against loss or damage by other risks now or hereafter embraced by "extended
coverage" and "V.M.M.", in any amount not less than one hundred percent (100%)
of the insurable value thereof, to prevent Lessor from becoming a coinsurer
under the terms of the applicable policy. Lessee agrees to pay Lessor, as
additional rental hereunder, any premiums for such insurance.
During the term of this Lease, the Lessee at its sole cost and expense,
shall provide and maintain comprehensive public insurance, including property
damage, in limits of not less that $300,000/$500,000 with respect to personal
injury or death and $100,000 with respect to property damage in any accident
with the loss payable clauses in favor of both the Lessor and Lessee as their
interests appear. Lessee shall maintain loss of rent insurance in such amount as
approved by Lessor. Lessee shall deliver to the Lessor the aforesaid policies of
insurance (except that Lessee may deliver certificates evidencing such insurance
in the event blanket policies have been issued), with proof of payment of the
premiums therefor, at or before the commencement of the terms hereof, and
renewal policies (or certificates) at least thirty (30) days prior to the
expiration of any such policy. If Lessee fails to do so, the Lessor shall pay
such premiums therefor and Lessee shall reimburse Lessor for all moneys expended
by Lessor for that purpose, with interest at the rate of ten percent (10%) per
annum, which may be added to and be collectible as additional rent hereunder.
Lessee agrees not to knowingly violate or permit to be violated any of
the conditions or provisions of the insurance policies required to be furnished
hereunder, and agrees to promptly notify Lessor of any fire or other casualty.
Lessor agrees not to knowingly increase the hazards on the Leased Premises by
any of Lessor's own acts. Lessee and Lessor agree to comply with the
requirements of any companies issuing such policies in order to keep the
insurance in full force and effect. In the event that any policies shall be
cancelled for noncompliance with the conditions or provisions of said policies,
or requirements of the insurance companies, or in the event that Lessee fail to
notify these insurance companies of any claims which may arise in accordance
with the terms of said insurance then, and in that event, Lessee agrees to
indemnify and save harmless Lessor from any claims and/or damages whatsoever
which would otherwise be covered by said insurance, including reasonable counsel
fees incurred or expended by Lessor in
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connection therewith.
B. Waiver of Subrogation. Each party hereto waives any and every claim
which arises or may arise in its favor against the other party hereto during the
terms of this Lease or any renewal or extension thereof within or upon, or
constituting a part of, the premises leased to Lessee hereunder, which loss or
damage is covered by valid and collectible fire and extended coverage insurance
policies, to the extent that such loss or damage is recoverable under said
insurance policies. Said mutual waivers shall be in addition to, and not in
limitation or derogation of any other waiver or release contained in this Lease
with respect to any loss of, or damage to, property of the parties hereto.
Inasmuch as the above mutual waivers preclude the assignment of any aforesaid
claim by way of subrogation (or otherwise) to an insurance company (or any other
person), each party hereto hereby agrees immediately to give each insurance
company which has issued to its policies of fire and extended coverage
insurance, written notice of the terms of said mutual waivers, and to have said
insurance policies properly endorsed, if necessary, to prevent the invalidation
of said insurance coverages by reason of said waivers.
9. REPAIR AFTER CASUALTY
A. In the event of the partial destruction of the Leased Premises, or
any part thereof, by fire, storm, act of God, unavoidable accidents, or the
public enemy, Lessor shall speedily and as soon as practicable after such
destruction, repair and restore the premises to the condition in which they were
prior to such damage or destruction, but if such damage is to the extent that
Lessee is deprived of the use of a part of the Leased Premises, a proportionate
reduction in rent shall be made until repairs are accomplished.
B. If the Leased Premises are damaged to such extent as to untenantable
in the entirety, then rent shall cease until such time as the same shall be put
in complete repair, or the rent shall be paid to the time of such damage and
then, at the option of Lessee, upon written notice to Lessor within fifteen (15)
days, this Lease shall terminate and become null and void, unless agreed
otherwise by the parties in writing.
C. The responsibility of the Lessor to repair or reconstruct as
contemplated within this Item shall be limited to the amount of insurance
proceeds available under the insurance contracts provided in Item 8(A). If the
proceeds of such insurance contracts are insufficient to repair or reconstruct
the Leased Premises, then Lessor shall have the right to terminate this Lease by
written notice to the Lessee.
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10. MECHANIC'S LIENS
If any mechanic's, laborers, or materialman's lien shall at any time be
filed against the Leased Premises, or any part thereof, or any encumbrance,
charge, mortgage, conditional bill of sale, title retention, or security
agreement be filed against the Leased Premises, Lessee within thirty (30) days
after notice to the filing thereof, or such shorter period not less than fifteen
(15) days as may be required by the holder of any mortgage to which this lease
is subject and subordinate, will cause the same to be discharged of record by
payment, deposit, bond, order of court of competent jurisdiction, or otherwise.
If Lessee shall fail to cause such encumbrance, charge, etc., to be discharged
within the period aforesaid then, in addition to any other right or remedy,
Lessor may, but shall not be obligated to, discharge the same whether by paying
the amount claimed to be due or by procuring the discharge of such lien by
deposit or by bonding proceedings, and in any such event, Lessor shall be
entitled, if Lessor so elects, to compel the prosecution of an action for the
foreclosure of such lien or with interest, costs and allowances. Any amounts so
paid by Lessor and all costs and expenses incurred by Lessor in connection
therewith, together with interest thereon at the rate of ten percent (10%) per
annum from the respective dates of Lessor's making of the payment or incurring
of the cost and expense, shall constitute additional rent payable by Lessee
under this Lease and shall obligate Lessee to pay or discharge any lien created
by Lessor.
Nothing in this Lease contained shall be deemed or construed in any way
as constituting the consent or request by Lessor, express or implied by
inference or otherwise, to any contractor, subcontractor, laborer, or
materialman for the performance of any labor or the furnishing of any materials
for any specified improvement, alteration to or repair of the Leased Premises or
any part thereof, nor as giving Lessee any right, power or authority to contract
for or permit the rendering of any services or the furnishing of any materials
that would give rise to the filing of any lien against the Leased Premises or
any part thereof.
The provisions hereof are not intended nor shall they be construed to
prevent Lessee from encumbering, by manner, items of personal property located
at the Leased Premises or items which it has the right to remove upon expiration
of this Lease.
11. SIGNS
Lessee shall, with the prior written approval of the Lessor, have the
privilege of placing on the Leased Premises such signs as it deems necessary and
proper in the conduct of its business,
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provided Lessee pays all permit and license fees which may be required to be
paid for the erection and maintenance of any and all such signs, and provided
such signs are legally permitted to be installed. Lessee agrees to exonerate,
save harmless, protect and indemnify Lessor from and against any and all losses,
damages, claims, suits or actions for any damage or injury to the person or
property caused by the erection and maintenance of such signs or parts thereof.
12. UTILITIES
Lessee shall, during the term hereof, pay all charges for gas,
electricity, light, heat or power, telephone or other communication service
used, rendered or supplied upon or in connection with the Leased Premises and
all water rents and sewer service charges, which are levied or charged against
said premises throughout the term of this Lease and to indemnify Lessor and save
it harmless against any liability or damages on such account. In no event shall
Lessor be liable for the quality, quantity, failure or interruption of such
service to the Leased Premises, which are a result of actions by utility
suppliers, governmental laws, regulations or ordinances, or other matters beyond
the control of the Lessor or otherwise.
13. WASTE
The Lessee will not commit or suffer any waste in or upon the Leased
Premises or in or to the improvements thereon.
14. REAL ESTATE TAXES, ETC.
Lessor shall, during the term of this Lease, pay and discharge all real
estate taxes and assessments which shall be imposed upon, become due and payable
or become a lien upon the Leased Premises or any part thereof. Lessee agrees to
pay Lessor, as additional rental hereunder, any amounts paid by Lessor for such
real estate taxes, but no assessment.
15. RIGHT TO INSPECT OR SHOW PREMISES
Lessee agrees to afford Lessor free access to the Leased Premises at
all reasonable times for the purpose of examining the same to determine its
condition with respect to the safety of the Lessee and the preservation of the
building and the property. Lessee also agrees that Lessor may within one hundred
twenty (120) days of the termination of this Lease, place "FOR RENT" signs upon
the premises and enter the premises for the purpose of exhibiting the premises
to prospective Lessees.
16. INDEMNIFICATION
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Lessee agrees to indemnify and save harmless the Lessor from and
against and all claims, liability, damages or loss to person or property which
may arise or grow out of the occupancy of said premises by the Lessee, or out of
any act of the Lessee, Lessee's employees, agents, invitees or licensees.
17. NOTIFICATION
Lessee agrees to promptly notify Lessor in writing of any condition in
need of repair, maintenance or replacement which is the responsibility of the
Lessor and which may cause loss or damage to Lessee or damage to the Leased
Premises and upon failure of Lessee to do so, Lessor shall not be liable to
Lessee for any loss sustained by Lessee by reason of strike, riot, the public
enemy, governmental agencies, act of God or unavoidable casualty.
18. NOTICES
All notices to be given under this Lease shall be in writing and shall
either be served personally or sent by certified or registered mail to the
address of the parties below specified or from time to time changed in writing
by either of them. Lessor's address for notice shall be 560 Timberlea Trail,
Kettering, Ohio 45429. The Lessee's address for notice shall be 4750 Hempstead
Station Drive, Kettering, Ohio 45429.
19. NO WAIVER
One or more waivers of any covenant or condition by Lessor shall not be
construed as a waiver of a subsequent breach of the same or by any other
covenant or condition, and the consent or approval by Lessor to or of any act by
Lessee requiring Lessor's consent or approval shall not be deemed to waive or
render unnecessary Lessor's consent or approval to or of any subsequent similar
act by Lessee.
20. SURRENDER
Upon the expiration or other termination of the term of this Lease,
Lessee shall quit and surrender to Lessor the Leased Premises, together with the
building and other improvements thereon, broom clean, in good order and
condition, ordinary wear and tear damage by the elements expected.
Lessee agrees not to remove any electric wiring, lighting fixtures,
plumbing or plumbing fixtures, or any items which are currently attached to the
real estate and regarded as a fixture under the laws of the State of Ohio. Nor
shall any item be removed which will leave the building in a marred or damaged
condition; provided, however, that Lessee may remove any of its
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own machines, wiring or equipment if such is done without any
damage to the Leased Premises.
Upon failure of Lessee to remove its property, Lessor may cause all the
said property to be removed at the expense of the Lessee, and the Lessee hereby
agrees to pay all costs and expenses thereby incurred. Lessee's obligations to
observe or perform this covenant shall survive the expiration or other
termination of the term of this Lease.
21. HOLDING OVER
Any holding over by the Lessee or retention of said premises after the
expiration of this Lease beyond the term hereof shall operate and be construed
as creating a tenancy from month to month and not be construed as creating a
renewing of this Lease in any manner whatsoever, but at the option of the
Lessor, such tenancy may be terminated by giving Lessee thirty (30) days'
written notice thereof and Lessee hereby expressly agrees that Lessor may
reenter and take possession of said premises after said thirty (30) days, change
locks and terminate the occupancy of the Lessee therein, any rule in law or in
equity to the contrary notwithstanding.
22. DEFAULT
By Lessee
A. If default be made in the payment of rent or any item of additional
rent, or any part thereof and said default shall continue for a period of
fifteen (15) days; or
B. If Lessee shall assign this Lease or sublet the premises except as
hereinabove provided for or mortgage this Lease; or
C. If default be made in the performance of any of the terms,
covenants, and conditions in this Lease contained on the part of Lessee to be
kept or performed, or if Lessee shall fail to comply with any of the statutes,
ordinances, rules, orders, regulation and/or requirements of the federal, state
and/or city governments, or of any and all of their departments and bureaus
applicable to the Leased Premises or as hereafter established, as herein
provided, and if any default specified in this subparagraph shall continue for a
period of thirty (30) days after written notice and demand, unless Lessee in
good faith commenced the curing of such default within such (30) day period and
cannot with reasonable diligence cure such default within said period of thirty
(30) days, in which event Lessee shall have a reasonable time to do so; or
9 of 15 Pages
<PAGE>
D. If at any time prior to or on the date fixed for commencement of the
term of this Lease, or at any time during the term demised, there shall be filed
by or against Lessee in any court of competent jurisdiction a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Lessor's property, or if Lessee makes
an assignment for the benefit of creditors or takes advantage of any insolvency
act, and within thirty (30) days thereof Lessee fails to secure a discharge
thereof;
Lessor may, if Lessor so elects, at any time thereafter, terminate this
Lease and the term hereof on giving Lessee: (a) three (3) days notice in writing
of Lessor's intention to do so if the default is the failure of Lessee to pay
rent of any item of additional rent as set forth in (A); or (b) ten (10) days
notice in writing in respect to any other event of default set forth above, and
this Lease and the term hereof shall expire and come to an end on the date fixed
in such notice as is said date were the date originally fixed in this Lease or
expiration of the term thereof and Lessee shall remain liable as hereinabove or
hereinafter provided, and Lessor may relet the premises or any part of parts
thereof in the name or otherwise, for a term of terms which may at Lessor's
option be less than or exceed the period which would otherwise have constituted
the balance of the term or exceed the period which would otherwise have
constituted the balance of the term or exceed the period which would otherwise
have constituted the balance of the term of this Lease without releasing Lessee
from any liability, applying or obtaining possession, second to restoring the
Leased Premises to a rentable condition, thirdly to brokerage fees and the cost
to Lessor of re-letting the premises, and then to the payment of rent, items of
additional rent and all other charges due and to grow due to Lessor, any surplus
to be paid to Lessee, who shall remain liable for any deficiency.
Any sums due to Lessor shall be paid in monthly installments by Lessee
on the rent day specified in this Lease and any suit brought to collect the
amount due for any month shall not prejudice in any way the rights of Lessor to
collect any sums due for any subsequent month. Lessor at its option, may make
any alterations, repairs, replacements and/or painting which shall not operate
or be construed to release Lessee from Liability hereunder. Any mention in this
Lease of any particular remedy shall not preclude Lessor from any other remedy
in law or in equity. Lessee hereby waives any and all rights of redemption
granted by or under any present or future laws.
In the event of the termination of this Lease pursuant to (4) above,
Lessor shall forthwith, notwithstanding any other provisions of this Lease to
the contrary, be entitled to recover from Lessee as liquidated damages an amount
equal to the rent
10 of 15 Pages
<PAGE>
reserved in this Lease for the unexpired portion of the term leased and then
fair and reasonable rental value of the Leased Premises for the same period.
This provision shall not limit or prejudice the rights of Lessor to prove and
obtain as liquidated damages by reason of such termination an amount equal to
the maximum allowed by any statute or reason of such termination an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which such damages are proved, whether or not
such amount be greater, equal to, or less than the payment of the difference
referred to above. If Lessor shall make any expenditures or incur any
obligations for the payment of money by reason of Lessee's default, including
reasonable legal fees, such sums or obligations with interest at ten percent
(10%) per annum shall be deemed additional rent hereunder and shall be due and
payable within five (5) days or rendition of any bill or statement to Lessee
therefor.
By Lessor
Anything in this Lease to the contrary notwithstanding, it is
specifically agreed that there shall be no enforceable default against Lessor
under any provisions of this Lease, unless notice of such default be given by
Lessee to the Lessor in which Lessee shall specify the default or omission
complained of, and Lessor shall have thirty (30) days after receipt of such
notice in which to remedy such default, or if said default or omission shall be
of such a nature that the same cannot be cured within said period, then the same
shall not be an enforceable default if Lessor shall have commenced taking the
necessary steps to cure or remedy said default within said thirty (30) days and
diligently proceeds with the correction thereof.
23. EMINENT DOMAIN
A. In the event that the whole of the Leased Premises, or such
substantial portion thereof to the extent that the Lessee is unable to continue
to carry on its business in a reasonable and proper manner, be lawfully taken in
appropriation proceedings, or by rights of eminent domain, then Lessee at its
option, may terminate this Lease effective at the time when possession thereof
is required pursuant to such proceedings, but such taking shall not operate as
or be deemed an eviction of Lessee or if a breach of Lessor's covenant for quiet
enjoyment; and Lessee shall pay all rent due and perform and observe all other
covenants hereof up to the time when possession is required pursuant to such
taking.
B. In the event that such taking affects only a part of the Leased
Premises and Lessee may reasonably continue to carry on its business without
material hindrance by reason of such
11 of 15 Pages
<PAGE>
taking, this Lease shall continue in effect except that the rents for the period
following such taking shall be in such amount as the parties hereto may agree
between themselves to be reasonable and proper, or as may be determined by
arbitration provided the parties are able to agree upon a procedure for
arbitration.
C. Lessee shall not be entitled to any part of the compensation paid to
the Lessor for the property taken by duly constituted authorities or by way of
damages to the residue, but nothing herein shall be construed as denying Lessee
its right to claim compensation or damages, or both, from the condemner in the
event such taking makes it reasonably necessary that Lessee exercise its right
to cancel this Lease or suffer loss of space.
24. ASSIGNMENT OR SUBLEASE
Upon obtaining written consent of the Lessor, which consent shall not
be unreasonably withheld, Lessee shall have the right to sublease the premises
in whole or in part to assign this Lease; provided, however, that regardless of
any such sublease or assignment, Lessee shall remain fully liable for the
performance of all obligations under the terms and conditions of this Lease.
25. SUCCESSORS
All provisions contained within this Lease shall bind and inure to the
benefit of the parties hereto, their heirs, personal representatives, successors
and assigns.
26. QUIET ENJOYMENT
The Lessor hereby covenants and agrees with said Lessee that said
Lessee, paying the rents and keeping and performing the covenants of this Lease
to be kept and performed, shall peaceably and quietly hold and occupy and enjoy
said premises during the term of this Lease, without any let, hindrance, or
molestation by Lessor, or any person or persons lawfully claiming under said
Lessor.
27. ALTERATIONS
Lessee agrees that it will make no alterations or additions in or to
the Leased Premises without the written consent of the Lessor.
28. UNLAWFUL PURPOSE
Lessee agrees that it will not occupy or use the Leased Premises for
any unlawful purpose and will comply with all lawful requirements of local
health, police and fire officers, boards or commissions and other governmental
authorities respecting the
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<PAGE>
manner in which it occupies or uses the Leased Premises; and Lessee will supply
any apparatus, appliance or material and will have accomplished any work for, in
or about the Leased Premises which may be required by law or lawful order by any
governmental authority incidental to Lessee's use of the premises herein.
29. INTERPRETATION
A. Partial Invalidity. If any term or provision of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease and the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
B. Word Meaning. Words of any gender used in this Lease shall be held
to include any other gender, and words in the singular number shall be held to
include the plural, when the sense requires. Whenever used herein, the words
"Lessor" and "Lessee" shall be deemed to include the heirs, personal
representatives, successor, sublessees and assigns of said parties, unless the
context excludes such construction.
C. Captions. All section captions as to contents of particular sections
herein are inserted only for convenience and are in no way to be construed as
part of this Lease or as a limitation of the scope of the particular section to
which they refer.
D. Complete Document. This Lease, together with the plans and
specifications identified herein, contain all the oral and written agreements,
representations and arrangements between the parties hereto and any rights which
the respective parties hereto may have had under any previous contracts or oral
agreements are hereby cancelled and terminated and no representations or
warranties are made or implied other than those set forth herein. No oral
agreement or representations for rental shall be deemed to constitute a Lease
other than this agreement, and not until and unless this agreement shall have
been properly executed by the Lessee and delivered to the Lessor.
E. Cumulative Remedies. No remedy herein conferred upon or reserved to
Lessor or Lessee is intended to be exclusive of any other remedy herein or by
law provided, but each shall be cumulative and shall be in addition to every
other remedy given hereunder now or hereafter existing at law or in equity or by
statute.
13 of 15 Pages
<PAGE>
30. MEMORANDUM OF LEASE
Lessor agrees, upon request by Lessee, to execute in recordable form a
Memorandum of Lease, it being the intention of the parties that this Lease
itself not be recorded.
IN WITNESS WHEREOF, the parties have executed this lease on the day and
year set forth in the acknowledgement of their signatures below.
Signed and acknowledged LESSOR:
in the presence of Draft Partnership
By:
-------------------------
As to all James F. Rowland, Partner
By:
-------------------------
As to all Albert L. Schwarz, Jr.,
Partner
By:
-------------------------
Richard Newkold, Partner
By:
-------------------------
Roger Turvy, Partner
By:
-------------------------
Thomas Winstel, Partner
LESSEE:
Miami Computer Supply, Inc.
By:
-------------------------
Its:
--------------------
- ------------------------------
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<PAGE>
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 26 day of
October, 1995 by James F. Rowland, Albert L. Schwarz, Jr., Richard
Newkold, Roger Turvy and Thomas Winstel, Partners of Draft Partnership, an Ohio
general partnership, on behalf of the partnership.
Notary Public
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 26 day of
October, 1995 by Albert L. Schwarz, Jr., President of Miami
Computer Supply, Inc., an Ohio corporation, on behalf of the corporation.
Notary Public
THIS INSTRUMENT PREPARED BY:
HANS H. SOLTAU
Attorney at Law
6776 Loop Road
Centerville, Ohio 45459
15 of 15 Pages
<PAGE>
EXHIBIT "A"
Situate in the City of Kettering, County of Montgomery, State of Ohio and being
Lot Number 21 of Kettering Corporate Center Replat #2 as recorded in Plat Book
140, Page 47 of the Plat Records of Montgomery County, Ohio.
16 of 15 Pages
<PAGE>
17 of 15 Pages
<PAGE>
EXHIBIT 10.3
LEASE
THIS LEASE made and entered into this 30th day of June, 1994, by and
between JOHN J. SCHWARZ, SR. and MARCELLA M. SCHWARZ, his wife, and JOHN J.
SCHWARZ, JR. a/k/a JOHN T. SCHWARZ, JR., and ROBERT T. SCHWARZ, 907 Audubon
Parkway, Louisville, Kentucky, 40213, hereinafter called Lessors: and MIAMI
COMPUTER SUPPLY, INC., 3884 Indian Ripple Road, Dayton, Ohio, 45440, hereinafter
called Lessee.
WITNESSETH:
1. Lessors do hereby grant, devise and lease to said Lessee the
following described premises located in Louisville, Jefferson County, Kentucky,
to-wit:
Tract I
Beginning on the East side of 15th Street at a point 254 feet
North of Maple Street; running thence North along the East side
of 15th Street 126 feet 5 inches, and extending back East of the
same width, in lines parallel with Maple Street 100 feet to an
alley.
Tract II
Beginning at the property line on the East side of 15th Street
where the North property line of the second alley South of
Broadway intersects the East property line of 15th Street;
running thence North with the East property line of 15th Street
125 feet; running thence Eastwardly on a line parallel with said
second alley South of Broadway 105 feet to an alley; running
thence Southwardly with the West line of said alley, 125 feet to
the North property line of said second alley South of Broadway;
running thence with the North property line of said second alley
South of Broadway, 105 feet to the point of beginning.
<PAGE>
for a term of 120 months beginning on the 1st day of July, 1994, and covenant to
keep said Lessee in peaceful and quiet possession during the terms of and for
the consideration set out below.
2. Lessee shall pay to Lessors the sum of Twenty-Four Thousand
($24,000.00) dollars per year for the first year of the term of this Lease,
payable in twelve equal monthly installments, in the sum of Two Thousand
($2,000.00) Dollars, with the first payment being due on the 1st day of July,
1994, a like payment being due on the 1st day of each succeeding month
thereafter. Thereafter, the annual rent shall increase in accordance with the
total increase of the Consumer Price Index, that is designated all items, for
the previous year. And said annual rent shall be paid in twelve (12) equal
monthly installments, under the same terms and conditions set forth above.
3. Lessee covenants and agrees to pay all taxes, whether same
shall be real estate taxes, or personal property taxes levied against the
property, inventory or fixtures contained therein and shall save Lessors
harmless from the payment of same.
4. Lessee shall maintain insurance both on the building as its
interest may appear and on its contents in the building, and shall furnish
Lessors with evidence of such coverage. In the event the premises are destroyed,
either whole or in part, by fire or other casualty so as to render said premises
unsuitable for occupancy, either Lessors or Lessee may terminate this Lease and
in no event shall there be any responsibility on Lessors to rebuild or to
restore the premises.
5. Lessee further agrees and covenants to indemnify and to save
harmless Lessors for and against all liability arising from injury or damage
during the terms of this Lease, or
2
<PAGE>
any extension thereof, to persons or property, occasioned wholly or in part by
any act of omission of Lease, or any guest, servant, assign or sub-tenant of
said Lessee.
6. It is understood and agreed between the parties hereto, that
the Lessee shall not have the right to assign, sub-rent or sub-lease said
demised premises without the prior written consent of the Lessors.
7. Lessee shall keep the demised premises in a clean, safe and
sanitary condition and shall comply with all local laws and ordinances.
8. Lessee has inspected the premises and improvement thereon and
accepts same in the condition as it finds them, and at its cost and expense
agrees to keep and maintain such premises and improvements thereon in good order
and repair. It is especially understood, however, that the Lessors shall have
the responsibility to repair said improvements insofar as major structural
repairs are deemed necessary.
9. Lessee shall be responsible for all fines, court costs, and
attorney fees, if Lessors are cited for any violation of a city, county, state
or federal agency, if said violations are due to the Lessee's negligence.
10. Lessee shall be responsible for and shall pay all utilities
furnished said demised premises.
11. No demand for the rent need be made by Lessors, but it shall
be the duty of the Lessee to pay same when due, and if the rent remains unpaid
for a period of 30 days, the Lessors may enter said premises, terminate this
Lease and take possession without demand or notice. Lessors shall further have
all rights to seek and to obtain a judgment against the
3
<PAGE>
Lessee for any and all rents due and payable under the terms hereof, and shall
further have all rights granted to Lessors under the laws of the Commonwealth of
Kentucky.
12. All rents, notices, letters or other documents shall be
forwarded to the Lessors as follows: ROBERT T. SCHWARZ, 2347 Valley Vista,
Louisville, Kentucky, 40205. All demands, notices, letters or other documents
shall be forwarded to the Lessee as follows: A. Schwarz, MIAMI COMPUTER SUPPLY,
INC., 3884 Indian Ripple Road, Dayton, Ohio, 45440.
13. This Lease and any interpretations thereof, shall be governed
under the laws of the Commonwealth of Kentucky.
IN TESTIMONY WHEREOF, witness the signatures of the parties the
day and year first above written.
--------------------------------
JOHN J. SCHWARZ, JR.
--------------------------------
MARCELLA M. SCHWARZ
--------------------------------
JOHN J. SCHWARZ, SR.
--------------------------------
ROBERT T. SCHWARZ
4
<PAGE>
MIAMI COMPUTER SUPPLY, INC.
By:
-----------------------------
PRESIDENT
STATE OF KENTUCKY
COUNTY OF JEFFERSON
I do hereby certify that the foregoing Lease was acknowledged before me
by John J. Schwarz, Sr., Marcella M. Schwarz, his wife, John J. Schwarz, Jr.,
and Robert T. Schwarz, Lessors, to be their act and deed this _____________ day
of ___________, 1994.
My commission expires:_________________________
_______________________________________________
Notary Public, State at Large, Kentucky
STATE OF OHIO
COUNTY OF____________________
I do hereby certify that the foregoing Lease was acknowledged before me
by ____________________, _____________________ of Miami Computer Supply, a duly
authorized officer and on behalf of said corporation, to be its act and deed,
this ______ day of _____________, 1994.
My commission expires:_________________________
_______________________________________________
Notary Public, , OHIO
Prepared by:
_________________________
JAMES P. SOHAN
Attorney at Law
602 One Riverfront Plaza
Louisville, KY 40202
(502) 589-6240
5
EXHIBIT 10.4
Miami Computer Supply Inc.
Profit Sharing Plan
January 5, 1995
MIAMI COMPUTER SUPPLY, THANKS TO AN OUTSTANDING COMPANY ASSET, OUR EMPLOYEES,
CONTINUES TO GROW PROFITABLY.
THE BOARD OF DIRECTORS RECOGNIZES THE CONTRIBUTION OF OUR EMPLOYEES TO MIAMI
COMPUTER SUPPLY'S SUCCESS.
THE PLAN PARAMETERS ARE AS FOLLOWS:
MCSI MUST EARN PLANNED PRETAX PROFITS FOR PROFIT SHARING TO
KICK IN. (THIS HAS OCCURRED IN FOUR OF THE LAST FIVE YEARS).
AN EMPLOYEE MUST BE EMPLOYED FOR THE CALENDAR YEAR TO BE
ELIGIBLE.
AN EMPLOYEE MUST BE EMPLOYED BY MCSI THRU DATE OF DISTRIBUTION (MARCH
15, 1996).
PROFIT SHARING POOL WILL BE 3% OF THE COMPANY'S PRE-TAX
PROFIT. THIS POOL WILL NOT DECREASE BECAUSE EMPLOYEES LEAVE
THE COMPANY. UNIT VALUE WILL BE BASED ON POOL DOLLARS
DIVIDED BY TOTAL UNITS x .67.
THE REMAINDER OF THE POOL (33%) WILL BE DISTRIBUTED BASED ON
PERFORMANCE.
A UNIT IS EARNED BY BEING AN MCSI EMPLOYEE FOR THE FULL
CALENDAR YEAR. (JANUARY 1 THRU DECEMBER 31).
THE NUMBER OF UNITS YOU HAVE IS BASED ON YEARS OF SERVICE,
ONE UNIT FOR EACH CALENDAR YEAR AS STATED ABOVE. EXAMPLE;
HIRE DATE, SEPTEMBER 14, 1991. UNITS AT THE END OF DECEMBER,
1995, WOULD BE FOUR.
EMPLOYEES AT ACQUIRED BRANCHES EARNED UNITS START AT DATE
OF ACQUISITION, IE: DATRON MAY 1, 1993 PAPER ROLLS JULY 1, 1994.
PART TIME EMPLOYEES WHO AVERAGE THIRTY HOURS A WEEK OR
MORE EARN UNITS BASED ON AVERAGE HOURS WORKED DURING THE
<PAGE>
YEAR. EXAMPLE: WORK 1560 HOURS DURING YEAR., EARN .75 UNIT
FOR YEAR WOULD ROUND TO .8. PART TIME EMPLOYEE UNITS WILL
BE ROUNDED TO THE NEAREST TENTH, UP OF DOWN.
MANAGERS UNITS WILL BE MULTIPLIED BY THREE. EXAMPLE:
STARTED WITH MCSI IN JULY 1989. UNITS EARNED AT DECEMBER 31,
1995 = 6X3 OR 18.
CURRENT MANAGERS ARE:
MARK MCCLOUD
SHARON GUDORF
MARY STEWART
JOE SULLIVAN
TERESA SULLIVAN
WAYNE RINES
BASED ON 1994 PROJECTED EARNINGS AND TOTAL UNITS, A UNIT WOULD HAVE BEEN
WORTH $90.00. IF YOU STARTED, FULL TIME, WITH MCSI IN SEPTEMBER 1989,
YOUR PROFIT SHARING WOULD BE CALCULATED AS FOLLOWS: 6 UNITS X$90.00 X.67
= $361.80 PLUS A DISCRETIONARY AMOUNT BASED ON PERFORMANCE.
MONTHLY, BEGINNING IN APRIL, WE WILL ANNOUNCE EARNINGS PROGRESS.
INITIALLY IT WILL BE BASED ON ACTUAL 1995 VS ACTUAL 1994 BUT EVENTUALLY
WILL BE TRACKED ON ACTUAL 1995 VS 1995 PLAN WHICH IS WHAT WILL TRIGGER
PROFIT SHARING. EARNINGS PROGRESS WILL BE ANNOUNCED APPROXIMATELY NINETY
DAYS AFTER THE CLOSE OF THE MONTH.
IF YOU ARE NOT AN OWNER OR SALESPERSON AND AVERAGE AT LEAST THIRTY HOURS
WORK FOR MCSI, ON THE MCSI PAYROLL THROUGHOUT 1995, AND WERE ON THE
PAYROLL ON OR BEFORE JANUARY 2, 1995, YOU ARE ELIGIBLE FOR PROFIT
SHARING.
THE MORE THE COMPANY MAKES, ONCE PLAN PROFITS ARE HIT, THE BIGGER THE
BONUS POOL AND THE UNIT VALUE.
LETS, TOGETHER, MAKE 1995 THE BEST YEAR EVER.
EXHIBIT 10.5
1 2 5 C P L A N
MIAMI COMPUTER SUPPLY, INC.
<PAGE>
MIAMI COMPUTER SUPPLY, INC.
SECTION 125 PLAN
ARTICLE I
PURPOSE OF THE PLAN
1.01 The purpose of this Plan is to provide eligible Employees of
Miami Computer Supply, Inc., with a choice of receiving certain
tax-free welfare benefits provided by the Employer in lieu of
taxable Compensation. This Plan is intended to qualify as a
"cafeteria plan" within the meaning of Section 125 of the
Internal Revenue Code of 1954, as amended. The Plan is to be read
in manner consistent with the terms of Code Section 125.
ARTICLE II
DEFINITIONS
2.01 "ADMINISTRATOR" means the Employer or such other person or
committee as may be appointed from time to time by the Employer
to supervise the administration of the Plan.
2.02 "ANNIVERSARY DATE" means the first day of each Plan Year.
2.03 "CODE" means the Internal Revenue Code of 1954, as amended from
time to time. Reference to any section or subsection includes
reference to any comparable or succeeding provisions of any
legislation which amends, supplements or replaces such section or
subsection.
2.04 "COMPENSATION" means the total wages and salary including
overtime payments and bonus payments, which are paid by the
Employer to a Participant during the Plan Year.
2.05 "EFFECTIVE DATE" means January 1, 1991.
2.06 "EMPLOYEE" means any person employed by the Employer on a full
time basis.
2.07 "EMPLOYER" means Miami Computer Supply, Inc. (MCSI)
2.08 "KEY EMPLOYEE" means any person who is a key employee as defined
in Section 416(i)(1) of the Code.
2.09 "PARTICIPANT" means any Employee who participates in the Plan in
accordance with Article III.
1
<PAGE>
2.10 "PLAN" means the cafeteria plan as set forth herein, together
with any amendments and supplements thereto.
2.11 "PLAN YEAR" means the twelve consecutive month period commencing
on each Plan Anniversary Date, except that the first Plan Year
shall be the period commencing on the Plan Effective Date and
ending on the day preceding the first Plan Anniversary Date.
A pronoun or adjective in the masculine gender includes the feminine gender, and
the singular includes the plural, unless the context clearly indicates
otherwise.
ARTICLE III
PARTICIPATIONS
3.01 ELIGIBILITY AND DATE OF PARTICIPATION.
Each Employee of the Employer shall become eligible to become a
Participant hereunder on the date the Employee becomes a
participant under one or more of the Employer's welfare benefit
plans providing the benefits described in Article IV. Each
eligible Employee of the Employer on the Effective Date shall
become a Participant on the Effective Date. Employees who become
eligible after the Effective Date of the Plan shall become
Participants on the Plan Anniversary Date coincident with or next
following the date of their eligibility. Any re-employed eligible
Employee shall become a Participant on the Plan Anniversary Date
coincident with or next following his or her date of
re-employment.
3.02 TERMINATION OF PARTICIPANT.
Participation will automatically terminate on the earlier to
occur of the following dates:
(a) the date the Plan is terminated; or
(b) the date the Participant is no longer a participant in one of
the Employer's welfare benefit plans providing benefits described
in Article IV.
ARTICLE IV
PLAN BENEFITS
4.01 AVAILABLE PLAN BENEFITS.
A Participant may choose to receive his or her full Compensation
for any Plan Year in cash or have the Employer apply a part of
such Compensation to the cost of the following benefits:
* Group Health Insurance
2
<PAGE>
4.02 SOURCES OF WELFARE BENEFITS.
While the Participant may choose under this Plan to have the
Employer apply a part of his or her Compensation to the cost of
the benefits listed in Section 4.01, the welfare plan benefits
will not be provided by this Plan but by the applicable benefit
plans themselves. The applicable welfare benefit plan as amended
from time to time, will govern the terms and conditions of
coverage and benefits available. The Employer's welfare benefit
plan, as amended from time to time, are hereby incorporated by
reference into this Plan.
4.03 LIMITATION ON BENEFITS.
If the Administrator determines at any time that the Plan may
fail to satisfy any nondiscrimination requirement imposed by the
Code or any limitation on benefits provided to highly compensated
Participants or Key Employees, the Administrator shall take such
action as the Administrator deems appropriate, under the rules
uniformly applicable to similarly situated Participants, to
assure compliance with such requirement or limitation. Such
action may include without limitation, a modification of
elections by highly compensated Participants or Key Employees
with or without the consent of such Participants or Key
Employees.
ARTICLE V
COMPENSATION REDUCTION
5.01 ELECTION OF OPTIONAL BENEFITS IN LIEU OF CASH.
A Participant may elect under this Plan to receive one or more of
the optional benefits described in Section 4.01 in accordance
with the procedure described in Section 5.02. If a Participant
elects any such optional benefit under this Plan, the
Participant's cash Compensation will be reduced and an amount
equal to the reduction will be contributed by the Employer under
the appropriate welfare benefit plan to cover the Participant's
share of such benefit as determined by the Employer. The balance
of the cost of each such benefit shall be paid by the Employer.
5.02 ELECTION PROCEDURE.
Approximately 30 days prior to the commencement of each Plan Year
the Administrator shall provide a written election form (which
shall include a Compensation reduction agreement) to each
Participant and to each other Employee who is expected to become
a Participant at the beginning of the Plan Year. The election
form shall be effective as of the first day of the Plan year.
Each Participant who desires one or more optional benefit
coverages described in Section 4.01 for the Plan Year shall so
specify on the election form and shall agree to a reduction in
his or her Compensation. The amount of the reduction in the
Participant's Compensation for the Plan Year shall equal the
Participant's share of the cost of each optional benefit elected
by the Participant, and shall
3
<PAGE>
be adjusted automatically in the event of a charge in any such
cost. Each election form must be completed and returned to the
Administrator on or before such date as the Administrator shall
specify, which date shall be no later than the beginning of the
first pay period for which the Participant's Compensation
reduction agreement will apply.
5.03 FAILURE TO ELECT.
A Participant failing to return a completed election form to the
Administrator on or before the specified due date for the initial
Plan Year of the Plan, or the Plan Year in which he or she
becomes a Participant, shall be deemed to have elected to receive
his or her full Compensation in cash. A Participant failing to
return a completed election form to the Administrator on or
before the specified due date for any subsequent Plan Year shall
be deemed to have made the same election as was in effect just
prior to the end of the preceding Plan Year.
5.04 IRREVOCABILITY OF PARTICIPANT ELECTIONS.
Elections made under the Plan (or deemed to be made under Section
5.03) shall be irrevocable by the Participant during the Plan
Year, subject to change in family status. A Participant may
revoke a benefit election for the balance of the Plan Year and
file a new election only if both the revocation and the new
election are on account of and consistent with a change in family
status. A change in family status for this purpose includes
marriage, divorce, death of a spouse or child, birth or adoption
of a child, termination of employment of a spouse, and other such
events the Administrator determines will permit a change or
revocation of an election during a Plan Year under Rules and
Regulations of the Internal Revenue Service. Any new election
under this Section 5.04 shall be effective at such time as the
Administrator shall prescribe, but not earlier than the first pay
period beginning after the election form is completed and
returned to the Administrator.
5.05 AUTOMATIC TERMINATION OF ELECTION.
Elections made under this Plan (or deemed to be made under
Section 5.03) shall automatically terminate on the date on which
the Participant ceases to be a Participant in the Plan, although
cover of benefits under the Employer's welfare benefit plans
shall continue if and to the extent provided by such plans.
ARTICLE VI
ADMINISTRATION
6.01 The Plan shall be administered by the Administrator in accordance
with its terms, for the exclusive benefit of persons entitled to
participate in the Plan without discriminating among them. The
Administrator will have full power to administer the Plan in
accordance of its details, subject to applicable
4
<PAGE>
requirements of law. For this purpose, the Administrator's power
will include, but will not be limited to, the following powers,
in addition to all other powers provided by law and this Plan:
(a) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the
Plan;
(b) To interpret the Plan, its interpretation thereof in good
faith to be final and conclusive on all persons claiming
benefits under the Plan;
(c) To decide all questions concerning the Plan and the
eligibility of any person to participate in the Plan;
(d) To appoint such agents, counsel, accountants, consultants
and other persons as may be required to assist in
administering the Plan; and
(e) To allocate and delegate its responsibilities under the Plan
and to designate other persons to carry out any of its
responsibilities under the Plan, any such allocation,
delegation or designation to be in writing.
Notwithstanding the foregoing any claim which arises under the
Employer's welfare benefit plans will not be subject to review
under this Plan, and the Administrator's authority under this
Section shall not extend to any matter as to which an
administrator under such plan is empowered to make determinations
under such plans.
6.02 The Administrator will make available to each Participant such
Plan record, as pertain to the Participant, for examination at
reasonable times during normal business hours.
6.03 Whenever, in the administration of the Plan, any discretionary
action by the Administrator is required, the Administrator shall
exercise its authority in a nondiscriminatory manner so that
persons similarly situated will receive substantially the same
treatment.
6.04 The Employer agrees to indemnify and to defend to the fullest
extent permitted by law any Employee serving as the Administrator
or as a member of a committee designated as Administrator
(including any Employee or former Employee who formerly served as
an Administrator or as a member of such committee) against all
liabilities, damages, costs and expenses (including attorney's
fees and amounts paid in settlement of any claims approved by the
Employer) occasioned by any act or omission to act in connection
with the Plan, if such act or omission is in good faith.
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ARTICLE VII
CLAIMS PROCEDURE
7.01 CLAIMS FIDUCIARY - The claims fiduciary for the Plan is the
Administrator.
7.02 CLAIM FOR BENEFITS - A claim for benefits under the Plan should
be made in writing to the claims fiduciary.
7.03 NOTICE OF CLAIM DENIAL - If the claim for benefits is turned
down, wholly or partially, the claims fiduciary will notify the
Participant within 90 days after the claim has been filed. The
notice of denial will be in clear, understandable language and
will give the reasons why the claim was turned down. The
Participant will be informed of the Plan Provision or provisions
on which the decision was based and will be told what additional
information or material the Participant needs to support the
claim.
7.04 REQUEST FOR REVIEW OF CLAIM DENIAL - If the claim is turned down
the Participant may request a full and fair review of a denial
of the claim for benefits. The Participant must make this
request of the claims fiduciary in writing within 120 days
after receipt of the denial.
7.05 FINAL DECISION - The final written decision of the claims
fiduciary will be delivered to the Participant within 60 days of
the receipt of the appeal. This period may be extended if
circumstances make it necessary.
ARTICLE VIII
AMENDMENT AND TERMINATION OF THE PLAN
8.01 AMENDMENTS.
The Employer may amend the Plan at any time from time to time.
Any Plan amendment shall be filed with the Plan documents.
8.02 TERMINATION.
The Employer intends the Plan to be permanent, but reserves the
right to terminate the Plan at any time. In the event of a Plan
termination, Compensation reduction will cease. Thereafter
neither the Employer nor any of its Employees shall have any
further financial obligations hereunder except such that have
accrued up to the date of termination and have not been
satisfied.
ARTICLES IX
MISCELLANEOUS
9.01 NO GUARANTY OF EMPLOYMENT.
The adoption and maintenance of the Plan shall not be deemed to
be a contract of employment between the Employer and any
Employee. Nothing contained herein shall give any Employee the
right to be retained in the employ of the Employer or to
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<PAGE>
interfere with the right of the Employer to discharge any
Employee at any time, nor shall it give the Employer the right to
require any Employee to remain in its employ or to interfere with
the Employee's right to terminate his or her employment at any
time.
9.02 NON-ALIENATION.
To the extent permitted by law, no benefit payable at any time
under this Plan shall be subject in any manner to alienation,
sale, transfer, assignment, pledge, attachment, or encumbrance of
any kind.
9.03 APPLICABLE LAW.
The Plan and all rights hereunder shall be governed by and
construed according to the laws of the State of Ohio, except to
the extent such laws are preempted by the laws of the United
States of America.
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<PAGE>
MIAMI COMPUTER SUPPLY, INC
BOARD OF DIRECTORS RESOLUTION
The undersigned, being all of the members of the Board of Directors of Miami
Computer Supply, Inc., an Ohio Corporation do hereby consent to the adoption of
the following resolutions without a meeting pursuant to the Bylaws of the
Corporation.
RESOLVED, that the Corporation establish a Cafeteria Plan, qualified under
Section 125 of the Internal Revenue Code, to be known as the Miami Computer
Supply, Inc., Section 125 C Plan and that the provisions of the Plan shall read,
and they hereby are adopted to read, as set forth in the form examined by each
of the undersigned.
FURTHER RESOLVED, that the President or any Vice President and the Secretary of
the Corporation be and they hereby are authorized and directed to execute, in
the name and on behalf of the Corporation, the Plan in the form examined by each
of the undersigned.
FURTHER RESOLVED, that the officers of the Corporation be and they hereby are
authorized and directed to execute and deliver all such contracts, agreements,
certificates, documents and other instructions, and to do such other acts or
things, as may be necessary or advisable, to give effect to the foregoing
resolutions and the matters provided therein.
DATE 2-30-90
-------------------------------------
Al Schwarz, President
--------------------------------------
Tom Winstel, Vice President
--------------------------------------
Richard Newkold, Vice President
8
COMMERCIAL NOTE: REVOLVING CREDIT/PRIME/LIBOR (OHIO)
- --------------------------------------------------------------------------------
Amount City, State Date FOR BANK USE ONLY
--------------------------
$15,000,000.00 Dayton, Ohio September 11, 1996 Obligor #
- --------------------------------------------------------------------------------
Tax I. D. #
--------------------------
Obligation #
--------------------------
Office
--------------------------
FOR VALUE RECEIVED, MIAMI COMPUTER SUPPLY INC., an Ohio corporation and
DIVERSIFIED DATA PRODUCTS, INC., a Michigan corporation (collectively the
"Borrower"), whose mailing address is 3884 Indian Ripple Road, Dayton, Ohio
45440-3448 hereby promises to pay to the order of NATIONAL CITY BANK OF DAYTON
("Bank"), a national banking association having its banking office at 6 N. Main
Street, Dayton Ohio 45412, at Bank's banking office (or at such other place as
Bank may from time to time designate by written notice) in lawful money of the
United States of America, the principal sum of
FIFTEEN MILLION DOLLARS
or such lesser amount as may appear on this Note, or as may be entered in a loan
account on Bank's books and records, or both, together with interest, all as
provided below.
1. Commitment. This Note evidences an arrangement (the "Subject Commitment")
whereby Borrower may, on the date of this Note and thereafter until (but not
including) September 11, 1998 (the "Expiration Date") or such earlier date upon
which the Subject Commitment is terminated or reduced to zero, obtain from Bank,
subject to the terms and conditions of this Note, such loans (each a "Subject
Loan") as Borrower may from time to time properly request. The amount of the
Subject Commitment shall be equal to the face amount of this Note, provided,
that Borrower shall have the right, at any time and from time to time, to
permanently reduce the amount of the Subject Commitment to any amount that is an
integral multiple of One dollar ($1.00) (the "Minimum Borrowing Amount") by
giving Bank not less than one (1) Banking Day's prior notice (which shall be
irrevocable) of the effective date of the reduction, provided, that no reduction
in the amount of the Subject Commitment shall be effective if, after giving
effect to that reduction, the aggregate unpaid principal balance of the Subject
Loans would exceed the amount of the Subject Commitment as so reduced.
Regardless of any fee or other consideration received by Bank, the Subject
Commitment may be terminated pursuant to section 11.
2. Fees. Borrower shall pay Bank a commitment fee (a) in arrears on November 30,
1996 and quarter-annually thereafter and upon the termination of the Subject
Commitment or the reduction thereof to zero, (b) based on the average daily
difference between the amount of the Subject Commitment and the aggregate unpaid
principal balance of the Subject Loans during the period from the due date of
the last such fee (or, if none, the date of this Note) to the due date of the
fee in question, and (c) computed at the rate of one quarter percent (.25%) per
annum.
3. Loan Requests; Disbursement. A Subject Loan is properly requested if
requested orally or in writing not later than 2:00 p. m., Banking-Office Time,
<PAGE>
of the Banking Day upon which that Subject Loan is to be made. Each request for
a Subject Loan shall of itself constitute, both when made and when honored, a
representation and warranty by Borrower to Bank that Borrower is entitled to
obtain the requested Subject Loan. Bank is hereby irrevocably authorized to make
an appropriate entry on this Note, in a loan account on Bank's books and
records, or both, whenever Borrower obtains a Subject Loan. Each such entry
shall be prima facie evidence of the data entered, but the making of such an
entry shall not be a condition to Borrower's obligation to pay. Bank is hereby
directed, absent notice from Borrower to the contrary, to disburse the proceeds
of each Subject Loan to Borrower's general checking account with Bank. Bank
shall have no duty to follow, nor any liability for, the application of any
proceeds of any Subject Loan.
4. Conditions: Subject Loans. Each Subject Loan shall be in an amount that is an
integral multiple of the Minimum Borrowing Amount. Borrower shall not be
entitled to obtain any Subject Loan (a) on or after the termination of the
Subject Commitment or the reduction thereof to zero, (b) if either at the time
of Borrower's request for that loan or when that request is honored there shall
exist or would occur any Event of Default, (c) if any representation, warranty,
or other statement (other than any expressly made as of a single date) made by
Borrower (other than Bank) in any Related Writing would, if made either as of
the time of Borrower's request for that Subject Loan or as of the time when that
request is honored, be untrue or incomplete in any respect, or (d) if after
giving effect to that Subject Loan and all others for which requests are then
pending, the aggregate unpaid principal balance of the Subject Loans would
exceed the then amount of the Subject Commitment.
5. Interest. The unpaid principal balance of each Subject Loan shall at all
times bear interest at the Contract Rate, provided, that so long as any
principal of or accrued interest on any Subject Loan is overdue, all unpaid
principal of each Subject Loan and all overdue interest on that principal (but
not interest on overdue interest) shall bear interest at a fluctuating rate
equal to two percent (2%) per annum above the rate that would otherwise be
applicable, but in no case less than two percent (2%) per annum above the Prime
Rate; provided further, that in no event shall any principal of or interest on
any Subject Loan bear interest at any time after Maturity at a lesser rate than
the rate applicable thereto immediately after Maturity. The "Contract Rate"
shall at all times be a fluctuating rate equal to the Prime Rate, provided, that
Borrower shall have the right from time to time to irrevocably elect two percent
(2%) per annum plus LIBOR as the Contract Rate applicable during a Contract
Period to a Unit in the amount of $500,000.00 (or any greater amount that is an
integral multiple of $100,000.00) by specifying the term and amount,
respectively, of the Contract Period and Unit in a notice given to Bank orally
or in writing not later than 2:00 p. m., Banking-Office Time, of the third (3rd)
Eurodollar Banking Day preceding the first day of that Contract Period.
Interest on each Subject Loan shall be payable in arrears on September 30, 1996
and on the last day of each month thereafter, at Maturity, and on demand
thereafter, except that interest on each LIBOR Unit shall be payable in arrears
on the last day of the Contract Period for that Unit, at Maturity, and on demand
thereafter, and in the case of any Contract Period having a term longer than
ninety (90) days, shall also be payable every three (3) months after the first
day of the Contract Period. The principal comprising each LIBOR Unit shall, at
the end of the Contract Period for that Unit, become part of the Prime Rate Unit
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<PAGE>
unless and to the extent that Borrower shall have elected otherwise as
hereinbefore provided. Bank shall be entitled to fund and maintain its funding
of all or any part of any LIBOR Unit in any manner Bank may from time to time
deem advisable, Borrower hereby acknowledging that all determinations relating
to LIBOR Units shall be made as if Bank had actually funded and maintained each
such Unit by the purchase of deposits in an amount similar to the amount of that
Unit, with a maturity similar to the Contract Period for that Unit, and bearing
interest at LIBOR with respect to that Unit.
6. Ineffective Elections. Notwithstanding any provision or inference to the
contrary, Bank shall have the right in its discretion, without notice to
Borrower, to deem ineffective Borrower's election of a Contract Rate if (a) on
or before the first day of the Contract Period specified in Borrower's notice of
that election, the Subject Commitment shall have been terminated or reduced to
zero, (b) the Contract Period specified in Borrower's notice of that election
would end after the Expiration Date, (c) at the time of that election or on the
first day of the Contract Period specified in Borrower's notice thereof, there
shall exist or there would occur any Event of Default, (d) any representation,
warranty, or other statement (other than any expressly made as of a single date)
made by any Person (other than Bank) in any Related Writing would, if made
either as of the time of that election or as of the first day of the Contract
Period specified in Borrower's notice thereof, be untrue or incomplete in any
respect, (e) after giving effect to that election, more than one Contract Rate
would be applicable to all or any part of any Unit, (f) Bank shall determine
that any governmental authority has asserted that it is unlawful for Bank to
fund, make, or maintain loans bearing interest based on LIBOR, or (g) after
giving effect to that election, the aggregate unpaid principal balance of the
Subject Loans would, on the first day of the Contract Period specified in
Borrower's notice of that election, be less than the then aggregate amount of
all LIBOR Units. Moreover, Borrower shall not be entitled to elect a Contract
Rate if Bank shall determine that (i) dollar deposits of the appropriate amount
and maturity are not available in the market selected by Bank for the purpose of
funding the relevant Unit at LIBOR, (ii) circumstances affecting the market
selected by Bank for the purpose of funding the relevant Unit make it
impracticable for Bank to determine LIBOR, (iii) LIBOR is unlikely to adequately
compensate Bank for the cost of making, funding, or maintaining the relevant
Unit for the Contract Period specified in Borrower's notice of that election, or
(iv) any governmental authority has asserted that it is unlawful for Bank to
fund, make, or maintain loans bearing interest based on LIBOR. Bank's books and
records shall be conclusive (absent manifest error) as to whether Bank shall
have deemed any election of a Contract Rate ineffective. Except as hereinbefore
provided, there is no limit to the number of Contract Rates that may be
applicable to the unpaid principal balance of this Note at any one time.
7. Ineffective Elections; Governmental Acts. If Bank shall deem ineffective
Borrower's election of a Libor Unit, then, and in each such case, that election
shall be ineffective and interest shall accrue at the Prime Rate until a
conforming notice is made pursuant to Section 5. If Bank shall determine that
any governmental authority has asserted that it is unlawful for Bank to fund,
make, or maintain loans bearing interest based on LIBOR, then, and in each such
case, notwithstanding any provision or inference to the contrary, the principal
comprising each then outstanding LIBOR Unit shall, upon Bank's giving Borrower
notice of that determination, be added to and become part of the Prime Rate
Unit, and Borrower shall concurrently with the addition of that principal to the
Prime Rate Unit, pay to Bank the accrued interest on the principal so added (if
3
<PAGE>
any) then due. Bank shall calculate interest on said unit for the entire
Contract Period based upon the applicable Prime Rate of Bank during said
Contract Period.
8. Repayment. Subject to section 11, each Subject Loan shall be due and payable
in full upon the Expiration Date. Borrower shall have the right to prepay each
Subject Loan in whole or in part, provided, that each such prepayment shall be
in an amount that is an integral multiple of the Minimum Borrowing Amount. Each
prepayment of the Subject Loans may be made without premium or penalty,
provided, that if any LIBOR Unit is paid (whether by way of a prepayment or a
payment following any acceleration of the due date thereof) in whole or in part
before the last day of the Contract Period for that Unit, then, and in each such
case, Borrower shall, concurrently with the payment, pay to Bank (i) the accrued
interest on the principal being prepaid and (ii) a premium based on the
principal amount paid and computed for the period from the date of payment to
the last day of the Contract Period for that Unit at a rate per annum equal to
the excess, if any, of the Contract Rate theretofore applicable over the
Reinvestment Rate.
9. Definitions. As used in this Note, except where the context clearly requires
otherwise, "Affiliate" means, when used with reference to any Person (the
"subject"), a Person that is in control of, under the control of, or under
common control with, the subject, the term "control" meaning the possession,
directly or indirectly, of the power to direct the management or policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise; "Bank Debt" means, collectively, all Debt to Bank, whether incurred
directly to Bank or acquired by it by purchase, pledge, or otherwise, and
whether participated to or from Bank in whole or in part;
"Banking Day" means any day (other than any Saturday, Sunday or legal holiday)
on which Bank's banking office is open to the public for carrying on
substantially all of its banking functions; "Banking-Office Time" means, when
used with reference to any time, that time determined at the location of Bank's
banking office; "Contract Period" means, relative to a Unit, a period selected
by Borrower, provided, that each Contract Period shall commence on a Eurodollar
Banking Day and end one (1) month, two (2) months, or three (3) months
thereafter, or, subject in each case to Bank's assent thereto, four (4) months
or six (6) months thereafter, provided, that (a) if any Contract Period
otherwise would end on a day that is not a Eurodollar Banking Day, it shall end
instead on the next following Eurodollar Banking Day unless that day falls in
another calendar month, in which latter case the Contract Period shall end
instead on the next preceding Eurodollar Banking Day and (b) if any Contract
Period commences on a day for which there is no numerical equivalent in the
calendar month in which that Contract Period is to end, it shall end on the last
Eurodollar Banking Day of that calendar month; "Debt" means, collectively, all
obligations of the Person or Persons in question, including, without limitation,
every such obligation whether owing by one such Person alone or with one or more
other Persons in a joint, several, or joint and several capacity, whether now
owing or hereafter arising, whether owing absolutely or contingently, whether
created by lease, loan, overdraft, guaranty of payment, or other contract, or by
quasi-contract, tort, statute, other operation of law, or otherwise; "Eurodollar
Banking Day" means any Banking Day on which banks in the London Interbank Market
deal in United States dollar deposits and on which banking institutions are
generally open for domestic and international business at the place where Bank's
4
<PAGE>
banking office is located and in New York City; "LIBOR" means, with respect to a
Unit, the rate per annum (rounded upwards, if necessary, to the next higher 1/16
of 1%) determined by Bank by dividing (a) the rate per annum determined by Bank
to equal the average rate per annum at which deposits (denominated in United
States dollars) in an amount similar to that Unit and with a maturity similar to
the Contract Period for that Unit are offered to Bank at 11:00 A.M. London time
(or as soon thereafter as practicable) two (2) Eurodollar Banking Days prior to
the first day of that Contract Period by banking institutions in any Eurodollar
market selected by Bank by (b) the difference of one (1) less the Reserve
Percentage; "LIBOR Unit" means a Unit for which the Contract Rate is based on
LIBOR; "Maturity" means, when used with reference to any Subject Loan, the date
(whether occurring by lapse of time, acceleration, or otherwise) upon which that
Subject Loan is due; "Note" means this promissory note (including, without
limitation, each addendum, allonge, or amendment, if any, hereto); "Obligor"
means Borrower; "Person" means any authorized officer of Borrower as set forth
from time to time in Borrower's Certified Corporate Resolutions with Bank;
"Prime Rate" means the fluctuating rate per annum which is publicly announced
from time to time by Bank as being its so-called "prime rate" or "base rate"
thereafter in effect, with each change in the Prime Rate automatically,
immediately, and without notice changing the Prime Rate thereafter applicable
hereunder, it being acknowledged that the Prime Rate is not necessarily the
lowest rate of interest then available from Bank on fluctuating-rate loans;
"Prime Rate Unit" means, at any time, the then aggregate unpaid principal
balance of the Subject Loans for which the Contract Rate is based on the Prime
Rate; "Proceeding" means any assignment for the benefit of creditors, any case
in bankruptcy, any marshalling of any Obligor's assets for the benefit of
creditors, any moratorium on the payment of debts, or any proceeding under any
law relating to conservatorship, insolvency, liquidation, receivership,
trusteeship, or any similar event, condition, or other thing; "Reinvestment
Rate" means, when used with respect to any period, a per annum rate of interest
equal to the "bond equivalent yield" for the most actively traded issues of
U.S. Treasury Bills, U. S. Treasury Notes, or U. S. Treasury Bonds for a term
similar to the period in question; "Related Writing" means this Note and any
indenture, note, guaranty, assignment, mortgage, security agreement,
subordination agreement, notice, financial statement, legal opinion,
certificate, or other writing of any kind pursuant to which all or any part of
the Bank Debt of Borrower is issued, which evidences or secures all or any part
of the Bank Debt of Borrower, which governs the relative rights and priorities
of Bank and one or more other Persons to payments made by, or the property of,
any Obligor, which is delivered to Bank pursuant to another such writing, or
which is otherwise delivered to Bank by or on behalf of any Person (or any
employee, officer, auditor, counsel, or agent of any Person) in respect of or in
connection with all or any part of the Bank Debt of Borrower; "Reporting Person"
means each Obligor and each member of any "Reporting Group" as defined in any
addendum to this Note; "Reserve Percentage" means the percentage (expressed as a
decimal) which Bank determines to be the maximum (but in any case less than
1.00) reserve requirement (including, without limitation, any emergency,
marginal, special, or supplemental reserve requirement) prescribed for so-called
"Eurocurrency liabilities" (or any other category of liabilities that includes
deposits by reference to which the interest rate applicable to LIBOR Units is
determined) under Regulation D (as amended from time to time) of the Board of
Governors of the Federal Reserve System or under any successor regulation which
Bank determines to be applicable, with each change in such maximum reserve
requirement automatically, immediately, and without notice changing the interest
rate thereafter applicable to each LIBOR Unit, it being agreed that LIBOR Units
5
<PAGE>
shall be deemed Eurocurrency liabilities subject to such reserve requirements
without the benefit of any credit for proration, exceptions, or offsets; "Unit"
means the aggregate unpaid principal balance of this Note or any part of that
balance; and the foregoing definitions shall be applicable to the respective
plurals of the foregoing defined terms.
10. Events of Default. It shall be an "Event of Default" if (a) all or any part
of the Bank Debt of any Obligor shall not be paid in full promptly when due
(whether by lapse of time, acceleration, or otherwise); (b) any representation,
warranty, or other statement made by any Person (other than Bank) in any Related
Writing shall be untrue or incomplete in any respect when made; (c) any Person
(other than Bank) shall repudiate or shall fail or omit to perform or observe
any agreement contained in this Note or in any other Related Writing that is on
that Person's part to be complied with; (d) any indebtedness (other than any
evidenced by this Note) of any Obligor shall not be paid when due, or there
shall occur any event, condition, or other thing which gives (or which with the
lapse of any applicable grace period, the giving of notice, or both would give)
any creditor the right to accelerate or which automatically accelerates the
maturity of any such indebtedness; (e) Bank shall not receive (in addition to
any information described in any addendum to this Note) without expense to Bank,
(i) forthwith upon each request of Bank made upon Borrower therefor, (A) such
information in writing regarding each Reporting Person's financial condition,
properties, business operations, if any, and pension plans, if any, prepared, in
the case of financial information, in accordance with generally accepted
accounting principles consistently applied and otherwise in form and detail
satisfactory to Bank or (B) written permission, in form and substance
satisfactory to Bank, from each Reporting Person to inspect (or to have
inspected by one or more Persons selected by Bank) the properties and records of
that Reporting Person and to make copies and extracts from those records or
(ii) prompt written notice whenever Borrower (or any director, employee,
officer, or agent of Borrower) knows or has reason to know that any Event of
Default has occurred; (f) any judgment shall be entered against any Obligor in
any judicial or administrative tribunal or before any arbitrator or mediator;
(g) any Obligor shall fail or omit to comply with any applicable law, rule,
regulation, or order in any material respect; (h) any proceeds of any Subject
Loan shall be used for any purpose that is not in the ordinary course of
Borrower's business; (i) any property in which any Obligor now has or hereafter
acquires any rights or which now or hereafter secures any Bank Debt shall be or
become encumbered by any mortgage, security interest, or other lien, except any
mortgage, security interest, or other lien consented to by Bank; (j) any Obligor
shall at any time or over any period of time sell, lease, or otherwise dispose
of all or any material part of that Obligor's assets, except for inventory sold
in the ordinary course of business and other assets sold, leased, or otherwise
disposed of with the consent of Bank; (k) any Obligor shall cease to exist or
shall be dissolved, become legally incapacitated, or die; (l) any Proceeding
shall be commenced with respect to any Obligor; (m) there shall occur or
commence to exist any event, condition, or other thing that constitutes an
"Event of Default" as defined in any addendum to this Note; (n) there shall
occur any event, condition, or other thing that has, or, in Bank's judgment, is
likely to have, a material adverse effect on the financial condition,
properties, or business operations of any Obligor or on Bank's ability to
enforce or exercise any agreement or right arising under, out of, or in
connection with any Related Writing; or (o) the holder of this Note shall, in
good faith, believe that the prospect of payment or performance of any
obligation evidenced by this Note is impaired.
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<PAGE>
11. Effects of Default. If any Event of Default (other than the commencement of
any Proceeding with respect to Borrower) shall occur, then, and in each such
case, notwithstanding any provision or inference to the contrary, Bank shall
have the right in its discretion, by giving written notice to Borrower, to
(a) immediately terminate the Subject Commitment (if not already terminated or
reduced to zero) and (b) declare each Subject Loan (if not already due) to be
due, whereupon each Subject Loan shall immediately become due and payable in
full. If any Proceeding shall be commenced with respect to Borrower, then,
notwithstanding any provision or inference to the contrary, automatically,
without presentment, protest, or notice of dishonor, all of which are waived by
all makers and all indorsers of this Note, now or hereafter existing, (i) the
Subject Commitment shall immediately terminate (if not already terminated or
reduced to zero) and (ii) each Subject Loan (if not already due) shall
immediately become due and payable in full.
12. Late Charges. If any principal of or interest on any Subject Loan is not
paid within ten (10) days after its due date, then, and in each such case, Bank
shall have the right to assess a late charge, payable by Borrower on demand, in
an amount equal to the greater of twenty dollars ($20.00) or five percent (5%)
of the amount not timely paid.
13. No Setoff. Borrower hereby waives any and all now existing or hereafter
arising rights to recoup or offset any obligation of Borrower under or in
connection with this Note or any Related Writing against any claim or right of
Borrower against Bank.
14. Indemnity: Governmental Costs. If (a) there shall be enacted any law
(including, without limitation, any change in any law or in its interpretation
or administration and any request by any governmental authority) relating to any
interest rate or any assessment, reserve, or special deposit requirement (except
if and to the extent utilized in computation of the Reserve Percentage) against
assets held by, deposits in, or loans by Bank or to any tax (other than any tax
on Bank's overall net income) and (b) in Bank's sole opinion any such event
increases the cost of funding or maintaining any LIBOR Unit or reduces the
amount of any payment to be made to Bank in respect thereof, then, and in each
such case, upon Bank's demand, Borrower shall pay Bank an amount equal to each
such cost increase or reduced payment, as the case may be. In determining any
such amount, Bank may use reasonable averaging and attribution methods. Each
determination by Bank shall be conclusive absent manifest error.
15. Indemnity: Capital Adequacy. If (a) at any time any governmental authority
shall require National City Corporation, a Delaware corporation, its successors
or assigns, or Bank, whether or not the requirement has the force of law, to
maintain, as support for the Subject Commitment, capital in a specified minimum
amount that either is not required or is greater than that required at the date
of this Note, whether the requirement is implemented pursuant to the "risk-based
capital guidelines" (published at 12 CFR 3 in respect of "national banking
associations", 12 CFR 208 in respect of "state member banks", and 12 CFR 225 in
respect of "bank holding companies") or otherwise, and (b) as a result thereof
the rate of return on capital of National City Corporation, its successors or
assigns, or Bank or both (taking into account their then policies as to capital
adequacy and assuming full utilization of their capital) shall be directly or
indirectly reduced by reason of any new or added capital thereby attributable to
the Subject Commitment; then, and in each such case, Borrower shall, on Bank's
demand, pay Bank as an additional fee such amounts as will in Bank's reasonable
7
<PAGE>
opinion reimburse National City Corporation, its successors and assigns, and
Bank for any such reduced rate of return. In determining the amount of any such
fee, Bank may use reasonable averaging and attribution methods. Each
determination by Bank shall be conclusive absent manifest error.
16. Indemnity: Administration and Enforcement. Borrower will reimburse Bank, on
Bank's demand from time to time, for any and all fees, costs, and expenses
(including, without limitation, the fees and disbursements of legal counsel)
incurred by Bank in administering this Note or in protecting, enforcing, or
attempting to protect or enforce its rights under this Note. If any amount
(other than any principal of any Subject Loan and any interest and late charges)
owing under this Note is not paid when due, then, and in each such case,
Borrower shall pay, on Bank's demand, interest on that amount from the due date
thereof until paid in full at a fluctuating rate equal to four percent (4%) per
annum plus the Prime Rate.
17. Waivers; Remedies; Application of Payments. Bank may from time to time in
its discretion grant waivers and consents in respect of this Note or any other
Related Writing or assent to amendments thereof, but no such waiver, consent, or
amendment shall be binding upon Bank unless set forth in a writing (which
writing shall be narrowly construed) signed by Bank . No course of dealing in
respect of, nor any omission or delay in the exercise of, any right, power, or
privilege by Bank shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any further or other exercise thereof or of
any other, as each such right, power, or privilege may be exercised either
independently or concurrently with others and as often and in such order as Bank
may deem expedient. Without limiting the generality of the foregoing, neither
Bank's acceptance of one or more late payments or charges nor Bank's acceptance
of interest on overdue amounts at the respective rates applicable thereto shall
constitute a waiver of any right of Bank. Each right, power, or privilege
specified or referred to in this Note is in addition to and not in limitation of
any other rights, powers, and privileges that Bank may otherwise have or acquire
by operation of law, by other contract, or otherwise. Bank shall be entitled to
equitable remedies with respect to each breach or anticipatory repudiation of
any provision of this Note, and Borrower hereby waives any defense which might
be asserted to bar any such equitable remedy. Bank shall have the right to apply
payments in respect of the indebtedness evidenced by this Note with such
allocation to the respective parts thereof and the respective due dates thereof
as Bank in its sole discretion may from time to time deem advisable.
18. Other Provisions. The provisions of this Note shall bind Borrower and
Borrower's successors and assigns and benefit Bank and its successors and
assigns, including each subsequent holder, if any, of this Note, provided, that
no Person other than Borrower may obtain Subject Loans; provided further, that
neither any such holder of this Note nor any assignee of any Subject Loan,
whether in whole or in part, shall thereby become obligated to grant Borrower
any Subject Loan. Except for Borrower and Bank and their respective successors
and assigns, there are no intended beneficiaries of this Note or the Subject
Commitment. The provisions of sections 12 through 22, both inclusive, shall
survive the payment in full of the principal of and interest on this Note. The
captions to the sections and subsections of this Note are inserted for
convenience only and shall be ignored in interpreting the provisions thereof.
Each reference to a section includes a reference to all subsections thereof
(i.e., those having the same character or characters to the left of the decimal
8
<PAGE>
point) except where the context clearly does not so permit. If any provision in
this Note shall be or become illegal or unenforceable in any case, then that
provision shall be deemed modified in that case so as to be legal and
enforceable to the maximum extent permitted by law while most nearly preserving
its original intent, and in any case the illegality or unenforceability of that
provision shall affect neither that provision in any other case nor any other
provision. All fees, interest, and premiums for any given period shall accrue on
the first day thereof but not on the last day thereof (unless the last day is
the first day) and in each case shall be computed on the basis of a 360-day year
and the actual number of days in the period. In no event shall interest accrue
at a higher rate than the maximum rate, if any, permitted by law. Bank shall
have the right to furnish to its Affiliates, and to such other Persons as Bank
shall deem advisable for the conduct of its business, information concerning the
business, financial condition, and property of Borrower, the amount of the Bank
Debt of Borrower, and the terms, conditions, and other provisions applicable to
the respective parts thereof. This Note shall be governed by the law (excluding
conflict of laws rules) of the jurisdiction in which Bank's banking office is
located.
19. Integration. This Note and, to the extent consistent with this Note, the
other Related Writings, set forth the entire agreement of Borrower and Bank as
to the subject matter of this Note, and may not be contradicted by evidence of
any agreement or statement unless made in a writing (which writing shall be
narrowly construed) signed by Bank contemporaneously with or after the execution
and delivery of this Note. Without limiting the generality of the foregoing,
Borrower hereby acknowledges that Bank has not based, conditioned, or offered to
base or condition the credit hereby evidenced or any charges, fees, interest
rates, or premiums applicable thereto upon Borrower's agreement to obtain any
other credit, property, or service other than any loan, discount, deposit, or
trust service from Bank.
20. Notices and Other Communications. Each notice, demand, or other
communication, whether or not received, shall be deemed to have been given to
Borrower whenever Bank shall have mailed a writing to that effect by certified
or registered mail to Borrower at Borrower's mailing address (or any other
address of which Borrower shall have given Bank notice after the execution and
delivery of this Note); however, no other method of giving actual notice to
Borrower is hereby precluded. Borrower hereby irrevocably accepts Borrower's
appointment as each Obligor's agent for the purpose of receiving any notice,
demand, or other communication to be given by Bank to each such Obligor pursuant
to any Related Writing. Each communication to be given to Bank shall be in
writing unless this Note expressly permits that communication to be made orally,
and in any case shall be given to Bank's Corporate Banking Group at Bank's
banking office (or any other address of which Bank shall have given notice to
Borrower after the execution and delivery this Note). Borrower hereby assumes
all risk arising out of or in connection with each oral communication given by
Borrower and each communication given or attempted by Borrower in contravention
of this section. Bank shall be entitled to rely on each communication believed
in good faith by Bank to be genuine.
21. Warrant of Attorney. Borrower hereby authorizes any attorney at law at any
time or times to appear in any state or federal court of record in the United
States of America after all or any part of the obligations evidenced by this
Note shall have become due, whether by lapse of time, acceleration, or
otherwise, and in each case to waive the issuance and service of process, to
9
<PAGE>
present to the court this Note and any other writing (if any) evidencing the
obligation or obligations in question, to admit the due date thereof and the
nonpayment thereof when due, to confess judgment against Borrower in favor of
Bank for the full amount then appearing due, together with interest and costs of
suit, and thereupon to release all errors and waive all rights of appeal and any
stay of execution. The foregoing warrant of attorney shall survive any judgment,
it being understood that should any judgment against Borrower be vacated for any
reason, Bank may nevertheless utilize the foregoing warrant of attorney in
thereafter obtaining one or more additional judgments against Borrower.
22. Jurisdiction and Venue; Waiver of Jury Trial. Any action, claim,
counterclaim, crossclaim, proceeding, or suit, whether at law or in equity,
whether sounding in tort, contract, or otherwise at any time arising under or in
connection with this Note or any other Related Writing, the administration,
enforcement, or negotiation of this Note or any other Related Writing, or the
performance of any obligation in respect of this Note or any other Related
Writing (each such action, claim, counterclaim, crossclaim, proceeding, or suit,
an "Action") may be brought in any federal or state court located in the city in
which Bank's banking office is located. Borrower hereby unconditionally submits
to the jurisdiction of any such court with respect to each such Action and
hereby waives any objection Borrower may now or hereafter have to the venue of
any such Action brought in any such court. Borrower HEREBY, AND EACH HOLDER OF
THIS Note, BY TAKING POSSESSION THEREOF, KNOWINGLY AND VOLUNTARILY WAIVES JURY
TRIAL IN RESPECT OF ANY Action.
10
<PAGE>
Borrower:
MIAMI COMPUTER SUPPLY INC.
(an Ohio corporation)
By: ___________________________________________
Printed Name: Albert L. Schwarz
Title: President
(complete only if required--) And By: _______________________________________
Printed Name: Thomas C. Winstel
Title: Vice President
DIVERSIFIED DATA PRODUCTS, INC.
(a Michigan corporation)
By: ________________________________________
Printed Name: Michael E. Peppel
Title: Secretary
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
11
<PAGE>
COMMERCIAL NOTE ADDENDUM (OHIO)
- ------------------------------------------------------------------
Amount City, State Date FOR BANK USE ONLY
---------------------------
$15,000,000.00 Dayton, Ohio Obligor #
- ------------------------------------------------------------------
Tax I. D. #
---------------------------
Obligation #
---------------------------
Office
---------------------------
This Commercial Note Addendum (this "Addendum") is made by MIAMI COMPUTER SUPPLY
INC., an Ohio corporation and DIVERSIFIED DATA PRODUCTS, INC., a Michigan
corporation (collectively the "Borrower"), at the place and as of the date first
set forth above.
Borrower has executed and delivered to National City Bank of Dayton ("Bank") a
promissory note dated September ____, 1996, in the face amount set forth above
and captioned Commercial Note: Revolving Credit/Prime/LIBOR (Ohio).
This Addendum is hereby made a part of the note described above and that note is
hereby supplemented by adding the following Events of Default thereto:
1. Information. It shall be an Event of Default if Bank shall not receive:
(a) as soon as available, and in any event within forty five (45) days after
each quarter-annual fiscal period of each of Borrower's fiscal years, the
Reporting Group's balance sheet as at the end of the period and the Reporting
Group's statements of cash flow, income, and surplus reconciliation for
Borrower's then current fiscal year to date, prepared for Borrower alone, and
on comparative basis with the prior year, in accordance with GAAP, and in
form and detail satisfactory to Bank, and
(b) as soon as available, and in any event within ninety (90) days after the
end of each of Borrower's fiscal years, a complete copy of an annual report
(including, without limitation, all financial statements therein and notes
thereto) of the Reporting Group for that year, (i) prepared in the manner
described in the next preceding clause (a), (ii) certified, without
qualification as to GAAP, as having been audited by independent certified
public accountants selected by Borrower and satisfactory to Bank, and
(iii) accompanied by a copy of any management report, letter, or similar
writing furnished to any member of the Reporting Group by those accountants.
(c) concurrently with each delivery of financial statements pursuant to
clause (a) or (b) of this section 1, a compliance certificate signed by
Borrower's chief financial officer (or other officer acceptable to Bank) and
otherwise in form and substance satisfactory to Bank (i) certifying that to
the best of that officer's knowledge and belief, (A) those financial
statements have been prepared in accordance with GAAP and fairly present in
all material respects the financial condition and results of operations of
the Reporting Group, if any, in accordance with GAAP subject, in the case of
interim financial statements, to routine year-end adjustments and (B) no
Event of Default then exists or if any does, a brief description of the Event
<PAGE>
of Default and Borrower's intentions in respect thereof and (ii) setting
forth calculations with respect to each subsection of section 2.
2. Financial Standards and Limitations or Advances. Each of the following shall
be an Event of Default:
2.1 Tangible Net Worth. If the Reporting Group's Tangible Net Worth
shall at any time be less than the required amount, initially two
million seven hundred thousand dollars ($2,700,000.00), increasing to
three million two hundred thousand dollars ($3,200,000.00) on December
31, 1996 which amount shall be permanently increased on the last day of
each of Borrower's fiscal years, commencing with December 31, 1997, by
an amount equal to at least fifty percent (50%) of Borrower's net
income.
2.2 Leverage. If the Reporting Group's aggregate Debt shall at any time
exceed an amount equal to four hundred fifty percent (450%) of the
Reporting Group's Tangible Net Worth.
2.3 Pre-Tax Interest Coverage. If, as of the last day of any Interest
Coverage Measurement Period, commencing with the Interest Coverage
Measurement Period ending on December 31, 1996, the aggregate of
(a) the Reporting Group's Net Income for that period, plus (b) the
Reporting Group's interest expense for that period, plus (c) the
Reporting Group's federal, state, and local income taxes, if any, for
that period shall be less than one hundred fifty percent (150%) of the
Reporting Group's interest expense for that period. Each "Interest
Coverage Measurement Period" shall be a fiscal year of Borrower.
2.4 Dividends.
Dividends Based on Percentage of Net Income. If (a) any member of the
Reporting Group shall make or commit itself to make any Dividend unless
(i) that Dividend is payable solely in cash, (ii) no Event of Default
is then existing or would thereupon occur, and (iii) after giving
effect to that Dividend, the aggregate of all Dividends (other than any
paid to one or more other members of the Reporting Group) paid by that
member during any fiscal year of that member would not exceed an amount
equal to fifty percent (50%) of the Net Income of that member for that
fiscal year to the date of that Dividend.
2.5 Limitation on Advances. If any member of the Reporting Group shall
use advances to acquire less than a majority interest in any company or
venture without first obtaining Bank's prior written consent thereto.
3. Mergers and Equity Investments. It shall be an Event of Default if any member
of the Reporting Group shall, without having first notified Bank in writing
prior thereto, (a) be a party to any merger or consolidation, (b) purchase or
2
<PAGE>
otherwise acquire all or substantially all of the assets and business of any
corporation or other business enterprise, (c) create, acquire, or have any
Subsidiary, or make or keep any investment in any stocks or other equity
securities of any kind, except any existing investment or Subsidiary fully
disclosed in the Most Recent Financial Statements or any future investment in
the stocks or other equity securities of any such Subsidiary, (d) be or become a
party to any joint venture or partnership, except any existing joint venture or
partnership fully disclosed in the Most Recent Financial Statements, (e) sell or
otherwise transfer any equity interest in any Subsidiary of that member to any
other person, except if and to the extent the sale or other transfer is required
under applicable law solely for the purpose of qualifying directors, or (f)
issue, if that member is a direct Subsidiary of any other member of the
Reporting Group, any equity interest, except if and to the extent the issuance
is to such other member or is required under applicable law solely for the
purpose of qualifying directors. With respect to provisions (a) and (b) of this
paragraph, Borrower shall, simultaneously with the written notice required
herein provide Bank with pro forma financial statements for the contemplated
transaction.
4. Credit Extensions and Non-Equity Investments. It shall be an Event of Default
if any member of the Reporting Group shall, without having first notified Bank
in writing, (a) make or have outstanding at any time any advance or loan to any
Person, except any existing advance or loan fully disclosed in the Most Recent
Financial Statements or any existing or future advance made by a member of the
Reporting Group to an officer or employee of that member solely for the purpose
of paying the ordinary and necessary business expenses of that member or (b)
make or keep any investment in any notes, bonds, or other obligations of any
kind for the payment of money, except any existing investment fully disclosed in
the Most Recent Financial Statements or any existing or future investment,
maturing not more than one (1) year from the date when made, in direct
obligations of the United States of America or any agency thereof if the full
faith and credit of the United States of America is obligated thereupon, in
certificates of deposit issued by Bank, or in any other obligation that carries
the highest quality rating of any nationally-recognized rating agency, or (c) be
or become a guarantor of any kind, except any existing guaranty fully disclosed
in the Most Recent Financial Statements or any existing or future indorsement of
a check or other medium of payment for deposit or collection, or any similar
transaction in the ordinary course of business.
5. Borrowings. Except with respect to Debt incurred under paragraphs 3(a), 3(b)
or 4(c) hereof, it shall be an Event of Default if any member of the Reporting
Group shall, without having first obtained Bank's consent, create, assume, or
have outstanding at any time any Debt, except any existing Debt fully disclosed
in the Most Recent Financial Statements, any existing or future Bank Debt, any
existing or future Subordinated Debt, or any existing or future Debt secured by
any mortgage, security interest, or other lien expressly consented to by Bank.
6. Definitions. As used in this Addendum, except where the context clearly
requires otherwise, "Compensation" includes all considerations (including
without limitation, deferred compensation and disbursements to trusts), whatever
the form or kind, for services rendered; "Dividend" means a payment made,
liability incurred, or other consideration given by any Person (other than any
3
<PAGE>
stock dividend or stock split payable solely in capital stock of that Person)
for the purchase, acquisition, redemption or retirement of any capital stock of
that Person or as a dividend, return of capital, or other distribution in
respect of that Person's capital stock; "GAAP" means generally accepted
accounting principles applied in a manner consistent with those used in
preparation of the Most Recent Financial Statements; "Most Recent Financial
Statements" means the financial statements included in the Reporting Group's
most recent annual report delivered to Bank on or before the date of this
Addendum; "Net Income" means net income as determined in accordance with GAAP,
after taxes, if any, and after extraordinary items, but without giving effect to
any gain resulting from any reappraisal or write-up of any asset; "Reporting
Group" means (I) Borrower alone, if all of the financial statements hereinbefore
selected are prepared for Borrower alone, in which case all determinations
referred to in section 2 shall be for Borrower alone and in accordance with
GAAP; (II) Borrower and each Subsidiary of Borrower, if any of the financial
statements hereinbefore selected are prepared on a consolidated basis, in which
case all determinations referred to in section 2 shall be on a consolidated
basis and in accordance with GAAP, and (III) Borrower and each other Person
whose assets, liabilities, income, cash flow, and shareholders' equity are
reported on a combined basis with those of Borrower, if any of the financial
statements hereinbefore selected are prepared on a combined basis, in which case
all determinations referred to in section 2 shall be on a combined basis and in
accordance with GAAP;. "Subordinated", as applied to any liability of any
Person, means a liability which at the time in question is subordinated (by a
writing in form and substance satisfactory to Bank) in favor of the prior
payment in full of that Person's Debt to Bank; "Subsidiary" means a corporation
or other business entity if shares constituting a majority of its outstanding
capital stock (or other form of ownership) or constituting a majority of the
voting power in any election of directors (or shares constituting both
majorities) are (or upon the exercise of any outstanding warrants, options or
other rights would be) owned directly or indirectly at the time in question by
the corporation in question or another Subsidiary of that corporation or any
combination of the foregoing; "Tangible Net Worth" means, as to any Person, the
excess (as determined in accordance with GAAP) of the net book value (after
deducting all applicable valuation reserves and without any consideration to any
re-appraisal or write-up of assets) of that Person's tangible assets (i.e., all
assets other than intangibles such as patents, costs of businesses over net
assets acquired, good will, and treasury shares) over that Person's Debt; and
the foregoing definitions shall be applicable to the respective plurals of the
foregoing defined terms. Any accounting term used in Addendum shall have the
meaning ascribed thereto by GAAP as in effect on the date hereof, subject,
however, to such modification, if any, as may be provided in this Addendum or in
the note hereby supplemented.
4
<PAGE>
Borrower:
MIAMI COMPUTER SUPPLY INC.
(an Ohio corporation)
By: ___________________________________________
Printed Name: Albert L. Schwarz
Title: President
(complete only if
required--)
And By: _______________________________________
Printed Name: Thomas C. Winstel
Title: Vice President
DIVERSIFIED DATA PRODUCTS, INC.
(a Michigan corporation)
By: ________________________________________
Printed Name: Michael E. Peppel
Title: Secretary
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
5
<PAGE>
COMMERCIAL NOTE: BORROWING BASE ADDENDUM (OHIO)
----------------------------------------------------------------------------
Amount City, State Date FOR BANK USE ONLY
-------------------
$15,000,000.00 Dayton, Ohio September ____,1996 Obligor #
----------------------------------------------------------------------------
Tax I. D. #
-------------------
Obligation #
-------------------
Office
-------------------
This Borrowing Base Addendum (this "Addendum") is made by MIAMI COMPUTER SUPPLY
INC., an Ohio corporation and DIVERSIFIED DATA PRODUCTS, INC., a Michigan
corporation ("Borrower"), at the place and as of the date first set forth above.
Borrower has executed and delivered to National City Bank of Dayton ("Bank") a
promissory note (the "Note") dated September____, 1996, in the face amount set
forth above and captioned Commercial Note: Revolving Credit/Prime/Libor (Ohio).
This Addendum is hereby made a part of the Note and the Note is hereby
supplemented by adding the following provisions thereto:
Additional Conditions: Subject Loans. Borrower shall not be entitled to obtain
any Subject Loan if, after giving effect to that Subject Loan and all others for
which requests are then pending, the aggregate unpaid principal balance of the
Subject Loans would exceed the lesser of either the then amount of the Subject
Commitment or an amount (the "Borrowing Base") equal to the sum of
(i) an amount equal to eighty five percent (85%) of the then net book
value (after deducting any discount or other incentive for early
payment but without deducting any bad debt reserve) of all Eligible
Receivables, plus
(ii) an amount equal to the lesser of either fifty percent (50%) of the
then value (determined at the lower of cost or market on a first-in,
first-out basis) of all Eligible Inventory not to exceed 45% of the
aggregate unpaid principal balance, or, if advancing against foreign
account receivables as defined on Borrower's monthly borrowing base
certificate, not to exceed two million dollars ($2,000,000.00),
all as determined in good faith by Bank on Bank's receipt of each month-end
Borrowing Base Report and at such other times as Bank in its sole discretion
shall deem advisable, on the basis, in Bank's sole discretion, of the then most
recent Borrowing Base Report received by Bank, or the then most recent field
audit (if any) made by Bank (or one or more Persons selected by Bank) or any
other information obtained by Bank. Bank shall have the right in its sole
discretion, at any time and from time to time, to change either or both of the
foregoing percentages by giving Borrower not less than ten (10) days prior
written notice of the percentage or percentages as so changed and the effective
date of the change.
<PAGE>
Mandatory Prepayment. Borrower shall prepay the principal of the Subject Loans
whenever Bank determines in good faith that the aggregate unpaid principal
balance of the Subject Loans exceeds the Borrowing Base, by an amount equal to
the excess.
Additional Event of Default. It shall be an Event of Default if Bank shall not
receive a Borrowing Base Report upon each request of Bank therefor and, in any
case, within twenty (20) days after the end of each calendar month.
6. Definitions. As used in this Addendum, except where the context clearly
requires otherwise, "Account" means any right to payment for goods sold or
leased or for services rendered which is not evidenced by an Instrument or
Chattel Paper, whether or not it has been earned by performance, and includes,
without limitation, all rights to payment earned or unearned under a charter or
other contract involving the use or hire of a vessel and all rights incident to
the charter or contract; "Account Debtor" means any person who, or any of whose
property, shall at the time in question be obligated in respect of all or any
part of a Receivable or any part thereof and includes, without limitation,
co-makers, indorsers, guarantors, pledgors, hypothecators, mortgagors, and any
other person who agrees, conditionally or otherwise, to make any loan to,
purchase from, or investment in, any other Account Debtor or otherwise assure
Borrower against loss on any Receivable in which Borrower now has or hereafter
acquires any rights; "Borrowing Base Report" means a report, certified by an
appropriate officer of Borrower to be true and complete to the best of the
officer's knowledge and belief, setting forth the Borrowing Base as of the date
on which that report is prepared, and otherwise being in form and detail
satisfactory to Bank; "Chattel Paper" means a writing or writings (other than a
charter or other contract involving the use or hire of a vessel) which evidence
both a monetary obligation and a security interest in or a lease of specific
goods, and, when a transaction is evidenced both by such a security agreement or
lease and by an Instrument or series of Instruments, the group of writings taken
together constitutes Chattel Paper; "Document" means (a) a document that
purports to be issued by or addressed to a bailee and that purports to cover
goods that are in the bailee's possession that are either identified or fungible
portions of an identified mass, and includes a bill of lading, dock warrant,
dock receipt, warehouse receipt, or order for the delivery of goods, and any
other document that in the regular course of business or financing is treated as
adequately evidencing that the person in possession of it is entitled to
receive, hold, and dispose of the document and the goods it covers or (b) a
receipt issued by the owner of goods including distilled spirits or agricultural
commodities that are stored under a statute requiring a bond against withdrawal
or a license for the issuance of receipts in the nature of a warehouse receipt;
"Eligible Receivable" means those aged less than ninety (90) days, except all of
Borrower's receivables from customer are ineligible if fifteen percent (15%) of
the total due Borrower from that customer is aged (90) days or more;
"Instrument" means a negotiable instrument, or a certificated security, or any
other writing which evidences a right to the payment of money and is not itself
a security agreement or lease and is of a type which is in the ordinary course
of business transferred by delivery with any necessary indorsement or
assignment; "Proceeds" means whatever is received or receivable upon sale,
exchange, collection, or other disposition of any property or Proceeds, whether
directly or indirectly, and includes, without limitation, the proceeds of any
casualty, liability, or title insurance relating to any such property and any
2
<PAGE>
goods or other property returned after any such sale, exchange, collection, or
other disposition; "Products" means property directly or indirectly resulting
from any manufacturing, processing, assembling, or commingling of any goods;
"Equipment" means goods that (a) are used or bought for use primarily in
business, including, without limitation, farming or a profession, or by a person
who is a non-profit organization or a governmental subdivision or agency or
(b) are not Inventory, farm products, or consumer goods but does not include
equipment provided or manufactured by Hewlett-Packard Company; "Eligible
Inventory" means finished goods only excluding; however, the greater of
(i) Borrower's Hewlett-Packard accounts payable; or (ii) Hewlett-Packard
inventory. "Inventory" means goods that are held by a person who holds them for
sale or lease or to be furnished under contracts of service or if that person
has so furnished them, or if they are raw materials, work in process, or
materials used or consumed in a business, except that Inventory does not include
Equipment and does not include inventory provided or manufactured by
Hewlett-Packard Company; and the foregoing definitions shall be applicable to
the respective plurals of the foregoing defined terms.
3
<PAGE>
Borrower:
MIAMI COMPUTER SUPPLY INC.
(an Ohio corporation)
By: ___________________________________________
Printed Name: Albert L. Schwarz
Title: President
(complete only if
required --) And By: ________________________________________
Printed Name: Thomas C. Winstel
Title: Vice President
DIVERSIFIED DATA PRODUCTS, INC.
(a Michigan corporation)
By: ________________________________________
Printed Name: Michael E. Peppel
Title: Secretary
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
4
<PAGE>
SECURITY AGREEMENT
ALL PERSONAL PROPERTY AND FIXTURES
BORROWER GRANTOR
This Security Agreement ("Agreement") is executed and delivered at Dayton,
Ohio as of this ________ day of September , 1996 by Diversified Data Products,
Inc. ("Grantor"), whose mailing address is 4177 - B VARSITY DRIVE, ANN ARBOR, MI
48108, to NATIONAL CITY BANK OF DAYTON ("Bank"), a national banking association
having its office at 6 N. MAIN ST., DAYTON, OHIO 45412-2790.
1. Grant of Interest. To secure the prompt payment in full of the Debt as
and when the respective parts thereof become due, whether by lapse of time, by
acceleration of maturity, or otherwise, Grantor hereby grants Bank a security
interest in the Collateral. As to Collateral not now in existence or in which
Grantor does not presently have any rights, Bank's security interest shall
automatically attach thereto immediately when the same comes into existence and
Grantor acquires any ownership rights therein, in each case without the making
or doing of any further or other act of thing. "Collateral" means, collectively,
all Inventory, all Accounts, all Chattel Paper, all Documents, all Equipment,
including, without limitation, any Equipment described in Exhibit A (the
"Supplemental Schedule" (except that Inventory and Equipment shall not include
inventory or equipment that is manufactured by or provided by Hewlett-Packard
Company)), if any, to this Agreement, all fixtures, including, without
limitation, any fixtures described in the Supplemental Schedule, if any, all
General Intangibles, all Instruments, all Receivables, and all Uncertified
Securities in which Grantor now has or hereafter acquires any ownership rights,
and all replacements and substitutions therefor and additions and accessions
thereto, all property (except any consumer goods), tangible or intangible, in
which Grantor now has or hereafter acquires any ownership rights and which now
or hereafter is in Bank's control (by document of title or otherwise) or
possession or is owed by Bank to Grantor, including, without limitation, the
cash collateral account described in subsection 6.5, replacements and
substitutions for, and all additions and accessions to, all or any part of the
property hereinbefore described, all Products of all or any part of the goods
hereinbefore described, and all Proceeds of all or any part of the property,
including, without limitation, Products, hereinbefore described.
2. Definitions. This Security Agreement relates to, is subject to the terms
and conditions of, and shall be governed by that certain Commercial Note:
Revolving Credit/Prime/Libor (Ohio) (the "Note"), Commercial Note Addendum
(Ohio) (the "Addendum") and Commercial Note: Borrowing Base Addendum (Ohio) (the
"Base Addendum") by and among Miami Computer Supply, Inc. ("Borrower"), Grantor
and Bank of even date herewith. Terms defined herein shall have the same
definitions as are ascribed to them in the Note, the Addendum or the Base
Addendum, as appropriate, and any conflict of the terms, conditions or
definitions between the Note, the Addendum, the Base Addendum or this Agreement
shall be governed by the Note. As used in this Agreement, except where the
context clearly requires otherwise, "General Intangible" means any personal
property, including things in action, other than goods, Accounts, Chattel Paper,
Documents, Instruments, and money; "Receivable" means any claim for or right to
payment, however arising, whether classified as an Account, a General
Intangible, or otherwise,
<PAGE>
Security Agreement
Page 2
whether contingent or fixed, whether or not evidenced by any writing, and, if so
evidenced, whether evidenced by Chattel Paper, one or more Instruments, or
otherwise; "Subject Debt" means, collectively, all Bank Debt created or incurred
by Grantor; "Uncertificated Security" means a share, participation, or other
interest in the property or the enterprise of the issuer or an obligation of the
issuer which is (a) not represented by an instrument and the transfer of which
is registered upon books maintained for that purpose by or on behalf of the
issuer, (b) of a type commonly dealt in on securities exchanges or markets, and
(c) either one of a class or series or by its terms divisible into a class or
series of shares, participations, interests, or obligations; and the foregoing
definitions shall be applicable to the respective plurals of the foregoing
defined terms.
3. Representations and Warranties. Grantor represents and warrants to Bank
as follows:
3.1 Existence. Grantor is a corporation organized and in good standing
under Michigan law.
3.2 Taxpayer Identification and Legal Name. Grantor's social security
or federal taxpayer identification number is 38-2834713. Except as set forth in
the Supplemental Schedule, if any, Grantor is not known among creditors by, and
does not use or do business under, any name other than the name of Grantor first
set forth above.
3.3 Authority. Each Person, if any, executing and delivering this
Agreement on behalf of Grantor or any other Person has been duly authorized to
do so, and this Agreement is valid and enforceable against Grantor in accordance
with its terms.
3.4 Location of Chief Executive Office and Collateral. Grantor's chief
executive office is located at 4177-B Varsity Drive, Ann Arbor, Michigan 48108.
Grantor keeps all of Grantor's records relating to the Collateral at Grantor's
chief executive office. All goods in which Grantor has any rights are kept at
Grantor's chief executive office, at the other locations, if any, described in
the Supplemental Schedule, if any, to this Agreement, and, with respect to
certain goods, at such other locations to which Grantor is entitled to move
those goods pursuant to subsection 5.1.
3.5 Ownership. Grantor owns all of the Collateral described in the most
recent financial statements furnished by Grantor to Bank or in which Grantor has
thereafter acquired any rights absolutely free from any assignment, attachment,
lease, license, mortgage, security interest, or other lien, and free from any
other claim, right, or interest of any kind, except for any in favor of or
consented to by Bank. No assignment, financing statement, or other writing
(except any evidencing any lien or interest expressly permitted by this
Agreement) describing the Collateral or any part thereof is on file in any
public office.
<PAGE>
Security Agreement
Page 3
4. General Provisions Applicable to All Collateral. The provisions of this
section 4 shall apply with respect to all types of Collateral:
4.1 Further Assistance. Grantor will, at Grantor's expense, make and do all
such acts and things (including, without limitation, the delivery to Bank of any
Chattel Paper, Document, Instrument, or other writing of any kind the possession
of which perfects a security interest therein) as Bank may from time to time
require for the better evidencing, perfection, protection, or validation of, or
realization of the benefits of, its security interest. Without limiting the
generality of the foregoing, Grantor will, at Grantor's expense, upon each
request of Bank, (a) sign and file or permit Bank to file such financing
statements and other writings as Bank may from time to time require and in such
public offices as Bank may from time to time require, (b) comply with every
other requirement deemed necessary by Bank for the perfection of its security
interest, (c) execute and deliver such affidavits, assignments, financing
statements, indorsements of specific items of Collateral, mortgages, powers of
attorney, security agreements, and other writings, as Bank may from time to time
require, each in form and substance satisfactory to Bank, and (d) cause all
applicable certificates of title (in the case of any motor vehicle or other
chattels in which Bank has been granted a security interest pursuant to this
Agreement and which is subject to any certificate of title law) to be duly noted
with Bank's security interest and to be deposited with Bank. Without diminishing
or impairing any obligation of Grantor under this Agreement, a carbon,
photographic, or other reproduction of this Agreement shall be sufficient as a
financing statement.
4.2 Notice. Grantor will give Bank
(a) not less than seven (7) days' prior written notice of any change in
Grantor's name, in the location of its chief executive office or in the
location at which it keeps any records relating to the Collateral or any
part thereof, or of any other change in circumstances which affects or may
affect the continuing efficacy of any financing statement filed in respect
of Bank's security interest or the continuing status of Bank's security
interest as the first priority lien on the Collateral or any part thereof,
(b) immediate written notice whenever any person other than Grantor or Bank
claims any lien or other right or interest of any kind in any of the
Collateral, and
(c) immediate written notice whenever Grantor acquires rights in any
Collateral that is subject to (i) a treaty or statute of the United States
which provides for national or international registration or a national or
international certificate of title or which specifies a place of filing
different from that specified in the Uniform Commercial Code as in effect
on the date hereof in the jurisdiction in which Bank's banking office
<PAGE>
Security Agreement
Page 4
is located or (ii) a certificate of title statute of another jurisdiction
under the law of which indication of a security interest is required as a
condition of perfection.
4.3 Records. Grantor will at all times keep accurate and complete records
of the Collateral. Bank (or one or more persons selected by Bank who are
reasonably acceptable to Grantor) shall have the right at all reasonable times
to examine, inspect, and make extracts from Grantor's books and records and to
examine, appraise, and protect the Collateral.
4.4 Dispositions and Encumbrances. Grantor will not, without in each case
obtaining Bank's consent,
(a) sell or otherwise dispose of any Collateral or any interest therein,
except in the ordinary course of Grantor's business or if and to the extent
that the sale or other disposition is expressly permitted by this Agreement
or
(b) suffer or permit any Collateral (i) to be or become subject to any
assignment, lease, license, attachment, mortgage, security interest, or
other lien, or any other claim right, or interest of any kind, except for
any in favor of or consented to by Bank or (ii) to be described in any
mortgage, financing statement, or other writing, except any evidencing any
lien or interest expressly permitted by this Agreement.
5. Special Provisions Applicable to Goods. The provisions of this section 5
shall apply with respect to all goods in which Bank has been granted a security
interest pursuant to this Agreement:
5.1 Movement and Attachment to Real Property. Grantor will not suffer or
permit any goods in which Bank has been granted a security interest
pursuant to this Agreement to be moved from Grantor's chief executive
office or the locations, if any, described in the Supplemental Schedule, if
any, to this Agreement, as the location of the goods in question on the
date hereof, except if and to the extent that the goods are either
Inventory being shipped to or from Grantor in the ordinary course of
business or are mobile goods which are of a type normally used in more than
one jurisdiction and are in fact so used by Grantor in the ordinary course
of business. Grantor will not under any circumstance suffer or permit any
goods in which Bank has been so granted a security interest to be or become
a fixture without Bank's consent.
5.2 Maintenance of Goods, Taxes and Preservation Costs. Grantor will
maintain in good condition all goods in which Bank has been granted a
security interest pursuant to this Agreement, and will pay promptly all
assessments, levies, taxes, and other charges pertaining thereto, and all
repair, maintenance, and preservation costs in
<PAGE>
Security Agreement
Page 5
respect thereof. If Grantor does not do so, then, and in each such case,
Bank shall have the right, at its option, to pay the same, and Grantor
will, on Bank's demand, reimburse Bank for all amounts Bank so pays.
5.3 Insurance. Grantor will at all times keep all goods in which Bank has
been granted as security interest insured under so-called "cause of loss
special form" policies of insurance issued by such companies and in such
amounts (but in no case less than the greater of the full replacement value
thereof or the amount necessary to prevent the operation of any applicable
coinsurance provision) as shall be acceptable to Bank. Any determination by
Bank regarding the acceptability of the issuer or the amount of any
insurance policy shall be deemed to have been made without any
representation or warranty of any kind, Grantor hereby assuming the burden
of ensuring that each such issuer and each such amount is adequate for the
protection of Grantor and the Bank. Grantor will cause each policy of
Insurance covering any goods in which Bank has been granted a security
interest pursuant to this Agreement to (a) require the insurer to give Bank
written notice not less than thirty (30) days prior to any cancellation,
expiration, modification, or non-renewal of the policy, (b) have attached
thereto (i) a lender's loss payable endorsement in favor of Bank, entitling
Bank to collect any and all proceeds payable under the policy and providing
in effect that the rights and interests of Bank thereunder are independent
of, and shall not be diminished or impaired by, any action, inaction, or
breach of condition on the part of Grantor and (ii) a waiver of subrogation
endorsement, and (c) be otherwise in form and substance satisfactory to
Bank. Grantor will seasonably pay all premiums for the foregoing policies
of insurance and will cause the issuer of each such policy to deliver an
original counterpart thereof directly to Bank. Grantor hereby assigns to
Bank any returned or unearned premiums due upon cancellation of any such
insurance and directs insurer to pay to Bank all amounts so due. All or any
portion of amounts received by Bank in payment of insurance losses or
returned or unearned premiums may, at Bank's option, be applied to the
Subject Debt (with such allocation to the respective parts thereof and the
respective due dates thereof as Bank in its sole discretion may from time
to time deem advisable) or to the repair, replacement, or restoration of
the goods insured. Grantor hereby irrevocably appoints Bank as Grantor's
attorney-in-fact to adjust all insurance losses, to sign all applications,
receipts, releases, and other writings necessary to collect any such loss
and any returned or unearned premiums, to execute proofs of loss, to make
settlements, to indorse and collect any check or other item payable to
Grantor issued in connection therewith, and to apply the same to payment of
the Subject Debt as hereinbefore provided. If Grantor does not maintain
insurance pursuant to this subsection, then, and in each such case, Bank
shall have the right to obtain such insurance or obtain insurance covering
only Bank's interest, and, if Bank elects to do either, Grantor will, on
Bank's demand, reimburse Bank for all amounts Bank expends in doing so.
<PAGE>
Security Agreement
Page 6
5.4 Acquisition and Disposition of Inventory. Grantor will not
(a) sell or otherwise dispose of any Inventory, except that so long as no
Event of Default exists, Grantor shall have the right, in the ordinary
course of business but not otherwise, to process and sell Inventory for
customary prices, provided, that Grantor shall immediately deposit the
proceeds of each such sale to the cash collateral account, if any then
exists, pursuant to subsection 6.5, or, if none then exists, to the credit
of Grantor's general checking account with Bank or
(b) permit any goods in which Bank has been granted a security interest
pursuant to this Agreement to be evidenced by any warehouse receipt or
other document of title (other than any bill of lading or similar Document
covering Inventory that has been sold in accordance with this section) or
by any lease, conditional sale agreement, or other Chattel Paper of any
kind.
6. Special Provision Applicable to Receivables. The provisions of this section 6
shall apply with respect to all Receivables in which Bank has been granted a
security interest pursuant to this Agreement:
6.1 Notice: Government Receivables; Non-Accounts. Grantor will give Bank
immediate written notice whenever any Receivable (a) arises out of a
contract with or order from the United States of America or any department,
agency, instrumentality, or political subdivision thereof or (b) does not
take the form of an Account or is evidenced in whole or in part by Chattel
Paper or any Instrument.
6.2 Collection of Receivables by Grantor. Subject to the provisions of
subsection 6.3, Grantor will collect the Receivables in the ordinary course
of business for the benefit of both Bank and Grantor at no cost or expense
to Bank. Until any Event of Default shall have occurred and thereafter
unless and until Bank shall have advised Grantor to the contrary, Grantor
shall have the right in the ordinary course of business, to grant such
waivers and consents to, enter into such compromises with, and otherwise
deal with the Account Debtors in respect of the Receivables as Grantor in
good faith may from time to time deem advisable.
6.3 Direct Payment to Bank or Lockbox. Bank shall have the right, (a) in
the Event of any Default, to instruct the Account Debtors, at Grantor's
expense, to thereafter make their payments in respect of the Receivables
directly to Bank and (b) in any event, by giving prior notice to Grantor,
from time to time to require Grantor to instruct the Account Debtors
thereafter to mail their payments to a post office lockbox which Bank shall
maintain at Grantor's expense and to which only Bank shall have access.
Following Bank's exercise of either such right, Grantor will not, without
in
<PAGE>
Security Agreement
Page 7
each case first obtaining Bank's consent, demand payment in respect of any
Receivable, and if Grantor shall at any time receive any payment in respect
of any Receivable, Grantor will in each case give Bank prompt notice
thereof, hold the amount so received in trust for the benefit of Bank, and
promptly remit the same to Bank in the very form in which received but with
all necessary endorsements and assignments to facilitate Bank's collection
thereof.
6.4 Authority of Account Debtors. Grantor irrevocably authorizes and
directs each Account Debtor to honor any demand by Bank that all payments
in respect of the Receivables thereafter be paid directly to Bank. In each
such case the Account Debtor may continue directing all such payments to
Bank until the Account Debtor shall have received written notice from Bank
either that the Subject Debt has been paid in full or that Bank no longer
claims a security interest in the Receivables. No Account Debtor shall have
any responsibility to inquire into Bank's right to make any such demand or
to follow Bank's disposition of any moneys paid to Bank by the Account
Debtor.
6.5 Deposits. All payments in respect of the Receivables shall, at Bank's
option, be deposited either to a checking account maintained by Grantor
with Bank or to a cash collateral account which shall bear no interest,
over which Bank shall have sole dominion and control, and from which only
Bank may withdraw funds, whichever option Bank shall from time to time
elect by giving Grantor written notice thereof. Bank shall have no
responsibility to ascertain whether any such payment is the correct amount
owing. Each such deposit shall be subject to Bank's general rules and
regulations except to the extent, if any, inconsistent with this Agreement.
6.6 Withdrawal and Application of Funds. Bank may from time to time
withdraw funds from the cash collateral account at will. Bank shall be
under no obligation to withdraw funds from the cash collateral account,
except that upon request of Grantor, Bank shall, if no Event of Default
then exists, withdraw all such funds that are then collected. All funds so
withdrawn shall be applied to the payment of the Subject Debt with such
allocation to the respective parts thereof and the respective due dates
thereof as Bank in its sole discretion may from time to time deem advisable
(except that so long as no Default exists, Bank shall not apply any such
withdrawal to any Subject Debt that is not then due without first obtaining
Grantor's consent). If any funds so withdrawn and applied are recovered
from Bank by any trustee in bankruptcy or any other person or are
discovered not to have been collected and collection thereof is denied to
Bank, Bank shall have the right to reverse any such application to the
extent the funds are recovered from or not collected by Bank. Bank in its
discretion may from time to time release to Grantor (or to Grantor's order)
any or
<PAGE>
Security Agreement
Page 8
any of the funds then held in the cash collateral account, but no such
release or releases shall commit Bank thereafter to make any further or
other such releases.
6.7 Vouchers, Receipts and Indorsements. Bank shall have full power and
authority to execute and deliver such vouchers and receipts in respect of
the Receivables, such indorsements of checks, and such other writings in
respect of the foregoing as Bank may from time to time deem advisable. In
connection with the foregoing Bank shall have full power and authority to
sign Grantor's signature to all such vouchers, receipts, indorsements, and
other writings whenever Bank deems such action advisable.
6.8 Verification of Receivables. Bank shall have the right, at any time and
from time to time, to arrange for verification of Receivables directly with
Account Debtors or by such other methods as Bank shall deem advisable.
7. Maintenance and Defense of General Intangibles. Subject in each case to any
security interest in favor of Bank and Bank's rights in respect thereof, and
further subject to section 6 governing Receivables, Grantor will, until any
Event of Default shall have occurred and thereafter unless and until Bank shall
have advised Grantor to the contrary, without expense to Bank, maintain enforce,
and exercise Grantor's rights in all General Intangibles (except any which are
of no material value) and defend and protect those intangibles against dilution,
diminution in value, infringement, misappropriation, and unauthorized use.
8. Effects of Default. Bank shall at all times have all of the rights of secured
party under the law of the jurisdiction in which Bank's banking office is
located and, in addition, if any Event of Default shall occur or commence to
exist, then, and in each such case, the following provisions shall apply:
8.1 Possession of Goods and Records. Bank shall have the right to take
possession of all goods in which Bank has been granted a security interest
pursuant to this Agreement, or such part of those goods as Bank may from
time to time deem advisable, and Grantor will, on each demand of Bank,
assemble and make available to Bank at such place or places as Bank may
reasonably require such of those goods as Bank shall designate. Grantor
will, on Bank's demand, deliver to Bank all of Grantor's books and records
in respect of the Collateral.
8.2 Enforcement of Rights. Bank shall have the right in its sole discretion
to enforce payment of the Receivables by suit or otherwise, and to maintain
and enforce rights in respect of any General Intangibles, but Bank shall
have no duty to institute any suit or to take any other action or, having
started any suit or the taking of any other action, to thereafter continue
the same. In each case Bank may proceed with counsel of Bank's choosing.
<PAGE>
Security Agreement
Page 9
8.3 Exercise of Rights. Bank shall have full power and right to exercise
any and all rights in respect of the Collateral as if Bank were the sole
beneficial owner thereof and may, without limitation, grant such waivers
and consents to, and enter into such compromises with, the Account Debtors
and other persons, release (regardless of whether Bank receives any
consideration therefor) any security for or any Account Debtor or other
person liable on any Receivable, and grant the Account Debtors and other
persons such other indulgences as Bank in good faith may from time to time
deem advisable.
8.4 Disposition. Bank shall have the right to sell or otherwise dispose of
the Collateral or any part thereof or any interest therein at any time or
from time to time. Bank shall give Grantor not less than ten (10) days'
prior notice of either the date after which any intended private sale is to
be made or the time and place of any intended public sale, except that Bank
need give no such notice in the case of Collateral which Bank in good faith
determines to be declining speedily in value or which is customarily sold
on a recognized market. Grantor waives advertisement of any such sale and
(except only to the extent notice is specifically required by the next
preceding sentence) waives notice of any kind in respect of such sale. At
any public sale Bank may purchase the Collateral or any part thereof free
from any right of redemption, which right Grantor hereby waives. After
deducting any and all fees, costs, and expenses (including, without
limitation, the fees and disbursements of legal counsel) incurred in
assembling, taking, repairing, storing, and selling or otherwise disposing
of the Collateral or any part thereof or any interest therein, Bank shall
have the right to apply the net proceeds of sale to the Subject Debt with
such allocation to the respective parts thereof and the respective due
dates thereof as Bank in its sole discretion may from time to time deem
advisable, and Grantor shall be liable for any deficiency.
9. Power of Attorney. Grantor hereby irrevocably constitutes and appoints Bank,
through its employees and agents, with full power of substitution, as Grantor's
true and lawful attorney-in-fact, with full irrevocable power and authority in
the place of Grantor or in Bank's own name, for the purpose of carrying out the
terms of this Agreement, to perform, at any time and from time to time, each
agreement contained in this Agreement that is on Grantor's part to be complied
with, and to take any and all actions and to execute and deliver any and all
writings which may be necessary or desirable to give Bank the full benefit of
this Agreement, in each case as Bank may from time to time deem advisable,
Grantor hereby agreeing that Bank shall owe no duty whatever to Grantor to
perform any such agreement, to take any such action, or to execute or deliver
any such writing, or, having done so any one or more times, to thereafter
continue doing so. Without limiting the generality of the foregoing, Grantor
hereby irrevocably authorizes Bank, at any time and from time to time, to (a)
fill in any blank space contained in this Agreement or any other
<PAGE>
Security Agreement
Page 10
Related Writing, (b) to correct patent errors, to complete and correct the
description of Collateral, and to complete the date herein or therein, and (c)
to sign on Grantor's behalf and file, at Grantor's expense and without Grantor's
signature, such affidavits, assignments, financing statements, indorsements of
specific items of Collateral, mortgages, powers of attorney, security
agreements, and other writings as Bank may from time to time deem advisable for
the better evidencing, perfection, protection, or validation of, or realization
of the benefits of, the security interest granted pursuant to this Agreement.
10. Unconditional and Continuing Security Interest. Grantor's obligations under
this Agreement and the granting of a security interest to Bank pursuant to this
Agreement are unconditional and effective immediately, and (except for
obligations surviving indefinitely pursuant to section 16) those obligations and
the security interest so granted shall continue in full effect, until the
Subject Debt shall have been paid in full.
11. Grantor's Assent to Extensions, Releases, and Settlements. With respect to
the Collateral, Grantor assents to any extension or postponement of the time of
payment thereof or any other indulgence in connection therewith, to any
exchange, release, replacement, or substitution of Collateral, to any addition
or release of any Account Debtor, to any acceptance of any partial payment
thereon and to any adjustment, compromise, or settlement in respect thereof, all
in such manner and at such time or times as Bank shall deem advisable.
12. Bank's Duties Limited. Bank shall have no duty as to the collection or
protection of Collateral or any income therefrom, nor as to the preservation of
rights against prior parties, beyond the safe custody of any Collateral in
Bank's possession. Bank shall have no liability for its delivery of any property
to any person or persons who Bank determines in good faith to be entitled to the
same.
13. No Setoff. Grantor hereby waives any and all now existing or hereafter
arising rights to recoup or offset any obligation of Grantor under or in
connection with this Agreement or any Related Writing against any claim or right
of Grantor against Bank.
14. Indemnity: Administration, Enforcement, and Termination; Interest. Grantor
will reimbursement Bank, on Bank's demand from time to time, for any and all
fees, costs, and expenses (including without limitation, the fees and
disbursements of legal counsel) incurred by Bank in administering this Agreement
and in enforcing, exercising, or protecting its rights under this Agreement or
under applicable law, or in attempting to do any of the foregoing. Grantor
agrees that if and when Bank's security interest shall have terminated in
accordance with the provisions of this Agreement, Grantor, will on Bank's demand
from time to time reimburse Bank for any and all fees, costs, and expenses
(including, without limitation, the fees and disbursements of legal counsel)
incurred by Bank in releasing or terminating each
<PAGE>
Security Agreement
Page 11
assignment, financing statement, or other writing signed pursuant to this
Agreement or in notifying Account Debtors of any such release or termination. If
any amount owing under this Agreement is not paid when due, then, and in each
such case, Grantor shall pay, on Bank's demand, interest on that amount from the
due date thereof until paid in full at a fluctuating rate equal to four percent
(4%) per annum plus the Prime Rate.
15. Waivers; Remedies; Application of Payment. Bank may from time to time in its
discretion grant waivers and consents in respect of this Agreement or any other
Related Writing or assent to amendments thereof, but no such waiver, consent, or
amendment shall be binding upon Bank unless set forth in a writing (which
writing shall be narrowly construed) signed by Bank. No course of dealing in
respect of, nor any omission or delay in the exercise of, any right, power, or
privilege by Bank shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any further or other exercise thereof or of
any other, as each such right, power, or privilege may be exercised either
independently or concurrently with others and as often and in such order as Bank
may deem expedient. Each right, power, or privilege specified or referred to in
this Agreement is in addition to and not in limitation of any other rights,
powers, and privileges that Bank may otherwise have or acquire by operation of
law, by other contract, or otherwise. Bank shall be entitled to equitable
remedies with respect to each breach or anticipatory repudiation of any
provision of this Agreement, and Grantor hereby waives any defense which might
be asserted to bar any such equitable remedy. Bank shall have the right to apply
Proceeds and payments in respect of the Subject Debt with such allocation to the
respective parts thereof and the respective due dates thereof as Bank in its
sole discretion may from time to time deem advisable.
16. Other Provisions. The provisions of this Agreement shall bind Grantor and
Grantor's executors, heirs, successors, and assigns and benefit Bank and its
successors and assigns. Except for Grantor and Bank and their respective
successors and assigns, there are no intended beneficiaries of this Agreement,
provided, that Bank shall have the right, in its discretion, to designate, at
any time and from time to time, one or more Account Debtors as intended
beneficiaries of subsection 6.4. The provisions of sections 11 through 19, both
inclusive, shall survive the payment in full of the Subject Debt and termination
of the security interest granted pursuant to this Agreement. The several
captions to different sections and subsections of this agreement are inserted
for convenience only and shall be ignored in interpreting the provisions
thereof. Each reference to a section includes a reference to all subsections
thereof (i.e., those having the same character or characters to the left of the
decimal point), except where the context clearly does not so permit. If any
provision in this Agreement shall be or become illegal or unenforceable in any
case, then that provision shall be deemed modified in that case so as to be
legal and enforceable to the maximum extent permitted by law while most nearly
preserving its original intent, and in any case the illegality or
unenforceability of that provision shall affect neither that
<PAGE>
Security Agreement
Page 12
provision in any other case nor any other provision. Interest for any given
period under this Agreement shall accrue on the first day thereof but not on the
last day thereof (unless the last day is the first day) and in each case shall
be computed on the basis of a 360-day year and the actual number of days in the
period. In no event shall interest accrue at a higher rate than the maximum
rate, if any, permitted by law. Bank shall have the right to furnish to its
Affiliates, and to such other persons as Bank shall deem advisable (with the
prior consent of Grantor which shall not be unreasonably withheld) for the
conduct of its business, information concerning the business, financial
condition, and property of Grantor, the amount of the Bank Debt of Grantor, and
the terms, conditions, and other provisions applicable to the respective parts
thereof. This Agreement shall be governed by the law (excluding conflict of laws
rules) of the jurisdiction in which Bank's banking office is located.
17. Integration. This Agreement and, to the extent consistent with this
Agreement, the other Related Writings, set forth the entire agreement of Grantor
and Bank as to its subject matter, and may not be contradicted by evidence of
any agreement or statement unless made in writing (which writing shall be
narrowly construed) signed by Bank contemporaneously with or after the execution
and delivery of this Agreement.
18. Notices and Other Communications. Each notice, demand, or other
communication, whether or not received, shall be deemed to have been given to
Grantor whenever Bank shall have mailed a writing to that effect by certified or
registered mail to Grantor at Grantor's mailing address (or any other address of
which Grantor shall have given Bank notice after the execution and delivery of
this Agreement); however, no other method of giving actual notice to Grantor is
hereby precluded. Each communication to be given to Bank shall be in writing and
shall be given to Bank's Corporate Banking Division at Bank's banking office (or
any other address of which Bank shall have given notice to Grantor after the
execution and delivery this Agreement). Grantor hereby assumes all risk arising
out of or in connection with each communication given or attempted by Grantor in
contravention of this section. Bank shall be entitled to rely on each
communication believed in good faith by Bank to be genuine.
19. Jurisdiction and Venue; Waiver of Jury Trail. Any action, claim,
counterclaim, crossclaim, proceeding, or suit, whether at law or in equity,
whether sounding in tort, contract, or otherwise at any time arising under or in
connection with this Agreement or any other Related Writing, the administration,
enforcement, or negotiation of this Agreement or any other Related Writing, or
the performance of any obligation in respect of this Agreement or any other
Related Writing (each such action, claim, counterclaim, crossclaim, proceeding,
or suit, an "Action") may be brought in any federal or state court located in
the city in which Bank's banking office is located. Grantor hereby
unconditionally submits to the jurisdiction of any such court with respect to
each such Action and hereby waives any objection Grantor may now or hereafter
have to the venue of any such Action brought in
<PAGE>
Security Agreement
Page 13
any such court. Grantor HEREBY, AND EACH HOLDER OF THE Subject Debt OR ANY PART
THEREOF, KNOWINGLY AND VOLUNTARILY WAIVES JURY TRIAL IN RESPECT OF ANY Action.
Grantor: Diversified Data Products, Inc.
_________________________________________
By:______________________________________
Printed Name: Michael E. Peppel
Title: Secretary
<PAGE>
EXHIBIT A: SUPPLEMENTAL SCHEDULE
This Supplemental Schedule consists of _________________ (_____) pages and
is a part of the Security Agreement - All Personal Property and Fixtures -
Borrower-Grantor (the "Agreement") made as of the _______ day of _______________
by and between Diversified Data Products, Inc. ("Grantor") and NATIONAL CITY
BANK OF DAYTON ("Bank").
EQUIPMENT AND FIXTURES (section 1)
================================================================================
Description Manufacturer Model Number Serial Number
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
================================================================================
TRADENAMES (subsection 3.2)
================================================================================
Tradename Registration Number Jurisdiction Registration Date
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
================================================================================
<PAGE>
ADDITIONAL COLLATERAL LOCATIONS (section 8)
================================================================================
Street Address County or Parish State or Zip Code
Commonwealth
- --------------------------------------------------------------------------------
3884 Indian Ripple Rd Greene Ohio 45440
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
================================================================================
Grantor: Diversified Data Products, Inc.
By:_____________________________________
Printed Name: Michael E. Peppel
Title: Secretary
EXHIBIT A
Debtor: Secured Party:
________________________________
________________________________
________________________________
NATIONAL CITY BANK OF DAYTON
_______________________________________
_______________________________________
Attn:__________________________________
(division or group)
<PAGE>
The financing statement (the "Financing Statement") to which this Exhibit A is
attached and of which it is made a part covers all of the following property
(collectively, the "Collateral"): All accounts, chattel paper, documents,
equipment, fixtures, general intangibles, instruments, inventory, Receivables,
and uncertificated securities in which Debtor now has or hereafter acquires any
rights, all property (except any consumer goods), tangible or intangible in
which Debtor now has or hereafter acquires any rights and which now or hereafter
is in Secured Party's control (by document of title or otherwise) or possession
or is owed by Secured party to Debtor, all replacements and substitutions for,
and additions and accessions to, all or any part of the property hereinbefore
described, all Products of all or any part of the goods hereinbefore described,
and all Proceeds of all or any part of the property, including, without
limitation, Products, hereinbefore described; "Proceeds" meaning whatever is
received or receivable upon sale, exchange, collections, or other disposition of
any property or Proceeds, whether directly or indirectly, and includes, without
limitation, the proceeds of any casualty, liability, or title insurance relating
to any such property and any goods or other property returned after any such
sale, exchange, collection, or other disposition; "Products" meaning property
directly or indirectly resulting from any manufacturing, processing, assembling,
or commingling of any goods; and "Receivable" meaning any claim for or right to
payment, however arising, whether classified as an account, a general
intangible, or otherwise, whether or not evidenced by any writing, and, if so
evidenced, whether evidenced by chattel paper, one or more instruments, or
otherwise.
4
<PAGE>
HYPOTHECATION AGREEMENT
SEPTEMBER __________________, 1996
DIVERSIFIED DATA PRODUCTS, INC., the undersigned ("Pledgor") grants National
City Bank, ("Bank"), Dayton, Ohio as security for all Debt of MIAMI COMPUTER
SUPPLY, INC. ("Borrower") to Bank, a security interest in the following
property:
ACCOUNTS RECEIVABLES, INVENTORY, AND EQUIPMENT. (Inventory shall not, however,
include inventory or equipment that is manufactured by or provided by Hewlett
Packard Company.)
and in any all additions thereto and substitutions therefor in whole or in part
and in all proceeds of the foregoing (all of which property additions,
substitutions and proceeds are hereinafter called "Pledgor's Collateral"). This
Hypothecation Agreement relates to, is subject to the terms and conditions of,
and shall be governed by that certain Commercial Note: Revolving
Credit/Prime/LIBOR (Ohio) (the "Note"), Commerical Note Addendum (Ohio) (the
"Addendum") and Commercial Note: Borrowing Base Addendum (Ohio) (the "Base
Addendum") by and among Borrower, Pledgor and Bank of even date herewith. Terms
defined herein shall have the same definitions as are ascribed to them in the
Note, the Addendum or the Base Addendum, as appropriate, and any conflict of the
terms, conditions or definitions between the Note, the Addendum, the Base
Addendum or this Agreement shall be governed by the Note.
Upon an Event of Default, Bank shall have the right (but not the duly) to
transfer to or register in its name or in the name of its nominee all or any
part of Pledgor's Collateral; provided that neither Bank nor Bank's nominee
shall have the right to vote any securities included in Pledgor's Collateral
unless Bank shall have given Pledgor not less than ten (10) days prior written
notice that any or all of the Debt is then in default in any manner and that
Bank may thereafter vote the securities. Pledgor agrees that Bank shall have no
duty to collect or protect any of Pledgor's Collateral or any income therefrom,
nor to preserve rights against prior parties nor to exercise a warrant or option
or preserve any right pertaining thereto beyond maintaining the safe custody of
any Pledgor's Collateral.
Upon an Event of Default, if for any reason Pledgor shall at any time
obtain possession of any of Pledgor's Collateral, whether by reason of stock
splits, stock dividends or liquidation dividends paid directly to Pledgor or
otherwise (other than cash payments of accrued interest or current dividends
paid out or earnings), Pledgor shall in each case receive the same in trust for
the benefit of Bank and shall immediately deposit same with Bank (together with
executed transfer powers, indorsements, assignments and other documents that
Bank may request).
<PAGE>
Hypothecation Agreement
Page 2
Upon an Event of Default, Bank shall have all rights as set forth in the
Note and, in its sole discretion, upon such terms and conditions and in such
manner as Bank deems advisable, may sell, assign, transfer and deliver Pledgor's
Collateral at any time or from time to time any thereof. No prior notice need be
given to Pledgor or to Borrower or any one else in the case of any sale of
Pledgor's Collateral which Bank in good faith determines to be declining rapidly
in value or which is customarily sold at any securities exchange or in the
over-the-counter market or in any other recognized market: but in any other case
Bank shall give Pledgor not less than ten (10) days prior notice of either the
date after which any intended private sale is to be made or the time and place
of any intended public sale. Pledgor waives advertisement of any sale and except
only to the extent notice is specifically required by the previous sentence,
waives notice of any kind in respect of any sale. At any public sale Bank may
purchase all or any part of Pledgor's Collateral free from any right redemption,
which right Pledgor hereby waives. After deducting all expenses of every kind,
Bank may hold all or any part of the net proceeds of any sale as security for,
or may apply the net proceeds on, the Debt in such order of preference as Bank
may determine.
Pledgor's obligations and liabilities under this Agreement shall remain in
full effect until payment in full of the Debt regardless of the lapse of time.
Without limiting generality of the foregoing, Pledgor's obligations under this
Agreement shall not be impaired or diminished by (a) any failure or refusal of
Bank to grant financial accommodation to Borrower, (b) any extension, renewal or
refinancing of the Debt or any thereof in whole or in part, even if Borrower
might then be in default in any respect, (c) any waiver of any default or
consent or indulgence granted to any Obligor, (d) any acceptance of Pledgor's
Collateral for or any Obligor on the Debt, (e) any release of any Pledgor's
Collateral or Obligors even if Bank receives no consideration for the release,
(f) Bank's failure to make any presentment, protest or demand for payment, to
assert or perfect any claim or demand or to enforce any right or remedy, or any
delay or neglect by Bank in respect of the foregoing, or (g) any failure to give
Pledgor notice of the granting any financial accommodation to Borrower or the
terms and other provisions applicable thereto, or of any default by Borrower or
any other Obligor or of any of event, condition other that any specifically
required by this Agreement.
This Agreement shall remain in full force and effect until Bank's
Commercial and Collateral Loan Department receives written notice either that
Pledgor desires to terminate this Agreement as to any Debt incurred after the
giving of any such notice or that Pledgor has been adjudicated a bankrupt or
insolvent, provided that after any such termination Pledgor's Collateral shall
continue to secure (i) the payment in full of Debt arising prior to the giving
of notice of termination, (ii) all Debt incurred pursuant to the Subject
Commitment provided that Bank shall have made the Subject Commitment prior to
receipt of notice of termination and (iii) all subsequent renewals and
extensions, if any, of any or all of the Debt referred to in (i) or (ii) in
whole or in part, even if the renewal or extension is effected after Bank's
receipt of notice termination.
<PAGE>
Hypothecation Agreement
Page 3
All notice to Pledgor shall deemed given when mailed by the U.S. Mail to
Pledgor's address listed below (or such other address as Pledgor may hereafter
specify in writing Bank for the purpose), postage paid, whether or not received,
however no method of giving actual notice is hereby precluded. Any and all
waivers, consents and agreements by Bank must be in writing. This Agreement
shall bind Pledgor and Pledgor's heirs, executors administrators, successors and
assigns and shall benefit Bank and Bank's successors and assigns the rights and
remedies conferred upon Bank by this Agreement are in addition to those Bank may
have by other contract or by statute or operation of law. If more than one
person or entity signs below, the "Pledgor" shall mean each of them, their
obligations hereunder shall be and several and shall be agent of the other for
all purpose related to this Agreement. This Agreement shall be governed by Ohio
law.
DIVERSIFIED DATA PRODUCTS, INC.
By:__________________________
4177-B Varsity Drive Name: Michael E. Peppel
Ann Arbor, Michigan 48108 Title: Vice President
Mailing Address
EXHIBIT 10.7
EAI Contract No. 187995
EPSON AUTHORIZED RESELLER AGREEMENT
This Agreement is entered by EPSON AMERICA, INC. ("Epson"), a California
corporation with its principal place of business at: 20770 Madrona Avenue,
Torrance, California 90503, Attn: Sales Administration, Mail Stop B1-01 and
Miami Computer Supply Inc.
3884 Indian Ripple Road
Dayton, OH 45440
Attn: Tom Winstel, Al Schwarz, Richard Newkold, Roger Turvy
a Corporation, ("VAR Reseller")
WHEREAS, Epson wishes to appoint Reseller as an Epson Authorized Reseller
and Reseller wishes to purchase certain Epson products for resale, the parties
agree as follows:
1. Authorization. Epson appoints Reseller as a non-exclusive Reseller of
the Epson products listed in the attached Product Supplement (the "Products").
Epson reserves the unqualified right to sell Products of every type to all end
users and other resellers, wherever located, regardless of any previous or
current relationships between Reseller and such end users or resellers.
2. Purchase Orders. All orders shall be made or confirmed in writing and
are subject to acceptance by Epson. Reseller may cancel or modify any order by
notifying Epson in writing at least five (5) working days prior to a scheduled
shipment. Reseller shall be responsible for all costs and fees incurred by Epson
for refused shipments, including freight and insurance costs, unless cancelled
pursuant to this provision. Although Epson shall make reasonable efforts to
fulfill any accepted orders, delivery dates in any purchase orders or
confirmations are estimates only. Reseller acknowledges that Epson may be
subject to production or shipment delays and may, in its sole discretion,
allocate products among its customers notwithstanding the effects of such
allocations on any outstanding orders. Epson shall not be liable for any
consequential or special damages whatsoever for any failure or delay in
fulfilling any order, including claims for lost profits or damages. Unless
Reseller specifies that partial orders shall not be made, Epson may make partial
shipments of Reseller's orders which shall not be construed as acceptance of the
entire order and shall be separately invoiced and paid for when due.
3. Prices and Payment. The prices to be paid by Reseller shall be Epson's
prices in effect at the time Reseller's order is accepted by Epson. Epson's
prices are subject to change without notice. Title and risk of loss shall pass
to Reseller under FOB terms at
<PAGE>
Epson's shipment point. Payment shall be made pursuant to such terms as are
approved by Epson's Credit Department, in its sole discretion. All late payments
shall bear interest at fifteen percent per annum or the highest rate allowed by
law, whichever is lower. In the event of more than a thirty day delay in payment
by Reseller, Epson shall be entitled to recover its costs of collection,
including reasonable attorneys' fees and costs.
4. Term and Termination. This agreement commences on the date signed by
Epson. Either party may terminate at any time, for any reason whatsoever, with
or without cause upon thirty days written notice to the other. This Agreement
shall also terminate immediately should either party become insolvent or should
bankruptcy proceedings be commenced for or against either party. Upon
termination, neither party shall be liable to the other for any consequential
damages or costs including lost profits, losses on unfulfilled contracts, or
losses of any commitment or investment made in reliance upon the Agreement or
the representations of the parties. All indemnity and warranty obligations and
Reseller's obligations to pay for Products shall survive termination of the
Agreement. Upon termination, Reseller shall cease representing that it is
authorized to sell or service Epson products and shall cease using any Epson
trademarks. Epson shall have no obligation to repurchase any Products or parts
in Reseller's inventory upon termination.
5. Indemnification by Reseller. Reseller shall indemnify and hold Epson
harmless in any court actions or other proceedings due to any actual or alleged
acts or omissions by Reseller in connection with its sale or servicing of any
Epson products.
6. Indemnification by Epson. Epson shall indemnify and hold Reseller
harmless in any court actions or other proceedings due to any actual or alleged
infringement of any patent, trademark, or copyright (hereafter "Claims") based
on the Products. In response to Claims, Epson may, in its sole discretion,
defend against the Claims, substitute other equivalent products, modify the
Products, obtain for Reseller the right to continue sales, or repurchase the
Products at the price actually paid by Reseller. Epson's indemnity shall not
apply to the extent Claims are based on the combination of products with any
hardware or software not supplied by Epson or upon unauthorized use or
modification of the Products or trademarks. Except as stated above, Epson
disclaims all liability for claims. In no event shall Epson be liable for any
lost profits or other consequential damages.
7. Arbitration and Governing Law. Any controversy or claim arising out of
or relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. This
Agreement shall be construed in accordance with the laws of California except
the arbitration clause which shall be enforced pursuant to the Federal
Arbitration Act.
2
<PAGE>
8. Assignment. This Agreement is personal to Epson and Reseller and shall
not be assigned by either without the written consent of the other.
9. No Agency. This Agreement does not constitute Reseller as a partner,
agent, or franchisee of Epson or authorize Reseller to act for Epson in any
manner or create any obligation on behalf of Epson. Reseller shall be solely
responsible for determining its resale prices and, except as set forth herein,
shall operate its business in whatever manner it deems appropriate.
10. Entire Agreement. The entire Agreement between the parties is
incorporated in this Agreement and the Product Supplement, which shall only be
modified by a written agreement signed by both parties. There are no
representations, agreements or understandings, expressed or implied, affecting
this Agreement which are not expressly set forth herein. Epson's sales
representatives do not have authority to change the terms of the Agreement. This
Agreement shall not be supplemented or modified by any course of dealing, trade
usage, or any inconsistent terms in any purchase order or confirmation.
RESELLER
Miami Computer Supply Inc.
- --------------------------------------------------------------------------------
(Name of Company)
- --------------------------------------------------------------------------------
(Authorized Signature)
Thomas C. Winstel
- --------------------------------------------------------------------------------
(Print Name)
Vice-President
- --------------------------------------------------------------------------------
(Title)
6/19/95
- --------------------------------------------------------------------------------
(Date)
EPSON AMERICA, INC.
- --------------------------------------------------------------------------------
(Authorized Signature)
Charmaine Nielsen
- --------------------------------------------------------------------------------
(Print Name)
Director, Sales Operations
- --------------------------------------------------------------------------------
(Title)
6/28/95
- --------------------------------------------------------------------------------
(Date)
3
<PAGE>
EAI Contract No. 187995
PRODUCT SUPPLEMENT
This Supplement is incorporated into the Epson Authorized Reseller
Agreement between the parties.
1. Authorization. Master Reseller is authorized to sell the Epson products
in the Product Categories listed in the attached Exhibit, which shall be sold
only through those Locations listed in the Exhibit (the "Products").
2. Standards of Performance. Master Reseller shall sell the Products and
provide customers with pre-sale and post-sale support in a manner that assures a
high degree of customer satisfaction. Master Reseller shall assure that its
staff is competently trained to support the sale of Products by responding to
customer inquiries, demonstrating the Products at any retail locations open to
the public, and instructing customers regarding installation and operation of
the Products. Master Reseller shall assure that all retail locations open to the
public for the sale of the Products are attractively designed and maintained
facilities that operate during normal business hours and display the Products in
a manner conducive to the sale of high quality computer equipment.
3. Product Changes. Epson reserves the unqualified right to change the
prices of its Products, the quantity, type and design of its Products, and the
number and type of Products within particular Product Categories. Epson is not
obligated to offer Master Reseller all of the Products within the Product
Categories Master Reseller is authorized to sell. New products introduced by
Epson may be subject to sales restrictions not set forth herein.
4. Warranty. The only warranty extended to any Reseller or End User is
Epson's standard limited warranty statement that accompanies each Product. The
exclusive remedy for breach of the limited warranty is repair or replacement, at
Epson's option. Master Reseller shall not make any representations regarding the
Products not made in Epson's literature. EXCEPT AS STATED ABOVE, EPSON
SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES INCLUDING WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. EPSON SHALL NOT BE LIABLE
FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WHATSOEVER FOR BREACH OF WARRANTY.
5. End User Sales Only. Master Reseller shall sell the Products only to end
users who purchase the Products for their own use or use within their
organizations. Master Reseller shall not sell or transfer the Products to other
resellers, or to end users or resellers outside the United States, or to
exporters who may sell or transfer the Products outside the United States.
Master Reseller's obligations to sell to end users only and not to engage in
export sales or mail order sales of restricted products are not dependent on
Epson's prohibition of, and enforcement against, such sales by other resellers.
4
<PAGE>
6. Service. Master Reseller is not authorized to perform warranty repairs
or non-warranty repairs ("Service") on Epson Products unless Master Reseller
executes a Service Supplement and is appointed as an Epson Customer Care Center.
In the event Master Reseller does not execute a Service Supplement, Master
Reseller agrees as follows:
(1) Master Reseller shall provide all customers seeking warranty service
non-warranty service with Epson's designated telephone number for referral to an
Epson Customer Care Center.
(2) Master Reseller shall not perform warranty Service or accept Epson
products for warranty Service unless, as a service to a customer, Master
Reseller forwards the Product, without charge, to an Epson Customer Care Center
for repair and return to the customer within a reasonable period of time.
(3) Master Reseller shall not perform non-warranty repairs without
affirmatively informing the customer that Master Reseller is not authorized by
Epson to service Epson Products.
MASTER RESELLER
Miami Computer Supply Inc.
- -------------------------------------------------------------------------------
(Name of Company)
- --------------------------------------------------------------------------------
(Authorized Signature)
Thomas C. Winstel
- --------------------------------------------------------------------------------
(Print Name)
Vice-President
- --------------------------------------------------------------------------------
(Title)
6/19/95
- --------------------------------------------------------------------------------
(Date)
EPSON AMERICA, INC.
- --------------------------------------------------------------------------------
(Authorized Signature)
Charmaine Nielsen
- -------------------------------------------------------------------------------
(Print Name)
Director, Sales Operations
- -------------------------------------------------------------------------------
(Title)
6/28/95
- -------------------------------------------------------------------------------
(Date)
5
PROXIMA(R)
RESELLER AGREEMENT
This is an Agreement ("Agreement") between Proxima Corporation ("Proxima"), a
Delaware corporation having its principal place of business at 9440 Carroll Park
Drive, San Diego, California 92121-2298, and Miami Computer Supply Inc.
("Buyer"), a Ohio corporation. This Agreement sets forth the general terms and
conditions between Proxima and Buyer for the purchase of products ("Product" or
"Products"). Terms and conditions specific to Buyer's classification are
delineated in Exhibit A. Applicable Products, pricing and discounts are
delineated in Exhibit B.
1. Term of Agreement. This Agreement is effective May 29, 1996, for a period of
one (1) year ("Term"), and shall renew for successive one (1) year Terms unless
either party provides notice to the other of an intent not to renew the
Agreement within thirty (30) days of expiration of a Term.
2. Appointment. Proxima grants to Buyer, and Buyer accepts, the non-exclusive
right to resell all Products offered during the Term of this Agreement. Proxima
reserves the right to appoint other resellers or to make direct sales to anyone
at any time without notice or liability.
3. Obligations.
(A) During the Term of this Agreement, Proxima agrees:
(1) To support the Products and efforts by Buyer to sell the Products.
Support may include, but is not limited to, sales leads generated through
Proxima's marketing activities.
(2) To provide, at the request and at no cost to Buyer, standard
advertising materials and reasonable training to Buyer's employees in the sale
and use of the Products.
(3) To notify Buyer of any new Products to be made available under this
Agreement.
(4) To use reasonable efforts to maintain sufficient Product inventory to
fill Buyer's orders as required. In the event a Product shortage occurs, Proxima
will allocate any available Product to Buyer in proportion to Buyer's percentage
of all like Buyer's purchases for that Product during the previous sixty (60)
days.
<PAGE>
(5) To provide Buyer with a monthly account statement listing all
outstanding invoices, payments made and credits issued since the date of the
previous statement.
(6) To provide Buyer a quarterly accounting of Sales Goal achievement,
rebate credits issued and Marketing Development Funds (MDF) accrued and
available.
(B) During the Term of this Agreement, Buyer agrees:
(1) To list the Products in its catalogs and make the Products available to
its customers.
(2) To advertise, promote and use Buyer's best efforts to sell the
Products.
(3) To make Buyer's facilities available and assist Proxima in providing
Product training and support.
(4) To provide Product technical assistance to its customers as it is
reasonably able to do so, and refer all other unresolved technical matters
directly to Proxima.
(5) To develop and implement an acceptable business and marketing plan for
the promotion and sale of the Products. Buyer and Proxima will review the plan,
as required, but no less than every six (6) months.
(6) To provide current financial information to Proxima every six (6)
months.
(7) Not to submit orders for less than $150.00.
(8) To conduct its business in a way to maintain the highest quality
professionalism in all dealings with its customers. Buyer is responsible for
customer satisfaction and agrees to participate in customer satisfaction
programs developed by Proxima.
(9) To ensure that Buyer's compensation/incentive plans for its employees
who market Proxima Products are fair to Proxima in relation to Buyer's plans for
any competitive products Buyer markets.
(10) To furnish sales receipts to your customers upon delivery of products
specifying customer's name and address, machine model, and date of sale.
4. Price. Prices to Buyer are determined solely by Proxima and may be revised at
any time upon written notice to Buyer. The Product pricing established in
Exhibit B is exclusive of state and local use, sales and property taxes and
duties. Buyer is responsible for all taxes and duties incurred as a result of
the purchase of Products. All applicable taxes will be included on Buyer's
invoice unless Buyer provides Proxima with a valid reseller exemption
certificate for the applicable taxing jurisdiction. Buyer is free to establish
its own resale prices.
2
<PAGE>
Proxima agrees to provide the same pricing and discounts to Buyer as to other
Resellers who buy the same Products in substantially the same amounts under
substantially similar terms and conditions, and who compete with Buyer.
5. Price Increase. Proxima will provide Buyer with a written notice thirty (30)
days prior to any price increase. Buyer may order any quantity of Product during
the notification period at the lower price, however, all Product on order or
ordered during the notification period which is scheduled for delivery more than
forty-five (45) days from the date of notification will be invoiced at the
increased price.
6. Price Decrease. Price reductions will be applied to all Product on order, in
transit or purchased in the previous thirty (30) days and remaining in Buyer's
inventory on the effective date of the price decrease. Proxima will promptly
issue an account credit for the difference between the invoiced price and the
decreased price for units in inventory, or in transit. On order units will be
invoiced at the decreased price. Proxima reserves the right to physically verify
inventory.
7. Product Revisions. Proxima reserves the right to modify, add or eliminate
Products which are available under this Agreement at any time on written notice
to Buyer.
8. Delivery. Delivery occurs F.O.B. Proxima's warehouse in San Diego,
California, USA, and Buyer receives title upon delivery. In the absence of
carrier selection and shipment instructions from the Buyer, Proxima will make
all carrier selections. Buyer is responsible for all costs and expenses related
to Product delivery including, but not limited to, freight, taxes, duties,
insurance, and risk of loss.
Orders placed and scheduled for shipment at a net purchase price of $35,000 or
more, and shipped to the Buyer's location within the contiguous forty-eight
United States, will be shipped prepaid. In addition to normal freight charges, a
$50.00 special handling surcharge will be applied to each drop shipment location
other than the Buyer's normal address. Multiple drop shipment locations on one
order will receive a corresponding number of special handling surcharges.
9. Credit. Proxima may establish a line of credit (under the terms and
conditions of Proxima's Credit Application) which Buyer agrees not to exceed.
This line of credit may be changed or canceled at Proxima's sole discretion if
Buyer's financial condition changes during the Term of this Agreement or if
Buyer fails to comply with the payment terms herein.
10. Payment. Payment terms are cash in advance, or with approved credit, two
percent (2%) fifteen (15) days or next sixty (60) days from the date of invoice.
If Buyer does not comply with Proxima's payment terms, Proxima may declare Buyer
in default, terminate this Agreement at its option and pursue any or all of the
following remedies: (1) collect interest at the lower of the rate of one and
one-half percent (1-1/2%) per month or the maximum
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<PAGE>
interest under applicable law on all invoices older than thirty (30) days; (2)
declare all unpaid balances, including interest, immediately due and deny any
further credit; (3) repossess Products not paid for in full and remaining in the
possession of Buyer; (4) cancel any unshipped orders; or (5) any other remedies
available at law or in equity.
Proxima reserves a purchase money security interest in Products, and Buyer
grants Proxima a purchase money security interest in Buyer's proceeds from the
sale of, and account receivable for, Products until Proxima receives the amounts
due. Buyer agrees to sign an appropriate document (for example, a "UCC-1") to
permit Proxima to perfect its security interest.
11. Product Returns. All Products returns authorized below require a Proxima
issued Return Merchandise Authorization (RMA) number. Where applicable, upon
receipt of the Products at Proxima's warehouse, an account credit will be issued
for the full purchase price less any previously applied discounts or credits.
(A) Stock Balancing. Buyer may return current Product remaining in its inventory
at the end of each calendar quarter provided that: (i) Products are unused and
in the original, unopened packaging; (ii) Buyer pays all transportation charges
and bears risk of loss until Products are received at Proxima's warehouse; and
(iii) the total returns do not exceed fifteen percent (15%) of the previous
quarter's purchases.
(B) Product Discontinuation. Within thirty (30) days after receipt of
notification of a Product discontinuation, Buyer may return all such unused
Product remaining in Buyer's inventory in their original, unopened packaging.
Discontinued Products are to be shipped F.O.B. Buyer's warehouse, freight
collect via the carrier of Proxima's choice.
(C) Defective Product. Buyer may return any Product found to be defective upon
delivery for full account credit provided the return is made within sixty (60)
days after original shipment. Warranty returns are to be shipped F.O.B. Buyer's
warehouse, freight collect via the carrier of Proxima's choice.
12. Rebate. Buyer may earn Rebate credits to its account based upon achievement
of Quarterly Sales Goals as described in Exhibit A.
13. Market Development Funds (MDF). In accordance with the Exhibit A, Buyer may
reclaim certain marketing and promotional expenditures relating to Proxima
Products provided that Buyer submits the advertisement or promotion to Proxima
for review and approval, and receives such approval in writing prior to its
initial release. Then, upon submittal of invoice copies for actual expenses
incurred, Buyer's account will be credited in the amounts and in the manner
specified in Exhibit A.
14. Special Promotions. Proxima may from time to time offer Buyer special
promotional pricing and/or Products. Promotional pricing is not considered a
price decrease. Buyer will comply with any specific terms and conditions
associated with the promotion.
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15. Warranty. Proxima warrants that the Products will be free from defects in
material and workmanship, and will perform in accordance with their
specifications for a period of one (1) year from the date of purchase by the end
user customer, as evidenced by a sales receipt or invoice showing the date of
purchase. During the warranty period, Proxima, at its sole option, will repair
or replace defective parts or units at no charge.
Proxima will not be responsible for repair of damage resulting from: (1)
abnormal conditions such as accidents, fire or water; (2) negligent use or
misuse of the Products; (3) maintenance repairs, modifications or alterations
performed by any person other than an employee of Proxima; or (4) any cause
other than ordinary use.
16. Limitation of Liability. THE FOREGOING EXPRESS WRITTEN MANUFACTURER'S
WARRANTIES AND REMEDIES ARE EXCLUSIVE AND ARE IN LIEU OF ANY OTHER WARRANTIES OR
REMEDIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. PROXIMA SHALL IN NO EVENT
BE LIABLE TO BUYER, OR ANY THIRD PARTY, FOR ANY CONSEQUENTIAL, INDIRECT OR
INCIDENTAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF
BUSINESS OPPORTUNITY, LOSS OF GOODWILL, AND/OR INTERFERENCE WITH BUSINESS
RELATIONSHIPS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. PROXIMA SHALL
IN NO EVENT BE LIABLE FOR ANY DAMAGE TO OR FAILURE OF OTHER EQUIPMENT TO WHICH
THE PRODUCTS ARE CONNECTED. IN THE EVENT PROXIMA IS FOUND LIABLE FOR ANY DAMAGES
RELATING IN ANY WAY TO THIS AGREEMENT, PROXIMA'S MAXIMUM LIABILITY SHALL NOT
EXCEED THE GREATER OF $50,000 OR THE PRICE CHARGED TO BUYER FOR THE PRODUCT THAT
IS THE SUBJECT OF THE CLAIM.
17. Indemnification. If any third party claims that a Product infringes its
issued United States patent, Proxima will indemnify and hold Buyer harmless
against any damages, judgments, or settlements (including costs and reasonable
attorneys' fees) resulting from the claim, provided that Buyer promptly notifies
Proxima in writing of the claim, permits Proxima to take over the defense and
reasonably cooperates with Proxima in said defense. Proxima has the right to
select counsel and may settle the matter. If such a claim is made or appears
likely to be made relating to a Product in Buyer's inventory, Buyer agrees to
permit Proxima, at its option to: (1) substitute a comparable non-infringing
Product; (2) modify the Product to make it non-infringing; (3) obtain a right
for continued use or sale of the Product (all at Proxima's expense), or (4) if
the above are not reasonably available, buy back all such Products remaining in
their original unopened packaging at the original purchase price. If such
Products have been used, but are still in Buyer's possession, Proxima will buy
back all such Products at the original purchase price less depreciation. This
indemnification does not apply to claims resulting from modification of the
Products or claims resulting from combination of the Products with any other
devices. This provision sets forth Proxima's entire obligation to Buyer
regarding any claim of infringement.
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In addition to any damages Buyer may be liable for under law and the terms of
this Agreement, Buyer will indemnify Proxima for claims by others made against
Proxima (particularly regarding statements, representations, or warranties not
authorized by Proxima) arising out of this Agreement or as a result of Buyer's
relations with anyone else.
18. Assignment. Proxima may assign its rights under this Agreement. Buyer may
not assign any rights or delegate any obligations under this Agreement, or
appoint any other agent to represent Buyer or to market the Products, without
Proxima's prior written consent. Any attempt to do so without prior written
consent is void.
Buyer agrees to provide Proxima with prompt written notice (unless otherwise
precluded by law) of any change, or anticipated change, in Buyer's financial
condition or business structure (for example, a material change in equity
ownership or management, or closing or relocation of a primary business
location). Such change or failure to give notice may result in termination of
this Agreement.
19. Enforcement of Provisions. The failure on any occasion by either party to
enforce any provision of this Agreement will not prevent enforcement of that
provision on any other occasion.
20. Relationship of the Parties. Buyer is an independent contractor and has no
right or authority to bind Proxima or to assume or to create any obligation or
responsibility, express or implied on behalf of Proxima. Nothing in this
Agreement shall be construed as creating a partnership of the relationship of
principal and agent between Buyer and Proxima.
21. Termination of Agreement. Either party may terminate this Agreement without
cause or liability by giving ninety (90) days written notice to the other party.
Buyer agrees that Proxima's only obligation in the event it terminates this
Agreement is to provide the notice called for in this provision and Proxima is
not liable for any claims or losses if Proxima does so.
Except as otherwise provided, either party may terminate this Agreement without
liability in the event that the other party is in default of any obligation or
responsibility under this Agreement and such default continues unresolved for a
period of thirty (30) days after written notice or recurs at any time following
written notice and cure. Any default under this Agreement or Proxima's Credit
Application shall be deemed a default under both agreements.
This Agreement shall automatically terminate without notice in the event that
either party ceases conducting business in the normal course, becomes insolvent,
makes a general assignment for the benefit of creditors, suffers or permits the
appointment of a receiver for its business or assets, or avails itself of or
becomes subject to any proceeding under the Federal Bankruptcy Act or any other
federal or state statute relating to insolvency.
Upon termination or expiration of the Term, Buyer must immediately pay Proxima
all amounts due. Buyer may return any Product remaining in inventory under the
provisions of Section 11 of the Agreement. Proxima may offset any amounts due
Buyer, if any, against amounts due to
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Proxima. Any terms of this Agreement which by their nature extend beyond
termination/expiration, remain in effect until fulfilled.
22. Force Majeure. Neither party will be liable to the other for delay in
performing any obligations under this Agreement, except the obligation to make
payments, due to circumstances beyond its reasonable control, including, but not
limited to, revolutions, insurrections, riots, wars, acts of enemies, national
emergency, strikes, floods, embargoes, inability to secure materials or
transportation, and acts of God or governmental authorities.
23. Notices. Any required or permitted notice will be deemed to have been given
when received in writing at the address of the party being given notice.
24. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California excluding its choice of law
statutes.
25. Judicial Interpretation. Any provisions in this Agreement which are found to
be prohibited by law shall be ineffective to the extent of such prohibition
without invalidating the remaining provisions.
26. Causes of Action. Both parties will act in good faith to resolve disputes.
Neither party will bring legal action more than two years after the cause of
action arose. Any legal action will only be commenced in the State of
California, County of San Diego and Buyer hereby consents to personal
jurisdiction in said forum.
27. Compliance with Laws and Regulations. Both parties will comply with
applicable federal, state, and local laws, rules, regulations and executive
orders. Buyer will be responsible for obtaining all permits, licenses, or
certificates required by any regulatory body for the use or resale of the
Products.
28. Modifications. All modifications of this Agreement must be in writing and
signed by an authorized representative of each party.
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29. Complete Agreement. This Agreement and its Exhibits contain the complete and
exclusive agreement between the parties and supersede all other prior or
contemporaneous written or oral communications between the parties relating to
the subject matter hereof.
The terms and conditions of each party's purchase orders, invoices,
acknowledgements/confirmations or similar documentation shall apply to any order
and any such terms and conditions shall be deemed objected to without need of
further notice.
PROXIMA CORPORATION
9440 Carroll Park Drive
San Diego, CA 92121-2298
BY:_________________________________________
Signature Date
NAME:_______________________________________
TITLE:______________________________________
BUYER
BY:_________________________________________
Signature Date
NAME:_______________________________________
TITLE:______________________________________
ADDRESS:____________________________________
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PROXIMA
RESELLER AGREEMENT
EXHIBIT A
A. MINIMUM DOLLAR VOLUMES
To qualify as a Proxima reseller, Buyer agrees to purchase a minimum of $500,000
in Proxima Products, net of discounts and credit during the Term of this
Agreement.
B. REBATE
Reseller has the opportunity to earn rebates based on achievement of quarterly
net purchase goals outlined below:
QUARTERLY NET PURCHASE GOAL REBATE
--------------------------- ------
$200,000 - 299,000 0.5
$300,000 - 399,999 1.0
$400,000 - 499,999 1.5
$500,000+ 2.0
In the month following the end of each calendar quarter, Proxima will calculate
Buyer's rebate credit due for the quarter just ended. Proxima will promptly
issue a credit to Buyer's account. For purposes of calculating rebates, each
quarter is independent and no purchase dollars shall be cumulative one quarter
to the next. Orders containing discounts above those offered in Exhibit B will
not qualify for rebate credit.
C. MARKET DEVELOPMENT FUND (MDF)
Buyer may reclaim expenses incurred for certain marketing activities such as
advertising, promotions, trade shows, direct mail and other marketing needs
through the use of MDF credits. Buyer may also at its sole discretion, use MDF
credits to purchase marketing programs that may be developed by Proxima from
time to time and made available to the Buyer. MDF up to a maximum of $10,000 is
available as follows:
1. MDF credits are accumulated for Buyer based upon Buyer's net shipments
multiplied by a factor of two (2%) percent.
2. All MDF credits are held by Proxima until the sooner of (i) a claim,
approved by Proxima, is processed, or (ii) termination/expiration of the
Agreement in which event unused credits will be forfeited by Buyer. In the event
the Agreement is renewed for another Term, unused credits from the prior Term do
not carry over.
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3. Buyer may request Proxima to apply MDF credits to Buyer's account
provided that:
A. The request is within sixty (60) days of the event;
B. Buyer contributes fifty (50%) percent of event cost; and
C. Buyer has submitted a request and received, in writing, from
Proxima, notification that the event meets Proxima qualifications
for MDF, prior to the event date; and
D. Buyer has submitted final invoice copies as proof of event, and
other information as requested by Proxima Marketing after the
event.
4. Orders containing discounts above those offered in Exhibit B will not be
included in calculating Buyer's MDF credits.
5. In the following month, Proxima will calculate and apply buyer's MDF
credits and notify Buyer of remaining MDF availability.
6. Proxima reserves that absolute right to determine the suitability and/or
eligibility of any expenditure for reimbursement in accordance with Proxima
Marketing Department Guidelines and Section 13 of the Agreement.
7. Proxima reserves the right to change the requirements for or discontinue
the availability of MDF upon thirty (30) days written notice.
D. DEMONSTRATION HARDWARE
From time to time, Proxima may offer the Buyer demonstration equipment under
special program terms. If Buyer takes advantage of Proxima's demonstration
program terms, Buyer must retain possession of the demonstration equipment for
at least six (6) months after it has made payment to Proxima for the equipment.
Failure to do so is cause of termination of this Agreement.
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- --------------------------------------------------------------------------------
EXHIBIT 10.9
HEWLETT - PACKARD
U.S. AGREEMENT FOR SUPPLIES RESELLERS
TABLE OF CONTENTS
U.S. RESELLER CHANNEL AGREEMENT
1. APPOINTMENT
2. STATUS CHANGE
3. PRICES
4. PAYMENT
5. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
6. PRICE ADJUSTMENTS; PRICE PROTECTION
7. STOCK ADJUSTMENTS
8. DEFECTIVE UNITS
9. USER WARRANTY
10. LIMITATION OF REMEDIES AND LIABILITY
11. RELATIONSHIP
12. RESELLER RECORD-KEEPING
13. TRADEMARK
14. LICENSING
15. PATENT INDEMNITY
16. TERMINATION
17. AMENDMENT
18. GENERAL CONDITIONS
19. ADDENDA
20. STATEMENT OF OWNERSHIP
21. AUTHORIZED SIGNATURES
U.S. SUPPLIES RESELLER ADDENDUM
1. APPOINTMENT
2. VOLUME COMMITMENT LEVELS
3. RESELLER ORDER MILESTONES
4. APPROVED LOCATIONS
5. RESELLER SALES
6. RESELLER REQUIREMENTS
A. INVENTORY
B. ADVERTISING
C. SALES FORCE
D. TRAINING
E. PRIMARY CONTACT
F. NEW PRODUCT INTRODUCTIONS
7. RESELLER PROGRAMS
8. EXHIBITS
9. AUTHORIZED SIGNATURES
<PAGE>
- --------------------------------------------------------------------------------
HEWLETT - PACKARD
Miami Computer Supply, Inc. 52GCX
- ---------------------------------------- -----------------
Company Name Agreement #
3884 Indian Ripple Road
- -------------------------------------------------------------------------
Address
Dayton OH 45440 (513) 429-5211
- ------------------------------------------------- -------------------
City State Zip Code Telephone #
1. APPOINTMENT
A. Hewlett-Packard Company ("HP") appoints the reseller named above
("Reseller") as an authorized, non-exclusive reseller for the HP
Personal Computer Products ("HP Products") which HP has approved
Reseller to market listed on one or more HP Product Exhibits ("Product
Exhibits") specified in the Addenda subject to the terms set forth in
this Agreement and in the Addenda, for the period from the effective
date indicated below through the date specified in the Addenda.
Reseller accepts this appointment on these terms.
B. Reseller's approved locations are specified in the Addenda. All
Reseller's sales, advertising and promotional activities for HP
Products must be conducted from these locations.
C. Reseller will conduct business relating to HP Products only in the
name(s) specified in this Agreement.
2. STATUS CHANGE
A. If a Reseller wishes to:
1) Change its name or that for any approved location;
2) Add or close an approved location;
3) Undergo a merger, acquisition, consolidation or other reorganization
with the result that any entity controls 20% or more of Reseller's
capital stock of assets after such transaction;
4) Undergo a significant change in control or management of Reseller
operations;
then Reseller shall notify HP in writing prior to the intended date
of change. HP will promptly notify Reseller in writing of its
approval or disapproval of the proposed change.
B. HP must approve proposed Reseller changes prior to any obligation of HP
to perform under this Agreement with Reseller as changed.
3. PRICES
A. HP's corporate price lists are internal data basis indicating current
list prices for HP Products ("list prices"). HP reserves the right to
change list prices upon reasonable notice to Reseller. If Reseller is
unsure of the list price to use in calculating net Reseller price for
any HP Product, Reseller should contact its HP sales representative.
B. Net Reseller price for HP Products purchased under this Agreement will
be the list price at the time of Reseller's orders, less the discounts
based on Reseller's volume commitments as specified in the Product
Exhibits.
C. Net Reseller price includes transportation arranged by HP. HP reserves
the right to charge Reseller for any special routing, handling or
insurance requested by Reseller. Orders shipped special routing shall be
F.O.B. Origin. Requests for proof of delivery are subject to limitations
and service charges.
D. Net Reseller price does not include State and local taxes. HP will
invoice Reseller for these taxes, based on point of delivery, unless the
appropriate resale exemption certificates are on file at HP's
order-entry point, or unless HP agrees the sale is otherwise exempt.
4. PAYMENT
A. Reseller will pay all invoices in full within 30 days after date of
invoice unless other terms are specified in its HP flooring agreement.
HP reserves the right to specify Cash in Advance or other terms for
credit reasons.
<PAGE>
B. Claims for adjustment of any invoice will be waived if Reseller fails
to present them within 90 days from date of HP invoice. No claims,
credits or offsets may be deducted from any invoice.
5. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Reseller will comply with the minimum order, release and ship-to
requirements specified in the Product Exhibits or otherwise prescribed
by HP.
B. HP will honor written and telephone orders from Reseller's approved
locations. Reseller is responsible for ensuring that only authorized
employees place, change or delete orders.
C. Reseller may request shipment up to 90 days after order date.
D. Shipments are subject to availability. HP reserves the right to schedule
and re-schedule any order, at HP's discretion, and to decline any order
for credit reasons or because the order specifies an unreasonably large
quantity or makes an unreasonable shipment request.
E. Reseller may cancel a shipment or request changes in a scheduled
shipment date at no charge up to 5 working days before scheduled
shipment. Any later cancellation or change will be subject to a charge
of 5% of the shipment's list price value. If in transit, it will also be
subject to applicable freight charges.
F. HP will use reasonable efforts to meet any scheduled shipment date.
However, HP will not be liable for delay in meeting a scheduled shipment
date for any reason. If HP Products are in short supply, HP will
allocate them equitably, at HP's discretion.
G. HP will ship HP Products only to approved locations. Business conducted
at each location approved by HP must be greater than 50% owned by
Reseller. An exception will be made where a Product Exhibit indicates
drop-shipment is available for a specific HP Product; drop-shipment for
such products will be subject to any limitations prescribed by HP.
H. Reseller must meet additional requirements to be eligible to order
certain HP Products ("Qualified Distribution Products") as specified on
the Product Exhibits.
I. Title to HP Products and risk of loss and damage will pass to Reseller
F.O.B. Destination.
J. HP may, from time to time, offer Reseller certain HP Products on special
promotional terms or to clear obsolescent, used or refurbished units.
All such purchases may be subject to discounts different from those
shown in the Product Exhibits; they may not, in some cases, count
towards attainment of Reseller's volume level; they may not be eligible
for promotional allowance funds and will not be eligible for price
protection or stock adjustment. With these exceptions, Reseller's
purchases in response to these offers are subject to the terms set forth
in this Agreement.
6. PRICE ADJUSTMENTS; PRICE PROTECTION
A. If HP raises list prices, HP will bill based on the old, lower price
for orders placed by Reseller within one month after the effective date
of the increase. Limited quantity restrictions may apply.
B. If HP reduces list prices, HP will bill based on the new, lower price
for HP Products shipped on or after the effective date of the reduction.
C. HP Products eligible for price protection are so designated on each
Product Exhibit. If HP reduces list prices, HP will grant Reseller a
price protection credit calculated by one of the two following methods
(and HP will decide at its discretion which method will be used):
1) The credit will equal the total reduction in net Reseller price for
eligible products in Reseller's inventory and in transit to Reseller,
using a verification process determined by HP.
2) The credit will equal 100% of the total reduction in net Reseller
price for eligible products shipped within one month before the
effective date of the reduction, or 75% of the reduction for eligible
products shipped within two months before that date, whichever is
greater.
D. HP may require that Reseller accumulate a minimum credit of $200 in a
particular month before HP extends price protection to Reseller for that
month.
7. STOCK ADJUSTMENTS
A. HP Products that may be eligible for stock adjustment are so designated
on each Product Exhibit. To be eligible for stock adjustment at the time
of return, such products must still be listed on HP's then-current
Product Exhibits, in their unopened, original packaging, and marketable
as new merchandise. Items not eligible or marketable as new will be
returned at Reseller's expense.
B. Products returned for stock adjustment are subject to a restocking
charge. The restocking charge will be as indicated on each Product
Exhibit. The minimum charge for any return will be $50.
C. Eligible HP products may be returned for stock adjustment in one
consolidated shipment from each approved location, freight prepaid, once
each month during the term of this Agreement. The return may equal up to
5% of HP shipments during the previous quarter. Quarters will be
calculated as follows:
November through January, February through April, May through July, and
August through October. Reseller must purchase new HP Products of equal
or greater value for immediate shipment at the time of the return.
D. Reseller must obtain a Notice of Return number (NOR) for each shipment
of hardware and a separate NOR for each shipment of software returned
for stock adjustment. If a NOR does not appear on the outside of all
boxes returned to HP, the shipment will be ineligible for stock adjust-
ment and will be returned to Reseller at Reseller's expense.
E. Reseller will receive a credit for eligible HP Products returned for
stock adjustment at the net Reseller price in effect when HP receives
them, less the return charges indicated above and any promotional
discounts.
8. DEFECTIVE UNITS
A. Reseller and HP agree that the procedure provided below for return and
repair, replacement or credit for defective units will be Reseller's
exclusive remedy for any claim relating to any alleged defect or
nonconformity in HP Products.
B. HP will repair, replace or provide credit to Reseller for any HP
Product found defective by Reseller within 180 days of its shipment to
Reseller and prior to its sale to the end-user customer.
1) Unless HP gives other instructions, the defective unit will be
returned to HP freight collect. Reseller must notify HP that the
unit is being returned and must obtain a Notice of Return number
(NOR). If a NOR does not appear on the outside of all boxes returned
to HP, the shipment will be returned to Reseller at Reseller's
expense.
2) HP may inspect the unit to verify that it is eligible for repair,
replacement or credit. Such eligibility will be based solely on
whether the unit is in fact defective and whether the claim is
timely, and HP's approval will not be unreasonably withheld.
3) HP will be entitled to determine at its discretion whether to
repair, replace or provide credit for the defective unit.
4) HP will not repair, replace or provide credit for units damaged
from abuse or misuse (including improper storage), attempted repair
by an unauthorized service center or repossession. Reseller will
reimburse HP for freight for such units, or where no defects are
found.
5) Units repaired by local HP repair personnel may be repaired with
remanufactured parts.
9. USER WARRANTY
A. HP Products covered by a User Warranty are so designated
on each Product Exhibit, and copies of the User Warranty will be
supplied with these products. The User Warranty will be supplied with
these products. The User Warranty runs in favor of the ultimate user of
the product. The User Warranty period begins on the User's date of
purchase or the first day of rental by a Reseller. HP may require that
Reseller provide proof of purchase by the end-user. The User Warranty is
the only warranty covering any HP Product sold under this Agreement.
B. Some newly manufactured products purchased hereunder may contain
selected remanufactured parts equivalent to new in performance.
C. NO OTHER WARRANTY IS EXPRESSED OR IMPLIED. HP SPECIFICALLY DISCLAIMS THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
10. LIMITATION OF REMEDIES AND LIABILITY
A. THE REMEDIES PROVIDED IN THIS AGREEMENT, INCLUDING THE PROCEDURE FOR
RETURN OF DEFECTIVE GOODS, ARE RESELLER'S SOLE AND EXCLUSIVE REMEDIES.
HP WILL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
LEGAL THEORY.
B. The foregoing limitation of liability will not apply in the event that
any HP Product sold hereunder is determined by a court of competent
jurisdiction to be defective and to have directly caused bodily injury,
death or property damage, provided that in no event will HP's liability
for property damage exceed the greater of $50,000 or the purchase price
of specific product that caused such damage.
11. RELATIONSHIP
A. Reseller's relationship to HP will be that of an independent contractor
engaged in purchasing HP Products for resale to Reseller's customers.
Reseller and its employees are not agents or legal representatives of HP
for any purpose and have no authority to act for, bind or commit HP.
Reseller and HP agree that this Agreement does not establish a
franchise, joint venture or partnership.
B. Any commitment made by Reseller to its customers with respect to
quantities, delivery, modifications, interfacing capability or
suitability will be Reseller's sole responsibility unless prior written
approval is obtained from HP. Reseller has no authority to modify the
User Warranty or to make any commitment on HP's behalf other than
options outlined by HP, and Reseller will indemnify HP from liability
for any such modified warranty or other commitment by Reseller.
<PAGE>
C. List prices are suggested prices for resale to Reseller's customers and
a basis for calculating net Reseller price. Reseller has the right to
determine its own resale prices, and no HP representative will require
that any particular price be charged by Reseller or grant or withhold
any treatment to Reseller based on Reseller's pricing policies. Reseller
agrees that it will promptly report any effort by HP personnel to
interfere with its pricing policies directly to an HP officer or
manager.
D. This Agreement applies only to the HP Products listed on the Product
Exhibits (U.S. versions only). Reseller acknowledges that HP may market
other products, including products in competition with those listed on
the Product Exhibits without making them available to Reseller. HP
reserves the right to advertise, promote and sell any product in
competition with Reseller as HP deems appropriate.
12. RESELLER RECORD-KEEPING
A. For purposes of contract compliance verification, product safety
information, corrections for operational problems and the like, Reseller
is required to maintain records of customer purchases of printers,
plotters, scanners and computers for one year. Records must include
customer name, address, phone number, serial number and date of sale of
the above products.
B. At HP's discretion, and upon notice to Reseller, HP or HP's designate
will be given on-site access to Reseller's customer records, inventory
records and other books and records of account as necessary to verify
and audit Reseller's compliance with the terms of this Agreement.
C. HP may require Reseller to provide HP or HP's designate with sales
performance and inventory data in a format specified by HP (including,
but not limited to, such information as total units of selected HP
products sold and held in inventory by month for each authorized
location).
13. TRADEMARK
A. From time to time, HP may designate one or more HP trademarks as
available for Reseller's use and will provide standards for that use. HP
authorizes Reseller to use these designated trademarks.
1) Reseller will use the designated trademarks in accordance with these
standards solely in advertising and promoting HP Products, in good
taste and in a manner that preserves their value and HP's rights in
them.
2) Reseller will not use any HP trademark or trade name in a way that
implies Reseller is an agency or branch of HP. Reseller will
immediately change or discontinue any use as requested by HP.
3) Reseller has no right, title or interest in any HP trademark or
trade name and is not authorized to use any HP trademark or trade
name other than the designated trademarks. Any rights in any HP
trademark or trade name acquired through Reseller's use belong solely
to HP.
14. LICENSING
A. Unless prior written consent is obtained from HP, Reseller will not copy
or modify any materials supplied under this Agreement, except that
software materials may be copied for archival purposes to replace a
defective copy or for program error verification. Reseller will not
remove, omit or alter any label or copyright notice on or in these
materials.
B. Reseller is granted the right to distribute software materials supplied
by HP in accordance with the license terms supplied with these
materials. Reseller may also use the materals for demonstration purposes
in accordance with those license terms.
1) Where an end-user agreement is supplied with the software, the user
must sign the agreement or indicate acceptance by opening the media
package in order to obtain a license to use it. Use of the software
will be subject to the terms of the agreement.
2) Where the software is designated as confidential or a trade secret in
its license terms, Reseller will safeguard the software in accordance
with industry standards and applicable law, using the same degree of
care to prevent unauthorized disclosure as Reseller uses with its own
trade secrets and those of other suppliers.
15. PATENT INDEMNITY
A. HP will, except as otherwise provided below, defend or settle any claim
made or suit or proceeding brought against Reseller so far as it is
based on an allegation that any HP Product sold under this Agreement
infringes a U.S. patent, trademark or copyright, provided HP is notified
promptly in writing and given information, assistance and sole authority
to defend or settle same at HP's expense; and HP will pay all damages
and costs finally awarded therein against Reseller. If any such HP
Product is held to infringe and its use is enjoined, or in case of a
settlement, HP will have the option at HP's expense to replace same with
a non-infringing product; or modify same so it becomes non-infringing
product; or modify same so it becomes non-infringing; or repurchase same
from Reseller at net Reseller price, provided it is new and in its
unopened, original packaging.
<PAGE>
B. The foregoing states HP's entire liability for intellectual property
infringement by products furnished under this Agrement.
16. TERMINATION
A. Either party may terminate this Agrement without cause at any time upon
30 days' written notice, or with cause at any time upon 15 days' written
notice.
B. If either party gives the other notice of termination or advises the
other of its intent not to renew this Agrement, HP may require that
Reseller pay Cash in Advance for additional shipments during the
remaining term hereof, regardless of Reseller's previous credit status,
and may withhold all such shipments until Reseller pays its previous
balance.
C. Upon termination or expiration of this Agreement for any reason,
Reseller will immediately cease to be an authorized HP Reseller and will
refrain from representing itself as such and from using any HP trademark
or trade name.
D. Upon any such termination or expiration, either party may require that
HP purchase any HP Products sold to Reseller by HP under this Agreement
that are on HP's then-current Product Exhibits, in their unopened,
original packaging and marketable as new merchandise. HP will pay
Reseller HP's then-current net Reseller price or Reseller's original
purchase price for such products, whichever is lower. Reseller should
contact its HP sales representative for information about the items
eligible for repurchase and instructions for their return at HP's
expense.
E. The indemnities provided in this Agreement will survive
termination or expiration hereof.
17. AMENDMENT
A. HP may, from time to time, add products to or delete them from the
Products Exhibits, change list prices or discounts or implement special
promotional programs, at HP's discretion, after reasonable notice to
Reseller.
B. HP may, from time to time, give Reseller written notice of amendments to
this Agreement. Any such amendment will automatically become a part of
this Agreement on the effective date specified in the notice.
C. Each party acknowledges that the other has made no commitments regarding
duration or renewal of this Agreement beyond those expressly stated
herein.
18. GENERAL CONDITIONS
A. Neither party may assign or transfer this Agreement. Any attempted
assignment or transfer will be void.
B. Either party's failure to enforce any provision of this
C. This Agreement and the attached Addenda and associated Product Exhibits
contain the entire and only understanding between the parties relating
to the subject matter hereof. HP hereby gives notice of objection to any
additional or inconsistent terms set forth in any purchase order or
other document issued by Reseller. Except as provided in paragraphs 17A
and 17B, no modification of this Agreement will be binding on either
party unless made in writing and signed by both parties.
D. No U.S. Government procurement regulations will be deemed included
hereunder or binding on either party unless specifically accepted in
writing and signed by both parties.
E. This Agreement will be governed by the laws of the State of California.
19. THE ADDENDA LISTED BELOW ARE ATTACHED TO AND MADE A PART OF THIS AGREEMENT.
____ADDENDUM (U.S. SUPPLIES RESELLER)
____ADDENDUM
<PAGE>
20. STATEMENT OF OWNERSHIP
Name of Company:_______________________________________________________________
Form of Organization (e.g. Corporation, General Partnership, etc):_____________
_______________________________________________________________________________
State of Organization:_________________________________________________________
Owners (for publicly held corporations, owners of 20% or more of any class
of shares):
Name: Interest(%):
________________________________________ ___________________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
Board of Directors, Officers, Partners:
Name: Title:
________________________________________ ___________________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
<PAGE>
21. AUTHORIZED SIGNATURES
A. RESELLER
________________________________________________________________________
Authorized Signature
________________________________________________________________________
Type Name
________________________________________________________________________
Title
________________________________________________________________________
Signing Date
B. HEWLETT-PACKARD COMPANY
________________________________________________________________________
Authorized Signature
________________________________________________________________________
Type Name
________________________________________________________________________
Title
________________________________________________________________________
Effective Date
________________________________________________________________________
Expiration Date
<PAGE>
Hewlett-Packard Company
5301 Stevens Creek Boulevard
P.O. Box 58059
Santa Clara, California 95052-8059
January 1, 1996
1996 Agreement #: 57AGG
MIAMI COMPUTER SUPPLY, INC.
3884 INDIAN RIPPLE ROAD
DAYTON, OHIO 45440
Customer ICN: 2750
Dear MIAMI COMPUTER SUPPLY, INC.,
In HP's quest to simplify the contracting and negotiating process, your 1996
HP Agreement and Addendum is based substantially on your 1995 Agreement and
Addendum.
In fact, the text of the 1995 Agreement, Addendum and Exhibit L as negotiated
between HP and you is carried forward and repeated in 1996, except for those
modifications indicated in this letter. All other terms and conditions of your
1995 Agreement remain unchanged.
Included with this letter are the new companion documents which form a part of
your 1996 Agreement, the Operations Policy Manual, Product Acquisition and
Resale Categories and Product Exhibits.
Amendments to your U.S. Reseller Agreement:
Section 2.A.3
Status Change: Modify to read as follows:
"Undergo a merger, acquisition, consolidation or other reorganization with the
result that any entity controls 50% or more of Reseller's capital stock or
assets after such transaction; or"
Section 10
Price Adjustments; Price Protection: Deleted and moved to the Operations
Policy Manual (OPM) as modified.
Section 16
Reseller Record Keeping: Modify to read as follows:
"HP or HP's designate will be given prompt access during normal business hours,
either on sight or through other means specified by HP to Reseller's customer
records of account specifically related to HP Products as HP believes are
reasonably necessary to verify and audit Reseller's compliance with this
Agreement".
Amendment to your U.S. Supplies Reseller Addendum:
Section 3.H
Reseller Responsibilities: Deleted and moved as modified to the HP Product
Acquisition and Resale Categories.
Signature Page:
Change effective date to 3/1/96 and the expiration date to 2/28/97.
AUTHORIZED SIGNATURES HEWLETT-PACKARD COMPANY
- --------------------- -----------------------
- ---------------------------------- -----------------------------------------
Authorized Signature Sue Weatherman, Reseller Contracts Manager
- ---------------------------------- -----------------------------------------
Typed Name Date
- ----------------------------------
Title
- ----------------------------------
Date
EXHIBIT 10.10
1.0 DEFINITIONS
Agreement means this Dealer Agreement, Bulletin(s), applicable Statement(s) of
Limited Warranty and notices.
Authorized Location means any of your locations approved by Lexmark in writing
for the purposes of your performance under the Agreement.
End User means an unaffiliated party who acquires the Products from you for its
own use and not for remarketing.
PLA Programs means licensed programs which Lexmark designates as subject to the
Lexmark Program License Agreement (PLA).
Products means machines, licensed programs, and other items you can market under
the Agreement.
2.0 CONTRACT PERIOD
The Agreement has a single 12 month contract period which commences on the first
day of the month following Lexmark's receipt of a signed Agreement, provided it
is accepted by Lexmark. The Agreement can be renewed by the parties for
subsequent single 12 month contract periods. Unless Lexmark notifies you
otherwise, the renewal of the Agreement shall automatically occur unless either
party notifies the other of its desire not to renew at least 90 days prior to
the contract period expiration date. Either party can elect not to renew the
Agreement with or without cause.
3.0 RELATIONSHIP OF THE PARTIES
As an independent contractor, you are not Lexmark's legal representative,
franchisee, or agent for any purpose.
You will not make any warranties or representations on Lexmark's behalf other
than those specified in the Agreement. You will not assume or create any
obligations on Lexmark's behalf except as specified in the Agreement.
You will market Products to End Users at such prices and terms and conditions as
you determine. Such terms and conditions must not be in conflict with your
obligations in the Agreement.
Lexmark reserves the right to market anywhere, including your geographic area,
products which are the same as or similar to the Products under the Agreement
either directly or through other remarketers.
You reserve the right to market products which are similar or competitive to the
Products under the Agreement.
<PAGE>
Lexmark may establish annual sales performance objectives for the Products which
you are approved to market.
Lexmark may conduct reviews to evaluate your performance and compliance with the
provisions of the Agreement.
No information will be given or received in confidence by either party unless it
is covered by a separate written agreement.
4.0 MARKETING TO END USERS
The Products you market under the Agreement require your high quality
individualized pre-sale and post-sale support. This support is necessary to
achieve and maintain high End User satisfaction. Your ability to provide this
support is a key reason Lexmark selected you as an authorized dealer. You,
therefore, will market Products only to End Users. You agree not to market
Products to other remarketers, except as agreed to by Lexmark.
Furthermore, in order to ensure End User satisfaction for certain Products,
there must be at least one pre-sale face-to-face meeting between you and your
prospective End User. Current products requiring such face-to-face meeting are
printers and the Personal Typing System.
5.0 DEALER RESPONSIBILITIES
You agree to:
1) ensure the Product marketed to the End User is appropriate for the End
User's requirements;
2) ensure that the End User is satisfied with all your Product marketing
activities, including Product explanation, demonstration, and ongoing
support;
3) maintain an End User record for each unit of the Product sold or
licensed. End User records are not required for Supplies. An End User
record will include the name and address of the End User, the date of
the sale or license, the Product Type/Model sold or licensed, and the
Product's serial number, if applicable. You must retain the End User
record for five years after the date of sale or license. You must assist
Lexmark, upon Lexmark's request, in tracing a Product to an End User to
distribute Product information or locate a Product for safety reasons;
4) furnish a sales receipt to the End User upon delivery of the Product
indicating the date of sale or license and the serial number, if any, of
the Product sold or licensed. You must retain a copy of that sales
receipt for one year from the date of sale or license. You must indicate
on the sales receipt for the Product any non-Lexmark alterations made to
the Product;
5) report your sales performance and inventory as requested by Lexmark;
<PAGE>
6) install each Product as specified by Lexmark;
7) receive, place in inventory, market, perform warranty service for, and
support Products only at your Authorized Location or at your End User's
location unless Lexmark specifies otherwise; reference only your
Authorized Location in your marketing materials or advertising;
8) advertise Products designated as Supplies prominently in your catalogue;
9) maintain a sufficient inventory of Products to satisfy reasonably
foreseeable End User demand;
10) provide floor space and related facilities at your Authorized
Location(s) to display and demonstrate the Products;
11) maintain a required number of trained management, sales, support and
service personnel;
12) report promptly to Lexmark all suspected and actual Product problems;
13) provide a product business plan as required by Lexmark;
14) notify Lexmark of any discrepancies between the Lexmark shipping
manifest and the Product received;
15) maintain good financial standing and provide financial information and
evidence of financial security upon request;
16) allow Lexmark or its appointed auditor to audit, during normal business
hours, the above required records and receipts.
6.0 ORDERS AND CANCELLATIONS
Lexmark will describe specific ordering procedures and forecast requirements, if
any, in writing.
Lexmark will fill your orders for Products and meet your request for shipment
dates subject to the Product's availability and consistent with Lexmark's
production and supply schedules.
You may cancel an order for any Product which Lexmark has not shipped to you.
Lexmark may charge you a Cancellation Charge of 2% of the cancelled Product's
Dealer price. However, you will not be liable for a Cancellation Charge if
Lexmark has postponed shipment of the Product for more than 15 days from its
estimated shipment date, and you have cancelled your order for the Product
before the Product's shipment. Product ordered and cancelled the same day will
not be assessed a cancellation charge.
Lexmark will charge you a Handling Charge of 5% if you refuse to accept a
Product you ordered. You must prepay all transportation charges for return of
the Product to Lexmark.
<PAGE>
7.0 PRICES
Lexmark will specify its Dealer prices in notices and an electronic file.
Dealer prices are F.O.B. destination, unless Lexmark specifies otherwise.
Lexmark may change its Dealer prices at any time.
A Dealer price increase for a Product is effective on the date specified.
However, a Dealer price increase will not apply to a Product for which Lexmark
has received an order prior to the day the increase is effective, provided
Lexmark accepts such order.
A Dealer price decrease is effective on the date specified and will apply to
Products shipped on or after the effective date of the decrease.
A single unit price reflects the prices for single units of Product acquired by
End Users directly from Lexmark. A suggested retail price may also be
established by Lexmark. Both are subject to change without notice. These prices
are for informational purposes only and shall not limit in any way your ability
to set your own prices, charges and terms and conditions for Products.
Lexmark may specify any additional fees and allowances in notices. Lexmark may
change the fees and allowances at any time. Such changes will become effective
on the date Lexmark specifies.
Printers
Price schedules are based on a single order, with a single shipment to a single
location:
Schedule I - Invoice value under $3,000
Schedule II - Invoice value of at least $3,000 and printers can be
ordered in any quantities
Schedule III - Invoice value of at least $25,000, and printers must be
ordered in full pallet quantities
Printer features may not be included to meet invoice values.
Typewriters
Price schedules for typewriters are based on a single order, with a single
shipment to a single location.
Schedule I - Invoice value under $7,000
Schedule II - Invoice value of at least $7,000 and less than $30,000
Schedule III - Invoice value of at least $30,000
All typewriter models and IBM Personal Typing Systems may be aggregated for
purposes of determining invoice value.
<PAGE>
Features and Personal Typing System Printers may not be included for purposes of
determining invoice value.
Supplies
Dealer Prices and minimum order quantities are set forth in notices. Each order
for supplies for shipment to a single Authorized Location must be for an amount
of at least $500.
8.0 PAYMENT
You agree to pay Lexmark upon your receipt of an invoice. If you fail to pay,
Lexmark may:
1) impose a finance charge on the balance due; and
2) exercise many of its rights provided in the Agreement or by law;
9.0 PRICE REDUCTION CREDIT
If Lexmark announces a Dealer price decrease for a Product, you may be eligible
to receive a price reduction credit.
Printers and Typewriters
The price reduction credit equals the credit amount per Product, as specified by
Lexmark, multiplied by your existing inventory and Product in transit on the
effective date.
In order to qualify for a price reduction credit, you must:
1) provide a report of your inventory of the Product in a format
and time frame specified by Lexmark;
2) have provided such report for at least the two prior months;
3) provide access, during normal business hours, to allow Lexmark
to audit applicable records and inventory.
Printer and Typewriter Features and Supplies
The price reduction credit for features and supplies equals the credit amount
per item, as specified by Lexmark, multiplied by the quantity shipped directly
from Lexmark to you (minus returns from you) in the prior two months.
10.0 INVENTORY ADJUSTMENTS
During a contract period, you may return for credit selected Products which you
obtained directly from Lexmark. Lexmark will specify which Products are
returnable in notices or an electronic file.
<PAGE>
Upon receipt and acceptance of a returned Product. Lexmark will issue you a
Product credit as determined by Lexmark. You may use such credit only against
sums then or thereafter due Lexmark.
You must return all Products to Lexmark, transportation prepaid, in the original
shipping containers which must not have been opened, damaged, marked or labeled.
The Products must be in marketable condition as determined by Lexmark.
Any prior passage to you of title to Products will be deemed void from its
inception when the returned Products are accepted by Lexmark. You warrant and
represent that the returned Products are free of any outstanding liens, security
interests or other third party encumbrances.
Lexmark may charge a Handling Charge of 5% multiplied by the Dealer price for
any returned Product.
You may return these Products only once a month and you must accompany each
shipment of returned Products with a "Returns Authorization Form."
For Products being withdrawn from marketing, guidelines or limitations on
returns may be contained in the withdrawal notice.
Printers and Typewriters
The maximum number of units of a Product you may return in a given month is
equal to the number of units of inventory of such Product you reported for the
previous month.
Printer and Typewriter Features
The maximum number of features you may return is equal to the number of features
shipped to you by Lexmark in the immediately preceding six months less any
returns during that period.
Supplies
Only two return shipments of supplies are allowed per contract period. The
maximum quantity of supplies you may return is equal to the quantity shipped to
you by Lexmark in the immediately preceding nine months less any returns during
that period.
11.0 WARRANTIES
Lexmark will include the applicable Statement of Limited Warranty with machines
shipped. Lexmark will provide you a copy of the Statement of Limited Warranty
which you are to provide to your End User at the time of sale. Lexmark may
revise a Statement of Limited Warranty.
The warranty period will start on the day the End User purchases the Product.
You will advise the End User of this start date.
<PAGE>
12.0 WARRANTY SERVICE
The Service Support Guide is incorporated in the Agreement by reference.
You will:
1) provide warranty service under the terms of the applicable
Statement of Limited Warranty and in accordance with the Service
Support Guide;
2) validate all warranty claims presented to you; and
3) maintain the capability to provide warranty service according to
the requirements and procedures specified in the Service
Support Guide.
Lexmark will:
1) provide, at no fee, either service training in a Lexmark
designated classroom or self-education materials for the number
of service personnel required;
2) provide, as part of service training, selected service materials;
3) make available to you, for a fee, a) service training for
additional service personnel, and b) additional service
materials; and
4) honor your valid claims for warranty reimbursement for labor
(when applicable) and/or credits for parts or exchange of parts
as specified in the Service Support Guide.
13.0 MAINTENANCE PARTS
Lexmark or IBM will sell you maintenance parts only for providing warranty and
maintenance service or for sale to End Users for the sole purpose of maintaining
their machines.
14.0 LICENSED PROGRAMS
Licensed programs may be made available, as determined by Lexmark, to you to
market under the provisions of the Agreement and the PLA or a third party
agreement.
You agree to ensure that your End User understands and agrees to the PLA.
You agree to accept return of a PLA program, provided it is in its original,
unopened package, and refund the money paid by an End User who does not wish to
be bound by the PLA. If the PLA permits the return of a PLA program with an
accompanying specified Product, you agree to accept the return of the PLA
program with the other Product for refund.
15.0 SECURITY INTEREST
Lexmark reserves a purchase money security interest in each Product, in your
proceeds from the sale of each Product, and in your accounts receivable for such
Product. This interest will be satisfied by payment in full.
You agree to sign an appropriate document to permit us to perfect Lexmark's
purchase money security interest.
<PAGE>
16.0 TITLE AND RISK OF LOSS
Title passes to you for each machine on its date of shipment from Lexmark. Title
for each copy of a PLA program remains in Lexmark.
Lexmark relieves you of responsibility for all risk of loss of, or damage to, a
machine during the period it is in transit from Lexmark up to its initial
delivery to you.
17.0 TAXES
You agree to pay amounts equal to any taxes resulting from the Agreement or any
activities under the Agreement. Such taxes do not include taxes based on
Lexmark's net income. You are responsible to bear any personal property taxes
assessable on Products on or after delivery to the carrier at the Lexmark
ship-from location.
You agree to provide Lexmark with a valid Reseller Exemption Certificate for
each taxing jurisdiction to which Products acquired by you for resale will be
shipped by Lexmark under the Agreement. If such Certificate(s) is not provided
to Lexmark prior to shipment, Lexmark will charge, and you will be required to
pay, all applicable state and local taxes.
You agree to notify Lexmark promptly of the revocation or modification of any
Reseller Exemption Certificate so provided. You further agree to indemnify and
hold Lexmark harmless from any claims and assessments against Lexmark resulting
from a refusal by a taxing jurisdiction to recognize any of your Reseller
Exemption Certificates.
18.0 STATUS CHANGE
To maintain your authorization, you must request Lexmark approval in writing if
you anticipate a:
1) sale of your enterprise;
2) transfer of your equity ownership;
3) significant change in your management;
4) merger or acquisition of your enterprise or Authorized Location
with or by any other entity;
5) legal name change of your enterprise;
6) relocation of an Authorized Location; or
7) closing of an Authorized Location.
19.0 TRADEMARKS AND TRADE NAMES
You may refer to yourself under the Agreement as a Lexmark Authorized Dealer:
1) solely in connection with Products;
2) only during the contract period; and
3) only within the United States and Puerto Rico.
<PAGE>
Except as provided for in this Section, Lexmark does not grant you the right to
use trademarks or trade names. Lexmark grants you the limited permission to use
the trademark "Lexmark" or "IBM" solely to identify the Products acquired from
Lexmark under the Agreement. You may use the trademarks "Lexmark" or "IBM" only
within the Untied States and Puerto Rico.
At Lexmark's request, you will provide to Lexmark for review and written
approval, promotional, advertising and other materials that:
1) use a Lexmark, International Business Machines Corporation (IBM)
or third party trademark or trade name; or
2) refer to you as a "Lexmark Authorized Dealer".
Lexmark will supply advertising guidelines in writing. At Lexmark's request, you
agree to change any materials or use of materials which Lexmark determines to be
inaccurate, objectionable, misleading or a misuse of Lexmark or IBM trademarks.
You will pay the expenses for such change.
The permission granted relative to the Lexmark or IBM trademarks will terminate
with the termination or expiration of the Agreement. In such event, for the
affected Products, you will immediately:
1) cease referring to yourself as a "Lexmark Authorized Dealer" or
other such term that includes the name of the Products, as
applicable;
2) cease referring to yourself as approved by Lexmark to provide
warranty services; and
3) return to Lexmark or destroy all materials under your control
employing such trademarks.
You may retain materials with Lexmark or IBM trademarks which are required to
fulfill your warranty service or support obligations on affected Products. You
will return these materials to Lexmark or destroy them upon completion of such
obligations.
You recognize Lexmark's ownership and title to its trademarks and the goodwill
attaching to them. You also recognize IBM's ownership and title to its
trademarks and the goodwill attaching to them. You agree that any goodwill which
accrues because of your use of the trademarks "Lexmark" or "IBM" will become
Lexmark's or IBM's property, respectively. You agree not to contest Lexmark or
IBM trademarks or trade names. You agree not to use, employ or attempt to
register any trademarks or trade names which are confusingly similar to Lexmark
or IBM trademarks or trade names. IBM may revoke immediately, without prior
notice, any permission to use IBM trademarks granted to you under the Agreement
if IBM determines that you are misusing such IBM trademarks or if you place any
IBM trademark on any product in violation of any law or IBM's legal rights.
20.0 PATENTS AND COPYRIGHTS
Lexmark will, at its expense, defend you against any claim that any machine
acquired under the Agreement infringes a patent or copyright in the United
States or Puerto Rico. Lexmark will pay all costs, damages and attorney's fees
that a court finally awards as a result of such claim. To qualify for such
defense and payment, you must 1) give Lexmark prompt written notice of any
<PAGE>
such claim, and 2) allow Lexmark to control, and fully cooperate with Lexmark
in, the defense and all related settlement negotiations.
You agree that if a machine in your inventory, or the operation of a machine
while in your inventory, becomes, or Lexmark believes is likely to become, the
subject of such a claim, you will permit Lexmark, at its option and expense,
either to secure the right for you to continue using the machine or to replace
or modify it so that it becomes noninfringing. However, if neither of the
foregoing alternatives is available on terms which are reasonable in Lexmark's
judgment, you will return the machine upon Lexmark's written request. Lexmark
will grant you a credit equal to the price paid by you to Lexmark for the
returned machine. However, Lexmark may, for selected machines, grant you a
credit equal to such price depreciated. The depreciation shall be an equal
amount per year over the life of the machines as Lexmark establishes. Lexmark
shall have no obligation with respect to any such claim based upon any
non-Lexmark modification of machines or their combination, operation or use with
apparatus, data or programs not furnished by Lexmark.
This Section states Lexmark's entire obligation to you for machines regarding
infringement or the like.
21.0 LIMITATION OF REMEDIES
Lexmark's entire liability and your exclusive remedy for any claims are as this
Section provides.
Lexmark is not liable for any damages caused by performance or nonperformance of
machines or programming located outside the United States and Puerto Rico. In no
event will Lexmark be liable for any damages caused by your failure to perform
your responsibilities.
Lexmark's entire liability and your exclusive remedy for actual damages from
your use of PLA programs are as set forth in the PLA.
Lexmark assumes no liability regarding any claim or action caused by, or
directly related to, a non-Lexmark product.
In no event will Lexmark be liable for any lost profits, lost savings,
incidental damages, or other consequential damages, even if Lexmark has been
advised of the possibility of such damages. Lexmark will not be liable for any
damages claimed by you based on any third party claim.
For any claim for any cause whatsoever, other than those provided for in Section
20.0 and the first paragraph of Section 22.0. Lexmark's liability for actual
damages will be limited to $100,000.
22.0 INDEMNIFICATION
Lexmark will indemnify and hold you harmless from all claims, including
reasonable attorney's fees, (but not including lost profits, lost savings,
incidental damages, or other consequential
<PAGE>
damages), for bodily injury or damage to real property or tangible personal
property arising from any acts or omissions for which Lexmark is legally liable.
You will indemnify and hold Lexmark harmless from all claims, including
reasonable attorney's fees, by any party resulting directly or indirectly from
any acts or omissions by you.
23.0 TERMINATION
Either party may terminate the Agreement, with or without cause. Lexmark will
provide three month written notice to you of such termination, except as
otherwise provided in this Section. You must provide one month written notice
to Lexmark.
In the event that Lexmark gives you such notice for cause, Lexmark may provide
you with an opportunity to cure deficiencies. In such event, Lexmark will
establish a reasonable time, not to exceed three months, in which you must
remedy such deficiencies.
In addition, Lexmark considers certain actions so serious and inconsistent with
your obligations as a Dealer as to warrant immediate termination. Such breaches
will include, but not be limited to, situations in which 1) you made material
misrepresentations to Lexmark in your application to become a Dealer, at any
later time through oral or written statements, or by submission of any false or
fraudulent documentation or claim to Lexmark, or 2) you marketed products to
other than an End User.
In the event of termination of the Agreement by you or Lexmark, all monies due
Lexmark will immediately become due and payable.
If you or Lexmark elects to terminate the Agreement, Lexmark may repurchase some
or all of the Products in your inventory at a price determined by Lexmark. In
such event, return shipping charges will be paid by you. Products returned must
be in the original shipping containers, which must not have been opened,
damaged, marked or labeled.
A termination of the Agreement may also be only a partial termination of, for
example, an Authorized Location, an eligible Product family, a part of a
marketing coverage area, or an Aggregator relationship.
24.0 GENERAL
Lexmark's waiver of any instance of your noncompliance with the Agreement will
not be deemed a waiver of any future noncompliance.
You may not assign the Agreement or any of its rights or duties without
Lexmark's prior written consent.
Lexmark is not responsible for failure to fulfill its obligations under the
Agreement due to causes beyond its control.
<PAGE>
The Agreement will not be supplemented or modified by any course of dealing or
trade usage. Variance from or addition to the terms and conditions of the
Agreement in any purchase order or other written notification from you will be
of no effect.
The provisions of the Agreement which by their nature extend beyond the
termination or expiration of the Agreement will survive and remain in effect
until all obligations are satisfied.
Each party agrees to pay the other's reasonable attorney's fees and costs of
litigation if the party, for any cause whatsoever, brings suit against the other
party and the other party is finally adjudicated not to have liability.
Neither you nor Lexmark will bring an action, regardless of form, arising out of
the Agreement more than two years after the cause of action has arisen. In the
case of an action for non-payment, the action may not be brought more than two
years from the date the last payment was due.
The laws of the State of New York will govern the Agreement.
25.0 DEALER SPECIFIC INFORMATION
Aggregator Relationships
The provisions of this Section apply to you only if you have been approved in
this Section to receive Products from an Aggregator. Lexmark will indicate its
approval of you to receive Products from an Aggregator by naming the Aggregator
in this Section.
The term "Aggregator" means a business entity, typically a franchisor, which has
been approved by Lexmark under a written agreement, to order and receive
Products from Lexmark for redistribution to the Aggregator's members of
franchisees. Lexmark must approve such members or franchisees as Dealers.
You may elect to obtain Products through your Aggregator. For such products, you
waive your rights and Lexmark waives your responsibilities under the following
item and Sections of the Agreement.
5.0 DEALER RESPONSIBILITIES - item (14);
6.0 ORDERS AND CANCELLATIONS;
7.0 PRICES;
8.0 PAYMENT;
9.0 PRICE REDUCTION CREDIT;
10.0 INVENTORY AND ADJUSTMENTS; and
17.0 TAXES.
Title to machines, shipped to you by your Aggregator, passes from Lexmark
directly to you upon shipment from your Aggregator.
<PAGE>
Lexmark does not have responsibility for risk of loss of, or damage to, Products
shipped to you by your Aggregator.
Machines your Aggregator ships to you will be identified by serial number.
Therefore, in addition to the record and audit requirements described in Section
5.0 of the Agreement, you agree that you will maintain a record of each such
machine by serial number. You agree that you will maintain that record for 12
months following your receipt of the machine. You must provide such records to
Lexmark upon request. In addition, you hereby authorize your Aggregator to
release information to Lexmark regarding machines shipped to you.
For products you order directly from Lexmark, the waivers described in the third
paragraph of this section will not apply.
Name and location of your Aggregator:
N/A
Eligible Products
You are approved to market the following Product families, as specified with a
"YES" or identified portions. Specific Products are listed in notices and an
electronic file. Specific certification may also be required for certain
Products.
Supplies Typewriters Printers Other (as listed)
-------- ----------- -------- -----------------
YES NO NO NO
Minimum Renewal Criteria
Lexmark may establish Minimum Renewal Criteria (MRC) for a contract period for
some or all Products. The MRC designates the minimum level of sales performance
expected of you.
Product Minimum Renewal Criteria
------ ------------------------
SUPPLIES $100,000
- ----------------------------- ---------------------------
<PAGE>
Marketing Coverage Area
Your approved marketing coverage area(s), listed by Authorized Location, by
county and state is:
N/A
Authorized Locations
All Authorized Locations must be approved in writing by Lexmark and listed below
or on an attachment to this Agreement. Any change in the location or any
significant change in the characteristics of your Authorized Locations must be
approved by Lexmark.
SEE ATTACHED LISTING
Authorized Distributor Agreement
THIS AGREEMENT is between MINNESOTA MINING AND MANUFACTURING COMPANY, a Delaware
corporation, acting through its Magnet Media Division with its principal place
of business at the 3M Center, St. Paul, Minnesota 56144-1000 (hereinafter
referred to as "3M"), and
(hereinafter referred to as "DISTRIBUTOR"). (3M and DISTRIBUTOR are hereinafter
referred to jointly as the "Parties" and Individually as "Party").
1. Scope of Appointment.
(A) 3M appoints the DISTRIBUTOR, on a nonexclusive basis, to sell and
promote the sale of 3M computer products and accessories set forth on the
current 3M published price pages listed in Exhibit A (hereinafter referred to as
"Products") to commercial and consumer end users.
(B) DISTRIBUTOR recognizes that 3M may sell Products to any customer,
including direct sales to dealers or sales to distributors for resale.
2. Acceptance. This Agreement is not binding on 3M until it has been accepted in
writing by the signature of an authorized 3M representative at 3M Center, St.
Paul, Minnesota. This is the sole and exclusive manner of acceptance. Any other
promise or act, including a promise to ship or the prompt shipment of Product,
shall not constitute acceptance by 3M of this Agreement.
3. 3M's Obligations to Distributor. 3M agrees to:
(A) Use its best efforts to promptly fill DISTRIBUTOR's proper orders for
Products.
(B) Make available the services of a 3M sales representative to provide
Product information, merchandising and general sales support.
(C) Provide DISTRIBUTOR with Product information, literature and sales
materials (in quantities agreed to by 3M and DISTRIBUTOR) designed to aid
DISTRIBUTOR in the introduction and sale of Products.
4. Distributor's Obligations to 3M. DISTRIBUTOR agrees to:
(A) Vigorously and enthusiastically promote the sale of the full line of
Products and will maintain a well-trained and well-managed sales force capable
of and committed to maximizing the demand for Products through every proper
means. DISTRIBUTOR promises to devote at least the same vigor and resources in
promoting Products as it devotes to other suppliers' product lines.
(B) Not misrepresent either directly or by omission the capabilities,
qualities, or characteristics of the Products. Neither DISTRIBUTOR nor its
representatives will disparage the Products or cast the Production in an
unfavorable light.
(C) Purchase a minimum of $50,000.00 of assorted Products, net of discounts
and returns, during the term of this Agreement. Every sixty (60) days 3M and
DISTRIBUTOR agree to review DISTRIBUTOR's performance in reaching its minimum
purchase requirements and other obligations under this Agreement.
(D) Maintain an adequate inventory of the full line of Products so that
DISTRIBUTOR can promptly fill orders from stock.
(E) Supply promptly all financial information required by 3M's Credit
Department to assess DISTRIBUTOR's credit worthiness. DISTRIBUTOR will make
prompt payment of all 3M invoices in accordance with current payment terms.
DISTRIBUTOR agrees not to make any deductions of any kind from 3M invoices
unless DISTRIBUTOR has received an official credit memorandum from 3M
authorizing such deduction.
(F) Hold in confidence and not disclose to others 3M's marketing plans,
promotional programs and other 3M confidential information.
(G) Use the name "3M," "Scotch", or any other trademark, trade name, or
service mark owned by 3M, in strict accordance with the guidelines furnished by
3M.
The parties have signed this Agreement on the day indicated below.
5. Prices and Terms and Conditions of Sale.
<PAGE>
(A) Prices. The price of Products and other terms and conditions of sale
(including payment terms, F.O.B. point, minimum order requirements) are as
stated in 3M's published price pages. DISTRIBUTOR acknowledges that it has
received a copy of those price pages current as of the date DISTRIBUTOR signs
this Agreement.
(B) Price Changes. Prices may be increased and other terms and conditions
of sale may be changed by 3M at any time with thirty (30) days prior written
notice to DISTRIBUTOR, but the change will not affect any order properly placed
with 3M and ready for immediate shipment before the effective date of the
change. Prices may be decreased without prior notice to DISTRIBUTOR and
DISTRIBUTOR will be invoiced at the new lower price on all orders scheduled for
shipment after the effective date of the price decrease. If the regular
(non-promotion) price of any Product decreases, 3M will credit the price
difference for those Products shipped to DISTRIBUTOR within thirty (30) days of
the effective date of the price decrease upon request to the appropriate sales
branch made within fifteen (15) days of the announced price decrease. The
foregoing does not apply to periodic promotions that may be offered by 3M in
which prices of Products may be directly or indirectly reduced for fixed periods
of time.
(C) Taxes. Prices listed on 3M's price pages do not include sales, use,
excise, or similar taxes. The amount of any present, retroactive, or future
sales, use, excise or similar tax applicable to DISTRIBUTOR's purchase of
Products shall be added to the 3M invoice and paid by DISTRIBUTOR unless
DISTRIBUTOR provides 3M with tax exemption certificates acceptable to the
appropriate taxing authorities.
(D) Purchase Orders. Products may be ordered pursuant to purchase orders
submitted to 3M by DISTRIBUTOR. Acceptance of any purchase orders placed by
DISTRIBUTOR, either by written acknowledgement or by shipment of Products, shall
NOT constitute acceptance by 3M of any of the terms and conditions of such
purchase orders except as to identification and quantity of the Products
involved. All such purchase orders shall be governed by the provisions of this
Agreement.
- Continued on reverse side -
[MISSING INFORMATION]
(B) During the period between the giving of the notice of termination or
nonrenewal in paragraph 8(A) or (C) and the effective date of the termination as
set forth in such notice, all Products shall be delivered to DISTRIBUTOR upon a
cash with order basis.
(C) 3M has the option for thirty (30) days after the effective date of
termination or nonrenewal to repurchase from the DISTRIBUTOR all or any part of
the DISTRIBUTOR's inventory of Products at 3M's current published prices.
DISTRIBUTOR may sell, in accordance with the provisions of this Agreement, those
Products in its inventory on the date of such termination or nonrenewal for
which 3M has not exercised its option to repurchase.
10. Excused Performance. 3M shall not be liable for nor be deemed to be in
default on account of any failure to perform or deliver Products if due to any
cause or condition beyond 3M's reasonable control.
11. Relationship of the Parties. The relationship established between 3M and
DISTRIBUTOR by this Agreement is that of a vendor to its vendee. DISTRIBUTOR is
not an agent of 3M and has no authority to bind 3M, transact any business in
3M's name or on its behalf in any manner, or make any promises or
representations on behalf of 3M. DISTRIBUTOR agrees to represent itself only as
an independent business who is an "authorized 3M DISTRIBUTOR." The employees and
agents of DISTRIBUTOR are NOT for any purpose the employee or agents of 3M.
12. No Assignment. DISTRIBUTOR shall not assign its rights or delegate its
duties under this Agreement without 3M's prior written notice.
13. No Waiver. Any failure or delay by either Party in exercising any right or
remedy in one or many instances will not prohibit a Party from exercising it at
a later time or from exercising any other right or remedy.
14. Governing Law. This Agreement and any questions, claims, disputes, or
litigation concerning or arising from this Agreement shall be governed by the
laws of Minnesota.
15. Entire Agreement. This Agreement and the Exhibits referred to in this
Agreement, which Exhibits are incorporated herein and made a party hereof by
this reference, supersede and terminate any and all prior agreements, if any,
whether written or oral, between the Parties with respect to the subject matter
contained herein. Each Party agrees that it has not relied on any
representation, warranty, or provision not explicitly stated in this Agreement
and that no oral statement has been made to either Party that in any way tends
to waive any of the terms or conditions of this Agreement. This Agreement
constitutes the final written expression of all terms of the Agreement, and it
is a complete and exclusive statement of those terms. No part of this Agreement
may be waived, modified, or supplemented in any
<PAGE>
manner whatsoever (including a course of dealing or of performance or usage of
trade) except by a written instrument signed by duly authorized officers of the
Parties.
<PAGE>
AMENDMENT NO. 1 TO AUTHORIZED DISTRIBUTOR AGREEMENT
This Amendment is between MINNESOTA MINING AND MANUFACTURING COMPANY, acting
through its Data Storage Products Division, with its principal place of business
at the 3M Center, St. Paul, Minnesota 55144-1000 (3M) and the undersigned
distributor of 3M's DATA STORAGE PRODUCTS DIVISION (DISTRIBUTOR).
1. SCOPE AND PURPOSE.
(A) 3M and International Business Machines Corporation (IBM) have entered
into an agreement for the distribution by 3M of certain media products
containing the IBM trademark within the United States.
(B) 3M and DISTRIBUTOR desire to amend the Authorized Distributor Agreement
(Agreement) as set forth in this Amendment No. 1 to the Agreement.
2. IBM PRODUCTS.
(A) 3M will make available to DISTRIBUTOR the IBM Enhanced Capacity
Cartridge System Tape (IBM Product), subject to the conditions set forth in this
Amendment No. 1. 3M may from time to time make other media products with the IBM
trademark available to DISTRIBUTOR. The availability of additional media
products containing the IBM trademark, if any, will be communicated to
DISTRIBUTOR through product announcements and/or additions to 3M's price pages
that are periodically sent to DISTRIBUTOR (IBM Products). The inclusion of such
additional IBM Products in 3M's price pages and the ordering of such products by
DISTRIBUTOR will make such products subject to this Amendment No. 1 and to the
Agreement.
(B) DISTRIBUTOR agrees to devote at least the same vigor and resources to
the promotion and sale of IBM Products as DISTRIBUTOR devotes to the promotion
and sale of Products.
3. TERRITORY.
(A) 3M agrees to make IBM Product(s) available to DISTRIBUTOR for resale to
commercial, consumer and governmental end-users located in the United States.
DISTRIBUTOR agrees not to sell, ship or distribute in any manner, IBM Products
to any customer located outside of the United States.
(B) DISTRIBUTOR agrees that any resale, shipment or distribution by
DISTRIBUTOR or its agents or employees to any customer located outside of the
United States may result in discontinuance of the sale of the IBM Product to
DISTRIBUTOR in addition to other remedies available to 3M or IBM.
(C) DISTRIBUTOR understands that IBM is a third party beneficiary of this
Amendment No. 1 and may enforce adherence to its terms.
4. IBM PRODUCT DISCONTINUANCE. 3M may discontinue the sale of any IBM Product to
DISTRIBUTOR at any time during the term of the Agreement upon sixty (60) days
notice to DISTRIBUTOR.
5. ENTIRE AGREEMENT. This Amendment contains the entire understanding of the
parties with respect to the changes to the Agreement. Except as expressly
modified by this Amendment, all other terms and conditions of the Agreement are
unchanged by this Amendment.
The Parties have signed this Amendment No. 1 to the Agreement on the date
indicated below.
DISTRIBUTOR MINNESOTA MINING AND MANUFACTURING CO.
By_________________________________ By____________________________________
Name (print)_______________________ Name (print)__________________________
Title______________________________ Title_________________________________
Date_______________________________ Date__________________________________
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 30th
day of May, 1996, by and between MIAMI COMPUTER SUPPLY, INC. (the "Company") and
ALBERT L. SCHWARZ (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it is
hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as President of the Company, and the
Executive hereby accepts said employment.
B. The Executive's employment with the Company shall be full time provided,
however, that he shall not be restricted from the pursuit of other business
interests, hobbies, or interests which neither compete nor interfere with his
duties on behalf of the Company.
C. The Executive's areas of responsibility shall be as directed by the
Board of Directors and may include all aspects of the Company's business,
including but not limited to, strategic planning, overseeing day to day
operations, acquisitions, bank negotiations, long range planning, cash flow
projections and any other duties specified by the Board of Directors. The
Executive shall, from time to time and as requested, report to the Board of
Directors with respect to his activities. The Executive agrees to exercise his
duties and responsibilities hereunder in good faith, with reasonable diligence,
and in accordance with sound business practice.
D. The Executive shall devote his full business time and efforts and all
reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest thereof. The Executive's services shall be
rendered with due regard for the prompt, efficient and economical operation of
the business of the Company.
E. Except for occasional business trips which may be necessary or desirable
in connection with the performance of the Executive's duties, the Executive
shall not be required, without his consent, which shall not be unreasonably
withheld, to perform any duties at any location outside of a one hundred (100)
mile radius from Dayton, Ohio.
<PAGE>
Schwarz Employment Agreement
Page 2
II. TERMS AND CONDITIONS OF EMPLOYMENT
A. This Agreement shall commence on the date hereof and shall terminate on
the earliest to occur of:
1. December 31, 1999;
2. The death of the Executive; or
3. On written notice of termination from the Company to the Executive,
which notice may be given only on or after there shall have elapsed a
consecutive period of 90 days, (or a non-consecutive period of 120 days during
any twelve month period) during which the Executive was physically or mentally
incapacitated and unable to perform his duties hereunder.
B. In addition to the events described in the foregoing Section II.A., the
Company shall be entitled to terminate this Agreement upon written notice to the
Executive:
1. For cause, which for purposes of this Agreement shall mean the
refusal to perform, or the substantial neglect of, or an intentional failure to
perform, a material portion of the Executive's duties and obligations on behalf
of the Company, which actions or inactions are not reasonably cured within ten
(10) days after receipt of written notice from the Company with respect thereto;
willful misconduct; breach of a fiduciary duty involving personal gain; any
material breach of this Agreement; or
2. If the Executive has been convicted of a felony or a crime
involving moral turpitude, theft, fraud, embezzlement, intentional or reckless
conversion or destruction of Company funds or assets.
C. The Executive shall have the right to terminate this Agreement upon
reasonable notice to Company:
1. For cause, which for purposes of this Agreement shall mean the
failure of the Company to provide resources which are necessary to the
fulfillment of the Executive's responsibilities, and which failure(s) are not
reasonably cured within ten (10) days after receipt of written notice hereof
from the Executive;
2. Upon the express direction of the Board of Directors to perform any
action or inaction which, in the reasonable opinion of the Executive and upon
written advice of his counsel is illegal;
<PAGE>
Schwarz Employment Agreement
Page 3
3. Upon the threatened or actual insolvency or receivership of the
Company not caused by any action or inaction of the Executive; or
4. Upon the failure of the Company to perform its obligations to
Executive as set forth in this Agreement.
D. Termination in accordance with any of the foregoing provisions of
Sections II.A., B. or C. above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect a party's
rights to seek damages or other relief in respect of a breach by the other party
of his or its obligations under this Agreement and, no such termination shall
affect the Company's rights under Sections IV. and V., herein, or the
Executive's rights under Section III. hereof with respect to any compensation
accrued or stock vested through such date of termination. For purposes of this
Agreement and as used anywhere herein, the phrase "fully and finally terminated
for cause" or "fully and finally terminate" shall mean the later of thirty (30)
days from the date of receipt of written notice of termination from one party to
the other, or the date of a final decision as a result of the Alternative
Dispute Resolution ("ADR") format set forth in Section IX. of this Agreement.
III. BASE SALARY
A. Executive shall be paid a base salary ("Base Salary") as follows:
PER MONTH
---------
Through December 31, 1996 $ 9,200
Year 1997 10,000
Year 1998 10,500
Year 1999 11,000
B. In addition to the Base Salary, a bonus will be paid to Executive of ten
percent (10%) of pretax profits before employee profitsharing or any other
bonuses. Executive will be furnished an automobile (up to $35,000, 1996 value)
and insurance, repairs, gas, oil, fees, etc., and such other per diem
allowances, as approved by the Board if Directors, equaling no more than $1,200
per month for his use for Company business. Executive will control the use and
distribution, for Company purposes, of sporting event tickets with a 1996 value
of $3,000 per year.
C. Executive will be able to take up to six (6) weeks vacation per year.
<PAGE>
Schwarz Employment Agreement
Page 4
D. During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the Company,
to the extent commensurate with his then duties and responsibilities, as fixed
by the Board of Directors of the Company. The Company shall not make any changes
in such plans, benefits or privileges which would adversely affect Executive's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of the Company and does not result in a
proportionately greater adverse change in the rights of or benefits to Executive
as compared with any other executive officer of the Company. Nothing paid to
Executive under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the Base Salary payable to Executive
pursuant to Section III.A. hereof.
E. In addition to the foregoing, the Executive shall at all times during
the period of the Executive's employment under this Agreement be eligible to
participate in and to be covered by all plans, if any, effective generally with
respect to executives of the Company with respect to life insurance, accident
insurance, health insurance, hospitalization, disability, and other benefits of
whatsoever kind or description, to the extent the Executive is eligible under
the terms of such plans, on the same basis as other executives of the Company
and without restriction or limitation by reason of this Agreement. The Executive
shall be entitled to all of the fringe benefits and perquisites of office of
whatsoever kind or description made available generally to other executives of
the Company, including, but not limited to, customary paid holidays, without
restriction or limitation by reason of any specific benefit provided for in this
Agreement.
F. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company may
reasonably require.
IV. VALUATION OF SHARES UPON TERMINATION
A. If Executive is terminated for cause prior to December 31, 1999, and
provided that Company's shares are not publicly traded on the Termination Date,
then Company, at its sole option exercised by written notice to Executive thirty
(30) or more days from the date of Executive's full and final termination, shall
be entitled to mandate that Executive's entire equity interest in the Company be
redeemed. The value of the Executive's equity interest in the Company shall be
not less than 70% of the per share purchase price as set forth in the Stock
Purchase Agreement by and among Pittsburgh Investment Group LLC, the Company,
the Executive and other former stockholders of the Company dated April 25, 1996,
amended. In the event that Executive and Company cannot agree upon the value of
Executive's redeemable equity
<PAGE>
Schwarz Employment Agreement
Page 5
interest, then such issue shall be resolved pursuant to ADR as set forth in
Section IX. of this Agreement. All monies due and owing pursuant to this Section
IV.A. to Executive shall be fully paid within thirty (30) days of the date of
the ADR decision or of the date set forth in a written agreement of the parties
whichever shall first occur.
B. If Executive terminates this Agreement for cause or is himself fully and
finally terminated for cause prior to December 31, 1999, and the Company's
shares are publicly traded, then and in such event, Executive shall not be
restricted hereby in the disposition of his entire equity interest in the
Company, subject to applicable federal and state securities laws.
C. If Executive terminates this Agreement for cause prior to December 31,
1999, and provided that the Company's shares are not publicly traded, then
Executive, at his option exercised by written notice to the Company within
thirty (30) days from the date of full and final termination, shall be entitled
to have his entire interest in the Company redeemed. In the event that Executive
and Company cannot agree upon the value of Executive's redeemable interest, then
such issue shall be resolved pursuant to ADR as set forth in Section IX. of this
Agreement. All monies due and owing to Executive shall be fully paid within
thirty (30) days of the date of the ADR decision or of the date set forth in a
written agreement of the parties whichever shall first occur.
D. In the event that this Agreement is terminated as a result of
Executive's death, and in the further event that the Company's shares shall not
be publicly traded at such time, then the value of the deceased's interest in
the Company shall be established by agreement between the Company and authorized
representatives of Executive's estate. In the event that no such agreement can
be reached, the parties shall submit the unresolved issues to ADR pursuant to
Section IX. of this Agreement.
E. In the event Executive is permanently disabled (as defined by standard
disability insurance policies) and is unable to reasonably perform the aggregate
of his assigned responsibilities and this Agreement is terminated as a result
thereof, and in the further event that the Company's shares shall not be
publicly traded at such time, then the Company, at its sole option exercised by
written notice within thirty (30) days after the Date of Termination, may
require the redemption of Executive's equity interest in the Company. In the
event that the Company and Executive (or his legally appointed representatives)
cannot agree on the value of Executive's equity interest, then such issue shall
be resolved pursuant to ADR as set forth in Section I.X. of this Agreement. All
monies due and owing to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
<PAGE>
Schwarz Employment Agreement
Page 6
V. NON-COMPETITION
A. 1. The Company has disclosed to Executive its confidential business
plans, marketing strategies, advertising copy, funding sources, wholesale and
retail customer lists, equipment sources, financial projections and results and
other information in the course of Executive's occupation as the Chief Executive
Officer of the Company. This information and similar information yet to be
developed by the Executive is generally unknown to the pubic and gives the
Company a competitive advantage over those who do not have access to this
information. The Company has taken and will take care to protect this
information from becoming generally known. The Company has revealed this
information to the Executive on the condition that he keep it confidential and
will require confidentiality from the Executive and all other persons with
access to the information in the future. The information described above,
therefore, constitutes valuable trade secrets of the Company and is referred to
below as "Proprietary Information." In the course of performing his duties under
this Agreement, the Executive will both help develop and be privy to Proprietary
Information.
2. The Company has and shall retain all exclusive rights in the Proprietary
Information. During the term of this Agreement and any extension hereof and for
so long after its termination or expiration as permitted by law, Executive shall
not disclose Proprietary Information to any third party or make any commercial
or academic use of the Proprietary Information without the express written
consent of the Company, which consent may be withheld for any or no reason in
the Company's sole discretion.
3. These restrictions on the use and disclosure of Proprietary Information
shall survive the expiration or termination of this Agreement, regardless of the
grounds or lack of grounds therefor. The parties recognize and agree that, in
the event of a threatened or actual breach of this Section V.A., the Company's
remedy at law will be inadequate to fully compensate the Company for its losses.
Therefore, the Company may enforce its rights hereunder by equitable remedies,
including without limiting the generality of the foregoing, injunctive relief
and specific performance.
B.1. During the term of this Agreement and for twelve (12) months after the
Termination Date, Executive hereby covenants and agrees that the Executive (and
any person or entity controlled by, under common control with or controlling the
Executive) will not sell or distribute or be financially or otherwise associated
with anyone that sells or distributes computer supplies in an area within a one
hundred (100) mile radius of any existing office of the Company. For purposes of
this Section V.B.1., "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person or entity, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the activities, affairs, management or
policies of such person or entity, whether through personal relationship, the
ownership of voting securities or by contract or otherwise.
<PAGE>
Schwarz Employment Agreement
Page 7
2. The Executive agrees that in the event that the Executive commits a
breach or threatens to commit a breach of any of the provisions of this Section
V.B., the Company shall have the right and remedy to have the provisions of this
Section V.B. specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
immediate irreparable injury to the Company and that money damages will not
provide an adequate remedy at law for any such breach or threatened breach. Such
right and remedy shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company at law or in equity.
3. If any of the provisions of or covenants contained in this Section V.B.
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalid portions or the unenforceability in such other
jurisdiction because of the duration or geographic scope thereof, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or geographic scope of such provision or covenants and, in its
reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
unenforceability of this Section V.B. in any other jurisdiction.
VI. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject matter
hereof and there are not terms other than those contained herein. No variation
hereof or amendment hereto shall be deemed to be a valid unless in writing and
signed by the parties hereto. No waiver by either party of any provision or
condition of this Agreement by him or it to be performed shall be deemed to be a
waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time.
VII. BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and the Executive, his heirs, executors,
administrators and legal representatives.
VIII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio. However, all disputes between the parties shall be
resolved by ADR in the jurisdiction wherein the Executive is domiciled.
<PAGE>
Schwarz Employment Agreement
Page 8
IX. ALTERNATIVE DISPUTE RESOLUTION
A. The parties agree that it is in their best interests to resolve all
disputes or controversies arising out of this Agreement in a cost effective and
timely manner. Therefore, all such unresolved disputes or controversies shall be
determined through a format of ADR, to be mutually agreed upon between the
parties. All ADR determinations shall be final and binding upon the parties
unless otherwise agreed in writing.
B. In the event that the parties are unable to agree on an ADR format,
dispute resolution shall take place through the American Arbitration Association
or, if agreed, another mutually acceptable ADR organization.
X. INDEMNIFICATIONS; WITHHOLDING
A. The Company shall fully indemnify and hold harmless Executive from any
and all claims, demands, judgments, liens, subrogation, or costs incurred by
Executive with respect to any shareholder derivative action or other claims or
suits against Company and/or its Board of Director by individuals, firms, or
entities not a party to this Agreement to the extent permitted by the Company's
Articles of Incorporation, Bylaws and applicable corporate law.
B. The Company shall provide Executive with a policy of insurance during
the term of Executive's employment which covers errors and omissions of the
Executive while in the course and scope of his employment with the Company or
its affiliates or divisions, if such policy is obtainable and the premium
therefore is commercially reasonable, in the sole discretion of the Board of
Directors.
C. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
XI. NOTICES
A. Any notices or other communication required or permitted hereunder shall
be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed, if to the Executive, to him at 453 Rolling Timber Trail,
Dayton, Ohio 45429, and if to the Company, to it at 3884 Indian Ripple Road,
Dayton, Ohio 45440, Attention: Chairman of the Board.
B. For purposes of all notices to be given pursuant to or arising out of
this Agreement including a demand for ADR, a party will be presumed to have
received written notice on the date of the actual receipt thereof.
<PAGE>
Schwarz Employment Agreement
Page 9
IN WITNESS WHEREOF, the Company and the Executive have set their hands on
the date above written.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Al Schwarz
- --------------------- ---------------
Albert L. Schwarz
"Executive"
MIAMI COMPUTER SUPPLY, INC.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Thomas C. Winstel
- --------------------- ----------------------
Name: Thomas C. Winstel
Title: Vice-President
"Company"
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 30th
day of May, 1996, by and between MIAMI COMPUTER SUPPLY, INC. (the "Company") and
THOMAS C. WINSTEL (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it is
hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as Vice President of the Company, and the
Executive hereby accepts said employment.
B. The Executive's employment with the Company shall be full time provided,
however, that he shall not be restricted from the pursuit of other business
interests, hobbies, or interests which neither compete nor interfere with his
duties on behalf of the Company.
C. The Executive's areas of responsibility shall be as directed by the
Board of Directors and the President of the Company, and may include certain
aspects of the Company's business, including but not limited to, the sale of
computer supplies to various "key accounts" located in the Dayton, Ohio
metropolitan area, management of the Presentation Products Division, to include
both sales and operations and any other duties specified by the Board of
Directors. The Executive shall, from time to time and as requested, report to
the Board of Directors with respect to his activities. The Executive agrees to
exercise his duties and responsibilities hereunder in good faith, with
reasonable diligence, and in accordance with sound business practice.
D. The Executive shall devote his full business time and efforts and all
reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest thereof. The Executive's services shall be
rendered with due regard for the prompt, efficient and economical operation of
the business of the Company.
E. Except for occasional business trips which may be necessary or desirable
in connection with the performance of the Executive's duties, the Executive
shall not be required, without his consent, which shall not be unreasonably
withheld, to perform any duties at any location outside of a one hundred (100)
mile radius from Dayton, Ohio.
<PAGE>
Winstel Employment Agreement
Page 2
II. TERMS AND CONDITIONS OF EMPLOYMENT
A. This Agreement shall commence on the date hereof and shall terminate on
the earliest to occur of:
1. December 31, 1999;
2. The death of the Executive; or
3. On written notice of termination from the Company to the Executive,
which notice may be given only on or after there shall have elapsed a
consecutive period of 90 days, (or a non-consecutive period of 120 days during
any twelve month period) during which the Executive was physically or mentally
incapacitated and unable to perform his duties hereunder.
B. In addition to the events described in the foregoing Section II.A., the
Company shall be entitled to terminate this Agreement upon written notice to the
Executive:
1. For cause, which for purposes of this Agreement shall mean the
refusal to perform, or the substantial neglect of, or an intentional failure to
perform, a material portion of the Executive's duties and obligations on behalf
of the Company, which actions or inactions are not reasonably cured within ten
(10) days after receipt of written notice from the Company with respect thereto;
willful misconduct; breach of a fiduciary duty involving personal gain; any
material breach of this Agreement; or
2. If the Executive has been convicted of a felony or a crime
involving moral turpitude, theft, fraud, embezzlement, intentional or reckless
conversion or destruction of Company funds or assets.
C. The Executive shall have the right to terminate this Agreement upon
reasonable notice to Company:
1. For cause, which for purposes of this Agreement shall mean the
failure of the Company to provide resources which are necessary to the
fulfillment of the Executive's responsibilities, and which failure(s) are not
reasonably cured within ten (10) days after receipt of written notice hereof
from the Executive;
2. Upon the express direction of the Board of Directors to perform any
action or inaction which, in the reasonable opinion of the Executive and upon
written advice of his counsel is illegal;
<PAGE>
Winstel Employment Agreement
Page 3
3. Upon the threatened or actual insolvency or receivership of the
Company not caused by any action or inaction of the Executive; or
4. Upon the failure of the Company to perform its obligations to
Executive as set forth in this Agreement.
D. Termination in accordance with any of the foregoing provisions of
Sections II.A., B. or C. above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect a party's
rights to seek damages or other relief in respect of a breach by the other party
of his or its obligations under this Agreement and, no such termination shall
affect the Company's rights under Sections IV. and V., herein, or the
Executive's rights under Section III. hereof with respect to any compensation
accrued or stock vested through such date of termination. For purposes of this
Agreement and as used anywhere herein, the phrase "fully and finally terminated
for cause" or "fully and finally terminate" shall mean the later of thirty (30)
days from the date of receipt of written notice of termination from one party to
the other, or the date of a final decision as a result of the Alternative
Dispute Resolution ("ADR") format set forth in Section IX. of this Agreement.
III. BASE SALARY
A. Executive shall be paid a base salary of $3,000.00 per month ("Base
Salary") plus a commission in the amount of 40% of the Gross Margin of computer
supply sales to current assigned "key accounts" as set forth on the list
attached hereto as Exhibit A. (Gross Margin is defined herein to mean the
difference between the unit sales invoice price and the actual dollar cost of
the product to the Company.) Executive's monthly compensation shall also include
a commission of 5% of the Gross Margin on sales of all products in the
Presentation Products Division.
B. Executive will be furnished an automobile (up to $35,000, 1996 value)
and insurance, repairs, gas, oil, fees, etc., and such other per diem
allowances, as approved by the Board of Directors, equaling no more than $1,200
per month for his use for Company business. The Company shall also pay for
Executive's annual medical examination in an amount not to exceed $900 per year
and for a Social Membership for "Country Club of the North" which will require
an initiation fee of approximately $5,000 and an annual membership fee of $900.
C. Executive will be able to take up to six (6) weeks vacation per year.
D. During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option,
<PAGE>
Winstel Employment Agreement
Page 4
employee stock ownership, or other plans, benefits and privileges given to
employees and executives of the Company, to the extent commensurate with his
then duties and responsibilities, as fixed by the Board of Directors of the
Company. The Company shall not make any changes in such plans, benefits or
privileges which would adversely affect Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executive officers of the Company and does not result in a proportionately
greater adverse change in the rights of or benefits to Executive as compared
with any other executive officer of the Company. Nothing paid to Executive under
any plan or arrangement presently in effect or made available in the future
shall be deemed to be in lieu of the Base Salary payable to Executive pursuant
to Section III.A. hereof.
E. In addition to the foregoing, the Executive shall at all times during
the period of the Executive's employment under this Agreement be eligible to
participate in and to be covered by all plans, if any, effective generally with
respect to executives of the Company with respect to life insurance, accident
insurance, health insurance, hospitalization, disability, and other benefits of
whatsoever kind or description, to the extent the Executive is eligible under
the terms of such plans, on the same basis as other executives of the Company
and without restriction or limitation by reason of this Agreement. The Executive
shall be entitled to all of the fringe benefits and perquisites of office of
whatsoever kind or description made available generally to other executives of
the Company, including, but not limited to, customary paid holidays, without
restriction or limitation by reason of any specific benefit provided for in this
Agreement.
F. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company may
reasonably require.
IV. VALUATION OF SHARES UPON TERMINATION
A. If Executive is terminated for cause prior to December 31, 1999, and
provided that Company's shares are not publicly traded on the Termination Date,
then Company, at its sole option exercised by written notice to Executive thirty
(30) or more days from the date of Executive's full and final termination, shall
be entitled to mandate that Executive's entire equity interest in the Company be
redeemed. The value of the Executive's equity interest in the Company shall be
not less than 70% of the per share purchase price as set forth in the Stock
Purchase Agreement by and among Pittsburgh Investment Group LLC, the Company,
the Executive and other former stockholders of the Company dated April 25, 1996,
as amended. In the event that Executive and Company cannot agree upon the value
of Executive's redeemable equity interest, then such issue shall be resolved
pursuant to ADR as set forth in Section IX. of this Agreement. All monies due
and owing pursuant to this Section IV.A. to Executive shall be
<PAGE>
Winstel Employment Agreement
Page 5
fully paid within thirty (30) days of the date of the ADR decision or of the
date set forth in a written agreement of the parties whichever shall first
occur.
B. If Executive terminates this Agreement for cause or is himself fully and
finally terminated for cause prior to December 31, 1999, and the Company's
shares are publicly traded, then and in such event, Executive shall not be
restricted hereby in the disposition of his entire equity interest in the
Company, subject to applicable federal and state securities laws.
C. If Executive terminates this Agreement for cause prior to December 31,
1999, and provided that the Company's shares are not publicly traded, then
Executive, at his option exercised by written notice to the Company within
thirty (30) days from the date of full and final termination, shall be entitled
to have his entire interest in the Company redeemed. In the event that Executive
and Company cannot agree upon the value of Executive's redeemable interest, then
such issue shall be resolved pursuant to ADR as set forth in Section IX. of this
Agreement. All monies due and owing to Executive shall be fully paid within
thirty (30) days of the date of the ADR decision or of the date set forth in a
written agreement of the parties whichever shall first occur.
D. In the event that this Agreement is terminated as a result of
Executive's death, and in the further event that the Company's shares shall not
be publicly traded at such time, then the value of the deceased's interest in
the Company shall be established by agreement between the Company and authorized
representatives of Executive's estate. In the event that no such agreement can
be reached, the parties shall submit the unresolved issues to ADR pursuant to
Section IX. of this Agreement.
E. In the event Executive is permanently disabled (as defined by standard
disability insurance policies) and is unable to reasonably perform the aggregate
of his assigned responsibilities and this Agreement is terminated as a result
thereof, and in the further event that the Company's shares shall not be
publicly traded at such time, then the Company, at its sole option exercised by
written notice within thirty (30) days after the Date of Termination, may
require the redemption of Executive's equity interest in the Company. In the
event that the Company and Executive (or his legally appointed representatives)
cannot agree on the value of Executive's equity interest, then such issue shall
be resolved pursuant to ADR as set forth in Section I.X. of this Agreement. All
monies due and owing to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
<PAGE>
Winstel Employment Agreement
Page 6
V. NON-COMPETITION
A. 1. The Company has disclosed to Executive its confidential business
plans, marketing strategies, advertising copy, funding sources, wholesale and
retail customer lists, equipment sources, financial projections and results and
other information in the course of Executive's occupation as a Vice President of
the Company. This information and similar information yet to be developed by the
Executive is generally unknown to the pubic and gives the Company a competitive
advantage over those who do not have access to this information. The Company has
taken and will take care to protect this information from becoming generally
known. The Company has revealed this information to the Executive on the
condition that he keep it confidential and will require confidentiality from the
Executive and all other persons with access to the information in the future.
The information described above, therefore, constitutes valuable trade secrets
of the Company and is referred to below as "Proprietary Information." In the
course of performing his duties under this Agreement, the Executive will both
help develop and be privy to Proprietary Information.
2. The Company has and shall retain all exclusive rights in the Proprietary
Information. During the term of this Agreement and any extension hereof and for
so long after its termination or expiration as permitted by law, Executive shall
not disclose Proprietary Information to any third party or make any commercial
or academic use of the Proprietary Information without the express written
consent of the Company, which consent may be withheld for any or no reason in
the Company's sole discretion.
3. These restrictions on the use and disclosure of Proprietary Information
shall survive the expiration or termination of this Agreement, regardless of the
grounds or lack of grounds therefor. The parties recognize and agree that, in
the event of a threatened or actual breach of this Section V.A., the Company's
remedy at law will be inadequate to fully compensate the Company for its losses.
Therefore, the Company may enforce its rights hereunder by equitable remedies,
including without limiting the generality of the foregoing, injunctive relief
and specific performance.
B.1. During the term of this Agreement and for twelve (12) months after the
Termination Date, Executive hereby covenants and agrees that the Executive (and
any person or entity controlled by, under common control with or controlling the
Executive) will not sell or distribute or be financially or otherwise associated
with anyone that sells or distributes computer supplies in an area within a one
hundred (100) mile radius of any existing office of the Company. For purposes of
this Section V.B.1., "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person or entity, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the activities, affairs, management or
policies of such person or entity, whether through personal relationship, the
ownership of voting securities or by contract or otherwise.
<PAGE>
Winstel Employment Agreement
Page 7
2. The Executive agrees that in the event that the Executive commits a
breach or threatens to commit a breach of any of the provisions of this Section
V.B., the Company shall have the right and remedy to have the provisions of this
Section V.B. specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
immediate irreparable injury to the Company and that money damages will not
provide an adequate remedy at law for any such breach or threatened breach. Such
right and remedy shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company at law or in equity.
3. If any of the provisions of or covenants contained in this Section V.B.
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalid portions or the unenforceability in such other
jurisdiction because of the duration or geographic scope thereof, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or geographic scope of such provision or covenants and, in its
reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
unenforceability of this Section V.B. in any other jurisdiction.
VI. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject matter
hereof and there are not terms other than those contained herein. No variation
hereof or amendment hereto shall be deemed to be a valid unless in writing and
signed by the parties hereto. No waiver by either party of any provision or
condition of this Agreement by him or it to be performed shall be deemed to be a
waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time.
VII. BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and the Executive, his heirs, executors,
administrators and legal representatives.
VIII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio. However, all disputes between the parties shall be
resolved by ADR in the jurisdiction wherein the Executive is domiciled.
<PAGE>
Winstel Employment Agreement
Page 8
IX. ALTERNATIVE DISPUTE RESOLUTION
A. The parties agree that it is in their best interests to resolve all
disputes or controversies arising out of this Agreement in a cost effective and
timely manner. Therefore, all such unresolved disputes or controversies shall be
determined through a format of ADR, to be mutually agreed upon between the
parties. All ADR determinations shall be final and binding upon the parties
unless otherwise agreed in writing.
B. In the event that the parties are unable to agree on an ADR format,
dispute resolution shall take place through the American Arbitration Association
or, if agreed, another mutually acceptable ADR organization.
X. INDEMNIFICATIONS; WITHHOLDING
A. The Company shall fully indemnify and hold harmless Executive from any
and all claims, demands, judgments, liens, subrogation, or costs incurred by
Executive with respect to any shareholder derivative action or other claims or
suits against Company and/or its Board of Director by individuals, firms, or
entities not a party to this Agreement to the extent permitted by the Company's
Articles of Incorporation, Bylaws and applicable corporate law.
B. The Company shall provide Executive with a policy of insurance during
the term of Executive's employment which covers errors and omissions of the
Executive while in the course and scope of his employment with the Company or
its affiliates or divisions, if such policy is obtainable and the premium
therefore is commercially reasonable, in the sole discretion of the Board of
Directors.
C. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
XI. NOTICES
A. Any notices or other communication required or permitted hereunder shall
be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed, if to the Executive, to him at 368 Lincoln Circle,
Beavercreek, Ohio 45385, and if to the Company, to it at 3884 Indian Ripple
Road, Dayton, Ohio 45440, Attention: President.
B. For purposes of all notices to be given pursuant to or arising out of
this Agreement including a demand for ADR, a party will be presumed to have
received written notice on the date of the actual receipt thereof.
<PAGE>
Winstel Employment Agreement
Page 9
IN WITNESS WHEREOF, the Company and the Executive have set their hands on
the date above written.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Thomas C. Winstel
- --------------------- ----------------------
Thomas C. Winstel
"Executive"
MIAMI COMPUTER SUPPLY, INC.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Al Schwarz
- --------------------- ---------------
Name: Albert L. Schwarz
Title: President
"Company"
<PAGE>
EXHIBIT A
WINSTEL "KEY ACCOUNTS"
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 30th
day of May, 1996, by and between MIAMI COMPUTER SUPPLY, INC. (the "Company") and
RICHARD A. NEWKOLD (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it is
hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as Vice President of the Company, and the
Executive hereby accepts said employment.
B. The Executive's employment with the Company shall be full time provided,
however, that he shall not be restricted from the pursuit of other business
interests, hobbies, or interests which neither compete nor interfere with his
duties on behalf of the Company.
C. The Executive's areas of responsibility shall be as directed by the
Board of Directors and the President of the Company and may include certain
aspects of the Company's business, such as identification, analysis and work
with potential acquisitions for the Company and any other duties specified by
the Board of Directors. The Executive shall, from time to time and as requested,
report to the Board of Directors with respect to his activities. The Executive
agrees to exercise his duties and responsibilities hereunder in good faith, with
reasonable diligence, and in accordance with sound business practice.
D. The Executive shall devote his full business time and efforts and all
reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest thereof. The Executive's services shall be
rendered with due regard for the prompt, efficient and economical operation of
the business of the Company.
E. Except for occasional business trips which may be necessary or desirable
in connection with the performance of the Executive's duties, the Executive
shall not be required, without his consent, which shall not be unreasonably
withheld, to perform any duties at any location outside of a one hundred (100)
mile radius from Dayton, Ohio.
<PAGE>
Newkold Employment Agreement
Page 2
II. TERMS AND CONDITIONS OF EMPLOYMENT
A. This Agreement shall commence on the date hereof and shall terminate on
the earliest to occur of:
1. December 31, 1997;
2. The death of the Executive; or
3. On written notice of termination from the Company to the Executive,
which notice may be given only on or after there shall have elapsed a
consecutive period of 90 days, (or a non-consecutive period of 120 days during
any twelve month period) during which the Executive was physically or mentally
incapacitated and unable to perform his duties hereunder.
B. In addition to the events described in the foregoing Section II.A., the
Company shall be entitled to terminate this Agreement upon written notice to the
Executive:
1. For cause, which for purposes of this Agreement shall mean the
refusal to perform, or the substantial neglect of, or an intentional failure to
perform, a material portion of the Executive's duties and obligations on behalf
of the Company, which actions or inactions are not reasonably cured within ten
(10) days after receipt of written notice from the Company with respect thereto;
willful misconduct; breach of a fiduciary duty involving personal gain; any
material breach of this Agreement; or
2. If the Executive has been convicted of a felony or a crime
involving moral turpitude, theft, fraud, embezzlement, intentional or reckless
conversion or destruction of Company funds or assets.
C. The Executive shall have the right to terminate this Agreement upon
reasonable notice to Company:
1. For cause, which for purposes of this Agreement shall mean the
failure of the Company to provide resources which are necessary to the
fulfillment of the Executive's responsibilities, and which failure(s) are not
reasonably cured within ten (10) days after receipt of written notice hereof
from the Executive;
2. Upon the express direction of the Board of Directors to perform any
action or inaction which, in the reasonable opinion of the Executive and upon
written advice of his counsel is illegal;
<PAGE>
Newkold Employment Agreement
Page 3
3. Upon the threatened or actual insolvency or receivership of the
Company not caused by any action or inaction of the Executive; or
4. Upon the failure of the Company to perform its obligations to
Executive as set forth in this Agreement.
D. Termination in accordance with any of the foregoing provisions of
Sections II.A., B. or C. above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect a party's
rights to seek damages or other relief in respect of a breach by the other party
of his or its obligations under this Agreement and, no such termination shall
affect the Company's rights under Sections IV. and V., herein, or the
Executive's rights under Section III. hereof with respect to any compensation
accrued or stock vested through such date of termination. For purposes of this
Agreement and as used anywhere herein, the phrase "fully and finally terminated
for cause" or "fully and finally terminate" shall mean the later of thirty (30)
days from the date of receipt of written notice of termination from one party to
the other, or the date of a final decision as a result of the Alternative
Dispute Resolution ("ADR") format set forth in Section IX. of this Agreement.
III. BASE SALARY
A. Executive shall be paid a base salary ("Base Salary") as follows:
PER MONTH
---------
Through December 31, 1996 $ 8,200
Year 1997 8,528
B. In addition to the Base Salary, a bonus will be paid to Executive on an
annual basis as determined by the Board of Directors in good faith in
consideration of Executive's work on acquisitions during the year and the
performance of his other duties. Executive will be furnished an automobile (up
to $35,000, 1996 value) and insurance, repairs, gas, oil, fees, etc., and such
other per diem allowances, as approved by the Board of Directors, equaling no
more than $1,200 per month for his use for Company business.
C. Executive will be able to take up to twelve (12) weeks vacation per
year.
D. During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and
<PAGE>
Newkold Employment Agreement
Page 4
executives of the Company, to the extent commensurate with his then duties and
responsibilities, as fixed by the Board of Directors of the Company. The Company
shall not make any changes in such plans, benefits or privileges which would
adversely affect Executive's rights or benefits thereunder, unless such change
occurs pursuant to a program applicable to all executive officers of the Company
and does not result in a proportionately greater adverse change in the rights of
or benefits to Executive as compared with any other executive officer of the
Company. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the Base
Salary payable to Executive pursuant to Section III.A. hereof.
E. In addition to the foregoing, the Executive shall at all times during
the period of the Executive's employment under this Agreement be eligible to
participate in and to be covered by all plans, if any, effective generally with
respect to executives of the Company with respect to life insurance, accident
insurance, health insurance, hospitalization, disability, and other benefits of
whatsoever kind or description, to the extent the Executive is eligible under
the terms of such plans, on the same basis as other executives of the Company
and without restriction or limitation by reason of this Agreement. The Executive
shall be entitled to all of the fringe benefits and perquisites of office of
whatsoever kind or description made available generally to other executives of
the Company, including, but not limited to, customary paid holidays, without
restriction or limitation by reason of any specific benefit provided for in this
Agreement. In the event Executive's employment is terminated pursuant to Section
II.A. or C., the Company shall continue to pay for Executive's health insurance
(which coverage shall include his spouse) until Executive reaches the age of 65
and thereafter the Company shall pay premiums for Medicare Supplemental
Insurance for Executive and his spouse on the policy selected by the Executive
until the Executive becomes 70 years old.
F. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company may
reasonably require.
IV. VALUATION OF SHARES UPON TERMINATION
A. If Executive is terminated for cause prior to December 31, 1997, and
provided that Company's shares are not publicly traded on the Termination Date,
then Company, at its sole option exercised by written notice to Executive thirty
(30) or more days from the date of Executive's full and final termination, shall
be entitled to mandate that Executive's entire equity interest in the Company be
redeemed. The value of the Executive's equity interest in the Company shall be
not less than 70% of the per share purchase price as set forth in the Stock
Purchase Agreement by and among Pittsburgh Investment Group LLC, the Company,
the Executive and other former stockholders of the Company dated April 25, 1996,
as amended. In
<PAGE>
Newkold Employment Agreement
Page 5
the event that Executive and Company cannot agree upon the value of Executive's
redeemable equity interest, then such issue shall be resolved pursuant to ADR as
set forth in Section IX. of this Agreement. All monies due and owing pursuant to
this Section IV.A. to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
B. If Executive terminates this Agreement for cause or is himself fully and
finally terminated for cause prior to December 31, 1997, and the Company's
shares are publicly traded, then and in such event, Executive shall not be
restricted hereby in the disposition of his entire equity interest in the
Company, subject to applicable federal and state securities laws.
C. If Executive terminates this Agreement for cause prior to December 31,
1997, and provided that the Company's shares are not publicly traded, then
Executive, at his option exercised by written notice to the Company within
thirty (30) days from the date of full and final termination, shall be entitled
to have his entire interest in the Company redeemed. In the event that Executive
and Company cannot agree upon the value of Executive's redeemable interest, then
such issue shall be resolved pursuant to ADR as set forth in Section IX. of this
Agreement. All monies due and owing to Executive shall be fully paid within
thirty (30) days of the date of the ADR decision or of the date set forth in a
written agreement of the parties whichever shall first occur.
D. In the event that this Agreement is terminated as a result of
Executive's death, and in the further event that the Company's shares shall not
be publicly traded at such time, then the value of the deceased's interest in
the Company shall be established by agreement between the Company and authorized
representatives of Executive's estate. In the event that no such agreement can
be reached, the parties shall submit the unresolved issues to ADR pursuant to
Section IX. of this Agreement.
E. In the event Executive is permanently disabled (as defined by standard
disability insurance policies) and is unable to reasonably perform the aggregate
of his assigned responsibilities and this Agreement is terminated as a result
thereof, and in the further event that the Company's shares shall not be
publicly traded at such time, then the Company, at its sole option exercised by
written notice within thirty (30) days after the Date of Termination, may
require the redemption of Executive's equity interest in the Company. In the
event that the Company and Executive (or his legally appointed representatives)
cannot agree on the value of Executive's equity interest, then such issue shall
be resolved pursuant to ADR as set forth in Section I.X. of this Agreement. All
monies due and owing to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
<PAGE>
Newkold Employment Agreement
Page 6
V. NON-COMPETITION
A. 1. The Company has disclosed to Executive its confidential business
plans, marketing strategies, advertising copy, funding sources, wholesale and
retail customer lists, equipment sources, financial projections and results and
other information in the course of Executive's occupation as a Vice President of
the Company. This information and similar information yet to be developed by the
Executive is generally unknown to the pubic and gives the Company a competitive
advantage over those who do not have access to this information. The Company has
taken and will take care to protect this information from becoming generally
known. The Company has revealed this information to the Executive on the
condition that he keep it confidential and will require confidentiality from the
Executive and all other persons with access to the information in the future.
The information described above, therefore, constitutes valuable trade secrets
of the Company and is referred to below as "Proprietary Information." In the
course of performing his duties under this Agreement, the Executive will both
help develop and be privy to Proprietary Information.
2. The Company has and shall retain all exclusive rights in the Proprietary
Information. During the term of this Agreement and any extension hereof and for
so long after its termination or expiration as permitted by law, Executive shall
not disclose Proprietary Information to any third party or make any commercial
or academic use of the Proprietary Information without the express written
consent of the Company, which consent may be withheld for any or no reason in
the Company's sole discretion.
3. These restrictions on the use and disclosure of Proprietary Information
shall survive the expiration or termination of this Agreement, regardless of the
grounds or lack of grounds therefor. The parties recognize and agree that, in
the event of a threatened or actual breach of this Section V.A., the Company's
remedy at law will be inadequate to fully compensate the Company for its losses.
Therefore, the Company may enforce its rights hereunder by equitable remedies,
including without limiting the generality of the foregoing, injunctive relief
and specific performance.
B.1. During the term of this Agreement and for twelve (12) months after the
Termination Date, Executive hereby covenants and agrees that the Executive (and
any person or entity controlled by, under common control with or controlling the
Executive) will not sell or distribute or be financially or otherwise associated
with anyone that sells or distributes computer supplies in an area within a one
hundred (100) mile radius of any existing office of the Company. For purposes of
this Section V.B.1., "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person or entity, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the activities, affairs, management or
policies of such person or entity, whether through personal relationship, the
ownership of voting securities or by contract or otherwise.
<PAGE>
Newkold Employment Agreement
Page 7
2. The Executive agrees that in the event that the Executive commits a
breach or threatens to commit a breach of any of the provisions of this Section
V.B., the Company shall have the right and remedy to have the provisions of this
Section V.B. specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
immediate irreparable injury to the Company and that money damages will not
provide an adequate remedy at law for any such breach or threatened breach. Such
right and remedy shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company at law or in equity.
3. If any of the provisions of or covenants contained in this Section V.B.
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalid portions or the unenforceability in such other
jurisdiction because of the duration or geographic scope thereof, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or geographic scope of such provision or covenants and, in its
reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
unenforceability of this Section V.B. in any other jurisdiction.
VI. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject matter
hereof and there are not terms other than those contained herein. No variation
hereof or amendment hereto shall be deemed to be a valid unless in writing and
signed by the parties hereto. No waiver by either party of any provision or
condition of this Agreement by him or it to be performed shall be deemed to be a
waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time.
VII. BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and the Executive, his heirs, executors,
administrators and legal representatives.
VIII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio. However, all disputes between the parties shall be
resolved by ADR in the jurisdiction wherein the Executive is domiciled.
<PAGE>
Newkold Employment Agreement
Page 8
IX. ALTERNATIVE DISPUTE RESOLUTION
A. The parties agree that it is in their best interests to resolve all
disputes or controversies arising out of this Agreement in a cost effective and
timely manner. Therefore, all such unresolved disputes or controversies shall be
determined through a format of ADR, to be mutually agreed upon between the
parties. All ADR determinations shall be final and binding upon the parties
unless otherwise agreed in writing.
B. In the event that the parties are unable to agree on an ADR format,
dispute resolution shall take place through the American Arbitration Association
or, if agreed, another mutually acceptable ADR organization.
X. INDEMNIFICATIONS; WITHHOLDING
A. The Company shall fully indemnify and hold harmless Executive from any
and all claims, demands, judgments, liens, subrogation, or costs incurred by
Executive with respect to any shareholder derivative action or other claims or
suits against Company and/or its Board of Director by individuals, firms, or
entities not a party to this Agreement to the extent permitted by the Company's
Articles of Incorporation, Bylaws and applicable corporate law.
B. The Company shall provide Executive with a policy of insurance during
the term of Executive's employment which covers errors and omissions of the
Executive while in the course and scope of his employment with the Company or
its affiliates or divisions, if such policy is obtainable and the premium
therefore is commercially reasonable, in the sole discretion of the Board of
Directors.
C. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
XI. NOTICES
A. Any notices or other communication required or permitted hereunder shall
be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed, if to the Executive, to him at 10970 Mudlick Road, Dayton,
Ohio 45440, and if to the Company, to it at 3884 Indian Ripple Road, Dayton,
Ohio 45440, Attention: President.
B. For purposes of all notices to be given pursuant to or arising out of
this Agreement including a demand for ADR, a party will be presumed to have
received written notice on the date of the actual receipt thereof.
<PAGE>
Newkold Employment Agreement
Page 9
IN WITNESS WHEREOF, the Company and the Executive have set their hands on
the date above written.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Richard A. Newkold
- --------------------- -----------------------
Richard A. Newkold
"Executive"
MIAMI COMPUTER SUPPLY, INC.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Al Schwarz
- --------------------- ---------------
Name: Albert L. Schwarz
Title: President
"Company"
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 30th
day of May, 1996, by and between MIAMI COMPUTER SUPPLY, INC. (the "Company") and
ROGER E. TURVY (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it is
hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as Vice President of the Company, and the
Executive hereby accepts said employment.
B. The Executive's employment with the Company shall be full time provided,
however, that he shall not be restricted from the pursuit of other business
interests, hobbies, or interests which neither compete nor interfere with his
duties on behalf of the Company.
C. The Executive's areas of responsibility shall be as directed by the
Board of Directors and the President of the Company and may include certain
aspects of the Company's business, including but not limited to, sales and
marketing, participation in the overall operation and direction of the Company,
including acquisitions, strategic planning, long range planning, benefit plans
and any other duties specified by the Board of Directors. The Executive shall,
from time to time and as requested, report to the Board of Directors with
respect to his activities. The Executive agrees to exercise his duties and
responsibilities hereunder in good faith, with reasonable diligence, and in
accordance with sound business practice.
D. The Executive shall devote his full business time and efforts and all
reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest thereof. The Executive's services shall be
rendered with due regard for the prompt, efficient and economical operation of
the business of the Company.
E. Except for occasional business trips which may be necessary or desirable
in connection with the performance of the Executive's duties, the Executive
shall not be required, without his consent, which shall not be unreasonably
withheld, to perform any duties at any location outside of a one hundred (100)
mile radius from Dayton, Ohio.
<PAGE>
Turvy Employment Agreement
Page 2
II. TERMS AND CONDITIONS OF EMPLOYMENT
A. This Agreement shall commence on the date hereof and shall terminate on
the earliest to occur of:
1. December 31, 1999;
2. The death of the Executive; or
3. On written notice of termination from the Company to the Executive,
which notice may be given only on or after there shall have elapsed a
consecutive period of 90 days, (or a non-consecutive period of 120 days during
any twelve month period) during which the Executive was physically or mentally
incapacitated and unable to perform his duties hereunder.
B. In addition to the events described in the foregoing Section II.A., the
Company shall be entitled to terminate this Agreement upon written notice to the
Executive:
1. For cause, which for purposes of this Agreement shall mean the
refusal to perform, or the substantial neglect of, or an intentional failure to
perform, a material portion of the Executive's duties and obligations on behalf
of the Company, which actions or inactions are not reasonably cured within ten
(10) days after receipt of written notice from the Company with respect thereto;
willful misconduct; breach of a fiduciary duty involving personal gain; any
material breach of this Agreement; or
2. If the Executive has been convicted of a felony or a crime
involving moral turpitude, theft, fraud, embezzlement, intentional or reckless
conversion or destruction of Company funds or assets.
C. The Executive shall have the right to terminate this Agreement upon
reasonable notice to Company:
1. For cause, which for purposes of this Agreement shall mean the
failure of the Company to provide resources which are necessary to the
fulfillment of the Executive's responsibilities, and which failure(s) are not
reasonably cured within ten (10) days after receipt of written notice hereof
from the Executive;
2. Upon the express direction of the Board of Directors to perform any
action or inaction which, in the reasonable opinion of the Executive and upon
written advice of his counsel is illegal;
<PAGE>
Turvy Employment Agreement
Page 3
3. Upon the threatened or actual insolvency or receivership of the
Company not caused by any action or inaction of the Executive; or
4. Upon the failure of the Company to perform its obligations to
Executive as set forth in this Agreement.
D. Termination in accordance with any of the foregoing provisions of
Sections II.A., B. or C. above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect a party's
rights to seek damages or other relief in respect of a breach by the other party
of his or its obligations under this Agreement and, no such termination shall
affect the Company's rights under Sections IV. and V., herein, or the
Executive's rights under Section III. hereof with respect to any compensation
accrued or stock vested through such date of termination. For purposes of this
Agreement and as used anywhere herein, the phrase "fully and finally terminated
for cause" or "fully and finally terminate" shall mean the later of thirty (30)
days from the date of receipt of written notice of termination from one party to
the other, or the date of a final decision as a result of the Alternative
Dispute Resolution ("ADR") format set forth in Section IX. of this Agreement.
III. BASE SALARY
A. Executive shall be paid a base salary ("Base Salary") as follows:
PER MONTH
---------
Through December 31, 1996 $ 7,000
Year 1997 7,800
Year 1998 8,600
Year 1999 9,500
B. Executive will be paid a commission in the amount of 40% of the Gross
Margin of sales to accounts assigned to him, as maintained in the Company's
records, which commission shall be paid only when the amount of commission
exceeds the Executive's Base Salary and shall be paid in the lieu of Base
Salary. (Gross Margin is defined herein to mean the difference between the unit
sales invoice price and the actual dollar cost of the product to the Company.)
Executive will be furnished an automobile (up to $35,000, 1996 value) and
insurance, repairs, gas, oil, fees, etc., and such other per diem allowances, as
approved by the Board of Directors, equaling no more than $1,200 per month for
his use for Company business.
<PAGE>
Turvy Employment Agreement
Page 4
C. Executive will be able to take up to six (6) weeks vacation per year.
D. During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the Company,
to the extent commensurate with his then duties and responsibilities, as fixed
by the Board of Directors of the Company. The Company shall not make any changes
in such plans, benefits or privileges which would adversely affect Executive's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of the Company and does not result in a
proportionately greater adverse change in the rights of or benefits to Executive
as compared with any other executive officer of the Company. Nothing paid to
Executive under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the Base Salary payable to Executive
pursuant to Section III.A. hereof.
E. In addition to the foregoing, the Executive shall at all times during
the period of the Executive's employment under this Agreement be eligible to
participate in and to be covered by all plans, if any, effective generally with
respect to executives of the Company with respect to life insurance, accident
insurance, health insurance, hospitalization, disability, and other benefits of
whatsoever kind or description, to the extent the Executive is eligible under
the terms of such plans, on the same basis as other executives of the Company
and without restriction or limitation by reason of this Agreement. The Executive
shall be entitled to all of the fringe benefits and perquisites of office of
whatsoever kind or description made available generally to other executives of
the Company, including, but not limited to, customary paid holidays, without
restriction or limitation by reason of any specific benefit provided for in this
Agreement.
F. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company may
reasonably require.
IV. VALUATION OF SHARES UPON TERMINATION
A. If Executive is terminated for cause prior to December 31, 1999, and
provided that Company's shares are not publicly traded on the Termination Date,
then Company, at its sole option exercised by written notice to Executive thirty
(30) or more days from the date of Executive's full and final termination, shall
be entitled to mandate that Executive's entire equity interest in the Company be
redeemed. The value of the Executive's equity interest in the Company shall be
not less than 70% of the per share purchase price as set forth in the Stock
Purchase Agreement by and among Pittsburgh Investment Group LLC, the Company,
the Executive and other former stockholders of the Company dated April 25, 1996,
as amended. In
<PAGE>
Turvy Employment Agreement
Page 5
the event that Executive and Company cannot agree upon the value of Executive's
redeemable equity interest, then such issue shall be resolved pursuant to ADR as
set forth in Section IX. of this Agreement. All monies due and owing pursuant to
this Section IV.A. to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
B. If Executive terminates this Agreement for cause or is himself fully and
finally terminated for cause prior to December 31, 1999, and the Company's
shares are publicly traded, then and in such event, Executive shall not be
restricted hereby in the disposition of his entire equity interest in the
Company, subject to applicable federal and state securities laws.
C. If Executive terminates this Agreement for cause prior to December 31,
1999, and provided that the Company's shares are not publicly traded, then
Executive, at his option exercised by written notice to the Company within
thirty (30) days from the date of full and final termination, shall be entitled
to have his entire interest in the Company redeemed. In the event that Executive
and Company cannot agree upon the value of Executive's redeemable interest, then
such issue shall be resolved pursuant to ADR as set forth in Section IX. of this
Agreement. All monies due and owing to Executive shall be fully paid within
thirty (30) days of the date of the ADR decision or of the date set forth in a
written agreement of the parties whichever shall first occur.
D. In the event that this Agreement is terminated as a result of
Executive's death, and in the further event that the Company's shares shall not
be publicly traded at such time, then the value of the deceased's interest in
the Company shall be established by agreement between the Company and authorized
representatives of Executive's estate. In the event that no such agreement can
be reached, the parties shall submit the unresolved issues to ADR pursuant to
Section IX. of this Agreement.
E. In the event Executive is permanently disabled (as defined by standard
disability insurance policies) and is unable to reasonably perform the aggregate
of his assigned responsibilities and this Agreement is terminated as a result
thereof, and in the further event that the Company's shares shall not be
publicly traded at such time, then the Company, at its sole option exercised by
written notice within thirty (30) days after the Date of Termination, may
require the redemption of Executive's equity interest in the Company. In the
event that the Company and Executive (or his legally appointed representatives)
cannot agree on the value of Executive's equity interest, then such issue shall
be resolved pursuant to ADR as set forth in Section I.X. of this Agreement. All
monies due and owing to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
<PAGE>
Turvy Employment Agreement
Page 6
V. NON-COMPETITION
A. 1. The Company has disclosed to Executive its confidential business
plans, marketing strategies, advertising copy, funding sources, wholesale and
retail customer lists, equipment sources, financial projections and results and
other information in the course of Executive's occupation as a Vice President of
the Company. This information and similar information yet to be developed by the
Executive is generally unknown to the pubic and gives the Company a competitive
advantage over those who do not have access to this information. The Company has
taken and will take care to protect this information from becoming generally
known. The Company has revealed this information to the Executive on the
condition that he keep it confidential and will require confidentiality from the
Executive and all other persons with access to the information in the future.
The information described above, therefore, constitutes valuable trade secrets
of the Company and is referred to below as "Proprietary Information." In the
course of performing his duties under this Agreement, the Executive will both
help develop and be privy to Proprietary Information.
2. The Company has and shall retain all exclusive rights in the Proprietary
Information. During the term of this Agreement and any extension hereof and for
so long after its termination or expiration as permitted by law, Executive shall
not disclose Proprietary Information to any third party or make any commercial
or academic use of the Proprietary Information without the express written
consent of the Company, which consent may be withheld for any or no reason in
the Company's sole discretion.
3. These restrictions on the use and disclosure of Proprietary Information
shall survive the expiration or termination of this Agreement, regardless of the
grounds or lack of grounds therefor. The parties recognize and agree that, in
the event of a threatened or actual breach of this Section V.A., the Company's
remedy at law will be inadequate to fully compensate the Company for its losses.
Therefore, the Company may enforce its rights hereunder by equitable remedies,
including without limiting the generality of the foregoing, injunctive relief
and specific performance.
B.1. During the term of this Agreement and for twelve (12) months after the
Termination Date, Executive hereby covenants and agrees that the Executive (and
any person or entity controlled by, under common control with or controlling the
Executive) will not sell or distribute or be financially or otherwise associated
with anyone that sells or distributes computer supplies in an area within a one
hundred (100) mile radius of any existing office of the Company. For purposes of
this Section V.B.1., "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person or entity, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the activities, affairs, management or
policies of such person or entity, whether through personal relationship, the
ownership of voting securities or by contract or otherwise.
<PAGE>
Turvy Employment Agreement
Page 7
2. The Executive agrees that in the event that the Executive commits a
breach or threatens to commit a breach of any of the provisions of this Section
V.B., the Company shall have the right and remedy to have the provisions of this
Section V.B. specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
immediate irreparable injury to the Company and that money damages will not
provide an adequate remedy at law for any such breach or threatened breach. Such
right and remedy shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company at law or in equity.
3. If any of the provisions of or covenants contained in this Section V.B.
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalid portions or the unenforceability in such other
jurisdiction because of the duration or geographic scope thereof, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or geographic scope of such provision or covenants and, in its
reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
unenforceability of this Section V.B. in any other jurisdiction.
VI. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject matter
hereof and there are not terms other than those contained herein. No variation
hereof or amendment hereto shall be deemed to be a valid unless in writing and
signed by the parties hereto. No waiver by either party of any provision or
condition of this Agreement by him or it to be performed shall be deemed to be a
waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time.
VII. BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and the Executive, his heirs, executors,
administrators and legal representatives.
VIII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio. However, all disputes between the parties shall be
resolved by ADR in the jurisdiction wherein the Executive is domiciled.
<PAGE>
Turvy Employment Agreement
Page 8
IX. ALTERNATIVE DISPUTE RESOLUTION
A. The parties agree that it is in their best interests to resolve all
disputes or controversies arising out of this Agreement in a cost effective and
timely manner. Therefore, all such unresolved disputes or controversies shall be
determined through a format of ADR, to be mutually agreed upon between the
parties. All ADR determinations shall be final and binding upon the parties
unless otherwise agreed in writing.
B. In the event that the parties are unable to agree on an ADR format,
dispute resolution shall take place through the American Arbitration Association
or, if agreed, another mutually acceptable ADR organization.
X. INDEMNIFICATIONS; WITHHOLDING
A. The Company shall fully indemnify and hold harmless Executive from any
and all claims, demands, judgments, liens, subrogation, or costs incurred by
Executive with respect to any shareholder derivative action or other claims or
suits against Company and/or its Board of Director by individuals, firms, or
entities not a party to this Agreement to the extent permitted by the Company's
Articles of Incorporation, Bylaws and applicable corporate law.
B. The Company shall provide Executive with a policy of insurance during
the term of Executive's employment which covers errors and omissions of the
Executive while in the course and scope of his employment with the Company or
its affiliates or divisions, if such policy is obtainable and the premium
therefore is commercially reasonable, in the sole discretion of the Board of
Directors.
C. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
XI. NOTICES
A. Any notices or other communication required or permitted hereunder shall
be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed, if to the Executive, to him at 3166 North Waynesville,
Oregonia, Ohio 45054, and if to the Company, to it at 3884 Indian Ripple Road,
Dayton, Ohio 45440, Attention: Chairman of the Board.
B. For purposes of all notices to be given pursuant to or arising out of
this Agreement including a demand for ADR, a party will be presumed to have
received written notice on the date of the actual receipt thereof.
<PAGE>
Turvy Employment Agreement
Page 9
IN WITNESS WHEREOF, the Company and the Executive have set their hands on
the date above written.
ATTEST:
/s/ Michelle A. Pentecost By: /s/ Roger E. Turvy
- ------------------------------ ------------------------------
Roger E. Turvy
"Executive"
MIAMI COMPUTER SUPPLY, INC.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Al Schwarz
- ------------------------------ ------------------------------
Name: Albert L. Schwarz
Title: President
"Company"
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 30th
day of May, 1996, by and between MIAMI COMPUTER SUPPLY, INC. (the "Company") and
MICHAEL E. PEPPEL (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it is
hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as Vice President - Chief Financial Officer
of the Company, and the Executive hereby accepts said employment.
B. The Executive's employment with the Company shall be full time provided,
however, that he shall not be restricted from the pursuit of other business
interests, hobbies, or interests which neither compete nor interfere with his
duties on behalf of the Company.
C. The Executive's areas of responsibility shall be as directed by the
Board of Directors and the President of the Company and may include all aspects
of the Company's business, including but not limited to, sales of computer
supplies, strategic planning, overseeing day to day operations, acquisitions,
bank negotiations, long range planning, cash flow projections and any other
duties specified by the Board of Directors. The Executive shall, from time to
time and as requested, report to the Board of Directors with respect to his
activities. The Executive agrees to exercise his duties and responsibilities
hereunder in good faith, with reasonable diligence, and in accordance with sound
business practice.
D. The Executive shall devote his full business time and efforts and all
reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest thereof. The Executive's services shall be
rendered with due regard for the prompt, efficient and economical operation of
the business of the Company.
II. TERMS AND CONDITIONS OF EMPLOYMENT
A. This Agreement shall commence on the date hereof and shall terminate on
the earliest to occur of:
1. December 31, 1999;
<PAGE>
Peppel Employment Agreement
Page 2
2. The death of the Executive; or
3. On written notice of termination from the Company to the Executive,
which notice may be given only on or after there shall have elapsed a
consecutive period of 90 days, (or a non-consecutive period of 120 days during
any twelve month period) during which the Executive was physically or mentally
incapacitated and unable to perform his duties hereunder.
B. In addition to the events described in the foregoing Section II.A., the
Company shall be entitled to terminate this Agreement upon written notice to the
Executive:
1. For cause, which for purposes of this Agreement shall mean the
refusal to perform, or the substantial neglect of, or an intentional failure to
perform, a material portion of the Executive's duties and obligations on behalf
of the Company, which actions or inactions are not reasonably cured within ten
(10) days after receipt of written notice from the Company with respect thereto;
willful misconduct; breach of a fiduciary duty involving personal gain; any
material breach of this Agreement; or
2. If the Executive has been convicted of a felony or a crime
involving moral turpitude, theft, fraud, embezzlement, intentional or reckless
conversion or destruction of Company funds or assets.
C. The Executive shall have the right to terminate this Agreement upon
reasonable notice to Company:
1. For cause, which for purposes of this Agreement shall mean the
failure of the Company to provide resources which are necessary to the
fulfillment of the Executive's responsibilities, and which failure(s) are not
reasonably cured within ten (10) days after receipt of written notice hereof
from the Executive;
2. Upon the express direction of the Board of Directors to perform any
action or inaction which, in the reasonable opinion of the Executive and upon
written advice of his counsel is illegal;
3. Upon the threatened or actual insolvency or receivership of the
Company not caused by any action or inaction of the Executive; or
4. Upon the failure of the Company to perform its obligations to
Executive as set forth in this Agreement.
<PAGE>
Peppel Employment Agreement
Page 3
D. Termination in accordance with any of the foregoing provisions of
Sections II.A., B. or C. above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect a party's
rights to seek damages or other relief in respect of a breach by the other party
of his or its obligations under this Agreement and, no such termination shall
affect the Company's rights under Sections IV. and V., herein, or the
Executive's rights under Section III. hereof with respect to any compensation
accrued or stock vested through such date of termination. For purposes of this
Agreement and as used anywhere herein, the phrase "fully and finally terminated
for cause" or "fully and finally terminate" shall mean the later of thirty (30)
days from the date of receipt of written notice of termination from one party to
the other, or the date of a final decision as a result of the Alternative
Dispute Resolution ("ADR") format set forth in Section IX. of this Agreement.
III. BASE SALARY
A. Executive shall be paid a base salary ("Base Salary") as follows:
PER
MONTH
-----
Through December 31, $ 6,667
1996
Year 1997 7,247
Year 1998 7,609
Year 1999 7,975
B. In addition to the Base Salary, a bonus will be paid to Executive of
nine percent (9%) of pretax profits before employee profitsharing or any other
bonuses, sixty percent (60%) of which shall be paid quarterly. Executive will,
if he is required to move his residence to Dayton, Ohio, be reimbursed or
advanced the expense of his relocation by the Company upon presentation of
documentation of such expenditures.
C. Executive will be able to take up to five (5) weeks vacation per year.
D. During the term of this Agreement, the Executive shall participate in a
stock bonus program which will vest in him a total of .25% or 21 shares of
Company common stock owned by Pittsburgh Investment Group LLC ("LLC") at
December 31, 1996, a total of 55 shares (or .66% of the shares) of Company
common stock at December 31, 1997 and a total of 125 shares (or 1.5% of the
shares) at December 31, 1998. Upon the
<PAGE>
Peppel Employment Agreement
Page 4
consummation of any initial public offering of shares of the Company during the
term hereof (or any extension hereto), Executive shall become fully vested in
all 125 shares of common stock of the Company. LLC is a party to the Agreement
only with respect to this Section III.D. and no other.
E. During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the Company,
to the extent commensurate with his then duties and responsibilities, as fixed
by the Board of Directors of the Company. The Company shall not make any changes
in such plans, benefits or privileges which would adversely affect Executive's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of the Company and does not result in a
proportionately greater adverse change in the rights of or benefits to Executive
as compared with any other executive officer of the Company. Nothing paid to
Executive under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the Base Salary payable to Executive
pursuant to Section III.A. hereof.
F. In addition to the foregoing, the Executive shall at all times during
the period of the Executive's employment under this Agreement be eligible to
participate in and to be covered by all plans, if any, effective generally with
respect to executives of the Company with respect to life insurance, accident
insurance, health insurance, hospitalization, disability, and other benefits of
whatsoever kind or description, to the extent the Executive is eligible under
the terms of such plans, on the same basis as other executives of the Company
and without restriction or limitation by reason of this Agreement. The Executive
shall be entitled to all of the fringe benefits and perquisites of office of
whatsoever kind or description made available generally to other executives of
the Company, including, but not limited to, customary paid holidays, without
restriction or limitation by reason of any specific benefit provided for in this
Agreement.
G. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company may
reasonably require.
IV. VALUATION OF SHARES UPON TERMINATION
A. If Executive is terminated for cause prior to December 31, 1999, and
provided that Company's shares are not publicly traded on the Termination Date,
then Company, at its sole option exercised by written notice to Executive thirty
(30) or more days from the date of Executive's full and final termination, shall
be entitled to mandate that Executive's
<PAGE>
Peppel Employment Agreement
Page 5
entire equity interest in the Company be redeemed. The value of the Executive's
equity interest in the Company shall be not less than 70% of the per share
purchase price as set forth in the Stock Purchase Agreement by and among
Pittsburgh Investment Group LLC, the Company, and other stockholders of the
Company dated April 25, 1996, as amended. In the event that Executive and
Company cannot agree upon the value of Executive's redeemable equity interest,
then such issue shall be resolved pursuant to ADR as set forth in Section IX. of
this Agreement. All monies due and owing pursuant to this Section IV.A. to
Executive shall be fully paid within thirty (30) days of the date of the ADR
decision or of the date set forth in a written agreement of the parties
whichever shall first occur.
B. If Executive terminates this Agreement for cause or is himself fully and
finally terminated for cause prior to December 31, 1999, and the Company's
shares are publicly traded, then and in such event, Executive shall not be
restricted hereby in the disposition of his entire equity interest in the
Company, subject to applicable federal and state securities laws.
C. If Executive terminates this Agreement for cause prior to December 31,
1999, and provided that the Company's shares are not publicly traded, then
Executive, at his option exercised by written notice to the Company within
thirty (30) days from the date of full and final termination, shall be entitled
to have his entire interest in the Company redeemed. In the event that Executive
and Company cannot agree upon the value of Executive's redeemable interest, then
such issue shall be resolved pursuant to ADR as set forth in Section IX. of this
Agreement. All monies due and owing to Executive shall be fully paid within
thirty (30) days of the date of the ADR decision or of the date set forth in a
written agreement of the parties whichever shall first occur.
D. In the event that this Agreement is terminated as a result of
Executive's death, and in the further event that the Company's shares shall not
be publicly traded at such time, then the value of the deceased's interest in
the Company shall be established by agreement between the Company and authorized
representatives of Executive's estate. In the event that no such agreement can
be reached, the parties shall submit the unresolved issues to ADR pursuant to
Section IX. of this Agreement.
E. In the event Executive is permanently disabled (as defined by standard
disability insurance policies) and is unable to reasonably perform the aggregate
of his assigned responsibilities and this Agreement is terminated as a result
thereof, and in the further event that the Company's shares shall not be
publicly traded at such time, then the Company, at its sole option exercised by
written notice within thirty (30) days after the Date of Termination, may
require the redemption of Executive's equity interest in the Company. In the
event that the Company and Executive (or his legally appointed representatives)
cannot agree on the value of Executive's equity interest, then such issue shall
be resolved
<PAGE>
Peppel Employment Agreement
Page 6
pursuant to ADR as set forth in Section I.X. of this Agreement. All monies due
and owing to Executive shall be fully paid within thirty (30) days of the date
of the ADR decision or of the date set forth in a written agreement of the
parties whichever shall first occur.
V. NON-COMPETITION
A. 1. The Company has disclosed to Executive its confidential business
plans, marketing strategies, advertising copy, funding sources, wholesale and
retail customer lists, equipment sources, financial projections and results and
other information in the course of Executive's occupation as a Vice President of
the Company. This information and similar information yet to be developed by the
Executive is generally unknown to the pubic and gives the Company a competitive
advantage over those who do not have access to this information. The Company has
taken and will take care to protect this information from becoming generally
known. The Company has revealed this information to the Executive on the
condition that he keep it confidential and will require confidentiality from the
Executive and all other persons with access to the information in the future.
The information described above, therefore, constitutes valuable trade secrets
of the Company and is referred to below as "Proprietary Information." In the
course of performing his duties under this Agreement, the Executive will both
help develop and be privy to Proprietary Information.
2. The Company has and shall retain all exclusive rights in the Proprietary
Information. During the term of this Agreement and any extension hereof and for
so long after its termination or expiration as permitted by law, Executive shall
not disclose Proprietary Information to any third party or make any commercial
or academic use of the Proprietary Information without the express written
consent of the Company, which consent may be withheld for any or no reason in
the Company's sole discretion.
3. These restrictions on the use and disclosure of Proprietary Information
shall survive the expiration or termination of this Agreement, regardless of the
grounds or lack of grounds therefor. The parties recognize and agree that, in
the event of a threatened or actual breach of this Section V.A., the Company's
remedy at law will be inadequate to fully compensate the Company for its losses.
Therefore, the Company may enforce its rights hereunder by equitable remedies,
including without limiting the generality of the foregoing, injunctive relief
and specific performance.
B.1. During the term of this Agreement and for twelve (12) months after the
Termination Date, Executive hereby covenants and agrees that the Executive (and
any person or entity controlled by, under common control with or controlling the
Executive) will not sell or distribute or be financially or otherwise associated
with anyone that sells or distributes computer supplies in an area within a one
hundred (100) mile radius of any
<PAGE>
Peppel Employment Agreement
Page 7
existing office of the Company. For purposes of this Section V.B.1., "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any person or entity, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the activities, affairs, management or policies of such person or
entity, whether through personal relationship, the ownership of voting
securities or by contract or otherwise.
2. The Executive agrees that in the event that the Executive commits a
breach or threatens to commit a breach of any of the provisions of this Section
V.B., the Company shall have the right and remedy to have the provisions of this
Section V.B. specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
immediate irreparable injury to the Company and that money damages will not
provide an adequate remedy at law for any such breach or threatened breach. Such
right and remedy shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company at law or in equity.
3. If any of the provisions of or covenants contained in this Section V.B.
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalid portions or the unenforceability in such other
jurisdiction because of the duration or geographic scope thereof, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or geographic scope of such provision or covenants and, in its
reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
unenforceability of this Section V.B. in any other jurisdiction.
VI. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject matter
hereof and there are not terms other than those contained herein. No variation
hereof or amendment hereto shall be deemed to be a valid unless in writing and
signed by the parties hereto. No waiver by either party of any provision or
condition of this Agreement by him or it to be performed shall be deemed to be a
waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time.
VII. BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and the Executive, his heirs, executors,
administrators and legal representatives.
<PAGE>
Peppel Employment Agreement
Page 8
VIII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio. However, all disputes between the parties shall be
resolved by ADR in the jurisdiction wherein the Executive is domiciled.
IX. ALTERNATIVE DISPUTE RESOLUTION
A. The parties agree that it is in their best interests to resolve all
disputes or controversies arising out of this Agreement in a cost effective and
timely manner. Therefore, all such unresolved disputes or controversies shall be
determined through a format of ADR, to be mutually agreed upon between the
parties. All ADR determinations shall be final and binding upon the parties
unless otherwise agreed in writing.
B. In the event that the parties are unable to agree on an ADR format,
dispute resolution shall take place through the American Arbitration Association
or, if agreed, another mutually acceptable ADR organization.
X. INDEMNIFICATIONS; WITHHOLDING
A. The Company shall fully indemnify and hold harmless Executive from any
and all claims, demands, judgments, liens, subrogation, or costs incurred by
Executive with respect to any shareholder derivative action or other claims or
suits against Company and/or its Board of Director by individuals, firms, or
entities not a party to this Agreement to the extent permitted by the Company's
Articles of Incorporation, Bylaws and applicable corporate law.
B. The Company shall provide Executive with a policy of insurance during
the term of Executive's employment which covers errors and omissions of the
Executive while in the course and scope of his employment with the Company or
its affiliates or divisions, if such policy is obtainable and the premium
therefore is commercially reasonable, in the sole discretion of the Board of
Directors.
C. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
<PAGE>
Peppel Employment Agreement
Page 9
XI. NOTICES
A. Any notices or other communication required or permitted hereunder shall
be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed, if to the Executive, to him at 4456 Oak Pointe Drive,
Brighton, Michigan 48116 and if to the Company, to it at 3884 Indian Ripple
Road, Dayton, Ohio 45440, Attention: President.
B. For purposes of all notices to be given pursuant to or arising out of
this Agreement including a demand for ADR, a party will be presumed to have
received written notice on the date of the actual receipt thereof.
IN WITNESS WHEREOF, the Company and the Executive have set their hands on
the date above written.
ATTEST:
/s/ Harry Radcliffe By: /s/ Michael E. Peppel
- ------------------------------ -----------------------------------
Michael E. Peppel
"Executive"
MIAMI COMPUTER SUPPLY, INC.
ATTEST:
/s/ Thomas C. Winstel By: /s/ Al Schwarz
- ------------------------------ -----------------------------------
Name: Albert L. Schwarz
Title: President
"Company"
<PAGE>
Peppel Employment Agreement
Page 10
As to Section III.D. only:
PITTSBURGH INVESTMENT GROUP LLC
ATTEST:
/s/ Harry F. Radcliffe /s/ Anthony W. Liberati
- ------------------------------ -----------------------------------
Harry F. Radcliffe Anthony W. Liberati
Manager-Secretary Manager-President and Chief Executive Officer
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 30th
day of May, 1996, by and between MIAMI COMPUTER SUPPLY, INC. (the "Company") and
JOHN HUFFMAN (the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company;
NOW, THEREFORE, upon the terms and conditions hereinafter set forth, it is
hereby agreed between the parties as follows:
I. DUTIES
A. Upon the terms and subject to the conditions of this Agreement, the
Company hereby employs the Executive as Vice President of the Company, and the
Executive hereby accepts said employment.
B. The Executive's employment with the Company shall be full time provided,
however, that he shall not be restricted from the pursuit of other business
interests, hobbies, or interests which neither compete nor interfere with his
duties on behalf of the Company.
C. The Executive's areas of responsibility shall be as directed by the
Board of Directors and the President of the Company and may include certain
aspects of the Company's business, including but not limited to, day-to-day
sales functions, vendor negotiations, coordinating sales forecasts, interacting
with Branch Managers and Account Representatives on key account presentations
and any other duties specified by the Board of Directors. The Executive shall,
from time to time and as requested, report to the Board of Directors with
respect to his activities. The Executive agrees to exercise his duties and
responsibilities hereunder in good faith, with reasonable diligence, and in
accordance with sound business practice.
D. The Executive shall devote his full business time and efforts and all
reasonable energy and skill to the business of the Company and shall use his
best efforts to promote the interest thereof. The Executive's services shall be
rendered with due regard for the prompt, efficient and economical operation of
the business of the Company.
E. Except for business trips which may be necessary or desirable in
connection with the performance of the Executive's duties, the Executive shall
not be required, without his consent, which shall not be unreasonably withheld,
to perform any duties at any location outside of a one hundred (100) mile radius
from Dayton, Ohio.
<PAGE>
Huffman Employment Agreement
Page 2
II. TERMS AND CONDITIONS OF EMPLOYMENT
A. This Agreement shall commence on the date hereof and shall terminate on
the earliest to occur of:
1. December 31, 1999;
2. The death of the Executive; or
3. On written notice of termination from the Company to the Executive,
which notice may be given only on or after there shall have elapsed a
consecutive period of 90 days, (or a non-consecutive period of 120 days during
any twelve month period) during which the Executive was physically or mentally
incapacitated and unable to perform his duties hereunder.
B. In addition to the events described in the foregoing Section II.A., the
Company shall be entitled to terminate this Agreement upon written notice to the
Executive:
1. For cause, which for purposes of this Agreement shall mean the
refusal to perform, or the substantial neglect of, or an intentional failure to
perform, a material portion of the Executive's duties and obligations on behalf
of the Company, which actions or inactions are not reasonably cured within ten
(10) days after receipt of written notice from the Company with respect thereto;
willful misconduct; breach of a fiduciary duty involving personal gain; any
material breach of this Agreement; or
2. If the Executive has been convicted of a felony or a crime
involving moral turpitude, theft, fraud, embezzlement, intentional or reckless
conversion or destruction of Company funds or assets.
C. The Executive shall have the right to terminate this Agreement upon
reasonable notice to Company:
1. For cause, which for purposes of this Agreement shall mean the
failure of the Company to provide resources which are necessary to the
fulfillment of the Executive's responsibilities, and which failure(s) are not
reasonably cured within ten (10) days after receipt of written notice hereof
from the Executive;
2. Upon the express direction of the Board of Directors to perform any
action or inaction which, in the reasonable opinion of the Executive and upon
written advice of his counsel is illegal;
<PAGE>
Huffman Employment Agreement
Page 3
3. Upon the threatened or actual insolvency or receivership of the
Company not caused by any action or inaction of the Executive; or
4. Upon the failure of the Company to perform its obligations to
Executive as set forth in this Agreement.
D. Termination in accordance with any of the foregoing provisions of
Sections II.A., B. or C. above shall be effective on the date applicable to the
particular termination section referred to above (the "Termination Date"), and
from and after such date, this Agreement shall be of no further force and
effect; provided, however, that no such termination shall affect a party's
rights to seek damages or other relief in respect of a breach by the other party
of his or its obligations under this Agreement and, no such termination shall
affect the Company's rights under Sections IV. and V., herein, or the
Executive's rights under Section III. hereof with respect to any compensation
accrued or stock vested through such date of termination. For purposes of this
Agreement and as used anywhere herein, the phrase "fully and finally terminated
for cause" or "fully and finally terminate" shall mean the later of thirty (30)
days from the date of receipt of written notice of termination from one party to
the other, or the date of a final decision as a result of the Alternative
Dispute Resolution ("ADR") format set forth in Section IX. of this Agreement.
III. BASE SALARY
A. Executive shall be paid a base salary ("Base Salary") as follows:
PER MONTH
---------
Through December 31, 1996 $ 10,100
Year 1997 10,700
Year 1998 11,300
Year 1999 12,000
B. In addition to the Base Salary, a bonus will be paid to Executive of .5%
of Gross Margin over $9.0 million in any calendar year. ("Gross Margin" is
defined herein to mean the difference between the unit sales invoice price and
the actual cost of the product to the Company; so, if Gross Margin at the end of
a calendar year equalled $9.5 million, the bonus due would be $9.5 million minus
$9.0 million which equals $.5 million, times .005, which equals a $2,500 bonus).
Executive will be furnished an automobile (equivalent to a 1997 Pontiac
Bonneville SSEI), and insurance, repairs, gas, oil, fees, and cellular phone and
such other per diem allowances, as approved by the Board of Directors, equaling
no more than $1,200 per month for his use for Company business.
<PAGE>
Huffman Employment Agreement
Page 4
C. Executive will be able to take up to five (5) weeks vacation per year.
D. During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the Company,
to the extent commensurate with his then duties and responsibilities, as fixed
by the Board of Directors of the Company. The Company shall not make any changes
in such plans, benefits or privileges which would adversely affect Executive's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of the Company and does not result in a
proportionately greater adverse change in the rights of or benefits to Executive
as compared with any other executive officer of the Company. Nothing paid to
Executive under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the Base Salary payable to Executive
pursuant to Section III.A. hereof.
E. In addition to the foregoing, the Executive shall at all times during
the period of the Executive's employment under this Agreement be eligible to
participate in and to be covered by all plans, if any, effective generally with
respect to executives of the Company with respect to life insurance, accident
insurance, health insurance, hospitalization, disability, and other benefits of
whatsoever kind or description, to the extent the Executive is eligible under
the terms of such plans, on the same basis as other executives of the Company
and without restriction or limitation by reason of this Agreement. The Executive
shall be entitled to all of the fringe benefits and perquisites of office of
whatsoever kind or description made available generally to other executives of
the Company, including, but not limited to, customary paid holidays, without
restriction or limitation by reason of any specific benefit provided for in this
Agreement.
F. The Company shall pay or reimburse the Executive for all reasonable
out-of-pocket expenses incurred or paid by him in connection with the
performance of his duties under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company may
reasonably require.
IV. VALUATION OF SHARES UPON TERMINATION
A. If Executive is terminated for cause prior to December 31, 1999, and
provided that Company's shares are not publicly traded on the Termination Date,
then Company, at its sole option exercised by written notice to Executive thirty
(30) or more days from the date of Executive's full and final termination, shall
be entitled to mandate that Executive's entire equity interest in the Company be
redeemed. The value of the Executive's equity interest in the Company shall be
not less than 70% of the per share purchase price as set forth in the Stock
Purchase Agreement by and among Pittsburgh Investment Group LLC, the Company,
the Executive and other former stockholders of the Company dated April 25, 1996,
as amended. In
<PAGE>
Huffman Employment Agreement
Page 5
the event that Executive and Company cannot agree upon the value of Executive's
redeemable equity interest, then such issue shall be resolved pursuant to ADR as
set forth in Section IX. of this Agreement. All monies due and owing pursuant to
this Section IV.A. to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
B. If Executive terminates this Agreement for cause or is himself fully and
finally terminated for cause prior to December 31, 1999, and the Company's
shares are publicly traded, then and in such event, Executive shall not be
restricted hereby in the disposition of his entire equity interest in the
Company, subject to applicable federal and state securities laws.
C. If Executive terminates this Agreement for cause prior to December 31,
1999, and provided that the Company's shares are not publicly traded, then
Executive, at his option exercised by written notice to the Company within
thirty (30) days from the date of full and final termination, shall be entitled
to have his entire interest in the Company redeemed. In the event that Executive
and Company cannot agree upon the value of Executive's redeemable interest, then
such issue shall be resolved pursuant to ADR as set forth in Section IX. of this
Agreement. All monies due and owing to Executive shall be fully paid within
thirty (30) days of the date of the ADR decision or of the date set forth in a
written agreement of the parties whichever shall first occur.
D. In the event that this Agreement is terminated as a result of
Executive's death, and in the further event that the Company's shares shall not
be publicly traded at such time, then the value of the deceased's interest in
the Company shall be established by agreement between the Company and authorized
representatives of Executive's estate. In the event that no such agreement can
be reached, the parties shall submit the unresolved issues to ADR pursuant to
Section IX. of this Agreement.
E. In the event Executive is permanently disabled (as defined by standard
disability insurance policies) and is unable to reasonably perform the aggregate
of his assigned responsibilities and this Agreement is terminated as a result
thereof, and in the further event that the Company's shares shall not be
publicly traded at such time, then the Company, at its sole option exercised by
written notice within thirty (30) days after the Date of Termination, may
require the redemption of Executive's equity interest in the Company. In the
event that the Company and Executive (or his legally appointed representatives)
cannot agree on the value of Executive's equity interest, then such issue shall
be resolved pursuant to ADR as set forth in Section I.X. of this Agreement. All
monies due and owing to Executive shall be fully paid within thirty (30) days of
the date of the ADR decision or of the date set forth in a written agreement of
the parties whichever shall first occur.
<PAGE>
Huffman Employment Agreement
Page 6
V. NON-COMPETITION
A. 1. The Company has disclosed to Executive its confidential business
plans, marketing strategies, advertising copy, funding sources, wholesale and
retail customer lists, equipment sources, financial projections and results and
other information in the course of Executive's occupation as a Vice President of
the Company. This information and similar information yet to be developed by the
Executive is generally unknown to the pubic and gives the Company a competitive
advantage over those who do not have access to this information. The Company has
taken and will take care to protect this information from becoming generally
known. The Company has revealed this information to the Executive on the
condition that he keep it confidential and will require confidentiality from the
Executive and all other persons with access to the information in the future.
The information described above, therefore, constitutes valuable trade secrets
of the Company and is referred to below as "Proprietary Information." In the
course of performing his duties under this Agreement, the Executive will both
help develop and be privy to Proprietary Information.
2. The Company has and shall retain all exclusive rights in the Proprietary
Information. During the term of this Agreement and any extension hereof and for
so long after its termination or expiration as permitted by law, Executive shall
not disclose Proprietary Information to any third party or make any commercial
or academic use of the Proprietary Information without the express written
consent of the Company, which consent may be withheld for any or no reason in
the Company's sole discretion.
3. These restrictions on the use and disclosure of Proprietary Information
shall survive the expiration or termination of this Agreement, regardless of the
grounds or lack of grounds therefor. The parties recognize and agree that, in
the event of a threatened or actual breach of this Section V.A., the Company's
remedy at law will be inadequate to fully compensate the Company for its losses.
Therefore, the Company may enforce its rights hereunder by equitable remedies,
including without limiting the generality of the foregoing, injunctive relief
and specific performance.
B.1. During the term of this Agreement and for twelve (12) months after the
Termination Date, Executive hereby covenants and agrees that the Executive (and
any person or entity controlled by, under common control with or controlling the
Executive) will not sell or distribute or be financially or otherwise associated
with anyone that sells or distributes computer supplies in an area within a one
hundred (100) mile radius of any existing office of the Company. For purposes of
this Section V.B.1., "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person or entity, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the activities, affairs, management or
policies of such person or entity, whether through personal relationship, the
ownership of voting securities or by contract or otherwise.
<PAGE>
Huffman Employment Agreement
Page 7
2. The Executive agrees that in the event that the Executive commits a
breach or threatens to commit a breach of any of the provisions of this Section
V.B., the Company shall have the right and remedy to have the provisions of this
Section V.B. specifically enforced by any court having jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
immediate irreparable injury to the Company and that money damages will not
provide an adequate remedy at law for any such breach or threatened breach. Such
right and remedy shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company at law or in equity.
3. If any of the provisions of or covenants contained in this Section V.B.
are hereafter construed to be invalid or unenforceable in any jurisdiction, the
same shall not affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full effect, without
regard to the invalid portions or the unenforceability in such other
jurisdiction because of the duration or geographic scope thereof, the parties
agree that the court making such determination shall have the power to reduce
the duration and/or geographic scope of such provision or covenants and, in its
reduced form, said provision or covenant shall be enforceable; provided,
however, that the determination of such court shall not affect the
unenforceability of this Section V.B. in any other jurisdiction.
VI. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement as to the subject matter
hereof and there are not terms other than those contained herein. No variation
hereof or amendment hereto shall be deemed to be a valid unless in writing and
signed by the parties hereto. No waiver by either party of any provision or
condition of this Agreement by him or it to be performed shall be deemed to be a
waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time.
VII. BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and the Executive, his heirs, executors,
administrators and legal representatives.
VIII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio. However, all disputes between the parties shall be
resolved by ADR in the jurisdiction wherein the Executive is domiciled.
<PAGE>
Huffman Employment Agreement
Page 8
IX. ALTERNATIVE DISPUTE RESOLUTION
A. The parties agree that it is in their best interests to resolve all
disputes or controversies arising out of this Agreement in a cost effective and
timely manner. Therefore, all such unresolved disputes or controversies shall be
determined through a format of ADR, to be mutually agreed upon between the
parties. All ADR determinations shall be final and binding upon the parties
unless otherwise agreed in writing.
B. In the event that the parties are unable to agree on an ADR format,
dispute resolution shall take place through the American Arbitration Association
or, if agreed, another mutually acceptable ADR organization.
X. INDEMNIFICATIONS; WITHHOLDING
A. The Company shall fully indemnify and hold harmless Executive from any
and all claims, demands, judgments, liens, subrogation, or costs incurred by
Executive with respect to any shareholder derivative action or other claims or
suits against Company and/or its Board of Director by individuals, firms, or
entities not a party to this Agreement to the extent permitted by the Company's
Articles of Incorporation, Bylaws and applicable corporate law.
B. The Company shall provide Executive with a policy of insurance during
the term of Executive's employment which covers errors and omissions of the
Executive while in the course and scope of his employment with the Company or
its affiliates or divisions, if such policy is obtainable and the premium
therefore is commercially reasonable, in the sole discretion of the Board of
Directors.
C. All payments required to be made by the Company hereunder to the
Executive shall be subject to the withholding of such amounts, if any, relating
to tax and other payroll deductions as the Company may reasonably determine
should be withheld pursuant to any applicable law or regulation.
XI. NOTICES
A. Any notices or other communication required or permitted hereunder shall
be sufficiently given if sent by registered mail or certified mail, postage
prepaid, addressed, if to the Executive, to him at 3121 Big Hill Road,
Kettering, Ohio 45419, and if to the Company, to it at 3884 Indian Ripple Road,
Dayton, Ohio 45440, Attention: President.
<PAGE>
Huffman Employment Agreement
Page 9
B. For purposes of all notices to be given pursuant to or arising out of
this Agreement including a demand for ADR, a party will be presumed to have
received written notice on the date of the actual receipt thereof.
IN WITNESS WHEREOF, the Company and the Executive have set their hands on
the date above written.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ John C. Huffman, III
- ------------------------------ --------------------------------
John Huffman
"Executive"
MIAMI COMPUTER SUPPLY, INC.
ATTEST:
/s/ Rochelle T. Hayes By: /s/ Al Schwarz
- ------------------------------ --------------------------------
Name: Albert L. Schwarz
Title: President
"Company"
EXHBIIT 10.18
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of December,
1995, by and between MIAMI COMPUTER SUPPLY, INC., an Ohio company, with
principal offices in the State of Ohio (hereinafter referred to as the
"Company"), and ALBERT L. SCHWARZ, an individual residing in the State of Ohio
(hereinafter referred to as the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Company; and
WHEREAS, the Company has, for its benefit and protection, insured the
life of the Executive under a policy of life insurance insuring the Executive's
life (hereinafter referred to as the "Policy"), which is described in Exhibit A
attached hereto and by this reference made a part hereof, and which was issued
by Security Life, Denver, Colorado (hereinafter referred to as the "Insurer");
and
WHEREAS, the Executive wishes to provide life insurance protection for
his family under the Policy, and the Company has determined that it no longer
needs all of the life insurance protection afforded by said Policy; and
WHEREAS, the Company has paid all of the premiums on the Policy, and is
willing to continue to pay the premiums due on the Policy as an additional
employment benefit for the Executive, on the terms and conditions hereinafter
set forth; and
WHEREAS, the Company is the owner of the Policy and, as such, possesses
all incidents of ownership in and to the Policy; and
WHEREAS, the Company wishes to retain such ownership rights, since it
will continue to be a beneficiary of a portion of the death benefit of the
Policy;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Purchase of Policy. The Company has purchased the Policy from
the Insurer in the total face amount of $1,550,001. The parties hereto have
taken all necessary action to cause the Insurer to issue the Policy, and shall
take any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement. The parties hereto agree that the Policy shall
be subject to the terms and conditions of this Agreement and of the endorsement
to the Policy filed with the Insurer.
2. Ownership of Policy. The Company shall be the sole and
absolute owner of the Policy, and may exercise all ownership rights granted to
the owner thereof by the terms of the Policy, except as may otherwise be
provided herein.
3. Election of Settlement Option and Beneficiary. The Executive
may select the settlement option for payment of the portion of the death benefit
provided under the Policy to which he is entitled hereunder, and the beneficiary
or beneficiaries to receive the portion of Policy proceeds to which he is
entitled hereunder, by specifying the same in a written notice to the Company.
Upon receipt of such notice, the Company shall execute and deliver to the
Insurer the forms necessary to elect the requested settlement option and to
designate the requested person, persons or entity as the beneficiary or
beneficiaries to receive the portion of the death proceeds of the Policy to
which the Executive is entitled hereunder. The parties hereto agree to take all
action necessary to cause the beneficiary designation and settlement election
provisions of the Policy to conform to the provisions hereof. The Company shall
not terminate, alter or amend such designation or election without the express
written consent of the Executive.
4. Payment of Premium. On or before the due date of each Policy
premium, or within the grace period provided therein, the Company shall pay the
full amount of the premium to the Insurer, and shall, upon request, promptly
furnish the Executive evidence of timely payment of such premium. The Company
- 2 -
<PAGE>
shall annually furnish the Executive a statement of the amount of income
reportable by the Executive for federal and state income tax purposes as a
result of the insurance protection provided the Owner as the Policy beneficiary.
5. Designation of Policy Beneficiary/Endorsement.
Contemporaneously with the execution of this Agreement, the Company has executed
a beneficiary designation for and/or an endorsement to the Policy, under the
form used by the Insurer for such designations, to give the Executive the right
to a portion of the Policy proceeds and the right to designate the beneficiary
or beneficiaries of the portion of the Policy proceeds to which he is entitled
under this Agreement. Such beneficiary designation or endorsement shall not be
terminated, altered or amended by the Company, without the express written
consent of the Executive. The parties hereto agree to take all action necessary
to cause such beneficiary designation or endorsement to conform to the
provisions of this Agreement.
6. Limitations on Company's Rights in Policy. Except as otherwise
provided herein, the Company shall not sell, assign, transfer, surrender or
cancel the Policy, or change the beneficiary designation provision thereof
without, in any such case, the express written consent of the Executive.
7. Policy Loans. The Company may pledge or assign the Policy,
subject to the terms and conditions of this Agreement, for the sole purpose of
securing a loan from the Insurer or from a third party; provided, however, that
the aggregate amount of such loan(s), including accumulated interest thereon,
shall not at any time exceed that amount which, when subtracted from the total
death benefit payable under the Policy, equals the amount of the death benefit
to which the Executive is entitled hereunder. If the Company so encumbers the
Policy, other than by a policy loan from the Insurer, then, upon the death of
the Executive, the Company shall promptly take all action necessary to secure
the release or discharge of such encumbrance.
- 3 -
<PAGE>
8. Collection of Death Proceeds.
a. Upon the death of the Executive, the Company shall
cooperate with the beneficiary or beneficiaries designated by the
Executive to take whatever action is necessary to collect the death
benefit provided under the Policy; when such benefit has been collected
and paid as provided herein, this Agreement shall thereupon terminate.
b. Upon the death of the Executive, the beneficiary or
beneficiaries designated by the Executive shall have the right to
receive a portion of the death benefit provided under the Policy equal
to $310,000. The balance of the death benefit provided under the Policy
shall be paid to the Company. In no event shall the amount payable to
the Executive hereunder exceed the Policy proceeds payable at the death
of the Executive. No amount shall be paid from the death benefit
provided under the Policy to the Company until the full amount due the
beneficiary or beneficiaries of the Executive hereunder has been paid.
The parties hereto agree that the beneficiary designation provision of
the Policy shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in
the event that, for any reason whatsoever, no death benefit is payable
under the Policy upon the death of the Executive and in lieu thereof
the Insurer refunds all or any part of the premiums paid for the
Policy, the Company shall have the unqualified right to such premiums.
- 4 -
<PAGE>
9. Termination of the Agreement During the Executive's Lifetime.
a. This Agreement shall terminate, during the Executive's
lifetime, without notice, upon the occurrence of any of the following
events: (a) total cessation of the Company's business; (b) bankruptcy,
receivership or dissolution of the Company; or (c) commencement of
payments pursuant to the Salary Continuation Plan entered into as of
December 1, 1995 by and between the Company and Executive.
b. In addition, the Executive may terminate this Agreement by
written notice to the Company. Such termination shall be effective as
of the date of such notice.
c. Upon termination of this Agreement, the Company shall
thereupon cancel the endorsement to the Policy filed with the Insurer
and change the beneficiary designation of the Policy to eliminate the
Executive's interest in the Policy. The interest of the Executive in
the death proceeds provided under the Policy shall thereupon terminate
and the Executive shall thereafter have no interest in and to the
Policy or its death proceeds.
10. Insurer Not a Party. The Insurer shall be fully discharged
from its obligations under the Policy by payment of the Policy death benefit to
the beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party to
this Agreement, or any modification or amendment hereof. No provision of this
Agreement, nor of any modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the beneficiary
designation and/or endorsement executed by the Company and filed with the
Insurer in connection herewith.
11. Assignment by Executive. Notwithstanding any provision hereof
to the contrary, the Executive shall have the right to absolutely and
irrevocably assign by gift all of his right, title and interest in and to this
Agreement and to the Policy to an assignee. This right shall be exercisable by
- 5 -
<PAGE>
the execution and delivery to the Company of a written assignment, in
substantially the form attached hereto as Exhibit B, which by this reference is
made a part hereof. Upon receipt of such written assignment executed by the
Executive and duly accepted by the assignee thereof, the Company shall consent
thereto in writing, and shall thereafter treat the Executive's assignee as the
sole owner of all of the Executive's right, title and interest in and to this
Agreement and in and to the Policy. Thereafter, the Executive shall have no
right, title or interest in and to this Agreement or the Policy, all such rights
being vested in and exercisable only by such assignee.
12. Named Fiduciary, Determination of Benefits, Claims Procedure
and Administration.
a. The Company is hereby designated as the named fiduciary
under this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this Agreement,
and it shall be responsible for establishing and carrying out a funding
policy and method consistent with the objectives of this Agreement.
(1) Claim.
A person who believes that he or she is
being denied a benefit to which he or she is entitled
under this Agreement (hereinafter referred to as a
"Claimant") may file a written request for such
benefit with the Company, setting forth his or her
claim. The request must be addressed to the President
of the Company at its then principal place of
business.
(2) Claim Decision.
Upon receipt of a claim, the Company shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall, in fact, deliver
such reply within such period. The Company may,
however, extend the reply period for an additional
ninety (90) days for reasonable cause.
- 6 -
<PAGE>
If the claim is denied in whole or in part,
the Company shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review under
subsection (3) and for review under subsection (4)
hereof.
(3) Request for Review.
With sixty (60) days after the receipt by
the Claimant of the written opinion described above,
the Claimant may request in writing that the
Secretary of the Company review the determination of
the Company. Such request must be addressed to the
Secretary of the Company, at its then principal place
of business. The Claimant or his or her duly
authorized representative may, but need not, review
the pertinent documents and submit issues and
comments in writing for consideration by the Company.
If the Claimant does not request a review of the
Company's determination by the Secretary of the
Company within such sixty (60) day period, he or she
shall be barred and estopped from challenging the
Company's determination.
(4) Review of Decision
Within sixty (60) days after the Secretary's
receipt of a request for review, he or she will
review the Company's determination. After considering
all materials presented by the Claimant, the
Secretary will render a written opinion, written in a
manner calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
- 7 -
<PAGE>
provisions of this Agreement on which the decision is
based. If special circumstances require that the
sixty (60) day time period be extended, the Secretary
will so notify the Claimant and will render the
decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the
request for review.
13. Amendment. This Agreement may not be amended, altered or
modified, except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated except as
provided herein.
14. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns, and the
Executive, his successors, assigns, heirs, executors, administrators and
beneficiaries.
15. Notices. Any notice, consent or demand required or permitted
to be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice, consent
or demand is mailed to a party hereto, it shall be sent by United States
certified mail, postage prepaid, addressed to such party's last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of notice, consent or demand.
16. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of
the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, on the day and year first above written.
MIAMI COMPUTER SUPPLY, INC.
By:
-------------------------------
Title:
----------------------------
- 8 -
<PAGE>
ATTEST:
- -------------------------------
Secretary
----------------------------------
"Executive"
- 9 -
<PAGE>
EXHIBIT A
The following life insurance policy is subject to the attached
Split-Dollar Agreement:
Insurer: Security Life, Denver, Colorado
Insured: ALBERT L. SCHWARZ
Policy Number: 1070673
Face Amount: $1,550,001
Date of Issue: 07/15/95
- 10 -
<PAGE>
EXHIBIT B
IRREVOCABLE ASSIGNMENT OF SPLIT-DOLLAR AGREEMENT
THIS ASSIGNMENT, dated this ____ day of ________________, 19___,
WITNESSETH THAT:
WHEREAS, the undersigned (the "Assignor") is the Executive party to
that certain Split-Dollar Agreement (the "Agreement"), dated _____________,
19____, by and between the undersigned and ________________________, (the
"Company"), which Agreement confers upon the undersigned certain rights and
benefits with regard to one or more policies of insurance insuring the
Assignor's life; and
WHEREAS, pursuant to the provisions of said Agreement, the assignor
retained the right, exercisable by the execution and delivery to the Company of
a written form of assignment, to absolutely and irrevocably assign all of the
Assignor's right, title and interest in and to said Agreement to an assignee;
and
WHEREAS, the Assignor desires to exercise said right;
NOW, THEREFORE, the Assignor, without consideration, and intending to
make a gift, hereby absolutely and irrevocably assigns, gives, grants and
transfers to _________________________, (the "Assignee") all of the Assignor's
right, title and interest in and to the Agreement and said policies of
insurance, intending that, from and after this date, the Agreement be solely
between the Company and the Assignee and that hereafter the Assignor shall
neither have nor retain any right, title or interest therein.
----------------------------------
Assignor
- 11 -
<PAGE>
ACCEPTANCE OF ASSIGNMENT
The undersigned Assignee hereby accepts the above assignment of all
right, title and interest of the Assignor therein in and to the Agreement, by
and between such Assignor and the Company, and the undersigned hereby agrees to
be bound by all of the terms and conditions of said Agreement, as if the
original employee party thereto.
-----------------------------------
Assignee
Dated:
------------------------------
CONSENT TO ASSIGNMENT
The undersigned Company hereby consents to the foregoing assignment of
all of the right, title and interest of the Assignor in and to the Agreement, by
and between the Assignor and the Company, to the Assignee designated therein.
The undersigned Company hereby agrees that, from and after the date hereof, the
undersigned Company shall look solely to such Assignee for the performance of
all obligations under said Agreement which were heretofore the responsibility of
the Assignor, shall allow all rights and benefits provided therein to the
Assignor to be exercised only by said Assignee, and shall hereafter treat said
Assignee in all respects as if the original employee party thereto.
MIAMI COMPUTER SUPPLY, INC.
By:
--------------------------------
Title:
-----------------------------
Date:
----------------------------------
- 12 -
EXHIBIT 10.19
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of December,
1995, by and between MIAMI COMPUTER SUPPLY, INC., an Ohio company, with
principal offices in the State of Ohio (hereinafter referred to as the
"Company"), and THOMAS C. WINSTEL, an individual residing in the State of Ohio
(hereinafter referred to as the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Company; and
WHEREAS, the Company has, for its benefit and protection, insured the
life of the Executive under a policy of life insurance insuring the Executive's
life (hereinafter referred to as the "Policy"), which is described in Exhibit A
attached hereto and by this reference made a part hereof, and which was issued
by Security Life, Denver, Colorado (hereinafter referred to as the "Insurer");
and
WHEREAS, the Executive wishes to provide life insurance protection for
his family under the Policy, and the Company has determined that it no longer
needs all of the life insurance protection afforded by said Policy; and
WHEREAS, the Company has paid all of the premiums on the Policy, and is
willing to continue to pay the premiums due on the Policy as an additional
employment benefit for the Executive, on the terms and conditions hereinafter
set forth; and
WHEREAS, the Company is the owner of the Policy and, as such,
possesses all incidents of ownership in and to the Policy; and
WHEREAS, the Company wishes to retain such ownership rights, since it
will continue to be a beneficiary of a portion of the death benefit of the
Policy;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Purchase of Policy. The Company has purchased the Policy from
the Insurer in the total face amount of $2,300,000. The parties hereto have
taken all necessary action to cause the Insurer to issue the Policy, and shall
take any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement. The parties hereto agree that the Policy shall
be subject to the terms and conditions of this Agreement and of the endorsement
to the Policy filed with the Insurer.
2. Ownership of Policy. The Company shall be the sole and absolute
owner of the Policy, and may exercise all ownership rights granted to
the owner thereof by the terms of the Policy, except as may otherwise be
provided herein.
3. Election of Settlement Option and Beneficiary. The Executive
may select the settlement option for payment of the portion of the death benefit
provided under the Policy to which he is entitled hereunder, and the beneficiary
or beneficiaries to receive the portion of Policy proceeds to which he is
entitled hereunder, by specifying the same in a written notice to the Company.
Upon receipt of such notice, the Company shall execute and deliver to the
Insurer the forms necessary to elect the requested settlement option and to
designate the requested person, persons or entity as the beneficiary or
beneficiaries to receive the portion of the death proceeds of the Policy to
which the Executive is entitled hereunder. The parties hereto agree to take all
action necessary to cause the beneficiary designation and settlement election
provisions of the Policy to conform to the provisions hereof. The Company shall
not terminate, alter or amend such designation or election without the express
written consent of the Executive.
- 2 -
<PAGE>
4. Payment of Premium. On or before the due date of each Policy
premium, or within the grace period provided therein, the Company shall pay the
full amount of the premium to the Insurer, and shall, upon request, promptly
furnish the Executive evidence of timely payment of such premium. The Company
shall annually furnish the Executive a statement of the amount of income
reportable by the Executive for federal and state income tax purposes as a
result of the insurance protection provided the Owner as the Policy beneficiary.
5. Designation of Policy Beneficiary/Endorsement. Contemporaneously
with the execution of this Agreement, the Company has executed a beneficiary
designation for and/or an endorsement to the Policy, under the form used by the
Insurer for such designations, to give the Executive the right to a portion of
the Policy proceeds and the right to designate the beneficiary or beneficiaries
of the portion of the Policy proceeds to which he is entitled under this
Agreement. Such beneficiary designation or endorsement shall not be terminated,
altered or amended by the Company, without the express written consent of the
Executive. The parties hereto agree to take all action necessary to cause such
beneficiary designation or endorsement to conform to the provisions of this
Agreement.
6. Limitations on Company's Rights in Policy. Except as otherwise
provided herein, the Company shall not sell, assign, transfer, surrender or
cancel the Policy, or change the beneficiary designation provision thereof
without, in any such case, the express written consent of the Executive.
7. Policy Loans. The Company may pledge or assign the Policy,
subject to the terms and conditions of this Agreement, for the sole purpose of
securing a loan from the Insurer or from a third party; provided, however, that
the aggregate amount of such loan(s), including accumulated interest thereon,
shall not at any time exceed that amount which, when subtracted from the total
death benefit payable under the
- 3 -
<PAGE>
Policy, equals the amount of the death benefit to which the Executive is
entitled hereunder. If the Company so encumbers the Policy, other than by a
policy loan from the Insurer, then, upon the death of the Executive, the Company
shall promptly take all action necessary to secure the release or discharge of
such encumbrance.
8. Collection of Death Proceeds.
a. Upon the death of the Executive, the Company shall cooperate
with the beneficiary or beneficiaries designated by the Executive to
take whatever action is necessary to collect the death benefit provided
under the Policy; when such benefit has been collected and paid as
provided herein, this Agreement shall thereupon terminate.
b. Upon the death of the Executive, the beneficiary or
beneficiaries designated by the Executive shall have the right to
receive a portion of the death benefit provided under the Policy equal
to $300,000. The balance of the death benefit provided under the Policy
shall be paid to the Company. In no event shall the amount payable to
the Executive hereunder exceed the Policy proceeds payable at the death
of the Executive. No amount shall be paid from the death benefit
provided under the Policy to the Company until the full amount due the
beneficiary or beneficiaries of the Executive hereunder has been paid.
The parties hereto agree that the beneficiary designation provision of
the Policy shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the
event that, for any reason whatsoever, no death benefit is payable
under the Policy upon the death of the Executive and in lieu thereof
the Insurer refunds all or any part of the premiums paid for the
Policy, the Company shall have the unqualified right to such premiums.
- 4 -
<PAGE>
9. Termination of the Agreement During the Executive's Lifetime.
a. This Agreement shall terminate, during the Executive's lifetime,
without notice, upon the occurrence of any of the following events: (a)
total cessation of the Company's business; (b) bankruptcy, receivership
or dissolution of the Company; or (c) commencement of payments pursuant
to the Salary Continuation Plan entered into as of December 1, 1995 by
and between the Company and Executive.
b. In addition, the Executive may terminate this Agreement by
written notice to the Company. Such termination shall be effective as
of the date of such notice.
c. Upon termination of this Agreement, the Company shall
thereupon cancel the endorsement to the Policy filed with the Insurer
and change the beneficiary designation of the Policy to eliminate the
Executive's interest in the Policy. The interest of the Executive in
the death proceeds provided under the Policy shall thereupon terminate
and the Executive shall thereafter have no interest in and to the
Policy or its death proceeds.
10. Insurer Not a Party. The Insurer shall be fully discharged
from its obligations under the Policy by payment of the Policy death benefit to
the beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party to
this Agreement, or any modification or amendment hereof. No provision of this
Agreement, nor of any modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the beneficiary
designation and/or endorsement executed by the Company and filed with the
Insurer in connection herewith.
- 5 -
<PAGE>
11. Assignment by Executive. Notwithstanding any provision hereof
to the contrary, the Executive shall have the right to absolutely and
irrevocably assign by gift all of his right, title and interest in and to this
Agreement and to the Policy to an assignee. This right shall be exercisable by
the execution and delivery to the Company of a written assignment, in
substantially the form attached hereto as Exhibit B, which by this reference is
made a part hereof. Upon receipt of such written assignment executed by the
Executive and duly accepted by the assignee thereof, the Company shall consent
thereto in writing, and shall thereafter treat the Executive's assignee as the
sole owner of all of the Executive's right, title and interest in and to this
Agreement and in and to the Policy. Thereafter, the Executive shall have no
right, title or interest in and to this Agreement or the Policy, all such rights
being vested in and exercisable only by such assignee.
12. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
a. The Company is hereby designated as the named fiduciary
under this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this Agreement,
and it shall be responsible for establishing and carrying out a funding
policy and method consistent with the objectives of this Agreement.
b. (1) Claim.
A person who believes that he or she is
being denied a benefit to which he or she is entitled
under this Agreement (hereinafter referred to as a
"Claimant") may file a written request for such
benefit with the Company, setting forth his or her
claim. The request must be addressed to the President
of the Company at its then principal place of
business.
- 6 -
<PAGE>
(2) Claim Decision.
Upon receipt of a claim, the Company shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall, in fact, deliver
such reply within such period. The Company may,
however, extend the reply period for an additional
ninety (90) days for reasonable cause.
If the claim is denied in whole or in part,
the Company shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review under
subsection (3) and for review under subsection (4)
hereof.
(3) Request for Review.
With sixty (60) days after the receipt by
the Claimant of the written opinion described above,
the Claimant may request in writing that the
Secretary of the Company review the determination of
the Company. Such request must be addressed to the
Secretary of the Company, at its then principal place
of business. The Claimant or his or her duly
authorized representative may, but need not, review
the pertinent documents and submit issues and
comments in writing for consideration by the Company.
If the Claimant does not request a review of the
Company's determination by the Secretary of the
Company within
- 7 -
<PAGE>
such sixty (60) day period, he or she shall be barred
and estopped from challenging the Company's
determination.
(4) Review of Decision
Within sixty (60) days after the Secretary's
receipt of a request for review, he or she will
review the Company's determination. After considering
all materials presented by the Claimant, the
Secretary will render a written opinion, written in a
manner calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based. If special circumstances require that the
sixty (60) day time period be extended, the Secretary
will so notify the Claimant and will render the
decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the
request for review.
13. Amendment. This Agreement may not be amended, altered or
modified, except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated except as
provided herein.
14. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns, and the Executive,
his successors, assigns, heirs, executors, administrators and beneficiaries.
15. Notices. Any notice, consent or demand required or permitted
to be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice, consent
or demand is mailed to a party hereto, it shall be sent by United States
certified mail, postage prepaid,
- 8 -
<PAGE>
addressed to such party's last known address as shown on the records of the
Company. The date of such mailing shall be deemed the date of notice, consent or
demand.
16. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of
the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, on the day and year first above written.
MIAMI COMPUTER SUPPLY, INC.
By:
--------------------------------
Title:
-----------------------------
ATTEST:
- ---------------------------------------
Secretary
-----------------------------------
"Executive"
- 9 -
<PAGE>
EXHIBIT A
The following life insurance policy is subject to the attached
Split-Dollar Agreement:
Insurer: Security Life, Denver, Colorado
Insured: THOMAS C. WINSTEL
Policy Number: 1070674
Face Amount: $2,300,000
Date of Issue: 07/15/95
- 10 -
<PAGE>
EXHIBIT B
IRREVOCABLE ASSIGNMENT OF SPLIT-DOLLAR AGREEMENT
THIS ASSIGNMENT, dated this ____ day of ________________, 19___,
WITNESSETH THAT:
WHEREAS, the undersigned (the "Assignor") is the Executive party to
that certain Split-Dollar Agreement (the "Agreement"), dated _____________,
19____, by and between the undersigned and ________________________, (the
"Company"), which Agreement confers upon the undersigned certain rights and
benefits with regard to one or more policies of insurance insuring the
Assignor's life; and
WHEREAS, pursuant to the provisions of said Agreement, the assignor
retained the right, exercisable by the execution and delivery to the Company of
a written form of assignment, to absolutely and irrevocably assign all of the
Assignor's right, title and interest in and to said Agreement to an assignee;
and
WHEREAS, the Assignor desires to exercise said right;
NOW, THEREFORE, the Assignor, without consideration, and intending to
make a gift, hereby absolutely and irrevocably assigns, gives, grants and
transfers to _________________________, (the "Assignee") all of the Assignor's
right, title and interest in and to the Agreement and said policies of
insurance, intending that, from and after this date, the Agreement be solely
between the Company and the Assignee and that hereafter the Assignor shall
neither have nor retain any right, title or interest therein.
-------------------------------------
Assignor
- 11 -
<PAGE>
ACCEPTANCE OF ASSIGNMENT
The undersigned Assignee hereby accepts the above assignment of all
right, title and interest of the Assignor therein in and to the Agreement, by
and between such Assignor and the Company, and the undersigned hereby agrees to
be bound by all of the terms and conditions of said Agreement, as if the
original employee party thereto.
------------------------------------
Assignee
Dated:
-------------------------------
CONSENT TO ASSIGNMENT
The undersigned Company hereby consents to the foregoing assignment of
all of the right, title and interest of the Assignor in and to the Agreement, by
and between the Assignor and the Company, to the Assignee designated therein.
The undersigned Company hereby agrees that, from and after the date hereof, the
undersigned Company shall look solely to such Assignee for the performance of
all obligations under said Agreement which were heretofore the responsibility of
the Assignor, shall allow all rights and benefits provided therein to the
Assignor to be exercised only by said Assignee, and shall hereafter treat said
Assignee in all respects as if the original employee party thereto.
MIAMI COMPUTER SUPPLY, INC.
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
- 12 -
EXHIBIT 10.20
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of December,
1995, by and between MIAMI COMPUTER SUPPLY, INC., an Ohio company, with
principal offices in the State of Ohio (hereinafter referred to as the
"Company"), and RICHARD A. NEWKOLD, an individual residing in the State of Ohio
(hereinafter referred to as the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Company; and
WHEREAS, the Company has, for its benefit and protection, insured the
life of the Executive under a policy of life insurance insuring the Executive's
life (hereinafter referred to as the "Policy"), which is described in Exhibit A
attached hereto and by this reference made a part hereof, and which was issued
by Security Life, Denver, Colorado (hereinafter referred to as the "Insurer");
and
WHEREAS, the Executive wishes to provide life insurance protection for
his family under the Policy, and the Company has determined that it no longer
needs all of the life insurance protection afforded by said Policy; and
WHEREAS, the Company has paid all of the premiums on the Policy, and is
willing to continue to pay the premiums due on the Policy as an additional
employment benefit for the Executive, on the terms and conditions hereinafter
set forth; and
WHEREAS, the Company is the owner of the Policy and, as such, possesses
all incidents of ownership in and to the Policy; and
WHEREAS, the Company wishes to retain such ownership rights, since it
will continue to be a beneficiary of a portion of the death benefit of the
Policy;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Purchase of Policy. The Company has purchased the Policy from
the Insurer in the total face amount of $1,600,000. The parties hereto have
taken all necessary action to cause the Insurer to issue the Policy, and shall
take any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement. The parties hereto agree that the Policy shall
be subject to the terms and conditions of this Agreement and of the endorsement
to the Policy filed with the Insurer.
2. Ownership of Policy. The Company shall be the sole and absolute
owner of the Policy, and may exercise all ownership rights granted to the owner
thereof by the terms of the Policy, except as may otherwise be provided herein.
3. Election of Settlement Option and Beneficiary. The Executive may
select the settlement option for payment of the portion of the death benefit
provided under the Policy to which he is entitled hereunder, and the beneficiary
or beneficiaries to receive the portion of Policy proceeds to which he is
entitled hereunder, by specifying the same in a written notice to the Company.
Upon receipt of such notice, the Company shall execute and deliver to the
Insurer the forms necessary to elect the requested settlement option and to
designate the requested person, persons or entity as the beneficiary or
beneficiaries to receive the portion of the death proceeds of the Policy to
which the Executive is entitled hereunder. The parties hereto agree to take all
action necessary to cause the beneficiary designation and settlement election
provisions of the Policy to conform to the provisions hereof. The Company shall
not terminate, alter or amend such designation or election without the express
written consent of the Executive.
4. Payment of Premium. On or before the due date of each Policy
premium, or within the grace period provided therein, the Company shall pay the
full amount of the premium to the Insurer, and shall, upon request, promptly
furnish the Executive evidence of timely payment of such premium. The Company
- 2 -
<PAGE>
shall annually furnish the Executive a statement of the amount of income
reportable by the Executive for federal and state income tax purposes as a
result of the insurance protection provided the Owner as the Policy beneficiary.
5. Designation of Policy Beneficiary/Endorsement. Contemporaneously
with the execution of this Agreement, the Company has executed a beneficiary
designation for and/or an endorsement to the Policy, under the form used by the
Insurer for such designations, to give the Executive the right to a portion of
the Policy proceeds and the right to designate the beneficiary or beneficiaries
of the portion of the Policy proceeds to which he is entitled under this
Agreement. Such beneficiary designation or endorsement shall not be terminated,
altered or amended by the Company, without the express written consent of the
Executive. The parties hereto agree to take all action necessary to cause such
beneficiary designation or endorsement to conform to the provisions of this
Agreement.
6. Limitations on Company's Rights in Policy. Except as otherwise
provided herein, the Company shall not sell, assign, transfer, surrender or
cancel the Policy, or change the beneficiary designation provision thereof
without, in any such case, the express written consent of the Executive.
7. Policy Loans. The Company may pledge or assign the Policy, subject
to the terms and conditions of this Agreement, for the sole purpose of securing
a loan from the Insurer or from a third party; provided, however, that the
aggregate amount of such loan(s), including accumulated interest thereon, shall
not at any time exceed that amount which, when subtracted from the total death
benefit payable under the Policy, equals the amount of the death benefit to
which the Executive is entitled hereunder. If the Company so encumbers the
Policy, other than by a policy loan from the Insurer, then, upon the death of
the Executive, the Company shall promptly take all action necessary to secure
the release or discharge of such encumbrance.
- 3 -
<PAGE>
8. Collection of Death Proceeds.
a. Upon the death of the Executive, the Company shall cooperate
with the beneficiary or beneficiaries designated by the Executive to
take whatever action is necessary to collect the death benefit provided
under the Policy; when such benefit has been collected and paid as
provided herein, this Agreement shall thereupon terminate.
b. Upon the death of the Executive, the beneficiary or
beneficiaries designated by the Executive shall have the right to
receive a portion of the death benefit provided under the Policy equal
to $180,000. The balance of the death benefit provided under the Policy
shall be paid to the Company. In no event shall the amount payable to
the Executive hereunder exceed the Policy proceeds payable at the death
of the Executive. No amount shall be paid from the death benefit
provided under the Policy to the Company until the full amount due the
beneficiary or beneficiaries of the Executive hereunder has been paid.
The parties hereto agree that the beneficiary designation provision of
the Policy shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the
event that, for any reason whatsoever, no death benefit is payable under
the Policy upon the death of the Executive and in lieu thereof the
Insurer refunds all or any part of the premiums paid for the Policy, the
Company shall have the unqualified right to such premiums.
- 4 -
<PAGE>
9. Termination of the Agreement During the Executive's Lifetime.
a. This Agreement shall terminate, during the Executive's lifetime,
without notice, upon the occurrence of any of the following events:
(a) total cessation of the Company's business; (b) bankruptcy,
receivership or dissolution of the Company; or (c) commencement of
payments pursuant to the Salary Continuation Plan entered into as of
December 1, 1995 by and between the Company and Executive.
b. In addition, the Executive may terminate this Agreement by
written notice to the Company. Such termination shall be effective as of
the date of such notice.
c. Upon termination of this Agreement, the Company shall thereupon
cancel the endorsement to the Policy filed with the Insurer and change
the beneficiary designation of the Policy to eliminate the Executive's
interest in the Policy. The interest of the Executive in the death
proceeds provided under the Policy shall thereupon terminate and the
Executive shall thereafter have no interest in and to the Policy or its
death proceeds.
10. Insurer Not a Party. The Insurer shall be fully discharged from its
obligations under the Policy by payment of the Policy death benefit to the
beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party to
this Agreement, or any modification or amendment hereof. No provision of this
Agreement, nor of any modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the beneficiary
designation and/or endorsement executed by the Company and filed with the
Insurer in connection herewith.
11. Assignment by Executive. Notwithstanding any provision hereof to the
contrary, the Executive shall have the right to absolutely and irrevocably
assign by gift all of his right, title and interest in and to this Agreement and
to the Policy to an assignee. This right shall be exercisable by
- 5 -
<PAGE>
the execution and delivery to the Company of a written assignment, in
substantially the form attached hereto as Exhibit B, which by this reference is
made a part hereof. Upon receipt of such written assignment executed by the
Executive and duly accepted by the assignee thereof, the Company shall consent
thereto in writing, and shall thereafter treat the Executive's assignee as the
sole owner of all of the Executive's right, title and interest in and to this
Agreement and in and to the Policy. Thereafter, the Executive shall have no
right, title or interest in and to this Agreement or the Policy, all such rights
being vested in and exercisable only by such assignee.
12. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
a. The Company is hereby designated as the named fiduciary
under this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this Agreement,
and it shall be responsible for establishing and carrying out a funding
policy and method consistent with the objectives of this Agreement.
b. (1) Claim.
A person who believes that he or she is being denied a benefit
to which he or she is entitled under this Agreement
(hereinafter referred to as a "Claimant") may file a written
request for such benefit with the Company, setting forth his
or her claim. The request must be addressed to the President
of the Company at its then principal place of business. (2)
(2) Claim Decision.
Upon receipt of a claim, the Company shall advise the
Claimant that a reply will be forthcoming within ninety (90)
days and shall, in fact, deliver such reply within such
period. The Company may, however, extend the reply period for
an additional ninety (90) days for reasonable cause.
- 6 -
<PAGE>
If the claim is denied in whole or in part, the Company
shall adopt a written opinion, using language calculated to be
understood by the Claimant, setting forth: (a) the specific
reason or reasons for such denial; (b) the specific reference
to pertinent provisions of this Agreement on which such denial
is based; (c) a description of any additional material or
information necessary for the Claimant to perfect his or her
claim and an explanation why such material or such information
is necessary; (d) appropriate information as to the steps to
be taken if the Claimant wishes to submit the claim for
review; and (e) the time limits for requesting a review under
subsection (3) and for review under subsection (4) hereof.
(3) Request for Review.
With sixty (60) days after the receipt by
the Claimant of the written opinion described above, the
Claimant may request in writing that the Secretary of the
Company review the determination of the Company. Such request
must be addressed to the Secretary of the Company, at its then
principal place of business. The Claimant or his or her duly
authorized representative may, but need not, review the
pertinent documents and submit issues and comments in writing
for consideration by the Company. If the Claimant does not
request a review of the Company's determination by the
Secretary of the Company within such sixty (60) day period, he
or she shall be barred and estopped from challenging the
Company's determination.
(4) Review of Decision
Within sixty (60) days after the Secretary's receipt of
a request for review, he or she will review the Company's
determination. After considering all materials presented by
the Claimant, the Secretary will render a written opinion,
written in a manner calculated to be understood by the
Claimant, setting forth the specific reasons for the decision
and containing specific references to the pertinent
- 7 -
<PAGE>
provisions of this Agreement on which the decision is based.
If special circumstances require that the sixty (60) day time
period be extended, the Secretary will so notify the Claimant
and will render the decision as soon as possible, but no later
than one hundred twenty (120) days after receipt of the
request for review.
13. Amendment. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns, and may not be otherwise terminated except as provided
herein.
14. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns, and the Executive,
his successors, assigns, heirs, executors, administrators and beneficiaries.
15. Notices. Any notice, consent or demand required or permitted
to be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice, consent
or demand is mailed to a party hereto, it shall be sent by United States
certified mail, postage prepaid, addressed to such party's last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of notice, consent or demand.
16. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, on the day and year first above written.
MIAMI COMPUTER SUPPLY, INC.
By:__________________________________
Title:_______________________________
- 8 -
<PAGE>
ATTEST:
____________________________
Secretary
______________________________
"Executive"
- 9 -
<PAGE>
EXHIBIT A
The following life insurance policy is subject to the attached
Split-Dollar Agreement:
Insurer: Security Life, Denver, Colorado
Insured: RICHARD A. NEWKOLD
Policy Number: 1070675
Face Amount: $1,600,000
Date of Issue: 07/15/95
- 10 -
<PAGE>
EXHIBIT B
IRREVOCABLE ASSIGNMENT OF SPLIT-DOLLAR AGREEMENT
THIS ASSIGNMENT, dated this ____ day of ________________, 19___,
WITNESSETH THAT:
WHEREAS, the undersigned (the "Assignor") is the Executive party to
that certain Split-Dollar Agreement (the "Agreement"), dated _____________,
19____, by and between the undersigned and ________________________, (the
"Company"), which Agreement confers upon the undersigned certain rights and
benefits with regard to one or more policies of insurance insuring the
Assignor's life; and
WHEREAS, pursuant to the provisions of said Agreement, the assignor
retained the right, exercisable by the execution and delivery to the Company of
a written form of assignment, to absolutely and irrevocably assign all of the
Assignor's right, title and interest in and to said Agreement to an assignee;
and
WHEREAS, the Assignor desires to exercise said right;
NOW, THEREFORE, the Assignor, without consideration, and intending to
make a gift, hereby absolutely and irrevocably assigns, gives, grants and
transfers to _________________________, (the "Assignee") all of the Assignor's
right, title and interest in and to the Agreement and said policies of
insurance, intending that, from and after this date, the Agreement be solely
between the Company and the Assignee and that hereafter the Assignor shall
neither have nor retain any right, title or interest therein.
_______________________________
Assignor
- 11 -
<PAGE>
ACCEPTANCE OF ASSIGNMENT
The undersigned Assignee hereby accepts the above assignment of all
right, title and interest of the Assignor therein in and to the Agreement, by
and between such Assignor and the Company, and the undersigned hereby agrees to
be bound by all of the terms and conditions of said Agreement, as if the
original employee party thereto.
______________________________
Assignee
Dated:__________________________
CONSENT TO ASSIGNMENT
The undersigned Company hereby consents to the foregoing assignment of
all of the right, title and interest of the Assignor in and to the Agreement, by
and between the Assignor and the Company, to the Assignee designated therein.
The undersigned Company hereby agrees that, from and after the date hereof, the
undersigned Company shall look solely to such Assignee for the performance of
all obligations under said Agreement which were heretofore the responsibility of
the Assignor, shall allow all rights and benefits provided therein to the
Assignor to be exercised only by said Assignee, and shall hereafter treat said
Assignee in all respects as if the original employee party thereto.
MIAMI COMPUTER SUPPLY, INC.
By:__________________________________
Title:_______________________________
Date:____________________________
- 12 -
EXHIBIT 10.21
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of December,
1995, by and between MIAMI COMPUTER SUPPLY, INC., an Ohio company, with
principal offices in the State of Ohio (hereinafter referred to as the
"Company"), and ROGER E. TURVY, an individual residing in the State of Ohio
(hereinafter referred to as the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Company; and
WHEREAS, the Company has, for its benefit and protection, insured the
life of the Executive under a policy of life insurance insuring the Executive's
life (hereinafter referred to as the "Policy"), which is described in Exhibit A
attached hereto and by this reference made a part hereof, and which was issued
by Security Life, Denver, Colorado (hereinafter referred to as the "Insurer");
and
WHEREAS, the Executive wishes to provide life insurance protection for
his family under the Policy, and the Company has determined that it no longer
needs all of the life insurance protection afforded by said Policy; and
WHEREAS, the Company has paid all of the premiums on the Policy, and is
willing to continue to pay the premiums due on the Policy as an additional
employment benefit for the Executive, on the terms and conditions hereinafter
set forth; and
WHEREAS, the Company is the owner of the Policy and, as such, possesses
all incidents of ownership in and to the Policy; and
WHEREAS, the Company wishes to retain such ownership rights, since it
will continue to be a beneficiary of a portion of the death benefit of the
Policy;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Purchase of Policy. The Company has purchased the Policy from
the Insurer in the total face amount of $1,050,000. The parties hereto have
taken all necessary action to cause the Insurer to issue the Policy, and shall
take any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement. The parties hereto agree that the Policy shall
be subject to the terms and conditions of this Agreement and of the endorsement
to the Policy filed with the Insurer.
2. Ownership of Policy. The Company shall be the sole and absolute
owner of the Policy, and may exercise all ownership rights granted to the owner
thereof by the terms of the Policy, except as may otherwise be provided herein.
3. Election of Settlement Option and Beneficiary. The Executive may
select the settlement option for payment of the portion of the death benefit
provided under the Policy to which he is entitled hereunder, and the beneficiary
or beneficiaries to receive the portion of Policy proceeds to which he is
entitled hereunder, by specifying the same in a written notice to the Company.
Upon receipt of such notice, the Company shall execute and deliver to the
Insurer the forms necessary to elect the requested settlement option and to
designate the requested person, persons or entity as the beneficiary or
beneficiaries to receive the portion of the death proceeds of the Policy to
which the Executive is entitled hereunder. The parties hereto agree to take all
action necessary to cause the beneficiary designation and settlement election
provisions of the Policy to conform to the provisions hereof. The Company shall
not terminate, alter or amend such designation or election without the express
written consent of the Executive.
4. Payment of Premium. On or before the due date of each Policy
premium, or within the grace period provided therein, the Company shall pay the
full amount of the premium to the Insurer, and shall, upon request, promptly
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<PAGE>
furnish the Executive evidence of timely payment of such premium. The Company
shall annually furnish the Executive a statement of the amount of income
reportable by the Executive for federal and state income tax purposes as a
result of the insurance protection provided the Owner as the Policy beneficiary.
5. Designation of Policy Beneficiary/Endorsement. Contemporaneously
with the execution of this Agreement, the Company has executed a beneficiary
designation for and/or an endorsement to the Policy, under the form used by the
Insurer for such designations, to give the Executive the right to a portion of
the Policy proceeds and the right to designate the beneficiary or beneficiaries
of the portion of the Policy proceeds to which he is entitled under this
Agreement. Such beneficiary designation or endorsement shall not be terminated,
altered or amended by the Company, without the express written consent of the
Executive. The parties hereto agree to take all action necessary to cause such
beneficiary designation or endorsement to conform to the provisions of this
Agreement.
6. Limitations on Company's Rights in Policy. Except as otherwise
provided herein, the Company shall not sell, assign, transfer, surrender or
cancel the Policy, or change the beneficiary designation provision thereof
without, in any such case, the express written consent of the Executive.
7. Policy Loans. The Company may pledge or assign the Policy, subject
to the terms and conditions of this Agreement, for the sole purpose of securing
a loan from the Insurer or from a third party; provided, however, that the
aggregate amount of such loan(s), including accumulated interest thereon, shall
not at any time exceed that amount which, when subtracted from the total death
benefit payable under the Policy, equals the amount of the death benefit to
which the Executive is entitled hereunder. If the Company so encumbers the
Policy, other than by a policy loan from the Insurer, then, upon the death of
the Executive, the Company shall promptly take all action necessary to secure
the release or discharge of such encumbrance.
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<PAGE>
8. Collection of Death Proceeds.
a. Upon the death of the Executive, the Company shall cooperate
with the beneficiary or beneficiaries designated by the Executive to take
whatever action is necessary to collect the death benefit provided under
the Policy; when such benefit has been collected and paid as provided
herein, this Agreement shall thereupon terminate.
b. Upon the death of the Executive, the beneficiary or beneficiaries
designated by the Executive shall have the right to receive a portion of
the death benefit provided under the Policy equal to $150,000. The
balance of the death benefit provided under the Policy shall be paid to
the Company. In no event shall the amount payable to the Executive
hereunder exceed the Policy proceeds payable at the death of the
Executive. No amount shall be paid from the death benefit provided under
the Policy to the Company until the full amount due the beneficiary or
beneficiaries of the Executive hereunder has been paid. The parties
hereto agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the
event that, for any reason whatsoever, no death benefit is payable under
the Policy upon the death of the Executive and in lieu thereof the
Insurer refunds all or any part of the premiums paid for the Policy, the
Company shall have the unqualified right to such premiums.
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<PAGE>
9. Termination of the Agreement During the Executive's Lifetime.
a. This Agreement shall terminate, during the Executive's lifetime,
without notice, upon the occurrence of any of the following events: (a)
total cessation of the Company's business; (b) bankruptcy, receivership
or dissolution of the Company; or (c) commencement of payments pursuant
to the Salary Continuation Plan entered into as of December 1, 1995 by
and between the Company and Executive.
b. In addition, the Executive may terminate this Agreement by
written notice to the Company. Such termination shall be effective as of
the date of such notice.
c. Upon termination of this Agreement, the Company shall thereupon
cancel the endorsement to the Policy filed with the Insurer and change
the beneficiary designation of the Policy to eliminate the Executive's
interest in the Policy. The interest of the Executive in the death
proceeds provided under the Policy shall thereupon terminate and the
Executive shall thereafter have no interest in and to the Policy or its
death proceeds.
10. Insurer Not a Party. The Insurer shall be fully discharged from its
obligations under the Policy by payment of the Policy death benefit to the
beneficiary or beneficiaries named in the Policy, subject to the terms and
conditions of the Policy. In no event shall the Insurer be considered a party to
this Agreement, or any modification or amendment hereof. No provision of this
Agreement, nor of any modification or amendment hereof, shall in any way be
construed as enlarging, changing, varying or in any other way affecting the
obligations of the Insurer as expressly provided in the Policy, except insofar
as the provisions hereof are made a part of the Policy by the beneficiary
designation and/or endorsement executed by the Company and filed with the
Insurer in connection herewith.
11. Assignment by Executive. Notwithstanding any provision hereof
to the contrary, the Executive shall have the right to absolutely and
irrevocably assign by gift all of his right, title and interest in and to this
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<PAGE>
Agreement and to the Policy to an assignee. This right shall be exercisable by
the execution and delivery to the Company of a written assignment, in
substantially the form attached hereto as Exhibit B, which by this reference is
made a part hereof. Upon receipt of such written assignment executed by the
Executive and duly accepted by the assignee thereof, the Company shall consent
thereto in writing, and shall thereafter treat the Executive's assignee as the
sole owner of all of the Executive's right, title and interest in and to this
Agreement and in and to the Policy. Thereafter, the Executive shall have no
right, title or interest in and to this Agreement or the Policy, all such rights
being vested in and exercisable only by such assignee.
12. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
a. The Company is hereby designated as the named fiduciary
under this Agreement. The named fiduciary shall have authority to control
and manage the operation and administration of this Agreement, and it
shall be responsible for establishing and carrying out a funding policy
and method consistent with the objectives of this Agreement.
b. (1) Claim.
A person who believes that he or she is being denied a
benefit to which he or she is entitled under this Agreement (hereinafter
referred to as a "Claimant") may file a written request for such benefit
with the Company, setting forth his or her claim. The request must be
addressed to the President of the Company at its then principal place of
business.
(2) Claim Decision.
Upon receipt of a claim, the Company shall advise the
Claimant that a reply will be forthcoming within ninety (90) days and
shall, in fact, deliver such reply within such period. The Company may,
however, extend the reply period for an additional ninety (90) days for
reasonable cause.
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<PAGE>
If the claim is denied in whole or in part,
the Company shall adopt a written opinion, using language
calculated to be understood by the Claimant, setting forth:
(a) the specific reason or reasons for such denial; (b) the
specific reference to pertinent provisions of this Agreement on
which such denial is based; (c) a description of any additional
material or information necessary for the Claimant to perfect his
or her claim and an explanation why such material or such
information is necessary; (d) appropriate information as to the
steps to be taken if the Claimant wishes to submit the claim for
review; and (e) the time limits for requesting a review under
subsection (3) and for review under subsection (4) hereof.
(3) Request for Review.
Within sixty (60) days after the receipt by the Claimant of
the written opinion described above, the Claimant may request in
writing that the Secretary of the Company review the
determination of the Company. Such request must be addressed to
the Secretary of the Company, at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the pertinent documents
and submit issues and comments in writing for consideration by
the Company. If the Claimant does not request a review of the
Company's determination by the Secretary of the Company within
such sixty (60) day period, he or she shall be barred and
estopped from challenging the Company's determination.
(4) Review of Decision
Within sixty (60) days after the Secretary's receipt of a
request for review, he or she will review the Company's
determination. After considering all materials presented by the
Claimant, the Secretary will render a written opinion, written in
a manner calculated to be understood by the Claimant, setting
forth the specific reasons for the decision and containing
specific references to the pertinent
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<PAGE>
provisions of this Agreement on which the decision is based. If
special circumstances require that the sixty (60) day time period
be extended, the Secretary will so notify the Claimant and will
render the decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the request for
review.
13. Amendment. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated except as
provided herein.
14. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns, and the Executive,
his successors, assigns, heirs, executors, administrators and beneficiaries.
15. Notices. Any notice, consent or demand required or permitted
to be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice, consent
or demand is mailed to a party hereto, it shall be sent by United States
certified mail, postage prepaid, addressed to such party's last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of notice, consent or demand.
16. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, on the day and year first above written.
MIAMI COMPUTER SUPPLY, INC.
By:___________________________
Title:________________________
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<PAGE>
ATTEST:
_________________________________
Secretary
_____________________________
"Executive"
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<PAGE>
EXHIBIT A
The following life insurance policy is subject to the attached
Split-Dollar Agreement:
Insurer: Security Life, Denver, Colorado
Insured: ROGER E. TURVY
Policy Number: 1070676
Face Amount: $1,050,000
Date of Issue: 07/15/95
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<PAGE>
EXHIBIT B
IRREVOCABLE ASSIGNMENT OF SPLIT-DOLLAR AGREEMENT
THIS ASSIGNMENT, dated this ____ day of ________________, 19___,
WITNESSETH THAT:
WHEREAS, the undersigned (the "Assignor") is the Executive party to
that certain Split-Dollar Agreement (the "Agreement"), dated _____________,
19____, by and between the undersigned and ________________________, (the
"Company"), which Agreement confers upon the undersigned certain rights and
benefits with regard to one or more policies of insurance insuring the
Assignor's life; and
WHEREAS, pursuant to the provisions of said Agreement, the assignor
retained the right, exercisable by the execution and delivery to the Company of
a written form of assignment, to absolutely and irrevocably assign all of the
Assignor's right, title and interest in and to said Agreement to an assignee;
and
WHEREAS, the Assignor desires to exercise said right;
NOW, THEREFORE, the Assignor, without consideration, and intending to
make a gift, hereby absolutely and irrevocably assigns, gives, grants and
transfers to _________________________, (the "Assignee") all of the Assignor's
right, title and interest in and to the Agreement and said policies of
insurance, intending that, from and after this date, the Agreement be solely
between the Company and the Assignee and that hereafter the Assignor shall
neither have nor retain any right, title or interest therein.
____________________________
Assignor
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<PAGE>
ACCEPTANCE OF ASSIGNMENT
The undersigned Assignee hereby accepts the above assignment of all
right, title and interest of the Assignor therein in and to the Agreement, by
and between such Assignor and the Company, and the undersigned hereby agrees to
be bound by all of the terms and conditions of said Agreement, as if the
original employee party thereto.
____________________________
Assignee
Dated:__________________________
CONSENT TO ASSIGNMENT
The undersigned Company hereby consents to the foregoing assignment of
all of the right, title and interest of the Assignor in and to the Agreement, by
and between the Assignor and the Company, to the Assignee designated therein.
The undersigned Company hereby agrees that, from and after the date hereof, the
undersigned Company shall look solely to such Assignee for the performance of
all obligations under said Agreement which were heretofore the responsibility of
the Assignor, shall allow all rights and benefits provided therein to the
Assignor to be exercised only by said Assignee, and shall hereafter treat said
Assignee in all respects as if the original employee party thereto.
MIAMI COMPUTER SUPPLY, INC.
By:__________________________________
Title:_______________________________
Date:________________________
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PITTSBURGH INVESTMENT GROUP LLC
Birmingham Towers, Suite 701
2100 Wharton Street
Pittsburgh, Pennsylvania 15203
May 30, 1996
Mr. Albert L. Schwarz
President
Miami Computer Supply, Inc.
3884 Indian Ripple Road
Dayton, Ohio 45440
Dear Mr. Schwarz:
The purpose of this letter is to confirm the understanding relative to the
Security Life of Denver Split-Dollar Insurance currently in effect on certain
members of the MCSI Executive Group. Changes to the policies will occur as
follows:
1. Net death benefit ownership will be in the name of the Insured.
2. Premiums will continue to be paid by the Company.
3. Company will pay PS-58 plus 40% tax gross-up to Executive to cover
Executive's costs of PS-58 premium.
4. At age 65, the Executive will have the option to purchase said policy from
the Company for the cash surrender value on the Company books and records.
5. The American Mutual Life Insurance Policy will remain in the ownership of the
Company and the Beneficiary will remain the Company.
Management will work with the Field Underwriters Agency, Inc. or amend the
Split-Dollar Agreement to make the above changes at its earliest convenience.
Very truly yours,
/s/ Anthony W. Liberati
Anthony W. Liberati
Manager - President and Chief Executive Officer
Pittsburgh Investment Group LLC
Attachment
EXHIBIT 10.23
MIAMI COMPUTER SUPPLY CORPORATION
1996 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Miami Computer Supply Corporation (the "Corporation") hereby establishes
this 1996 Stock Option Plan (the "Plan") upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation by providing Employees with a proprietary interest in the
Corporation as an incentive to contribute to the success of the Corporation, and
rewarding those Employees for outstanding performance and the attainment of
targeted goals. All Incentive Stock Options issued under this Plan are intended
to comply with the requirements of Section 422 of the Code, and the regulations
thereunder, and all provisions hereunder shall be read, interpreted and applied
with that purpose in mind.
ARTICLE III
DEFINITIONS
3.01 "Board" means the Board of Directors of the Corporation.
3.02 "Code" means the Internal Revenue Code of 1986, as amended.
3.03 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof, none of whom shall be an Officer or
Employee of the Corporation, and each of whom shall be a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act, or any successor
thereto.
3.04 "Common Stock" means shares of the common stock, no par value per
share, of the Corporation.
3.05 "Disability" means any physical or mental impairment which
qualifies an Employee for disability benefits under the applicable long-term
disability plan maintained by the Corporation or, if no such plan applies, which
would qualify such Employee for disability benefits under the Federal Social
Security System.
3.06 "Effective Date" means the date upon which the Board approves this
Plan.
3.07 "Employee" means any person who is employed by the Corporation.
<PAGE>
3.08 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.09 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Option is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
mean between the high bid and low asked prices that day on the principal market
then in use, or if no such quotations are available, the fair market value on
the date in question of a share as determined by a majority of the Board in good
faith.
3.10 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.11 "Offering" means the initial public offering of Common Stock of the
Corporation as of _________ __, 1996.
3.12 "Officer" means an Employee whose position in the Corporation is
that of a corporate officer, as determined by the Board.
3.13 "Option" means a right granted under this Plan to purchase Common
Stock.
3.14 "Optionee" means an Employee or former Employee to whom an Option
is granted under the Plan.
3.15 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation.
3.16 "Stock Option Agreement" means the written agreement pursuant to
Section 8.01 hereof that sets forth the terms, conditions, restrictions and
privileges for an Incentive Stock Option.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority in its absolute
discretion to adopt, amend and rescind such rules, regulations and procedures
as, in its opinion, may be advisable in the administration of the Plan,
including, without limitation, rules, regulations and procedures which (i) deal
with satisfaction of an Optionee's tax withholding obligation pursuant to
Section 12.02 hereof, (ii) include arrangements to facilitate the Optionee's
ability to borrow funds for payment of the exercise or purchase price of an
Option, if applicable, from
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<PAGE>
securities brokers and dealers, and (iii) include arrangements which provide for
the payment of some or all of such exercise or purchase price by delivery of
previously-owned shares of Common Stock or other property and/or by withholding
some of the shares of Common Stock which are being acquired. The interpretation
and construction by the Committee of any provisions of the Plan, any rule,
regulation or procedure adopted by it pursuant thereto or of any Option shall be
final and binding.
4.02 Appointment and Operation of the Committee. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, none of whom shall be an officer or employee of the
Corporation, and each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3 under the Exchange Act. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary. The Committee shall report its actions and
decisions to the Board at the next regularly scheduled meeting of the Board
following each meeting of the Committee.
4.03 Revocation for Misconduct. The Committee may by resolution
immediately revoke, rescind and terminate any Option, or portion thereof, to the
extent not yet vested, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Corporation for cause, which,
for purposes hereof, shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses).
4.04 Limitation on Liability. No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan, any
rule, regulation or procedure adopted by it pursuant thereto or any Options
granted under it. If a member of the Committee is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, by reason
of anything done or not done by him in such capacity under or with respect to
the Plan, the Corporation shall indemnify him to the extent permitted by the
Corporation's Amended and Restated Articles of Incorporation and Code of
Regulations and by Ohio General Corporation Law.
4.05 Compliance with Law and Regulations. All Options granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with
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<PAGE>
respect to such shares under any Federal or state law or any rule or regulation
of any government body, which the Corporation shall, in its sole discretion,
determine to be necessary or advisable. Moreover, no Option may be exercised if
such exercise would be contrary to applicable laws and regulations.
4.06 Restrictions on Transfer. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Option granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Options may be granted to such Employees of the Corporation as may be
designated from time to time by the Committee, pursuant to guidelines, if any,
which may be adopted by the Committee from time to time.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 Option Shares. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 250,000 shares of Common Stock. None of such shares shall
be the subject of more than one Option at any time, but if an Option as to any
shares is surrendered before exercise, or expires or terminates for any reason
without having been exercised in full, or for any other reason ceases to be
exercisable, the number of shares covered thereby shall again become available
for grant under the Plan as if no Options had been previously granted with
respect to such shares.
6.02 Source of Shares. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
ARTICLE VII
DETERMINATION OF
OPTIONS, NUMBER OF SHARES, ETC.
The Committee shall, in its discretion, determine from time to time
which Employees will be granted Options under the Plan, the number of shares of
Common Stock subject to each Option, and the exercise price of an Option. In
making all such determinations there shall be taken into account the duties,
responsibilities and performance of each respective Employee, his present and
potential contributions to the growth and success of the
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<PAGE>
Corporation, his salary and such other factors as the Committee shall deem
relevant to accomplishing the purposes of the Plan.
ARTICLE VIII
OPTIONS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 Stock Option Agreement. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price and such other terms, conditions, restrictions and privileges as
the Committee in each instance shall deem appropriate, provided they are not
inconsistent with the terms, conditions and provisions of this Plan. Each
Optionee shall receive a copy of his executed Stock Option Agreement.
8.02 Option Exercise Price. The per share price at which the subject
Common Stock may be purchased upon exercise of an Incentive Stock Option shall
be no less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted, except as
provided in Section 8.09(b).
8.03 Vesting and Exercise of Options
(a) General Rules. Incentive Stock Options granted to Employees
shall become vested and exercisable at the rate, to the extent and subject to
such limitations as may be specified by the Committee, provided, however, that
in the case of any Option exercisable within the first six months following the
date the Option is granted, the shares of Common Stock received upon the
exercise of such Option may not be sold or disposed of by the Optionee for the
first six months following the date of grant. Notwithstanding the foregoing, no
vesting shall occur on or after an Employee's employment with the Corporation is
terminated for any reason other than his death, Disability or Retirement. In
determining the number of shares of Common Stock with respect to which Options
are vested and/or exercisable, fractional shares will be rounded up to the
nearest whole number if the fraction is 0.5 or higher, and down if it is less.
(b) Vesting Upon Termination of Employment, Death, Disability or
Retirement. Unless the Committee shall specifically state otherwise at the time
an Option is granted, only those Options granted to Employees under this Plan
which are vested and exercisable on the date an Optionee terminates his
employment with the Corporation because of his termination of employment under
certain circumstances as set forth in the Optionee's Stock Option Agreement, or
because of his death, Disability or Retirement shall be vested and exercisable
by the Optionee thereafter as set forth in Section 8.04.
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<PAGE>
(c) Accelerated Vesting for Changes in Control. Notwithstanding
the general rule described in Section 8.03(a), all outstanding Options shall
become immediately vested and exercisable in the event there is a change in
control of the Corporation. A "change in control of the Corporation" for this
purpose shall mean a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act, or any successor thereto, whether or not the Corporation
in fact is required to comply with Regulation 14A thereunder.
8.04 Duration of Options.
(a) General Rule. Except as provided in Sections 8.04(b) and
8.09, each Option granted to Employees shall be exercisable at any time on or
after it vests and becomes exercisable until the earlier of (i) ten (10) years
after its date of grant or (ii) three (3) months after the date on which the
Optionee ceases to be employed by the Corporation, unless the Committee in its
discretion decides at the time of grant or thereafter to extend such period of
exercise upon termination of employment from three (3) months to a period not
exceeding five (5) years.
(b) Exception for Termination Due to Death, Disability or
Retirement. If an Employee dies while in the employ of the Corporation or
terminates employment with the Corporation as a result of Disability or
Retirement without having fully exercised his Options, the Optionee or his legal
representative or guardian, or the executors, administrators, legatees or
distributees of his estate shall have the right, during the twelve-month period
following the earlier of his death, Disability or Retirement, to exercise such
Options to the extent vested on the date of such death, Disability or
Retirement. In no event, however, shall any Option be exercisable within six (6)
months after the date of grant or more than ten (10) years from the date it was
granted.
8.05 Nonassignability. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative.
8.06 Manner of Exercise. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 Payment for Shares. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall be
made to the Corporation upon exercise of the Option. All shares sold under the
Plan shall be fully paid and nonassessable. Payment for shares may be made by
the Optionee in cash or, at the discretion of the Committee, by delivering
shares of Common Stock (including shares acquired pursuant to the exercise of an
Option) or other property equal in Fair Market Value to the purchase price of
the shares to be acquired pursuant to the Option, by
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<PAGE>
withholding some of the shares of Common Stock which are being purchased upon
exercise of an Option, or any combination of the foregoing.
8.08 Voting and Dividend Rights. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 Additional Terms Applicable to Incentive Stock Options. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 8.01 to 8.08 above, to those contained in this
Section 8.09.
(a) $100,000 Limitation. Notwithstanding any contrary provisions
contained elsewhere in this Plan and as long as required by Section 422 of the
Code, the aggregate Fair Market Value, determined as of the time an Incentive
Stock Option is granted, of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year, under this Plan and stock options that satisfy the requirements
of Section 422 of the Code under any other stock option plan or plans maintained
by the Corporation, shall not exceed $100,000.
(b) Limitation on Ten Percent Stockholders. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation, shall be no less than one hundred and ten percent (110%) of the
Fair Market Value of a share of the Common Stock of the Corporation at the time
of grant, and such Incentive Stock Option shall by its terms not be exercisable
after the earlier of the date determined under Section 8.03 or the expiration of
five (5) years from the date such Incentive Stock Option is granted.
(c) Notice of Disposition; Withholding; Escrow. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition of any shares of Common Stock acquired through exercise of
an Incentive Stock Option, within two (2) years after the grant of such
Incentive Stock Option or within one (1) year after the acquisition of such
shares, setting forth the date and manner of disposition, the number of shares
disposed of and the price at which such shares were disposed. The Corporation
shall be entitled to withhold from any compensation or other payments then or
thereafter due to the Optionee such amounts as may be necessary to satisfy any
withholding requirements of Federal or state law or regulation and, further, to
collect from the Optionee any additional amounts which may be required for such
purpose. The Committee may, in its discretion, require shares of Common Stock
acquired by an Optionee upon exercise of an Incentive Stock Option to be held in
an escrow arrangement for the purpose of enabling compliance with the provisions
of this Section 8.09(c).
- 7 -
<PAGE>
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any Option relates and the
exercise price per share of Common Stock under any Option shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
this Plan resulting from a split, subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation, the shares of the Corporation's
Common Stock shall be exchanged for other securities of the Corporation or of
another corporation, each recipient of an Option shall be entitled, subject to
the conditions herein stated, to purchase or acquire such number of shares of
Common Stock or amount of other securities of the Corporation or such other
corporation as were exchangeable for the number of shares of Common Stock of the
Corporation which such optionees would have been entitled to purchase or acquire
except for such action, and appropriate adjustments shall be made to the per
share exercise price of outstanding Options.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Options have not been
granted, subject to any required stockholder approval or any stockholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the holder of an
Option, alter or impair any Option previously granted or awarded under this Plan
as specifically authorized herein.
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Options hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create any
right on the part of any Employee of the Corporation to continue in such
capacity.
- 8 -
<PAGE>
ARTICLE XII
WITHHOLDING
12.01 Tax Withholding. The Corporation may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash payment is
insufficient, the Corporation may require the Optionee to pay to the Corporation
the amount required to be withheld as a condition to delivering the shares
acquired pursuant to an Option. The Corporation also may withhold or collect
amounts with respect to a disqualifying disposition of shares of Common Stock
acquired pursuant to exercise of an Incentive Stock Option, as provided in
Section 8.09(c).
12.02 Methods of Tax Withholding. The Committee is authorized to adopt
rules, regulations or procedures which provide for the satisfaction of an
Optionee's tax withholding obligation by the retention of shares of Common Stock
to which the Employee would otherwise be entitled pursuant to an Option and/or
by the Optionee's delivery of previously-owned shares of Common Stock or other
property.
ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 Effective Date of the Plan. This Plan shall become effective on
the Effective Date, and Options may be granted hereunder as of or after the
Effective Date and prior to the termination of the Plan, provided that no
Incentive Stock Option issued pursuant to this Plan shall qualify as such unless
this Plan is approved by the requisite vote of the holders of the outstanding
voting shares of the Corporation at a meeting of stockholders of the Corporation
held within twelve (12) months before or after the Effective Date.
13.02 Term of Plan. Unless sooner terminated, this Plan shall remain in
effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Options previously
granted and such Options shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
MISCELLANEOUS
14.01 Governing Law. To the extent not governed by Federal law, this
Plan shall be construed under the laws of the State of Ohio.
- 9 -
<PAGE>
14.02 Pronouns. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
- 10 -
EXHIBIT 10.24
MIAMI COMPUTER SUPPLY CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of the Plan. Under this Non-Employee Director Stock Option
Plan (the "Director Plan") of Miami Computer Supply Corporation, an Ohio
corporation (the "Company"), options may be granted to eligible persons, as set
forth in Section 4, to purchase shares of the Company's common stock, no par
value per share ("Common Stock"). This Director Plan is designed to promote the
long-term growth and financial success of Miami Computer Supply Corporation by
enabling the Company to attract, retain and motivate such persons serving on the
Company's Board of Directors by providing for or increasing their proprietary
interest in the Company.
2. Effective Date. This Director Plan shall be in effect commencing on
the date of closing of the initial public offering of the Company's Common
Stock, subject to approval by the Company's stockholders. Options may not be
granted more than ten years after the date of stockholder approval of this
Director Plan or termination of this Director Plan by the Board of Directors of
the Company (the "Board"), whichever is earlier.
3. Plan Operation. This Director Plan is intended to meet the
requirements of Rule 16b-3(c)(2)(ii) adopted under the Securities Exchange Act
of 1934 (or its successor) and accordingly is intended to be self-governing. To
this end, this Director Plan requires no discretionary action by any
administrative body with regard to any transaction under this Director Plan. To
the extent, if any, that any questions of interpretation arise, such questions
shall be resolved by the Board.
4. Eligible Persons. The persons eligible to receive a grant of
non-qualified stock options hereunder are any Director of the Board who on the
date of said grant is not an employee of the Company or a subsidiary of the
Company. For purposes of this Section 4, a person shall not be considered an
employee solely by reason of serving as Chairman of the Board.
5. Stock Subject to Director Plan. The maximum number of shares that may
be subject to options granted hereunder shall be 100,000 shares of Common Stock,
subject to adjustments under Section 6. Shares of Common Stock subject to the
unexercised portions of any options granted under this Director Plan which
expire, terminate or are cancelled may again be subject to options under this
Director Plan.
6. Adjustments. If the outstanding shares of stock of the class then
subject to this Director Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends, spin-offs and the like, appropriate adjustments shall
be made in the price, number and/or type of shares or securities for which
options may thereafter be granted under this Director Plan and for which options
then outstanding under this Director Plan may thereafter be exercised. Any
<PAGE>
Miami Computer Supply International, Inc.
Non-Employee Director Stock Option Plan
Page 2
such adjustments in outstanding options shall be made without changing the
aggregate exercise price applicable to the unexercised portions of such options.
7. Stock Options. Commencing on the date of the first annual meeting of
the Company's shareholders following the closing of the initial public offering
of this Company's Common Stock, each person who is then a non-employee director
of the Board immediately following such meeting will be automatically granted a
non-qualified option to purchase 15,000 shares of the Company's Common Stock,
which options will vest in 5,000 share increments over a three year period
(5,000 of which will vest immediately, 5,000 of which will vest upon the date of
the second annual meeting following the closing of the initial public offering
and 5,000 of which will vest upon the date of the third annual meeting following
the initial public offering), subject however, to the immediate vesting of all
such options should the Company engage in a Business Combination, as defined in
Article X of the Company's Amended and Restated Articles of Incorporation.
Commencing on the date of the second annual meeting of the Company's
shareholders to be held following the closing of the initial public offering of
this Company's Common Stock, and on the date of each annual meeting of the
Company's shareholders thereafter, each person who is a non-employee director of
the Board immediately following each such annual meeting, other than the
non-employee directors who received the 15,000 options each granted after the
date of the first annual meeting of shareholders following the closing of the
initial public offering, will be automatically granted a non-qualified stock
option to purchase 5,000 shares of the Company's Common Stock, not to exceed
15,000 shares for any such director. The per share exercise price of each option
will be the fair market value of a share of the Company's Common Stock on the
date of grant, defined as the closing price of the Company's Common Stock on the
Nasdaq National Market (or such other securities market on which the Company's
Common Stock is primarily traded) on such date. Each option will have a term of
ten years and except for the options granted on the date of the first annual
meeting of shareholders following the closing of the initial public offering,
shall become immediately exercisable in full on the date of grant. If on any
date upon which options are to be granted under this Director Plan the number of
shares of Common Stock remaining available under the Director Plan are less than
the number of shares required for all grants to be made on such date, then
options to purchase a proportionate amount of such available number of shares of
Common Stock shall be granted to each eligible non-employee director.
8. Documentation of Grants. Awards made under this Director Plan shall
be evidenced by written agreements or such other appropriate documentation as
the Board shall prescribe. The Board need not require the execution of any
instrument or acknowledgement of notice of an award under this Director Plan, in
which case acceptance of such award by the respective optionee will constitute
agreement to the terms of the award.
9. Nontransferability. Any option granted under this Director Plan
shall by its terms be nontransferable by the optionee otherwise than by will or
the laws of descent and distribution, and shall be exercisable, during the
optionee's lifetime, only by the optionee.
10. Amendment and Termination. The Board may alter, amend, suspend, or
terminate this Director Plan, provided that no such action shall deprive any
optionee, without his consent, of any option granted to the optionee pursuant to
this Director Plan or of any of his rights under such option and provided
further that the provisions of this Director Plan designating persons eligible
to participate in the Director Plan and specifying
<PAGE>
Miami Computer Supply International, Inc.
Non-Employee Director Stock Option Plan
Page 3
the amount, exercise price and timing of grants under the Director Plan shall
not be amended more than once every six months other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules thereunder.
11. Termination of Directorship. All options granted hereunder and held
by non-employee directors as of the date of cessation of service as a director
may be exercised by the non-employee director or his heirs or legal
representatives until the earlier of the tenth anniversary of the date of grant
or the expiration of twelve months after the date of cessation of such service.
12. Manner of Exercise. All or a portion of an exercisable option shall
be deemed exercised upon delivery to the Secretary of the Company at the
Company's principal office of all of the following: (i) a written notice of
exercise specifying the number of shares to be purchased signed by the
non-employee director or other person then entitled to exercise the option,
(ii) full payment of the exercise price for such shares by any of the
following or combination thereof: (a) cash, (b) certified or cashier's check
payable to the order of the Company, (c) the delivery of whole shares of the
Company's Common Stock owned by the option holder, or (d) by requesting that the
Company withhold whole shares of Company Common Stock then issuable upon
exercise of the option (for purposes of such a transaction the value of shares
of the Company's Common Stock shall be the closing price of the Company's Common
Stock on the Nasdaq National Market (or such other securities market on which
the Company's Common Stock is primarily traded) on such date), (iii) such
representations and documents as the Board, in its sole discretion, deems
necessary or advisable to effect compliance with all applicable provisions of
the Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations, (iv) in the event that the option shall be
exercised by any person or persons other than the non-employee director,
appropriate proof of the right of such person or persons to exercise the option,
and (v) such representations and documents as the Board, in its sole discretion,
deems necessary or advisable.
13. Compliance with Law. Common Stock shall not be issued upon exercise
of an option granted under this Director Plan unless and until counsel for the
Company shall be satisfied that any conditions necessary for such issuance to
comply with applicable federal, state or local tax, securities or other laws or
rules or applicable securities exchange requirements have been fulfilled.
Exhibit 21
Subsidiaries of Registrant
Name Jurisdiction of Incorporation Business Name
- ------------------------------- ----------------------------- --------------
Diversified Data Products, Inc. Michigan, USA Same as Name
Diversified Data Products United Kingdom Same as Name
(U.K.), Ltd.
CEM (Overseas) Limited British Virgin Islands Same as Name
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 21, 1996, except
as to the recapitalization and stock split described in Note 17 which is as of
September 25, 1996, relating to the consolidated financial statements of Miami
Computer Supply Corporation, which appears in such Prospectus and of our report
dated July 31, 1996 relating to the consolidated financial statements of
Diversified Data Products, Inc., which appears in such Prospectus. We also
consent to the references to us under the heading "Experts", "Summary Financial
and Operating Data", and "Selected Consolidated Financial and Operating Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Summary Financial and Operating Data" or "Selected
Consolidated Financial and Operating Data."
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
September 25, 1996
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